ASSOCIATED BANC-CORP - Quarter Report: 2020 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2020


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the transition period from to

Commission file number: 001-31343

Associated Banc-Corp

(Exact name of registrant as specified in its charter)


Wisconsin									39-1098068
(State or other jurisdiction of incorporation or organization)									(I.R.S. Employer Identification No.)


433 Main Street
Green Bay,	Wisconsin	54301
(Address of principal executive offices)		(Zip Code)

(920) 491-7500

(Registrant’s telephone number, including area code)

(not applicable)

(Former name, former address and former fiscal year, if changed since last report)

Securities Registered Pursuant to Section 12(b) of the act:


Title of each class	Trading symbol	Name of each exchange on which registered
Common stock, par value $0.01 per share	ASB	New York Stock Exchange
Depositary Shrs, each representing 1/40th intrst in a shr of 6.125% Non-Cum. Perp Pref Stock, Srs C	ASB PrC	New York Stock Exchange
Depositary Shrs, each representing 1/40th intrst in a shr of 5.375% Non-Cum. Perp Pref Stock, Srs D	ASB PrD	New York Stock Exchange
Depositary Shrs, each representing 1/40th intrst in a shr of 5.875% Non-Cum. Perp Pref Stock, Srs E	ASB PrE	New York Stock Exchange
Depositary Shrs, each representing 1/40th intrst in a shr of 5.625% Non-Cum. Perp Pref Stock, Srs F	ASB PrF	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑

APPLICABLE ONLY TO CORPORATE ISSUERS:

The number of shares outstanding of registrant’s common stock, par value $0.01 per share, at October 27, 2020 was 153,589,914.


ASSOCIATED BANC-CORP
Table of Contents


		Page
PART I. Financial Information

	Item 1. Financial Statements (Unaudited):	5

	Consolidated Balance Sheets	5

	Consolidated Statements of Income	6

	Consolidated Statements of Comprehensive Income	7

	Consolidated Statements of Changes in Stockholders’ Equity	8

	Consolidated Statements of Cash Flows	10

	Notes to Consolidated Financial Statements	12

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	57

	Item 3. Quantitative and Qualitative Disclosures About Market Risk	86

	Item 4. Controls and Procedures	86

PART II. Other Information

	Item 1. Legal Proceedings	87

	Item 1A. Risk Factors	86

	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	89

	Item 6. Exhibits	91

	Signatures	92


ASSOCIATED BANC-CORP
Commonly Used Acronyms and Abbreviations
The following listing provides a reference of common acronyms and abbreviations used throughout the document:


ABRC			Associated Benefits & Risk Consulting, the Corporation's insurance division which was sold on June 30, 2020
ABS			Asset Backed Securities
ACL			Allowance for Credit Losses on Loans and Investments
ACLL			Allowance for Credit Losses on Loans

ALCO			Asset / Liability Committee
ASC			Accounting Standards Codification
Associated / Corporation / our / us / we			Associated Banc-Corp collectively with all of its subsidiaries and affiliates
Associated Bank / the Bank			Associated Bank, National Association
ASU			Accounting Standards Update

Basel III			International framework established by the Basel Committee on Banking Supervision for the regulation of capital and liquidity
bp			basis point(s)
CARES Act			Coronavirus Aid, Relief, and Economic Security Act
CDs			Certificates of Deposit
CDIs			Core Deposit Intangibles
CECL			Current Expected Credit Losses
CET1			Common Equity Tier 1

CMO			Collateralized Mortgage Obligation
CRA			Community Reinvestment Act

EAR			Earnings at Risk

Exchange Act			Securities Exchange Act of 1934, as amended
FASB			Financial Accounting Standards Board
FDIC			Federal Deposit Insurance Corporation
Federal Reserve			Board of Governors of the Federal Reserve System
FFELP			Federal Family Education Loan Program
FHLB			Federal Home Loan Bank
FHLMC			Federal Home Loan Mortgage Corporation
FICO			Fair Isaac Corporation, provider of a broad-based risk score to aid in credit decisions
First Staunton			First Staunton Bancshares, Incorporated
FNMA			Federal National Mortgage Association
FOMC			Federal Open Market Committee
FTP			Funds Transfer Pricing
GAAP			Generally Accepted Accounting Principles
GNMA			Government National Mortgage Association
GSEs			Government-Sponsored Enterprises
Huntington			The Huntington National Bank, a subsidiary of Huntington Bancshares Incorporated


LIBOR			London Interbank Offered Rate
LTV			Loan-to-Value
MBS			Mortgage-Backed Securities
MSLP			Main Street Lending Program
MSRs			Mortgage Servicing Rights


MVE			Market Value of Equity
Net Free Funds			Noninterest-bearing sources of funds
NII			Net Interest Income
NPAs			Nonperforming Assets
OCC			Office of the Comptroller of the Currency

OREO			Other Real Estate Owned
Parent Company			Associated Banc-Corp individually
PCD			Purchased Credit Deteriorated
PPP			Paycheck Protection Program
PPPLF			Paycheck Protection Program Liquidity Facility
RAP			Retirement Account Plan - the Corporation's noncontributory defined benefit retirement plan
Restricted Stock Awards			Restricted common stock and restricted common stock units to certain key employees
S&P			Standard & Poor's
SBA			Small Business Administration
SEC			U.S. Securities and Exchange Commission
Series C Preferred Stock			The Corporation's 6.125% Non-Cumulative Perpetual Preferred Stock, Series C, liquidation preference $1,000 per share
Series D Preferred Stock			The Corporation's 5.375% Non-Cumulative Perpetual Preferred Stock, Series D, liquidation preference $1,000 per share
Series E Preferred Stock			The Corporation's 5.875% Non-Cumulative Perpetual Preferred Stock, Series E, liquidation preference $1,000 per share
Series F Preferred Stock			The Corporation's 5.625% Non-Cumulative Perpetual Preferred Stock, Series F, liquidation preference $1,000 per share

TDR			Troubled Debt Restructuring
USI			USI Insurance Services LLC
YTD			Year-to-Date

Table of Contents


PART I - FINANCIAL INFORMATION

ITEM 1.			Financial Statements:

ASSOCIATED BANC-CORP

Consolidated Balance Sheets


	September 30, 2020		December 31, 2019
(In Thousands, except share and per share data)	(Unaudited)		(Audited)
Assets
Cash and due from banks	$	401,151	$	373,380
Interest-bearing deposits in other financial institutions	712,416		207,624
Federal funds sold and securities purchased under agreements to resell	95		7,740
Investment securities held to maturity, net, at amortized cost(a)	1,990,870		2,205,083
Investment securities available for sale, at fair value	3,258,360		3,262,586
Equity securities	15,090		15,090
Federal Home Loan Bank and Federal Reserve Bank stocks, at cost	168,280		227,347
Residential loans held for sale	130,139		136,280
Commercial loans held for sale	19,360		15,000
Loans	25,003,753		22,821,440
Allowance for loan losses(a)	(384,711)		(201,371)
Loans, net	24,619,041		22,620,068
Bank and corporate owned life insurance	679,257		671,948
Tax credit and other investments	314,066		279,969

Premises and equipment, net	422,222		435,284
Goodwill	1,107,902		1,176,230
Mortgage servicing rights, net	45,261		67,306
Other intangible assets, net	70,507		88,301

Interest receivable	91,612		91,196
Other assets	653,117		506,046
Total assets	$	34,698,746	$	32,386,478
Liabilities and Stockholders' Equity
Noninterest-bearing demand deposits	$	7,489,048	$	5,450,709
Interest-bearing deposits	19,223,500		18,328,355
Total deposits	26,712,547		23,779,064
Federal funds purchased and securities sold under agreements to repurchase	155,329		433,097
Commercial paper	50,987		32,016
PPPLF	1,022,217		—
FHLB advances	1,706,763		3,180,967
Other long-term funding	549,201		549,343

Allowance for unfunded commitments(a)	57,276		21,907
Accrued expenses and other liabilities(a)	398,991		467,961
Total liabilities	30,653,313		28,464,355
Stockholders’ Equity
Preferred equity	353,637		256,716
Common equity
Common stock	1,752		1,752
Surplus	1,717,186		1,716,431
Retained earnings(a)	2,424,992		2,380,867
Accumulated other comprehensive income (loss)	3,995		(33,183)
Treasury stock, at cost	(456,129)		(400,460)
Total common equity	3,691,796		3,665,407
Total stockholders’ equity	4,045,433		3,922,124
Total liabilities and stockholders’ equity	$	34,698,746	$	32,386,478
Preferred shares authorized (par value $1.00 per share)	750,000		750,000
Preferred shares issued and outstanding	364,458		264,458
Common shares authorized (par value $0.01 per share)	250,000,000		250,000,000
Common shares issued	175,216,409		175,216,409
Common shares outstanding	153,551,692		157,171,247

Numbers may not sum due to rounding.

(a) See Note 3 Summary of Significant Accounting Policies for additional details on the adoption of ASU 2016-13.

See accompanying notes to consolidated financial statements.

Table of Contents

Item 1. Financial Statements Continued:

ASSOCIATED BANC-CORP

Consolidated Statements of Income (Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands, except per share data)	2020		2019		2020		2019
Interest income
Interest and fees on loans	$	182,625	$	248,579	$	599,306	$	768,216
Interest and dividends on investment securities
Taxable	13,689		23,485		50,064		79,248
Tax-exempt	14,523		14,491		44,021		42,950
Other interest	2,238		4,865		7,774		13,086
Total interest income	213,075		291,420		701,165		903,500
Interest expense
Interest on deposits	10,033		61,585		59,877		191,408
Interest on federal funds purchased and securities sold under agreements to repurchase	34		145		454		1,058
Interest on other short-term funding	5		30		46		113
Interest on PPPLF	899		—		1,574		—
Interest on FHLB advances	14,375		15,896		47,471		53,194
Interest on long-term funding	5,580		7,398		16,780		22,196
Total interest expense	30,925		85,054		126,201		267,969
Net interest income	182,150		206,365		574,964		635,532
Provision for credit losses	43,009		2,000		157,009		16,000
Net interest income after provision for credit losses	139,141		204,365		417,954		619,532
Noninterest income
Wealth management fees(a)	21,152		21,015		62,884		61,885
Service charges and deposit account fees	14,283		16,561		40,989		47,102
Card-based fees	10,195		10,456		28,685		29,848
Other fee-based revenue	4,968		5,085		14,240		14,246
Capital markets, net	7,222		4,300		22,067		12,215
Mortgage banking, net	12,636		10,940		31,043		25,118
Bank and corporate owned life insurance	3,074		4,337		9,793		11,482
Insurance commissions and fess	114		20,954		45,153		69,403
Asset gains (losses), net(b)	(339)		877		156,945		2,316
Investment securities gains (losses), net	7		3,788		9,222		5,931
Other	2,232		2,537		7,321		8,344
Total noninterest income	75,545		100,850		428,342		287,890
Noninterest expense
Personnel	108,567		123,170		334,117		366,449
Technology	19,666		20,572		61,639		59,698
Occupancy	17,854		15,164		48,386		45,466
Business development and advertising	3,626		7,991		13,007		21,284
Equipment	5,399		6,335		16,150		17,580
Legal and professional	5,591		5,724		15,809		14,342
Loan and foreclosure costs	2,118		1,638		8,842		5,599
FDIC assessment	3,900		4,000		14,650		12,250
Other intangible amortization	2,253		2,686		7,939		7,237
Acquisition related costs(c)	218		1,629		2,457		5,995
Loss on prepayments of FHLB advances	44,650		—		44,650		—
Other	13,745		12,021		35,537		34,479
Total noninterest expense	227,587		200,930		603,184		590,380
Income (loss) before income taxes	(12,900)		104,286		243,112		317,042
Income tax expense (benefit)	(58,114)		20,947		3,342		62,356
Net income	45,214		83,339		239,769		254,686
Preferred stock dividends	5,207		3,801		13,152		11,402
Net income available to common equity	$	40,007	$	79,539	$	226,618	$	243,285
Earnings per common share
Basic	$	0.26	$	0.50	$	1.47	$	1.49
Diluted	$	0.26	$	0.49	$	1.46	$	1.48
Average common shares outstanding
Basic	152,440		159,126		153,175		161,727
Diluted	153,194		160,382		153,914		163,061

Numbers may not sum due to rounding.

(a) Includes trust, asset management, brokerage, and annuity fees.

(b) The nine months ended September 30, 2020 includes a gain of $163 million from the sale of ABRC. The nine months ended September 30, 2019 includes less than $1 million of Huntington related asset losses.

See accompanying notes to consolidated financial statements.

Table of Contents

Item 1. Financial Statements Continued:

ASSOCIATED BANC-CORP

Consolidated Statements of Comprehensive Income (Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
($ in Thousands)	2020		2019		2020		2019

Net income	$	45,214	$	83,339	$	239,769	$	254,686
Other comprehensive income, net of tax
Investment securities available for sale
Net unrealized gains (losses)	5,840		33,173		53,900		123,139
Amortization of net unrealized (gains) losses on available for sale securities transferred to held to maturity securities	1,296		(8)		2,628		279
Reclassification adjustment for net losses (gains) realized in net income	(7)		(3,788)		(9,222)		(5,931)


Income tax (expense) benefit	(1,786)		(7,410)		(11,852)		(29,651)
Other comprehensive income (loss) on investment securities available for sale	5,342		21,967		35,454		87,836
Defined benefit pension and postretirement obligations
Amortization of prior service cost	(36)		(36)		(111)		(111)
Amortization of actuarial loss (gain)	1,313		229		2,923		357

Income tax (expense) benefit	(703)		(49)		(1,088)		(62)
Other comprehensive income (loss) on pension and postretirement obligations	573		144		1,724		184
Total other comprehensive income (loss)	5,916		22,111		37,178		88,020
Comprehensive income	$	51,130	$	105,450	$	276,948	$	342,706

Numbers may not sum due to rounding.

See accompanying notes to consolidated financial statements.

Table of Contents

Item 1. Financial Statements Continued:

ASSOCIATED BANC-CORP

Consolidated Statements of Changes in Stockholders’ Equity


(In Thousands, except per share data)	Preferred Equity		Common Stock		Surplus		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total
Balance, December 31, 2019	$	256,716	$	1,752	$	1,716,431	$	2,380,867	$	(33,183)	$	(400,460)	$	3,922,124
Cumulative effect of ASU 2016-13 adoption (CECL)	—		—		—		(98,337)		—		—		(98,337)
Total shareholder's equity at beginning of period, as adjusted	256,716		1,752		1,716,431		2,282,530		(33,183)		(400,460)		3,823,787
Comprehensive income
Net income	—		—		—		45,838		—		—		45,838
Other comprehensive income (loss)	—		—		—		—		16,209		—		16,209
Comprehensive income													62,046
Common stock issued
Stock-based compensation plans, net	—		—		(20,659)		—		—		23,555		2,896


Purchase of treasury stock, open market purchases	—		—		—		—		—		(71,255)		(71,255)
Purchase of treasury stock, stock-based compensation plans	—		—		—		—		—		(5,555)		(5,555)
Cash dividends
Common stock, $0.18 per share	—		—		—		(28,392)		—		—		(28,392)
Preferred stock(a)	—		—		—		(3,801)		—		—		(3,801)




Stock-based compensation expense, net	—		—		10,744		—		—		—		10,744




Balance, March 31, 2020	$	256,716	$	1,752	$	1,706,516	$	2,296,176	$	(16,974)	$	(453,714)	$	3,790,471

Comprehensive income:
Net income	—		—		—		148,718		—		—		148,718
Other comprehensive income (loss)	—		—		—		—		15,054		—		15,054
Comprehensive income													163,772
Common stock issued:
Stock-based compensation plans, net	—		—		1,523		—		—		(1,350)		173

Purchase of treasury stock, stock-based compensation plans	—		—		—		—		—		7		7
Cash dividends:
Common stock, $0.18 per share	—		—		—		(27,889)		—		—		(27,889)
Preferred stock(b)	—		—		—		(4,144)		—		—		(4,144)
Issuance of preferred stock	97,129		—		—		—		—		—		97,129
Stock-based compensation expense, net	—		—		4,939		—		—		—		4,939
Balance, June 30, 2020	$	353,846	$	1,752	$	1,712,978	$	2,412,859	$	(1,920)	$	(455,057)	$	4,024,457

Comprehensive income:
Net income	—		—		—		45,214		—		—		45,214
Other comprehensive income (loss)	—		—		—		—		5,916		—		5,916
Comprehensive income													51,130
Common stock issued:
Stock-based compensation plans, net	—		—		706		—		—		(610)		95

Purchase of treasury stock, stock-based compensation plans	—		—		—		—		—		(462)		(462)
Cash dividends:
Common stock, $0.18 per share	—		—		—		(27,875)		—		—		(27,875)
Preferred stock(c)	—		—		—		(5,207)		—		—		(5,207)
Issuance of preferred stock	(208)		—		—		—		—		—		(208)
Stock-based compensation expense, net	—		—		3,502		—		—		—		3,502
Balance, September 30, 2020	$	353,637	$	1,752	$	1,717,186	$	2,424,992	$	3,995	$	(456,129)	$	4,045,433

Numbers may not sum due to rounding.

(a) Series C, $0.3828125 per share; Series D, $0.3359375 per share; and Series E, $0.3671875 per share.

(b) Series C, $0.3828125 per share; Series D, $0.3359375 per share; Series E, $0.3671875 per share; and Series F, $0.0849931 per share.

(c) Series C, $0.3828125 per share; Series D, $0.3359375 per share; Series E, $0.3671875 per share; and Series F, $0.3515625 per share.

Table of Contents


(In Thousands, except per share data)	Preferred Equity		Common Stock		Surplus		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total
Balance, December 31, 2018	$	256,716	$	1,752	$	1,712,615	$	2,181,414	$	(124,972)	$	(246,638)	$	3,780,888
Comprehensive income
Net income	—		—		—		86,686		—		—		86,686
Other comprehensive income (loss)	—		—		—		—		21,597		—		21,597

Comprehensive income													108,283
Common stock issued
Stock-based compensation plans, net	—		—		(32,220)		—		—		39,265		7,045


Purchase of treasury stock, open market purchases	—		—		—		—		—		(29,999)		(29,999)
Purchase of treasury stock, stock-based compensation plans	—		—		—		—		—		(7,468)		(7,468)
Cash dividends
Common stock, $0.17 per share	—		—		—		(28,183)		—		—		(28,183)
Preferred stock(a)	—		—		—		(3,801)		—		—		(3,801)


Stock-based compensation expense, net	—		—		9,397		—		—		—		9,397


Other	—		—		—		(293)		—		—		(293)
Balance, March 31, 2019	$	256,716	$	1,752	$	1,689,792	$	2,235,824	$	(103,375)	$	(244,840)	$	3,835,870

Comprehensive income:
Net income	—		—		—		84,661		—		—		84,661
Other comprehensive income (loss)	—		—		—		—		44,311		—		44,311
Comprehensive income													128,972
Common stock issued:
Stock-based compensation plans, net	—		—		(211)		—		—		1,038		827


Purchase of treasury stock, open market purchases	—		—		—		—		—		(39,602)		(39,602)
Purchase of treasury stock, stock-based compensation plans	—		—		—		—		—		(831)		(831)
Cash dividends:
Common stock, $0.17 per share	—		—		—		(27,776)		—		—		(27,776)
Preferred stock(a)	—		—		—		(3,801)		—		—		(3,801)



Stock-based compensation expense, net	—		—		6,134		—		—		—		6,134

Balance, June 30, 2019	$	256,716	$	1,752	$	1,695,715	$	2,288,909	$	(59,063)	$	(284,235)	$	3,899,794

Comprehensive income:
Net income	—		—		—		83,339		—		—		83,339
Other comprehensive income (loss)	—		—		—		—		22,111		—		22,111
Comprehensive income													105,450
Common stock issued:
Stock-based compensation plans, net	—		—		12,561		—		—		(11,363)		1,198
Purchase of treasury stock, open market purchases	—		—		—		—		—		(59,999)		(59,999)
Purchase of treasury stock, stock-based compensation plans	—		—		—		—		—		(194)		(194)
Cash dividends:
Common stock, $0.17 per share	—		—		—		(27,289)		—		—		(27,289)
Preferred stock(a)	—		—		—		(3,801)		—		—		(3,801)
Stock-based compensation expense, net	—		—		5,696		—		—		—		5,696
Balance, September 30, 2019	$	256,716	$	1,752	$	1,713,971	$	2,341,158	$	(36,953)	$	(355,791)	$	3,920,855

Numbers may not sum due to rounding.

(a) Series C, $0.3828125 per share; Series D, $0.3359375 per share; and Series E, $0.3671875 per share.

See accompanying notes to consolidated financial statements.

Table of Contents

Item 1. Financial Statements Continued:

ASSOCIATED BANC-CORP

Consolidated Statements of Cash Flows (Unaudited)


	Nine Months Ended September 30,
($ in Thousands)	2020		2019
Cash Flow From Operating Activities
Net income	$	239,769	$	254,686
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Provision for credit losses	157,009		16,000
Depreciation and amortization	38,707		43,704
Addition to (recovery of) valuation allowance on mortgage servicing rights, net	18,481		177
Amortization of mortgage servicing rights	16,416		8,749
Amortization of other intangible assets	7,939		7,237
Amortization and accretion on earning assets, funding, and other, net	21,748		17,607
Net amortization of tax credit investments	18,988		15,512
Losses (gains) on sales of investment securities, net	(9,222)		(5,931)
Asset (gains) losses, net	(156,945)		(2,316)
(Gain) loss on mortgage banking activities, net	(43,889)		(15,966)
Mortgage loans originated and acquired for sale	(1,319,034)		(824,289)
Proceeds from sales of mortgage loans held for sale	1,620,777		1,048,729

Changes in certain assets and liabilities
(Increase) decrease in interest receivable	(415)		2,476
Increase (decrease) in interest payable	(12,735)		589
Increase (decrease) in expense payable	(32,892)		(15,932)
(Increase) decrease in net derivative position	(133,165)		(109,948)
Increase (decrease) in unsettled trades	1,000		2,577
(Increase) decrease in net income tax position	(58,002)		33,770
Net change in other assets and other liabilities	48,525		(7,446)
Net cash provided by (used in) operating activities	423,060		469,986
Cash Flow From Investing Activities
Net increase in loans	(2,170,320)		(72,644)
Purchases of
Available for sale securities	(1,368,124)		(460,124)
Held to maturity securities	(109,824)		(322,590)
Federal Home Loan Bank and Federal Reserve Bank stocks	(84,152)		(214,554)
Premises, equipment, and software, net of disposals	(34,440)		(50,385)
Other intangibles	(200)		—
Proceeds from
Sales of available for sale securities	626,283		1,367,450

Sale of Federal Home Loan Bank and Federal Reserve Bank stocks	144,000		257,646
Prepayments, calls, and maturities of available for sale investment securities	893,157		400,648
Prepayments, calls, and maturities of held to maturity investment securities	323,175		168,378
Sales, prepayments, calls, and maturities of other assets	18,457		6,674
Net cash received in ABRC sale	256,511		—
Net change in tax credit and alternative investments	(35,630)		(50,117)
Net cash (paid) received in acquisition	(31,518)		551,250
Net cash provided by (used in) investing activities	(1,572,625)		1,581,631
Cash Flow From Financing Activities
Net increase (decrease) in deposits	2,495,229		(1,200,004)
Net increase (decrease) in short-term funding	(284,655)		(48,630)
Net increase (decrease) in short-term FHLB advances	(520,000)		(685,000)
Repayment of long-term FHLB advances	(966,777)		(763,036)
Proceeds from long-term FHLB advances	4,000		751,573


Proceeds from PPPLF	1,022,217		—
Repayment of finance lease principal	(1,044)		—
Proceeds from issuance of preferred shares	96,921		—
Proceeds from issuance of common stock for stock-based compensation plans	3,165		9,070




Purchase of treasury stock, open market purchases	(71,255)		(129,600)
Purchase of treasury stock, stock-based compensation plans	(6,010)		(8,493)
Cash dividends on common stock	(84,156)		(83,248)
Cash dividends on preferred stock	(13,152)		(11,402)
Net cash provided by (used in) financing activities	1,674,484		(2,168,770)
Net increase (decrease) in cash, cash equivalents, and restricted cash	524,918		(117,154)
Cash, cash equivalents, and restricted cash at beginning of period	588,744		876,698
Cash, cash equivalents, and restricted cash at end of period	$	1,113,663	$	759,545

Numbers may not sum due to rounding.

See accompanying notes to consolidated financial statements.

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ASSOCIATED BANC-CORP

Consolidated Statements of Cash Flows (Unaudited)


	Nine Months Ended September 30,
($ in Thousands)	2020		2019
Supplemental disclosures of cash flow information
Cash paid for interest	$	137,423	$	266,192
Cash paid for (received from) income and franchise taxes	17,682		38,979
Loans and bank premises transferred to OREO	12,599		7,374
Capitalized mortgage servicing rights	11,495		8,900
Loans transferred into held for sale from portfolio, net	260,856		326,476
Unsettled trades to purchase securities	1,000		2,577
Acquisition
Fair value of assets acquired, including cash and cash equivalents	457,878		695,848
Fair value ascribed to goodwill and intangible assets	22,150		29,837
Fair value of liabilities assumed	480,028		725,764
Equity issued in (adjustments related to) acquisition	—		(79)

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the total of the same sum amounts shown on the consolidated statements of cash flows:


	Nine Months Ended September 30,
($ in Thousands)	2020		2019
Cash and cash equivalents	$	1,113,663	$	562,798
Restricted cash	—		196,747
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	1,113,663	$	759,545

Amounts included in restricted cash represent required reserve balances with the Federal Reserve Bank, which is included in interest-bearing deposits in other financial institutions on the face of the consolidated balance sheets. At September 30, 2020, the Corporation had no restricted cash due to the Federal Reserve reducing the required ratios to zero percent.

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Item 1. Financial Statements Continued:

ASSOCIATED BANC-CORP

Notes to Consolidated Financial Statements

These interim consolidated financial statements have been prepared according to the rules and regulations of the SEC and, therefore, certain information and footnote disclosures normally presented in accordance with GAAP have been omitted or abbreviated. The information contained on the consolidated financial statements and footnotes in Associated Banc-Corp's 2019 Annual Report on Form 10-K should be referred to in connection with the reading of these unaudited interim financial statements.

Note 1 Basis of Presentation

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial position, results of operations and comprehensive income, changes in stockholders’ equity, and cash flows of the Corporation and Parent Company for the periods presented, and all such adjustments are of a normal recurring nature. The consolidated financial statements include the accounts of all subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. Estimates that are particularly susceptible to significant change include the determination of the ACLL, goodwill impairment assessment, MSRs valuation, and income taxes. Management has evaluated subsequent events for potential recognition or disclosure.

Within the tables presented, certain columns and rows may not sum due to the use of rounded numbers for disclosure purposes.

Note 2 Acquisitions and Dispositions

Acquisitions:

First Staunton Acquisition

On February 14, 2020, the Corporation completed its acquisition of First Staunton. The purchase price was based on an assumed 4% deposit premium at announcement. The conversion of the branches was completed simultaneously with the close of the transaction, expanding the Bank's presence into 9 new Metro-East St. Louis communities. As a result of the acquisition and other consolidations, a net of 7 branch locations were added.

The First Staunton acquisition constituted a business combination. The acquisition has been accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration exchanged were recorded at estimated fair value on the acquisition date. The determination of estimated fair values required management to make certain estimates that are subjective in nature and may require adjustments upon the availability of new information regarding facts and circumstances which existed at the date of acquisition (i.e., appraisals) for up to a year following the acquisition. The Corporation continues to review information relating to events or circumstances existing at the acquisition date. Management anticipates that this review could result in adjustments to the acquisition date valuation amounts presented herein but does not anticipate that these adjustments will be material.

The Corporation recorded approximately $15 million in goodwill related to the First Staunton acquisition during the first quarter of 2020, however the Corporation subsequently reduced goodwill by $2 million during the second quarter of 2020. Upon review of information relating to events and circumstances existing at the acquisition date, and in accordance with applicable accounting guidance, the Corporation remeasured select previously reported fair value amounts. The adjustment to goodwill was driven by an update that increased the fair value of MSRs acquired. Goodwill created by the acquisition is not tax deductible. See Note 8 for additional information on goodwill, as well as the carrying amount and amortization of CDI assets related to the First Staunton acquisition.

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The following table presents the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date related to the First Staunton acquisition:


($ in Thousands)	Purchase Accounting Adjustments		February 14, 2020
Assets
Cash and cash equivalents	$	—	$	44,782
Investment securities available for sale	(24)		98,743
Federal Home Loan Bank and Federal Reserve Bank stocks, at cost	—		781
Loans	(4,808)		369,741
Premises and equipment, net	(3,005)		4,865
Bank owned life insurance	9		6,770
Goodwill			13,414
Core deposit intangibles (included in other intangible assets, net on the face of the consolidated balance sheets)	7,379		7,379
OREO (included in other assets on the face of the consolidated balance sheets)	670		762
Other assets	4,193		9,090
Total assets			$	556,328
Liabilities
Deposits	$	1,285	$	438,684
Other borrowings	61		34,613
Accrued expenses and other liabilities	179		6,730
Total liabilities			$	480,028
Total consideration paid			$	76,300

For a description of methods used to determine the fair value of significant assets and liabilities presented on the balance sheet above, see Assumptions section of this Note.

The Corporation has purchased loans with the First Staunton acquisition, for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination. The carrying amount of those loans is as follows:


($ in Thousands)	February 14, 2020
Purchase price of loans at acquisition	$	77,221
Allowance for credit losses at acquisition	3,504
Non-credit discount/(premium) at acquisition	(951)
Par value of acquired loans at acquisition	$	79,774

There were no PCD securities.

Huntington Wisconsin Branch Acquisition

On June 14, 2019, the Corporation completed its acquisition of the Wisconsin branches of Huntington. The Corporation paid a 4% premium on acquired deposits. The conversion of the branches happened simultaneously with the close of the transaction and the acquisition expanded the Bank's presence into 13 new Wisconsin communities. As a result of the acquisition and other consolidations, a net of 14 branch locations were added.

The Huntington branch acquisition constituted a business combination. The acquisition has been accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration exchanged were recorded at estimated fair value on the acquisition date. The determination of estimated fair values required management to make certain estimates that are subjective in nature and may require adjustments upon the availability of new information regarding facts and circumstances which existed at the date of acquisition (i.e., appraisals) for up to a year following the acquisition.

The Corporation recorded approximately $7 million in goodwill related to the Huntington branch acquisition during the second quarter of 2019 and approximately $210,000 during the third quarter of 2019. Upon review of information relating to events and circumstances existing at the acquisition date, and in accordance with applicable accounting guidance, the Corporation remeasured select previously reported fair value amounts. The adjustment to goodwill was driven by an update that decreased the fair value of furniture acquired. Goodwill created by the acquisition is tax deductible. See Note 8 for additional information on goodwill.

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The following table presents the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date related to Huntington branch acquisition:


($ in Thousands)	Purchase Accounting Adjustments		June 14, 2019
Assets
Cash and cash equivalents	$	—	$	551,250


Loans	(1,552)		116,346
Premises and equipment, net	4,800		22,430

Goodwill			7,286
Core deposit intangibles (included in other intangible assets, net on the face of the consolidated balance sheets)	22,630		22,630
OREO (included in other assets on the face of the consolidated balance sheets)	(2,561)		5,263
Other assets	—		559
Total assets			$	725,764
Liabilities
Deposits	$	156	$	725,173

Other liabilities	70		590
Total liabilities			$	725,764

Assumptions

Investment Securities: The fair value of investments on the date of acquisition was determined utilizing an external third party broker opinion of the market value.

Loans: Fair values for loans were based on a discounted cash flow methodology that considered factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan, amortization status and current discount rates. For the non-credit (interest and liquidity) premium, loans were grouped together according to similar characteristics when applying various valuation techniques. For the credit discount, loans were also grouped based on whether they had more than insignificant deterioration in credit since origination.

CDIs: This intangible asset represents the value of the relationships with deposit customers. The fair value was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, net maintenance cost of the deposit base, alternative cost of funds, and the interest costs associated with customer deposits. The CDIs will be amortized on a straight-line basis over 10 years.

Time Deposits: The fair value for time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered to the contractual interest rates on such time deposits.

FHLB Borrowings: The fair value of FHLB advances are estimated based on quoted market prices for the instrument if available, or for similar instruments if not available, or by using discounted cash flow analyses, based on current incremental borrowing rates for similar types of instruments.

Dispositions:

Completed:

Associated Benefits & Risk Consulting

On June 30, 2020, the Corporation announced that it had closed the previously announced sale of ABRC to USI. Under the terms of the agreement, the purchase price was $266 million in cash. Associated recorded a second quarter 2020 pre-tax book gain of approximately $163 million in conjunction with the sale.

Pending:

During the third quarter of 2020, the Corporation announced branch sale transactions. With the continued migration to mobile and online channels along with declining foot traffic, the Corporation has a reduced need of branches in our distribution strategy. As a result of the pending sales, the Corporation transferred the related branch real estate to OREO and wrote the value down to fair value.

On September 11, 2020, Associated Bank entered into a definitive agreement with Morton Community Bank to sell 5 branches in Peoria, IL. Under the terms of the transaction, Associated Bank expects to sell approximately $208 million in total deposits

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and no loans. Associated Bank will be receiving a 4% purchase premium on deposits transferred. The sale is expected to close in December 2020. With the sale of these branches, Associated Bank will exit the Peoria Community Market.

On September 12, 2020, Associated Bank entered into an agreement with Royal Bank to sell 2 branches in southwest Wisconsin. Under the terms of the transaction, Associated Bank expects to sell approximately $56 million in total deposits and no loans. Associated Bank will be receiving a 4% purchase premium on deposits transferred in the Prairie du Chien and Richland Center branches. This sale is expected to close in December 2020.

On September 22, 2020, Associated Bank entered into an agreement with Summit Credit Union to sell 1 branch located in Monroe, Wisconsin. Under the terms of the transaction, Associated Bank expects to sell approximately $38 million in total deposits and no loans. Associated Bank will be receiving a 4% purchase premium on deposits transferred. This sale is expected to close in the first quarter of 2021.

Note 3 Summary of Significant Accounting Policies

The accounting and reporting policies of the Corporation conform to U.S. GAAP and to general practice within the financial services industry. A discussion of these policies can be found in Note 1 Summary of Significant Accounting Policies included in the Corporation’s 2019 Annual Report on Form 10-K. As a result of adopting ASU 2016-13 Financial Instruments - Credit Losses (Topic 326) and strategic branch optimization initiatives, there have been changes to the Corporation's significant accounting policies since December 31, 2019, which are described below.

Investment Securities

Management measures expected credit losses on held to maturity securities on a collective basis by major security type. Accrued interest receivable on held to maturity securities is excluded from the estimate of credit losses. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts and is included in investment securities held to maturity, net on the consolidated balance sheets.

For available for sale securities, the Corporation evaluates whether any decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses on investments is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses on investments is recognized in other comprehensive income.

Changes in the allowance for credit losses on investments are recorded as provision for, or reversal of, credit loss expense. Losses are charged against the allowance when management believes the available for sale security is uncollectible or when either of the criteria regarding intent or requirement to sell is met. Accrued interest receivable on available for sale debt securities is excluded from the estimate of credit losses.

Allowance for Credit Losses on Loans

The level of the allowance for loan losses represents management's estimate of an amount appropriate to provide for lifetime credit losses in the loan portfolio at the balance sheet date. The methodology applied by the Corporation is designed to assess the appropriateness of the allowance for loan losses within the Corporation's loan segmentation as well as management’s ongoing review and grading of the loan portfolio into criticized loan categories. The methodology focuses on evaluation of several factors, including but not limited to: evaluation of facts and issues related to specific loans, management's ongoing review and grading of the loan portfolio using a dual risk rating system consisting of probability of default and loss given default models, which are based on loan grades for commercial loans and credit reports for consumer loans applied based on portfolio segmentation leveraging industry breakouts in Commercial and Industrial (C&I) and property types in Commercial Real Estate (CRE) for commercial loans and loan types for consumer loans, consideration of historical credit loss and delinquency experience on each portfolio category, trends in past due and nonaccrual loans, the level of potential problem loans, the risk characteristics of the various classifications of loans, changes in the size and character of the loan portfolio, concentrations of loans to specific borrowers or industries, existing economic conditions and economic forecasts, the fair value of underlying collateral, and other qualitative and quantitative factors which could affect potential loan losses. The Corporation utilizes the Moody's Baseline economic forecast in the allowance model and applies that forecast over a reasonable and supportable period with reversion to historical losses. For additional detail on the reasonable and supportable period and reversion assumptions, see Note 7. The Company estimates the lifetime expected loss using prepayment assumptions over the

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projected lifetime cash flow of the loans. Potential problem loans are generally defined by management to include loans rated as substandard by management. Assessing these numerous factors involves significant judgment. The provision for loan losses is predominantly a function of the result of the methodology and other qualitative and quantitative factors used to determine the allowance for loan losses.

Management individually analyzes loans that do not share similar risk characteristics to other loans in the portfolio. Management has determined that commercial loan relationships that have nonaccrual status or commercial and retail loans that have had their terms restructured in a TDR meet this definition. Probable TDRs are loans the Corporation has reviewed individually to determine whether there is a high likelihood that the loans will default and will require restructuring in the near future. Probable TDRs could be classified as Pass, Special Mention, Potential Problem or Nonaccrual within the Corporation's credit quality analysis depending on the specific circumstances surrounding the individual credits. Accrued interest receivable on loans is excluded from the estimate of credit losses.

The allowance for unfunded commitments leverages the same methodology utilized to measure the allowance for loan losses. The Corporation estimates expected credit losses over the contractual period in which the Corporation is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Corporation. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. See Note 7 for additional information on the ACLL and Note 12 for additional information on the allowance for unfunded commitments.

A portion of the ACLL is comprised of adjustments for qualitative factors not reflected in the quantitative model.

OREO

OREO is included in other assets on the consolidated balance sheets and is comprised of property acquired through a foreclosure proceeding or acceptance of a deed-in-lieu of foreclosure, and loans classified as in-substance foreclosure. OREO is recorded at the fair value of the underlying property collateral, less estimated selling costs. This fair value becomes the new cost basis for the foreclosed asset. The initial write-down, if any, will be recorded as a charge off against the allowance for loan losses. Any subsequent write-downs to reflect current fair value, as well as gains and losses on disposition and revenues and expenses incurred in maintaining such properties, are expensed as incurred. OREO also includes bank premises formerly but no longer used for banking, property originally acquired for future expansion but no longer intended to be used for that purpose, and property currently held for sale. Banking premises are transferred at the lower of carrying value or fair value, less estimated selling costs and any write-down is expensed as incurred.

Impact of adopting ASU 2016-13 Financial Instruments - Credit Losses (Topic 326)

The following table illustrates the adoption impact:


	December 31, 2019				January 1, 2020
($ in Thousands)	Allowance for Loan Losses		Allowance for Unfunded Commitments		CECL Day 1 Adjustment		ACLL Beginning Balance
Commercial and industrial	$	91,133	$	12,276	$	48,921	$	152,330
Commercial real estate - owner occupied	10,284		127		(1,851)		8,560
Commercial and business lending	101,417		12,403		47,070		160,890
Commercial real estate - investor	40,514		530		2,287		43,331
Real estate construction	24,915		7,532		25,814		58,261
Commercial real estate lending	65,428		8,062		28,101		101,591
Total Commercial	166,846		20,465		75,171		262,482
Residential mortgage	16,960		—		33,215		50,175
Home equity	10,926		1,038		14,240		26,204
Other consumer	6,639		405		8,520		15,564
Total consumer	34,525		1,443		55,975		91,943
Total loans	$	201,371	$	21,907	$	131,147	$	354,425

The allowance for credit losses on held to maturity securities was approximately $61,000 at January 1, 2020, attributable entirely to the Corporation's municipal securities.

At January 1, 2020, the adoption of ASU 2016-13 resulted in an increase to the allowance for loan losses of $112 million and an increase to the allowance for unfunded commitments of $19 million for a total increase to the ACLL of $131 million. A corresponding after tax decrease to common equity of $98 million was recorded along with a deferred tax asset of $33 million.

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New Accounting Pronouncements Adopted

Standard

Description

Date of adoption

Effect on financial statements

ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

The FASB issued an amendment to replace the current incurred loss impairment methodology. Under the new guidance, entities will be required to measure expected credit losses by utilizing forward-looking information to assess an entity's ACL. The guidance also requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. This amendment was effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Entities should apply the amendment by means of a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. ASU 2018-19 was issued to clarify that receivables arising from operating leases are not within the scope of Subtopic 326-20. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases. ASU 2019-04 was issued and provided entities alternatives for measurement of accrued interest receivable, clarified the steps entities should take when recording the transfer of loans or debt securities between measurement classifications or categories and clarifies that entities should include expected recoveries on financial assets. ASU 2019-05 was issued to provide entities that have certain instruments within the scope of Subtopic 320-20 with an option to irrevocably elect the fair value option in Subtopic 825-10. ASU 2020-02 was issued to further explain the measurement of current expected credit losses and the development, governance, and documentation of a systematic methodology.

1st Quarter 2020

The Corporation has adopted the Update using a modified retrospective approach. The Corporation has developed a CECL allowance model which calculates reserves over the life of the loan and is largely driven by portfolio characteristics, risk-grading, economic outlook, and key methodology assumptions. Those assumptions are based upon the existing probability of default and loss given default framework. At adoption, the Corporation utilized a single economic forecast over a 2-year reasonable and supportable forecast period. In the second year, the Corporation used straight-line reversion to historical losses. The Corporation recorded a $131 million adjustment to the ACL related to the adoption of this standard, which includes $61 thousand related to the held to maturity investment securities portfolio. The Corporation has elected to maintain pools accounted for under Subtopic 310-30 at adoption. The Corporation has elected to utilize the 2019 Capital Transition Relief for initial adoption, as well as the 2020 Capital Transition Relief as permitted under applicable regulations. The total impact at adoption equates to an approximately 29 bp net, after tax, reduction in the tangible common equity ratio. Results for the periods after January 1, 2020 are presented in accordance with ASC 326 while prior period amounts continue to be reported in accordance with previously applicable standards.

ASU 2018-13 Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement

The FASB issued an amendment to add, modify, and remove disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the FASB Concepts Statement "Conceptual Framework for Financial Reporting," including the consideration of costs and benefits. The amendment was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date.

1st Quarter 2020

The Corporation has evaluated and determined it has an immaterial impact with minor changes in presentation.

ASU 2017-04 Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment

The FASB issued an amendment to simplify the subsequent quantitative measurement of goodwill by eliminating step two from the goodwill impairment test. Instead, an entity will perform only step one of its quantitative goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and then recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. An entity will still have the option to perform a qualitative assessment for a reporting unit to determine if the quantitative step one impairment test is necessary. This amendment was effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Entities should apply the amendment prospectively.

1st Quarter 2020

There has been no material impact on results of operations, financial position, and liquidity. The Corporation performs its annual impairment testing in May.

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Standard

Description

Date of adoption

Effect on financial statements

ASU 2020-03 Codification Improvements to Financial Instruments

The FASB issued an amendment to further clarify that all entities are required to provide the fair value option disclosures in paragraphs 825-10-50-24 through 50-32. The amendment also states that paragraphs 820-10-35-2A(g) and 820-10-35-18L are to include the phrase nonfinancial items accounted for as derivatives under Topic 815 to be consistent with the previous amendments to Section 820-10-35 that were made by ASU No. 2018-09, Codification Improvements. The amendment also clarifies that the disclosure requirements in Topic 320 apply to the disclosure requirements in Topic 942 for depository and lending institutions along with improving the understandability of the guidance relating to subtopic 470-50 and subtopic 820-10. Lastly, the amendment clarifies that the contractual term of a net investment in a lease determined in accordance with Topic 842 should be the contractual term used to measure expected credit losses under Topic 326 and that when an entity regains control of financial assets sold, an ACL should be recorded in accordance with Topic 326.

1st Quarter 2020

The Corporation has evaluated and determined it has an immaterial impact.

ASU 2020-04 Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting

The FASB issued an amendment to provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendment only applies to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship.

1st Quarter 2020

The Corporation has evaluated the impact of the Update and determined the expedients provided allow for simpler, more streamlined modifications to the financial instruments referencing LIBOR. A small population of loans have been modified under the new standard.

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Future Accounting Pronouncements

The expected impact of accounting pronouncements recently issued or proposed but not yet required to be adopted are displayed in the table below:

Standard

Description

Date of anticipated adoption

Effect on financial statements

ASU 2018-14
Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans

The FASB issued an amendment to modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendments also added requirements to disclose the weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates and an explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period. The amendment also clarifies the disclosure requirements in paragraph 715-20-50-3, which states that certain information for defined benefit pension plans should be disclosed. The amendments in this Update remove disclosures that no longer are considered cost beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. The amendment is effective for fiscal years ending after December 15, 2020. Entities should apply the amendments in this Update on a retrospective basis to all periods presented. Early adoption is permitted.

1st Quarter 2021

The Corporation is currently evaluating the impact on its results of operations, financial position, and liquidity.

ASU 2020-01 Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)

Clarifying the Interactions between Topic 321, Topic 323, and Topic 815

The FASB issued an amendment to clarify the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. The amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. The amendments also clarify that for the purpose of applying paragraph 815-10-15-141(a) an entity should not consider whether, upon the settlement of the forward contract or exercise of the purchased option, individually or with existing investments, the underlying securities would be accounted for under the equity method in Topic 323 or the fair value option in accordance with the financial instruments guidance in Topic 825. An entity also would evaluate the remaining characteristics in paragraph 815-10-15-141 to determine the accounting for those forward contracts and purchased options.

1st Quarter 2021

The Corporation is currently evaluating the impact on its results of operations, financial position, and liquidity.

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Note 4 Earnings Per Common Share

Earnings per common share are calculated utilizing the two-class method. Basic earnings per common share are calculated by dividing the sum of distributed earnings to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding. Diluted earnings per common share are calculated by dividing the sum of distributed earnings to common shareholders and undistributed earnings allocated to common shareholders by the weighted average number of common shares outstanding adjusted for the dilutive effect of common stock awards (outstanding stock options and unvested restricted stock awards). Presented below are the calculations for basic and diluted earnings per common share:


	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands, except per share data)	2020		2019			2020		2019
Net income	$	45,214	$	83,339		$	239,769	$	254,686
Preferred stock dividends	(5,207)		(3,801)			(13,152)		(11,402)
Net income available to common equity	$	40,007	$	79,539		$	226,618	$	243,285
Common shareholder dividends	(27,676)		(27,091)			(83,607)		(82,741)
Unvested share-based payment awards	(199)		(198)			(549)		(506)
Undistributed earnings	$	12,133	$	52,250		$	142,462	$	160,037
Undistributed earnings allocated to common shareholders	$	12,045	$	51,870		$	141,426	$	158,970
Undistributed earnings allocated to unvested share-based payment awards	87		380			1,036		1,067
Undistributed earnings	$	12,133	$	52,250		$	142,462	$	160,037
Basic
Distributed earnings to common shareholders	$	27,676	$	27,091		$	83,607	$	82,741
Undistributed earnings allocated to common shareholders	12,045		51,870			141,426		158,970
Total common shareholders earnings, basic	$	39,721	$	78,961		$	225,032	$	241,711
Diluted
Distributed earnings to common shareholders	$	27,676	$	27,091		$	83,607	$	82,741
Undistributed earnings allocated to common shareholders	12,045		51,870			141,426		158,970
Total common shareholders earnings, diluted	$	39,721	$	78,961		$	225,032	$	241,711
Weighted average common shares outstanding	152,440		159,126			153,175		161,727
Effect of dilutive common stock awards	754		1,256			739		1,334

Diluted weighted average common shares outstanding	153,194		160,382			153,914		163,061
Basic earnings per common share	$	0.26	$	0.50		$	1.47	$	1.49
Diluted earnings per common share	$	0.26	$	0.49		$	1.46	$	1.48

Non-dilutive common stock options of approximately 8 million and 3 million for the three months ended September 30, 2020 and 2019, respectively, and 7 million and 3 million for the nine months ended September 30, 2020 and 2019, respectively, were excluded from the earnings per common share calculation.

Note 5 Stock-Based Compensation

The fair value of stock options granted is estimated on the date of grant using a Black-Scholes option pricing model, while the fair value of restricted stock awards is their fair market value on the date of grant. The fair values of stock options and restricted stock awards are amortized as compensation expense on a straight-line basis over the vesting period of the grants. For colleagues who meet the definition of retirement eligible under the 2017 Incentive Compensation Plan and the 2020 Incentive Compensation Plan, expenses related to stock options and restricted stock awards are fully recognized on the date the colleague meets the definition of normal or early retirement. Compensation expense recognized is included in personnel expense on the consolidated statements of income.

Assumptions are used in estimating the fair value of stock options granted. The weighted average expected life of the stock option represents the period of time stock options are expected to be outstanding and is estimated using historical data of stock option exercises and forfeitures. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected volatility is based on the implied volatility of the Corporation’s stock.

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The following assumptions were used in estimating the fair value for options granted in the first nine months of 2020 and full year 2019:


	2020		2019
Dividend yield	3.50	%	3.30	%
Risk-free interest rate	1.60	%	2.60	%
Weighted average expected volatility	21.00	%	24.00	%
Weighted average expected life	5.75 years		5.75 years
Weighted average per share fair value of options	$2.39		$4.00

A summary of the Corporation’s stock option activity for the nine months ended September 30, 2020 is presented below:


Stock Options	Shares(a)	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value(a)
Outstanding at December 31, 2019	5,543	$	20.13	6.25 years	$	16,043
Granted	1,697	18.43
Exercised	(117)	13.89
Forfeited or expired	(306)	21.48
Outstanding at September 30, 2020	6,817	$	19.75	6.47 years	$	18
Options Exercisable at September 30, 2020	4,203	$	19.21	5.07 years	$	18

(a) In thousands

Intrinsic value represents the amount by which the fair market value of the underlying stock exceeds the exercise price of the stock option. For the nine months ended September 30, 2020, the intrinsic value of stock options exercised was less than $1 million compared to $3 million for the nine months ended September 30, 2019. The total fair value of stock options vested was $4 million for both the nine months ended September 30, 2020 and 2019.

The Corporation recognized compensation expense for the vesting of stock options of $3 million for the nine months ended September 30, 2020, compared to $4 million for the nine months ended September 30, 2019. Included in compensation expense for 2020 was approximately $2 million of expense for the accelerated vesting of stock options granted to retirement eligible colleagues. At September 30, 2020, the Corporation had approximately $4 million of unrecognized compensation expense related to stock options that is expected to be recognized over the remaining requisite service periods that extend predominately through the first quarter of 2024.

The Corporation also has issued time-based and performance-based restricted stock awards under the 2017 Incentive Compensation Plan and subsequent 2020 Incentive Compensation Plan. Performance awards are based on performance goals of earnings per share and total shareholder return with vesting ranging from a minimum of 0% to a maximum of 150% of the target award. Performance awards are valued utilizing a Monte Carlo simulation model to estimate fair value of the awards at the grant date.

The following table summarizes information about the Corporation’s restricted stock awards activity for the nine months ended September 30, 2020:


Restricted Stock Awards	Shares(a)	Weighted Average Grant Date Fair Value
Outstanding at December 31, 2019	2,393	$	22.39
Granted	1,043	18.21
Vested	(905)	22.64
Forfeited	(146)	20.65
Outstanding at September 30, 2020	2,385	$	20.56

(a) In thousands

The Corporation amortizes the expense related to restricted stock awards as compensation expense over the vesting period specified in the grant's award agreement. Performance-based restricted stock awards granted during 2019 and 2020 will vest ratably over a period of three years. Service-based restricted stock awards granted during 2019 and 2020 will vest ratably over a period of four years. Expense for restricted stock awards issued of approximately $15 million was recorded for the nine months ended September 30, 2020 and $18 million was recorded for the nine months ended September 30, 2019. Included in compensation expense for the first nine months of 2020 was approximately $6 million of expense for the accelerated vesting of restricted stock awards granted to retirement eligible colleagues. The Corporation had $18 million of unrecognized compensation costs related to restricted stock awards at September 30, 2020 that are expected to be recognized over the remaining requisite service periods that extend predominately through the first quarter of 2024.

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At the Corporation’s 2020 Annual Meeting of Shareholders held on April 28, 2020, the Corporation’s shareholders approved the Associated Banc-Corp 2020 Incentive Compensation Plan, which provides for various types of awards to the Company’s executive officers, employees, consultants and non-employee directors, including, among others, stock options, restricted stock, restricted stock units and performance units.

The Corporation has the ability to issue shares from treasury or new shares upon the exercise of stock options or the granting of restricted stock awards. The Board of Directors has authorized management to repurchase shares of the Corporation’s common stock in the market, to be made available for issuance in connection with the Corporation’s employee incentive plans and for other corporate purposes. The repurchase of shares, if any, will be based on market and investment opportunities, capital levels, growth prospects, and regulatory constraints. Such repurchases may occur from time to time in open market purchases, block transactions, private transactions, accelerated share repurchase programs, or similar facilities. On March 13, 2020, the Corporation suspended its share repurchase program and expects the program to remain suspended for the remainder of 2020.

Note 6 Investment Securities

Investment securities are classified as available for sale, held to maturity, or equity on the consolidated balance sheets at the time of purchase. The amortized cost and fair values of securities available for sale and held to maturity at September 30, 2020 were as follows:


($ in Thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Fair Value


Investment securities available for sale
U. S. Treasury securities	$	26,541	$	108	$	—	$	26,650
Agency securities	24,983		50		—		25,033
Obligations of state and political subdivisions (municipal securities)	450,174		24,521		—		474,695
Residential mortgage-related securities
FNMA / FHLMC	1,267,003		9,554		(94)		1,276,463
GNMA	399,490		7,823		—		407,313

Commercial mortgage-related securities
FNMA / FHLMC	19,724		2,153		—		21,877
GNMA	670,573		17,805		—		688,378
Asset backed securities
FFELP	332,398		—		(6,556)		325,843
SBA	9,159		—		(48)		9,111

Other debt securities	3,000		—		(3)		2,997
Total investment securities available for sale	$	3,203,046	$	62,015	$	(6,701)	$	3,258,360
Investment securities held to maturity
U. S. Treasury securities	$	999	$	31	$	—	$	1,030
Obligations of state and political subdivisions (municipal securities)	1,444,325		115,343		(368)		1,559,300
Residential mortgage-related securities
FNMA / FHLMC	63,142		3,147		—		66,289
GNMA	159,455		5,217		—		164,672
Commercial mortgage-related securities
FNMA/FHLMC	11,220		—		—		11,220
GNMA	311,798		10,142		—		321,941
Total investment securities held to maturity	$	1,990,940	$	133,880	$	(368)	$	2,124,452

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The amortized cost and fair values of securities available for sale and held to maturity at December 31, 2019 were as follows:


($ in Thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Fair Value


Investment securities available for sale

Obligations of state and political subdivisions (municipal securities)	$	529,908	$	16,269	$	(18)	$	546,160
Residential mortgage-related securities
FNMA / FHLMC	131,158		1,562		(59)		132,660
GNMA	982,941		3,887		(1,689)		985,139

Commercial mortgage-related securities
FNMA / FHLMC	19,929		1,799		—		21,728
GNMA	1,314,836		7,403		(12,032)		1,310,207
FFELP asset backed securities	270,178		—		(6,485)		263,693

Other debt securities	3,000		—		—		3,000
Total investment securities available for sale	$	3,251,950	$	30,920	$	(20,284)	$	3,262,586
Investment securities held to maturity
U. S. Treasury securities	$	999	$	19	$	—	$	1,018
Obligations of state and political subdivisions (municipal securities)	1,418,569		69,775		(1,118)		1,487,227
Residential mortgage-related securities
FNMA / FHLMC	81,676		1,759		(15)		83,420
GNMA	269,523		1,882		(1,108)		270,296
GNMA commercial mortgage-related securities	434,317		6,308		(6,122)		434,503
Total investment securities held to maturity	$	2,205,083	$	79,744	$	(8,363)	$	2,276,465

Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The expected maturities of investment securities available for sale and held to maturity at September 30, 2020 are shown below:


	Available for Sale					Held to Maturity
($ in Thousands)	Amortized Cost		Fair Value			Amortized Cost		Fair Value
Due in one year or less	$	8,343	$	8,350		$	28,957	$	29,140
Due after one year through five years	82,198		82,964			63,630		65,751
Due after five years through ten years	344,172		362,247			161,769		170,223
Due after ten years	69,987		75,815			1,190,968		1,295,217
Total debt securities	504,699		529,375			1,445,325		1,560,331
Residential mortgage-related securities
FNMA / FHLMC	1,267,003		1,276,463			63,142		66,289
GNMA	399,490		407,313			159,455		164,672

Commercial mortgage-related securities
FNMA / FHLMC	19,724		21,877			11,220		11,220
GNMA	670,573		688,378			311,798		321,941
Asset backed securities
FFELP	332,398		325,843			—		—
SBA	9,159		9,111			—		—

Total investment securities	$	3,203,046	$	3,258,360		$	1,990,940	$	2,124,452
Ratio of fair value to amortized cost			101.7		%			106.7		%

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On a quarterly basis, the Corporation refreshes the credit quality of each held to maturity security. The following table summarizes the credit quality indicators of held to maturity securities at amortized cost at September 30, 2020:


($ in Thousands)	AAA		AA		A		Total
U. S. Treasury securities	$	999	$	—	$	—	$	999
Obligations of state and political subdivisions (municipal securities)	567,468		860,465		16,393		1,444,325
Residential mortgage-related securities
FNMA/FHLMC	63,142		—		—		63,142
GNMA	159,455		—		—		159,455
Commercial mortgage-related securities
FNMA/FHLMC	11,220		—		—		11,220
GNMA	311,798		—		—		311,798
Total held to maturity securities	$	1,114,082	$	860,465	$	16,393	$	1,990,940

Investment securities gains (losses), net includes proceeds from the sale of investment securities as well as any applicable write-ups or write-downs of investment securities. The proceeds from the sale of investment securities for the three and nine months ended September 30, 2020 and 2019 are shown below:


	Three Months Ended September 30,				Nine Months Ended September 30,
($ in Thousands)	2020		2019		2020		2019
Gross gains on available for sale securities	$	7	$	4,013	$	9,312	$	6,347
Gross gains on held to maturity securities	—		—		—		—
Total gains	7		4,013		9,312		6,347
Gross (losses) on available for sale securities	—		(225)		(90)		(13,861)
Gross (losses) on held to maturity securities	—		—		—		—
Total (losses)	—		(225)		(90)		(13,861)
Write-up of equity securities without readily determinable fair values	—		—		—		13,444
Investment securities gains (losses), net	$	7	$	3,788	$	9,222	$	5,931
Proceeds from sales of investment securities	$	8	$	433,222	$	626,283	$	1,367,450

During the second quarter of 2020, the Corporation sold $261 million of less liquid securities at a gain of $3 million, reinvesting the proceeds into more liquid securities in order to further improve portfolio liquidity. During the first quarter of 2020, the Corporation sold $281 million of primarily prepayment sensitive mortgage-related securities at a gain of $6 million. Additionally, in February 2020, the Corporation sold $84 million of certain securities acquired in the First Staunton acquisition that did not fit the parameters of the Corporation's current investment strategy.

During the first nine months of 2019, the Corporation made a one-time election to transfer municipal securities with an amortized cost of $692 million from held to maturity to available for sale, as permitted by the adoption of ASU 2019-04. The Corporation sold $1.2 billion of taxable floating rate ABS and shorter duration MBS, and CMO Agency securities, with the proceeds utilized to pay down borrowings and to reinvest into higher yielding Agency related mortgage securities with slightly longer durations, repositioning the portfolio for a stable to declining rate environment. The Corporation also donated 42,039 shares of Visa Class B restricted shares to the Corporation's Charitable Remainder Trust during the second quarter of 2019, and the subsequent sale of those shares by the Trust resulted in an observable market price. As a result, the Corporation wrote up its remaining 77,000 Visa Class B restricted shares to fair value. Based on the existing transfer restriction and the uncertainty of covered litigation, the shares were previously carried at a zero cost basis.

Investment securities with a carrying value of approximately $1.8 billion and $2.6 billion at September 30, 2020 and December 31, 2019, respectively, were pledged to secure certain deposits or for other purposes as required or permitted by law.

Accrued interest receivable on held to maturity securities totaled $13 million and $16 million at September 30, 2020 and December 31, 2019, respectively. Accrued interest receivable on available for sale securities totaled $9 million and $10 million at September 30, 2020 and December 31, 2019, respectively. Accrued interest receivable on both held to maturity and available for sale securities is included in interest receivable on the consolidated balance sheets. There was no interest income reversed for investments going into nonaccrual at September 30, 2020 or December 31, 2019.

A security is considered past due once it is 30 days past due under the terms of the agreement. At September 30, 2020, the Corporation had no past due held to maturity securities.

The allowance for credit losses on held to maturity securities was approximately $70,000 at September 30, 2020, attributable entirely to the Corporation's municipal securities, included in investment securities held to maturity, net, at amortized cost on the consolidated balance sheets. The Corporation also holds U.S. Treasury and residential mortgage-related securities issued by

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the U.S. government or a GSE which are backed by the full faith and credit of the U.S. government and, as a result, no allowance for credit losses has been recorded related to these securities.

The following represents gross unrealized losses and the related fair value of investment securities available for sale and held to maturity, aggregated by investment category and length of time individual securities have been in a continuous unrealized loss position, at September 30, 2020:


	Less than 12 months					12 months or more					Total
($ in Thousands)	Number of Securities	Unrealized (Losses)		Fair Value		Number of Securities	Unrealized (Losses)		Fair Value		Unrealized (Losses)		Fair Value
Investment securities available for sale



Residential mortgage-related securities
FNMA / FHLMC	5	$	(94)	$	77,157	—	$	—	$	—	$	(94)	$	77,157
GNMA	1	—		424		—	—		—		—		424


Asset backed securities
FFELP	5	(837)		93,134		20	(5,719)		232,709		(6,556)		325,843
SBA	15	(48)		8,953		—	—		—		(48)		8,953
Other debt securities	3	(3)		2,997		—	—		—		(3)		2,997

Total	29	$	(982)	$	182,665	20	$	(5,719)	$	232,709	$	(6,701)	$	415,374
Investment securities held to maturity
Obligations of state and political subdivisions (municipal securities)	10	$	(368)	$	25,895	—	$	—	$	—	$	(368)	$	25,895




Total	10	$	(368)	$	25,895	—	$	—	$	—	$	(368)	$	25,895

For comparative purposes, the following represents gross unrealized losses and the related fair value of investment securities available for sale and held to maturity, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2019:


	Less than 12 months					12 months or more					Total
($ in Thousands)	Number of Securities	Unrealized (Losses)		Fair Value		Number of Securities	Unrealized (Losses)		Fair Value		Unrealized (Losses)		Fair Value
Investment securities available for sale

Obligations of state and political subdivisions (municipal securities)	4	$	(18)	$	1,225	—	$	—	$	—	$	(18)	$	1,225
Residential mortgage-related securities
FNMA / FHLMC	—	—		—		4	(59)		34,807		(59)		34,807
GNMA	18	(924)		322,394		3	(766)		79,461		(1,689)		401,856

GNMA commercial mortgage-related securities	22	(810)		258,218		42	(11,222)		621,307		(12,032)		879,524
FFELP asset backed securities	19	(6,092)		250,780		2	(393)		12,913		(6,485)		263,693
Other debt securities	2	—		2,000		—	—		—		—		2,000

Total	65	$	(7,843)	$	834,616	51	$	(12,440)	$	748,487	$	(20,284)	$	1,583,104
Investment securities held to maturity
Obligations of state and political subdivisions (municipal securities)	52	$	(1,105)	$	77,562	6	$	(13)	$	2,378	$	(1,118)	$	79,940
Residential mortgage-related securities
FNMA / FHLMC	1	(6)		1,242		1	(9)		833		(15)		2,075
GNMA	12	(1,059)		187,261		8	(49)		6,587		(1,108)		193,849
GNMA commercial mortgage-related securities	2	(29)		26,202		21	(6,093)		357,733		(6,122)		383,935
Total	67	$	(2,199)	$	292,267	36	$	(6,164)	$	367,532	$	(8,363)	$	659,799

The Corporation reviews the available for sale investment securities portfolio on a quarterly basis to monitor its credit exposure. A determination as to whether a security’s decline in fair value is the result of credit risk takes into consideration numerous factors and the relative significance of any single factor can vary by security. Some factors the Corporation may consider in the impairment analysis include the extent to which the security has been in an unrealized loss position, the change in security rating, financial condition and near-term prospects of the issuer, as well as the security and industry specific economic conditions.

Based on the Corporation’s evaluation, management does not believe any available for sale securities in an unrealized loss position at September 30, 2020 represent credit deterioration as these unrealized losses are primarily attributable to changes in interest rates and the current market conditions. The fair value of municipal securities, which pertains to various state and local

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political subdivisions and school districts, has increased due to the decrease in overall interest rates, resulting in lower unrealized losses at September 30, 2020. The U.S. Treasury 3 year and 5 year rates decreased by 146 bp and 141 bp, respectively, from December 31, 2019. The Corporation does not intend to sell nor does it believe that it will be required to sell the securities in an unrealized loss position before recovery of their amortized cost basis.

FHLB and Federal Reserve Bank stocks: The Corporation is required to maintain Federal Reserve Bank stock and FHLB stock as a member of both the Federal Reserve System and the FHLB, and in amounts as required by these institutions. These equity securities are “restricted” in that they can only be sold back to the respective institutions or another member institution at par. Therefore, they are less liquid than other marketable equity securities and their fair value is equal to amortized cost. At September 30, 2020 and December 31, 2019, the Corporation had FHLB stock of $82 million and $149 million, respectively. The Corporation had Federal Reserve Bank stock of $87 million and $78 million at September 30, 2020 and December 31, 2019, respectively. Accrued interest receivable on FHLB stock totaled $1 million and $2 million at September 30, 2020 and December 31, 2019. There was approximately $149,000 of accrued interest receivable on Federal Reserve Bank stock at September 30, 2020 and none at December 31, 2019. Accrued interest receivable on both FHLB stock and Federal Reserve Bank stock is included in interest receivable on the consolidated balance sheets.

Equity Securities

Equity securities with readily determinable fair values: The Corporation's portfolio of equity securities with readily determinable fair values is primarily comprised of CRA Qualified Investment mutual funds. At both September 30, 2020 and December 31, 2019, the Corporation had equity securities with readily determinable fair values of $2 million.

Equity securities without readily determinable fair values: The Corporation's portfolio of equity securities without readily determinable fair values consists of 77,996 Visa Class B restricted shares, 77,000 of which the Corporation received in 2008 as part of Visa's initial public offering and carried at fair value after the Corporation donated 42,039 Visa Class B restricted shares to the Corporation's Charitable Remainder Trust during the second quarter of 2019, with the subsequent sale of those shares resulting in an observable market price after the shares were previously carried at a zero cost basis. During the first quarter of 2020, the Corporation also acquired 996 Visa Class B restricted shares from the acquisition of First Staunton, and those shares are carried at a zero cost basis due to the lack of an observable market price since the time of acquisition. The Corporation had equity securities without readily determinable fair values of $13 million at both September 30, 2020 and December 31, 2019.

Note 7 Loans

The period end loan composition was as follows:


($ in Thousands)	September 30, 2020		December 31, 2019
PPP	$	1,022,217	$	—
Commercial and industrial	7,933,404		7,354,594
Commercial real estate — owner occupied	904,997		911,265
Commercial and business lending	9,860,618		8,265,858
Commercial real estate — investor	4,320,926		3,794,517
Real estate construction	1,859,609		1,420,900
Commercial real estate lending	6,180,536		5,215,417
Total commercial	16,041,154		13,481,275
Residential mortgage	7,885,523		8,136,980
Home equity	761,593		852,025
Other consumer	315,483		351,159
Total consumer	8,962,599		9,340,164
Total loans	$	25,003,753	$	22,821,440

Accrued interest receivable on loans totaled $67 million at September 30, 2020, and $63 million at December 31, 2019 and is included in interest receivable on the consolidated balance sheets. Interest accrued but not received for loans placed on nonaccrual is reversed against interest income. The amount of accrued interest reversed totaled $1 million and $2 million for the three and nine months ended September 30, 2020, respectively.

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The following table presents commercial and consumer loans by credit quality indicator by vintage year at September 30, 2020:


					Term Loans Amortized Cost Basis by Origination Year(a)
($ in Thousands)	Rev Loans Converted to Term(a)		Rev Loans Amortized Cost Basis		YTD 2020		2019		2018		2017		2016		Prior		Total
PPP:(b)
Risk rating:
Pass	$	—	$	—	$	995,646	$	—	$	—	$	—	$	—	$	—	$	995,646
Special Mention	—		—		7,409		—		—		—		—		—		7,409
Potential Problem	—		—		19,161		—		—		—		—		—		19,161

PPP	$	—	$	—	$	1,022,217	$	—	$	—	$	—	$	—	$	—	$	1,022,217
Commercial and industrial:
Risk rating:
Pass	$	4,904	$	2,031,744	$	1,102,032	$	1,581,019	$	1,430,036	$	545,931	$	326,862	$	518,950	$	7,536,572
Special Mention	—		9,424		13,594		61,594		48,357		22		13,783		—		146,774
Potential Problem(c)	3,089		10,580		21,483		18,101		81,580		2,369		8,031		2,015		144,159
Nonaccrual(d)	568		200		1,571		6,761		15,728		44,933		29,193		7,513		105,899
Commercial and industrial	$	8,562	$	2,051,948	$	1,138,680	$	1,667,475	$	1,575,701	$	593,255	$	377,868	$	528,478	$	7,933,404
Commercial real estate - owner occupied:
Risk rating:
Pass	$	1,150	$	18,912	$	120,161	$	236,928	$	137,669	$	106,305	$	155,023	$	90,750	$	865,748
Special Mention	—		—		2,420		2,410		1,106		556		2,671		5,236		14,398
Potential Problem	—		2,593		678		7,804		1,354		1,135		5,127		4,117		22,808
Nonaccrual	—		—		168		—		371		326		—		1,177		2,043
Commercial real estate - owner occupied	$	1,150	$	21,505	$	123,426	$	247,142	$	140,499	$	108,323	$	162,821	$	101,280	$	904,997
Commercial and business lending:
Risk rating:
Pass	$	6,054	$	2,050,656	$	2,217,839	$	1,817,947	$	1,567,704	$	652,236	$	481,885	$	609,700	$	9,397,966
Special Mention	—		9,424		23,423		64,004		49,462		578		16,454		5,236		168,582
Potential Problem(c)	3,089		13,173		41,323		25,905		82,934		3,504		13,158		6,132		186,129
Nonaccrual(d)	568		200		1,739		6,761		16,099		45,259		29,193		8,690		107,941
Commercial and business lending	$	9,712	$	2,073,453	$	2,284,323	$	1,914,617	$	1,716,200	$	701,578	$	540,690	$	629,759	$	9,860,618
Commercial real estate - investor:
Risk rating:
Pass	$	84	$	189,623	$	1,082,792	$	1,030,772	$	781,592	$	321,341	$	350,582	$	245,290	$	4,001,992
Special Mention	—		—		57,701		53,145		12,408		13,439		29,818		1,506		168,018
Potential Problem	—		854		16,032		18,026		11,424		14,733		265		39,124		100,459
Nonaccrual	19,964		—		1,018		48,691		446		—		—		304		50,458
Commercial real estate - investor	$	20,049	$	190,477	$	1,157,543	$	1,150,634	$	805,870	$	349,513	$	380,665	$	286,224	$	4,320,926
Real estate construction:
Risk rating:
Pass	$	1,151	$	45,347	$	545,859	$	772,861	$	376,567	$	69,025	$	2,588	$	19,928	$	1,832,176
Special Mention	—		—		411		—		24,437		—		—		16		24,863
Potential Problem	—		—		127		—		355		1,557		95		45		2,178
Nonaccrual	—		—		12		—		—		—		—		380		392
Real estate construction	$	1,151	$	45,347	$	546,409	$	772,861	$	401,358	$	70,582	$	2,683	$	20,369	$	1,859,609
Commercial real estate lending:
Risk rating:
Pass	$	1,236	$	234,970	$	1,628,651	$	1,803,633	$	1,158,158	$	390,366	$	353,170	$	265,219	$	5,834,167
Special Mention	—		—		58,112		53,145		36,845		13,439		29,818		1,522		192,881
Potential Problem	—		854		16,159		18,026		11,779		16,289		360		39,169		102,637
Nonaccrual	19,964		—		1,030		48,691		446		—		—		684		50,850
Commercial real estate lending	$	21,200	$	235,823	$	1,703,952	$	1,923,495	$	1,207,229	$	420,095	$	383,348	$	306,593	$	6,180,536

Table of Contents


					Term Loans Amortized Cost Basis by Origination Year(a)
($ in Thousands)	Rev Loans Converted to Term(a)		Rev Loans Amortized Cost Basis		YTD 2020		2019		2018		2017		2016		Prior		Total
Total commercial:
Risk rating:
Pass	$	7,290	$	2,285,626	$	3,846,490	$	3,621,580	$	2,725,863	$	1,042,603	$	835,055	$	874,918	$	15,232,134
Special Mention	—		9,424		81,534		117,150		86,307		14,017		46,272		6,758		361,463
Potential Problem	3,089		14,027		57,482		43,931		94,713		19,793		13,518		45,301		288,766
Nonaccrual	20,533		200		2,769		55,451		16,546		45,259		29,193		9,374		158,792
Total commercial	$	30,912	$	2,309,277	$	3,988,275	$	3,838,112	$	2,923,428	$	1,121,672	$	924,038	$	936,352	$	16,041,154
Residential mortgage:
Risk rating:
Pass	$	—	$	—	$	1,585,703	$	1,608,973	$	685,384	$	1,119,248	$	1,025,378	$	1,794,997	$	7,819,683
Special Mention	—		—		684		—		37		—		—		392		1,113
Potential Problem	—		—		695		663		137		—		206		694		2,396
Nonaccrual	—		—		2,292		3,282		5,624		8,243		10,334		32,557		62,331
Residential mortgage	$	—	$	—	$	1,589,374	$	1,612,918	$	691,182	$	1,127,490	$	1,035,918	$	1,828,640	$	7,885,523
Home equity:
Risk rating:
Pass	$	10,470	$	610,660	$	2,041	$	14,679	$	18,022	$	13,415	$	6,700	$	83,761	$	749,277
Special Mention	107		39		—		—		—		—		—		369		408
Potential Problem	—		1,632		—		—		—		—		—		—		1,632
Nonaccrual	972		606		421		361		523		353		230		7,782		10,277
Home equity	$	11,549	$	612,936	$	2,462	$	15,040	$	18,545	$	13,768	$	6,930	$	91,912	$	761,593
Other consumer:
Risk rating:
Pass	$	27	$	164,453	$	7,298	$	11,505	$	4,438	$	2,259	$	1,475	$	123,487	$	314,916
Special Mention	5		369		—		—		—		—		3		5		377

Nonaccrual	2		23		1		63		5		6		74		19		190
Other consumer	$	34	$	164,845	$	7,298	$	11,568	$	4,443	$	2,265	$	1,551	$	123,511	$	315,483
Total consumer:
Risk rating:
Pass	$	10,497	$	775,112	$	1,595,042	$	1,635,157	$	707,843	$	1,134,922	$	1,033,553