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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2019
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)
Registrant’s telephone number, including area code: (920) 491-7500
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 The 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 The 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 The 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 The New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes  þ        No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes  ¨        No  þ
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  þ        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  þ        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 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 Act).
Yes  ☐        No  þ
As of June 30, 2019, (the last business day of the registrant’s most recently completed second fiscal quarter) the aggregate market value of the voting stock held by nonaffiliates of the registrant was approximately $3,375,478,000. This excludes approximately $63,196,000 of market value representing the outstanding shares of the registrant owned by all directors and officers who may be deemed affiliates. This includes approximately $59,863,000 of market value representing 1.74% of the outstanding shares of the registrant held in a fiduciary capacity by the trust company subsidiary of the registrant.
As of February 6, 2020, 156,455,138 shares of common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for the Annual Meeting of Shareholders to held on April 28, 2020 are incorporated by reference in this Form 10-K into Part III.






ASSOCIATED BANC-CORP
2019 Form 10-K Table of Contents
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ASSOCIATED BANC-CORP
Commonly Used Acronyms and Abbreviations
The following listing provides a reference of common acronyms and abbreviations used throughout the document:

2017 Plan 2017 Incentive Compensation Plan
ABRC Associated Benefits and Risk Consulting
ABS Asset-Backed Securities
ACL Allowance for Credit Losses
ADC Acquisition, Development, or Construction
ALCO Asset / Liability Committee
Anderson Anderson Insurance and Investment Agency, Inc.
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
Bank Mutual Bank Mutual Corporation
Basel III International framework established by the Basel Committee on Banking Supervision for the regulation of capital and liquidity
BHC Act Bank Holding Company Act of 1956, as amended
bp basis point(s)
BSA Bank Secrecy Act
CDs Certificates of Deposit
CDIs Core Deposit Intangibles
CECL Current Expected Credit Losses
CET1 Common Equity Tier 1
CFPB Consumer Financial Protection Bureau
CMBS Commercial Mortgage-Backed Securities
CMOs Collateralized Mortgage Obligations
CRA Community Reinvestment Act
DIF Deposit Insurance Fund
Diversified Diversified Insurance Solutions
Dodd-Frank Act Dodd-Frank Wall Street Reform and Consumer Protection Act
DOL Department of Labor
DTAs Deferred Tax Assets
DTCC Depository Trust & Clearing Corporation
EAR Earnings at Risk
Economic Growth Act Economic Growth, Regulatory Relief, and Consumer Protection Act
Exchange Act Securities Exchange Act of 1934, as amended
FASB Financial Accounting Standards Board
FCA United Kingdom Financial Conduct Authority
FDIC Federal Deposit Insurance Corporation
FDICIA Federal Deposit Insurance Corporation Improvement Act
Federal Reserve Board / Federal Reserve / FRB 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
FICC Fixed Income Clearing Corporation
FICO Financing Corporation, established by the Competitive Equality Banking Act of 1987




FICO Score Fair Isaac Corporation score, a broad-based risk score to aid in credit decisions
FinCEN Financial Crimes Enforcement Network
FINRA Financial Industry Regulatory Authority
First Staunton First Staunton Bancshares, Incorporated
FNMA Federal National Mortgage Association
FRBNY Federal Reserve Bank of New York
FTP Funds Transfer Pricing
GAAP Generally Accepted Accounting Principles
GNMA Government National Mortgage Association
GSE Government-Sponsored Enterprise
Huntington The Huntington National Bank, a subsidiary of Huntington Bancshares Incorporated
HVCRE High Volatility Commercial Real Estate
IDIs Insured Depository Institutions
LIBOR London Interbank Offered Rate
LTV Loan-to-Value
MBS Mortgage-Backed Securities
MSA Mortgage Servicing Asset
MSRs Mortgage Servicing Rights
MVE Market Value of Equity
Net Free Funds Noninterest-bearing sources of funds
NII Net Interest Income
NPAs Nonperforming Assets
NYSE New York Stock Exchange
OCC Office of the Comptroller of the Currency
OCI Other Comprehensive Income
OREO Other Real Estate Owned
Parent Company Associated Banc-Corp individually
Patriot Act Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001
RAP Retirement Account Plan - the Corporation's noncontributory defined benefit retirement plan
Repurchase Agreements Securities sold under agreements to repurchase
RESPA Real Estate Settlement Procedures Act
Restricted Stock Awards Restricted common stock and restricted common stock units to certain key employees
Retirement Eligible Colleagues Colleagues whose retirement meets the early retirement or normal retirement definitions under the 2017 Plan
S&P Standard & Poor's
SARs Suspicious Activity Reports
SEC U.S. Securities and Exchange Commission
Securities Act Securities Act of 1933, as amended
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
SOFR Secured Overnight Finance Rate
Tax Act U.S. Tax Cuts and Jobs Act of 2017
TILA Truth in Lending Act
Warrants Troubled Asset Relief Program ("TARP") warrants





Special Note Regarding Forward-Looking Statements
This document, including the documents that are incorporated by reference, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Exchange Act. You can identify forward-looking statements by words such as "may," "should," "expect," "plan," "anticipate," "intend," "believe," "estimate," "predict," "potential," "continue," "could," "future," "outlook," or the negative of those terms or other words of similar meaning. You should read statements that contain these words carefully because they discuss our future expectations or state other "forward-looking" information. Such forward-looking statements may relate to our financial condition, results of operations, plans, objectives, future performance, or business and are based upon the beliefs and assumptions of our management and the information available to our management at the time these disclosures are prepared. These forward-looking statements involve risks and uncertainties that we may not be able to accurately predict or control and our actual results may differ materially from those we described in our forward-looking statements. Shareholders should be aware that the occurrence of the events discussed under the heading Risk Factors in this document, and in the information incorporated by reference herein, could have an adverse effect on our business, results of operations, and financial condition. These factors, many of which are beyond our control, include the following.
Credit risks, including changes in economic conditions and risk relating to our allowance for credit losses.
Liquidity and interest rate risks, including the impact of capital market conditions and changes in monetary policy on our borrowings and net interest income.
Operational risks, including processing, information systems, cybersecurity, vendor problems, business interruption, and fraud risks.
Strategic and external risks, including economic, political, and competitive forces impacting our business.
Legal, compliance, and reputational risks, including regulatory and litigation risks.
The risk that our analyses of these risks and forces could be incorrect and / or that the strategies developed to address them could be unsuccessful.
For a discussion of these and other risks that may cause actual results to differ from expectations, please refer to the Risk Factors section of this document. The forward-looking statements contained or incorporated by reference in this document relate only to circumstances as of the date on which the statements are made. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
PART I

ITEM 1. Business

General
Associated Banc-Corp is a bank holding company registered pursuant to the BHC Act. Our bank subsidiary, Associated Bank traces its history back to the founding of the Bank of Neenah in 1861. We were incorporated in Wisconsin in 1964 and were inactive until 1969 when permission was received from the Federal Reserve Board to acquire three banks. At December 31, 2019, we owned one nationally chartered commercial bank headquartered in Green Bay, Wisconsin, which serves local communities across the upper Midwest, one nationally chartered trust company headquartered in Wisconsin, and 12 limited purpose banking and nonbanking subsidiaries either located in or conducting business primarily in our three-state footprint (Wisconsin, Illinois, and Minnesota) that are closely related or incidental to the business of banking or financial in nature. Measured by total assets reported at December 31, 2019, we are the largest commercial bank holding company headquartered in Wisconsin and one of the top 50, publicly traded, bank holding companies headquartered in the U.S.
Services
Through Associated Bank and various nonbanking subsidiaries, we provide a broad array of banking and nonbanking products and services to individuals and businesses through 248 banking branches at December 31, 2019 serving more than 120 communities, primarily within our three state branch footprint. Our business is primarily relationship-driven and is organized into three reportable segments: Corporate and Commercial Specialty; Community, Consumer, and Business; and Risk Management and Shared Services.
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See Note 21 Segment Reporting of the notes to consolidated financial statements in Part II, Item 8, Financial Statements and Supplementary Data, for additional information concerning our reportable segments.
We are not dependent upon a single or a few customers, the loss of which would have a material adverse effect on us.
Employees
At December 31, 2019, we had 4,669 full-time equivalent employees. None of our employees are represented by unions.
Competition
The financial services industry is highly competitive. We compete for loans, deposits, and financial services in all of our principal markets. We compete directly with other bank and nonbank institutions located within our markets, internet-based banks, out-of-market banks and bank holding companies that advertise or otherwise serve our markets, money market funds and other mutual funds, brokerage houses, and various other financial institutions. Additionally, we compete with insurance companies, leasing companies, regulated small loan companies, credit unions, governmental agencies and commercial entities offering financial services products, including nonbank lenders and so-called financial technology companies. Competition involves, among other things, efforts to retain current customers and to obtain new loans and deposits, the scope and types of services offered, interest rates paid on deposits and charged on loans, as well as other aspects of banking. We also face direct competition from subsidiaries of bank holding companies that have far greater assets and resources than ours.
Supervision and Regulation
Overview
The Corporation and its banking and nonbanking subsidiaries are subject to extensive regulation and oversight both at the federal and state levels. The following is an overview of the statutory and regulatory framework that affects the business of the Corporation and our subsidiaries.
Bank Holding Company Act Requirements
As a registered bank holding company under the BHC Act, we are regulated, supervised, and examined by the Federal Reserve. In connection with applicable requirements, bank holding companies file periodic reports and other information with the Federal Reserve. The BHC Act also governs the activities that are permissible for bank holding companies and their affiliates and permits the Federal Reserve, in certain circumstances, to issue cease and desist orders and other enforcement actions against bank holding companies and their nonbanking affiliates to correct and curtail unsafe or unsound banking practices. Under the Dodd-Frank Act and longstanding Federal Reserve policy, bank holding companies are required to act as a source of financial strength to each of their banking subsidiaries pursuant to which such holding company may be required to commit financial resources to support such subsidiaries in circumstances when, absent such requirements, they might not otherwise do so. The BHC Act further regulates holding company activities, including requirements and limitations relating to capital, transactions with officers, directors and affiliates, securities issuances, dividend payments, inter-affiliate liabilities, extensions of credit, and expansion through mergers and acquisitions.
The BHC Act allows certain qualifying bank holding companies that elect treatment as “financial holding companies” to engage in activities that are financial in nature and that explicitly include the underwriting and sale of insurance. The Parent Company thus far has not elected to be treated as a financial holding company. Bank holding companies that have not elected such treatment generally must limit their activities to banking activities and activities that are closely related to banking.
Regulation of Associated Bank and Trust Company Subsidiaries
Associated Bank and our nationally chartered trust company subsidiary are regulated, supervised and examined by the OCC. The OCC has primary supervisory and regulatory authority over the operations of Associated Bank and the Corporation's trust company subsidiaries. As part of this authority, Associated Bank and our trust company subsidiaries are required to file periodic reports with the OCC and are subject to regulation, supervision and examination by the OCC. To support its supervisory function, the OCC has the authority to assess and charge fees on all national banks according to a set fee schedule. On November 25, 2019, the OCC announced that it will reduce the rates in all fee schedules by 10 percent for the 2020 calendar year, thus reducing the assessment fees that Associated Bank will pay in 2020.

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Associated Bank, our only subsidiary that accepts insured deposits, is also subject to examination by the FDIC. We are subject to the enforcement and rule-making authority of the CFPB regarding consumer financial products. The CFPB has the authority to create and enforce consumer protection rules and regulations and has the power to examine us for compliance with such rules and regulations. The CFPB also has the authority to prohibit “unfair, deceptive or abusive” acts and practices. The CFPB has examination and enforcement authority over all banks with more than $10 billion in assets, such as Associated Bank. The Dodd-Frank Act weakens the federal preemption available for national banks and gives broader rights to state attorneys general to enforce certain federal consumer protection laws. On May 24, 2018, the President signed into law the Economic Growth Act, which repealed or modified several important provisions of the Dodd-Frank Act. Among other things, the Economic Growth Act raises the total asset thresholds to $250 billion for Dodd-Frank Act annual company-run stress testing, leverage limits, liquidity requirements, and resolution planning requirements for bank holding companies, subject to the ability of the Federal Reserve to apply such requirements to institutions with assets of $100 billion or more to address financial stability risks or safety and soundness concerns. On October 10, 2019, the OCC adopted a final rule implementing portions of the Economic Growth Act, which, among other things, raises the minimum threshold for national banks to conduct stress tests from $10 billion to $250 billion. As a result of the final rule, which was effective as of November 24, 2019, the Bank is no longer subject to Dodd-Frank Act stress testing requirements.

The Economic Growth Act also enacted several important changes in some technical compliance areas, for which the banking agencies have now issued certain corresponding guidance documents and/or proposed or final rules, including:
Prohibiting federal banking regulators from imposing higher capital standards on HVCRE exposures unless they are for ADC, and clarifying ADC status;
Requiring the federal banking agencies to amend the Liquidity Coverage Ratio Rule such that all qualifying investment-grade, liquid and readily-marketable municipal securities are treated as level 2B liquid assets, making them more attractive investment alternatives;
Exempting from appraisal requirements certain transactions involving real property in rural areas and valued at less than $400,000; and
Directing the CFPB to provide guidance on the applicability of the TILA-RESPA Integrated Disclosure rule to mortgage assumption transactions and construction-to-permanent home loans, as well the extent to which lenders can rely on model disclosures that do not reflect recent regulatory changes.
Banking Acquisitions
We are required to obtain prior Federal Reserve approval before acquiring more than 5% of the voting shares, or substantially all of the assets, of a bank holding company, bank or savings association. In addition, the prior approval of the OCC is required for a national bank to merge with another bank or purchase the assets or assume the deposits of another bank. In determining whether to approve a proposed bank acquisition, federal bank regulators will consider, among other factors, the effect of the acquisition on competition, the public benefits expected to be received from the acquisition, the projected capital ratios and levels on a post-acquisition basis, and the acquiring institution’s record of addressing the credit needs of the communities it serves, including the needs of low and moderate income neighborhoods, consistent with the safe and sound operation of the bank, under the CRA. See the Risk Factors section for a more extensive discussion of this topic.
Banking Subsidiary Dividends
The Parent Company is a legal entity separate and distinct from the Bank and other nonbanking subsidiaries. A substantial portion of our cash flow comes from dividends paid to us by Associated Bank. The OCC’s prior approval of the payment of dividends by Associated Bank to the Parent Company is required only if the total of all dividends declared by the Bank in any calendar year exceeds the sum of the Bank’s retained net income for that year and its retained net income for the preceding two calendar years, less any required transfers to surplus. Federal law also prohibits national banks from paying dividends that would be greater than the bank’s undivided profits after deducting statutory bad debt in excess of the bank’s allowance for loan losses. In addition, under the FDICIA, an insured depository institution, such as the Bank, is prohibited from making capital distributions, including the payment of dividends, if, after making such distribution, the institution would become “undercapitalized” (as such term is used in the FDICIA).
Holding Company Dividends
In addition, we and the Bank are subject to various general regulatory policies and requirements relating to the payment of dividends, including requirements to maintain adequate capital above regulatory minimums. The appropriate federal regulatory authority is authorized to determine under certain circumstances relating to the financial condition of a bank or bank holding
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company that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof. Under the Dodd-Frank Act and the requirements of the FRB, the Parent Company, as a bank holding company, is required to serve as a source of financial strength to the Bank and to commit resources to support the Bank. In addition, consistent with its “source of strength” policy, the FRB has stated that, as a matter of prudent banking, a bank holding company should not maintain a level of cash dividends to its shareholders that places undue pressure on the capital of its bank subsidiaries, or that can be funded only through additional borrowings or other arrangements that may undermine the bank holding company’s ability to serve as a source of strength. The appropriate federal regulatory authorities have indicated that paying dividends that deplete a bank’s capital base to an inadequate level would be an unsafe and unsound banking practice and that banking organizations should generally pay dividends only out of current operating earnings.
Capital Requirements
We are subject to various regulatory capital requirements both at the Parent Company and at the Bank level administered by the Federal Reserve and the OCC, respectively. Failure to meet minimum capital requirements could result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have an adverse material effect on our financial condition and results of operations. Under capital adequacy guidelines and the regulatory framework for prompt corrective action (described below), we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting policies. Our capital amounts and classification are also subject to judgments by the regulators regarding qualitative components, risk weightings, and other factors. We have consistently maintained regulatory capital ratios at or above the well capitalized standards.
In July 2013, the Federal Reserve and the OCC issued final rules establishing a new comprehensive capital framework for U.S. banking organizations. These rules implemented certain provisions of the Dodd-Frank Act and Basel III. The final rules seek to strengthen the components of regulatory capital, increase risk-based capital requirements, and make selected changes to the calculation of risk-weighted assets. The final rules, among other things:
revise minimum capital requirements and adjust prompt corrective action thresholds;
revise the components of regulatory capital and create a new capital measure called “Common Equity Tier 1,” which must constitute at least 4.5% of risk-weighted assets;
specify that Tier 1 capital consists only of Common Equity Tier 1 and certain “Additional Tier 1 Capital” instruments meeting specified requirements;
apply most deductions / adjustments to regulatory capital measures to Common Equity Tier 1 and not to other components of capital, potentially requiring higher levels of Common Equity Tier 1 in order to meet minimum ratio requirements;
increase the minimum Tier 1 capital ratio requirement from 4% to 6%;
retain the existing risk-based capital treatment for 1-4 family residential mortgage exposures;
permit most banking organizations, including the Parent Company, to retain, through a one-time permanent election, the existing capital treatment for accumulated other comprehensive income;
implement a new capital conservation buffer of Common Equity Tier 1 capital equal to 2.5% of risk-weighted assets, which will be in addition to the 4.5% Common Equity Tier 1 capital ratio and be phased in over a three year period beginning January 1, 2016. This buffer is generally required to make capital distributions and pay executive bonuses;
increase capital requirements for past due loans, high volatility commercial real estate exposures, and certain short-term loan commitments;
require the deduction of mortgage servicing assets and deferred tax assets that exceed 10% of Common Equity Tier 1 capital in each category and 15% of Common Equity Tier 1 capital in the aggregate; and
remove references to credit ratings consistent with the Dodd-Frank Act and establish due diligence requirements for securitization exposures.
In November 2017, the federal banking agencies adopted a final rule to extend the regulatory capital treatment applicable during 2017 under the capital rules for certain items, including regulatory capital deductions, risk weights, and certain minority interest limitations. The relief provided under the final rule applies to banking organizations that are not subject to the capital rule's advanced approaches, such as the Corporation. Specifically, the final rule extends the 2017 regulatory capital treatment of MSAs and DTAs arising from temporary differences that could not be realized through net operating loss carrybacks,
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significant investments in the capital of unconsolidated financial institutions in the form of common stock, non-significant investments in the capital of unconsolidated financial institutions, significant investments in the capital of unconsolidated financial institutions that are not in the form of common stock, and common equity tier 1 minority interest, tier 1 minority interest, and total capital minority interest exceeding the capital rules’ minority interest limitations.
In July 2019, the federal banking agencies issued a final rule simplifying aspects of the capital rule, the key elements of which apply solely to banking organizations that are not subject to the advanced approaches capital rule. Under the final rule, banking organizations which are not subject to the advanced approaches capital rule, such as the Corporation, will be subject to simpler regulatory capital requirements for MSAs, certain DTAs arising from temporary differences, and investments in the capital of unconsolidated financial institutions, compared to those currently applied. The final rule also simplifies the calculation for the amount of capital issued by a consolidated subsidiary of a banking organization and held by third parties (sometimes referred to as a minority interest) that is includable in regulatory capital.

Specifically, the final rule eliminates: (i) the capital rule’s 10 percent common equity tier 1 capital deduction threshold that applies individually to MSAs, temporary difference DTAs, and significant investments in the capital of unconsolidated financial institutions in the form of common stock; (ii) the aggregate 15 percent common equity tier 1 capital deduction threshold that subsequently applies on a collective basis across such items; (iii) the 10 percent common equity tier 1 capital deduction threshold for non-significant investments in the capital of unconsolidated financial institutions; and (iv) the deduction treatment for significant investments in the capital of unconsolidated financial institutions not in the form of common stock. The capital rule will no longer have distinct treatments for significant and non-significant investments in the capital of unconsolidated financial institutions, but instead will require that banking organizations not subject to the advanced approaches capital rule deduct from common equity tier 1 capital any amount of MSAs, temporary difference DTAs, and investments in the capital of unconsolidated financial institutions that individually exceeds 25 percent of common equity tier 1 capital. The final rule will be effective on April 1, 2020, and supersedes the transition rule the federal banking agencies adopted in 2017 to allow banking organizations not subject to the advanced approaches capital rule to continue to apply the transition treatment in effect in 2017.

In December 2019, the federal banking agencies issued a final rule on the capital treatment of HVCRE exposures which brought the regulatory definition of HVCRE exposure in line with the statutory definition of HVCRE ADC in the Economic Growth Act. The final rule also clarifies the capital treatment for loans that finance the development of land under the revised HVCRE exposure definition and establishes the requirements for certain exclusions from HVCRE exposures capital treatment.
We believe we will continue to exceed all capital requirements necessary to be deemed “well-capitalized” for all regulatory purposes under these new rules on a fully phased-in basis. For further detail on capital and capital ratios see discussion under the Liquidity and Capital sections under Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and under Part II, Item 8, Financial Statements and Supplementary Data, Note 19 Regulatory Matters of the notes to consolidated financial statements.
In December 2017, the Basel Committee on Banking Supervision published the last version of the Basel III accord, generally referred to as “Basel IV.” The Basel Committee stated that a key objective of the revisions incorporated into the framework is to reduce excessive variability of risk-weighted assets, which will be accomplished by enhancing the robustness and risk sensitivity of the standardized approaches for credit risk and operational risk. This will facilitate the comparability of banks’ capital ratios, constraining the use of internally modeled approaches, and complementing the risk-weighted capital ratio with a finalized leverage ratio and a revised and robust capital floor. Leadership of the Federal Reserve, OCC, and FDIC, who are tasked with implementing Basel IV, supported the revisions. Under the current U.S. capital rules, operational risk capital requirements and a capital floor apply only to advanced approaches institutions, and not to the Corporation. The impact of Basel IV on us will depend on the manner in which it is implemented by the federal bank regulators.
Current Expected Credit Loss Treatment
In June 2016, the FASB issued an accounting standard update, “Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments,” which replaces the current “incurred loss” model for recognizing credit losses with an “expected loss” model referred to as the CECL model. Under the CECL model, we will be required to present certain financial assets carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, at the net amount expected to be collected. The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. On December 21, 2018, the federal banking agencies approved a final rule modifying their regulatory capital rules and providing an option to phase in over a period of three years the day-one regulatory capital effects of the CECL model. The final rule also revises the agencies’ other rules to reflect the update to the accounting standards. The final rule took effect April 1, 2019.
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The new CECL standard will become effective for us for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years. We expect to recognize a one-time cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which we adopt the new standard, consistent with regulatory expectations set forth in interagency guidance issued at the end of 2016. We incurred transition costs and also expect to incur ongoing costs in maintaining the additional CECL models and methodology along with acquiring forecasts used within the models, and that the methodology will result in increased capital costs upon initial adoption as well as over time.
In October 2019, four federal banking agencies issued a request for comment on a proposed interagency policy statement on the new CECL methodology. The policy statement proposes to harmonize the agencies' policies on allowance for credit losses with the FASB's new accounting standards. Specifically, the statement (1) updates concepts and practices from prior policy statements issued in December 2006 and July 2001 and specifies which prior guidance documents are no longer relevant; (2) describes the appropriate CECL methodology, in light of Topic 326, for determining ACLs on financial assets measured at amortized cost, net investments in leases, and certain off-balance sheet credit exposures; and (3) describes how to estimate an ACL for an impaired available-for-sale debt security in line with Topic 326. The proposed policy statement would be effective at the time that each institution adopts the new standards required by the FASB. The impact at adoption is expected to have an after tax impact of a $70 million to $80 million decrease in the opening stockholders' equity balance and a corresponding 21bps to 24bps decrease to the tangible common equity ratio. See Note 1 Summary of Significant Accounting Policies of the notes to consolidated financial statements for additional information on the Corporation's impact of adoption.
Capital Planning and Stress Testing Requirements
As part of the regulatory relief provided by the Economic Growth Act, the asset threshold requiring insured depository institutions to conduct and report to their primary federal bank regulators annual company-run stress tests was raised from $10 billion to $250 billion in total consolidated assets and the requirement was made “periodic” rather than annual. Upon enactment, the Economic Growth Act also provided that bank holding companies under $100 billion in assets were no longer subject to stress testing requirements. The amended regulations also provide the Federal Reserve with discretion to subject bank holding companies with more than $100 billion in total assets to enhanced supervision. In addition, Section 214 of the Economic Growth Act and its implementing regulation prohibit the federal banking agencies from requiring the Bank to assign a heightened risk weight to certain HVCRE ADC loans as previously required under the Basel III Capital Rules. Notwithstanding these regulatory amendments, the federal banking agencies indicated through interagency guidance that the capital planning and risk management practices of institutions with total assets less than $100 billion would continue to be reviewed through the regular supervisory process. Although the Corporation will continue to monitor and stress test its capital consistent with the safety and soundness expectations of the federal regulators, the Corporation will no longer publish stress testing results as a result of the legislative and regulatory amendments.
Enforcement Powers of the Federal Banking Agencies; Prompt Corrective Action
The Federal Reserve, the OCC, and the CFPB have extensive supervisory authority over their regulated institutions, including, among other things, the power to compel higher reserves, the ability to assess civil money penalties, the ability to issue cease-and-desist or removal orders and the ability to initiate injunctive actions. In general, these enforcement actions may be initiated for violations of laws and regulations or for unsafe or unsound banking practices. Other actions or inactions by the Parent Company may provide the basis for enforcement action, including misleading or untimely reports.
Federal banking regulators are authorized and, under certain circumstances, required to take certain actions against banks that fail to meet their capital requirements. The federal banking agencies have additional enforcement authority with respect to undercapitalized depository institutions.
“Well capitalized” institutions may generally operate without supervisory restriction. “Adequately capitalized” institutions cannot normally pay dividends or make any capital contributions that would leave them undercapitalized; they cannot pay a management fee to a controlling person if, after paying the fee, they would be undercapitalized; and they cannot accept, renew or roll over any brokered deposit unless the bank has applied for and been granted a waiver by the FDIC.
We note that the Economic Growth Act provides that reciprocal deposits are not treated as brokered deposits in the case of a “well capitalized” institution that received an “outstanding” or a “good” rating on its most recent examination to the extent the amount of such deposits does not exceed the lesser of $5 billion or 20% of the bank’s total liabilities.
The federal banking agencies are required to take action to restrict the activities of an “undercapitalized,” “significantly undercapitalized,” or “critically undercapitalized” insured depository institution. Any such bank must submit a capital restoration plan that is guaranteed by the parent holding company. Until such plan is approved, it may not increase its assets, acquire another institution, establish a branch or engage in any new activities, and generally may not make capital distributions.
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In certain situations, a federal banking agency may reclassify a well-capitalized institution as adequately capitalized and may require an adequately capitalized or undercapitalized institution to comply with supervisory actions as if the institution were in the next lower category.
Institutions must file a capital restoration plan with the OCC within 45 days of the date it receives a notice from the OCC that it is “undercapitalized,” “significantly undercapitalized,” or “critically undercapitalized.” Compliance with a capital restoration plan must be guaranteed by a parent holding company. In addition, the OCC is permitted to take any one of a number of discretionary supervisory actions, including but not limited to the issuance of a capital directive and the replacement of senior executive officers and directors.
Finally, bank regulatory agencies have the ability to impose higher than normal capital requirements known as individual minimum capital requirements for institutions with a high-risk profile.
At December 31, 2019, the Bank satisfied the capital requirements necessary to be deemed “well capitalized.” In the event of a change to this status, the imposition of any of the measures described above could have a material adverse effect on the Corporation and on its profitability and operations. The Corporation’s shareholders do not have preemptive rights and, therefore, if the Corporation is directed by the OCC or the FDIC to issue additional shares of common stock, such issuance may result in dilution in shareholders’ percentage of ownership of the Corporation.
Deposit Insurance Premiums
Associated Bank is a member of the FDIC and pays an insurance premium to the FDIC based upon its assessment rates on a quarterly basis. Deposits are insured up to applicable limits by the FDIC and such insurance is backed by the full faith and credit of the United States Government.
Under the Dodd-Frank Act, a permanent increase in deposit insurance was authorized to $250,000 per depositor, per insured depository institution for each account ownership category.
The Dodd-Frank Act also set the minimum DIF reserve ratio at 1.35% of estimated insured deposits. The FDIC is required to attain this ratio by September 30, 2020. The Dodd-Frank Act also required the FDIC to define the deposit insurance assessment base for an insured depository institution as an amount equal to the institution’s average consolidated total assets during the assessment period minus average tangible equity. The assessment rate schedule for larger institutions like Associated Bank (i.e., institutions with at least $10 billion in assets) differentiates between such large institutions by use of a “scorecard” that combines an institution’s CAMELS ratings with certain forward-looking financial information to measure the risk to the DIF. Pursuant to this “scorecard” method, two scores (a performance score and a loss severity score) will be combined and converted to an initial base assessment rate. The performance score measures an institution’s financial performance and ability to withstand stress. The loss severity score measures the relative magnitude of potential losses to the DIF in the event of the institution’s failure. Total scores are converted pursuant to a predetermined formula into an initial base assessment rate. Assessment rates range from 2.5 bp to 45 bp for large institutions. Premiums for Associated Bank are now calculated based upon the average balance of total assets minus average tangible equity as of the close of business for each day during the calendar quarter.
The FDIC has the flexibility to adopt actual rates that are higher or lower than the total base assessment rates adopted without notice and comment, if certain conditions are met.
On September 30, 2018, the DIF reserve ratio reached 1.36 percent, exceeding the statutorily required minimum reserve ratio of 1.35 percent ahead of the September 30, 2020, deadline required under the Dodd-Frank Act. FDIC regulations provide that, upon reaching the minimum, surcharges on insured depository institutions with total consolidated assets of $10 billion or more will cease. The last quarterly surcharge was reflected in the Bank’s December 2018 assessment invoice, which covered the assessment period from July 1, 2018 through September 30, 2018. The Bank's assessment invoices have not included a quarterly surcharge since that time.
Assessment rates, which declined for all banks when the reserve ratio first surpassed 1.15 percent in the third quarter of 2016, are expected to remain unchanged. Assessment rates are scheduled to decrease when the reserve ratio exceeds 2 percent.
DIF-insured institutions pay a FICO assessment in order to fund the interest on bonds issued in the 1980s in connection with the failures in the thrift industry. The FICO assessment was computed on assets as required by the Dodd-Frank Act. These assessments continued until the bonds matured in September 2019. The Corporation’s combined assessment rate for FDIC and FICO assessments was approximately 6 bps for 2019.
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The FDIC is authorized to conduct examinations of and require reporting by FDIC-insured institutions. It is also authorized to terminate a depository bank’s deposit insurance upon a finding by the FDIC that the bank’s financial condition is unsafe or unsound or that the institution has engaged in unsafe or unsound practices or has violated any applicable rule, regulation, order or condition enacted or imposed by the bank’s regulatory agency. The termination of deposit insurance for our national bank subsidiary would have a material adverse effect on our earnings, operations and financial condition.
Historically, deposit insurance premiums we have paid to the FDIC have been deductible for federal income tax purposes; however, the Tax Act disallows the deduction of such premium payments for banking organizations with total consolidated assets of $50 billion or more. For banks with less than $50 billion in total consolidated assets, such as ours, the premium deduction is phased out based on the proportion of a bank’s assets exceeding $10 billion.
On December 12, 2019, the FDIC issued a proposed rule on brokered deposits. The proposed rule aims to clarify and modernize the FDIC's existing regulatory framework for brokered deposits. Notable aspects of the proposed rule include language (1) defining the operative prongs of the definition of a "deposit broker"; (2) creating three general tests to determine the applicability of the "primary purpose" exception; (3) establishing an application process for entities that wish to make use of the primary purpose exception; and (4) allowing wholly-owned subsidiaries of IDIs to make use of the "IDI" (or the "own bank") exception.
Standards for Safety and Soundness
The federal banking agencies have adopted the Interagency Guidelines for Establishing Standards for Safety and Soundness (the “Guidelines”). The Guidelines establish certain safety and soundness standards for all depository institutions. The operational and managerial standards in the Guidelines relate to the following: (1) internal controls and information systems; (2) internal audit systems; (3) loan documentation; (4) credit underwriting; (5) interest rate exposure; (6) asset growth; (7) compensation, fees and benefits; (8) asset quality; and (9) earnings. Rather than providing specific rules, the Guidelines set forth basic compliance considerations and guidance with respect to a depository institution. Failure to meet the standards in the Guidelines, however, could result in a request by the OCC to one of the nationally chartered banks to provide a written compliance plan to demonstrate its efforts to come into compliance with such Guidelines. Failure to provide a plan or to implement a provided plan requires the appropriate federal banking agency to issue an order to the institution requiring compliance.
Transactions with Affiliates and Insiders
Transactions between our national banking subsidiary and its related parties or any affiliate are governed by Sections 23A and 23B of the Federal Reserve Act. An affiliate is any company or entity, which controls, is controlled by or is under common control with the bank. In a holding company context, at a minimum, the parent holding company of a national bank, and any companies that are controlled by such parent holding company, are affiliates of the bank. Generally, Sections 23A and 23B (i) limit the extent to which an institution or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10% of such institution’s capital stock and surplus, and contain an aggregate limit on all such transactions with all affiliates to an amount equal to 20% of such capital stock and surplus, and (ii) require that all such transactions be on terms substantially the same, or at least as favorable, to the institution or subsidiary as those provided to a nonaffiliate. The term “covered transaction” includes the making of loans, purchase of assets, issuance of a guarantee and similar types of transactions. Certain types of covered transactions must be collateralized according to a schedule set forth in the statute based on the type of collateral.
Certain transactions with our directors, officers or controlling persons are also subject to conflicts of interest regulations. Among other things, these regulations require that loans to such persons and their related interests be made on terms substantially the same as for loans to unaffiliated individuals and must not create an abnormal risk of repayment or other unfavorable features for the financial institution. See Note 4 Loans of the notes to consolidated financial statements in Part II, Item 8, Financial Statements and Supplementary Data, for additional information on loans to related parties.
Community Reinvestment Act Requirements
Associated Bank is subject to periodic CRA reviews by the OCC. The CRA does not establish specific lending requirements or programs for financial institutions and does not limit the ability of such institutions to develop products and services believed best-suited for a particular community. An institution’s CRA assessment may be used by its regulators in their evaluation of certain applications, including a merger, acquisition or the establishment of a branch office. An unsatisfactory rating may be used as the basis for denial of such an application. The Bank received a “Satisfactory” CRA rating in its most recent evaluation.
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On December 12, 2019, the FDIC and the OCC issued a proposed rule to modernize their respective agencies' regulations under the CRA. The proposed rule would (1) clarify which activities qualify for CRA credit and (2) require banks to identify an additional assessment area based on where they receive a significant portion of their domestic retail products, thus creating two assessment areas: a deposit-based assessment area and a facility-based assessment area. The Federal Reserve chose not to participate in the current proposed rulemaking which causes uncertainty as to the content and timing of any final rule.
Privacy, Data Protection, and Cybersecurity
We are subject to a number of U.S. federal, state, local and foreign laws and regulations relating to consumer privacy and data protection. Under privacy protection provisions of the Gramm-Leach-Bliley Act of 1999 and its implementing regulations and guidance, we are limited in our ability to disclose non-public information about consumers to nonaffiliated third parties. Financial institutions, such as the Bank, are required by statute and regulation to disclose their privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a nonaffiliated third party. In addition, such financial institutions must appropriately safeguard its customers’ nonpublic, personal information.

In many jurisdictions, including every U.S. state, consumers must be notified in the event of a data breach. The changing privacy laws in the United States, Europe and elsewhere, including the California Consumer Privacy Act, which became effective in January 2020, create new individual privacy rights and impose increased obligations on companies handling personal data. In addition, multiple states, Congress and regulators outside the United States are considering similar laws or regulations which could create new individual privacy rights and impose increased obligations on companies handling personal data.

Federal banking agencies, including the OCC, have adopted guidelines for establishing information security standards and cybersecurity programs for implementing safeguards under the supervision of the board of directors. These guidelines, along with related regulatory materials, increasingly focus on risk management and processes related to information technology and the use of third parties in the provision of financial services. In October 2016, the federal banking agencies issued an advance notice of proposed rulemaking on enhanced cybersecurity risk-management and resilience standards that would apply to large and interconnected banking organizations and to services provided by third parties to these firms. These enhanced standards would apply only to depository institutions and depository institution holding companies with total consolidated assets of $50 billion or more, which would not currently include the Corporation.
Recent cyberattacks against banks and other financial institutions that resulted in unauthorized access to confidential customer information have prompted the federal banking regulators to issue extensive guidance on cybersecurity. Among other things, financial institutions are expected to design multiple layers of security controls to establish lines of defense and ensure that their risk management processes address the risks posed by compromised customer credentials, including security measures to authenticate customers accessing internet-based services. A financial institution also should have a robust business continuity program to recover from a cyberattack and procedures for monitoring the security of third-party service providers that may have access to nonpublic data at the institution. During 2019, the Corporation did not discover any material cybersecurity incidents.
Bank Secrecy Act / Anti-Money Laundering
The BSA, which is intended to require financial institutions to develop policies, procedures, and practices to prevent and deter money laundering, mandates that every national bank have a written, board-approved program that is reasonably designed to assure and monitor compliance with the BSA. The program must, at a minimum: (1) provide for a system of internal controls to assure ongoing compliance; (2) provide for independent testing for compliance; (3) designate an individual responsible for coordinating and monitoring day-to-day compliance; and (4) provide training for appropriate personnel. In addition, national banks are required to adopt a customer identification program as part of its BSA compliance program. National banks are also required to file SARs when they detect certain known or suspected violations of federal law or suspicious transactions related to a money laundering activity or a violation of the BSA. In May 2016, the regulations implementing the BSA were amended, effective May 2018, to explicitly include risk-based procedures for conducting ongoing customer due diligence and procedures for understanding the nature and purpose of customer relationships for the purpose of developing a customer risk profile. In addition, FinCEN recently promulgated new customer due diligence and customer identification rules that require banks to identify and verify the identity of the beneficial owners of all legal entity customers (other than those that are excluded) at the time a new account is opened (other than accounts that are exempted), which rules became effective on May 11, 2018.
In addition to complying with the BSA, the Bank is subject to the Patriot Act. The Patriot Act is designed to deny terrorists and criminals the ability to obtain access to the United States’ financial system and has significant implications for depository institutions, brokers, dealers, and other businesses involved in the transfer of money. The Patriot Act mandates that financial service companies implement additional policies and procedures and take heightened measures designed to address any or all of the following matters: customer identification programs, money laundering, terrorist financing, identifying and reporting
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suspicious activities and currency transactions, currency crimes, and cooperation between financial institutions and law enforcement authorities.
On December 3, 2019, three federal banking agencies and FinCEN issued a joint statement clarifying the compliance procedures and reporting requirements that banks must file for customers engaged in the growth or cultivation of hemp, including a clear statement that banks need not file a SAR on customers engaged in the growth or cultivation of hemp in accordance with applicable laws and regulations. This statement does not apply to cannabis-related business; thus, the statement only pertains to customers who are lawfully growing or cultivating hemp and are not otherwise engaged in unlawful or suspicious activity.
Interstate Branching
Pursuant to the Dodd-Frank Act, national and state-chartered banks may open an initial branch in a state other than its home state (e.g., a host state) by establishing a de novo branch at any location in such host state at which a bank chartered in such host state could establish a branch. Applications to establish such branches must still be filed with the appropriate primary federal regulator.
Volcker Rule
The Dodd-Frank Act prohibits insured depository institutions and their holding companies from engaging in proprietary trading except in limited circumstances, and prohibits them from owning equity interests in excess of three percent of Tier 1 Capital in private equity and hedge funds (known as the “Volcker Rule”). On December 10, 2013, five U.S. financial regulators, including the Federal Reserve and the OCC, adopted regulations implementing the Volcker Rule. Those regulations prohibit banking entities from (1) engaging in short-term proprietary trading for their own accounts, and (2) having certain ownership interests in and relationships with hedge funds or private equity funds, which are referred to as “covered funds.” The regulations also require each regulated entity to establish an internal compliance program that is consistent with the extent to which it engages in activities covered by the Volcker Rule. Historically, this meant that the largest banking entities (i.e., those with $50 billion or more in assets) had higher reporting requirements, but in November 2019, five federal banking agencies issued a final rule revising certain aspects of the Volcker Rule. The final rule simplifies and streamlines compliance requirements for firms that do not have significant trading activities and enhances requirements for firms that do. Under the new rule, compliance requirements will be based on the amount of assets and liabilities that a bank trades. Firms with significant trading activities, i.e., those with $20 billion or more in trading assets and liabilities, will have heightened compliance obligations.
The new rule became effective on January 1, 2020, but banking entities will not be required to comply with the new rules until January 1, 2021. Although we will benefit from significantly reduced compliance obligations due to the level of our trading assets being below the $20 billion threshold, we will remain subject to the modified rules and requirements related to covered funds. Accordingly, we expect that the revised rule will reduce some of our compliance costs, but in the short term we may experience some costs in developing and implementing changes in conformance with the new rule.
Incentive Compensation Policies and Restrictions
In July 2010, the federal banking agencies issued guidance on sound incentive compensation policies that applies to all banking organizations supervised by the agencies (thereby including both the Parent Company and the Bank). Pursuant to the guidance, to be consistent with safety and soundness principles, a banking organization’s incentive compensation arrangements should: (1) provide employees with incentives that appropriately balance risk and reward; (2) be compatible with effective controls and risk management; and (3) be supported by strong corporate governance including active and effective oversight by the banking organization’s board of directors. Monitoring methods and processes used by a banking organization should be commensurate with the size and complexity of the organization and its use of incentive compensation.
In accordance with the Dodd-Frank Act, the federal banking agencies prohibit incentive-based compensation arrangements that encourage inappropriate risk taking by covered financial institutions (generally institutions that have over $1 billion in assets) and are deemed to be excessive, or that may lead to material losses.
The Federal Reserve will review, as part of its standard, risk-focused examination process, the incentive compensation arrangements of banking organizations, such as the Corporation, that are not “large, complex banking organizations.” These reviews will be tailored to each organization based on the scope and complexity of the organization’s activities and the prevalence of incentive compensation arrangements. The findings of the supervisory initiatives will be included in reports of examination. Deficiencies will be incorporated into the organization’s supervisory ratings, which can affect the organization’s ability to make acquisitions and take other actions. Enforcement actions may be taken against a banking organization if its
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incentive compensation arrangements, or related risk-management control or governance processes, pose a risk to the organization’s safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.
The scope and content of the U.S. banking regulators’ policies on executive compensation may continue to evolve in the near future. It cannot be determined at this time whether compliance with such policies will adversely affect the Corporation’s ability to hire, retain and motivate its key employees.
Consumer Financial Services Regulations
Federal and applicable state banking laws also require us to take steps to protect consumers. Bank regulatory agencies are increasingly focusing attention on compliance with consumer protection laws and regulations. These laws include disclosures regarding truth in lending, truth in savings, and funds availability.
To promote fairness and transparency for mortgages, credit cards, and other consumer financial products and services, the Dodd-Frank Act established the CFPB. This agency is responsible for interpreting and enforcing federal consumer financial laws, as defined by the Dodd-Frank Act, that, among other things, govern the provision of deposit accounts along with mortgage origination and servicing. Some federal consumer financial laws enforced by the CFPB include the Equal Credit Opportunity Act, TILA, the Truth in Savings Act, the Home Mortgage Disclosure Act, RESPA, the Fair Debt Collection Practices Act, and the Fair Credit Reporting Act. The CFPB is also authorized to prevent any institution under its authority from engaging in an unfair, deceptive, or abusive act or practice in connection with consumer financial products and services.
Under TILA as implemented by Regulation Z, as amended by the CFPB effective January 10, 2014, mortgage lenders are required to make a reasonable and good faith determination based on verified and documented information that a consumer applying for a mortgage loan has a reasonable ability to repay the loan according to its terms. Mortgage lenders are required to determine consumers’ ability to repay in one of two ways. The first alternative requires the mortgage lender to consider the following eight underwriting factors when making the credit decision: (1) current or reasonably expected income or assets; (2) current employment status; (3) the monthly payment on the covered transaction; (4) the monthly payment on any simultaneous loan; (5) the monthly payment for mortgage-related obligations; (6) current debt obligations, alimony, and child support; (7) the monthly debt-to-income ratio or residual income; and (8) credit history. Alternatively, the mortgage lender can originate “qualified mortgages,” which are entitled to a presumption that the creditor making the loan satisfied the ability-to-repay requirements. In general, a “qualified mortgage” is a mortgage loan without negative amortization, interest-only payments, balloon payments, or terms exceeding 30 years. In addition, to be a qualified mortgage the points and fees paid by a consumer cannot exceed 3% of the total loan amount. Qualified mortgages that are “higher-priced” (e.g., subprime loans) garner a rebuttable presumption of compliance with the ability-to-repay rules, while qualified mortgages that are not “higher-priced” (e.g., prime loans) are given a safe harbor of compliance. The Corporation is predominantly an originator of compliant qualified mortgages.
Additionally, the CFPB has the authority to take supervisory and enforcement action against banks and other financial services companies under the agency’s jurisdiction that fail to comply with federal consumer financial laws. As an insured depository institution with total assets of more than $10 billion, the Bank is subject to the CFPB’s supervisory and enforcement authorities. The Dodd-Frank Act also permits states to adopt stricter consumer protection laws and state attorneys general to enforce consumer protection rules issued by the CFPB. As a result of these aspects of the Dodd-Frank Act, the Bank operates in a stringent consumer compliance environment. Therefore, the Bank is likely to incur additional costs related to consumer protection compliance, including but not limited to potential costs associated with CFPB examinations, regulatory and enforcement actions and consumer-oriented litigation, which is likely to increase as a result of the consumer protection provisions of the Dodd-Frank Act. The CFPB has been active in bringing enforcement actions against banks and other financial institutions to enforce consumer financial laws. The federal financial regulatory agencies, including the OCC and states attorneys general, also have become increasingly active in this area with respect to institutions over which they have jurisdiction. We have incurred and may in the future incur additional costs in complying with these requirements.
Pursuant to the Dodd-Frank Act, the FDIC has backup enforcement authority over a depository institution holding company, such as the Parent Company, if the conduct or threatened conduct of such holding company poses a risk to the DIF, although such authority may not be used if the holding company is generally in sound condition and does not pose a foreseeable and material risk to the DIF. The Dodd-Frank Act may have a material impact on the Corporation’s and the Bank’s operations, particularly through increased compliance costs resulting from possible future consumer and fair lending regulations. See the Risk Factors section for a more extensive discussion of this topic.
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Other Banking Regulations
The Bank is also subject to a variety of other regulations with respect to the operation of its businesses, including but not limited to the Dodd-Frank Act, which among other restrictions placed limitations on the interchange fees charged for debit card transactions, TILA, Truth in Savings Act, Equal Credit Opportunity Act, Electronic Funds Transfer Act, Fair Housing Act, Home Mortgage Disclosure Act, Fair Debt Collection Practices Act, Fair Credit Reporting Act, Expedited Funds Availability (Regulation CC), Reserve Requirements (Regulation D), Insider Transactions (Regulation O), Privacy of Consumer Information (Regulation P), Margin Stock Loans (Regulation U), Right To Financial Privacy Act, Flood Disaster Protection Act, Homeowners Protection Act, Servicemembers Civil Relief Act, RESPA, Telephone Consumer Protection Act, CAN-SPAM Act, Children’s Online Privacy Protection Act, and the John Warner National Defense Authorization Act.
The laws and regulations to which we are subject are constantly under review by Congress, the federal regulatory agencies, and the state authorities. These laws and regulations could be changed drastically in the future, which could affect our profitability, our ability to compete effectively, or the composition of the financial services industry in which we compete.
Government Monetary Policies and Economic Controls
Our earnings and growth, as well as the earnings and growth of the banking industry, are affected by the credit policies of monetary authorities, including the Federal Reserve. An important function of the Federal Reserve is to regulate the national supply of bank credit in order to combat recession and curb inflationary pressures. Among the instruments of monetary policy used by the Federal Reserve to implement these objectives are open market operations in U.S. government securities, changes in reserve requirements against member bank deposits, and changes in the Federal Reserve discount rate. These instruments are used in varying combinations to influence overall growth of bank loans, investments, and deposits, and may also affect interest rates charged on loans or paid for deposits. The monetary policies of the Federal Reserve authorities have had a significant effect on the operating results of commercial banks in the past and are expected to continue to have such an effect in the future.
In view of changing conditions in the national economy and in money markets, as well as the effect of credit policies by monetary and fiscal authorities, including the Federal Reserve, it is difficult to predict the impact of possible future changes in interest rates, deposit levels, and loan demand, or their effect on our business and earnings or on the financial condition of our various customers.
Other Regulatory Authorities
In addition to regulation, supervision and examination by federal banking agencies, the Corporation and certain of its subsidiaries, including those that engage in securities brokerage, dealing and investment advisory activities, are subject to other federal and applicable state securities laws and regulations, and to supervision and examination by other regulatory authorities, including the SEC, FINRA, NYSE, DOL and others. Significantly, in June 2018 the U.S. Court of Appeals issued a mandate vacating the DOL’s “fiduciary rule” and related prohibited transaction exemptions. As a result, although the Bank may have taken certain measures to comply with the rule on a transitional basis, the Bank’s securities brokerage and investment advisory services and activities will no longer be affected.
Separately, in June 2019, pursuant to the Dodd-Frank Act, the SEC adopted Regulation Best Interest, which, among other things, establishes a new standard of conduct for a broker-dealer to act in the best interest of a retail customer when making a recommendation of any securities transaction or investment strategy involving securities to such customer. The new rule requires us to review and possibly modify our compliance activities, which is causing us to incur some additional costs. In addition, state laws that impose a fiduciary duty also may require monitoring, as well as require that we undertake additional compliance measures. In addition, the Bank’s insurance agency subsidiary is also subject to regulation and supervision in the various states in which it operates.
The Tax Act was signed into law in December 2017 and includes a number of provisions that impact us, including the following:
Tax Rate. The Tax Act replaced the graduated corporate tax rates applicable under prior law, which imposed a maximum tax rate of 35%, with a reduced 21% flat tax rate. Although the reduced tax rate generally should be favorable to us by resulting in increased earnings and capital, it decreased the value of our then-existing deferred tax assets effective in the fourth quarter of 2017. The effect of remeasuring deferred tax assets due to the reduction in the tax rate is a nonrecurring event that generally is not expected to have a substantial adverse impact on the our core earnings or capital over the long term. Tax planning strategies relating to the 2017 tax year were implemented in 2018 which reduced the amount of the deferred tax assets at December 31, 2017, reducing the decrease in value of the deferred tax assets calculated in the fourth quarter of 2017. The Corporation has recorded and reported the effects of these strategies in its financial statements for the period ended December 31, 2018.
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FDIC Insurance Premiums. The Tax Act prohibits taxpayers with consolidated assets over $50 billion from deducting any FDIC insurance premiums and prohibits taxpayers with consolidated assets between $10 and $50 billion, such as the Bank, from deducting the portion of their FDIC premiums equal to the ratio, expressed as a percentage, that (i) the taxpayer’s total consolidated assets over $10 billion, as of the close of the taxable year, bears to (ii) $40 billion. As a result, Associated Bank’s ability to deduct its FDIC premiums is now limited.
Employee Compensation. A “publicly held corporation” is not permitted to deduct compensation in excess of $1 million per year paid to certain employees. The Tax Act eliminated certain exceptions to the $1 million limit applicable under prior law related to performance-based compensation, such as equity grants and cash bonuses that are paid only on the attainment of performance goals. As a result, our ability to deduct certain compensation paid to our most highly compensated employees is now limited.
Business Asset Expensing. The Tax Act allows taxpayers immediately to expense the entire cost (instead of only 50%, as under prior law) of certain depreciable tangible property and real property improvements acquired and placed in service after September 27, 2017 and before January 1, 2023 (with an additional year for certain property). This 100% “bonus” depreciation is phased out proportionately for property placed in service on or after January 1, 2023 and before January 1, 2027 (with an additional year for certain property).
Interest Expense. The Tax Act limits a taxpayer’s annual deduction of business interest expense to the sum of (i) business interest income and (ii) 30% of “adjusted taxable income,” defined as a business’s taxable income without taking into account business interest income or expense, net operating losses, and, for 2018 through 2021, depreciation, amortization and depletion. Because we generate significant amounts of net interest income, we do not expect to be impacted by this limitation.
The foregoing description of the impact of the Tax Act on us should be read in conjunction with Note 13 Income Taxes of the notes to Consolidated Financial Statements.
Available Information
We file annual, quarterly, and current reports, proxy statements, and other information with the SEC. These filings are available to the public on the Internet at the SEC’s web site at www.sec.gov.
Our principal internet address is www.associatedbank.com. We make available free of charge on or through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. In addition, shareholders may request a copy of any of our filings (excluding exhibits) at no cost by writing at Associated Banc-Corp, Attn: Investor Relations, 433 Main Street, Green Bay, WI 54301 or e-mailing us at investor.relations@associatedbank.com.

ITEM 1A. Risk Factors
An investment in our common stock is subject to risks inherent to our business. The material risks and uncertainties that management believes affect us are described below. Before making an investment decision, you should carefully consider the risks and uncertainties described below, together with all of the other information included or incorporated by reference herein. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that management is not aware of or focused on or that management currently deems immaterial may also impair our business operations. This report is qualified in its entirety by these risk factors. See also, Special Note Regarding Forward-Looking Statements.
If any of the events described in the risk factors should actually occur, our financial condition and results of operations could be materially and adversely affected. If this were to happen, the value of our securities could decline significantly, and you could lose all or part of your investment.
Credit Risks
Changes in economic and political conditions could adversely affect our earnings, as our borrowers’ ability to repay loans and the value of the collateral securing our loans decline. Our success depends, to a certain extent, upon local, national and global economic and political conditions, as well as governmental monetary policies. Conditions such as an economic recession, the impact of international trade negotiations on local and national economies, rising unemployment, changes in interest rates, money supply and other factors beyond our control may adversely affect our asset quality, deposit levels and loan demand and, therefore, our earnings. Because we have a significant amount of real estate loans, decreases in real estate values
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could adversely affect the value of property used as collateral. The OCC recently reported that headwinds facing the U.S. economy strengthened during 2019, despite the continuation of the current U.S. economic expansion, noting in particular that manufacturing activity slowed more sharply than the rest of the economy. The OCC continued to note that the consensus forecast indicates that the U.S. economy will continue to slow down towards its long-run potential rate of growth, but the risk of a recession is rising. Adverse changes in the economy may have a negative effect on the ability of our borrowers to make timely repayments of their loans, which could have an adverse impact on our earnings. Consequently, declines in the economy could have a material adverse effect on our financial condition and results of operations.
Changes in U.S. trade policies, including the imposition of tariffs and retaliatory tariffs, may adversely impact our business, financial condition and results of operations. There continues to be discussion and dialogue regarding potential changes to U.S. trade policies, legislation, treaties and tariffs with countries such as China and the European Union. Tariffs and retaliatory tariffs have been imposed, and additional tariffs and retaliatory tariffs have been proposed. Such tariffs, retaliatory tariffs or other trade restrictions on products and materials that our customers import or export could cause the prices of our customers' products to increase, which could reduce demand for such products, or reduce our customers' margins, and adversely impact their revenues, financial results, and ability to service debt. This in turn could adversely affect our financial condition and results of operations. In addition, to the extent changes in the political environment have a negative impact on us or on the markets in which we operate our business, our results of operations and financial condition could be materially and adversely impacted in the future. It remains unclear what the U.S. government or foreign governments will or will not do with respect to tariffs already imposed, additional tariffs that may be imposed, or international trade agreements and policies.
Our allowance for loan losses may be insufficient. All borrowers have the potential to default, and our remedies in the event of such default (such as seizure and / or sale of collateral, legal actions, and guarantees) may not fully satisfy the debt owed to us. We maintain an allowance for loan losses, which is a reserve established through a provision for loan losses charged to expense, that represents management’s best estimate of probable credit losses that have been incurred within the existing portfolio of loans. The allowance for loan losses, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The level of the allowance for loan losses reflects management’s continuing evaluation of industry concentrations; specific credit risks; loan loss experience; current loan portfolio quality; present economic, political, and regulatory conditions; and unidentified losses inherent in the current loan portfolio. The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and requires us to make significant estimates of current credit risks using existing qualitative and quantitative information, all of which may undergo material changes. Changes in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans, and other factors, both within and outside of our control, may require an increase in the allowance for loan losses. In addition, bank regulatory agencies periodically review our allowance for loan losses and may require an increase in the provision for loan losses or the recognition of additional loan charge offs, based on judgments different than those of management. An increase in the allowance for loan losses would result in a decrease in net income, and possibly risk-based capital, and could have a material adverse effect on our financial condition and results of operations.
The FASB has recently issued an accounting standard update that will result in a significant change in how we recognize credit losses and may have a material impact on our financial condition or results of operations. In June 2016, the FASB issued an accounting standard update, "Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments," which replaces the current "incurred loss" model for recognizing credit losses with an "expected loss" model referred to as the CECL model. Under the CECL model, we will be required to present certain financial assets carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, at the net amount expected to be collected. The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the "incurred loss" model required under current GAAP, which delays recognition until it is probable a loss has been incurred. The CECL model may create more volatility in the level of our allowance for loan losses.
On December 21, 2018, the regulatory agencies approved a final rule modifying their regulatory capital rules and providing an option to phase in over a period of three years the day-one regulatory capital effects of the CECL model. The final rule also revises the agencies' other rules to reflect the update to the accounting standards. The final rule became effective on April 1, 2019. Additionally, proposed guidance clarifying the final rule was issued in October 2019. The proposed guidance, when effective, will clarify the state of existing agency guidance and describe the appropriate CECL methodology for determining allowances for credit losses on specific assets, including net investments in leases, impaired available-for-sale debt securities, etc. The proposed guidance will become effective when each institution adopts the new standards required by the FASB.
The new CECL standard will become effective for us for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years. We expect to recognize a one-time cumulative-effect adjustment to our allowance for loan
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losses as of the beginning of the first reporting period in which we adopt the new standard, consistent with regulatory expectations set forth in interagency guidance issued at the end of 2016. We incurred transition costs and also expect to incur ongoing costs in maintaining the additional CECL models and methodology along with acquiring forecasts used within the models, and that the methodology will result in increased capital costs upon initial adoption as well as over time. The impact at adoption is expected to have an after tax impact of $70 million to $80 million decrease in the opening stockholders' equity balance and a corresponding 21bps to 24bps decrease to the tangible common equity ratio. See Note 1 Summary of Significant Accounting Policies of the notes to consolidated financial statements for additional information on the Corporation's impact of adoption.
We are subject to lending concentration risks. As of December 31, 2019, approximately 59% of our loan portfolio consisted of commercial and industrial, real estate construction, commercial real estate loans, and lease financing (collectively, "commercial loans"). Commercial loans are generally viewed as having more inherent risk of default than residential mortgage loans or other consumer loans. Also, the commercial loan balance per borrower is typically larger than that for residential mortgage loans and other consumer loans, implying higher potential losses on an individual loan basis. Because our loan portfolio contains a number of commercial loans with balances over $25 million, the deterioration of one or a few of these loans could cause a significant increase in nonaccrual loans, which could have a material adverse effect on our financial condition and results of operations.
Commercial real estate lending may expose us to increased lending risks. Our policy generally has been to originate commercial real estate loans primarily in the eight states in which the Bank operates. At December 31, 2019, commercial real estate loans, including owner occupied, investor, and real estate construction loans, totaled $6.1 billion, or 27%, of our total loan portfolio. As a result of our growth of this portfolio in the past several years and planned future growth, these loans require more ongoing evaluation and monitoring and we are implementing enhanced risk management policies, procedures and controls. Commercial real estate loans generally involve a greater degree of credit risk than residential mortgage loans because they typically have larger balances and are more affected by adverse conditions in the economy. Because payments on loans secured by commercial real estate often depend upon the successful operation and management of the properties and the businesses which operate from within them, repayment of such loans may be affected by factors outside the borrower’s control, such as adverse conditions in the real estate market or the economy or changes in government regulation. In recent years, commercial real estate markets have been experiencing substantial growth, and increased competitive pressures have contributed significantly to historically low capitalization rates and rising property values. Commercial real estate prices, according to many U.S. commercial real estate indices, are currently above the 2007 peak levels that contributed to the financial crisis. Accordingly, the federal bank regulatory agencies have expressed concerns about weaknesses in the current commercial real estate market. Our failure to adequately implement enhanced risk management policies, procedures and controls could adversely affect our ability to increase this portfolio going forward and could result in an increased rate of delinquencies in, and increased losses from, this portfolio. At December 31, 2019, nonaccrual commercial real estate loans totaled $5 million, or less than 1%, of our total portfolio of commercial real estate loans.
We may be adversely affected by declines in oil prices. Ongoing volatility in the oil and gas markets has compressed margins for many U.S.-based oil producers and others in the Oil and Gas industry. As of December 31, 2019, our oil and gas loan exposure was $741 million of commitments with $484 million outstanding, representing approximately 2% of our loan portfolio. The Oil and Gas portfolio was comprised of 40 credits made to small and mid-sized companies. These borrowers are likely to be adversely affected by price volatility or downturn in oil and gas prices. The allowance related to this portfolio was 2.6% at December 31, 2019, compared to 1.6% at December 31, 2018. A significant deterioration in our oil and gas loans could cause a significant increase in nonaccrual loans. An increase in nonaccrual loans could result in a loss of interest income from these loans, one or more additional increases in the provision for loan losses, and an increase in loan charge offs, all of which could have a material adverse effect on our financial condition and results of operations. A prolonged period of low oil prices could have a material adverse effect on our business, financial condition and results of operations.
We depend on the accuracy and completeness of information about our customers and counterparties. In deciding whether to extend credit or enter into other transactions, we may rely on information furnished by or on behalf of customers and counterparties, including financial statements, credit reports, and other financial information. We may also rely on representations of those customers, counterparties, or other third parties, such as independent auditors, as to the accuracy and completeness of that information. Reliance on inaccurate or misleading financial statements, credit reports, or other financial information could cause us to enter into unfavorable transactions, which could have a material adverse effect on our financial condition and results of operations.
Lack of system integrity or credit quality related to funds settlement could result in a financial loss. We settle funds on behalf of financial institutions, other businesses and consumers and receive funds from clients, card issuers, payment networks and consumers on a daily basis for a variety of transaction types. Transactions we facilitate include wire transfers, debit card, credit
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card and electronic bill payment transactions, supporting consumers, financial institutions and other businesses. These payment activities rely upon the technology infrastructure that facilitates the verification of activity with counterparties and the facilitation of the payment. If the continuity of operations or integrity of processing were compromised this could result in a financial loss to us due to a failure in payment facilitation. In addition, we may issue credit to consumers, financial institutions or other businesses as part of the funds settlement. A default on this credit by a counterparty could result in a financial loss to us.
We are subject to environmental liability risk associated with lending activities. A significant portion of our loan portfolio is secured by real property. During the ordinary course of business, we may foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, we may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require us to incur substantial expenses which may materially reduce the affected property’s value or limit our ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability. Although we have policies and procedures to perform an environmental review before lending against or initiating any foreclosure action on real property, these reviews may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our financial condition and results of operations.
Liquidity and Interest Rate Risks
Liquidity is essential to our businesses. The Corporation requires liquidity to meet its deposit and debt obligations as they come due. Access to liquidity could be impaired by an inability to access the capital markets or unforeseen outflows of deposits. Risk factors that could impair our ability to access capital markets include a downturn in our Midwest markets, difficult credit markets, credit rating downgrades, or regulatory actions against the Corporation. The Corporation’s access to deposits can be impacted by the liquidity needs of our customers as a substantial portion of the Corporation’s liabilities are demand while a substantial portion of the Corporation’s assets are loans that cannot be sold in the same timeframe. Historically, the Corporation has been able to meet its cash flow needs as necessary. If a sufficiently large number of depositors sought to withdraw their deposits for whatever reason, the Corporation may be unable to obtain the necessary funding at favorable terms.
We are subject to interest rate risk. Our earnings and cash flows are largely dependent upon our net interest income. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve. Changes in monetary policy, including changes in interest rates, could influence not only the interest we receive on loans and investments and the amount of interest we pay on deposits and borrowings, but such changes could also affect (i) our ability to originate loans and obtain deposits; (ii) the fair value of our financial assets and liabilities; and (iii) the average duration of our mortgage portfolio and other interest-earning assets. If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, our net interest income, and therefore earnings, could be adversely affected. Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings. The Corporation's interest rate risk profile is such that a higher or steeper yield curve adds to income while a flatter yield curve is relatively neutral, and a lower or inverted yield curve, such as experienced during the past year, generally has a negative impact on earnings. Our most significant interest rate risk may be further declines in the absolute level of interest rates or the prolonged continuation of the current low rate environment, as this would generally lead to further compression of our net interest margin, reduced net interest income, and devaluation of our deposit base.
Although management believes it has implemented effective asset and liability management strategies, including the potential use of derivatives as hedging instruments, to reduce the potential effects of changes in interest rates on our results of operations, any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on our financial condition and results of operations. Also, our interest rate risk modeling techniques and assumptions likely may not fully predict or capture the impact of actual interest rate changes on our balance sheet.
The impact of interest rates on our mortgage banking business can have a significant impact on revenues. Changes in interest rates can impact our mortgage-related revenues and net revenues associated with our mortgage activities. A decline in mortgage rates generally increases the demand for mortgage loans as borrowers refinance, but also generally leads to accelerated payoffs. Conversely, in a constant or increasing rate environment, we would expect fewer loans to be refinanced and a decline in payoffs. Although we use models to assess the impact of interest rates on mortgage-related revenues, the estimates of revenues produced by these models are dependent on estimates and assumptions of future loan demand, prepayment speeds and other factors which may differ from actual subsequent experience.
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Changes in interest rates could reduce the value of our investment securities holdings. The Corporation maintains an investment portfolio consisting of various high quality liquid fixed-income securities. The total book value of the securities portfolio, which includes Federal Home Loan Bank and Federal Reserve Bank stocks, as of December 31, 2019, was $5.7 billion and the estimated duration of the aggregate portfolio was approximately 5.0 years. The nature of fixed-income securities is such that changes in market interest rates impact the value of these assets. Based on the duration of the Corporation’s investment securities portfolio, a one percent decrease in market rates is projected to increase the market value of the investment securities portfolio by approximately $237 million, while a one percent increase in market rates is projected to decrease the market value of the investment securities portfolio by approximately $252 million.
Changes in interest rates could also reduce the value of our residential mortgage-related securities and mortgage servicing rights, which could negatively affect our earnings. We have a portfolio of MSRs. An MSR is the right to service a mortgage loan (i.e., collect principal, interest, escrow amounts, etc.) for a fee. We recognize MSRs when we originate mortgage loans and keep the servicing rights after we sell or securitize the loans or when we purchase the servicing rights to mortgage loans originated by other lenders. We carry MSRs at the lower of amortized cost or estimated fair value. Fair value is the present value of estimated future net servicing income, calculated based on a number of variables, including assumptions about the likelihood of prepayment by borrowers.
When interest rates fall, borrowers are more likely to prepay their mortgage loans by refinancing them at a lower rate. As the likelihood of prepayment increases, the fair value of our MSRs can decrease. Each quarter we evaluate our residential mortgage-related securities and MSRs for impairment. If temporary impairment exists, we establish a valuation allowance for the MSRs through a charge to earnings for the amount the carrying amount exceeds fair value. We also evaluate our MSRs for other-than-temporary impairment. If we determine that other-than-temporary impairment exists, we will recognize a direct write-down of the carrying value of the MSRs.
The planned phasing out of the LIBOR as a financial benchmark presents risks to the financial instruments originated or held by the Corporation. The LIBOR is the reference rate used for many of our transactions, including our lending and borrowing and our purchase and sale of securities, as well as the derivatives that we use to manage risk related to such transactions. However, a reduced volume of interbank unsecured term borrowing coupled with recent legal and regulatory proceedings related to rate manipulation by certain financial institutions has led to international reconsideration of LIBOR as a financial benchmark. The FCA, which regulates the process for establishing LIBOR, announced in July 2017 that the sustainability of LIBOR cannot be guaranteed. Accordingly, the FCA intends to stop persuading, or compelling, banks to submit to LIBOR after 2021. Until such time, however, FCA panel banks have agreed to continue to support LIBOR.
Associated has not yet determined which alternative rate is most applicable, and there can be no assurances on which benchmark rate(s) may replace LIBOR or how LIBOR will be determined for purposes of financial instruments that are currently referencing LIBOR if and when it ceases to exist. If LIBOR is discontinued after 2021 as expected, there may be uncertainty or differences in the calculation of the applicable interest rate or payment amount depending on the terms of the governing instruments, and such discontinuation may increase operational and other risks to the Corporation and the industry.
While there is no consensus on what rate or rates may become accepted alternatives to LIBOR, a group of large banks, the Alternative Reference Rate Committee, or ARRC, selected the SOFR as an alternative to LIBOR. SOFR has been published by the FRBNY since May 2018, and it is intended to be a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities. The FRBNY reports that SOFR includes all trades in the Broad General Collateral Rate, plus bilateral U.S. Treasury repurchase agreement transactions cleared through the delivery-versus-payment service offered by the FICC, a subsidiary of DTCC.
The FRBNY currently publishes SOFR daily on its website at https://apps.newyorkfed.org/markets/autorates/sofr. The FRBNY states on its publication page for SOFR that use of SOFR is subject to important disclaimers, limitations and indemnification obligations, including that the FRBNY may alter the methods of calculation, publication schedule, rate revision practices or availability of SOFR at any time without notice.
Because SOFR is published by the FRBNY based on data received from other sources, the Bank has no control over its determination, calculation or publication. There can be no assurance that SOFR will not be discontinued or fundamentally altered in a manner that is materially adverse to the parties that utilize SOFR as the reference rate for transactions. There is no assurance that SOFR will be widely adopted as the replacement reference rate for LIBOR (or that the Corporation will ultimately decide to adopt SOFR as the reference rate for its lending or borrowing transactions).
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The market transition away from LIBOR to an alternative reference rate, including SOFR, is complex and could have a range of adverse effects on the Corporation's business, financial condition, and results of operations. In particular, any such transition could:
adversely affect the interest rates paid or received on, and the revenue and expenses associated with, the Corporation's floating rate obligations, loans, deposits, derivatives and other financial instruments tied to LIBOR rates, or other securities or financial arrangements given LIBOR's role in determining market interest rates globally;
adversely affect the value of the Corporation's floating rate obligations, loans, deposits, derivatives and other financial instruments tied to LIBOR rates, or other securities or financial arrangements given LIBOR's role in determining market interest rates globally;
prompt inquiries or other actions from regulators in respect of the Corporation's preparation and readiness for the replacement of LIBOR with an alternative reference rate;
result in disputes, litigation or other actions with counterparties regarding the interpretation and enforceability of certain fallback language in LIBOR-based securities; and
require the transition to or development of appropriate systems and analytics to effectively transition our risk management processes from LIBOR-based products to those based on the applicable alternative pricing benchmark.
In addition, the implementation of LIBOR reform proposals may result in increased compliance costs and operational costs, including costs related to continued participation in LIBOR and the transition to a replacement reference rate or rates. We cannot reasonably estimate the expected cost.

We rely on dividends from our subsidiaries for most of our revenue. The Parent Company is a separate and distinct legal entity from its banking and other subsidiaries. A substantial portion of the Parent Company’s revenue comes from dividends from its subsidiaries. These dividends are the principal source of funds to pay dividends on the Parent Company’s common and preferred stock, and to pay interest and principal on the Parent Company’s debt. Various federal and / or applicable state laws and regulations limit the amount of dividends that the Bank and certain of our nonbanking subsidiaries may pay to us. Also, our right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors. In the event the Bank subsidiary is unable to pay dividends to us, we may not be able to service debt, pay obligations, or pay dividends on our common and preferred stock. The inability to receive dividends from the Bank could have a material adverse effect on our business, financial condition, and results of operations.
Operational Risks
We face significant operational risks due to the high volume and the high dollar value nature of transactions we process. We operate in many different businesses in diverse markets and rely on the ability of our employees and systems to process transactions. Operational risk is the risk of loss resulting from our operations, including but not limited to, the risk of fraud by employees or persons outside our company, the execution of unauthorized transactions, errors relating to transaction processing and technology, breaches of our internal control systems or failures of those of our suppliers or counterparties, compliance failures, cyber-attacks, technology failures, or unforeseen problems encountered while implementing new computer systems or upgrades to existing systems, business continuation and disaster recovery issues, and other external events. Insurance coverage may not be available for such losses, or where available, such losses may exceed insurance limits. This risk of loss also includes the potential legal actions that could arise as a result of an operational deficiency or as a result of noncompliance with applicable regulatory standards, adverse business decisions or their implementation, and customer attrition due to potential negative publicity. The occurrence of any of these events could cause us to suffer financial loss, face regulatory action and suffer damage to our reputation.
Unauthorized disclosure of sensitive or confidential client or customer information, whether through a cyber-attack, other breach of our computer systems or otherwise, could severely harm our business. In the normal course of our business, we collect, process, and retain sensitive and confidential client and customer information on our behalf and on behalf of other third parties. Despite the security measures we have in place, our facilities and systems may be vulnerable to cyber-attacks, security breaches, acts of vandalism, computer viruses, malware, misplaced or lost data, programming and / or human errors, or other similar events.
Information security risks for financial institutions like us continue to increase in part because of new technologies, the increased use of the internet and telecommunications technologies (including mobile devices and cloud computing) to conduct financial and other business transactions, political activism, and the increased sophistication and activities of organized crime, perpetrators of fraud, hackers, terrorists and others. In addition to cyber-attacks or other security breaches
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involving the theft of sensitive and confidential information, hackers have engaged in attacks against large financial institutions, particularly denial of service attacks, designed to disrupt key business services, such as customer-facing web sites. Because the methods of cyber-attacks change frequently or, in some cases, are not recognized until launch, we are not able to anticipate or implement effective preventive measures against all possible security breaches and the probability of a successful attack cannot be predicted. Although we employ detection and response mechanisms designed to contain and mitigate security incidents, early detection may be thwarted by persistent sophisticated attacks and malware designed to avoid detection.
We also face risks related to cyber-attacks and other security breaches in connection with card transactions that typically involve the transmission of sensitive information regarding our customers through various third parties. Some of these parties have in the past been the target of security breaches and cyber-attacks, and because the transactions involve third parties and environments that we do not control or secure, future security breaches or cyber-attacks affecting any of these third parties could impact us through no fault of our own, and in some cases we may have exposure and suffer losses for breaches or attacks relating to them. We also rely on numerous other third party service providers to conduct other aspects of our business operations and face similar risks relating to them. While we conduct security assessments on our higher risk third party service providers, we cannot be sure that their information security protocols are sufficient to withstand a cyber-attack or other security breach.
The Corporation regularly evaluates its systems and controls and implements upgrades as necessary. The additional cost to the Corporation of our cyber security monitoring and protection systems and controls includes the cost of hardware and software, third party technology providers, consulting and forensic testing firms, insurance premium costs and legal fees, in addition to the incremental cost of our personnel who focus a substantial portion of their responsibilities on cyber security.
Any successful cyber-attack or other security breach involving the misappropriation, loss or other unauthorized disclosure of confidential customer information or that compromises our ability to function could severely damage our reputation, erode confidence in the security of our systems, products and services, expose us to the risk of litigation and liability, disrupt our operations and have a material adverse effect on our business. Any successful cyber-attack may also subject the Corporation to regulatory investigations, litigation or enforcement, or require the payment of regulatory fines or penalties or undertaking costly remediation efforts with respect to third parties affected by a cyber security incident, all or any of which could adversely affect the Corporation’s business, financial condition or results of operations and damage its reputation.
From time to time, the Corporation engages in acquisitions, including acquisitions of depository institutions such as our recent acquisition of the Huntington branches and the pending First Staunton acquisition. The integration of core systems and processes for such transactions often occur after the closing, which may create elevated risk of cyber incidents. The Corporation may be subject to the data risks and cyber security vulnerabilities of the acquired company until the Corporation has sufficient time to fully integrate the acquiree’s customers and operations. Although the Corporation conducts comprehensive due diligence of cyber-security policies, procedures and controls of our acquisition counterparties, and the Corporation maintains adequate policies, procedures, controls and information security protocols to facilitate a successful integration, there can be no assurance that such measures, controls and protocols are sufficient to withstand a cyber-attack or other security breach with respect to the companies we acquire, particularly during the period of time between closing and final integration.
Our information systems may experience an interruption or breach in security.  We rely heavily on communications and information systems to conduct our business. Any failure, interruption, or breach in security or operational integrity of these systems could result in failures or disruptions in our customer relationship management, general ledger, deposit, loan, and other systems. While we have policies and procedures designed to prevent or limit the effect of the failure, interruption, or security breach of our information systems, we cannot completely ensure that any such failures, interruptions, or security breaches will not occur or, if they do occur, that they will be adequately addressed. The occurrence of any failures, interruptions, or security breaches of our information systems could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations.
We are dependent upon third parties for certain information system, data management and processing services and to provide key components of our business infrastructure. We outsource certain information system and data management and processing functions to third party providers, including, among others, Fiserv, Inc. and its affiliates to compete in a rapidly evolving financial marketplace. These third party service providers are sources of operational and informational security risk to us, including risks associated with operational errors, information system interruptions or breaches, and unauthorized disclosures of sensitive or confidential client or customer information. Concentration among larger third party providers servicing large segments of the banking industry can also potentially affect wide segments of the financial industry. If third party service providers encounter any of these issues, or if we have difficulty communicating with them, we could be exposed
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to disruption of operations, loss of service or connectivity to customers, reputational damage, and litigation risk that could have a material adverse effect on our results of operations or our business.
Third party vendors provide key components of our business infrastructure, such as internet connections, network access and core application processing. While we have selected these third party vendors carefully, we do not control their actions. Any problems caused by these third parties, including as a result of their not providing us their services for any reason or their performing their services poorly, could adversely affect our ability to deliver products and services to our customers and otherwise to conduct our business. Replacing these third party vendors could also entail significant delay and expense.
The potential for business interruption exists throughout our organization. Integral to our performance is the continued efficacy of our technical systems, operational infrastructure, relationships with third parties and the vast array of associates and key executives in our day-to-day and ongoing operations. Failure by any or all of these resources subjects us to risks that may vary in size, scale and scope. This includes, but is not limited to, operational or technical failures, ineffectiveness or exposure due to interruption in third party support, as well as the loss of key individuals or failure on the part of key individuals to perform properly. Although management has established policies and procedures to address such failures, the occurrence of any such event could have a material adverse effect on our business, which, in turn, could have a material adverse effect on our financial condition and results of operations.
Changes in our accounting policies or in accounting standards could materially affect how we report our financial results. Our accounting policies are fundamental to understanding our financial results and condition. Some of these policies require the use of estimates and assumptions that may affect the value of our assets or liabilities and financial results. Some of our accounting policies are critical because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. If such estimates or assumptions underlying our financial statements are incorrect, we may experience material losses.
From time to time the FASB and the SEC change the financial accounting and reporting standards or the interpretation of those standards that govern the preparation of our external financial statements. These changes are beyond our control, can be hard to predict and could materially impact how we report our results of operations and financial condition. We could be required to apply a new or revised standard retroactively, resulting in our restating prior period financial statements in material amounts.
Changes in the federal, state or local tax laws may negatively impact our financial performance. We are subject to changes in tax law that could increase our effective tax rates. These law changes may be retroactive to previous periods and as a result could negatively affect our current and future financial performance. For example, the new legislation resulted in a reduction in our federal corporate tax rate from 35% in 2017 to 21% in 2018, which had a favorable impact on our earnings and capital generation abilities. However, the new legislation also enacted limitations on certain deductions, such as the deduction of FDIC deposit insurance premiums, which partially offset the anticipated increase in net earnings from the lower tax rate.
In addition, the Bank’s customers experienced and likely will continue to experience varying effects from both the individual and business tax provisions of the Tax Act and such effects, whether positive or negative, may have a corresponding impact on our business and the economy as a whole.
Our internal controls may be ineffective. Management regularly reviews and updates our internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the controls are met. Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations, and financial condition.
Impairment of investment securities, goodwill, other intangible assets, or deferred tax assets could require charges to earnings, which could result in a negative impact on our results of operations. In assessing whether the impairment of investment securities is other-than-temporary, management considers the length of time and extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability to retain our investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value in the near term.
Under current accounting standards, goodwill is not amortized but, instead, is subject to impairment tests on at least an annual basis or more frequently if an event occurs or circumstances change that reduce the fair value of a reporting unit below its carrying amount. A decline in our stock price or occurrence of a triggering event following any of our quarterly earnings releases and prior to the filing of the periodic report for that period could, under certain circumstances, cause us to perform a goodwill impairment test and result in an impairment charge being recorded for that period which was not reflected in such earnings release. During 2019, the annual impairment test conducted in May indicated that the estimated fair value of all of the
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Corporation’s reporting units exceeded the carrying value. In the event that we conclude that all or a portion of our goodwill may be impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital. At December 31, 2019, we had goodwill of $1.2 billion, which representing approximately 30% of stockholders’ equity.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Assessing the need for, or the sufficiency of, a valuation allowance requires management to evaluate all available evidence, both negative and positive, including the recent trend of quarterly earnings. Positive evidence necessary to overcome the negative evidence includes whether future taxable income in sufficient amounts and character within the carryback and carryforward periods is available under the tax law, including the use of tax planning strategies. When negative evidence (e.g., cumulative losses in recent years, history of operating loss or tax credit carryforwards expiring unused) exists, more positive evidence than negative evidence will be necessary.
The impact of each of these impairment matters could have a material adverse effect on our business, results of operations, and financial condition.
We may not be able to attract and retain skilled people. Our success depends, in large part, on our ability to attract and retain skilled people. Competition for the best people in most activities engaged in by us can be intense, and we may not be able to hire sufficiently skilled people or to retain them. The unexpected loss of services of one or more of our key personnel could have a material adverse impact on our business because of their skills, knowledge of our markets, years of industry experience, and the difficulty of promptly finding qualified replacement personnel.
Loss of key employees may disrupt relationships with certain customers. Our business is primarily relationship-driven in that many of our key employees have extensive customer relationships. Loss of a key employee with such customer relationships may lead to the loss of business if the customers were to follow that employee to a competitor or otherwise choose to transition to another financial services provider. While we believe our relationship with our key personnel is good, we cannot guarantee that all of our key personnel will remain with our organization. Loss of such key personnel could result in the loss of some of our customers.
Revenues from our investment management and asset servicing businesses are significant to our earnings. Generating returns that satisfy clients in a variety of asset classes is important to maintaining existing business and attracting new business. Administering or managing assets in accordance with the terms of governing documents and applicable laws is also important to client satisfaction. Failure in either of the foregoing areas can expose us to liability, and result in a decrease in our revenues and earnings.
Climate change and related legislative and regulatory initiatives may result in operational changes and expenditures that could significantly impact our business. The current and anticipated effects of climate change are creating an increasing level of concern for the state of the global environment. As a result, political and social attention to the issue of climate change has increased. In recent years, governments across the world have entered into international agreements to attempt to reduce global temperatures, in part by limiting greenhouse gas emissions. Although the United States government has announced its plans to withdraw from the Paris Agreement, the most recent international climate change accord, the U.S. Congress, state legislatures and federal and state regulatory agencies have continued to propose and advance numerous legislative and regulatory initiatives seeking to mitigate the effects of climate change. These agreements and measures may result in the imposition of taxes and fees, the required purchase of emission credits, and the implementation of significant operational changes, each of which may require the Corporation to expend significant capital and incur compliance, operating, maintenance and remediation costs. Given the lack of empirical data on the credit and other financial risks posed by climate change, it is impossible to predict how climate change may impact our financial condition and operations; however, as a banking organization, the physical effects of climate change may present certain unique risks to the Corporation. For example, weather disasters, shifts in local climates and other disruptions related to climate change may adversely affect the value of real properties securing our loans, which could diminish the value of our loan portfolio. Such events may also cause reductions in regional and local economic activity that may have an adverse effect on our customers, which could limit our ability to raise and invest capital in these areas and communities, each of which could have a material adverse effect on our financial condition and results of operations.
Severe weather, natural disasters, public health issues, acts of war or terrorism, and other external events could significantly impact our ability to conduct business.  Such events could affect the stability of our deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, adversely impact our employee base, cause significant property damage, result in loss of revenue, and / or cause us to incur additional expenses. Although management has established disaster recovery policies and procedures, the occurrence of any such event could have a material adverse effect on our business, which, in turn, could have a material adverse effect on our financial condition and results of operations.
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Strategic and External Risks
Our earnings are significantly affected by the fiscal and monetary policies of the federal government and its agencies. The policies of the Federal Reserve impact us significantly. The Federal Reserve regulates the supply of money and credit in the United States. Its policies directly and indirectly influence the rate of interest earned on loans and paid on borrowings and interest-bearing deposits and can also affect the value of financial instruments we hold. Those policies determine to a significant extent our cost of funds for lending and investing. Changes in those policies are beyond our control and are difficult to predict. Federal Reserve policies can also affect our borrowers, potentially increasing the risk that they may fail to repay their loans. For example, a tightening of the money supply by the Federal Reserve could reduce the demand for a borrower’s products and services. This could adversely affect the borrower’s earnings and ability to repay its loan, which could have a material adverse effect on our financial condition and results of operations.
Our financial condition and results of operations could be negatively affected if we fail to grow or fail to manage our growth effectively. Our business strategy includes significant growth plans. We intend to continue pursuing a profitable growth strategy. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in significant growth stages of development. Sustainable growth requires that we manage our risks by balancing loan and deposit growth at acceptable levels of risk, maintaining adequate liquidity and capital, hiring and retaining qualified employees, successfully managing the costs and implementation risks with respect to strategic projects and initiatives, and integrating acquisition targets and managing the costs. We cannot assure you that we will be able to expand our market presence in our existing markets or successfully enter new markets or that any such expansion will not adversely affect our results of operations. Failure to manage our growth effectively could have a material adverse effect on our business, future prospects, financial condition or results of operations and could adversely affect our ability to successfully implement our business strategy. Also, if we grow more slowly than anticipated, our operating results could be materially adversely affected.
We operate in a highly competitive industry and market area. We face substantial competition in all areas of our operations from a variety of different competitors, both within and beyond our principal markets, many of which are larger and may have more financial resources. Such competitors primarily include national, regional, and internet banks within the various markets in which we operate. We also face competition from many other types of financial institutions, including, without limitation, savings and loans, credit unions, finance companies, brokerage firms, insurance companies, and other financial intermediaries. The financial services industry could become even more competitive as a result of legislative and regulatory changes and continued consolidation. In July 2018, the OCC announced that it will begin accepting applications from financial technology companies to become special purpose national banks.
In addition, as customer preferences and expectations continue to evolve, technology has lowered barriers to entry and made it possible for nonbanks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems. In addition, some of the largest technology firms are engaging in joint ventures with the largest banks to provide and / or expand financial service offerings with a technological sophistication and breadth of marketing that smaller institutions do not have. Many of our competitors have fewer regulatory constraints and may have lower cost structures. Additionally, due to their size, many competitors may be able to achieve economies of scale and, as a result, may offer a broader range of products and services as well as better pricing for those products and services than we can.
Our ability to compete successfully depends on a number of factors, including, among other things:
the ability to develop, maintain, and build upon long-term customer relationships based on top quality service, high ethical standards, and safe, sound assets;
the ability to expand our market position;
the scope, relevance, and pricing of products and services offered to meet customer needs and demands;
the rate at which we introduce new products and services relative to our competitors;
customer satisfaction with our level of service; and
industry and general economic trends.
Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability, which, in turn, could have a material adverse effect on our financial condition and results of operations.
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Fiscal challenges facing the U.S. government could negatively impact financial markets which in turn could have an adverse effect on our financial position or results of operations. Many of our investment securities are issued by the U.S. government and government agencies and sponsored entities. As a result of uncertain domestic political conditions, including potential future federal government shutdowns, the possibility of the federal government defaulting on its obligations for a period of time due to debt ceiling limitations or other unresolved political issues, investments in financial instruments issued or guaranteed by the federal government pose liquidity risks. Following the government shutdown in 2011, Standard & Poor’s lowered its long term sovereign credit rating on the U.S. from AAA to AA+. A further downgrade or a downgrade by other rating agencies, as well as sovereign debt issues facing the governments of other countries, could have a material adverse impact on financial markets and economic conditions in the U.S. and worldwide. In addition, the U.S. government and the governments of other countries took steps to stabilize the financial system, including investing in financial institutions, and implementing programs to improve general economic conditions, but there can be no assurances that these efforts will restore long-term stability and that they will not result in adverse unintended consequences. A prolonged government shutdown may also adversely impact a significant segment of our customer base resulting in increased defaults within our loan portfolio, which could adversely affect our financial condition and results of operations.
Consumers may decide not to use banks to complete their financial transactions. Technology and other changes are allowing parties to complete financial transactions through alternative methods that historically have involved banks. For example, consumers can now maintain funds that would have historically been held as bank deposits in brokerage accounts, mutual funds or general-purpose reloadable prepaid cards. Consumers can also complete transactions, such as paying bills and / or transferring funds directly without the assistance of banks.
The process of eliminating banks as intermediaries, known as "disintermediation," could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and the lower cost of deposits as a source of funds could have a material adverse effect on our financial condition and results of operations.
Our profitability depends significantly on economic conditions in the states within which we do business. Our success depends on the general economic conditions of the specific local markets in which we operate particularly Wisconsin, Illinois and Minnesota. Local economic conditions have a significant impact on the demand for our products and services, as well as the ability of our customers to repay loans, on the value of the collateral securing loans, and the stability of our deposit funding sources. A significant decline in general local economic conditions caused by inflation, recession, unemployment, changes in securities markets, changes in housing market prices, or other factors could have a material adverse effect on our financial condition and results of operations.
The earnings of financial services companies are significantly affected by general business and economic conditions. Our operations and profitability are impacted by general business and economic conditions in the United States and abroad. These conditions include short-term and long-term interest rates, inflation, money supply, political issues, legislative and regulatory changes, fluctuations in both debt and equity capital markets, broad trends in industry and finance, the strength of the United States economy, and uncertainty in financial markets globally, all of which are beyond our control. A deterioration in economic conditions, including those arising from government shutdowns, defaults, anticipated defaults or rating agency downgrades of sovereign debt (including debt of the U.S.), or increases in unemployment, could result in an increase in loan delinquencies and nonperforming assets, decreases in loan collateral values, and a decrease in demand for our products and services, among other things, any of which could have a material adverse impact on our financial condition and results of operations.
New lines of business or new products and services may subject us to additional risk. From time to time, we may implement new lines of business or offer new products and services within existing lines of business. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines of business and / or new products and services, we may invest significant time and resources. Initial timetables for the introduction and development of new lines of business and / or new products or services may not be achieved and price and profitability targets may not prove feasible. External factors, such as competitive alternatives and shifting market preferences, may also impact the successful implementation of a new line of business and / or a new product or service. Furthermore, strategic planning remains important as we adopt innovative products, services, and processes in response to the evolving demands for financial services and the entrance of new competitors, such as out-of-market banks and financial technology firms. Any new line of business and / or new product or service could have a significant impact on the effectiveness of our system of internal controls, so we must responsibly innovate in a manner that is consistent with sound risk management and is aligned with the Bank's overall business strategies. Failure to successfully manage these risks in the development and implementation of new lines of business and / or new products or services could have a material adverse effect on our business, results of operations and financial condition.
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Failure to keep pace with technological change could adversely affect our business. The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on our business and, in turn, our financial condition and results of operations.
We may be adversely affected by risks associated with potential and completed acquisitions. As part of our growth strategy, we regularly evaluate merger and acquisition opportunities and conduct due diligence activities related to possible transactions with other financial institutions and financial services companies. As a result, negotiations may take place and future mergers or acquisitions involving cash, debt, or equity securities may occur at any time. We seek merger or acquisition partners that are culturally similar, have experienced management, and possess either significant market presence or have potential for improved profitability through financial management, economies of scale, or expanded services.
Acquiring other banks, businesses, or branches involves potential adverse impact to our financial results and various other risks commonly associated with acquisitions, including, among other things:
incurring time and expense associated with identifying and evaluating potential acquisitions and negotiating potential transactions, and with integrating acquired businesses, resulting in the diversion of resources from the operation of our existing businesses;
difficulty in estimating the value of target companies or assets and in evaluating credit, operations, management, and market risks associated with those companies or assets;
payment of a premium over book and market values that may dilute our tangible book value and earnings per share in the short and long term;
potential exposure to unknown or contingent liabilities of the target company, including, without limitation, liabilities for regulatory and compliance issues;
exposure to potential asset quality issues of the target company;
there may be volatility in reported income as goodwill impairment losses could occur irregularly and in varying amounts;
difficulties, inefficiencies or cost overruns associated with the integration of the operations, personnel, technologies, services, and products of acquired companies with ours;
inability to realize the expected revenue increases, cost savings, increases in geographic or product presence, and / or other projected benefits;
potential disruption to our business;
the possible loss of key employees and customers of the target company; and
potential changes in banking or tax laws or regulations that may affect the target company.
Acquisitions also involve operational risks and uncertainties, and acquired companies may have unknown or contingent liabilities, exposure to unexpected asset quality problems that require write-downs or write-offs (as well as restructuring and impairment or other charges), difficulty retaining key employees and customers and other issues that could negatively affect our business. We may not be able to realize any projected cost savings, synergies or other benefits associated with any such acquisition we complete. Acquisitions typically involve the payment of a premium over book and market values and, therefore, some dilution of our tangible book value and net income per common share may occur in connection with any future transaction. Failure to successfully integrate the entities we acquire into our existing operations could increase our operating costs significantly and have a material adverse effect on our business, financial condition, and results of operations.
In addition, we face significant competition from other financial services institutions, some of which may have greater financial resources than we do, when considering acquisition opportunities. Accordingly, attractive opportunities may not be available to us and there can be no assurance that we will be successful in identifying or completing future acquisitions.
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Acquisitions may be delayed, impeded, or prohibited due to regulatory issues. Acquisitions by the Corporation, particularly those of financial institutions, are subject to approval by a variety of federal and state regulatory agencies (collectively, "regulatory approvals"). The process for obtaining these required regulatory approvals has become substantially more difficult in recent years. Regulatory approvals could be delayed, impeded, restrictively conditioned or denied due to existing or new regulatory issues the Corporation has, or may have, with regulatory agencies, including, without limitation, issues related to BSA compliance, CRA issues, fair lending laws, fair housing laws, consumer protection laws, unfair, deceptive, or abusive acts or practices regulations, and other similar laws and regulations. We may fail to pursue, evaluate or complete strategic and competitively significant acquisition opportunities as a result of our inability, or perceived or anticipated inability, to obtain regulatory approvals in a timely manner, under reasonable conditions or at all. The regulatory approvals may contain conditions on the completion of the merger that adversely affect our business following the closing, or which are not anticipated or cannot be met. Difficulties associated with potential acquisitions that may result from these factors could have a material adverse impact on our business, and, in turn, our financial condition and results of operations.
Legal, Regulatory, Compliance and Reputational Risks
We are subject to extensive government regulation and supervision. We are subject to extensive federal and applicable state regulation and supervision, primarily through Associated Bank and certain nonbank subsidiaries. Banking regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds, and the banking system as a whole, not shareholders. These regulations affect our lending practices, capital structure, investment practices, dividend policy, and growth, among other things. Congress and federal regulatory agencies continually review banking laws, regulations, and policies for possible changes. Changes to statutes, regulations, or regulatory policies, including changes in interpretation or implementation of statutes, regulations, or policies, could affect us in substantial and unpredictable ways. Such changes could subject us to additional costs, limit the types of financial services and products we may offer, and / or increase the ability of nonbanks to offer competing financial services and products, among other things. Failure to comply with laws, regulations, or policies could result in sanctions by regulatory agencies, civil money penalties, and / or reputation damage, which could have a material adverse effect on our business, financial condition, and results of operations. While we have policies and procedures designed to prevent these types of violations, there can be no assurance that such violations will not occur.
Significantly, the enactment of the Economic Growth Act, and the promulgation of its implementing regulations, repealed or modified several important provisions of the Dodd-Frank Act. Among other things, the Economic Growth Act and its implementing regulations raised the total asset thresholds to $250 billion for Dodd-Frank Act annual company-run stress testing, leverage limits, liquidity requirements, and resolution planning requirements for bank holding companies, subject to the ability of the Federal Reserve to apply such requirements to institutions with assets of $100 billion or more to address financial stability risks or safety and soundness concerns.
Accordingly, the effect of banking legislation and regulations remains uncertain. The implementation, amendment, or repeal of federal banking laws or regulations may affect the banking industry as a whole, including our business and results of operations, in ways that are difficult to predict.
In addition, in September 2016, the CFPB and OCC entered into a consent order with a large national bank alleging widespread improper sales practices, which prompted the federal bank regulatory agencies to conduct a horizontal review of sales practices throughout the banking industry. The elevated attention has resulted in continued additional regulatory scrutiny and regulation of incentive arrangements, which could adversely impact the delivery of services and increase compliance costs.
Changes in requirements relating to the standard of conduct for broker-dealers under applicable federal and state law may adversely affect our business. In June 2019, pursuant to the Dodd-Frank Act, the SEC adopted Regulation Best Interest, which, among other things, establishes a new standard of conduct for a broker-dealer to act in the best interest of a retail customer when making a recommendation of any securities transaction or investment strategy involving securities to such customer. The new rule requires us to review and possibly modify our compliance activities, including our policies, procedures, and controls, which is causing us to incur some additional costs. In addition, state laws that impose a fiduciary duty also may require monitoring, as well as require that we undertake additional compliance measures. In addition, the Bank's insurance agency subsidiary is also subject to regulation and supervision in the various states in which it operates. Implementation of Regulation Best Interest, as well as any new state laws that impose a fiduciary duty, may negatively impact our results of operation, as well as increase costs associated with legal, compliance, operations, and information technology.
The Consumer Financial Protection Bureau has reshaped the consumer financial laws through rulemaking and enforcement of the prohibitions against unfair, deceptive and abusive business practices. Compliance with any such change may impact the business operations of depository institutions offering consumer financial products or services, including the Bank. The CFPB has broad rulemaking authority to administer and carry out the provisions of the Dodd-Frank Act with respect to financial institutions that offer covered financial products and services to consumers. As an independent bureau within the
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FRB, the CFPB may impose requirements more severe than the previous bank regulatory agencies. The CFPB has also been directed to write rules identifying practices or acts that are unfair, deceptive or abusive in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service. The CFPB has initiated enforcement actions against a variety of bank and non-bank market participants with respect to a number of consumer financial products and services that has resulted in those participants expending significant time, money and resources to adjust to the initiatives being pursued by the CFPB. These enforcement actions may serve as precedent for how the CFPB interprets and enforces consumer protection laws, including practices or acts that are deemed to be unfair, deceptive or abusive, with respect to all supervised institutions, which may result in the imposition of higher standards of compliance with such laws. The concept of what may be considered to be an "abusive" practice is relatively new under the law. Moreover, the Bank is subject to supervision and examination by the CFPB for compliance with the CFPB’s regulations and policies. The costs and limitations related to this additional regulatory reporting regimen have yet to be fully determined, although they may be material, and the limitations and restrictions that will be placed upon the Bank with respect to its consumer product offerings and services may produce significant, material effects on the Bank’s (and the Corporation’s) profitability.
The Bank is periodically examined for mortgage-related issues, including mortgage loan and default services, fair lending, and mortgage banking. Federal and state banking regulators closely examine the mortgage and mortgage servicing activities of depository financial institutions. Should any of these regulators have serious concerns with respect to our mortgage or mortgage servicing activities in this regard, the regulators' response to such concerns could result in material adverse effects on our growth strategy and profitability.
We may experience unanticipated losses as a result of residential mortgage loan repurchase or reimbursement obligations under agreements with secondary market purchasers. We may be required to repurchase residential mortgage loans, or to reimburse the purchaser for losses with respect to residential mortgage loans, which have been sold to secondary market purchasers in the event there are breaches of certain representations and warranties contained within the sales agreements, such as representations and warranties related to credit information, loan documentation, collateral and insurability. Consequently, we are exposed to credit risk, and potentially funding risk, associated with sold loans. As a result we have established reserves in our consolidated financial statements for potential losses related to the residential mortgage loans we have sold. The adequacy of the reserves and the ultimate amount of losses incurred will depend on, among other things, the actual future mortgage loan performance, the actual level of future repurchase and reimbursement requests, the actual success rate of claimants, actual recoveries on the collateral and macroeconomic conditions. Due to uncertainties relating to these factors, there can be no assurance that the reserves we establish will be adequate or that the total amount of losses incurred will not have a material adverse effect on our financial condition or results of operations.
We are subject to examinations and challenges by tax authorities. We are subject to federal and applicable state income tax regulations. Income tax regulations are often complex and require interpretation. Changes in income tax regulations could negatively impact our results of operations. In the normal course of business, we are routinely subject to examinations and challenges from federal and applicable state tax authorities regarding the amount of taxes due in connection with investments we have made and the businesses in which we have engaged. Recently, federal and state taxing authorities have become increasingly aggressive in challenging tax positions taken by financial institutions. These tax positions may relate to tax compliance, sales and use, franchise, gross receipts, payroll, property and income tax issues, including tax base, apportionment and tax credit planning. The challenges made by tax authorities may result in adjustments to the timing or amount of taxable income or deductions or the allocation of income among tax jurisdictions. If any such challenges are made and are not resolved in our favor, they could have a material adverse effect on our financial condition and results of operations.
We are subject to claims and litigation pertaining to fiduciary responsibility. From time to time, customers make claims and take legal action pertaining to the performance of our fiduciary responsibilities. Whether customer claims and legal action related to the performance of our fiduciary responsibilities are founded or unfounded, if such claims and legal actions are not resolved in a manner favorable to us, they may result in significant financial liability and / or adversely affect the market perception of us and our products and services, as well as impact customer demand for those products and services. Any financial liability or reputation damage could have a material adverse effect on our business, which, in turn, could have a material adverse effect on our financial condition and results of operations.
We are a defendant in a variety of litigation and other actions, which may have a material adverse effect on our financial condition and results of operation. We may be involved from time to time in a variety of litigation arising out of our business. Our insurance may not cover all claims that may be asserted against us, and any claims asserted against us, regardless of merit or eventual outcome, may harm our reputation. Should the ultimate judgments or settlements in any litigation exceed our insurance coverage, they could have a material adverse effect on our financial condition and results of operation for any period. In addition, we may not be able to obtain appropriate types or levels of insurance in the future, nor may we be able to obtain adequate replacement policies with acceptable terms, if at all.
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The Economic Growth, Regulatory Relief, and Consumer Protection Act enacted in 2018 did not eliminate many of the aspects of the Dodd-Frank Act that have increased our compliance costs, and remains subject to further rulemaking. The Economic Growth Act represents modest reform to the regulation of the financial services industry primarily through certain amendments of the Dodd-Frank Act. However, many provisions of the Dodd-Frank Act that have increased our compliance costs, such as the Volcker Rule, the Durbin amendment restricting interchange fees, and the additional supervisory authority of the CFPB, remain in place. Certain of the provisions amended by the Economic Growth Act took effect immediately, while others are subject to ongoing joint agency rulemakings. It is not possible to predict when any final rules would ultimately be issued through any such rulemakings, and what the specific content of such rules will be. Although we expect to benefit from many aspects of this legislative reform, the legislation and any implementing rules that are ultimately issued could have adverse implications on the financial industry, the competitive environment, and our ability to conduct business. In addition, the federal banking agencies indicated through interagency guidance that the capital planning and risk management practices of institutions with total assets less than $100 billion would continue to be reviewed through the regular supervisory process, which may offset the impact of the Economic Growth Acts changes regarding stress testing and risk management.
Negative publicity could damage our reputation. Reputation risk, or the risk to our earnings and capital from negative public opinion, is inherent in our business. Negative public opinion could adversely affect our ability to keep and attract customers and expose us to adverse legal and regulatory consequences. Negative public opinion could result from our actual or alleged conduct in any number of activities, including lending or foreclosure practices, corporate governance, regulatory compliance, mergers and acquisitions, and disclosure, sharing or inadequate protection of customer information, and from actions taken by government regulators and community organizations in response to that conduct. Because we conduct most of our business under the "Associated Bank" brand, negative public opinion about one business could affect our other businesses.
Ethics or conflict of interest issues could damage our reputation. We have established a Code of Business Conduct and Ethics and related policies and procedures to address the ethical conduct of business and to avoid potential conflicts of interest. Any system of controls, however well designed and operated, is based, in part, on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of our related controls and procedures or failure to comply with the established Code of Business Conduct and Ethics and Related Party Transaction Policies and Procedures could have a material adverse effect on our reputation, business, results of operations, and / or financial condition.
Risks Related to an Investment in Our Securities
The price of our securities can be volatile. Price volatility may make it more difficult for you to sell your securities when you want and at prices you find attractive. Our securities prices can fluctuate widely in response to a variety of factors including, among other things:
actual or anticipated variations in quarterly results of operations or financial condition;
operating results and stock price performance of other companies that investors deem comparable to us;
news reports relating to trends, concerns, and other issues in the financial services industry;
perceptions in the marketplace regarding us and / or our competitors;
new technology used or services offered by competitors;
significant acquisitions or business combinations, strategic partnerships, joint ventures, or capital commitments by or involving us or our competitors;
failure to integrate acquisitions or realize anticipated benefits from acquisitions;
changes in government regulations;
changes in international trade policy and any resulting disputes or reprisals;
geopolitical conditions, such as acts or threats of terrorism or military conflicts; and
recommendations by securities analysts.
General market fluctuations, industry factors, and general economic and political conditions and events, such as economic slowdowns or recessions, interest rate changes, or credit loss trends, could also cause our securities prices to decrease regardless of our operating results.
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There may be future sales or other dilution of our equity, which may adversely affect the market price of our securities. We are not restricted from issuing additional securities, including preferred stock, common stock and securities that are convertible into or exchangeable for, or that represent the right to receive, common stock. The issuance of additional shares of common stock or the issuance of convertible securities would dilute the ownership interest of our existing common shareholders. The market price of our common stock could decline as a result of an equity offering, as well as other sales of a large block of shares of our common stock or similar securities in the market after an equity offering, or the perception that such sales could occur. Both we and our regulators perform a variety of analyses of our assets, including the preparation of stress case scenarios, and as a result of those assessments we could determine, or our regulators could require us, to raise additional capital.
We may reduce or eliminate dividends on our common stock. Although we have historically paid a quarterly cash dividend to the holders of our common stock, holders of our common stock are not entitled to receive dividends. Downturns in the domestic and global economies could cause our board of directors to consider, among other things, the elimination of dividends paid on our common stock. This could adversely affect the market price of our common stock. Furthermore, as a bank holding company, our ability to pay dividends is subject to the guidelines of the Federal Reserve regarding capital adequacy and dividends. Dividends also may be limited as a result of safety and soundness considerations.
Common stock is equity and is subordinate to our existing and future indebtedness and preferred stock and effectively subordinated to all the indebtedness and other non-common equity claims against our subsidiaries. Shares of the common stock are equity interests in us and do not constitute indebtedness. As such, shares of the common stock will rank junior to all of our indebtedness and to other non-equity claims against us and our assets available to satisfy claims against us, including our liquidation. Additionally, holders of our common stock are subject to prior dividend and liquidation rights of holders of our outstanding preferred stock. Our board of directors is authorized to issue additional classes or series of preferred stock without any action on the part of the holders of our common stock, and we are permitted to incur additional debt. Upon liquidation, lenders and holders of our debt securities and preferred stock would receive distributions of our available assets prior to holders of our common stock. Furthermore, our right to participate in a distribution of assets upon any of our subsidiaries’ liquidation or reorganization is subject to the prior claims of that subsidiary’s creditors, including holders of any preferred stock of that subsidiary.
Our articles of incorporation, bylaws, and certain banking laws may have an anti-takeover effect. Provisions of our articles of incorporation and bylaws, and federal banking laws, including regulatory approval requirements, could make it more difficult for a third party to acquire us, even if doing so would be perceived to be beneficial to our shareholders. The combination of these provisions may prohibit a non-negotiated merger or other business combination, which, in turn, could adversely affect the market price of our common stock.
An investment in our common stock is not an insured deposit. Our common stock is not a bank deposit and, therefore, is not insured against loss by the FDIC, any other deposit insurance fund, or by any other public or private entity. An investment in our common stock is inherently risky for the reasons described in this "Risk Factors" section and elsewhere in this report and is subject to the same market forces that affect the price of common stock in any company. As a result, if you acquire our common stock, you may lose some or all of your investment.
An entity holding as little as a 5% interest in our outstanding common stock could, under certain circumstances, be subject to regulation as a "bank holding company." An entity (including a "group" composed of natural persons) owning or controlling with the power to vote 25% or more of our outstanding common stock, or 5% or more if such holder otherwise exercises a "controlling influence" over us, may be subject to regulation as a "bank holding company" in accordance with the BHC Act. In addition, (1) any bank holding company or foreign bank with a U.S. presence may be required to obtain the approval of the Federal Reserve under the BHC Act to acquire or retain 5% or more of our outstanding common stock, and (2) any person not otherwise defined as a company by the BHC Act and its implementing regulations may be required to obtain the approval of the Federal Reserve under the Change in Bank Control Act to acquire or retain 10% or more of our outstanding common stock. Becoming a bank holding company imposes certain statutory and regulatory restrictions and obligations, such as providing managerial and financial strength for its bank subsidiaries. Regulation as a bank holding company could require the holder to divest all or a portion of the holder’s investment in our common stock or such nonbanking investments that may be deemed impermissible or incompatible with bank holding company status, such as a material investment in a company unrelated to banking.
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Our ability to originate residential mortgage loans for portfolio has been adversely affected by the increased competition resulting from the unprecedented involvement of the U.S. government and GSEs in the residential mortgage market. Over the past several years, we have faced increased competition for residential mortgage loans due to the unprecedented involvement of the GSEs in the mortgage market as a result of the economic crisis, which has caused the interest rate for 30 year fixed-rate mortgage loans that conform to GSE guidelines to remain artificially low. In addition, the U.S. Congress has expanded the conforming loan limits in many of our operating markets, allowing larger balance loans to continue to be acquired by the GSEs. However, the President of the United States and proposed key cabinet nominees have indicated that reforming the GSE system is a priority item on the administration’s regulatory agenda. It is unknown at this time what reforms, if any, will be made, the extent of the future involvement in the residential mortgage market and the impact of any reforms on that market and the United States economy as a whole.

ITEM 1B. Unresolved Staff Comments
None.

ITEM 2. Properties
The Corporation operated approximately 279 facilities, including 248 banking branches at December 31, 2019. Our corporate headquarters is located at 433 Main Street in Green Bay, Wisconsin and is approximately 118,000 square feet. The Corporation owns two dedicated operations centers, located in Green Bay and Stevens Point, Wisconsin, with approximately 91,000 and 96,000 square feet, respectively.   The Corporation also owns a 28 story, 374,000 square foot office tower located at 111 E. Kilbourn Avenue in Milwaukee, Wisconsin (formerly the "Milwaukee Center" and renamed "Associated Bank River Center" in November 2019) and a 95,000 square foot office building located at 6000 Clearwater Drive, Minnetonka, Minnesota. Based on rentable square feet, at December 31, 2019, Associated Bank owned 87% of our total property portfolio. 
At December 31, 2019, Associated Bank operated 248 banking branches serving over 120 different communities throughout Wisconsin, Illinois, and Minnesota.  Most of the banking locations are freestanding buildings owned by us, with a drive thru and a parking lot; a smaller subset resides in supermarkets and office towers, which are generally leased.  Associated Bank also operated loan production offices in Indiana, Michigan, Missouri, Ohio and Texas. 

ITEM 3. Legal Proceedings
The information required by this item is set forth in Part II, Item 8, Financial Statements and Supplementary Data, under Note 16 Commitments, Off-Balance Sheet Arrangements, and Legal Proceedings.

ITEM 4. Mine Safety Disclosures
Not applicable.

INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The following is a list of names and ages of executive officers of Associated indicating all positions and offices held by each such person and each such person’s principal occupation(s) or employment during the past five years. Officers are appointed annually by the Board of Directors at the meeting of directors immediately following the annual meeting of shareholders. There are no family relationships among these officers, nor any arrangement or understanding between any officer and any other person pursuant to which the officer was selected. No person other than those listed below has been chosen to become an executive officer of Associated. The information presented below is as of February 11, 2020.
Philip B. Flynn - Age: 62
Philip B. Flynn has been President and Chief Executive Officer of Associated and Associated Bank and a member of the Board of Directors since December 2009. Prior to joining Associated, he served as Vice Chairman and Chief Operating Officer of Union Bank. During his nearly 30-year career at Union Bank, he held a broad range of other executive positions, including chief credit officer and head of commercial banking, specialized lending and wholesale banking. He served as a member of Union Bank’s board of directors from 2004 to 2009.
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Patrick E. Ahern - Age: 53
Patrick E. Ahern has been Executive Vice President and Chief Credit Officer of Associated and Associated Bank since February 2020. He served as Deputy Chief Credit Officer from October 2019 to February 2020. Ahern joined Associated as a Senior Vice President in 2010 to manage the CRE portfolio underwriting and administrative teams, before moving into the role Corporate Senior Credit Officer in 2018. He has more than 30 years of experience in commercial real estate and corporate credit, including experience with LaSalle Bank and Bank of America.
William M. Bohn - Age: 53
William M. Bohn has been Executive Vice President, Head of Wealth Management and Institutional Services of Associated and Associated Bank since July 2014. Mr. Bohn also serves as Chairman of the Board of Associated Benefits and Risk Consulting, Whitnell & Co. and Associated Investment Services, Inc., and Chief Executive Officer of Associated Trust Company, N.A. He joined Associated in 1997 and most recently served as President and Chief Executive Officer of ABRC from 2004 to 2015.
Matthew R. Braeger - Age: 44
Matthew R. Braeger has been Executive Vice President and Chief Audit Executive of Associated and Associated Bank since February 2018. He served as Deputy Chief Audit Executive from October 2017 to February 2018. He joined Associated in April 2013 as Senior Vice President, Business Support Audit Director. Previously, he held audit management positions with Fiserv, Inc. and public accounting audit roles with Ernst & Young, LLP. Braeger has more than 19 years of auditing experience, primarily in banking technology and financial services.
Christopher Del Moral-Niles - Age: 49
Christopher J. Del Moral-Niles has been Executive Vice President, Chief Financial Officer of Associated and Associated Bank since March 2012. He joined Associated in July 2010 and previously served as Associated’s Deputy Chief Financial Officer, Principal Accounting Officer, and as Corporate Treasurer. From 2006 to 2010, he held various leadership roles for The First American Corporation and its subsidiaries, including serving as Corporate Treasurer and as divisional President of First American Trust, FSB. From 2003 to 2006, Mr. Niles held various positions with Union Bank, including serving as Senior Vice President and Director of Liability Management. Prior to his time with Union Bank, Mr. Niles spent a decade as a financial services investment banker supporting mergers and acquisitions of financial institutions, bank and thrift capital issuances, and bank funding transactions.
Angie M. DeWitt - Age: 50
Angie M. DeWitt has been Executive Vice President and Chief Human Resources Officer of Associated and Associated Bank since April 2019. Most recently she served as Deputy Chief Human Resources Officer from October 2018 to April 2019 and Senior Vice President, Director of Human Resources from February 2018 to October 2018. She joined Associated in August 2008 as a member of the finance team and has held multiple leadership roles. Prior to joining Associated, she held a senior finance role at Schneider National, Inc. from January 2002 to August 2008.
Randall J. Erickson - Age: 60
Randall J. Erickson has been Executive Vice President, General Counsel and Corporate Secretary of Associated and Associated Bank since April 2012, and was Chief Risk Officer from May 2016 to February 2018. Prior to joining Associated, he served as senior vice president, chief administrative officer and general counsel of Milwaukee-based bank holding company Marshall & Ilsley Corporation from 2002 until it was acquired by BMO Financial in 2011. Upon leaving M&I, he became a member of Milwaukee law firm Godfrey & Kahn S.C.’s securities practice group. He had been a partner at Godfrey & Kahn S.C. from 1990 to 2002 prior to joining M&I as its general counsel. Mr. Erickson served as a director of Renaissance Learning, Inc., a publicly-held educational software company, from 2009 until it was acquired by Permira Funds in 2011.
Nicole M. Kitowski - Age: 44
Nicole M. Kitowski has been Executive Vice President and Chief Risk Officer of Associated and Associated Bank since February 2018. She joined Associated in 1992 and has held leadership roles in Consumer Banking, Operations and Technology, and Corporate Risk, including Deputy Chief Risk Officer from March 2016 to February 2018 and Corporate BSA, AML, OFAC Officer from June 2014 to March 2016.

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Timothy J. Lau - Age: 57

Timothy J. Lau has been Executive Vice President, Head of Community Markets of Associated and Associated Bank since June 2014. Mr. Lau previously served as Executive Vice President, Head of Private Client and Institutional Services from December 2010 to June 2014. He joined Associated in 1989 and has held a number of senior management positions in Consumer and Small Business Banking, Residential Lending, and Commercial Banking.

Michael O. Meinolf - Age: 45

Michael O. Meinolf has been Executive Vice President and Chief Information Officer of Associated and Associated Bank since September 2018. He joined Associated in April 2015 as Senior Vice President, Director of Business Solutions. Mr. Meinolf has more than 20 years of information technology experience. Previously, he held the positions of Vice President, Technology Administration at The Clearing House Payments Company, LLC from February 2012 to April 2015 and Director of Information Technology, PayDirect Government Solutions at FIS from August 2009 to February 2012.
Paul G. Schmidt - Age: 57
Paul G. Schmidt has been Executive Vice President, Head of Commercial Real Estate of Associated and Associated Bank since January 2016. He joined Associated in April 2015 as Executive Vice President of Commercial Real Estate. He was named Deputy Head of Commercial Real Estate in September 2015. Mr. Schmidt brings more than 32 years of banking experience to Associated. Most recently, he held the position of Executive Vice President, Division Manager, Commercial Real Estate at Wells Fargo from 2002 to 2015.
David L. Stein - Age: 56
David L. Stein has been Executive Vice President, Head of Consumer and Business Banking of Associated and Associated Bank since January 2017 and was named Madison Market President in January 2019. He was previously Executive Vice President, Head of Consumer and Commercial Banking from April 2014 until January 2017 and Executive Vice President, Head of Retail Banking from June 2007 until April 2014. He was the President of the Southwest Region of Associated Bank from January 2005 until June 2007. He held various positions with J.P. Morgan Chase & Co., and one of its predecessors, Bank One Corporation, from 1989 until joining Associated in 2005.
John A. Utz - Age: 51
John A. Utz has been Executive Vice President, Head of Corporate Banking and Milwaukee Market President of Associated and Associated Bank since September 2015. He joined Associated in March 2010 with upwards of 20 years of banking experience, having previously served as President of Union Bank’s UnionBanCal Equities and head of its Capital Markets division from September 2007 to March 2010, and as head of the National Banking and Asset Management teams from October 2002 to September 2007.
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PART II

ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Information in response to this item is incorporated by reference to the discussion of dividend restrictions under Part I, Item 1, Business - Holding Company Dividends, and in Note 10 Stockholders' Equity of the notes to consolidated financial statements included under Part II, Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. The Corporation’s common stock is traded on the NYSE under the symbol ASB.
The number of shareholders of record of the Corporation’s common stock, $0.01 par value, as of January 31, 2020, was 8,304. Certain of the Corporation’s shares are held in “nominee” or “street” name and the number of beneficial owners of such shares is 22,788.
Payment of future dividends is within the discretion of the Board of Directors and will depend, among other factors, on earnings, capital requirements, and the operating and financial condition of the Corporation. The Board of Directors makes the dividend determination on a quarterly basis.
The Corporation repurchased $48 million, or approximately 2.3 million shares, of common stock during the fourth quarter of 2019. The repurchase details are presented in the table below. For a detailed discussion of the common stock and depositary share purchases during 2019 and 2018, see Part II, Item 8, Note 10 Stockholders' Equity of the notes to consolidated financial statements.
Common Stock Purchases
Total Number  of
Shares Purchased(a)
Average Price
Paid per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs
Maximum Number of
Shares that May Yet
Be Purchased Under
the Plans
or Programs(b)
Period
October 1, 2019 - October 31, 2019 556,371    $ 20.22    556,371    —   
November 1, 2019 - November 30, 2019 1,450,000    21.57    1,450,000    —   
December 1, 2019 - December 31, 2019 249,923    21.43    249,923    —   
Total 2,256,294    $ 21.22    2,256,294    8,341,932   
(a) During the fourth quarter of 2019, the Corporation repurchased 4,806 shares of common stock to satisfy minimum tax withholding on settlements of equity compensation awards. These purchases do not count against the maximum number of shares that may yet be purchased under the Board of Directors’ authorization.
(b) On December 10, 2019, the Board of Directors authorized the repurchase of up to $150 million of the Corporation's common stock. The repurchase authorization was in addition to the previous authorized repurchases. At December 31, 2019, there remained approximately $184 million authorized to be repurchased in the aggregate. Approximately 8.3 million shares of common stock remained available to be repurchased under this Board authorization given the closing share price on December 31, 2019.


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Total Shareholder Return Performance Graph
Set forth below is a line graph (and the underlying data points) comparing the yearly percentage change in the cumulative total shareholder return (change in year-end stock price plus reinvested dividends) on the Corporation’s common stock with the cumulative total return of the S&P 500 Index and the S&P 400 Regional Banks Sub-Industry Index for the period of five fiscal years commencing on January 1, 2015 and ending December 31, 2019. The S&P 400 Regional Banks Sub-Industry Index is comprised of stocks on the S&P Total Market Index that are classified in the regional banks sub-industry. The graph assumes the respective values of the investment in the Corporation’s common stock and each index were $100 on December 31, 2014. Historical stock price performance shown on the graph is not necessarily indicative of the future price performance.
5 Year Trend
ASB-20191231_G1.JPG
2014 2015 2016 2017 2018 2019
Associated Banc-Corp $ 100.0    $ 102.8    $ 137.9    $ 144.7    $ 116.2    $ 133.5   
S&P 500 Index $ 100.0    $ 101.4    $ 113.3    $ 137.8    $ 131.9    $ 173.1   
S&P 400 Regional Banks Sub-Industry Index $ 100.0    $ 106.6    $ 141.0    $ 148.1    $ 117.1    $ 145.6   
Source: Bloomberg
The Total Shareholder Return Performance Graph shall not be deemed incorporated by reference by any general statement incorporating by reference this Annual Report on Form 10-K into any filing under the Securities Act or under the Exchange Act, except to the extent the Corporation specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts.

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ITEM 6.     Selected Financial Data
Table 1 Summary Results of Operations: Trends
Years Ended December 31,
($ in Thousands, except per share data) 2019 2018 2017 2016 2015
Interest income $ 1,172,610    $ 1,154,137    $ 886,605    $ 791,568    $ 753,662   
Interest expense 336,936    274,557    145,385    84,295    77,384   
Net interest income 835,674    879,580    741,220    707,273    676,278   
Provision for credit losses 16,000    —    26,000    70,000    37,500   
Net interest income after provision for credit losses 819,674    879,580    715,220    637,273    638,778   
Noninterest income 380,824    355,568    332,680    352,883    329,357   
Noninterest expense 793,988    821,799    709,133    702,560    698,347   
Income before income taxes 406,509    413,349    338,767    287,596    269,788   
Income tax expense 79,720    79,786    109,503    87,322    81,487   
Net income 326,790    333,562    229,264    200,274    188,301   
Preferred stock dividends 15,202    10,784    9,347    8,903    7,155   
Net income available to common equity $ 311,587    $ 322,779    $ 219,917    $ 191,371    $ 181,146   
Earnings per common share
Basic $ 1.93    $ 1.92    $ 1.45    $ 1.27    $ 1.20   
Diluted 1.91    1.89    1.42    1.26    1.19   
Cash dividends per common share 0.69    0.62    0.50    0.45    0.41   
Weighted average common shares outstanding
Basic 160,534    167,345    150,877    148,769    149,350   
Diluted 161,932    169,732    153,647    149,961    150,603   
Selected Financial Data
Year-End Balances
Loans $ 22,821,440    $ 22,940,429    $ 20,784,991    $ 20,054,716    $ 18,714,343   
Allowance for loan losses 201,371    238,023    265,880    278,335    274,264   
Investment securities 5,482,759    6,689,021    6,326,299    5,953,762    6,135,644   
Total assets(a)
32,386,478    33,615,122    30,443,626    29,139,315    27,711,835   
Deposits 23,779,064    24,897,393    22,785,962    21,888,448    21,007,665   
Short- and long-term funding, and FHLB advances 4,195,423    4,527,056    4,073,732    3,853,830    3,510,580   
Stockholders’ equity 3,922,124    3,780,888    3,237,443    3,091,312    2,937,246   
Book value per common share 23.32    21.43    20.13    19.27    18.62   
Tangible book value per common share 15.28    13.86    13.65    12.78    12.10   
Average Balances
Loans $ 23,122,797    $ 22,718,297    $ 20,592,383    $ 19,650,667    $ 18,252,264   
Investment securities 6,194,465    6,912,921    6,028,262    6,048,563    5,912,849   
Earning assets 29,820,829    30,049,793    26,999,884    26,026,661    24,571,087   
Total assets(a)
33,046,604    33,007,859    29,467,324    28,506,112    27,019,216   
Deposits 24,735,608    24,072,049    21,923,602    21,005,772    19,903,087   
Interest-bearing liabilities 23,535,115    23,699,823    21,045,399    20,122,402    19,330,847   
Stockholders’ equity 3,871,869    3,692,433    3,172,634    3,022,962    2,895,158   
Risk-based Capital(a)(b)
Total risk-weighted assets $ 24,296,382    $ 23,842,542    $ 21,504,495    $ 21,340,951    $ 19,929,963   
Common equity Tier 1 2,480,698    2,449,721    2,171,508    2,032,587    1,897,944   
Common equity Tier 1 capital ratio 10.21  % 10.27  % 10.10  % 9.52  % 9.52  %
Return on average common equity Tier 1 12.59  % 13.15  % 10.43  % 9.86  % 9.88  %
(a) During the third quarter of 2019, the Corporation made a change in accounting policy to offset derivative assets and liabilities and cash collateral with the same counterparty where it has a legally enforceable master netting agreement in place. The change had no impact on either earnings or equity. The Corporation believes that this change is a preferable method of accounting as it provides a better reflection of the assets and liabilities on the face of the consolidated balance sheets. Adoption of this change was voluntary and has been adopted retrospectively. 2019, 2018, and 2017 total assets, average total assets, total risk-weighted assets, and capital ratios were restated for comparability. 2016 and 2015 total assets, average total assets, risk-weighted assets, and capital ratios were not restated.
(b) The Federal Reserve establishes regulatory capital requirements, including well-capitalized standards for the Corporation. The regulatory capital requirements effective for the Corporation follow Basel III, subject to certain transition provisions. These regulatory capital measurements are used by management, regulators, investors, and analysts to assess, monitor and compare the quality and composition of our capital with the capital of other financial services companies. See Table 26 for a reconciliation of average common equity Tier 1.

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ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion is management’s analysis to assist in the understanding and evaluation of the consolidated financial condition and results of operations of the Corporation. It should be read in conjunction with the consolidated financial statements and footnotes and the selected financial data presented elsewhere in this report. Within the tables presented, certain columns and rows may not sum due to the use of rounded numbers for disclosure purposes.
The detailed financial discussion that follows focuses on 2019 results compared to 2018. For a discussion of 2018 results compared to 2017 see the Corporation's Annual Report on Form 10-K for the year ended December 31, 2018.
Overview
The Corporation is a bank holding company headquartered in Wisconsin, providing a broad array of banking and nonbanking products and services to businesses and consumers primarily within our three-state footprint. The Corporation’s primary sources of revenue, through the Bank, are net interest income (predominantly from loans and investment securities) and noninterest income (principally fees and other revenue from financial services provided to customers or ancillary services tied to loans and deposits).

Performance Summary and 2020 Outlook
Diluted earnings per common share of $1.91 in 2019 increased $0.02, or 1%, from 2018.
Average loans of $23.1 billion for 2019 increased $405 million, or 2%, from a year ago. Average deposits of $24.7 billion for 2019 increased $664 million, or 3%, from a year ago, driven by the Huntington branch acquisition. For 2020, the Corporation expects 2%-4% annual average loan growth.
Net interest income of $836 million in 2019 decreased $44 million, or 5%, from 2018. Net interest margin of 2.86% in 2019 decreased 11 bp from 2.97% in 2018. The decrease was driven primarily by lower prepayments and accretion related to the Bank Mutual acquisition in 2018. The decrease was additionally driven by compression in LIBOR rates outpacing reductions in funding costs resulting from Federal Reserve rate cuts. The Corporation expects 2020 net interest margin to be between 2.80% and 2.85%, assuming a stable interest rate environment.
Provision for credit losses was $16 million in 2019, compared to zero in 2018. For 2020, the Corporation expects the provision for credit losses to adjust with changes to risk grade, other indications of credit quality, and loan volume. On January 1, 2020, the Corporation adopted ASU 2016-13 (CECL). The initial CECL impact is expected to result in a $70 million to $80 million after-tax charge and a corresponding 21 bp to 24 bp decrease in the tangible common equity ratio. See Note 1 Summary of Significant Accounting Policies of the notes to consolidated financial statements for additional information on the Corporation's impact of adoption.
Noninterest income of $381 million in 2019 increased $25 million, or 7%, from 2018. For 2020, the Corporation expects to earn between $375 million and $385 million of noninterest income.
Noninterest expenses of $794 million in 2019 decreased $28 million, or 3%, from 2018, primarily due to a $22 million decrease in acquisition related costs. For 2020, the Corporation expects noninterest expense will be between $790 million and $795 million.
35



Income Statement Analysis
Net Interest Income
Table 2 Net Interest Income Analysis
Years Ended December 31,
2019 2018 2017
 ($ in Thousands) Average
Balance
Interest
Income /
Expense
Average
Yield /
Rate
Average
Balance
Interest
Income /
Expense
Average
Yield /
Rate
Average
Balance
Interest
Income /
Expense
Average
Yield /
Rate
Assets
Earning assets
Loans(a)(b)(c)
Commercial and business lending $ 8,426,774    $ 385,072    4.57  % $ 7,744,640    $ 349,266    4.51  % $ 7,254,613    $ 265,796    3.66  %
Commercial real estate lending 5,150,464    255,582    4.96  % 5,433,361    273,937    5.04  % 4,952,605    192,838    3.89  %
Total commercial 13,577,238    640,655    4.72  % 13,178,001    623,203    4.73  % 12,207,218    458,634    3.76  %
Residential mortgage 8,311,914    282,134    3.39  % 8,289,432    281,814    3.40  % 7,105,486    229,210    3.23  %
Retail 1,233,646    76,939    6.24  % 1,250,863    73,605    5.88  % 1,279,679    64,892    5.07  %
Total loans 23,122,797    999,727    4.32  % 22,718,297    978,622    4.31  % 20,592,383    752,736    3.66  %
Investment securities
Taxable 4,284,991    100,304    2.34  % 5,366,825    119,741    2.23  % 4,861,597    96,909    1.99  %
Tax-exempt(a)
1,909,474    71,956    3.77  % 1,546,096    56,426    3.65  % 1,166,665    50,455    4.32  %
Other short-term investments 503,566    16,643    3.30  % 418,576    12,623    3.02  % 379,239    7,719    2.04  %
Investments and other 6,698,032    188,903    2.82  % 7,331,497    188,790    2.58  % 6,407,501    155,083    2.42  %
Total earning assets $ 29,820,829    $ 1,188,630    3.99  % $ 30,049,793    $ 1,167,412    3.88  % $ 26,999,884    $ 907,819    3.36  %
Other assets, net(d)
3,225,775    2,958,066    2,467,441   
Total assets $ 33,046,604    $ 33,007,859    $ 29,467,324   
Liabilities and stockholders' equity
Interest-bearing liabilities
Interest-bearing deposits
Savings $ 2,439,872    $ 7,086    0.29  % $ 1,878,960    $ 1,435    0.08  % $ 1,527,161    $ 816    0.05  %
Interest-bearing demand 5,080,857    56,742    1.12  % 4,767,873    44,911    0.94  % 3,953,014    20,344    0.51  %
Money market 7,005,265    74,467    1.06  % 7,260,692    54,573    0.75  % 6,321,603    22,991    0.36  %
Network transaction deposits 1,860,951    42,523    2.29  % 2,095,715    39,251    1.87  % 3,145,554    31,455    1.00  %
Time deposits 3,129,142    56,468    1.80  % 2,831,229    35,948    1.27  % 1,979,709    18,419    0.93  %
Total interest-bearing deposits 19,516,088    237,286    1.22  % 18,834,469    176,118    0.94  % 16,927,041    94,025    0.56  %
Federal funds purchased and securities sold under agreements to repurchase 137,679    1,579    1.15  % 224,967    2,006    0.89  % 415,086    2,527    0.61  %
Commercial paper 32,123    149    0.46  % 56,076    186    0.33  % 91,797    293    0.32  %
FHLB advances 3,106,279    69,816    2.25  % 3,971,797    73,668    1.85  % 3,114,545    30,364    0.97  %
Long-term funding 742,946    28,106    3.78  % 612,513    22,579    3.69  % 496,930    18,176    3.66  %
Total short and long-term funding 4,019,027    99,651    2.48  % 4,865,353    98,439    2.02  % 4,118,358    51,360    1.25  %
Total interest-bearing liabilities $ 23,535,115    $ 336,936    1.43  % $ 23,699,823    $ 274,557    1.16  % $ 21,045,399    $ 145,385    0.69  %
Noninterest-bearing demand deposits 5,219,520    5,237,580    4,996,561   
Other liabilities(d)
420,100    378,024    252,731   
Stockholders’ equity 3,871,869    3,692,433    3,172,634   
Total liabilities and stockholders’ equity $ 33,046,604    $ 33,007,859    $ 29,467,324   
Interest rate spread 2.56  % 2.72  % 2.67  %
Net free funds 0.30  % 0.25  % 0.15  %
Fully tax-equivalent net interest income and net interest margin $ 851,693    2.86  % $ 892,855    2.97  % $ 762,434    2.82  %
Fully tax-equivalent adjustment $ 16,020    $ 13,275    $ 21,214   
Net interest income $ 835,674    $ 879,580    $ 741,220   
(a) Beginning in 2018, the yield on tax-exempt loans and securities is computed on a fully tax-equivalent basis using a tax rate of 21% and is net of the effects of certain disallowed interest deductions. Prior to 2018, the yield on tax-exempt loans and securities was computed on a fully tax-equivalent basis using a tax rate of 35% and was net of the effects of certain disallowed interest deductions.
(b) Nonaccrual loans and loans held for sale have been included in the average balances.
(c) Interest income includes amortization of net deferred loan origination costs and net accreted purchase loan discount.
(d) During the third quarter of 2019, the Corporation made a change in accounting policy to offset derivative assets and liabilities and cash collateral with the same counterparty where it has a legally enforceable master netting agreement in place. Adoption of this change was voluntary and has been adopted retrospectively with all prior periods presented herein revised.



36



Net interest income is the primary source of the Corporation’s revenue. Net interest income is the difference between interest income on interest-earning assets, such as loans and investment securities, and the interest expense on interest-bearing deposits and other borrowings used to fund interest-earning and other assets or activities. Net interest income is affected by the amount and composition of earning assets and interest-bearing liabilities, as well as the sensitivity of the balance sheet to changes in interest rates, including characteristics such as the fixed or variable nature of the financial instruments, contractual maturities, re-pricing frequencies, loan prepayment behavior, and the use of interest rate derivative financial instruments.
Interest rate spread and net interest margin are utilized to measure and explain changes in net interest income. Interest rate spread is the difference between the yield on earning assets and the rate paid on interest-bearing liabilities that fund those assets. The net interest margin is expressed as the percentage of net interest income to average earning assets. The net interest margin exceeds the interest rate spread because net free funds, principally noninterest-bearing demand deposits and stockholders’ equity, also support earning assets. To compare tax-exempt asset yields to taxable yields, the yield on tax-exempt loans and investment securities is computed on a fully tax-equivalent basis. Net interest income, interest rate spread, and net interest margin are discussed on a fully tax-equivalent basis.
Table 2 provides average balances of earning assets and interest-bearing liabilities, the associated interest income and expense, and the corresponding interest rates earned and paid, as well as net interest income, interest rate spread, and net interest margin on a fully tax-equivalent basis for the years ended December 31, 2019, 2018, and 2017. Table 3 presents additional information to facilitate the review and discussion of fully tax-equivalent net interest income, interest rate spread, and net interest margin.
Notable Contributions to the Change in 2019 Net Interest Income
Net interest income on the consolidated statements of income (which excludes the fully tax-equivalent adjustment) was $836 million in 2019 compared to $880 million in 2018. The decrease was driven primarily by lower prepayments and accretion related to the Bank Mutual acquisition in 2018. The decrease was additionally driven by compression in LIBOR rates outpacing reductions in funding costs. See sections Interest Rate Risk and Quantitative and Qualitative Disclosures about Market Risk for a discussion of interest rate risk and market risk.
Fully tax-equivalent net interest income of $852 million for 2019 was $41 million lower than 2018.
Average earning assets of $29.8 billion in 2019 were $229 million, or 1%, lower than 2018. The decrease in average earning assets was driven by a $633 million, or 9%, decrease in average investments and other short-term investments, partially offset by a $405 million, or 2%, increase in average loans. The yield on investment securities and other short-term investments increased 24 bp to 2.82%.
Average interest-bearing liabilities of $23.5 billion in 2019 were down $165 million, or 1%, versus 2018. On average, interest-bearing deposits increased $682 million, or 4%. Average short- and long-term funding decreased $846 million from 2018 primarily driven by FHLB advances decreasing $866 million.
The average cost of interest-bearing liabilities was 1.43% in 2019, 27 bp higher than 2018. The increase was due to a 28 bp increase in the average cost of interest-bearing deposits to 1.22% and a 46 bp increase in the cost of short- and long-term funding to 2.48%. This is primarily due to the full year impact of the 2018 Federal Funds rate increases partially offset by the impact of the three Federal Funds rate cuts in the second half of 2019.
The Federal Reserve decreased the target Federal Funds rate on October 31, 2019 to a range of 1.50% to 1.75% compared to a range of 2.25% to 2.50% at the end of 2018. The Federal Reserve has indicated it will closely assess economic data and be patient before moving ahead with any additional changes in the Federal Funds rate. Therefore, the timing and magnitude of any such changes are uncertain and will depend on domestic and global economic conditions.

37



Table 3 Rate/Volume Analysis(a)
  2019 Compared to 2018
Increase (Decrease) Due to
2018 Compared to 2017
Increase (Decrease) Due to
 ($ in Thousands) Volume Rate Net Volume Rate Net
Interest income  
Loans(b)
Commercial and business lending $ 31,118    $ 4,689    $ 35,807    $ 18,904    $ 64,566    $ 83,470   
Commercial real estate lending (14,090)   (4,264)   (18,355)   20,086    61,014    81,100   
Total commercial 17,027    425    17,452    38,990    125,580    164,570   
Residential mortgage 764    (444)   320    39,747    12,856    52,603   
Retail (1,024)   4,358    3,333    (1,490)   10,203    8,713   
Total loans 16,766    4,339    21,105    77,247    148,639    225,886   
Investment securities
Taxable (25,091)   5,654    (19,437)   7,660    15,172    22,832   
Tax-exempt(b)
13,641    1,889    15,530    14,678    (8,708)   5,970   
Other short-term investments 2,730    1,289    4,019    869    4,035    4,904   
Investments and other (8,720)   8,833    112    23,207    10,499    33,707   
Total earning assets $ 8,046    $ 13,172    $ 21,218    $ 100,454    $ 159,138    $ 259,593   
Interest expense
Savings $ 544    $ 5,107    $ 5,651    $ 216    $ 403    $ 619   
Interest-bearing demand 3,091    8,740    11,831    4,886    19,680    24,566   
Money market (1,982)   21,876    19,894    3,861    27,722    31,583   
Network transaction deposits (4,723)   7,995    3,272    (13,033)   20,829    7,796   
Time deposits 3,839    16,681    20,520    9,660    7,869    17,529   
Total interest-bearing deposits 769    60,399    61,168    5,590    76,502    82,093   
Federal funds purchased and securities sold under agreements to repurchase (907)   480    (427)   (1,425)   903    (522)  
Commercial paper (96)   59    (37)   (118)   11    (107)  
FHLB advances (17,778)   13,926    (3,852)   10,120    33,184    43,304   
Long-term funding 4,920    607    5,527    4,260    144    4,403   
Total short and long-term funding (13,859)   15,071    1,212    12,837    34,242    47,079   
Total interest-bearing liabilities (13,091)   75,470    62,380    18,427    110,744    129,172   
Fully tax-equivalent net interest income $ 21,136    $ (62,298)   $ (41,162)   $ 82,027    $ 48,394    $ 130,421   
(a) The change in interest due to both rate and volume has been allocated in proportion to the relationship to the dollar amounts of the change in each.
(b) Beginning in 2018, the yield on tax-exempt loans and securities is computed on a fully tax-equivalent basis using a tax rate of 21% and is net of the effects of certain disallowed
interest deductions. Prior to 2018, the yield on tax-exempt loans and securities was computed on a fully tax-equivalent basis using a tax rate of 35% and was net of the effects of certain disallowed interest deductions.

Provision for Credit Losses
The provision for credit losses is predominantly a function of the Corporation’s reserving methodology and judgments as to other qualitative and quantitative factors used to determine the appropriate level of the allowance for loan losses and the allowance for unfunded commitments, which focuses on changes in the size and character of the loan portfolio, changes in levels of impaired and other nonaccrual loans, historical losses and delinquencies in each portfolio category, the level of loans sold or transferred to held for sale, the risk inherent in specific loans, concentrations of loans to specific borrowers or industries, existing economic conditions, the fair value of underlying collateral, and other factors which could affect potential credit losses. See additional discussion under sections: Loans, Credit Risk, Nonperforming Assets, and Allowance for Credit Losses.
The provision for credit losses (which includes the provision for loan losses and the provision for unfunded commitments) was $16 million for 2019, compared to no provision for credit losses in 2018.
Net charge offs were $55 million, representing 0.24% of average loans, for 2019, compared to $30 million, representing 0.13% of average loans, for 2018.
The ratio of the allowance for loan losses to total loans was 0.88% and 1.04% at December 31, 2019 and 2018, respectively.
38



Noninterest Income
Table 4 Noninterest Income
  Years Ended December 31, Change From Prior Year
($ in Thousands) 2019 2018 2017 $ Change
2019
% Change
2019
$ Change
2018
% Change
2018
Insurance commissions and fees $ 89,104    $ 89,511    $ 81,474    $ (407)   —  % $ 8,037    10  %
Wealth management fees(a)
83,467    82,562    70,126    905    % 12,436    18  %
Service charges and deposit account fees 63,135    66,075    64,427    (2,940)   (4) % 1,648    %
Card-based fees 39,755    39,656    34,834    99    —  % 4,822    14  %
Other fee-based revenue 18,942    17,818    17,854    1,124    % (36)   —  %
Total fee-based revenue 294,402    295,622    268,715    (1,220)   —  % 26,907    10  %
Capital markets, net 19,862    20,120    19,642    (258)   (1) % 478    %
Mortgage banking income 44,373    28,960    29,619    15,413    53  % (659)   (2) %
Mortgage servicing rights expense 12,494    9,049    10,259    3,445    38  % (1,210)   (12) %
   Mortgage banking, net 31,878    19,911    19,360    11,967    60  % 551    %
Bank and corporate owned life insurance 14,845    13,951    16,250    894    % (2,299)   (14) %
Other 11,165    9,051    9,523    2,114    23  % (472)   (5) %
Subtotal 372,154    358,655    333,490    13,499    % 25,165    %
Asset gains (losses), net (b)
2,713    (1,103)   (1,244)   3,816    N/M    141    (11) %
Investment securities gains (losses), net 5,957    (1,985)   434    7,942    N/M    (2,419)   N/M   
Total noninterest income $ 380,824    $ 355,568    $ 332,680    $ 25,256    % $ 22,888    %
Mortgage loans originated for sale during period $ 1,090,792    $ 1,092,318    $ 715,357    $ (1,526)   —  % $ 376,961    53  %
Mortgage loan settlements during period $ 1,317,077    $ 1,131,652    $ 819,950    $ 185,425    16  % $ 311,702    38  %
Assets under management, at market value(c)
$ 12,104    $ 10,291    $ 10,555    $ 1,813    18  % $ (265)   (3) %
N/M = Not Meaningful
(a) Includes trust, asset management, brokerage, and annuity fees.
(b) 2019 includes less than $1 million of Huntington related asset losses; 2018 includes approximately $2 million of Bank Mutual acquisition related asset losses net of asset gains.
(c) $ in millions. Excludes assets held in brokerage accounts.

Notable Contributions to the Change in 2019 Noninterest Income
Mortgage banking, net was $32 million in 2019, an increase of $12 million, or 60%, compared to 2018. The increase was driven by higher mortgage banking revenues due to increased settlements and gain on sale, mostly resulting from higher refinance activity in 2019 and the portfolio mortgage sale that occurred during the third quarter of 2019.
Investment securities gains (losses), net was up $8 million from 2018 as a result of the ongoing portfolio restructuring and balance sheet deleveraging strategy.
Asset gains (losses), net was up $4 million compared to 2018. During 2018, the Corporation recognized a $2 million loss on the sale of a profit participation agreement that was received in partial satisfaction of a loan obligation. In addition, 2019 benefited from higher income and distributions from alternative investments.
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Noninterest Expense
Table 5 Noninterest Expense
  Years Ended December 31, Change From Prior Year
 ($ in Thousands) 2019 2018 2017 $ Change
2019
% Change
2019
$ Change
2018
% Change
2018
Personnel $ 487,063    $ 482,676    $ 428,976    $ 4,387    % $ 53,700    13  %
Technology 82,429    72,674    63,004    9,755    13  % 9,670    15  %
Occupancy 62,399    59,121    53,842    3,278    % 5,279    10  %
Business development and advertising 29,600    30,923    28,946    (1,323)   (4) % 1,977    %
Equipment 23,550    23,243    21,201    307    % 2,042    10  %
Legal and professional 19,901    23,061    22,509    (3,160)   (14) % 552    %
Loan and foreclosure costs 8,861    7,410    7,293    1,451    20  % 117    %
FDIC assessment 16,250    30,000    31,300    (13,750)   (46) % (1,300)   (4) %
Other intangible amortization 9,948    8,159    1,959    1,789    22  % 6,200    N/M   
Acquisition related costs(a)
7,320    29,002    —    (21,682)   (75) % 29,002    N/M   
Other 46,666    55,530    50,102    (8,864)   (16) % 5,428    11  %
Total noninterest expense $ 793,988    $ 821,799    $ 709,133    $ (27,811)   (3) % $ 112,666    16  %
Personnel expense to total noninterest expense 61  % 59  % 60  %
Average full-time equivalent employees(b)
4,702    4,699    4,307   
N/M = Not Meaningful
(a) Includes Bank Mutual, Huntington branch, and First Staunton acquisition related costs only
(b) Average full-time equivalent employees without overtime
Notable Contributions to the Change in 2019 Noninterest Expense
Acquisition costs decreased $22 million, or 75%, from 2018, due to higher Bank Mutual acquisition related costs in 2018 compared to Huntington branch and First Staunton acquisition related costs in 2019.
FDIC assessment expenses decreased $14 million, or 46%, from 2018, driven by the removal of the FDIC surcharge assessment in late 2018.
Technology expense of $82 million increased $10 million, or 13%, compared to 2018, driven by investments in solutions to enhance operational efficiency and the customer experience.
Personnel costs increased $4 million from 2018, primarily driven by a $3 million increase in restructuring and severance charges.
Income Taxes
The Corporation recognized income tax expense of $80 million for both 2018 and 2019. Income tax expense decreased in 2019 compared to 2018 due to a drop in income before taxes, an increase in tax exempt interest, and the expense from the settlement of litigation in Minnesota which was booked in 2018. However, this decrease was offset by the reductions in the benefits of Tax Act planning actions in 2019 relative to 2018. The effective tax rate was 19.6% for 2019, compared to an effective tax rate of 19.3% for 2018.
See Note 1 Summary of Significant Accounting Policies of the notes to consolidated financial statements for the Corporation’s income tax accounting policy and section Critical Accounting Policies. Income tax expense recorded on the consolidated statements of income involves the interpretation and application of certain accounting pronouncements and federal and state tax laws and regulations, and is therefore considered a critical accounting policy. The Corporation is subject to examination by various taxing authorities. Examination by taxing authorities may impact the amount of tax expense and / or the reserve for uncertainty in income taxes if their interpretations differ from those of management, based on their judgments about information available to them at the time of their examinations. See Note 13 Income Taxes of the notes to consolidated financial statements for more information.
Balance Sheet Analysis
At December 31, 2019, total assets were $32.4 billion, down $1.2 billion, or 4%, from December 31, 2018.
Investment securities at December 31, 2019 were $5.5 billion, down $1.2 billion, or 18% from December 31, 2018. During 2019, the Corporation used its investment portfolio as a source of funds and sought to reposition its investments for a
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declining interest rate environment. See Note 3 Investment Securities of the notes to consolidated financial statements for additional information on investment securities.
Loans of $22.8 billion at December 31, 2019 were down $119 million, or 1%, from December 31, 2018. See Note 4 Loans of the notes to consolidated financial statements for additional information on loans. The Corporation added $116 million in loans from the Huntington branch acquisition in the second quarter of 2019.
At December 31, 2019, total deposits of $23.8 billion were down $1.1 billion, or 4%, from December 31, 2018. On June 14, 2019, the Corporation assumed $725 million of deposits from the Huntington branch acquisition. As a result of the acquisition, the Corporation was able to reduce higher cost brokered CDs and network deposits. See section Deposits and Customer Funding and Note 8 Deposits of the notes to consolidated financial statements for additional information on deposits.
At December 31, 2019, other long-term funding was $549 million, down $246 million, or 31%, from December 31, 2018, driven by the Corporation's redemption of $250 million in senior notes on October 15, 2019.
Loans
Table 6 Loan Composition
  As of December 31,
  2019 2018 2017 2016 2015
 ($ in Thousands) Amount % of
Total
Amount % of
Total
Amount % of
Total
Amount % of
Total
Amount % of
Total
Commercial and industrial $ 7,354,594    32  % $ 7,398,044    32  % $ 6,399,693    31  % $ 6,489,014    32  % $ 6,190,683    33  %
Commercial real estate — owner occupied 911,265    % 920,443    % 802,209    % 897,724    % 918,212    %
Commercial and business lending 8,265,858    36  % 8,318,487    36  % 7,201,902    35  % 7,386,738    37  % 7,108,895    38  %
Commercial real estate — investor 3,794,517    17  % 3,751,554    16  % 3,315,254    16  % 3,574,732    18  % 3,234,266    17  %
Real estate construction 1,420,900    % 1,335,031    % 1,451,684    % 1,432,497    % 1,162,145    %
Commercial real estate lending 5,215,417    23  % 5,086,585    22  % 4,766,938    23  % 5,007,229    25  % 4,396,411    23  %
Total commercial 13,481,275    59  % 13,405,072    58  % 11,968,840    58  % 12,393,967    62  % 11,505,306    61  %
Residential mortgage 8,136,980    36  % 8,277,712    36  % 7,546,534    36  % 6,332,327    31  % 5,783,267    31  %
Home equity 852,025    % 894,473    % 883,804    % 934,443    % 1,005,802    %
Other consumer 351,159    % 363,171    % 385,813    % 393,979    % 419,968    %
Total consumer 9,340,164    41  % 9,535,357    42  % 8,816,151    42  % 7,660,749    38  % 7,209,037    39  %
Total loans(a)(b)
$ 22,821,440    100  % $ 22,940,429    100  % $ 20,784,991    100  % $ 20,054,716    100  % $ 18,714,343    100  %
Commercial real estate and real estate construction loan detail
Farmland $ 2,844    —  % $ 1,250    —  % $ 1,399    —  % $ 1,613    —  % $ 7,135    —  %
Multi-family 1,201,835    32  % 1,204,552    32  % 952,473    29  % 1,027,541    29  % 932,360    29  %
Non-owner occupied 2,589,838    68  % 2,545,751    68  % 2,361,382    71  % 2,545,578    71  % 2,294,771    71  %
Commercial real estate — investor $ 3,794,517    100  % $ 3,751,554    100  % $ 3,315,254    100  % $ 3,574,732    100  % $ 3,234,266    100  %
1-4 family construction $ 261,908    18  % $ 289,558    22  % $ 353,902    24  % $ 358,398    25  % $ 309,396    27  %
All other construction 1,158,992    82  % 1,045,474    78  % 1,097,782    76  % 1,074,099    75  % 852,749    73  %
Real estate construction $ 1,420,900    100  % $ 1,335,031    100  % $ 1,451,684    100  % $ 1,432,497    100  % $ 1,162,145    100  %
(a) During the third quarter of 2019, the Corporation sold approximately $240 million of portfolio mortgages as well as $33 million of nonaccrual and performing restructured loans.
(b) Includes $2 million and $5 million of purchased credit-impaired loans at December 31, 2019 and December 31, 2018, respectively.
The Corporation has long-term guidelines relative to the proportion of Commercial and Business, Commercial Real Estate, and Consumer loans within the overall loan portfolio, with each targeted to represent 30-40% of the overall loan portfolio. The targeted long-term guidelines were unchanged during 2019 and 2018. Furthermore, certain sub-asset classes within the respective portfolios were further defined and dollar limitations are placed on these sub-portfolios. These guidelines and limits are reviewed quarterly and approved annually by the Enterprise Risk Committee of the Corporation’s Board of Directors. These guidelines and limits are designed to create balance and diversification within the loan portfolios.

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The Corporation's loan distribution and interest rate sensitivity as of December 31, 2019 is summarized in the following table:
Table 7 Loan Distribution and Interest Rate Sensitivity
($ in Thousands)
Within 1 Year(a)
1-5 Years After 5 Years Total % of Total
Commercial and industrial $ 6,803,084    $ 434,791    $ 116,719    $ 7,354,594    32  %
Commercial real estate — owner occupied 497,372    236,346    177,547    911,265    %
Commercial real estate — investor 3,333,162    375,963    85,392    3,794,517    17  %
Real estate construction 1,362,326    53,983    4,591    1,420,900    %
Residential mortgage - adjustable(b)
656,241    2,715,456    1,950,710    5,322,407    23  %
Residential mortgage - fixed 29,127    44,129    2,741,318    2,814,573    12  %
Home equity 34,103    108,509    709,413    852,025    %
Other consumer 165,676    50,613    134,870    351,159    %
Total loans $ 12,881,090    $ 4,019,789    $ 5,920,561    $ 22,821,440    100  %
Fixed-rate $ 5,638,689    $ 994,242    $ 3,244,083    $ 9,877,013    43  %
Floating or adjustable rate 7,242,401    3,025,547    2,676,478    12,944,426    57  %
Total $ 12,881,090    $ 4,019,789    $ 5,920,561    $ 22,821,440    100  %
(a) Demand loans, past due loans, overdrafts, and credit cards are reported in the “Within 1 Year” category.
(b) Based on contractual loan terms for adjustable rate mortgages; does not factor in early prepayments or amortization.
At December 31, 2019, $18.6 billion, or 81%, of the loans outstanding were floating rate, adjustable rate, re-pricing within one year, or maturing within one year.
Table 8 Quarterly Residential Mortgage Loan Distribution(a)
($ in Thousands) December 31, 2019 September 30, 2019 June 30
2019
March 31,
2019
Residential mortgage - adjustable
$ 5,322,407    $ 5,386,776    $ 5,542,303    $ 5,540,366   
Residential mortgage - fixed 2,814,573    2,568,025    2,735,176    2,783,480   
Total residential mortgage $ 8,136,980    $ 7,954,801    $ 8,277,479    $ 8,323,846   
Total loans $ 22,821,440    $ 22,754,710    $ 23,249,967    $ 23,148,359   
% of adjustable rate residential mortgages to total loans 23  % 24  % 24  % 24  %
% of fixed rate residential mortgages to total loans 12  % 11  % 12  % 12  %
(a) Table 8 has been updated to reflect a reclassification from residential mortgage - fixed to residential mortgage - adjustable as a result of a misclassification of new residential mortgage products introduced since late 2018.

Credit Risk
An active credit risk management process is used for commercial loans to ensure that sound and consistent credit decisions are made. Credit risk is controlled by detailed underwriting procedures, comprehensive loan administration, and periodic review of borrowers’ outstanding loans and commitments. Borrower relationships are formally reviewed and graded on an ongoing basis for early identification of potential problems. Further analysis by customer, industry, and geographic location are performed to monitor trends, financial performance, and concentrations. See Note 4 Loans of the notes to consolidated financial statements for additional information on managing overall credit quality.
The loan portfolio is widely diversified by types of borrowers, industry groups, and market areas within the Corporation's branch footprint. Significant loan concentrations are considered to exist when there are amounts loaned to numerous borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. At December 31, 2019, no significant concentrations existed in the Corporation’s loan portfolio in excess of 10% of total loans.
Commercial and business lending: The commercial and business lending classification primarily includes commercial loans to large corporations, middle market companies, small businesses, and lease financing.
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Table 9 Largest Commercial and Business Lending Industry Group Exposures
December 31, 2019 % of Total Loans % of Total Commercial and Business Lending
Manufacturing and Wholesale Trade % 21  %
Power and Utilities % 19  %
Real Estate % 14  %
The remaining commercial and business lending portfolio is spread over a diverse range of industries, none of which exceed 5% of total loans.
The credit risk related to commercial loans is largely influenced by general economic conditions and the resulting impact on a borrower’s operations or on the value of underlying collateral, if any. Currently, a higher risk segment of the commercial and business lending portfolio is loans to borrowers supporting oil and gas exploration and production, which are further discussed under section oil and gas lending below.
Oil and gas lending: The Corporation provides reserve based loans to oil and gas exploration and production firms. At December 31, 2019, the oil and gas portfolio was comprised of 40 credits, totaling $484 million of outstanding balances, or 2%, of total loans.
The Corporation's oil and gas lending team is based in Houston and focuses on serving the funding needs of small and mid-sized companies in the upstream oil and gas business. The oil and gas loans are first lien, reserve-based, and borrowing base dependent lines of credit. The portfolio is diversified across several major U.S. geographic basins and is diversified by product line with approximately 61% in oil and 39% in gas at December 31, 2019. Borrowing base re-determinations for the portfolio are generally completed at least twice a year and are based on detailed engineering reports and discounted cash flow analysis.
The following table summarizes information about the Corporation's oil and gas loan portfolio:
Table 10 Oil and Gas Loan Portfolio
Years Ended December 31,
($ in Millions) 2019 2018 2017 2016 2015
Total oil and gas related loans $ 484    $ 747    $ 600    $ 668    $ 752   
Annual net charge offs 44    17    25    59    —   
Oil and gas related allowance 12    12    27    38    42   
Oil and gas related allowance ratio 2.6  % 1.6  % 4.5  % 5.7  % 5.6  %
Commercial real estate - investor: Commercial real estate-investor is comprised of loans secured by various non-owner occupied or investor income producing property types.
Table 11 Largest Commercial Real Estate Investor Property Type Exposures
December 31, 2019 % of Total Loans % of Total Commercial Real Estate - Investor
Multi-Family % 32  %
The remaining commercial real estate-investor portfolio is spread over various other property types, none of which exceed 5% of total loans.
Credit risk is managed in a similar manner to commercial and business lending by employing sound underwriting guidelines, lending primarily to borrowers in local markets and businesses, periodically evaluating the underlying collateral, and formally reviewing the borrower’s financial soundness and relationship on an ongoing basis.
Real estate construction: Real estate construction loans are primarily short-term or interim loans that provide financing for the acquisition or development of commercial income properties, multi-family projects or residential development, both single family and condominium. Real estate construction loans are made to developers and project managers who are generally well known to the Corporation and have prior successful project experience. The credit risk associated with real estate construction loans is generally confined to specific geographic areas but is also influenced by general economic conditions. The Corporation controls the credit risk on these types of loans by making loans in familiar markets to established developers, reviewing the merits of individual projects, controlling loan structure, and monitoring project progress and construction advances.
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The Corporation’s current lending standards for commercial real estate and real estate construction lending are determined by property type and specifically address many criteria, including: maximum loan amounts, maximum LTV, requirements for pre-leasing and / or presales, minimum borrower equity, and maximum loan-to-cost. Currently, the maximum standard for LTV is 80%, with lower limits established for certain higher risk types, such as raw land that has a 50% LTV maximum. The Corporation’s LTV guidelines are in compliance with regulatory supervisory limits. In most cases, for real estate construction loans, the loan amounts include interest reserves, which are built into the loans and sized to fund loan payments through construction and lease up and / or sell out.
Residential mortgages: Residential mortgage loans are primarily first lien home mortgages with a maximum loan-to-collateral value without credit enhancement (e.g., private mortgage insurance) of 80%. The residential mortgage portfolio is focused primarily in the Corporation's three-state branch footprint, with approximately 88% of the outstanding loan balances in the Corporation's branch footprint at December 31, 2019. The majority of the on balance sheet residential mortgage portfolio consists of hybrid, adjustable rate mortgage loans with initial fixed-rate terms of 3, 5, 7, or 10 years.
The Corporation generally retains certain fixed-rate residential real estate mortgages in its loan portfolio, including retail and private banking jumbo mortgages and CRA-related mortgages. As part of management's historical practice of originating and servicing residential mortgage loans, generally the Corporation's 30 year, agency conforming, fixed-rate residential real estate mortgage loans have been sold in the secondary market with the servicing rights retained. Subject to management's analysis of the current interest rate environment, among other market factors, the Corporation may choose to retain 30 year mortgage loan production on its consolidated balance sheets. During the third quarter of 2019, the Corporation sold approximately $240 million of fixed-rate portfolio mortgages and $30 million in nonaccrual and performing restructured loans as part of the Corporation's deleveraging strategy which enabled the Corporation to pay down higher cost funding. The sale also reduced interest rate risk by lowering the Corporation's asset sensitivity and freed up capital in advance of the adoption of CECL in the first quarter of 2020. See section Loans for additional information on loans.
The Corporation’s underwriting and risk-based pricing guidelines for residential mortgage loans include minimum borrower FICO score and maximum LTV of the property securing the loan. Residential mortgage products generally are underwritten using FHLMC and FNMA secondary marketing guidelines.
Home equity: Home equity consists of both home equity lines of credit and closed-end home equity loans. The Corporation’s credit risk monitoring guidelines for home equity is based on an ongoing review of loan delinquency status, as well as a quarterly review of FICO score deterioration and property devaluation. The Corporation does not routinely obtain appraisals on performing loans to update LTV ratios after origination; however, the Corporation monitors the local housing markets by reviewing the various home price indices and incorporates the impact of the changing market conditions in its ongoing credit monitoring process. For junior lien home equity loans, the Corporation is unable to track the performance of the first lien loan if it does not own or service the first lien loan. However, the Corporation obtains a refreshed FICO score on a quarterly basis and monitors this as part of its assessment of the home equity portfolio.
The Corporation’s underwriting and risk-based pricing guidelines for home equity lines and loans consist of a combination of both borrower FICO score and the original cumulative LTV against the property securing the loan. Currently, the Corporation's policy sets the maximum acceptable LTV at 90% and the minimum acceptable FICO score at 670. The Corporation's current home equity line of credit offering is priced based on floating rate indices and generally allows 10 years of interest-only payments followed by a 20-year amortization of the outstanding balance. The Corporation has significantly curtailed its offerings of fixed-rate, closed-end home equity loans. The loans in the Corporation's portfolio generally have an original term of 20 years with principal and interest payments required. During the third quarter of 2019, the Corporation sold approximately $3 million of home equity nonaccrual and performing restructured loans as part of the Corporation's deleveraging strategy which enabled the Corporation to pay down higher cost funding. The sale also reduced interest rate risk by lowering the Corporation's asset sensitivity and freed up capital in advance of the adoption of CECL in the first quarter of 2020. See section Loans for additional information on loans.
Other consumer: Other consumer consists of student loans, short-term and other personal installment loans, and credit cards. The Corporation had $136 million and $162 million of student loans at December 31, 2019 and December 31, 2018, respectively, the majority of which are government guaranteed. Credit risk for non-government guaranteed student, short-term, personal installment loans, and credit cards is influenced by general economic conditions, the characteristics of individual borrowers, and the nature of the loan collateral. Risks of loss are generally on smaller average balances per loan spread over many borrowers. Once charged off, there is usually less opportunity for recovery of these smaller consumer loans. Credit risk is primarily controlled by reviewing the creditworthiness of the borrowers, monitoring payment histories, and taking appropriate collateral and guarantee positions. The student loan portfolio is in run-off and no new student loans are being originated.

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Nonperforming Assets
Management is committed to a proactive nonaccrual and problem loan identification philosophy. This philosophy is implemented through the ongoing monitoring and review of all pools of risk in the loan portfolio to ensure that problem loans are identified quickly and the risk of loss is minimized. The following table provides detailed information regarding nonperforming assets, which include nonaccrual loans, OREO, and other nonperforming assets:
Table 12 Nonperforming Assets
  As of December 31,
 ($ in Thousands) 2019 2018 2017 2016 2015
Nonperforming assets by type
Commercial and industrial $ 46,312    $ 41,021    $ 112,786    $ 183,371    $ 93,575   
Commercial real estate — owner occupied 67    3,957    22,740    9,544    8,049   
Commercial and business lending 46,380    44,978    135,526    192,915    101,624   
Commercial real estate — investor 4,409    1,952    4,729    18,051    8,643   
Real estate construction 493    979    974    844    940   
Commercial real estate lending 4,902    2,931    5,703    18,895    9,583   
Total commercial 51,282    47,909    141,229    211,810    111,207   
Residential mortgage 57,844    67,574    53,632    50,236    51,482   
Home equity 9,104    12,339    13,514    13,001    15,244   
Other consumer 152    79    171    256    325   
Total consumer 67,099    79,992    67,317    63,493    67,051   
Total nonaccrual loans(a)
118,380    127,901    208,546    275,303    178,258   
Commercial real estate owned 3,530    4,047    6,735    7,176    7,942   
Residential real estate owned 5,696    2,963    5,873    3,098    4,768   
Bank properties real estate owned 11,874    4,974    —    —    1,859   
OREO 21,101    11,984    12,608    10,274    14,569   
Other nonperforming assets 6,004    —    7,418    7,418    —   
Total nonperforming assets $ 145,485    $ 139,885    $ 228,572    $ 292,995    $ 192,827   
Accruing loans past due 90 days or more
Commercial $ 342    $ 311    $ 418    $ 236    $ 249   
Consumer 1,917    1,853    1,449    1,377    1,399   
Total accruing loans past due 90 days or more $ 2,259    $ 2,165    $ 1,867    $ 1,613    $ 1,648   
Restructured loans (accruing)
Commercial $ 18,944    $ 28,668    $ 48,735    $ 53,022    $ 59,595   
Consumer 7,097    24,595    25,883    26,835    27,768   
Total restructured loans (accruing)(a)
$ 26,041    $ 53,263    $ 74,618    $ 79,857    $ 87,363   
Nonaccrual restructured loans (included in nonaccrual loans)(a)
$ 22,494    $ 26,292    $ 23,486    $ 29,385    $ 37,684   
Ratios at year end
Nonaccrual loans to total loans 0.52  % 0.56  % 1.00  % 1.37  % 0.95  %
NPAs to total loans plus OREO 0.64  % 0.61  % 1.10  % 1.46  % 1.03  %
NPAs to total assets 0.45  % 0.42  % 0.75  % 1.01  % 0.70  %
Allowance for loan losses to nonaccrual loans 170.10  % 186.10  % 127.49  % 101.10  % 153.86  %
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Table 12 Nonperforming Assets (continued)
  Years Ended December 31,
($ in Thousands) 2019 2018 2017 2016 2015
Accruing loans 30-89 days past due by type
Commercial and industrial $ 821    $ 525    $ 271    $ 1,413    $ 1,011   
Commercial real estate — owner occupied 1,369    2,699    48    1,384    7,142   
Commercial and business lending 2,190    3,224    319    2,797    8,153   
Commercial real estate — investor 1,812    3,767    374    931    291   
Real estate construction 97    330    251    369    296   
Commercial real estate lending 1,909    4,097    625    1,300    587   
Total commercial 4,099    7,321    944    4,097    8,740   
Residential mortgage 9,274    9,706    9,552    8,142    4,930   
Home equity 5,647    6,049    6,825    5,849    7,919   
Other consumer 2,083    2,269    2,007    3,189    1,870   
Total consumer 17,005    18,024    18,384    17,180    14,719   
Total accruing loans 30-89 days past due(a)
$ 21,104    $ 25,345    $ 19,328    $ 21,277    $ 23,459   
Potential problem loans by type
Commercial and industrial $ 110,308    $ 116,578    $ 113,778    $ 227,196    $ 233,130   
Commercial real estate — owner occupied 19,889    55,964    41,997    64,524    35,706   
Commercial and business lending 130,197    172,542    155,775    291,720    268,836   
Commercial real estate — investor 29,449    67,481    19,291    51,228    25,944   
Real estate construction —    3,834    —    2,465    3,919   
Commercial real estate lending 29,449    71,315    19,291    53,693    29,863   
Total commercial 159,646    243,856    175,066    345,413    298,699   
Residential mortgage 1,451    5,975    1,616    5,615    2,796   
Home equity —    103    195    114    222   
Total consumer 1,451    6,078    1,811    5,729    3,018   
Total potential problem loans $ 161,097    $ 249,935    $ 176,877    $ 351,142    $ 301,717   
(a) During the third quarter of 2019, the Corporation sold $33 million of residential mortgages and home equity loans, of which $21 million were performing restructured loans, $12 million were nonaccrual loans, and approximately $200,000 were accruing loans 30-89 days past due. Of the $12 million nonaccrual loans, $7 million were restructured loans.
Nonaccrual loans: Nonaccrual loans are considered to be one indicator of potential future loan losses. See management’s accounting policy for nonaccrual loans in Note 1 Summary of Significant Accounting Policies and Note 4 Loans of the notes to consolidated financial statements for additional nonaccrual loan disclosures. See also sections Credit Risk and Allowance for Credit Losses. During the third quarter of 2019, the Corporation sold $12 million of nonaccrual loans, of which $11 million were residential mortgage loans and $1 million were home equity loans, as part of the Corporation's deleveraging strategy which enabled the Corporation to pay down higher cost funding. The sale also reduced interest rate risk by lowering the Corporation's asset sensitivity and freed up capital in advance of the adoption of CECL in the first quarter of 2020.
Accruing loans past due 90 days or more: Loans past due 90 days or more but still accruing interest are classified as such where the underlying loans are both well secured (the collateral value is sufficient to cover principal and accrued interest) and in the process of collection.
Restructured loans: Loans are considered restructured loans if concessions have been granted to borrowers that are experiencing financial difficulty. See also Note 4 Loans of the notes to consolidated financial statements for additional restructured loans disclosures. During the third quarter of 2019, the Corporation sold $21 million of performing restructured loans, of which $18 million were residential mortgage loans and $3 million were home equity loans, as part of the Corporation's deleveraging strategy which enabled the Corporation to pay down higher cost funding. The sale also reduced interest rate risk by lowering the Corporation's asset sensitivity and freed up capital in advance of the adoption of CECL in the first quarter of 2020.
Potential problem loans: The level of potential problem loans is another predominant factor in determining the relative level of risk in the loan portfolio and in determining the appropriate level of the allowance for loan losses. Potential problem loans are generally defined by management to include loans rated as substandard by management but that are not considered impaired (i.e., nonaccrual loans and accruing troubled debt restructurings); however, there are circumstances present to create doubt as to the ability of the borrower to comply with present repayment terms. The decision of management to include performing loans in
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potential problem loans does not necessarily mean that the Corporation expects losses to occur, but that management recognizes a higher degree of risk associated with these loans.
OREO: Management actively seeks to ensure OREO properties held are monitored to minimize the Corporation's risk of loss. OREO properties increased $9 million, or 76%, from December 31, 2018, primarily driven by recently consolidated Huntington branches pending disposition.
Other nonperforming assets: The amounts shown in the table above for 2017 and 2016 represented the Corporation's ownership interest in a profit participation agreement in an entity created to own certain oil and gas assets obtained as a result of the bankruptcy and liquidation of a borrower in partial satisfaction of their loan. During the third quarter of 2019, the Bank accepted a partial settlement of a debt by receiving units of ownership interest in an oil and gas limited liability company.
Foregone Loan Interest: The following table shows, for those loans accounted for on a nonaccrual basis and restructured loans for the years ended as indicated, the approximate gross interest that would have been recorded if the loans had been current in accordance with their original terms and the amount of interest income that was included in interest income for the period:
Table 13 Foregone Loan Interest
  Years Ended December 31,
($ in Thousands) 2019 2018 2017 2016 2015
Interest income in accordance with original terms $ 12,032    $ 10,606    $ 16,205    $ 16,811    $ 11,745   
Interest income recognized (5,015)   (5,500)   (9,339)   (10,228)   (8,716)  
Reduction in interest income $ 7,016    $ 5,106    $ 6,866    $ 6,583    $ 3,029   

Allowance for Credit Losses
Credit risks within the loan portfolio are inherently different for each loan type. Credit risk is controlled and monitored through the use of lending standards, a thorough review of potential borrowers, and ongoing review of loan payment performance. Active asset quality administration, including early problem loan identification and the timely resolution of problems, aids in the management of credit risk and minimization of loan losses. Credit risk management for each loan type is discussed in the section entitled Credit Risk. See Note 4 Loans of the notes to consolidated financial statements for additional disclosures on the allowance for credit losses.
The allowance for credit losses is comprised of the allowance for loan losses and the allowance for unfunded commitments. The level of the allowance for loan losses represents management’s estimate of an amount appropriate to provide for probable credit losses in the loan portfolio at the balance sheet date. The allowance for unfunded commitments is maintained at a level believed by management to be sufficient to absorb estimated probable losses related to unfunded credit facilities (including unfunded loan commitments and letters of credit) and is included in accrued expenses and other liabilities on the consolidated balance sheets.
The Corporation’s allowance for loan losses methodology considers an estimate of the historical loss emergence period (which is the period of time between the event that triggers a loss and the confirmation and / or charge off of that loss), probability of default, and loss given default for each loan portfolio segment. The methodology applied by the Corporation, designed to assess the appropriateness of the allowance for loan losses, is based upon credit report refreshes and management’s ongoing review and grading of the loan portfolio into criticized loan categories (defined as specific loans warranting either specific allocation, or a criticized status of special mention, substandard, doubtful, or loss). The methodology also focuses on the evaluation of many 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, credit report refreshes, consideration of historical loan 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 loan segments, changes in the size and character of the loan portfolio, concentrations of loans to specific borrowers or industries, existing economic conditions, the fair value of underlying collateral, and other qualitative and quantitative factors which could affect potential credit losses. Assessing these factors involves significant judgment. Because each of the criteria used is subject to change, the allowance for loan losses is not necessarily indicative of the trend of future loan losses in any particular segment. Therefore, management considers the allowance for loan losses a critical accounting policy (see section Critical Accounting Policies). See section Nonperforming Assets for a detailed discussion on asset quality. See also management’s allowance for loan losses accounting policy in Note 1 Summary of Significant Accounting Policies and see Note 4 Loans of the notes to consolidated financial statements for additional allowance for loan losses disclosures. Table 6 provides information on loan growth and composition, Tables 14 and 16 provide additional information regarding activity in the allowance for loan losses, and Table 12 provides additional information regarding nonperforming assets.
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The methodology used for the determination of the allowance for loan losses at December 31, 2019, 2018, and 2017 was generally comparable. The allocation methodology consists of the following components: First, a valuation allowance estimate is established for specifically identified commercial and consumer loans determined by the Corporation to be impaired, using discounted cash flows, estimated fair value of underlying collateral, and / or other data available. Second, management allocates the allowance for loan losses with loss factors by loan segment. Loans are segmented for criticized loan pools by loan type as well as for non-criticized loan pools by loan type, primarily based on historical loss rates after considering loan type, historical loss and delinquency experience, credit quality, and industry classifications. Loans that have been criticized are considered to have a higher risk of default than non-criticized loans, as circumstances were present to support the lower loan grade, warranting higher loss factors. The loss factors applied in the methodology are periodically re-evaluated and adjusted to reflect changes in historical loss levels or other risks. Additionally, management allocates allowance for loan losses to absorb losses that may not be provided for by the other components due to qualitative factors evaluated by management, such as limitations within the credit risk grading process, known current economic or business conditions that may not yet show in trends, industry or other concentrations with current issues that impose higher inherent risks than are reflected in the loss factors, and other relevant considerations. The total allowance is available to absorb losses from any segment of the loan portfolio. The allocation of the Corporation’s allowance for loan losses for the last five years is shown in Table 16.
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Table 14 Allowance for Credit Losses
Years Ended December 31,
($ in Thousands) 2019 2018 2017 2016 2015
Allowance for loan losses
Balance at beginning of period $ 238,023    $ 265,880    $ 278,335    $ 274,264    $ 266,302   
Provision for loan losses 18,500    2,500    27,000    69,000    38,000   
Loans charged off
Commercial and industrial (63,315)   (30,837)   (44,533)   (71,016)   (27,687)  
Commercial real estate — owner occupied (222)   (1,363)   (344)   (512)   (2,645)  
Commercial and business lending (63,537)   (32,200)   (44,877)   (71,528)   (30,332)  
Commercial real estate — investor —    (7,914)   (991)   (1,504)   (4,645)  
Real estate construction (60)   (298)   (604)   (558)   (750)  
Commercial real estate lending (60)   (8,212)   (1,595)   (2,062)   (5,395)  
Total commercial (63,597)   (40,412)   (46,472)   (73,590)   (35,727)  
Residential mortgage (3,322)   (1,627)   (2,611)   (4,332)   (5,636)  
Home equity (1,846)   (3,236)   (2,724)   (4,686)   (7,048)  
Other consumer (5,548)   (5,261)   (4,439)   (3,831)   (3,869)  
Total consumer (10,716)   (10,124)   (9,774)   (12,849)   (16,553)  
Total loans charged off (74,313)   (50,536)   (56,246)   (86,439)   (52,280)  
Recoveries of loans previously charged off
Commercial and industrial 11,875    13,714    11,465    14,543    9,821   
Commercial real estate — owner occupied 2,795    639    173    74    921   
Commercial and business lending 14,670    14,353    11,638    14,617    10,742   
Commercial real estate — investor 31    668    242    1,624    4,157   
Real estate construction 302    446    74    203    2,268   
Commercial real estate lending 333    1,114    316    1,827    6,425   
Total commercial 15,003    15,467    11,954    16,444    17,167   
Residential mortgage 692    1,271    927    755    1,077   
Home equity 2,599    2,628    3,194    3,491    3,233   
Other consumer 868    812    716    820    765   
Total consumer 4,158    4,712    4,837    5,066    5,075   
Total recoveries 19,161    20,179    16,791    21,510    22,242   
Net (charge offs) recoveries (55,152)   (30,358)   (39,455)   (64,929)   (30,038)  
Balance at end of period $ 201,371    $ 238,023    $ 265,880    $ 278,335    $ 274,264   
Allowance for unfunded commitments
Balance at beginning of period $ 24,336    $ 24,400    $ 25,400    $ 24,400    $ 24,900   
Provision for unfunded commitments (2,500)   (2,500)   (1,000)   1,000    (500)  
Amount recorded at acquisition 70    2,436    —    —    —   
Balance at end of period $ 21,907    $ 24,336    $ 24,400    $ 25,400    $ 24,400   
Allowance for credit losses(a)
$ 223,278    $ 262,359    $ 290,280    $ 303,735    $ 298,664   
Provision for credit losses(b)
$ 16,000    $ —    $ 26,000    $ 70,000    $ 37,500   

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Table 14 Allowance for Credit Losses (continued)
Years Ended December 31,
($ in Thousands) 2019 2018 2017 2016 2015
Net loan (charge offs) recoveries
Commercial and industrial $ (51,441)   $ (17,123)   $ (33,068)   $ (56,473)   $ (17,866)  
Commercial real estate — owner occupied 2,573    (724)   (171)   (438)   (1,724)  
Commercial and business lending (48,868)   (17,848)   (33,239)   (56,911)   (19,590)  
Commercial real estate — investor 31    (7,246)   (749)   120    (488)  
Real estate construction 243    149    (530)   (355)   1,518   
Commercial real estate lending 274    (7,098)   (1,279)   (235)   1,030   
Total commercial (48,594)   (24,946)   (34,518)   (57,146)   (18,560)  
Residential mortgage (2,630)   (355)   (1,684)   (3,577)   (4,559)  
Home equity 753    (608)   470    (1,195)   (3,815)  
Other consumer (4,681)   (4,448)   (3,723)   (3,011)   (3,104)  
Total consumer (6,558)   (5,412)   (4,937)   (7,783)   (11,478)  
Total net (charge offs) recoveries $ (55,152)   $ (30,358)   $ (39,455)   $ (64,929)   $ (30,038)  
Ratios
Allowance for loan losses to total loans 0.88  % 1.04  % 1.28  % 1.39  % 1.47  %
Allowance for loan losses to net charge offs (annualized) 3.7x    7.8x    6.7x    4.3x    9.1x   
(a) Includes the allowance for loan losses and the allowance for unfunded commitments.
(b) Includes the provision for loan losses and the provision for unfunded commitments.
Table 15 Net (Charge Offs) Recoveries(a)
Years Ended December 31,
(In Basis Points) 2019 2018 2017 2016 2015
Net loan (charge offs) recoveries
Commercial and industrial (68)   (25)   (52)   (87)   (29)  
Commercial real estate — owner occupied 28    (9)   (2)   (5)   (18)  
Commercial and business lending (58)   (23)   (46)   (77)   (28)  
Commercial real estate — investor —    (18)   (2)   —    (2)  
Real estate construction     (3)   (3)   14   
Commercial real estate lending   (13)   (3)   —     
Total commercial (36)   (19)   (28)   (47)   (16)  
Residential mortgage (3)   —    (2)   (6)   (8)  
Home equity   (6)     (12)   (37)  
Other consumer (132)   (119)   (99)   (74)   (72)  
Total consumer (7)   (6)   (6)   (10)   (16)  
Total net (charge offs) recoveries (24)   (13)   (19)   (33)   (16)  
N/M = Not Meaningful
(a) Ratio of net charge offs to average loans by loan type
Notable Contributions to the Change in the Allowance for Credit Losses
At December 31, 2019, net charge offs of $55 million included $44 million of oil and gas charge offs and $11 million of net charge offs from all other portfolio categories. See Tables 14, 15 and 16 for additional information regarding the activity in the allowance for loan losses. See also oil and gas lending within the Credit Risk section for additional information.
Total loans decreased $119 million, or 1%, from December 31, 2018, primarily driven by the sale of approximately $240 million of portfolio mortgages during the third quarter of 2019, which was partially offset by $116 million in loans acquired during the second quarter of 2019 from the Huntington branch acquisition. See section Loans for additional information on the changes in the loan portfolio and see section Credit Risk for discussion about credit risk management for each loan type.
Total nonaccrual loans decreased $10 million from December 31, 2018, primarily driven by a $12 million nonaccrual loan sale that occurred during the third quarter of 2019. See also Note 4 Loans of the notes to consolidated financial statements and section Nonperforming Assets for additional disclosures on the changes in asset quality.
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The allowance for loan losses attributable to oil and gas related credits (included within the commercial and industrial allowance for loan losses) was $12 million for both December 31, 2019 and December 31, 2018, respectively.
Table 16 Allocation of the Allowance for Loan Losses
  As of December 31,
($ in Thousands) 2019 2018 2017 2016 2015  
(a) (a) (a) (a) (a)
Commercial and industrial $ 91,133    1.24  % $ 108,835    1.47  % $ 123,068    1.92  % $ 140,126    2.16  % $ 129,959    2.10  %
Commercial real estate — owner occupied 10,284    1.13  % 9,255    1.01  % 10,352    1.29  % 14,034    1.56  % 18,680    2.03  %
Commercial and business lending 101,417    1.23  % 118,090    1.42  % 133,420    1.85  % 154,160    2.09  % 148,639    2.09  %
Commercial real estate — investor 40,514    1.07  % 40,844    1.09  % 41,059    1.24  % 45,285    1.27  % 43,018    1.33  %
Real estate construction 24,915    1.75  % 28,240    2.12  % 34,370    2.37  % 26,932    1.88  % 25,266    2.17  %
Commercial real estate lending 65,428    1.25  % 69,084    1.36  % 75,429    1.58  % 72,217    1.44  % 68,284    1.55  %
Total commercial 166,846    1.24  % 187,174    1.40  % 208,849    1.74  % 226,377    1.83  % 216,923    1.89  %
Residential mortgage 16,960    0.21  % 25,595    0.31  % 29,607    0.39  % 27,046    0.43  % 28,261    0.49  %
Home equity 10,926    1.28  % 19,266    2.15  % 22,126    2.50  % 20,364    2.18  % 23,555    2.34  %
Other consumer 6,639    1.89  % 5,988    1.65  % 5,298    1.37  % 4,548    1.15  % 5,525    1.32  %
Total consumer 34,525    0.37  % 50,849    0.53  % 57,031    0.65  % 51,958    0.68  % 57,341    0.80  %
Total allowance for loan losses $ 201,371    0.88  % $ 238,023    1.04  % $ 265,880    1.28  % $ 278,335    1.39  % $ 274,264    1.47  %
(a) Allowance for loan losses category as a percentage of total loans by category.
Consolidated net income and stockholders’ equity could be affected if management’s estimate of the allowance for loan losses is subsequently materially different, requiring additional or less provision for loan losses to be recorded. Management carefully considers numerous detailed and general factors, its assumptions, and the likelihood of materially different conditions that could alter its assumptions. While management uses currently available information to recognize losses on loans, future adjustments to the allowance for loan losses may be necessary based on newly received appraisals, updated commercial customer financial statements, rapidly deteriorating customer cash flow, and changes in economic conditions that affect our customers. Additionally, larger credit relationships do not inherently create more risk, but can create wider fluctuations in net charge offs and asset quality measures. As an integral part of their examination processes, various federal and state regulatory agencies also review the allowance for loan losses. These agencies may require additions to the allowance for loan losses or may require that certain loan balances be charged off or downgraded into criticized loan categories when their credit evaluations differ from those of management, based on their judgments about information available to them at the time of their examinations.
Investment Securities Portfolio
Management of the investment securities portfolio involves the maximization of income while actively monitoring the portfolio's liquidity, market risk, quality of the investment securities, and its role in balance sheet and capital management. The Corporation classifies its investment securities as available for sale, held to maturity, or equity securities on the consolidated balance sheets at the time of purchase or adoption of a new accounting standard. Securities classified as available for sale may be sold from time to time in order to help manage interest rate risk, liquidity, credit quality, capital levels, or to take advantage of relative value opportunities in the marketplace. Investment securities classified as available for sale are carried at fair value on the consolidated balance sheets, while investment securities classified as held to maturity are carried at amortized cost on the consolidated balance sheets. Investment securities classified as equity securities are carried at fair value with changes in fair value immediately reflected in earnings for periods after December 31, 2017.
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Table 17 Investment Securities Portfolio
  At December 31,
($ in Thousands) 2019 % of Total 2018 % of Total 2017 % of Total
Investment securities available for sale
Amortized cost
U.S. Treasury securities $ —    —  % $ 1,000    <1% $ 1,003    <1%
Obligations of state and political subdivisions (municipal securities) 529,908    16  % —    —  % —    —  %
Residential mortgage-related securities
FNMA / FHLMC 131,158    % 296,296    % 457,680    11  %
GNMA 982,941    30  % 2,169,943    54  % 1,944,453    47  %
Private-label —    —  % 1,007    <1% 1,067    <1%
Commercial mortgage-related securities
FNMA / FHLMC 19,929    % —    —  % —    —  %
GNMA 1,314,836    40  % 1,273,309    32  % 1,547,173    38  %
FFELP asset-backed securities 270,178    % 297,347    % 144,322    %
Other debt securities 3,000    <1 %    3,000    <1%    3,200    <1%   
Equity securities(a)
—    —  % —    —  % 1,519    <1%
Total amortized cost $ 3,251,950    100  % $ 4,041,902    100  % $ 4,100,417    100  %
Fair value
U.S. Treasury securities $ —    —  % $ 999    <1% $ 996    <1%
Obligations of state and political subdivisions (municipal securities) 546,160    17  % —    —  % —    —  %
Residential mortgage-related securities
FNMA / FHLMC 132,660    % 295,252    % 464,768    11  %
GNMA 985,139    30  % 2,128,531    54  % 1,913,350    47  %
Private-label —    —  % 1,003    <1% 1,059    <1%
Commercial mortgage-related securities
FNMA / FHLMC 21,728    % —    —  % —    —  %
GNMA 1,310,207    40  % 1,220,797    31  % 1,513,277    37  %
FFELP asset-backed securities 263,693    % 297,360    % 145,176    %
Other debt securities 3,000    <1 %    3,000    <1%    3,188    <1%   
Equity securities(a)
—    —  % —    —  % 1,632    <1%
Total fair value and carrying value $ 3,262,586    100  % $ 3,946,941    100  % $ 4,043,446    100  %
Net unrealized holding gains (losses) $ 10,636    $ (94,961)   $ (56,971)  
Investment securities held to maturity
Amortized cost
U.S. Treasury securities $ 999    <1 % $ —    —  % $ —    —  %
Obligations of state and political subdivisions (municipal securities) 1,418,569    64  % 1,790,683    65  % 1,281,320    56  %
Residential mortgage-related securities
FNMA / FHLMC 81,676    % 92,788    % 40,995    %
GNMA 269,523    12  % 351,606    13  % 414,440    18  %
GNMA commercial mortgage-related securities 434,317    20  % 505,434    18  % 546,098    24  %
Total amortized cost and carrying value $ 2,205,083    100  % $ 2,740,511    100  % $ 2,282,853    100  %
Fair value
U.S. Treasury securities $ 1,018    < 1% $ —    —  % $ —    —  %
Obligations of state and political subdivisions (municipal securities) 1,487,227    65  % 1,783,659    66  % 1,292,042    56  %
Residential mortgage-related securities
FNMA / FHLMC 83,420    % 91,162    % 40,904    %
GNMA 270,296    12  % 345,035    13  % 410,740    18  %
GNMA commercial mortgage-related securities 434,503    19  % 490,414    18  % 539,888    24  %
Total fair value $ 2,276,465    100  % $ 2,710,271    100  % $ 2,283,574    100  %
Net unrealized holding gains (losses) $ 71,381    $ (30,240)   $ 721   
Equity securities
Equity securities carrying value and fair value(a)
$ 15,090    100  % $ 1,568    100  % $ —    —  %
(a) As a result of the adoption of ASU 2016-01 effective January 1, 2018, equity securities are no longer presented within available for sale securities and are now presented as equity securities.
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At December 31, 2019, the Corporation’s investment securities portfolio did not contain securities of any single non-government or non-GSE issuer that were payable from and secured by the same source of revenue or taxing authority where the aggregate carrying value of such securities exceeded 5% of stockholders’ equity or approximately $196 million.
The Corporation did not recognize any credit-related other-than-temporary impairment write-downs during 2019, 2018, or 2017. See Note 1 Summary of Significant Accounting Policies for management's accounting policy for investment securities and Note 3 Investment Securities of the notes to consolidated financial statements for additional investment securities disclosures.
Available for Sale
Agency Residential and Agency Commercial Mortgage-Related Securities: Residential and commercial mortgage-related securities include predominantly GNMA, FNMA, and FHLMC mortgage-backed securities and CMOs. The fair value of these mortgage-related securities is subject to inherent risks, such as prepayment risk and interest rate changes. The Corporation regularly assesses valuation of these securities.
Municipal Securities: The municipal securities relate to various state and political subdivisions and school districts. The municipal securities portfolio is regularly assessed for credit quality and deterioration. The Corporation made a one-time election during the third quarter of 2019 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.
FFELP Asset-Backed Securities: FFELP asset-backed securities are collateralized with government guaranteed student loans.
Other Debt Securities: Other debt securities are primarily comprised of debt securities that mature within 3 years and have a rating of A.
Held to Maturity
Municipal Securities: The municipal securities relate to various state and political subdivisions and school districts. The municipal securities portfolio is regularly assessed for credit quality and deterioration.
Agency Residential Mortgage-Related Securities: The mortgage-related securities in held to maturity are comprised of select CRA mortgage-backed securities and select CMOs.
GNMA Commercial Mortgage-Related Securities: The commercial mortgage-related securities issued by GNMA are classified in held to maturity when a component qualifies for CRA purposes.
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.
Equity Securities without Readily Determinable Fair Values: The Corporation's portfolio of equity securities without readily determinable fair values consists of 77,000 Visa Class B restricted shares that the Corporation received in 2008 as part of Visa's initial public offering.
Regulatory Stock (FHLB and Federal Reserve System)
In addition to the available for sale, held to maturity, and equity investment securities noted above, the Corporation is also required to hold certain regulatory stock. The Corporation is required to maintain Federal Reserve stock and FHLB stock as member banks of both the Federal Reserve System and the FHLB, and in amounts as required by these institutions. See Note 3 Investment Securities of the notes to consolidated financial statements for additional information on the regulatory stock.
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Table 18 Investment Securities Portfolio Maturity Distribution(a)
December 31, 2019
($ in Thousands) Amortized Cost Fair Value
Yield(b)
Available for sale securities
Obligations of state and political subdivisions (municipal securities)
Within one year $ 1,795    $ 1,800    4.65  %
After one but within five years 30,399    30,901    3.21  %
After five years but within ten years 317,292    326,361    3.28  %
After ten years 180,422    187,098    3.52  %
Total obligations of state and political subdivisions (municipal securities) $ 529,908    $ 546,160    3.37  %
Agency residential mortgage-related securities
Within one year $ 8,113    $ 8,140    3.29  %
After one but within five years 1,060,849    1,064,496    2.46  %
After five years but within ten years 45,137    45,163    2.34  %
Total agency residential mortgage-related securities $ 1,114,100    $ 1,117,799    2.46  %
Agency commercial mortgage-related securities
Within one year $ 20,211    $ 20,225    2.66  %
After one but within five years 545,064    541,975    2.29  %
After five years but within ten years 769,490    769,735    2.58  %
Total agency commercial mortgage-related securities $ 1,334,765    $ 1,331,935    2.46  %
FFELP asset-backed securities
Within one year $ 45,862    $ 44,877    2.70  %
After five years but within ten years 224,316    218,815    2.59  %
Total FFELP asset-backed securities $ 270,178    $ 263,693    2.61  %
Other debt securities
Within one year $ 1,000    $ 1,000    2.39  %
After one but within five years 2,000    2,000    3.18  %
Total other debt securities $ 3,000    $ 3,000    2.91  %
Total available for sale securities $ 3,251,950    $ 3,262,586    2.62  %
Held to maturity securities
U. S. Treasury securities
After one but within five years $ 999    $ 1,018    2.56  %
Total U. S. Treasury securities $ 999    $ 1,018    2.56  %
Obligations of state and political subdivisions (municipal securities)
Within one year $ 29,033    $ 29,218    4.23  %
After one but within five years 81,024    82,227    3.79  %
After five years but within ten years 136,138    140,704    3.72  %
After ten years 1,172,373    1,235,077    4.06  %
Total obligations of state and political subdivisions (municipal securities) $ 1,418,569    $ 1,487,227    4.02  %
Agency residential mortgage-related securities
Within one year $ 53    $ 54    5.82  %
After one but within five years 229,088    229,379    2.22  %
After five years but within ten years 80,386    81,936    3.11  %
After ten years 41,672    42,348    3.21  %
Total agency residential mortgage-related securities $ 351,198    $ 353,717    2.54  %
GNMA commercial mortgage-related securities
After one but within five years $ 325,738    $ 329,317    2.18  %
After five years but within ten years 108,579    105,186    1.89  %
Total GNMA commercial mortgage-related securities $ 434,317    $ 434,503    2.11  %
Total held to maturity securities $ 2,205,083    $ 2,276,465    3.40  %
Equity securities
Equity securities with readily determinable fair values $ 1,646    $ 1,646    —  %
Equity securities without readily determinable fair values 13,444    13,444    —  %
Total equity securities $ 15,090    $ 15,090    —  %
(a) Expected maturities will differ from contractual maturities, as borrowers may have the right to call or repay obligations with or without call or prepayment penalties.
(b) Yields on tax-exempt securities are computed on a fully tax-equivalent basis using a tax rate of 21% and are net of the effects of certain disallowed interest deductions.
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Analysis of Deposits and Funding
Deposits and Customer Funding
The following table summarizes the composition of our deposits and customer funding:
Table 19 Period End Deposit and Customer Funding Composition
As of December 31,
($ in Thousands) 2019 2018 2017
Noninterest-bearing demand $ 5,450,709    $ 5,698,530    $ 5,478,416   
Savings 2,735,036    2,012,841    1,524,992   
Interest-bearing demand 5,329,717    5,336,952    4,603,157   
Money market 7,640,798    9,033,669    8,830,328   
Brokered CDs 5,964    192,234    18,609   
Other time 2,616,839    2,623,167    2,330,460   
Total deposits 23,779,064    24,897,393    22,785,962   
Customer funding(a)
103,113    137,364    250,332   
Total deposits and customer funding $ 23,882,177    $ 25,034,757    $ 23,036,294   
Network transaction deposits(b)
$ 1,336,286    $ 2,276,296    $ 2,520,968   
Brokered CDs 5,964    192,234    18,609   
Total network and brokered funding 1,342,250    2,468,530    2,539,577   
Net deposits and customer funding (total deposits and customer funding, excluding Brokered CDs and network transaction deposits) $ 22,539,927    $ 22,566,227    $ 20,496,717   
(a) Securities sold under agreement to repurchase and commercial paper.
(b) Included above in interest-bearing demand and money markets.
Deposits are the Corporation's largest source of funds.
Total deposits decreased $1.1 billion, or 4%, from December 31, 2018 in conjunction with the Corporation's deleveraging strategy. On June 14, 2019, the Corporation assumed $725 million in deposits from the Huntington branch acquisition. As a result of the acquisition, the Corporation was able to reduce higher cost brokered CDs and network deposits.
Non-maturity deposit accounts comprised of savings, money market, and demand (both interest and non-interest bearing demand) accounts, accounted for 89% of our total deposits at December 31, 2019.
Included in the above amounts were $1.3 billion of network deposits, a decrease of $940 million, or 41%, from December 31, 2018. These deposits are primarily sourced from other financial institutions and intermediaries. Network deposits represented 6% of our deposits at December 31, 2019, which was down from 9% of our deposits at December 31, 2018.
Table 20 Maturity Distribution-Certificates of Deposit and Other Time Deposits of $100,000 or More
  As of December 31, 2019
($ in Thousands) Certificates
of Deposit
Other
Time Deposits
Total Certificates
of Deposits and Other
Time Deposits
Three months or less $ 212,176    $ 228,336    $ 440,512   
Over three months through six months 151,191    127,234    278,424   
Over six months through twelve months 203,497    158,057    361,554   
Over twelve months 179,001    86,862    265,864   
Total $ 745,865    $ 600,489    $ 1,346,354   
Selected period end deposit information is detailed in Note 8 Deposits of the notes to consolidated financial statements, including a maturity distribution of all time deposits at December 31, 2019. See Table 2 for additional information on average deposit balances and deposit rates.
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Other Funding Sources
Short-Term Funding: Short-term funding is comprised of federal funds purchased, securities sold under agreements to repurchase, and commercial paper. Many short-term funding sources are expected to be reissued and, therefore, do not represent an immediate need for cash. Short-term funding sources at December 31, 2019 were $465 million, an increase of $308 million from December 31, 2018. The increase in short-term funding was primarily due to an increase in federal funds purchased.
Long-Term Funding: Long-term funding is comprised of senior notes, subordinated notes, and finance leases. Long-term funding at December 31, 2019 was $549 million, a decrease of $246 million from December 31, 2018, primarily due to the redemption of $250 million of senior notes on October 15, 2019.
FHLB Advances: FHLB advances are comprised of short-term FHLB advances (with original contractual maturities of one year or less) and long-term FHLB advances (with original contractual maturities greater than one year). FHLB advances at December 31, 2019 were $3.2 billion, down $393 million from December 31, 2018, primarily due to a decrease in short-term FHLB advances.
See Note 9 Short- and Long-Term Funding of the notes to consolidated financial statements for additional information on short-term funding, long-term funding, and FHLB advances. See Table 2 for additional information on average funding and rates.

Liquidity
The objective of liquidity risk management is to ensure that the Corporation has the ability to generate sufficient cash or cash equivalents in a timely and cost effective manner to satisfy the cash flow requirements of depositors and borrowers and to meet its other commitments as they become due. The Corporation’s liquidity risk management process is designed to identify, measure, and manage the Corporation’s funding and liquidity risk to meet its daily funding needs in the ordinary course of business, as well as to address expected and unexpected changes in its funding requirements. The Corporation engages in various activities to manage its liquidity risk, including diversifying its funding sources, stress testing, and holding readily-marketable assets which can be used as a source of liquidity, if needed.
The Corporation performs dynamic scenario analysis in accordance with industry best practices. Measures have been established to ensure the Corporation has sufficient high quality short-term liquidity to meet cash flow requirements under stressed scenarios. In addition, the Corporation also reviews static measures such as deposit funding as a percent of total assets and liquid asset levels. Strong capital ratios, credit quality, and core earnings are also essential to maintaining cost effective access to wholesale funding markets. At December 31, 2019, the Corporation was in compliance with its internal liquidity objectives and has sufficient asset based liquidity to meet its obligations even under a stressed scenario.
The Corporation maintains diverse and readily available liquidity sources, including:
Investment securities, which are an important tool to the Corporation’s liquidity objective and can be pledged or sold to enhance liquidity, if necessary. See Note 3 Investment Securities of the notes to consolidated financial statements for additional information on the Corporation's investment securities portfolio, including pledged investment securities.
Pledgeable loan collateral, which is eligible collateral with both the Federal Reserve Bank and the FHLB under established lines of credit. Based on the amount of collateral pledged, the FHLB established a collateral value from which the Bank may draw advances against the collateral. The collateral is also used to enable the FHLB to issue letters of credit in favor of public fund depositors of the Bank. As of December 31, 2019, the Bank had $4.3 billion available for future advances. The Federal Reserve Bank also establishes a collateral value of assets to support borrowings from the discount window. As of December 31, 2019, the Bank had $1.2 billion available for discount window borrowings.
A $200 million Parent Company commercial paper program, of which $32 million was outstanding at December 31, 2019.
Dividends and service fees from subsidiaries, as well as the proceeds from issuance of capital, are also funding sources for the Parent Company.
Equity issuances by the Parent Company; the Corporation has filed a shelf registration statement with the SEC under which the Parent Company may, from time to time, offer shares of the Corporation’s common stock in connection with acquisitions of businesses, assets, or securities of other companies.
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Other issuances by the Parent Company; the Corporation also has filed a universal shelf registration statement with the SEC, under which the Parent Company may offer the following securities, either separately or in units: debt securities, preferred stock, depositary shares, common stock, and warrants.
Bank issuances; the Bank may also issue institutional certificates of deposit, network transaction deposits, and brokered certificates of deposit.
Global Bank Note Program issuances; the Bank has implemented the program pursuant to which it may from time to time offer up to $2.0 billion aggregate principal amount of its unsecured senior and subordinated notes. In August 2018, the Bank issued $300 million of senior notes, due August 2021, and callable July 2021.
Credit ratings relate to the Corporation’s ability to issue debt securities and the cost to borrow money, and should not be viewed as an indication of future stock performance or a recommendation to buy, sell, or hold securities. Adverse changes in these factors could result in a negative change in credit ratings and impact not only the ability to raise funds in the capital markets but also the cost of these funds. The credit ratings of the Parent Company and the Bank at December 31, 2019 are displayed below:
Table 21 Credit Ratings
  Moody’s
S&P(a)
Bank short-term deposits P-1 —   
Bank long-term deposits/issuer A1 BBB+
Corporation commercial paper P-2 —   
Corporation long-term senior debt/issuer Baa1 BBB
Outlook Stable Stable
(a) Standard and Poor's
For the year ended December 31, 2019, net cash provided by operating and investing activities was $574 million and $1.6 billion, respectively, while financing activities used net cash of $2.5 billion, for a net decrease in cash, cash equivalents, and restricted cash of $288 million since year-end 2018. During 2019, total assets decreased to $32.4 billion, down $1.2 billion, or 4%, compared to year-end 2018, primarily due to net decreases of $1.2 billion in investment securities. On the funding side, deposits decreased $1.1 billion while funding, including short-term, long-term, and FHLB advances, was down $332 million. On June 14, 2019, the Corporation assumed $725 million of deposits from the Huntington branch acquisition. As a result of the acquisition, the Corporation was able to reduce higher cost brokered CDs and network deposits. The decrease in short-term, long-term, and FHLB advances was driven by the Corporation's redemption of $250 million in senior notes on October 15, 2019.
For the year ended December 31, 2018, net cash provided by operating and financing activities was $497 million and $45 million, respectively, while investing activities used net cash of $381 million, for a net increase in cash, cash equivalents, and restricted cash of $161 million since year-end 2017. During 2018, total assets increased to $33.6 billion, up $3.2 billion, or 10%, compared to year-end 2017, primarily due to a $2.2 billion net increase in loans, of which $1.9 billion was from the Bank Mutual acquisition. On the funding side, deposits increased $2.1 billion while funding, including short-term, long-term, and FHLB advances, was up $453 million, of which $1.8 billion and $432 million were from the Bank Mutual acquisition, respectively.

Quantitative and Qualitative Disclosures about Market Risk
Market risk and interest rate risk are managed centrally. Market risk is the potential for loss arising from adverse changes in the fair value of fixed-income securities, equity securities, other earning assets, and derivative financial instruments as a result of changes in interest rates or other factors. Interest rate risk is the potential for reduced net interest income resulting from adverse changes in the level of interest rates. As a financial institution that engages in transactions involving an array of financial products, the Corporation is exposed to both market risk and interest rate risk. In addition to market risk, interest rate risk is measured and managed through a number of methods. The Corporation uses financial modeling simulation techniques that measure the sensitivity of future earnings due to changing rate environments to measure interest rate risk.
Policies established by the Corporation’s ALCO and approved by the Board of Directors are intended to limit these risks. The Board has delegated day-to-day responsibility for managing market and interest rate risk to ALCO. The primary objectives of market risk management is to minimize any adverse effect that changes in market risk factors may have on net interest income and to offset the risk of price changes for certain assets recorded at fair value.
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Interest Rate Risk
The primary goal of interest rate risk management is to control exposure to interest rate risk within policy limits approved by the Board of Directors. These limits and guidelines reflect the Corporation's risk appetite for interest rate risk over both short-term and long-term horizons. No interest rate limit breaches occurred during 2019.
The major sources of the Corporation's non-trading interest rate risk are timing differences in the maturity and re-pricing characteristics of assets and liabilities, changes in the shape of the yield curve, and the potential exercise of explicit or embedded options. We measure these risks and their impact by identifying and quantifying exposures through the use of sophisticated simulation and valuation models which are employed by management to understand NII at risk, interest rate sensitive EAR, and MVE at risk. The Corporation’s interest rate risk profile is such that a higher or steeper yield curve adds to income while a flatter yield curve is relatively neutral, and a lower or inverted yield curve generally has a negative impact on earnings. The Corporation's EAR profile is slightly asset sensitive at December 31, 2019.
MVE and EAR are complementary interest rate risk metrics and should be viewed together. Net interest income and EAR sensitivity capture asset and liability re-pricing mismatches for the first year inclusive of forecast balance sheet changes and are considered shorter term measures, while MVE sensitivity captures mismatches within the period end balance sheets through the financial instruments’ respective maturities and is considered a longer term measure.
A positive NII and EAR sensitivity in a rising rate environment indicates that over the forecast horizon of one year, asset based income will increase more quickly than liability based expense due to the balance sheet composition. A negative MVE sensitivity in a rising rate environment indicates that the value of financial assets will decrease more than the value of financial liabilities.
One of the primary methods that we use to quantify and manage interest rate risk is simulation analysis, which we use to model NII and rate sensitive noninterest items from the Corporation’s balance sheet and derivative positions under various interest rate scenarios. As the future path of interest rates is not known with certainty, we use simulation analysis to project rate sensitive income under many scenarios including implied forward and deliberately extreme and perhaps unlikely scenarios. The analyses may include rapid and gradual ramping of interest rates, rate shocks, basis risk analysis, and yield curve twists. Specific balance sheet management strategies are also analyzed to determine their impact on NII and EAR.
Key assumptions in the simulation analysis (and in the valuation analysis discussed below) relate to the behavior of interest rates and pricing spreads, the changes in product balances, and the behavior of loan and deposit clients in different rate environments. This analysis incorporates several assumptions, the most material of which relate to the re-pricing characteristics and balance fluctuations of deposits with indeterminate or non-contractual maturities, and prepayment of loans and securities.
The sensitivity analysis included below is measured as a percentage change in NII and EAR due to gradual moves in benchmark interest rates from a baseline scenario over 12 months. We evaluate the sensitivity using: 1) a dynamic forecast incorporating expected growth in the balance sheet, and 2) a static forecast where the current balance sheet is held constant. While a gradual shift in interest rates was used in this analysis to provide an estimate of exposure under a probable scenario, an instantaneous shift in interest rates would have a much more significant impact.
Table 22 Estimated % Change in Rate Sensitive EAR Over 12 Months
  Dynamic Forecast
December 31, 2019
Static Forecast
December 31, 2019
Dynamic Forecast
December 31, 2018
Static Forecast
December 31, 2018
Gradual Rate Change
100 bp increase in interest rates 4.0  % 3.7  % 2.5  % 2.7  %
200 bp increase in interest rates 7.4  % 6.7  % 5.8  % 5.4  %
We also perform valuation analysis, which we use for discerning levels of risk present in the balance sheet and derivative positions that might not be taken into account in the NII simulation analysis. Whereas, NII and EAR simulation highlights exposures over a relatively short time horizon, valuation analysis incorporates all cash flows over the estimated remaining life of all balance sheet and derivative positions. The valuation of the balance sheet, at a point in time, is defined as the discounted present value of all asset cash flows and derivative cash flows, minus the discounted present value of all liability cash flows, the net of which is referred to as MVE. The sensitivity of MVE to changes in the level of interest rates is a measure of the longer-term re-pricing risk and options risk embedded in the balance sheet. Unlike the NII simulation, MVE uses instantaneous changes in rates. Additionally, MVE values only the current balance sheet and does not incorporate the growth assumptions that are used in the NII and EAR simulations. As with NII and EAR simulations, assumptions about the timing and variability of balance sheet cash flows are critical in the MVE analysis. Particularly important are the assumptions driving prepayments and the expected changes in balances and pricing of the indeterminate deposit portfolios. At December 31, 2019, the MVE profile
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indicates a decline in net balance sheet value due to instantaneous upward changes in rates. MVE sensitivity is reported in both upward and downward rate shocks.
Table 23 Market Value of Equity Sensitivity
December 31, 2019 December 31, 2018
Instantaneous Rate Change
100 bp increase in interest rates (0.5) % (2.0) %
200 bp increase in interest rates (2.2) % (4.5) %
The decrease in MVE sensitivity from December 31, 2018 was primarily attributable to the lower rate environment. Since MVE measures the discounted present value of cash flows over the estimated lives of instruments, the change in MVE does not directly correlate to the degree that earnings would be impacted over a shorter time horizon (i.e., the current year). Further, MVE does not take into account factors such as future balance sheet growth, changes in product mix, changes in yield curve relationships, and changes in product spreads that could mitigate the adverse impact of changes in interest rates.
The above NII, EAR, and MVE measures do not include all actions that management may undertake to manage this risk in response to anticipated changes in interest rates.

Contractual Obligations, Commitments, Off-Balance Sheet Arrangements, and Contingent Liabilities
The following table summarizes significant contractual obligations and other commitments at December 31, 2019, at those amounts contractually due to the recipient, including any unamortized premiums or discounts, hedge basis adjustments, or other similar carrying value adjustments.
Table 24 Contractual Obligations and Other Commitments
December 31, 2019 Note
Reference
One Year
or Less
One to
Three Years
Three to
Five Years
Over
Five Years
Total
  ($ in Thousands)
Time deposits   $ 1,947,004    $ 574,922    $ 100,538    $ 340    $ 2,622,803   
Short-term funding   465,113    —    —    —    465,113   
FHLB advances   605,056    518,254    453,166    1,604,491    3,180,967   
Long-term funding   39    298,640    79    250,585    549,343   
Operating leases(a)
  10,662    17,990    10,613    16,316    55,580   
Commitments to extend credit 14 & 16    4,044,363    3,193,685    1,907,405    141,959    9,287,412   
Total $ 7,072,237    $ 4,603,491    $ 2,471,801    $ 2,013,691    $ 16,161,218   
(a) Undiscounted operating lease liability
Through the normal course of operations, the Corporation has entered into certain contractual obligations and other commitments, including but not limited to those most usually related to funding of operations through deposits or funding, commitments to extend credit, derivative contracts to assist management of interest rate exposure, and to a lesser degree leases for premises and equipment. Further discussion of the nature of each obligation is included in the referenced note to the consolidated financial statements.
The Corporation also has obligations under its retirement plans as described in Note 12 Retirement Plans of the notes to consolidated financial statements.
As of December 31, 2019, the net liability for uncertainty in income taxes, including associated interest and penalties, was $2 million. This liability represents an estimate of tax positions that the Corporation has taken in its tax returns which may ultimately not be sustained upon examination by the tax authorities. Since the ultimate amount and timing of any future cash settlements cannot be predicted with reasonable certainty, this estimated liability has been excluded from Table 24. See Note 13 Income Taxes of the notes to consolidated financial statements for additional information and disclosure related to uncertainty in income taxes.
The Corporation may have a variety of financial transactions that, under GAAP, are either not recorded on the consolidated balance sheets or are recorded on the consolidated balance sheets in amounts that differ from the full contract or notional amounts.
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The Corporation routinely enters into lending-related commitments, including commitments to extend credit, interest rate lock commitments to originate residential mortgage loans held for sale (discussed further below), commercial letters of credit, and standby letters of credit. See Note 16 Commitments, Off-Balance Sheet Arrangements, and Legal Proceedings of the notes to consolidated financial statements for further information on lending-related commitments.
The Corporation’s derivative financial instruments, under which the Corporation is required to either receive cash from or pay cash to counterparties depending on changes in interest rates applied to notional amounts, are carried at fair value on the consolidated balance sheets. Because neither the derivative assets and liabilities, nor their notional amounts, represent the amounts that may ultimately be paid under these contracts, they are not included in Table 24. For further information and discussion of derivative contracts, see Note 14 Derivative and Hedging Activities of the notes to consolidated financial statements.
The Corporation sells residential mortgage loans to investors in the normal course of business. Residential mortgage loans sold to others are predominantly conventional residential first lien mortgages originated under our usual underwriting procedures, and are most often sold on a nonrecourse basis primarily to the GSEs. See Note 16 Commitments, Off-Balance Sheet Arrangements, and Legal Proceedings of the notes to consolidated financial statements for additional information on residential mortgage loans sold.
The Corporation has principal investment commitments to provide capital-based financing to private and public companies and also invests in low-income housing, and various tax credit projects. See Note 16 Commitments, Off-Balance Sheet Arrangements, and Legal Proceedings of the notes to consolidated financial statements for additional information on these investments. The Volcker Rule prohibits IDIs and their holding companies from engaging in proprietary trading except in limited circumstances, and prohibits them from owning equity interests in excess of three percent of Tier 1 Capital in private equity and hedge funds. Complying with the Volcker Rule is not expected to have a material impact on the Corporation. See Part I, Item 1, Business, for additional information on the Volcker Rule.
Capital
Management actively reviews capital strategies for the Corporation and each of its subsidiaries in light of perceived business risks, future growth opportunities, industry standards, and compliance with regulatory requirements. The assessment of overall capital adequacy depends on a variety of factors, including asset quality, liquidity, stability of earnings, changing competitive forces, economic condition in markets served, and strength of management. At December 31, 2019, the capital ratios of the Corporation and its banking subsidiaries were well in excess of regulatory minimum requirements. The Corporation’s capital ratios are summarized in the following table.
Table 25 Capital Ratios
  As of December 31,
($ in Thousands) 2019 2018 2017
Risk-based Capital(a)(b)
CET1 $ 2,480,698    $ 2,449,721    $ 2,171,508   
Tier 1 capital 2,736,776    2,705,939    2,331,245   
Total capital 3,208,625    3,216,575    2,848,851   
Total risk-weighted assets 24,296,382    23,842,542    21,504,495   
CET1 capital ratio 10.21  % 10.27  % 10.10  %
Tier 1 capital ratio 11.26  % 11.35  % 10.84  %
Total capital ratio 13.21  % 13.49  % 13.25  %
Tier 1 leverage ratio 8.83  % 8.49  % 8.03  %
Selected Equity and Performance Ratios
Total stockholders’ equity / total assets 12.11  % 11.25  % 10.63  %
Dividend payout ratio(c)
35.75  % 32.29  % 34.48  %
(a)The Federal Reserve establishes regulatory capital requirements, including well-capitalized standards for the Corporation. The Corporation follows Basel III, subject to certain transition provisions. These regulatory capital measurements are used by management, regulators, investors, and analysts to assess, monitor and compare the quality and composition of the Corporation's capital with the capital of other financial services companies.
(b) During the third quarter of 2019, the Corporation made a change in accounting policy to offset derivative assets and liabilities and cash collateral with the same counterparty where it has a legally enforceable master netting agreement in place. The change had no impact on either earnings or equity. The Corporation believes that this change is a preferable method of accounting as it provides a better reflection of the assets and liabilities on the face of the consolidated balance sheets. Adoption of this change was voluntary and has been adopted retrospectively. 2019, 2018, and 2017 total assets, risk-weighted assets and capital ratios were restated for comparability.
(c) Ratio is based upon basic earnings per common share.
See Part II, Item 5, Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities, for information on the shares repurchased during the fourth quarter of 2019.
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Table 26 Non-GAAP Measures
At or for the Year Ended December 31,
($ in Thousands) 2019 2018 2017 2016 2015
Selected Equity and Performance Ratios(a)(b)(c)
Tangible common equity / tangible assets 7.71  % 7.04  % 7.08  % 6.91  % 6.85  %
Return on average equity 8.44  % 9.03  % 7.23  % 6.63  % 6.50  %
Return on average tangible common equity 13.21  % 14.06  % 10.86  % 10.07  % 9.97  %
Return on average common equity Tier 1 12.59  % 13.15  % 10.43  % 9.86  % 9.88  %
Return on average assets 0.99  % 1.01  % 0.78  % 0.70  % 0.70  %
Return on average tangible assets 1.03  % 1.05  % 0.81  % 0.73  % 0.72  %
Average stockholders' equity / average assets 11.72  % 11.19  % 10.77  % 10.60  % 10.72  %
Tangible Common Equity and Common Equity Tier 1 Reconciliation(a)(b)
Common equity $ 3,665,407    $ 3,524,171    $ 3,077,514    $ 2,931,383    $ 2,815,867   
Goodwill and other intangible assets, net (1,264,531)   (1,244,859)   (991,819)   (987,328)   (985,302)  
Tangible common equity $ 2,400,876    $ 2,279,312    $ 2,085,695    $ 1,944,055    $ 1,830,565   
Tangible Assets Reconciliation(a)(c)
Total assets $ 32,386,478    $ 33,615,122    $ 30,443,626    $ 29,139,315    $ 27,711,835   
Goodwill and other intangible assets, net (1,264,531)   (1,244,859)   (991,819)   (987,328)   (985,302)  
Tangible assets $ 31,121,947    $ 32,370,263    $ 29,451,807    $ 28,151,987    $ 26,726,533   
Average Tangible Common Equity and Average Common Equity Tier 1 Reconciliation(a)(b)
Common equity $ 3,615,153    $ 3,505,075    $ 3,012,704    $ 2,888,579    $ 2,799,150   
Goodwill and other intangible assets, net (1,256,668)   (1,209,311)   (988,073)   (988,406)   (982,454)  
Tangible common equity 2,358,485    2,295,764    2,024,631    1,900,173    1,816,696   
Less: Accumulated other comprehensive income / loss 68,946    117,408    53,879    7,526    (9,059)  
Less: Deferred tax assets / deferred tax liabilities, net 46,980    41,747    30,949    32,692    25,960   
Average common equity Tier 1 $ 2,474,411    $ 2,454,919    $ 2,109,459    $ 1,940,391    $ 1,833,597   
Average Tangible Assets Reconciliation(a)(c)
Total assets $ 33,046,604    $ 33,007,859    $ 29,467,324    $ 28,506,112    $ 27,019,216   
Goodwill and other intangible assets, net (1,256,668)   (1,209,311)   (988,073)   (988,406)   (982,454)  
Tangible assets $ 31,789,936    $ 31,798,548    $ 28,479,252    $ 27,517,705    $ 26,036,762   
Efficiency Ratio Reconciliation(d)
Federal Reserve efficiency ratio 65.38  % 66.23  % 65.97  % 66.95  % 69.96  %
Fully tax-equivalent adjustment (0.85) % (0.71) % (1.28) % (1.29) % (1.41) %
Other intangible amortization (0.82) % (0.66) % (0.18) % (0.20) % (0.31) %
Fully tax-equivalent efficiency ratio 63.72  % 64.87  % 64.51  % 65.46  % 68.24  %
Acquisition related costs adjustment(e)
(0.60) % (2.42) % —  % —  % —  %
Fully tax-equivalent efficiency ratio, excluding acquisition related costs (adjusted efficiency ratio) 63.12  % 62.45  % 64.51  % 65.46  % 68.24  %
(a) The ratio tangible common equity to tangible assets excludes goodwill and other intangible assets, net, which is a non-GAAP financial measure. This financial measure has been included as it is considered to be a critical metric with which to analyze and evaluate financial condition and capital strength.
(b) The Federal Reserve establishes regulatory capital requirements, including well-capitalized standards for the Corporation. The Corporation follows Basel III, subject to certain transition provisions. These regulatory capital measurements are used by management, regulators, investors, and analysts to assess, monitor and compare the quality and composition of the Corporation's capital with the capital of other financial services companies.
(c) During the third quarter of 2019, the Corporation made a change in accounting policy to offset derivative assets and liabilities and cash collateral with the same counterparty where it has a legally enforceable master netting agreement in place. The change had no impact on either earnings or equity. The Corporation believes that this change is a preferable method of accounting as it provides a better reflection of the assets and liabilities on the face of the consolidated balance sheets. Adoption of this change was voluntary. Total assets and average assets for 2019, 2018, and 2017 were restated for comparability. Total assets and average assets for 2016 and 2015 have not been restated.
(d) The efficiency ratio as defined by the Federal Reserve guidance is noninterest expense (which includes the provision for unfunded commitments) divided by the sum of net interest income plus noninterest income, excluding investment securities gains / losses, net. The fully tax-equivalent efficiency ratio is noninterest expense (which includes the provision for unfunded commitments), excluding other intangible amortization, divided by the sum of fully tax-equivalent net interest income plus noninterest income, excluding investment securities gains / losses, net. The adjusted efficiency ratio is noninterest expense (which includes the provision for unfunded commitments), excluding other intangible amortization and acquisition related costs, divided by the sum of fully tax-equivalent net interest income plus noninterest income, excluding investment securities gains / losses, net and acquisition related costs. Management believes the adjusted efficiency ratio, which adjusts net interest income for the tax-favored status of certain loans and investment securities and acquisition related costs, to be a meaningful measure as it enhances the comparability of net interest income arising from taxable and tax-exempt sources and excludes acquisition related costs.
(e) 2019 includes Huntington branch and First Staunton acquisition related costs while 2018 includes Bank Mutual acquisition related costs.
See Note 10 Stockholders' Equity and Note 19 Regulatory Matters of the notes to consolidated financial statements for additional capital disclosures.
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Segment Review
As discussed in Note 21 Segment Reporting of the notes to consolidated financial statements, the Corporation’s reportable segments have been determined based upon its internal profitability reporting system, which is organized by strategic business unit. Certain strategic business units have been combined for segment information reporting purposes where the nature of the products and services, the type of customer, and the distribution of those products and services are similar. The reportable segments are Corporate and Commercial Specialty; Community, Consumer and Business; and Risk Management and Shared Services. The financial information of the Corporation’s segments was compiled utilizing the accounting policies described in Note 1 Summary of Significant Accounting Policies and Note 21 Segment Reporting of the notes to consolidated financial statements.
Funds Transfer Pricing is an important tool for managing the Corporation’s balance sheet structure and measuring risk-adjusted profitability. By appropriately allocating the cost of funding and contingent liquidity to business units, the FTP process improves product pricing which influences the volume and terms of new business and helps to optimize the risk / reward profile of the balance sheet. This process helps align the Corporation’s funding and contingent liquidity risk with its risk appetite and complements broader liquidity and interest rate risk management programs. FTP methodologies are designed to promote more resilient, sustainable business models and centralize the management of funding and contingent liquidity risks. Through FTP, the Corporation transfers these risks to a central management function that can take advantage of natural off-sets, centralized hedging activities, and a broader view of these risks across business units. The net FTP allocation is reflected as net intersegment interest income (expense) shown in Note 21 Segment Reporting of the notes to consolidated financial statements.
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Table 27 Selected Segment Financial Data
Year Ended December 31, Change From Prior Year
($ in Thousands) 2019 2018 2017 % Change 2019 % Change 2018
Corporate and Commercial Specialty
Total revenue $ 427,749    $ 453,578    $ 409,348    (6) % 11  %
Credit provision 52,382    44,592    42,298    17  % %
Noninterest expense 156,348    160,399    156,890    (3) % %
Net income 177,809    200,737    138,505    (11) % 45  %
Average earning assets 12,344,244    11,852,662    10,820,998    % 10  %
Average loans 12,339,072    11,841,818    10,811,827    % 10  %
Average deposits 8,265,447    8,112,430    6,938,913    % 17  %
Average allocated capital (Average CET1)(a)
1,243,900    1,209,558    1,117,761    % %
Return on average allocated capital (ROCET1)(a)
14.29  % 16.60  % 12.39  % -231 bp    421 bp   
Community, Consumer, and Business
Total revenue $ 744,067    $ 740,629    $ 627,611    —  % 18  %
Credit provision 20,043    20,083    20,400    —  % (2) %
Noninterest expense 547,423    541,771    490,567    % 10  %
Net income 139,496    141,232    75,819    (1) % 86  %
Average earning assets 10,286,275    10,336,105    9,456,549    —  % %
Average loans 10,283,258    10,332,665    9,452,253    —  % %
Average deposits 14,403,547    13,623,852    11,711,407    % 16  %
Average allocated capital (Average CET1)(a)
641,986    653,354    586,417    (2) % 11  %
Return on average allocated capital (ROCET1)(a)
21.73  % 21.62  % 12.93  % 11 bp    869 bp   
Risk Management and Shared Services
Total revenue $ 44,682    $ 40,941    $ 36,941    % 11  %
Credit provision (56,425)   (64,675)   (36,698)   (13) % 76  %
Noninterest expense (b)
90,217    119,629    61,677    (25) % 94  %
Net income 9,484    (8,407)   14,941    N/M    N/M   
Average earning assets 7,190,310    7,861,026    6,722,337    (9) % 17  %
Average loans 500,468    543,814    328,303    (8) % 66  %
Average deposits 2,066,613    2,335,768    3,273,282    (12) % (29) %
Average allocated capital (Average CET1)(a)
588,525    592,006    405,281    (1) % 46  %
Return on average allocated capital (ROCET1)(a)
(0.97) % (3.24) % 1.38  % 227 bp    -462 bp   
Consolidated Total
Total revenue $ 1,216,498    $ 1,235,148    $ 1,073,900    (2) % 15  %
Return on average allocated capital (ROCET1)(a)
12.59  % 13.15  % 10.43  % -56 bp    272 bp   
N/M = Not Meaningful
(a) The Federal Reserve establishes capital adequacy requirements for the Corporation, including common equity Tier 1. For segment reporting purposes, the return on common equity Tier 1 ("ROCET1") reflects return on average allocated common equity Tier 1. The ROCET1 for the Risk Management and Shared Services segment and the Consolidated Total is inclusive of the annualized effect of the preferred stock dividends. Please refer to Table 26 for a reconciliation of non-GAAP financial measures to GAAP financial measures.
(b) For the years ended December 31, 2019, 2018 and 2017, the Risk Management and Shared Services segment included approximately $7 million, $29 million and zero respectively, of acquisition related noninterest expense.

Segment Review 2019 Compared to 2018
The Corporate and Commercial Specialty segment consists of lending and deposit solutions to larger businesses, developers, not-for-profits, municipalities, financial institutions, and the support to deliver, fund, and manage such banking solutions.
The Corporate and Commercial Specialty segment had net income of $178 million in 2019, down $23 million compared to $201 million in 2018.
Segment revenue decreased $26 million to $428 million in 2019, compared to $454 million in 2018, driven by higher FTP charges without a corresponding increase in interest revenue due to lower prepayments and accretion income from the Bank Mutual portfolio in 2018.
Credit provision increased $8 million to $52 million in 2019, compared to $45 million in 2018, primarily due to oil and gas loans, partially offset by improving credit quality in other commercial loan portfolios.
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Average loan balances were $12.3 billion for 2019, up $497 million from an average balance of $11.8 billion for 2018, largely due to growth in commercial and business lending loans.
Average deposit balances were $8.3 billion for 2019, up $153 million from average deposits of $8.1 billion in 2018.
The Community, Consumer, and Business segment consists of lending and deposit solutions to individuals and small to mid-sized businesses, and also provides a variety of investment and fiduciary products and services.
The Community, Consumer, and Business segment had net income of $139 million in 2019, down $2 million compared to $141 million in 2018.
Segment revenue increased $3 million to $744 million in 2019 due to an increase in mortgage banking revenue, partially offset by a decrease in segment net interest income.
Average deposit balances were $14.4 billion in 2019, up $780 million from average deposits of $13.6 billion in 2018, primarily driven by the Huntington branch acquisition.
The Risk Management and Shared Services segment includes key shared Corporate functions, Parent Company activity, intersegment eliminations, and residual revenues and expense.

The Risk Management and Shared Services segment had net income of $9 million in 2019, up $18 million compared to a net loss of $8 million in 2018.
Segment revenue increased $4 million to $45 million in 2019, primarily driven by gains on sales of securities as a result of the Corporation's ongoing investment securities portfolio restructuring and deleveraging strategy, partially offset by a decrease in segment net interest income. The decrease in segment net interest income was driven by higher FHLB advance and network transaction deposit costs.
Noninterest expense decreased $29 million in 2019 compared to 2018, primarily due to lower acquisition related costs and certain unallocated expenses. Acquisition related costs of $7 million related to the Huntington branch and First Staunton acquisitions were incurred during 2019, compared to acquisition related expenses of $29 million related to the Bank Mutual acquisition in 2018.
Average earning asset balances were $7.2 billion for 2019, down $671 million from an average balance of $7.9 billion in 2018, driven by the Corporation's ongoing investment securities portfolio restructuring and deleveraging strategy.
Average deposits were $2.1 billion in 2019, down $269 million from 2018, primarily driven by a decrease in network transaction deposits.

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Table 28 Selected Quarterly Financial Data
The following is selected financial data summarizing the results of operations for each quarter in the years ended December 31, 2019 and 2018:
  2019 Quarters Ended
 (In Thousands, except per common share data) December 31 September 30 June 30 March 31
Net interest income $ 200,142    $ 206,365    $ 213,619    $ 215,547   
Provision for credit losses —    2,000    8,000    6,000   
Income before income taxes 89,467    104,286    103,678    109,078   
Net income available to common equity 68,303    79,539    80,860    82,885   
Basic earnings per common share $ 0.43    $ 0.50    $ 0.49    $ 0.50   
Diluted earnings per common share $ 0.43    $ 0.49    $ 0.49    $ 0.50   
  2018 Quarters Ended
 (In Thousands, except per common share data) December 31 September 30 June 30 March 31
Net interest income $ 223,955    $ 219,392    $ 226,362    $ 209,871   
Provision for credit losses 1,000    (5,000)   4,000    —   
Income before income taxes 113,839    108,279    103,947    87,285   
Net income available to common equity 85,278    83,521    86,863    67,117   
Basic earnings per common share $ 0.52    $ 0.49    $ 0.51    $ 0.41   
Diluted earnings per common share $ 0.51    $ 0.48    $ 0.50    $ 0.40   

Critical Accounting Policies
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 allowance for loan losses, goodwill impairment assessment, MSRs valuation, and income taxes.
The consolidated financial statements of the Corporation are prepared in conformity with U.S. GAAP and follow general practices within the industries in which it operates. This preparation requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, actual results could differ from the estimates, assumptions, and judgments reflected in the financial statements. Certain policies inherently have a greater reliance on the use of estimates, assumptions, and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. Management believes the following policies are both important to the portrayal of the Corporation’s financial condition and results of operations and require subjective or complex judgments and, therefore, management considers the following to be critical accounting policies. The critical accounting policies are discussed directly with the Audit Committee of the Corporation’s Board of Directors.
Allowance for Loan Losses:  Management’s evaluation process used to determine the appropriateness of the allowance for loan losses is subject to the use of estimates, assumptions, and judgments. The evaluation process combines many factors: management’s ongoing review and grading of the loan portfolio, consideration of historical loan loss and delinquency experience, trends in past due and nonaccrual loans, risk characteristics of the various classifications of loans, concentrations of loans to specific borrowers or industries, existing economic conditions, the fair value of underlying collateral, and other qualitative and quantitative factors which could affect probable credit losses. Because current economic conditions can change and future events are inherently difficult to predict, the anticipated amount of estimated loan losses, and therefore the appropriateness of the allowance for loan losses, could change significantly. As an integral part of their examination process, various regulatory agencies also review the allowance for loan losses. Such agencies may require additions to the allowance for loan losses or may require that certain loan balances be charged off or downgraded into criticized loan categories when their credit evaluations differ from those of management, based on their judgments about information available to them at the time of their examination. The Corporation believes the level of the allowance for loan losses is appropriate. See Note 1 Summary of Significant Accounting Policies and Note 4 Loans of the notes to consolidated financial statements as well as the Allowance for Credit Losses section.
Goodwill Impairment Assessment:  Goodwill is not amortized but, instead, is subject to impairment tests on at least an annual basis, and more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Corporation conducted its most recent annual impairment test in May 2019, utilizing a qualitative assessment. See Note 1 Summary of Significant Accounting Policies of the notes to consolidated financial statements for the Corporation's accounting policy on goodwill and see Note 5 Goodwill and Other Intangible Assets of the
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notes to consolidated financial statements for a detailed discussion of the factors considered by management in the qualitative assessment. Based on this assessment, management concluded that it is more likely than not that the estimated fair value exceeded the carrying value (including goodwill) for each reporting unit. Therefore, a step one quantitative analysis was not required. There were no events since the May 2019 impairment testing that have changed the Corporation's impairment assessment conclusion. There was no impairment charges recorded in 2019, 2018, or 2017.
Mortgage Servicing Rights Valuation:  The fair value of the Corporation’s MSRs asset is important to the presentation of the consolidated financial statements since the MSRs are carried on the consolidated balance sheets at the lower of amortized cost or estimated fair value. MSRs do not trade in an active open market with readily observable prices. As such, like other participants in the mortgage banking business, the Corporation relies on an independent valuation from a third party which uses a discounted cash flow model to estimate the fair value of its MSRs. The use of a discounted cash flow model involves judgment, particularly of estimated prepayment speeds of underlying mortgages serviced and the overall level of interest rates. Loan type and note interest rate are the predominant risk characteristics of the underlying loans used to stratify capitalized MSRs for purposes of measuring impairment. The Corporation periodically reviews the assumptions underlying the valuation of MSRs. While the Corporation believes that the values produced by the discounted cash flow model are indicative of the fair value of its MSRs portfolio, these values can change significantly depending upon key factors, such as the then current interest rate environment, estimated prepayment speeds of the underlying mortgages serviced, and other economic conditions. The proceeds that might be received should the Corporation actually consider a sale of some or all of the MSRs portfolio could differ from the amounts reported at any point in time.
To better understand the sensitivity of the impact of prepayment speeds and refinance rates on the value of the MSRs asset at December 31, 2019, (holding all other factors unchanged), if refinance rates were to decrease 50 bp, the estimated value of the MSRs asset would have been approximately $14 million, or 20%, lower. Conversely, if refinance rates were to increase 50 bp, the estimated value of the MSRs asset would have been approximately $15 million, or 20%, higher. However, the Corporation’s potential recovery recognition due to valuation improvement is limited to the balance of the MSRs valuation reserve, which was approximately $302,000 at December 31, 2019. The potential recovery recognition is constrained as the Corporation has elected to use the amortization method of accounting (rather than fair value measurement accounting). Under the amortization method, MSRs are carried at the lower of the initial capitalized amount, net of accumulated amortization, or estimated fair value. Therefore, the MSRs asset may only be marked up to the extent of the previously recognized valuation reserve. The Corporation believes the MSRs asset is properly recorded on the consolidated balance sheets. See Note 1 Summary of Significant Accounting Policies and Note 5 Goodwill and Other Intangible Assets of the notes to consolidated financial statements.
Income Taxes:  The assessment of tax assets and liabilities involves the use of estimates, assumptions, interpretations, and judgment concerning certain accounting pronouncements and federal and state tax codes and regulations. There can be no assurance that future events, such as court decisions or positions of federal and state taxing authorities, will not differ from management’s current assessment, the impact of which could be significant to the consolidated results of operations and reported earnings. Quarterly assessments are performed to determine if valuation allowances are necessary against any portion of the Corporation’s DTAs. Assessing the need for, or sufficiency of, a valuation allowance requires management to evaluate all available evidence, both positive and negative, including the recent trend of quarterly earnings. Positive evidence necessary to overcome the negative evidence includes whether future taxable income in sufficient amounts and character within the carryback and carryforward periods is available under the tax law, including the use of tax planning strategies. When negative evidence (e.g., cumulative losses in recent years, history of operating loss or tax credit carryforwards expiring unused) exists, more positive evidence than negative evidence will be necessary. The Corporation has concluded that based on the level of positive evidence, it is more likely than not that the deferred tax asset will be realized, net of the existing valuation allowances at December 31, 2019 and 2018. However, there is no guarantee that the tax benefits associated with the DTAs will be fully realized. The Corporation believes the tax assets and liabilities are properly recorded on the consolidated balance sheets. See Note 13 Income Taxes of the notes to consolidated financial statements and section Income Taxes.

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
Information required by this item is set forth in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, under the captions Quantitative and Qualitative Disclosures about Market Risk and Interest Rate Risk.

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ITEM 8. Financial Statements and Supplementary Data

ASSOCIATED BANC-CORP
Consolidated Balance Sheets
  December 31,
 (In Thousands, except share and per share data) 2019 2018
Assets
Cash and due from banks $ 373,380    $ 507,187   
Interest-bearing deposits in other financial institutions 207,624    221,226   
Federal funds sold and securities purchased under agreements to resell 7,740    148,285   
Investment securities held to maturity, at amortized cost 2,205,083    2,740,511   
Investment securities available for sale, at fair value 3,262,586    3,946,941   
Equity securities 15,090    1,568   
Federal Home Loan Bank and Federal Reserve Bank stocks, at cost 227,347    250,534   
Residential loans held for sale 136,280    64,321   
Commercial loans held for sale 15,000    14,943   
Loans 22,821,440    22,940,429   
Allowance for loan losses (201,371)   (238,023)  
Loans, net 22,620,068    22,702,406   
Bank and corporate owned life insurance 671,948    663,203   
Tax credit and other investments 279,969    161,181   
Premises and equipment, net 435,284    363,225   
Goodwill 1,176,230    1,169,023   
Mortgage servicing rights, net 67,306    68,193   
Other intangible assets, net 88,301    75,836   
Other assets(a)
597,242    516,538   
Total assets $ 32,386,478    $ 33,615,122   
Liabilities and stockholders' equity
Noninterest-bearing demand deposits $ 5,450,709    $ 5,698,530   
Interest-bearing deposits 18,328,355    19,198,863   
Total deposits 23,779,064    24,897,393   
Federal funds purchased and securities sold under agreements to repurchase 433,097    111,651   
Commercial paper 32,016    45,423   
FHLB advances 3,180,967    3,574,371   
Other long-term funding 549,343    795,611   
Accrued expenses and other liabilities(a)
489,868    409,787   
Total liabilities 28,464,355    29,834,235   
Stockholders’ equity
Preferred equity 256,716    256,716   
Common equity
Common stock 1,752    1,752   
Surplus 1,716,431    1,712,615   
Retained earnings 2,380,867    2,181,414   
Accumulated other comprehensive income (loss) (33,183)   (124,972)  
Treasury stock, at cost (400,460)   (246,638)  
Total common equity 3,665,407    3,524,171   
Total stockholders’ equity 3,922,124    3,780,888   
Total liabilities and stockholders’ equity $ 32,386,478    $ 33,615,122   
Preferred shares authorized (par value $1.00 per share) 750,000    750,000   
Preferred shares issued and outstanding 264,458    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 157,171,247    164,440,471   
Numbers may not sum due to rounding.
(a) During the third quarter of 2019, the Corporation made a change in accounting policy to offset derivative assets and liabilities and cash collateral with the same counterparty where it has a legally enforceable master netting agreement in place. The change had no impact on either earnings or equity. The Corporation believes that this change is a preferable method of accounting as it provides a better reflection of the assets and liabilities on the face of the consolidated balance sheets. Adoption of this change was voluntary and has been adopted retrospectively with all prior periods presented herein revised.

See accompanying notes to consolidated financial statements.
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ASSOCIATED BANC-CORP
Consolidated Statements of Income
  For the Years Ended December 31,
 (In Thousands, except per share data) 2019 2018 2017
Interest income
Interest and fees on loans $ 998,099    $ 976,990    $ 749,000   
Interest and dividends on investment securities
Taxable 100,304    119,741    96,909   
Tax-exempt 57,565    44,782    32,977   
Other interest 16,643    12,623    7,719   
Total interest income 1,172,610    1,154,137    886,605   
Interest expense
Interest on deposits 237,286    176,118    94,025   
Interest on federal funds purchased and securities sold under agreements to repurchase 1,579    2,006    2,527   
Interest on other short-term funding 149    186    293   
Interest on FHLB advances 69,816    73,668    30,364   
Interest on long-term funding 28,106    22,579    18,176   
Total interest expense 336,936    274,557    145,385   
Net interest income 835,674    879,580    741,220   
Provision for credit losses 16,000    —    26,000   
Net interest income after provision for credit losses 819,674    879,580    715,220   
Noninterest income
Insurance commissions and fees 89,104    89,511    81,474   
Wealth management fees(a)
83,467    82,562    70,126   
Service charges on deposit account fees 63,135    66,075    64,427   
Card-based fees 39,755    39,656    34,834   
Other fee-based revenue 18,942    17,818    17,854   
Capital markets, net 19,862    20,120    19,642   
Mortgage banking, net 31,878    19,911    19,360   
Bank and corporate owned life insurance 14,845    13,951    16,250   
Asset gains (losses), net(b)
2,713    (1,103)   (1,244)  
Investment securities gains (losses), net 5,957    (1,985)   434   
Other 11,165    9,051    9,523   
Total noninterest income 380,824    355,568    332,680   
Noninterest expense
Personnel 487,063    482,676    428,976   
Technology 82,429    72,674    63,004   
Occupancy 62,399    59,121    53,842   
Business development and advertising 29,600    30,923    28,946   
Equipment 23,550    23,243    21,201   
Legal and professional 19,901    23,061    22,509   
Loan and foreclosure costs 8,861    7,410    7,293   
FDIC assessment 16,250    30,000    31,300   
Other intangible amortization 9,948    8,159    1,959   
Acquisition related costs(c)
7,320    29,002    —   
Other 46,666    55,530    50,102   
Total noninterest expense 793,988    821,799    709,133   
Income before income taxes 406,509    413,349    338,767   
Income tax expense 79,720    79,786    109,503   
Net income 326,790    333,562    229,264   
Preferred stock dividends 15,202    10,784    9,347   
Net income available to common equity $ 311,587    $ 322,779    $ 219,917   
Earnings per common share
Basic $ 1.93    $ 1.92    $ 1.45   
Diluted $ 1.91    $ 1.89    $ 1.42   
Average common shares outstanding
Basic 160,534    167,345    150,877   
Diluted 161,932    169,732    153,647   
Numbers may not sum due to rounding.
(a) Includes trust, asset management, brokerage, and annuity fees.
(b) The year ended December 31, 2019 includes less than $1 million of Huntington related asset losses; the year ended December 31, 2018 includes approximately $2 million of Bank Mutual acquisition related asset losses net of asset gains.
(c) Includes Bank Mutual, Huntington branch, and First Staunton acquisition related costs only.
See accompanying notes to consolidated financial statements.
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ASSOCIATED BANC-CORP
Consolidated Statements of Comprehensive Income
  For the Years Ended December 31,
 ($ in Thousands) 2019 2018 2017
Net income $ 326,790    $ 333,562    $ 229,264   
Other comprehensive income, net of tax
Investment securities available for sale
Net unrealized gains (losses) 111,592    (39,891)   (12,302)  
Net unrealized gain (loss) on available for sale securities transferred to held to maturity securities —    —    (14,738)  
Amortization of net unrealized (gains) losses on available for sale securities transferred to held to maturity securities 895    (572)   (2,665)  
Reclassification adjustment for net losses (gains) realized in net income(a)
(5,957)   1,985    —   
Reclassification from OCI due to change in accounting principle —    (84)   —   
Reclassification of certain tax effects from OCI —    (8,419)   —   
Income tax (expense) benefit (26,898)   9,791    11,331   
Other comprehensive income (loss) on investment securities available for sale 79,631    (37,189)   (18,374)  
Defined benefit pension and postretirement obligations
Amortization of prior service cost (148)   (148)   (148)  
Net actuarial (loss) gain 16,296    (28,612)   14,273   
Amortization of actuarial loss (gain) 476    2,203    2,282   
Reclassification of certain tax effects from OCI —    (5,235)   —   
Income tax (expense) benefit (4,465)   6,767    (6,112)  
Other comprehensive income (loss) on pension and postretirement obligations 12,158    (25,025)   10,295   
Total other comprehensive income (loss) 91,789    (62,214)   (8,079)  
Comprehensive income $ 418,579    $ 271,348    $ 221,185   
Numbers may not sum due to rounding.
(a) Includes only available for sale securities.

See accompanying notes to consolidated financial statements.

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ASSOCIATED BANC-CORP
Consolidated Statements of Changes in Stockholders’ Equity
 (In Thousands, except per share data) Preferred Equity    Common Stock   
Shares    Amount Shares    Amount Surplus Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury Stock Total
Balance, December 31, 2016 165 $ 159,929    163,030    $ 1,630    $ 1,364,066    $ 1,791,196    $ (54,679)   $ (170,830)   $ 3,091,312   
Comprehensive income:
Net income —    —    —    —    —    229,264    —    —    229,264   
Other comprehensive loss —    —    —    —    —    —    (8,079)   —    (8,079)  
Comprehensive income $ 221,185   
Common stock issued:
Stock-based compensation plans, net
—    —    —    —    (17,737)   —    —    45,356    27,619   
Acquisitions —    —    291      7,148    —    —    —    7,151   
Purchase of common stock returned to authorized but unissued —    —    (1,569)   (15)   (37,016)   —    —    —    (37,031)  
Purchase of treasury stock —    —    —    —    —    —    —    (9,290)   (9,290)  
Cash dividends:
Common stock, $0.50 per share —    —    —    —    —    (76,417)   —    —    (76,417)  
Preferred stock(a)
—    —    —    —    —    (9,347)   —    —    (9,347)  
Stock-based compensation expense, net —    —    —    —    21,227    —    —    —    21,227   
Tax impact of stock-based compensation —    —    —    —    1,034    —    —    —    1,034   
Balance, December 31, 2017 165    $ 159,929    161,752    $ 1,618    $ 1,338,722    $ 1,934,696    $ (62,758)   $ (134,764)   $ 3,237,443   
Comprehensive income:
Net income —    —    —    —    —    333,562    —    —    333,562   
Other comprehensive income —    —    —    —    —    —    (48,476)   —    (48,476)  
Adoption of new accounting standards —    —    —    —    —    —    (13,738)   —    (13,738)  
Comprehensive income $ 271,348   
Common stock issued:
Stock-based compensation plans, net
—    —    —    —    (7,116)   15,096    —    10,428    18,408   
Acquisitions —    —    13,705    137    396,975    —    —    91,296    488,408   
Purchase of common stock returned to authorized but unissued —    —    (1,357)   (14)   (33,061)   —    —    —    (33,075)  
Purchase of treasury stock —    —    —    —    —    —    —    (213,598)   (213,598)  
Cash dividends:
Common stock, $0.62 per share —    —    —    —    —    (105,519)   —    —    (105,519)  
Preferred stock(b)
—    —    —    —    —    (10,784)   —    —    (10,784)  
Issuance of preferred stock 100    97,315    —    —    —    —    —    —    97,315   
Purchase of preferred stock (1)   (528)   —    —    —    (8)   —    —    (537)  
Common stock warrants exercised —    —    1,116    11    (12)   —    —    —    (1)  
Stock-based compensation expense, net —    —    —    —    17,107    —    —    —    17,107   
Tax Act reclassification —    —    —    —    —    13,654    —    —    13,654   
Change in accounting principle —    —    —    —    —    84    —    —    84   
Other —    —    —    —    —    632    —    —    632   
Balance, December 31, 2018 264    $ 256,716    175,216    $ 1,752    $ 1,712,615    $ 2,181,414    $ (124,972)   $ (246,638)   $ 3,780,888   
Comprehensive income:
Net income —    —    —    —    —    326,790    —    —    $ 326,790   
Other comprehensive income —    —    —    —    —    —    91,789    —    91,789   
Comprehensive income $ 418,579   
Common stock issued:
Stock-based compensation plans, net
—    —    —    —    (21,038)   —    —    32,254    11,216   
Purchase of treasury stock —    —    —    —    —    —    —    (186,076)   (186,076)  
Cash dividends:
Common stock, $0.69 per share —    —    —    —    —    (111,804)   —    —    (111,804)  
Preferred stock(c)
—    —    —    —    —    (15,202)   —    —    (15,202)  
Stock-based compensation expense, net —    —    —    —    24,854    —    —    —    24,854   
Other —    —    —    —    —    (331)   —    —    (331)  
Balance, December 31, 2019 264    $ 256,716    175,216    $ 1,752    $ 1,716,431    $ 2,380,867    $ (33,183)   $ (400,460)   $ 3,922,124   
Numbers may not sum due to rounding.
(a) Series C, $1.53125 per share; and Series D, $1.34375 per share.
(b) Series C, $1.53125 per share; Series D, $1.34375 per share; and Series E, $0.322309 per share.
(c) Series C, $1.53125 per share; Series D, $1.34375 per share; and Series E, $1.46875 per share.
See accompanying notes to consolidated financial statements.
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ASSOCIATED BANC-CORP
Consolidated Statements of Cash Flows
  For the Years Ended December 31,
($ in Thousands) 2019 2018 2017
Cash Flows from Operating Activities
Net income $ 326,790    $ 333,562    $ 229,264   
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses 16,000    —    26,000   
Depreciation and amortization 58,149    48,253    46,967   
Addition to (recovery of) valuation allowance on mortgage servicing rights, net 63    (545)   175   
Amortization of mortgage servicing rights 12,432    9,594    10,084   
Amortization of other intangible assets 9,948    8,159    1,959   
Amortization and accretion on earning assets, funding, and other, net 23,573    11,624    37,476   
Net amortization of tax credit investments 20,062    19,425    19,834   
Deferred income taxes 13,833    46,947    21,402   
Losses (gains) on sales of investment securities, net (5,957)   1,985    (434)  
Asset (gains) losses, net (2,713)   1,103    1,244   
(Gain) loss on mortgage banking activities, net (20,120)   (22,497)   (3,516)  
Mortgage loans originated for sale (1,090,792)   (1,092,318)   (715,357)  
Proceeds from sales of mortgage loans held for sale 1,317,077    1,131,652    819,950   
Pension contributions —    (41,877)   (6,242)  
(Increase) decrease in interest receivable 7,595    (7,417)   (9,476)  
Increase (decrease) in interest payable 2,495    10,407    6,535   
Increase (decrease) in accrued expenses 723    30,924    3,520   
Increase (decrease) in derivative asset (102,966)   40,950    (13,076)  
Net change in other assets and other liabilities (11,930)   (33,363)   (17,941)  
Net cash provided by operating activities 574,260    496,567    458,368   
Cash Flows from Investing Activities
Net increase in loans (137,990)   (326,464)   (861,934)  
Purchases of
Available for sale securities (460,124)   (737,580)   (1,137,191)  
Held to maturity securities (423,682)   (682,622)   (234,379)  
Federal Home Loan Bank and Federal Reserve Bank stocks (246,836)   (347,323)   (262,986)  
Premises, equipment, and software, net of disposals (67,459)   (65,854)   (47,369)  
Proceeds from
Sales of available for sale securities 1,367,476    601,130    18,467   
Sale of Federal Home Loan Bank and Federal Reserve Bank stocks 270,023    282,145    237,656   
Prepayments, calls, and maturities of available for sale investment securities 561,659    633,859    713,486   
Prepayments, calls, and maturities of held to maturity investment securities 260,510    217,836    210,753   
Sales, prepayments, calls and maturities of other assets 10,250    41,856    20,070   
Net change in tax credit and alternative investments (67,632)   (57,327)   (53,770)  
Net cash (paid) received in acquisition 551,250    59,472    339   
Net cash provided by (used in) investing activities 1,617,446    (380,872)   (1,396,858)  
Cash Flows from Financing Activities
Net increase (decrease) in deposits (1,842,748)   270,481    897,514   
Net increase (decrease) in short-term funding 308,039    (581,371)   (217,753)  
Net increase (decrease) in short-term FHLB advances (380,000)   616,000    (198,000)  
Repayment of long-term FHLB advances (764,657)   (2,150,016)   (115,020)  
Proceeds from long-term FHLB advances 751,573    1,837,680    750,000   
Redemption of Corporation's senior notes (250,000)   —    —   
Repayment of finance lease principal (1)   —    —   
Proceeds from issuance of long-term funding —    300,000    —   
Proceeds from issuance of preferred shares —    97,315    —   
Proceeds from issuance of common stock for stock-based compensation plans 11,216    18,408    27,619   
Common stock warrants exercised —    (1)   —   
Purchase of preferred shares —    (537)   —   
Purchase of common stock returned to authorized but unissued —    (33,075)   (37,031)  
Purchase of treasury stock (186,076)   (213,598)   (9,290)  
Cash dividends on common stock (111,804)   (105,519)   (76,417)  
Cash dividends on preferred stock (15,202)   (10,784)   (9,347)  
Net cash provided by (used in) financing activities (2,479,660)   44,983    1,012,275   
Net increase (decrease) in cash, cash equivalents, and restricted cash (287,954)   160,678    73,785   
Cash, cash equivalents, and restricted cash at beginning of period 876,698    716,018    642,233   
Cash, cash equivalents, and restricted cash at end of period $ 588,744    $ 876,698    $ 716,018   
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
For the Years Ended December 31,
($ in Thousands) 2019 2018 2017
Supplemental disclosures of cash flow information
Cash paid for interest $ 332,919    $ 261,724    $ 138,174   
Cash paid for income and franchise taxes 41,131    18,335    81,450   
Loans and bank premises transferred to other real estate owned 10,513    26,517    11,505   
Capitalized mortgage servicing rights 11,606    10,722    7,167   
Loans transferred into held for sale from portfolio, net 313,570    33,010    71,954   
Transfer of held to maturity securities to available for sale securities (adoption of ASU 2019-04) 692,414    —    —   
Unsettled trades to purchase securities —    883    —   
Acquisition
Fair value of assets acquired, including cash and cash equivalents 695,848    2,567,488    647   
Fair value ascribed to goodwill and intangible assets 29,837    261,243    6,450   
Fair value of liabilities assumed 725,764    2,340,323    54   
Common stock issued in acquisition (79)   488,408    7,151   
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:
  For the Years Ended December 31,
 ($ in Thousands) 2019 2018 2017
Cash and cash equivalents $ 400,232    $ 782,784    $ 643,042   
Restricted cash 188,512    93,914    72,976   
Total cash, cash equivalents, and restricted cash shown on the consolidated statements of cash flows $ 588,744    $ 876,698    $ 716,018   
Numbers may not sum due to rounding.

Amounts included in restricted cash represent required reserve balances with the Federal Reserve Bank, included in interest-bearing deposits in other financial institutions on the face of the consolidated balance sheets.


See accompanying notes to consolidated financial statements.



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ASSOCIATED BANC-CORP
Notes to Consolidated Financial Statements
December 31, 2019, 2018, and 2017

Note 1 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. The following is a description of the more significant of those policies.
Business
Associated Banc-Corp is a bank holding company headquartered in Wisconsin. The Corporation provides a full range of banking and related financial services to consumer and commercial customers through its network of bank and nonbank subsidiaries. The Corporation is subject to competition from other financial and non-financial institutions that offer similar or competing products and services. The Corporation is regulated by federal and state agencies and is subject to periodic examinations by those agencies.
Basis of Financial Statement Presentation
The consolidated financial statements include the accounts of the Parent Company and its subsidiaries. Investments in unconsolidated entities (none of which are considered to be variable interest entities in which the Corporation is the primary beneficiary) are accounted for using the cost method of accounting when the Corporation has determined that the cost method is appropriate. Investments not meeting the criteria for cost method accounting are accounted for using the equity method of accounting. Investments in unconsolidated entities are included in tax credit and other investments on the consolidated balance sheets, and the Corporation’s share of income or loss is recorded in other noninterest income, while distributions in excess of the investment are asset gains (losses), net.
All significant intercompany balances and transactions have been eliminated in consolidation.
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 allowance for loan losses, 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.
Business Combinations
The Corporation accounts for its acquisitions using the purchase accounting method. Purchase accounting requires the total purchase price to be allocated to the estimated fair values of assets acquired and liabilities assumed, including certain intangible assets that must be recognized. Typically, this allocation results in the purchase price exceeding the fair value of net assets acquired, which is recorded as goodwill. Core deposit intangibles are a measure of the value of checking, money market and savings deposits acquired in business combinations accounted for under the purchase method. Core deposit intangibles and other identified intangibles with finite useful lives are amortized using the straight line method over their estimated useful lives of up to ten years.
Loans that the Corporation acquires in connection with acquisitions are recorded at fair value with no carryover of the related allowance for credit losses. Fair value of the loans involves estimating the amount and timing of principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest. The excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount and is recognized into interest income over the remaining life of the loan when there is a reasonable expectation about the amount and timing of such cash flows. If a reasonable expectation on the amount or timing of such cash flows can't be determined, accretion of the fair value discount for nonperforming loans will be recognized using the cost recovery method of accounting.
For purchased credit-impaired loans, the difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the non-accretable discount. The non-accretable discount includes estimated future credit losses expected to be incurred over the life of the loan. Subsequent decreases to the expected cash flows will require the Corporation to evaluate the need for an additional allowance for credit losses. Subsequent improvement in expected cash flows will result in the reversal of a corresponding amount of the non-accretable discount which the Corporation will then reclassify as accretable discount that will be recognized into interest income over the remaining life of the loan.
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The Corporation accounts for performing loans acquired in business combinations using the contractual cash flows method of recognizing discount accretion based on the acquired loans’ contractual cash flows. Purchased performing loans are recorded at fair value, including credit, interest, and liquidity discounts. The fair value discount is accreted as an adjustment to yield over the estimated lives of the loans. There is no allowance for loan losses established at the acquisition date for purchased performing loans. A provision for loan losses is recorded for any further deterioration in these loans subsequent to the acquisition. See Note 2 for additional information on the Corporation's acquisitions.
Investment Securities
Securities are classified as held to maturity, available for sale, or equity on the consolidated balance sheets at the time of purchase. Investment securities classified as held to maturity, which management has the positive intent and ability to hold to maturity, are reported at amortized cost. Investment securities classified as available for sale, which management has the intent and ability to hold for an indefinite period of time, but not necessarily to maturity, are carried at fair value, with unrealized gains and losses, net of related deferred income taxes, included in stockholders’ equity as a separate component of OCI. Investment securities classified as equity securities are carried at fair value with changes in fair value immediately reflected in the consolidated statements of income. Any decision to sell investment securities available for sale would be based on various factors, including, but not limited to, asset / liability management strategies, changes in interest rates or prepayment risks, liquidity needs, or regulatory capital considerations. Realized gains or losses on investment security sales (using specific identification method) are included in investment securities gains (losses), net, on the consolidated statements of income. Premiums and discounts are amortized or accreted into interest income over the estimated life (earlier of call date, maturity, or estimated life) of the related security, using a prospective method that approximates level yield.
In certain situations, management may elect to transfer certain investment securities from the available for sale classification to the held to maturity classification. In such cases, the investment securities are reclassified at fair value at the time of transfer. Any unrealized gain or loss included in accumulated other comprehensive income (loss) at the time of transfer is retained therein and amortized over the remaining life of the investment security as an adjustment to yield.
Declines in the fair value of investment securities (with certain exceptions for debt securities noted below) that are deemed to be other-than-temporary are charged to earnings as a realized loss, and a new cost basis for the investment security is established. In evaluating other-than-temporary impairment, management considers the length of time and extent to which the security has been in an unrealized loss position, changes in security ratings, the financial condition and near-term prospects of the issuer, as well as security and industry specific economic conditions. In addition, the Corporation considers the intent and ability to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value in the near term. Declines in the fair value of debt securities below amortized cost are deemed to be other-than-temporary in circumstances where: (1) the Corporation has the intent to sell a security; (2) it is more likely than not that the Corporation will be required to sell the security before recovery of its amortized cost basis; or (3) the Corporation does not expect to recover the entire amortized cost basis of the security. If the Corporation intends to sell a security or if it is more likely than not that the Corporation will be required to sell the security before recovery, an other-than-temporary impairment write-down is recognized in earnings equal to the difference between the security’s amortized cost basis and its fair value. If an entity does not intend to sell the security or it is more likely than not that it will not be required to sell the security before recovery, the other-than-temporary impairment write-down is separated into an amount representing credit loss, which is recognized in earnings, and an amount related to all other factors, which is recognized in OCI. Declines in value determined to be other-than-temporary are included in investment securities gains (losses), net, on the consolidated statements of income. See Note 3 for additional information on investment securities.
FHLB and Federal Reserve Bank Stocks
The Corporation is required to maintain Federal Reserve 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. See Note 3 for additional information on the FHLB and Federal Reserve Bank Stocks.
Loans Held for Sale
Residential Loans Held for Sale: Loans held for sale, which consist generally of current production of certain fixed-rate, first-lien residential mortgage loans, are carried at estimated fair value. As a result of holding these loans at fair value, changes in the secondary market is reflected in earnings immediately, as opposed to being dependent upon the timing of sales. The estimated fair value is based on what secondary markets are currently offering for portfolios with similar characteristics.
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Commercial Loans Held for Sale: Loans held for sale are carried at the lower of cost or estimated fair value. The estimated fair value is based on a discounted cash flow analysis.
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal balances, net of any deferred fees and costs on originated loans. Origination fee income received on loans and amounts representing the estimated direct costs of origination are deferred and amortized to interest income over the life of the loan using the effective interest method. An allowance for loan losses is established for estimated credit losses in the loan portfolio. See Allowance for Loan Losses below for further policy discussion. See also Note 4 for additional information on loans.
Nonaccrual Loans: Management considers a loan to be impaired when it is probable that the Corporation will be unable to collect all amounts due according to the original contractual terms of the note agreement, including both principal and interest. This determination is based on management's review of current information and other events regarding the borrowers’ ability to repay their obligations. Management has determined that commercial and consumer loan relationships that have nonaccrual status or have had their terms restructured in a troubled debt restructuring meet this impaired loan definition.
Interest income on loans is based on the principal balance outstanding computed using the effective interest method. The accrual of interest income for commercial loans is discontinued when there is a clear indication that the borrower’s cash flow may not be sufficient to meet payments as they become due, while the accrual of interest income for consumer loans is discontinued when loans reach specific delinquency levels. Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are generally placed on nonaccrual status when contractually past due 90 days or more as to interest or principal payments, unless the loan is well secured and in the process of collection. Additionally, whenever management becomes aware of facts or circumstances that may adversely impact the collectability of principal or interest on loans, it is management’s practice to place such loans on a nonaccrual status immediately, rather than delaying such action until the loans become 90 days past due. When a loan is placed on nonaccrual status, previously accrued and uncollected interest is reversed, amortization of related deferred loan fees or costs is suspended, and income is recorded only to the extent that interest payments are subsequently received in cash and a determination has been made that the principal and interest of the loan is collectible. If collectability of the principal and interest is in doubt, payments received are applied to loan principal.
While a loan is in nonaccrual status, some or all of the cash interest payments received may be treated as interest income on a cash basis as long as the remaining recorded investment in the loan (i.e., after charge off of identified losses, if any) is deemed to be fully collectible. The determination as to the ultimate collectability of the loan's remaining recorded investment must be supported by a current, well documented credit evaluation of the borrower’s financial condition and prospects for repayment, including consideration of the borrower’s sustained historical repayment performance and other relevant factors. A nonaccrual loan is returned to accrual status when all delinquent principal and interest payments become current in accordance with the terms of the loan agreement, the borrower has demonstrated a period of sustained repayment performance, and the ultimate collectability of the total contractual principal and interest is no longer in doubt. A sustained period of repayment performance generally would be a minimum of six months. See Note 4 for additional information on loans.
Troubled Debt Restructurings (“Restructured Loans”): Loans are considered restructured loans if concessions have been granted to borrowers that are experiencing financial difficulty. The concessions granted generally involve the modification of terms of the loan, such as changes in payment schedule or interest rate, which generally would not otherwise be considered. Restructured loans can involve loans remaining on nonaccrual, moving to nonaccrual, or continuing on accrual status, depending on the individual facts and circumstances of the borrower. Nonaccrual restructured loans are included and treated with all other nonaccrual loans. In addition, all accruing restructured loans are reported as troubled debt restructurings, which are considered and accounted for as impaired loans. Generally, restructured loans remain on nonaccrual until the customer has attained a sustained period of repayment performance under the modified loan terms (generally a minimum of six months). However, performance prior to the restructuring, or significant events that coincide with the restructuring, are considered in assessing whether the borrower can meet the new terms and whether the loan should be returned to or maintained on accrual status. If the borrower’s ability to meet the revised payment schedule is not reasonably assured, the loan remains on nonaccrual status. See Note 4 for additional information on restructured loans.
Allowance for Loan Losses: The allowance for loan losses is a reserve for estimated credit losses on individually evaluated loans determined to be impaired as well as estimated credit losses inherent in the loan portfolio, and is based on quarterly evaluations of the collectability and historical loss experience of loans. Actual credit losses, net of recoveries, are deducted from the allowance for loan losses. A provision for loan losses, which is a charge against earnings, is recorded to bring the allowance for loan losses to a level that, in management’s judgment, is appropriate to absorb probable losses in the loan portfolio.
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The methodology applied by the Corporation, designed to assess the appropriateness of the allowance for loan losses, is based upon management’s ongoing review and grading of the loan portfolio into criticized loan categories (defined as specific loans warranting either specific allocation, or a criticized status of special mention, substandard, doubtful, or loss). The methodology also 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, consideration of historical loan 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, the fair value of underlying collateral, and other qualitative and quantitative factors which could affect potential credit losses. Because each of the criteria used is subject to change, the analysis of the allowance for loan losses is not necessarily indicative of the trend of future loan losses in any particular loan category. The total allowance for loan losses is available to absorb losses from any segment of the loan portfolio.
When an individual loan is determined to be impaired, the allowance for loan losses attributable to the loan is allocated based on management’s estimate of the borrower’s ability to repay the loan given the availability of collateral, other sources of cash flows, as well as evaluation of legal options available to the Corporation. The amount of impairment is measured based upon the present value of expected future cash flows discounted at the loan’s effective interest rate, the fair value of the underlying collateral less applicable selling costs, or the observable market price of the loan. If foreclosure is probable or the loan is collateral dependent, impairment is measured using the fair value of the loan’s collateral, less costs to sell. Large groups of homogeneous loans, such as residential mortgage, home equity, and other consumer, are collectively evaluated for impairment.
Management believes that the level of the allowance for loan losses is appropriate. While management uses currently available information to recognize losses on loans, future adjustments to the allowance for loan losses may be necessary based on newly received appraisals, updated commercial customer financial statements, rapidly deteriorating cash flow, and changes in economic conditions that affect our customers. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Corporation’s allowance for loan losses. Such agencies may require additions to the allowance for loan losses or may require that certain loan balances be charged off or downgraded into criticized loan categories when their credit evaluations differ from those of management based on their judgments about information available to them at the time of their examinations. See Loans above for further policy discussion and see Note 4 for additional information on the allowance for loan losses.
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 as well as property originally acquired for future expansion but no longer intended to be used for that purpose. 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.
Allowance for Unfunded Commitments
The allowance for unfunded commitments is maintained at a level believed by management to be sufficient to absorb estimated probable losses related to unfunded credit facilities (including unfunded loan commitments and letters of credit) and is included in accrued expenses and other liabilities on the consolidated balance sheets. The determination of the appropriate level of the allowance for unfunded commitments is based upon an evaluation of the unfunded credit facilities, including an assessment of historical commitment utilization experience and credit risk grading of the loan. Net adjustments to the allowance for unfunded commitments are included in the provision for credit losses on the consolidated statements of income. See Note 4 and Note 16 for additional information on the allowance for unfunded commitments.
Premises and Equipment and Software
Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed on the straight-line method over the estimated useful lives of the related assets or the lease term. Maintenance and repairs are charged to expense as incurred, while additions or major improvements are capitalized and depreciated over the estimated useful lives. Leasehold improvements are amortized on a straight-line basis over the lesser of the lease terms, including extension options which the Corporation has determined are reasonably certain to be exercised, or the estimated useful lives of the improvements. Software, included in other assets on the consolidated balance sheets, is amortized on a
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straight-line basis over the lesser of the contract terms or the estimated useful life of the software. See Note 6 for additional information on premises and equipment.
Leases
The Corporation determines if a lease is present at the inception of an agreement. Operating leases are capitalized at commencement and are discounted using the Corporation’s FHLB borrowing rate for a similar term borrowing unless the lease defines an implicit rate within the contract. Leases with original terms of less than 12 months are not capitalized. For operating leases existing prior to January 1, 2019, the rate for the remaining lease term as of January 1, 2019 was used.
Right-of-use assets represent the Corporation’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease right-of-use assets and operating lease liabilities are recognized on the lease commencement date based on the present value of lease payments over the lease term. No significant judgments or assumptions were involved in developing the estimated operating lease liabilities as the Corporation’s operating lease liabilities largely represent future rental expenses associated with operating leases and the borrowing rates are based on publicly available interest rates.
The lease term includes options to extend or terminate the lease. These options to extend or terminate are assessed on a lease-by-lease basis and adjustments are made to the right-of-use asset and lease liability if the Corporation is reasonably certain that an option will be exercised and will be expensed on a straight-line basis. Operating and finance leases are included within premises and equipment, net and other assets, respectively, on the consolidated balance sheets. See Note 7 for additional information on leases.
Goodwill and Intangible Assets
Goodwill and Other Intangible Assets: The excess of the cost of an acquisition over the fair value of the net assets acquired consists primarily of goodwill, core deposit intangibles, and other identifiable intangibles (primarily related to customer relationships acquired). Core deposit intangibles have estimated finite lives and are amortized on a straight-line basis to expense over a 10-year period. The other intangibles have estimated finite lives and are amortized on a straight-line basis over their expected useful life. The Corporation reviews long-lived assets and certain identifiable intangibles for impairment at least annually, or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, in which case an impairment charge would be recorded.
Goodwill is not amortized but, instead, is subject to impairment tests on at least an annual basis, and more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The impairment testing process is conducted by assigning net assets and goodwill to each reporting unit. An initial qualitative evaluation is made to assess the likelihood of impairment and determine whether further quantitative testing to calculate the fair value is necessary. When the qualitative evaluation indicates that impairment is more likely than not, quantitative testing is required whereby the fair value of each reporting unit is calculated and compared to the recorded book value, “step one.” If the calculated fair value of the reporting unit exceeds its carrying value, goodwill is not considered impaired and “step two” is not considered necessary. If the carrying value of a reporting unit exceeds its calculated fair value, the impairment test continues (“step two”) by comparing the carrying value of the reporting unit’s goodwill to the implied fair value of goodwill. The implied fair value is computed by adjusting all assets and liabilities of the reporting unit to current fair value with the offset adjustment to goodwill. The adjusted goodwill balance is the implied fair value of the goodwill. An impairment charge is recognized if the carrying value of goodwill exceeds the implied fair value of goodwill. See Note 5 for additional information on goodwill and other intangible assets.
Mortgage Servicing Rights: The Corporation sells residential mortgage loans in the secondary market and typically retains the right to service the loans sold. Upon sale, an MSRs asset is capitalized, which represents the then current fair value of future net cash flows expected to be realized for performing servicing activities. MSRs, when purchased, are initially recorded at fair value. As the Corporation has not elected to subsequently measure any class of servicing assets under the fair value measurement method, the Corporation follows the amortization method. MSRs are amortized in proportion to and over the period of estimated net servicing income, and assessed for impairment at each reporting date. MSRs are carried at the lower of the initial capitalized amount, net of accumulated amortization, or estimated fair value, and included in other intangible assets, net, on the consolidated balance sheets.
The Corporation periodically evaluates its MSRs asset for impairment. Impairment is assessed based on fair value at each reporting date using estimated prepayment speeds of the underlying mortgage loans serviced and stratifications based on the risk characteristics of the underlying loans (predominantly loan type and note interest rate). As mortgage interest rates fall, prepayment speeds are usually faster and the value of the MSRs asset generally decreases, requiring additional valuation
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reserve. Conversely, as mortgage interest rates rise, prepayment speeds are usually slower and the value of the MSRs asset generally increases, requiring less valuation reserve. A valuation allowance is established, through a charge to earnings, to the extent the amortized cost of the MSRs exceeds the estimated fair value by stratification. If it is later determined that all or a portion of the temporary impairment no longer exists for a stratification, the valuation is reduced through a recovery to earnings. An other-than-temporary impairment (i.e., recoverability is considered remote when considering interest rates and loan pay off activity) is recognized as a write-down of the MSRs asset and the related valuation allowance (to the extent a valuation allowance is available) and then against earnings. A direct write-down permanently reduces the carrying value of the MSRs asset and valuation allowance, precluding subsequent recoveries. See Note 5 for additional information on MSRs.
Income Taxes
Amounts provided for income tax expense are based on income reported for financial statement purposes and do not necessarily represent amounts currently payable under tax laws. Deferred income taxes, which arise principally from temporary differences between the amounts reported in the financial statements and the tax bases of assets and liabilities, are included in the amounts provided for income taxes. In assessing the realizability of DTAs, management considers whether it is more likely than not that some portion or all of the DTAs will not be realized. The ultimate realization of DTAs is dependent upon the generation of future taxable income and tax planning strategies which will create taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, the amount of taxes paid in available carryback years, projected future taxable income, and, if necessary, tax planning strategies in making this assessment.
The Corporation files a consolidated federal income tax return and separate or combined state income tax returns. Accordingly, amounts equal to tax benefits of those subsidiaries having taxable federal or state losses or credits are offset by other subsidiaries that incur federal or state tax liabilities.
It is the Corporation’s policy to provide for uncertainty in income taxes as a part of income tax expense based upon management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. At December 31, 2019 and 2018, the Corporation believes it has appropriately accounted for any unrecognized tax benefits. To the extent the Corporation prevails in matters for which a liability for an unrecognized tax benefit was established or is required to pay amounts in excess of the liability established, the Corporation’s effective tax rate in a given financial statement period may be impacted. See Note 13 for additional information on income taxes.
Derivative and Hedging Activities
Derivative instruments, including derivative instruments embedded in other contracts, are carried at fair value on the consolidated balance sheets with changes in the fair value recorded to earnings or accumulated other comprehensive income, as appropriate. On the date the derivative contract is entered into, the Corporation designates the derivative as a fair value hedge (i.e., a hedge of the fair value of a recognized asset or liability), a cash flow hedge (i.e., a hedge of the variability of cash flows to be received or paid related to a recognized asset or liability), or a free-standing derivative instrument. For a derivative designated as a fair value hedge, the changes in the fair value of the derivative instrument and the changes in the fair value of the hedged asset or liability are recognized in current period earnings as an increase or decrease to the carrying value of the hedged item on the balance sheet and in the related income statement account. Amounts within accumulated other comprehensive income are reclassified into earnings in the period the hedged item affects earnings. For a derivative designated as a free-standing derivative instrument, changes in fair value are reported in current period earnings. The free-standing derivative instruments included: interest rate risk management, commodity hedging, and foreign currency exchange solutions.
The Corporation is exposed to counterparty credit risk, which is the risk that counterparties to the derivative contracts do not perform as expected. If a counterparty fails to perform, our counterparty credit risk is equal to the amount reported as a derivative asset on our balance sheet. The Corporation uses master netting arrangements to mitigate counterparty credit risk in derivative transactions. To the extent the derivatives are subject to master netting arrangements, the Corporation takes into account the impact of master netting arrangements that allow the Corporation to settle all derivative contracts executed with the same counterparty on a net basis, and to offset the net derivative position with the related cash collateral. In the third quarter of 2019, the Corporation elected to offset derivative transactions with the same counterparty on the consolidated balance sheets when a derivative transaction has a legally enforceable master netting arrangement and when it is eligible for netting. Derivative balances and related cash collateral are presented net on the consolidated balance sheets. Refer to Change in Accounting Policy section within this note for additional discussion.
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Securities Sold Under Agreement to Repurchase
The Corporation enters into agreements under which it sells securities subject to an obligation to repurchase the same or similar securities. Under these arrangements, the Corporation may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates the Corporation to repurchase the assets. These repurchase agreements are accounted for as collateralized financing arrangements (i.e., secured borrowings whereby the collateral would be used to settle the fair value of the repurchase agreement should the Corporation be in default (e.g., fails to make an interest payment to the counterparty)) and not as a sale and subsequent repurchase of securities (i.e., there is no offsetting or netting of the investment securities assets with the repurchase agreement liabilities). The obligation to repurchase the securities is reflected as a liability within federal funds purchased and securities sold under agreements to repurchase on the Corporation’s consolidated balance sheets, while the securities underlying the repurchase agreements remain in the respective investment securities asset accounts. See Notes 9 and 15 for additional information on repurchase agreements.
Retirement Plans
The funded status of the retirement plans is recognized as an asset or liability on the consolidated balance sheets and changes in that funded status are recognized in the year in which the changes occur through OCI. Plan assets and benefit obligations are measured as of fiscal year end. The measurement of the projected benefit obligation and pension expense involve actuarial valuation methods and the use of various actuarial and economic assumptions. The Corporation monitors the assumptions and updates them periodically. Due to the long-term nature of the pension plan obligation, actual results may differ significantly from estimations. Such differences are adjusted over time as the assumptions are replaced by facts and values are recalculated. See Note 12 for additional information on the Corporation’s retirement plans.
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 common stock awards is their fair market value on the date of grant. 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 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. 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. See Note 11 for additional information on stock-based compensation.
Comprehensive Income
Comprehensive income includes all changes in stockholders’ equity during a period, except those resulting from transactions with stockholders. In addition to net income, other components of the Corporation’s comprehensive income include the after tax effect of changes in net unrealized gain / loss on securities available for sale and changes in net actuarial gain / loss on defined benefit postretirement plans. Comprehensive income is reported on the accompanying consolidated statements of changes in stockholder’s equity and consolidated statements of comprehensive income. See Note 22 for additional information on accumulated other comprehensive income (loss).
Fair Value Measurements
Fair value represents the estimated price at which an orderly transaction to sell an asset or to transfer a liability would take place between market participants at the measurement date under current market conditions (i.e., an exit price concept). As there is no active market for many of the Corporation’s financial instruments, estimates are made using discounted cash flow or other valuation techniques. Inputs into the valuation methods are subjective in nature, involve uncertainties, and require significant judgment and therefore cannot be determined with precision. Accordingly, the derived fair value estimates presented herein are not necessarily indicative of the amounts the Corporation could realize in a current market exchange. Assets and liabilities are categorized into three levels based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy in which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Corporation’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. See Note 18 for additional information on fair value measurements. Below is a brief description of each fair value level.
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Level 1 — Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Corporation has the ability to access.
Level 2 — Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals.
Level 3 — Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity.
Cash, Cash Equivalents, and Restricted Cash
For purposes of the consolidated statements of cash flows, cash, cash equivalents, and restricted cash are considered to include cash and due from banks, interest-bearing deposits in other financial institutions, federal funds sold and securities purchased under agreements to resell.
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) and common stock warrants. See Note 20 for additional information on earnings per common share.
Change in Accounting Policy
The Corporation enters into ISDA master netting agreements with a portion of the Corporation’s derivative counterparties. Where legally enforceable, these master netting agreements give the Corporation, in the event of default by the counterparty, the right to liquidate securities and offset cash with the same counterparty. Under ASC 815-10-45-5, payables and receivables in respect of cash collateral received from or paid to a given counterparty can be offset against derivative fair values under a master netting arrangement. GAAP does not permit similar offsetting for security collateral. Prior to the third quarter of 2019, the Corporation elected to account for all derivatives’ fair values and related cash collateral on a gross basis on its consolidated balance sheets. In the third quarter of 2019, the Corporation elected to offset derivative assets and liabilities and cash collateral with the same counterparty where it has a legally enforceable master netting agreement in place. The change had no impact on either earnings or equity. The Corporation believes that this change is a preferable method of accounting as it provides a better reflection of the assets and liabilities on the face of the consolidated balance sheets. Adoption of this change is voluntary and has been adopted retrospectively with all prior periods presented herein being revised for comparability and as required. A reduction of $33 million was reflected between other assets as well as accrued expenses and other liabilities as of December 31, 2018 on the consolidated balance sheets.

Change in Accounting Estimate

During the third quarter of 2019, the Corporation reassessed its estimate of the useful lives of certain fixed assets. The Corporation revised its original useful life estimate from 7 years to 12 years for furniture assets. This is considered a change in accounting estimate, per ASC 250-10, where adjustments should be made prospectively. The impact of this change in accounting estimate for the year ended December 31, 2019 to net income on the consolidated statements of income and premises and equipment, net on the consolidated balance sheets was approximately $915,000.

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Recently Issued Authoritative Accounting Guidance
Standard Description Date of adoption Effect on financial statements
ASU 2019-07
Codification Updates to SEC Sections-Amendments to SEC Paragraphs Pursuant to SEC Final Releases No. 33-10532, Disclosure Updates and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization, and Miscellaneous Updates
The FASB issued this amendment to align the guidance in various SEC sections of the Codification with the requirements of certain SEC final rules. This amendment became effective upon issuance. 3rd Quarter 2019 No material impact on results of operations, financial position and liquidity.
ASU 2019-04
Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments
The FASB issued this amendment to clarify certain aspects of accounting for credit losses, hedging activities, and financial instruments. Within ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, the amendment allows an entity to designate partial-term fair value hedges of interest rate risk and measure the hedged item by using an assumed maturity, clarifies that an entity can start to amortize the hedged items basis adjustment in a fair value hedge, and it requires entities to disclose for fair value hedging relationships the carrying amounts of hedged assets and liabilities and the cumulative amount of fair value hedge basis adjustments. In addition, it permits a one-time election to reclassify securities that could be used in a hedge from held to maturity to available for sale without risk of tainting the remainder of the held to maturity portfolio. For entities that have adopted the amendments in Update 2017-12 as of the issuance date of this Update, the effective date is as of the beginning of the first annual period beginning after the issuance date of this Update. For those entities, early adoption was permitted, including adoption on any date on or after the issuance of this Update. 3rd Quarter 2019 During the third quarter 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.
ASU-2018-15 Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract The FASB issued an amendment which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amendments in this Update require an entity (customer) in a hosting arrangement that is a service contract to follow the guidance in Subtopic 350-40 to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The amendments also require the entity (customer) to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. The amendment is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Entities were required to apply the amendment either retrospectively or prospectively to all implementation costs incurred after the date of adoption. Early adoption was permitted. 1st Quarter 2019 The Corporation elected to early adopt this amendment using the prospective approach. No material impact on results of operation, financial position or liquidity.
ASU 2018-09 Codification Improvements The FASB issued an amendment which affects a wide variety of Topics in the Codification. The amendments apply to all reporting entities within the scope of the affected accounting guidance. The amendments in this Update represent changes to clarify, correct errors in, or make minor improvements to the Codification. The amendments make the Codification easier to understand and easier to apply by eliminating inconsistencies and providing clarifications. The transition and effective date guidance is based on the facts and circumstances of each amendment. Some of the amendments in this Update did not require transition guidance and were effective upon issuance of this Update. However, many of the amendments in this Update did have transition guidance with effective dates for annual periods beginning after December 15, 2018. There are some conforming amendments in this Update that have been made to recently issued guidance that is not yet effective that may require application of the transition and effective date guidance in the original ASU. 1st Quarter 2019 No material impact on results of operations, financial position and liquidity.
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Standard Description Date of adoption Effect on financial statements
ASU 2016-02 Leases (Topic 842) The FASB issued an amendment to provide transparency and comparability among organizations by recognizing lease assets and lease liabilities on the consolidated balance sheets and disclosing key information about leasing arrangements. This amendment required lessees to recognize the following for all leases (with the exception of short-term leases) at the commencement date: 1) a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis; and 2) a right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. This amendment was effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Entities are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities could elect to apply. These practical expedients relate to the identification and classification of leases that commenced before the effective date, initial direct costs for leases that commenced before the effective date, and the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset. Early adoption was permitted. ASU 2018-01 permits an entity to elect an optional transition practical expedient to not evaluate under Topic 842 land easements that exist or expired before the entity's adoption of Topic 842. ASU 2018-10 was issued as improvements and clarifications of ASU 2016-02 were identified. This Update provides clarification on narrow aspects of the previously issued Updates. ASU 2018-11 was issued to provide entities with an additional (and optional) transition method to adopt the new leases standard under ASU 2016-02. ASU 2019-01 was issued to assist in determining the fair value of underlying assets by lessors, address the presentation to the statements of cash flows, and clarify transition disclosures related to Topic 250. 1st Quarter 2019 The Corporation has adopted this amendment utilizing a modified retrospective approach. At adoption, a right-of-use asset and corresponding lease liability were recognized on the consolidated balance sheets for $52 million and $56 million, respectively. See Note 7 for expanded disclosure requirements.

Future Accounting Pronouncements
The expected impact of accounting pronouncements recently issued or proposed but not yet required to be adopted are discussed in the table below. To the extent that the adoption of new accounting standards materially affect the Corporation’s financial condition, results of operations, or liquidity, the impacts are discussed in the applicable sections of this financial review.
Standard Description Date of anticipated 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 allowance for credit losses. 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 is 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 provides entities alternatives for measurement of accrued interest receivable, clarifies 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 2019-11 was issued to clarify and address stakeholders' specific issues relating to expected recoveries on purchased credit deteriorated assets and transition and disclosure relief related to troubled debt restructured loans and accrued interest, respectively. Early adoption is permitted. 1st Quarter 2020 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 other key methodology assumptions. Those assumptions are based upon the existing probability of default and loss given default framework. In addition, analysis derived from the Corporation's stress testing processes have been leveraged in the development of CECL models. The Corporation will utilize a single economic forecast over a 2-year reasonable and supportable forecast period. In the second year the Corporation will use straight-line reversion to historical losses. The Corporation's cross functional team will periodically refine the model as needed. The Corporation expects to incur a $70 to $80 million after-tax charge which will decrease the opening stockholders' equity balance as of January 1, 2020. A majority of the increase is the result of economic uncertainty and unfunded commitments. The total estimated impact equates to a 21 to 24 basis point decrease to the tangible common equity ratio. The Corporation anticipates increases in the allowance for credit losses on longer dated portfolios and decreases in the shorter dated portfolios. The Corporation is in the process of finalizing the review of the most recent model run and finalizing assumptions including qualitative adjustments, probable troubled debt restructurings, and economic forecasts.

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Standard Description Date of anticipated adoption Effect on financial statements
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 is 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. Early adoption is permitted. 1st Quarter 2020 Upon adoption, the Corporation will have a slight change in presentation, and an immaterial impact to its results of operations, financial position, and liquidity.
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 is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Entities should apply the amendment prospectively. Early adoption is permitted, including in an interim period, for impairment tests performed after January 1, 2017. 2nd Quarter 2020, consistent with the Corporation's annual impairment test in May of each year The Corporation is currently evaluating the impact on its results of operations, financial position, and liquidity. The Corporation has not had to perform a step one quantitative analysis since 2012, which concluded no impairment was necessary.
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 2019-12
Income Taxes (Topic 740)-Simplifying the Accounting for Income Taxes
The FASB issued this amendment to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendment also improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption of the amendments is permitted. 1st Quarter 2021 The Corporation is currently evaluating the impact on its results of operations, financial position and liquidity.

Note 2 Acquisitions
2019 Completed Acquisitions:
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 $210,000 during the third quarter of 2019. Upon review of information relating to events
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and circumstances existing at the acquisition date, and in accordance with applicable accounting guidance, the Corporation remeasured select previously reported fair value amounts. The adjustment to goodwill was driven by an update that decreased the fair value of furniture acquired. Goodwill created by the acquisition is tax deductible. See Note 5 for additional information on goodwill, as well as the carrying amount and amortization of core deposit intangible assets related to the Huntington branch acquisition.
The following table presents the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date related to Huntington branch acquisition:
 ($ 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   
Other real estate owned (included in other assets on the face of the Consolidated Balance Sheets) (2,561)   5,263   
Others assets $ —    559   
Total assets $ 725,764   
Liabilities
Deposits $ 156    $ 725,173   
Other liabilities $ 70    590   
Total liabilities $ 725,764   
For a description of the methods used to determine the fair value of significant assets and liabilities presented on the balance sheet above see Assumptions section of this Note.
2019 Pending Acquisitions:
On July 25, 2019, the Corporation entered into an agreement to acquire Illinois-based First Staunton for cash consideration of approximately $76 million. Regulatory approval for the transaction was received from the OCC on October 10, 2019. The transaction is subject to customary closing conditions, and is expected to close in February 2020.
2018 Completed Acquisitions:
Bank Mutual Acquisition
On February 1, 2018, the Corporation completed its acquisition of Bank Mutual in a stock transaction valued at approximately $482 million. Bank Mutual was a diversified financial services company headquartered in Milwaukee, Wisconsin. The merger resulted in a combined company with a larger market presence in markets the Corporation currently operates in, as well as expansion into nearly a dozen new markets.
Under the terms of the Agreement and Plan of Merger dated July 20, 2017 (the "Merger Agreement"), Bank Mutual’s shareholders received 0.422 shares of the Corporation's common stock for each share of Bank Mutual common stock. The Corporation issued approximately 19.5 million shares for a total deal value of approximately $482 million based on the closing sale price of a share of common stock of the Corporation on January 31, 2018. The banking subsidiary of Bank Mutual merged with and into Associated Bank, N.A. on June 24, 2018.
Goodwill related to the Bank Mutual acquisition increased $6 million during the second quarter of 2018 and an additional $2 million during the third quarter of 2018 to $175 million. Goodwill created by the acquisition of Bank Mutual is not tax deductible.
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The following table presents the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date related to Bank Mutual:
($ in Thousands) Purchase Accounting Adjustments February 1, 2018
Assets
Cash and cash equivalents $ —    $ 78,052   
Investment securities (6,238)   452,867   
Federal Home Loan Bank stock, at cost —    20,026   
Loans (48,043)   1,875,877   
Premises and equipment, net 2,930    42,689   
Bank owned life insurance (24)   65,390   
Goodwill 175,499   
Core deposit intangibles (included in other intangible assets, net on the face of the Consolidated Balance Sheets) 58,100    58,100   
Other real estate owned (included in other assets on the face of the Consolidated Balance Sheets) 199    4,848   
Others assets $ 7,054    47,158   
Total assets $ 2,820,506   
Liabilities
Deposits $ 2,498    $ 1,840,950   
Other borrowings 1,875    431,886   
Other liabilities $ 4,487    65,982   
Total liabilities $ 2,338,818   
Total consideration paid $ 481,688   
For a description of the methods used to determine the fair value of significant assets and liabilities presented on the balance sheet above see Assumptions section of this Note.
For loans acquired, the contractual amounts due, expected cash flows to be collected, interest component, and fair value as of the respective acquisition dates were as follows:
February 1, 2018
($ in Thousands) Acquired Performing Loans Acquired Impaired Loans Total
Contractual required principal and interest at acquisition $ 1,899,932    $ 23,988    $ 1,923,920   
Contractual cash flows not expected to be collected (nonaccretable discount) —    (1,866)   (1,866)  
Expected cash flows at acquisition 1,899,932    22,122    1,922,054   
Interest component of expected cash flows (accretable discount) (41,324)   (4,853)   (46,177)  
Fair value of acquired loans $ 1,858,608    $ 17,269    $ 1,875,877   
Assumptions:
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. Loans were grouped together according to similar characteristics when applying various valuation techniques.
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 are being amortized on a straight-line basis over 10 years.
Time deposits: The fair values 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 values 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.
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Note 3 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. See Note 1 for the Corporation’s accounting policy for investment securities. 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)(a)
$ 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)(a)
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   
(a) As permitted by ASU 2019-04, which was adopted during the third quarter of 2019, the Corporation made a one-time election during the third quarter of 2019 to transfer municipal securities with an amortized cost of $692 million from held to maturity to available for sale.


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The amortized cost and fair values of securities available for sale and held to maturity at December 31, 2018 were as follows:

($ in Thousands) Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
(Losses)
Fair Value
Investment securities available for sale
U.S. Treasury securities $ 1,000    $ —    $ (1)   $ 999   
Residential mortgage-related securities:
FNMA / FHLMC 296,296    2,466    (3,510)   295,252   
GNMA 2,169,943    473    (41,885)   2,128,531   
Private-label 1,007    —    (4)   1,003   
GNMA commercial mortgage-related securities 1,273,309    —    (52,512)   1,220,797   
FFELP asset-backed securities 297,347    711    (698)   297,360   
Other debt securities 3,000    —    —    3,000   
Total investment securities available for sale $ 4,041,902    $ 3,649    $ (98,610)   $ 3,946,941   
Investment securities held to maturity
Obligations of state and political subdivisions (municipal securities) $ 1,790,683    $ 8,255    $ (15,279)   $ 1,783,659   
Residential mortgage-related securities
FNMA / FHLMC 92,788    169    (1,795)   91,162   
GNMA 351,606    1,611    (8,181)   345,035   
GNMA commercial mortgage-related securities 505,434    7,559    (22,579)   490,414   
Total investment securities held to maturity $ 2,740,511    $ 17,593    $ (47,835)   $ 2,710,271   
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 December 31, 2019, 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 $ 2,795    $ 2,800    $ 29,033    $ 29,218   
Due after one year through five years 32,399    32,901    82,023    83,245   
Due after five years through ten years 317,292    326,361    136,138    140,704   
Due after ten years 180,422    187,098    1,172,373    1,235,077   
Total debt securities 532,908    549,160    1,419,568    1,488,245   
Residential mortgage-related securities
FNMA / FHLMC 131,158    132,660    81,676    83,420   
GNMA 982,941    985,139    269,523    270,296   
Commercial mortgage-related securities
FNMA / FHLMC 19,929    21,728    —    —   
GNMA 1,314,836    1,310,207    434,317    434,503   
FFELP asset-backed securities 270,178    263,693    —    —   
Total investment securities $ 3,251,950    $ 3,262,586    $ 2,205,083    $ 2,276,465   
Ratio of Fair Value to Amortized Cost 100.3  % 103.2  %






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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 and write-up of investment securities for each of the three years ended December 31 are shown below. There were no other-than-temporary impairment write-downs on investment securities for 2019, 2018, or 2017.
($ in Thousands) 2019 2018 2017
Gross gains on available for sale securities $ 6,374    $ 1,954    $ —   
Gross gains on held to maturity securities —    —    439   
Total gains 6,374    1,954    439   
Gross (losses) on available for sale securities (13,861)   (3,938)   —   
Gross (losses) on held to maturity securities —    —    (5)  
Total (losses) (13,861)   (3,938)   (5)  
Write-up of equity securities without readily determinable fair values 13,444    —    —   
Investment securities gains (losses), net $ 5,957    $ (1,985)   $ 434   
Proceeds from sales of investment securities $ 1,367,476    $ 601,130    $ 18,467   

During the third quarter 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 during the quarter. The Corporation sold shorter duration, lower yielding municipal securities that were included in the transfer for proceeds of $157 million at a gain of $3 million, with the proceeds being reinvested into longer duration, higher yielding held to maturity municipal securities. Additionally, during the first nine months of 2019, the Corporation sold $1.2 billion of taxable, floating rate ABS and shorter duration MBS, CMBS, and CMOs 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 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.
During 2018, the Corporation executed a strategy to improve the yield on securities and increase interest income during the current and future calendar years. During the third quarter of 2018, the Corporation sold mortgage-related securities totaling approximately $108 million at a slight gain with all proceeds reinvested into higher yielding securities. The tax equivalent yield of the securities sold was 3.08% while the reinvestment was at 3.51%. During the second quarter of 2018, the Corporation also sold $40 million of lower yielding GNMA commercial mortgage-related securities.
In addition, on February 1, 2018, the date the Bank Mutual acquisition was completed, the Corporation sold Bank Mutual's entire $453 million securities portfolio. The Corporation originally reinvested the proceeds from the Bank Mutual securities portfolio into GNMA residential mortgage-related securities with the goal of reinvesting future cash flows into municipal securities. That strategy was completed during August 2018.
During 2017, the Corporation sold approximately $18 million of municipal securities classified as held to maturity due to significant credit concerns and negative actions taken by credit rating agencies, primarily as a result of budgetary pressures in the State of Illinois and State of Connecticut. These sales resulted in a net gain of approximately $434,000.

Investment securities with a carrying value of approximately $2.6 billion and $3.0 billion at December 31, 2019 and December 31, 2018, respectively, were pledged to secure certain deposits or for other purposes as required or permitted by law.

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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 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)   $ (18)   1,225    —    $ —    $ —    $ (18)   $ 1,225   
Residential mortgage-related securities
FNMA / FHLMC —    —    —      (59)   34,807    (59)   34,807   
GNMA 18    (924)   322,394      (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      (393)   12,913    (6,485)   263,693   
Other debt securities   —    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      $ (13)   $ 2,378    $ (1,118)   $ 79,940   
Residential mortgage-related securities
FNMA / FHLMC   (6)   1,242      (9)   833    (15)   2,075   
GNMA 12    (1,059)   187,261      (49)   6,587    (1,108)   193,849   
GNMA commercial mortgage-related securities   (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   
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, 2018:
  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
U.S. Treasury securities —    $ —    $ —      $ (1)   $ 999    $ (1)   $ 999   
Residential mortgage-related securities
FNMA / FHLMC 15    (31)   17,993    17    (3,479)   189,405    (3,510)   207,398   
GNMA 12    (4,529)   452,183    79    (37,355)   1,598,159    (41,885)   2,050,342   
Private-label   (4)   1,003    —    —    —    (4)   1,003   
GNMA commercial mortgage-related securities —    —    —    93    (52,512)   1,220,854    (52,512)   1,220,854   
FFELP asset-backed securities 13    (698)   142,432    —    —    —    (698)   142,432   
Total 41    $ (5,262)   $ 613,612    190    $ (93,347)   $ 3,009,417    $ (98,610)   $ 3,623,028   
Investment securities held to maturity
Obligations of state and political subdivisions (municipal securities) 272    $ (2,860)   $ 313,212    752    $ (12,419)   $ 509,374    $ (15,279)   $ 822,586   
Residential mortgage-related securities
FNMA / FHLMC 13    (780)   57,896    22    (1,015)   28,888    (1,795)   86,784   
GNMA 13    (414)   19,822    66    (7,767)   320,387    (8,181)   340,209   
GNMA commercial mortgage-related securities —    —    —    25    (22,579)   490,414    (22,579)   490,414   
Total 298    $ (4,053)   $ 390,929    865    $ (43,780)   $ 1,349,063    $ (47,835)   $ 1,739,992   
The Corporation reviews the investment securities portfolio on a quarterly basis to monitor its exposure to other-than-temporary impairment. A determination as to whether a security’s decline in fair value is other-than-temporary 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 other-than-temporary impairment analysis include the length of time and extent to which the security has been in
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an unrealized loss position, changes in security ratings, financial condition and near-term prospects of the issuer, as well as security and industry specific economic conditions.
Based on the Corporation’s evaluation, management does not believe any unrealized loss at December 31, 2019 represents an other-than-temporary impairment as these unrealized losses are primarily attributable to changes in interest rates and the current market conditions, and not credit deterioration. The unrealized losses reported for municipal securities relate to various state and local political subdivisions and school districts. The unrealized losses at December 31, 2019 for mortgage-related securities have declined due to the decrease in overall interest rates. The U.S. Treasury 3 year and 5 year rates decreased by 84 bp and 82 bp, respectively, from December 31, 2018. 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 stock and FHLB stock as a member bank 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 December 31, 2019 and 2018, the Corporation had FHLB stock of $149 million and $173 million, respectively. The Corporation had Federal Reserve Bank stock of $78 million and $77 million at December 31, 2019 and 2018, respectively.
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 December 31, 2019 and 2018, 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 Visa Class B restricted shares that the Corporation received in 2008 as part of Visa's initial public offering. During the second quarter of 2019, the Corporation donated 42,039 shares of Visa Class B restricted shares to the Corporation's Charitable Remainder Trust, and the subsequent sale of those shares by the Trust resulted in an observable market price. As a result, the Corporation wrote up their remaining 77,000 Visa Class B restricted shares to fair value. Based on the existing transfer restriction and the uncertainty of the covered litigation, the Visa Class B restricted shares were previously carried at a zero cost basis. Thus, the Corporation had equity securities without readily determinable fair values of $13 million at December 31, 2019 and $0 at December 31, 2018.
Note 4 Loans
Loans at December 31 are summarized below:
($ in Thousands) 2019 2018
Commercial and industrial $ 7,354,594    $ 7,398,044   
Commercial real estate - owner occupied 911,265    920,443   
Commercial and business lending 8,265,858    8,318,487   
Commercial real estate - investor 3,794,517    3,751,554   
Real estate construction 1,420,900    1,335,031   
Commercial real estate lending 5,215,417    5,086,585   
Total commercial 13,481,275    13,405,072   
Residential mortgage 8,136,980    8,277,712   
Home equity 852,025    894,473   
Other consumer 351,159    363,171   
Total consumer 9,340,164    9,535,357   
Total loans(a)(b)
$ 22,821,440    $ 22,940,429   
(a) During the third quarter of 2019, the Corporation sold approximately $240 million of portfolio mortgages as well as $33 million of nonaccrual and performing restructured loans.
(b) Includes $2 million and $5 million of purchased credit-impaired loans at December 31, 2019 and December 31, 2018, respectively.
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The Corporation has granted loans to its directors, executive officers, or their related interests. These loans were made on substantially the same terms, including rates and collateral, as those prevailing at the time for comparable transactions with other unrelated customers, and do not involve more than a normal risk of collection. These loans to related parties are summarized below:
($ in Thousands) 2019 2018
Balance at beginning of year $ 17,831    $ 20,260   
New loans 3,673    3,076   
Repayments (8,053)   (5,017)  
Change due to status of executive officers and directors 3,320    (489)  
Balance at end of year $ 16,772    $ 17,831   
The following table presents commercial and consumer loans by credit quality indicator at December 31, 2019:
($ in Thousands) Pass Special Mention Potential Problem Nonaccrual Total
Commercial and industrial $ 7,118,448    $ 79,525    $ 110,308    $ 46,312    $ 7,354,594   
Commercial real estate - owner occupied 866,193    25,115    19,889    67    911,265   
Commercial and business lending 7,984,641    104,641    130,197    46,380    8,265,858   
Commercial real estate - investor 3,620,785    139,873    29,449    4,409    3,794,517   
Real estate construction 1,420,374    33    —    493    1,420,900   
Commercial real estate lending 5,041,159    139,906    29,449    4,902    5,215,417   
Total commercial 13,025,800    244,547    159,646    51,282    13,481,275   
Residential mortgage 8,077,122    563    1,451    57,844    8,136,980   
Home equity 841,757    1,164    —    9,104    852,025   
Other consumer 350,260    748    —    152    351,159   
Total consumer 9,269,139    2,475    1,451    67,099    9,340,164   
Total loans(a)
$ 22,294,939    $ 247,022    $ 161,097    $ 118,380    $ 22,821,440   
(a) During the third quarter of 2019, the Corporation sold approximately $240 million of portfolio mortgages. In addition, the Corporation sold $33 million of residential mortgages and home equity loans, of which $21 million were pass loans and $12 million were nonaccrual loans.

The following table presents commercial and consumer loans by credit quality indicator at December 31, 2018
($ in Thousands) Pass Special Mention Potential Problem Nonaccrual Total
Commercial and industrial $ 7,162,370    $ 78,075    $ 116,578    $ 41,021    $ 7,398,044   
Commercial real estate - owner occupied 854,265    6,257    55,964    3,957    920,443   
Commercial and business lending 8,016,635    84,332    172,542    44,978    8,318,487   
Commercial real estate - investor 3,653,642    28,479    67,481    1,952    3,751,554   
Real estate construction 1,321,447    8,771    3,834    979    1,335,031   
Commercial real estate lending 4,975,089    37,249    71,315    2,931    5,086,585   
Total commercial 12,991,724    121,582    243,856    47,909    13,405,072   
Residential mortgage 8,203,729    434    5,975    67,574    8,277,712   
Home equity 880,808    1,223    103    12,339    894,473   
Other consumer 362,343    749    —    79    363,171   
Total consumer 9,446,881    2,406    6,078    79,992    9,535,357   
Total loans $ 22,438,605    $ 123,988    $ 249,935    $ 127,901    $ 22,940,429   
Factors that are important to managing overall credit quality are sound loan underwriting and administration, systematic monitoring of existing loans and commitments, effective loan review on an ongoing basis, early identification of potential problems, an appropriate allowance for loan losses, allowance for unfunded commitments, nonaccrual, and charge off policies. See Note 1 for the Corporation's accounting policy for loans.
For commercial loans, management has determined the pass credit quality indicator to include credits that exhibit acceptable financial statements, cash flow, and leverage. If any risk exists, it is mitigated by the loan structure, collateral, monitoring, or control. For consumer loans, performing loans include credits performing in accordance with the original contractual terms. Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Special mention credits have potential weaknesses that deserve management’s attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the credit. Potential problem loans are considered inadequately protected by the current net worth and paying capacity of the obligor or the collateral pledged. These
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loans generally have a well-defined weakness, or weaknesses, which may jeopardize liquidation of the debt, and are characterized by the distinct possibility that the Corporation will sustain some loss if the deficiencies are not corrected. Lastly, management considers a loan to be impaired when it is probable that the Corporation will be unable to collect all amounts due according to the original contractual terms of the note agreement, including both principal and interest. Management has determined that commercial and consumer loan relationships in nonaccrual status or those with their terms restructured in a troubled debt restructuring meet this impaired loan definition. Commercial loans classified as special mention, potential problem, and nonaccrual are reviewed at a minimum on a quarterly basis, while pass and performing rated credits are reviewed on an annual basis or more frequently if the loan renewal is less than one year or if otherwise warranted.
The following table presents loans by past due status at December 31, 2019:
($ in Thousands) Current 30-59 Days
Past Due
60-89 Days
Past Due
90 Days or More
Past Due and Still Accruing
Nonaccrual(a)
Total
Commercial and industrial $ 7,307,118    $ 576    $ 245    $ 342    $ 46,312    $ 7,354,594   
Commercial real estate - owner occupied 909,828    1,369    —    —    67    911,265   
Commercial and business lending 8,216,947    1,945    245    342    46,380    8,265,858   
Commercial real estate - investor 3,788,296    1,812    —    —    4,409    3,794,517   
Real estate construction 1,420,310    64    33    —    493    1,420,900   
Commercial real estate lending 5,208,606    1,876    33    —    4,902    5,215,417   
Total commercial 13,425,552    3,821    278    342    51,282    13,481,275   
Residential mortgage 8,069,863    8,749    525    —    57,844    8,136,980   
Home equity 837,274    4,483    1,164    —    9,104    852,025   
Other consumer 347,007    1,135    949    1,917    152    351,159   
Total consumer 9,254,144    14,366    2,638    1,917    67,099    9,340,164   
Total loans(b)
$ 22,679,696    $ 18,188    $ 2,916    $ 2,259    $ 118,380    $ 22,821,440   
(a) Of the total nonaccrual loans, $48 million, or 41%, were current with respect to payment at December 31, 2019.
(b) During the third quarter of 2019, the Corporation sold approximately $240 million of portfolio mortgages. In addition, the Corporation sold $33 million of residential mortgages and home equity loans, of which $21 million were accruing current loans, $12 million were nonaccrual loans, and approximately $200,000 were 30-89 days past due accruing loans.
The following table presents loans by past due status at December 31, 2018:
($ in Thousands) Current 30-59 Days
Past Due
60-89 Days
Past Due
90 Days or More
Past Due and Still Accruing
Nonaccrual(a)
Total
Commercial and industrial $ 7,356,187    $ 187    $ 338    $ 311    $ 41,021    $ 7,398,044   
Commercial real estate - owner occupied 913,787    2,580    119    —    3,957    920,443   
Commercial and business lending 8,269,974    2,767    457    311    44,978    8,318,487   
Commercial real estate - investor 3,745,835    2,954    813    —    1,952    3,751,554   
Real estate construction 1,333,722    330    —    —    979    1,335,031   
Commercial real estate lending 5,079,557    3,284    813    —    2,931    5,086,585   
Total commercial 13,349,531    6,051    1,270    311    47,909    13,405,072   
Residential mortgage 8,200,432    9,272    434    —    67,574    8,277,712   
Home equity 876,085    4,826    1,223    —    12,339    894,473   
Other consumer 358,970    1,401    868    1,853    79    363,171   
Total consumer 9,435,487    15,499    2,525    1,853    79,992    9,535,357   
Total loans $ 22,785,019    $ 21,550    $ 3,795    $ 2,165    $ 127,901    $ 22,940,429   
(a) Of the total nonaccrual loans, $74 million, or 58%, were current with respect to payment at December 31, 2018.
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The following table presents impaired loans individually evaluated under ASC Topic 310, excluding $2 million of purchased credit-impaired loans, at December 31, 2019:
($ in Thousands) Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
Loans with a related allowance
Commercial and industrial $ 47,249    $ 63,346    $ 12,010    $ 45,290    $ 1,832   
Commercial real estate - owner occupied 1,676    1,682    19    1,774    88   
Commercial and business lending 48,924    65,028    12,029    47,064    1,919   
Commercial real estate - investor 928    2,104    15    950    15   
Real estate construction 477    559    67    494    30   
Commercial real estate lending 1,405    2,663    82    1,445    45   
Total commercial 50,329    67,691    12,111    48,509    1,965   
Residential mortgage 21,450    22,625    2,740    23,721    856   
Home equity 3,076    3,468    1,190    3,756    191   
Other consumer 1,247    1,249    125    1,250     
Total consumer 25,773    27,342    4,055    28,726    1,047   
Total loans $ 76,102    $ 95,033    $ 16,165    $ 77,235    $ 3,012   
Loans with no related allowance
Commercial and industrial $ 14,787    $ 33,438    $ —    $ 20,502    $ 63   
Commercial real estate - owner occupied —    —    —    —    —   
Commercial and business lending 14,787    33,438    —    20,502    63   
Commercial real estate - investor 3,705    3,705    —    3,980    159   
Real estate construction —    —    —    —    —   
Commercial real estate lending 3,705    3,705    —    3,980    159   
Total commercial 18,491    37,142    —    24,482    222   
Residential mortgage 14,104    14,461    —    10,962    373   
Home equity 1,346    1,383    —    1,017    21   
Other consumer —    —    —    —    —   
Total consumer 15,450    15,845    —    11,979    394   
Total loans $ 33,941    $ 52,987    $ —    $ 36,462    $ 616   
Total
Commercial and industrial $ 62,035    $ 96,784    $ 12,010    $ 65,792    $ 1,895   
Commercial real estate - owner occupied 1,676    1,682    19    1,774    88   
Commercial and business lending 63,711    98,466    12,029    67,566    1,982   
Commercial real estate - investor 4,633    5,808    15    4,931    174   
Real estate construction 477    559    67    494    30   
Commercial real estate lending 5,110    6,367    82    5,425    204   
Total commercial 68,820    104,833    12,111    72,991    2,186   
Residential mortgage 35,554    37,087    2,740    34,683    1,229   
Home equity 4,422    4,851    1,190    4,773    211   
Other consumer 1,247    1,249    125    1,250     
Total consumer 41,223    43,187    4,055    40,706    1,441   
Total loans(a)
$ 110,043    $ 148,020    $ 16,165    $ 113,697    $ 3,628   
(a) The net recorded investment (defined as recorded investment, net of the related allowance) of the impaired loans represented 63% of the unpaid principal balance at December 31, 2019.
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The following table presents impaired loans individually evaluated under ASC Topic 310, excluding $5 million of purchased credit-impaired loans, at December 31, 2018: 
($ in Thousands) Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
Loans with a related allowance
Commercial and industrial $ 40,747    $ 42,131    $ 5,721    $ 52,461    $ 1,167   
Commercial real estate - owner occupied 2,080    2,087    24    2,179    104   
Commercial and business lending 42,827    44,218    5,745    54,640    1,271   
Commercial real estate - investor 799    805    28    827    38   
Real estate construction 510    589    75    533    32   
Commercial real estate lending 1,309    1,394    103    1,360    70   
Total commercial 44,136    45,612    5,848    56,000    1,341   
Residential mortgage 41,691    45,149    6,023    42,687    1,789   
Home equity 9,601    10,539    3,312    10,209    566   
Other consumer 1,181    1,183    121    1,184     
Total consumer 52,473    56,871    9,456    54,080    2,358   
Total loans $ 96,609    $ 102,483    $ 15,304    $ 110,079    $ 3,699   
Loans with no related allowance
Commercial and industrial $ 22,406    $ 45,024    $ —    $ 21,352    $ (344)  
Commercial real estate - owner occupied 3,772    4,823    —    3,975    —   
Commercial and business lending 26,178    49,847    —    25,327    (344)  
Commercial real estate - investor 1,585    2,820    —    980    68   
Real estate construction —    —    —    —    —   
Commercial real estate lending 1,585    2,820    —    980    68   
Total commercial 27,763    52,667    —    26,307    (276)  
Residential mortgage 8,795    9,074    —    8,790    203   
Home equity 523    542    —    530    —   
Other consumer —    —    —    —    —   
Total consumer 9,318    9,616    —    9,320    203   
Total loans $ 37,081    $ 62,283    $ —    $ 35,627    $ (73)  
Total
Commercial and industrial $ 63,153    $ 87,155    $ 5,721    $ 73,813    $ 823   
Commercial real estate - owner occupied 5,852    6,910    24    6,154    104   
Commercial and business lending 69,005    94,065    5,745    79,967    927   
Commercial real estate - investor 2,384    3,625    28    1,807    106   
Real estate construction 510    589    75    533    32   
Commercial real estate lending 2,894    4,214    103    2,340    138   
Total commercial 71,899    98,279    5,848    82,307    1,065   
Residential mortgage 50,486    54,223    6,023    51,477    1,992   
Home equity 10,124    11,081    3,312    10,739    566   
Other consumer 1,181    1,183    121    1,184     
Total consumer 61,791    66,487    9,456    63,400    2,561   
Total loans(a)
$ 133,690    $ 164,766    $ 15,304    $ 145,707    $ 3,626   
(a) The net recorded investment (defined as recorded investment, net of the related allowance) of the impaired loans represented 72% of the unpaid principal balance at December 31, 2018.
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Troubled Debt Restructurings (“Restructured Loans”)
Loans are considered restructured loans if concessions have been granted to borrowers that are experiencing financial difficulty. See Note 1 for the Corporation's accounting policy for troubled debt restructurings.
The following table presents nonaccrual and performing restructured loans by loan portfolio:
  December 31, 2019 December 31, 2018 December 31, 2017
($ in Thousands) Performing
Restructured
Loans
Nonaccrual
Restructured
Loans(a)
Performing
Restructured
Loans
Nonaccrual
Restructured
Loans(a)
Performing
Restructured
Loans
Nonaccrual
Restructured
Loans(a)
Commercial and industrial $ 16,678    $ 7,376    $ 25,478    $ 249    $ 30,047    $ 1,776   
Commercial real estate - owner occupied 1,676    —    2,080    —    3,989    —   
Commercial real estate - investor 293    —    799    933    14,389    —   
Real estate construction 298    179    311    198    310    157   
Residential mortgage 3,955    13,035    16,036    22,279    17,068    18,991   
Home equity 1,896    1,904    7,385    2,627    7,705    2,537   
Other consumer 1,246      1,174      1,110    25   
   Total restructured loans(b)
$ 26,041    $ 22,494    $ 53,263    $ 26,292    $ 74,618    $ 23,486   
(a) Nonaccrual restructured loans have been included within nonaccrual loans.
(b) During the third quarter of 2019, the Corporation sold $21 million of performing restructured loans, of which $18 million were residential mortgages and $3 million were home equity loans. In addition, the Corporation sold $7 million of nonaccrual restructured residential mortgage loans during the third quarter of 2019.
The Corporation had a recorded investment of approximately $16 million in loans modified in troubled debt restructurings for the year ended December 31, 2019, of which approximately $3 million were in accrual status and $13 million were in nonaccrual pending a sustained period of repayment. As of December 31, 2019 there was approximately $3 million of commitments to lend additional funds to borrowers with restructured loans. The following table provides the number of loans modified in a troubled debt restructuring by loan portfolio, the recorded investment, and unpaid principal balance:
Years Ended December 31,
  2019 2018 2017
($ in Thousands) Number
of
Loans
Recorded
Investment(a)
Unpaid
Principal
Balance(b)
Number
of
Loans
Recorded
Investment(a)
Unpaid
Principal
Balance(b)
Number
of
Loans
Recorded
Investment(a)
Unpaid
Principal
Balance(b)
Commercial and industrial   $ 7,588    $ 7,703      $ 1,315    $ 1,330      $ 3,991    $ 6,339   
Commercial real estate - owner occupied —    —    —    —    —    —      690    690   
Commercial real estate - investor —    —    —      1,393    1,472    —    —    —   
Real estate construction   77    77      78    80    —    —    —   
Residential mortgage 53    7,436    7,517    41    6,977    7,210    45    4,238    4,364   
Home equity 24    831    845    34    1,649    1,681    22    507    507   
Other consumer         17    19    —    —    —   
   Total 85    $ 15,940    $ 16,150    86    $ 11,429    $ 11,792    77    $ 9,426    $ 11,900   
(a) Represents post-modification outstanding recorded investment.
(b) Represents pre-modification outstanding recorded investment.
Restructured loan modifications may include payment schedule modifications, interest rate concessions, maturity date extensions, modification of note structure (A/B Note), non-reaffirmed Chapter 7 bankruptcies, principal reduction, or some combination of these concessions. For the year ended December 31, 2019, restructured loan modifications of commercial and industrial, commercial real estate, and real estate construction loans primarily included maturity date extensions, interest rate concessions, payment schedule modifications, or a combination of these concessions. Restructured loan modifications of home equity and residential mortgage loans primarily included maturity date extensions, interest rate concessions, non-reaffirmed Chapter 7 bankruptcies, or a combination of these concessions.
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The following table provides the number of loans modified in a troubled debt restructuring during the previous twelve months which subsequently defaulted during the year ended December 31, 2019, 2018, and 2017, respectively, as well as the recorded investment in these restructured loans as of December 31, 2019, 2018, and 2017, respectively:
Years Ended December 31,
  2019 2018 2017
($ in Thousands) Number of
Loans
Recorded
Investment
Number of
Loans
Recorded
Investment
Number of
Loans
Recorded
Investment
Commercial and industrial —    $ —      $ —      $ —   
Commercial real estate — investor   461    —    —    —    —   
Residential mortgage 38    5,630    20    3,553    36    3,137   
Home equity 27    868    32    1,688    27    735   
Other consumer —    —    —    —       
   Total 66    $ 6,959    55    $ 5,241    66    $ 3,879   
All loans modified in a troubled debt restructuring are evaluated for impairment. The nature and extent of the impairment of restructured loans, including those which have experienced a subsequent payment default, is considered in the determination of an appropriate level of the allowance for loan losses.
Allowance for Credit Losses
The allowance for credit losses is comprised of the allowance for loan losses and the allowance for unfunded commitments. The level of the allowance for loan losses represents management’s estimate of an amount appropriate to provide for probable credit losses in the loan portfolio at the balance sheet date. See Note 1 for the Corporation's accounting policy on the allowance for loan losses. The allowance for unfunded commitments is maintained at a level believed by management to be sufficient to absorb estimated probable losses related to unfunded credit facilities (including unfunded loan commitments and letters of credit) and is included in accrued expenses and other liabilities on the consolidated balance sheets. See Note 16 for additional information on the allowance for unfunded commitments.
A summary of the changes in the allowance for loan losses by portfolio segment for the year ended December 31, 2019, is as follows:
($ in Thousands) Commercial
and
industrial
Commercial
real estate
- owner
occupied
Commercial
real estate
- investor
Real estate
construction
Residential
mortgage
Home
equity
Other
consumer
Total
December 31, 2018 $ 108,835    $ 9,255    $ 40,844    $ 28,240    $ 25,595    $ 19,266    $ 5,988    $ 238,023   
Charge offs (63,315)   (222)   —    (60)   (3,322)   (1,846)   (5,548)   (74,313)  
Recoveries 11,875    2,795    31    302    692    2,599    868    19,161   
Net charge offs (51,441)   2,573    31    243    (2,630)   753    (4,681)   (55,152)  
Provision for loan losses 33,738    (1,543)   (361)   (3,568)   (6,005)   (9,093)   5,332    18,500   
December 31, 2019 $ 91,133    $ 10,284    $ 40,514    $ 24,915    $ 16,960    $ 10,926    $ 6,639    $ 201,371   
Allowance for loan losses
Individually evaluated for impairment $ 12,010    $ 19    $ 15    $ 67    $ 2,740    $ 1,190    $ 125    $ 16,165   
Collectively evaluated for impairment 79,123    10,265    40,498    24,848    14,220    9,737    6,514    185,205   
Total allowance for loan losses $ 91,133    $ 10,284    $ 40,514    $ 24,915    $ 16,960    $ 10,926    $ 6,639    $ 201,371   
Loans
Individually evaluated for impairment $ 62,035    $ 1,676    $ 4,633    $ 477    $ 35,554    $ 4,422    $ 1,247    $ 110,043   
Collectively evaluated for impairment 7,292,217    909,010    3,789,755    1,420,416    8,100,958    847,577    349,912    22,709,845   
Acquired and accounted for under ASC 310-30(a)
342    579    129      469    26    —    1,552   
Total loans $ 7,354,594    $ 911,265    $ 3,794,517    $ 1,420,900    $ 8,136,980    $ 852,025    $ 351,159    $ 22,821,440   
(a) Loans acquired in business combinations and accounted for under ASC Subtopic 310-30 "Receivables — Loans and Debt Securities Acquired with Deteriorated Credit Quality."
96



For comparison purposes, a summary of the changes in the allowance for loan losses by portfolio segment for the year ended December 31, 2018, is as follows:
($ in Thousands) Commercial
and
industrial
Commercial
real estate
- owner
occupied
Commercial
real estate
- investor
Real estate
construction
Residential
mortgage
Home
equity
Other
consumer
Total
December 31, 2017 $ 123,068    $ 10,352    $ 41,059    $ 34,370    $ 29,607    $ 22,126    $ 5,298    $ 265,880   
Charge offs (30,837)   (1,363)   (7,914)   (298)   (1,627)   (3,236)   (5,261)   (50,536)  
Recoveries 13,714    639    668    446    1,271    2,628    812    20,179   
Net charge offs (17,123)   (724)   (7,246)   149    (355)   (608)   (4,448)   (30,358)  
Provision for loan losses 2,890    (373)   7,031    (6,279)   (3,657)   (2,252)   5,138    2,500   
December 31, 2018 $ 108,835    $ 9,255    $ 40,844    $ 28,240    $ 25,595    $ 19,266    $ 5,988    $ 238,023   
Allowance for loan losses
Individually evaluated for impairment $ 5,721    $ 24    $ 28    $ 75    $ 6,023    $ 3,312    $ 121    $ 15,304   
Collectively evaluated for impairment 103,114    9,231    40,816    28,165    19,572    15,954    5,867    222,719   
Total allowance for loan losses $ 108,835    $ 9,255    $ 40,844    $ 28,240    $ 25,595    $ 19,266    $ 5,988    $ 238,023   
Loans
Individually evaluated for impairment $ 63,153    $ 5,852    $ 2,384    $ 510    $ 50,486    $ 10,124    $ 1,181    $ 133,690   
Collectively evaluated for impairment 7,331,898    913,708    3,748,883    1,334,500    8,226,642    884,266    361,990    22,801,887   
Acquired and accounted for under ASC 310-30(a)
2,994    883    287    21    584    83    —    4,853   
Total loans $ 7,398,044    $ 920,443    $ 3,751,554    $ 1,335,031    $ 8,277,712    $ 894,473    $ 363,171    $ 22,940,429   
(a) Loans acquired in business combinations and accounted for under ASC Subtopic 310-30 "Receivables — Loans and Debt Securities Acquired with Deteriorated Credit Quality."
The following table provides a summary of the changes in allowance for loan losses in the Corporation's oil and gas portfolio at December 31, 2019 and December 31, 2018:
Years Ended December 31,
($ in Millions) 2019 2018
Balance at beginning of period $ 12    $ 27   
Charge offs (50)   (24)  
Recoveries    
Net Charge offs (44)   (17)  
Provision for loan losses 45     
Balance at end of period $ 12    $ 12   
Allowance for loan losses
Individually evaluated for impairment $   $ —   
Collectively evaluated for impairment   12   
Total allowance for loan losses $ 12    $ 12   
Oil & Gas Allowance for loan losses to Total Oil & Gas Loans 2.56  % 1.62  %
Loans
Individually evaluated for impairment $ 23    $ 22   
Collectively evaluated for impairment 460    725   
Total loans $ 484    $ 747   



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The allowance for unfunded commitments is maintained at a level believed by management to be sufficient to absorb estimated probable losses related to unfunded credit facilities (including unfunded loan commitments and letters of credit) and is included in accrued expenses and other liabilities on the consolidated balance sheets. See Note 16 for additional information on the allowance for unfunded commitments and see Note 1 for the Corporation's accounting policy for allowance for unfunded commitments. A summary of the changes in the allowance for unfunded commitments was as follows:
Years Ended December 31,
($ in Thousands) 2019 2018 2017
Allowance for Unfunded Commitments
Balance at beginning of period $ 24,336    $ 24,400    $ 25,400   
Provision for unfunded commitments (2,500)   (2,500)   (1,000)  
Amount recorded at acquisition 70    2,436    —   
Balance at end of period $ 21,907    $ 24,336    $ 24,400   
Loans Acquired in Acquisition
Loans acquired in a business combination are recorded at estimated fair value on their purchase date without a carryover of the related allowance for loan and lease losses. Acquired loans are segregated into two types:
Performing loans are accounted for in accordance with ASC Topic 310-20 "Nonrefundable Fees and Other Costs" as these loans do not have evidence of credit deterioration since origination.
Nonperforming loans are accounted for in accordance with ASC Topic 310-30 as they display significant credit deterioration since origination.
For performing loans the difference between the estimated fair value of the loans and the principal outstanding is accreted over the remaining life of the loans.
In accordance with ASC 310-30, purchased credit-impaired loans are pooled by loan type and the difference between contractually required payments at acquisition and the cash flows expected to be collected is referred to as the non-accretable difference. Further, any excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable yield and is recognized into interest income over the remaining life of the loan pools when there is a reasonable expectation about the amount and timing of such cash flows. If a reasonable expectation on the amount or timing of such cash flows cannot be determined, accretion of the fair value discount for nonperforming loans will be recognized using the cost recovery method of accounting.
Changes in the accretable yield for loans acquired and accounted for under ASC Topic 310-30 were as follows for the years ended December 31, 2019, and 2018 respectively:
($ in Thousands) Year Ended December 31, 2019 Year Ended December 31, 2018
Changes in Accretable Yield
Balance at beginning of period $ 1,482    $ —   
Purchases —    4,853   
Accretion (940)   (4,954)  
Net reclassification from non-accretable yield 23    1,605   
Other(a)
—    (22)  
Balance at end of period $ 568    $ 1,482   
(a) Primarily includes charge offs which are accounted for under ASC Subtopic 310-30 "Receivables — Loans and Debt Securities Acquired with Deteriorated Credit Quality."
For loans acquired, the fair value of purchased credit-impaired loans, on the acquisition date, was determined based on assigned risk ratings, expected cash flows and the fair value of loan collateral. The fair value of loans that were non-impaired was determined based on estimates of losses on defaults and other market factors. The Corporation's Huntington branch acquisition included no purchased credit-impaired loans.
At December 31, 2019, the Corporation had a total of approximately $12 million in net unaccreted purchase discount, of which approximately $12 million was related to performing loans and less than $1 million was related to the Corporation's purchased credit-impaired loans. At December 31, 2018, the Corporation had a total of approximately $20 million in net unaccreted purchase discount, of which approximately $18 million was related to performing loans and approximately $2 million was related to the Corporation's purchased credit-impaired loans.

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Note 5 Goodwill and Other Intangible Assets
Goodwill  
Goodwill is not amortized but is instead subject to impairment tests on at least an annual basis, and more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. See Note 1 for the Corporation’s accounting policy for goodwill and other intangible assets.
The Corporation conducted its most recent annual impairment testing in May 2019, utilizing a qualitative assessment. Factors that management considered in this assessment included macroeconomic conditions, industry and market considerations, overall financial performance of the Corporation and each reporting unit (both current and projected), changes in management strategy, and changes in the composition or carrying amount of net assets. In addition, management considered the changes in both the Corporation’s common stock price and in the overall bank common stock index (based on the S&P 400 Regional Bank Sub-Industry Index), as well as the Corporation’s earnings per common share trend over the past year. Based on these assessments, management concluded that it is more likely than not that the estimated fair value exceeded the carrying value (including goodwill) for each reporting unit. Therefore, a step one quantitative analysis was not required. There were no events since the May 2019 impairment testing that have changed the Corporation's impairment assessment conclusion. There were no impairment charges recorded in 2019, 2018, or 2017.
The Corporation had goodwill of $1.2 billion at both December 31, 2019 and 2018. Goodwill increased $7 million in 2019, due to the Huntington branch acquisition. During 2018, goodwill increased $175 million related to the Bank Mutual acquisition, $10 million related to the acquisition of Diversified, and $7 million related to the acquisition of Anderson. See Note 2 for additional information on the Corporation's acquisitions.
Other Intangible Assets  
The Corporation has other intangible assets that are amortized, consisting of CDIs, other intangibles (primarily related to customer relationships acquired in connection with the Corporation’s insurance agency acquisitions), and MSRs. For CDIs and other intangibles, changes in the gross carrying amount, accumulated amortization, and net book value were as follows:
($ in Thousands) 2019 2018 2017
Core deposit intangibles
Gross carrying amount $ 80,730    $ 58,100    $ 4,385   
Accumulated amortization (12,456)   (5,326)   (4,385)  
Net book value $ 68,274    $ 52,774    $ —   
Additions during the period $ 22,630    $ 58,100    $ —   
Amortization during the year $ 7,130    $ 5,326    $ 112   
Other intangibles
Gross carrying amount $ 44,887    $ 44,931    $ 34,572   
Reductions due to sale (217)   (43)   —   
Accumulated amortization (24,643)   (21,825)   (18,992)  
Net book value $ 20,027    $ 23,062    $ 15,580   
Additions during the period $ —    $ 10,359    $ 2,162   
Amortization during the year $ 2,818    $ 2,833    $ 1,847   
Mortgage Servicing Rights 
The Corporation sells residential mortgage loans in the secondary market and typically retains the right to service the loans sold. MSRs are amortized in proportion to and over the period of estimated net servicing income, and assessed for impairment at each reporting date. See Note 1 for the Corporation’s accounting policy for MSRs. See Note 16 for a discussion of the recourse provisions on sold residential mortgage loans. See Note 18 which further discusses fair value measurement relative to the MSRs asset.
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A summary of changes in the balance of the MSRs asset and the MSRs valuation allowance is as follows:
($ in Thousands) 2019 2018 2017
Mortgage servicing rights
Mortgage servicing rights at beginning of year $ 68,433    $ 59,168    $ 62,085   
Additions from acquisition —    8,136    —   
Additions 11,606    10,722    7,167   
Amortization (12,432)   (9,594)   (10,084)  
Mortgage servicing rights at end of year $ 67,607    $ 68,433    $ 59,168   
Valuation allowance at beginning of year (239)   (784)   (609)  
(Additions) recoveries, net (63)   545    (175)  
Valuation allowance at end of year (302)   (239)   (784)  
Mortgage servicing rights, net $ 67,306    $ 68,193    $ 58,384   
Fair value of mortgage servicing rights $ 72,532    $ 81,012    $ 64,387   
Portfolio of residential mortgage loans serviced for others (“servicing portfolio”) $ 8,484,977    $ 8,600,983    $ 7,646,846   
Mortgage servicing rights, net to servicing portfolio 0.79  % 0.79  % 0.76  %
Mortgage servicing rights expense(a)
$ 12,494    $ 9,049    $ 10,259   
(a) Includes the amortization of mortgage servicing rights and additions / recoveries to the valuation allowance of mortgage servicing rights, and is a component of mortgage banking, net on the consolidated statements of income.
The projections of amortization expense are based on existing asset balances, the current interest rate environment, and prepayment speeds as of December 31, 2019. The actual amortization expense the Corporation recognizes in any given period may be significantly different depending upon acquisition or sale activities, changes in interest rates, prepayment speeds, market conditions, regulatory requirements, and events or circumstances that indicate the carrying amount of an asset may not be recoverable. The following table shows the estimated future amortization expense for amortizing intangible assets:
($ in Thousands) Core Deposit Intangibles Other Intangibles Mortgage Servicing Rights
Year ending December 31,
2020 $ 8,073    $ 2,681    $ 10,628   
2021 8,073    2,656    11,481   
2022 8,073    2,633    9,576   
2023 8,073    2,614    7,967   
2024 8,073    2,594    6,621   
Beyond 2024 27,909    6,850    21,336   
Total Estimated Amortization Expense $ 68,274    $ 20,027    $ 67,607   

Note 6 Premises and Equipment
See Note 1 for the Corporation’s accounting policy for premises and equipment. A summary of premises and equipment at December 31 is as follows:
  2019 2018
 ($ in Thousands)
Estimated
Useful Lives
Cost Accumulated
Depreciation
Net Book
Value
Net Book
Value
Land —    $ 69,649    $ —    $ 69,649    $ 67,737   
Land improvements 3 – 15 years 17,868    8,513    9,355    7,212   
Buildings and improvements 5 – 39 years 394,191    163,833    230,358    212,536   
Computers 3 – 5 years 47,291    34,049    13,242    12,392   
Furniture, fixtures and other equipment 3 – 15 years 176,023    122,681    53,342    49,891   
Operating leases —    53,982    8,602    $ 45,381    $ —   
Leasehold improvements 3 – 15 years 36,842    22,884    13,958    13,457   
Total premises and equipment   $ 795,846    $ 360,562    $ 435,284    $ 363,225   
Depreciation and amortization of premises and equipment totaled $34 million for both 2019 and 2018, and totaled $32 million in 2017.
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During 2019, the Corporation acquired properties as a result of the Huntington branch acquisition which resulted in an increase in the net book value of buildings and improvements from 2018.
On January 1, 2019, the Corporation adopted ASU 2016-02 using a modified retrospective approach which required operating leases to be capitalized on the consolidated balance sheets. This resulted in a right-of-use asset of $45 million at December 31, 2019 compared to zero at December 31, 2018. See Note 7 for additional information on operating leases.
Note 7 Leases

The Corporation has operating leases for retail and corporate offices, land, and equipment. The Corporation also has a finance lease for land.

These leases have original terms of 1 year or longer with remaining maturities up to 43 years, some of which include options to extend the lease term. An analysis of the lease options has been completed and any optional periods that the Corporation is reasonably likely to extend have been included in the capitalization.

The discount rate used to capitalize the operating leases is the Corporation's FHLB borrowing rate on the date of lease commencement. When determining the rate to discount specific lease obligations, the repayment period and term are considered.

Operating and finance lease costs and cash flows resulting from these leases are presented below:
($ in Thousands) Twelve Months Ended December 31, 2019
Operating Lease Costs $ 11,006   
Finance Lease Costs 36   
Operating Lease Cash Flows 11,305   
Finance Lease Cash Flows 35   
The lease classifications on the consolidated balance sheets were as follows:
December 31, 2019
($ in Thousands) Amount Consolidated Balance Sheets Category
Operating lease right-of-use asset $ 45,381    Premises and equipment
Finance lease right-of-use asset 2,188    Other assets
Operating lease liability 49,292    Accrued expenses and other liabilities
Finance lease liability 2,209    Other long-term funding
The lease payment obligations, weighted-average remaining lease term, and weighted-average discount rate were as follows:
December 31, 2019
($ in Thousands) Lease payments Weighted-average lease term (in years) Weighted-average discount rate
Operating leases
Equipment $ 46    0.83 2.72  %
Retail and corporate offices 48,940    6.49 3.34  %
Land 6,594    9.57 3.21  %
Total operating leases $ 55,580    6.83 3.32  %
Finance leases
Land $ 4,827    39.67 3.99  %
Total finance leases $ 4,827    39.67 3.99  %
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Contractual lease payment obligations for each of the next five years and thereafter, in addition to a reconciliation to the Corporation’s lease liability, were as follows:
($ in Thousands) Operating Leases Finance Leases Total Leases
Twelve Months Ending December 31, 2020 $ 10,662    $ 85    $ 10,747   
2021 10,136    85    10,221   
2022 7,854    85    7,939   
2023 5,625    85    5,710   
2024 4,988    88    5,076   
Beyond 2024 16,316    4,398    20,714   
Total lease payments $ 55,580    $ 4,827    $ 60,407   
Less: interest 6,288    2,617    8,905   
Present value of lease payments $ 49,292    $ 2,209    $ 51,501   
As of December 31, 2019, additional operating leases, primarily retail and corporate offices, that had not yet commenced at December 31, 2019 total $16 million. In addition, finance leases that had not yet commenced at December 31, 2019 total $2 million. These leases will commence between January 2020 and July 2023 with lease terms of 3 years to 6 years.
The Corporation conducts a portion of its business through certain facilities and equipment under noncancelable operating leases. The Corporation also leases a subdivision of some of its facilities and receives rental income from such lease agreements. The approximate minimum annual rental payments and rental receipts under noncancelable agreements and leases with remaining terms in excess of one year are as follows:
($ in Thousands) Payments Receipts
2020 $ 9,876    $ 3,189   
2021 9,976    2,903   
2022 7,822    2,127   
2023 5,977    1,723   
2024 5,315    1,583   
Thereafter 21,393    8,081   
Total $ 60,359    $ 19,606   
Total rental expense under leases, net of lease income, totaled $5 million in 2019, $10 million in 2018, and $6 million in 2017, respectively.
Practical Expedients
The Corporation elected several practical expedients made available by the FASB. Due to materiality, the Corporation elected not to restate comparative periods upon adoption of the new guidance. In addition, the Corporation elected the package of practical expedients whereby the Corporation did not reassess (i) whether existing contracts are, or contain, leases and (ii) lease classification for existing leases. Lastly, the Corporation elected not to separate lease and non-lease components in determining the consideration in the lease agreement.
Note 8 Deposits
The distribution of deposits at December 31 is as follows:
($ in Thousands) 2019 2018
Noninterest-bearing demand $ 5,450,709    $ 5,698,530   
Savings 2,735,036    2,012,841   
Interest-bearing demand 5,329,717    5,336,952   
Money market 7,640,798    9,033,669   
Brokered CDs 5,964    192,234   
Other time 2,616,839    2,623,167   
Total deposits $ 23,779,064    $ 24,897,393   
Time deposits of $100,000 or more were $1.3 billion and $1.4 billion for December 31, 2019 and 2018, respectively. Time deposits of $250,000 or more were $861 million and $924 million at December 31, 2019 and 2018, respectively.
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Aggregate annual maturities of all time deposits at December 31, 2019, are as follows:
Maturities During Year Ending December 31, ($ in Thousands)
2020 $ 1,947,004   
2021 477,780   
2022 97,141   
2023 55,028   
2024 45,510   
Thereafter 340   
Total $ 2,622,803   

Note 9 Short- and Long-Term Funding
The following table presents the components of short-term funding (funding with original contractual maturities of one year or less), long-term funding (funding with original contractual maturities greater than one year), and FHLB advances (funding based on original contractual maturities):
($ in Thousands) December 31, 2019 December 31, 2018
Short-Term Funding
Federal funds purchased $ 362,000    $ 19,710   
Securities sold under agreements to repurchase 71,097    91,941   
Federal funds purchased and securities sold under agreements to repurchase 433,097    111,651   
Commercial paper 32,016    45,423   
Total short-term funding $ 465,113    $ 157,074   
Long-Term Funding
Corporation senior notes, at par, due 2019 $ —    $ 250,000   
Bank senior notes, at par, due 2021 300,000    300,000   
Corporation subordinated notes, at par, due 2025 250,000    250,000   
Finance leases 2,209    —   
Capitalized costs (2,866)   (4,389)  
Total long-term funding 549,343    795,611   
Total short and long-term funding, excluding FHLB advances
$ 1,014,456    $ 952,685   
FHLB Advances
Short-term FHLB advances $ 520,000    $ 900,000   
Long-term FHLB advances 2,660,967    2,674,371   
Total FHLB advances $ 3,180,967    $ 3,574,371   
Total short and long-term funding
$ 4,195,422    $ 4,527,056   

Securities Sold Under Agreement to Repurchase
The Corporation enters into agreements under which it sells securities subject to an obligation to repurchase the same or similar securities. Under these arrangements, the Corporation may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates the Corporation to repurchase the assets. The obligation to repurchase the securities is reflected as a liability on the Corporation’s consolidated balance sheets, while the securities underlying the repurchase agreements remain in the respective investment securities asset accounts (i.e., there is no offsetting or netting of the investment securities assets with the repurchase agreement liabilities). See Note 15 for additional disclosures on balance sheet offsetting.

The Corporation utilizes securities sold under agreements to repurchase to facilitate the needs of its customers. As of December 31, 2019, the Corporation pledged agency mortgage-related securities with a fair value of $153 million as collateral for the repurchase agreements. Securities pledged as collateral under repurchase agreements are maintained with the Corporation's safekeeping agents and are monitored on a daily basis due to the market risk of fair value changes in the underlying securities. The Corporation generally pledges excess securities to ensure there is sufficient collateral to satisfy short-term fluctuations in both the repurchase agreement balances and the fair value of the underlying securities.
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The remaining contractual maturity of the securities sold under agreements to repurchase on the consolidated balance sheets as of December 31, 2019 and December 31, 2018 are presented in the following table:
Remaining Contractual Maturity of the Agreements
($ in Thousands) Overnight and Continuous Up to 30 days 30-90 days Greater than 90 days Total
December 31, 2019
Repurchase agreements
     Agency mortgage-related securities
$ 71,097    $ —    $ —    $ —    $ 71,097   
Total $ 71,097    $ —    $ —    $ —    $ 71,097   
December 31, 2018
Repurchase agreements
     Agency mortgage-related securities
$ 91,941    $ —    $ —    $ —    $ 91,941   
Total $ 91,941    $ —    $ —    $ —    $ 91,941   
Long-Term Funding
Senior Notes 
In August 2018, the Bank issued $300 million of senior notes, due August 2021, and callable July 2021. The senior notes have a fixed coupon interest rate of 3.50% and were issued at a discount.
In November 2014, the Corporation issued $250 million of senior notes, due November 2019, and callable October 2019. The senior notes had a fixed coupon interest rate of 2.75% and were issued at a discount. On October 15, 2019, these notes were redeemed in full.
Subordinated Notes  
In November 2014, the Corporation issued $250 million of 10-year subordinated notes, due January 2025, and callable October 2024. The subordinated notes have a fixed coupon interest rate of 4.25% and were issued at a discount.
Finance Leases
The Corporation entered into a 40-year land lease, maturing August 2059, with an option to purchase in August 2022. The finance lease has a fixed interest rate of 3.99%.
FHLB Advances  
At December 31, 2019, the Corporation had $3.2 billion of FHLB advances, down $393 million from December 31, 2018.
As of December 31, 2019, the Corporation had $1.5 billion of putable FHLB advances with a one-time option where the FHLB can call the advance prior to the contractual maturity. The contractual weighted average life to the put date of these advances was 0.27 years, with each of the options set to expire in 2020. The weighted average life to contractual maturity on these advances was 5.66 years, with those dates ranging from 2023 through 2028. As of December 31, 2019, due to the lower rate environment, it is probable that none of these advances will be called by the FHLB and will extend to their final maturities.
Under agreements with the Federal Home Loan Bank of Chicago, FHLB advances (short-term and long-term) are secured by qualifying mortgages of the subsidiary bank (such as residential mortgage, residential mortgage loans held for sale, home equity, and commercial real estate). At December 31, 2019, the Corporation had $9.6 billion of total collateral capacity, primarily supported by residential mortgage and home equity loans.
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The original contractual maturity or next put date of the Corporation's FHLB advances as of December 31, 2019 and December 31, 2018 are presented in the following table:
December 31, 2019 December 31, 2018
($ in Thousands) Amount Weighted Average Contractual Coupon Rate Amount Weighted Average Contractual Coupon Rate
Maturity or put date 1 year or less $ 2,055,056    2.19  % $ 2,262,584    2.06  %
After 1 but within 2 14,099    2.95  % 1,285,039    2.39  %
After 2 but within 3 504,154    2.12  % 14,393    2.98  %
After 3 years 607,657    2.29  % 12,354    4.55  %
FHLB advances and overall rate $ 3,180,967    2.20  % $ 3,574,371    2.19  %
The table below summarizes the maturities of the Corporation’s long-term funding, including long-term FHLB advances, at December 31, 2019:
Year ($ in Thousands)
2020 $ 85,095   
2021 312,700   
2022 504,193   
2023 202,572   
2024 250,673   
Thereafter 1,855,075   
Total long-term funding $ 3,210,310   
Note 10 Stockholders' Equity
Preferred Equity: In June 2015, the Corporation issued 2.6 million depositary shares, each representing a 1/40th interest in a share of the Corporation’s 6.125% Non-Cumulative Perpetual Preferred Stock, Series C, liquidation preference $1,000 per share. Dividends on the Series C Preferred Stock are payable quarterly in arrears only when, as and if declared by the Board of Directors at a rate per annum equal to 6.125%. Shares of the Series C Preferred Stock have priority over the Corporation’s common stock with regard to the payment of dividends and distributions upon liquidation, dissolution or winding up. As such, the Corporation may not pay dividends on or repurchase, redeem, or otherwise acquire for consideration shares of its common stock unless dividends for the Series C Preferred Stock have been declared for that period, and sufficient funds have been set aside to make payment. The Series C Preferred Stock may be redeemed by the Corporation at its option (i) either in whole or in part, from time to time, on any dividend payment date on or after the dividend payment date occurring on June 15, 2020, or (ii) in whole but not in part, at any time within 90 days following certain regulatory capital treatment events, in each case at a redemption price of $1,000 per share (equivalent to $25 per depositary share), plus any applicable dividends. Except in certain limited circumstances, the Series C Preferred Stock does not have any voting rights.
On August 28, 2015, the Board of Directors authorized the repurchase of up to $10 million of depositary shares of the Corporation's Series C Preferred Stock. As of December 31, 2019, $10 million remained available under this repurchase authorization.
In September 2016, the Corporation issued 4.0 million depositary shares, each representing a 1/40th interest in a share of the Corporation’s 5.375% Non-Cumulative Perpetual Preferred Stock, Series D, liquidation preference $1,000 per share. Dividends on the Series D Preferred Stock are payable quarterly in arrears only when, as and if declared by the Board of Directors at a rate per annum equal to 5.375%. Shares of the Series D Preferred Stock have priority over the Corporation’s common stock with regard to the payment of dividends and distributions upon liquidation, dissolution or winding up. As such, the Corporation may not pay dividends on or repurchase, redeem, or otherwise acquire for consideration shares of its common stock unless dividends for the Series D Preferred Stock have been declared for that period, and sufficient funds have been set aside to make payment. The Series D Preferred Stock may be redeemed by the Corporation at its option (i) either in whole or in part, from time to time, on any dividend payment date on or after the dividend payment date occurring on September 15, 2021, or (ii) in whole but not in part, at any time within 90 days following certain regulatory capital treatment events, in each case at a redemption price of $1,000 per share (equivalent to $25 per depositary share), plus any applicable dividends. Except in certain limited circumstances, the Series D Preferred Stock does not have any voting rights.
On July 25, 2017, the Board of Directors authorized the repurchase of up to $15 million of depositary shares of the Corporation's Series D Preferred Stock. As of December 31, 2019, $14 million remained available under this repurchase authorization.
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In September 2018, the Corporation issued 4.0 million depositary shares, each representing a 1/40th interest in a share of the Corporation’s 5.875% Non-Cumulative Perpetual Preferred Stock, Series E, liquidation preference $1,000 per share. Dividends on the Series E Preferred Stock are payable quarterly in arrears only when, as and if declared by the Board of Directors at a rate per annum equal to 5.875%. Shares of the Series E Preferred Stock have priority over the Corporation’s common stock with regard to the payment of dividends and distributions upon liquidation, dissolution or winding up. As such, the Corporation may not pay dividends on or repurchase, redeem, or otherwise acquire for consideration shares of its common stock unless dividends for the Series E Preferred Stock have been declared for that period, and sufficient funds have been set aside to make payment. The Series E Preferred Stock may be redeemed by the Corporation at its option (i) either in whole or in part, from time to time, on any dividend payment date on or after the dividend payment date occurring on December 15, 2023, or (ii) in whole but not in part, at any time within 90 days following certain regulatory capital treatment events, in each case at a redemption price of $1,000 per share (equivalent to $25 per depositary share), plus any applicable dividends. Except in certain limited circumstances, the Series E Preferred Stock does not have any voting rights.
Subsidiary Equity: At December 31, 2019, subsidiary equity equaled $3.9 billion. See Note 19 for additional information on regulatory requirements for the Bank.
Common Stock Repurchases: In 2019, the Board of Directors approved additional authorizations for the repurchase of up to $250 million of the Corporation’s common stock. During the year, the Corporation repurchased 8.2 million shares for $177 million (or an average cost per common share of $21.62).

During 2018, the Board of Directors authorized the repurchase of up to $300 million of the Corporation’s common stock. Under 2018 authorizations, and the remaining $51 million available under the 2015 authorization, the Corporation repurchased 9.5 million shares for $240 million (or an average cost per common share of $25.29).
The Corporation also repurchased shares in satisfaction of minimum tax withholding obligations in connection with settlements of equity compensation totaling approximately $9 million (397,969 shares at an average cost per common share of $21.59) during 2019 compared to approximately $7 million (292,070 shares at an average cost per common share of $24.47) during 2018.
As of December 31, 2019, approximately $184 million remained available to repurchase shares of common stock under previously approved Board of Director authorizations. The repurchase of shares will be based on market and investment opportunities, capital levels, growth prospects, and any necessary regulatory approvals and other 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.
Other Comprehensive Income (Loss): See the Consolidated Statements of Comprehensive Income for a summary of activity in other comprehensive income (loss) and see Note 22 for a summary of the components of accumulated other comprehensive income (loss).

Note 11 Stock-Based Compensation
Stock-Based Compensation Plan
In February 2017, the Board of Directors, with subsequent approval of the Corporation’s shareholders, approved the adoption of the 2017 Incentive Compensation Plan. All remaining shares available for grant under the 2013 Incentive Compensation Plan were rolled into the 2017 Plan. As of December 31, 2019, approximately 7.6 million shares remained available for grant under the 2017 Plan.
Under the 2017 Plan, options are generally exercisable up to ten years from the date of grant, have an exercise price that is equal to the closing price of the Corporation’s stock on the grant date, and vest ratably over four years.
The Corporation also issues restricted stock awards under the 2017 Plan. The shares of restricted stock are restricted as to transfer, but are not restricted as to dividend payment or voting rights. Restricted stock units receive dividend equivalents but do not have voting rights. The transfer restrictions lapse over three years or four years, depending upon whether the awards are performance-based or service-based. Performance-based awards are based on earnings per share performance goals, relative total shareholder return, and continued employment or meeting the requirements for retirement and service-based awards are contingent upon continued employment or meeting the requirements for retirement. Performance-based restricted stock awards vest over a performance period of three years and service-based restricted stock awards vest ratably over four years.
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The 2017 Plan provides that restricted stock awards and stock options will immediately become fully vested upon retirement from the Corporation of retirement eligible colleagues. See Note 1 for the Corporation’s accounting policy for stock based compensation.
Accounting for 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 retirement eligible colleagues, 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.
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.
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 that 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. The following assumptions were used in estimating the fair value for options granted in 2019, 2018, and 2017:
2019 2018 2017
Dividend yield 3.30  % 2.50  % 2.00  %
Risk-free interest rate 2.60  % 2.60  % 2.00  %
Weighted average expected volatility 24.00  % 22.00  % 25.00  %
Weighted average expected life 5.75 years 5.75 years 5.5 years
Weighted average per share fair value of options $4.00 $4.47 $5.30
A summary of the Corporation’s stock option activity for the year ended December 31, 2019 is presented below:
Stock Options
Shares(a)
Weighted Average
Exercise Price
Weighted Average
Remaining
Contractual Term
Aggregate
Intrinsic Value 
($ in thousands)
Outstanding at December 31, 2018 5,281    $ 19.09    6.18 years $ 12,392   
Granted 1,050    22.77   
Exercised (674)   15.75   
Forfeited or expired (114)   22.42   
Outstanding at December 31, 2019 5,543    $ 20.13    6.25 years $ 16,043   
Options exercisable at December 31, 2019 3,360    $ 18.22    4.95 years $ 14,980   
(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 years ended December 31, 2019, 2018, and 2017 the intrinsic value of stock options exercised was $4 million, $10 million, and $13 million, respectively. The total fair value of stock options that vested was $3 million for the year ended December 31, 2019 and $4 million for both of the years ended December 31, 2018 and 2017.
For the years ended December 31, 2019, 2018, and 2017, the Corporation recognized compensation expense of $4 million for each of the three years, for the vesting of stock options. Included in compensation expense for 2019 was $1 million of expense for the accelerated vesting of stock options granted to retirement eligible colleagues. At December 31, 2019, the Corporation had $4 million of unrecognized compensation expense related to stock options that is expected to be recognized over the remaining requisite service periods that extend predominantly through the first quarter 2023.
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The following table summarizes information about the Corporation’s restricted stock activity for the year ended December 31, 2019:
Restricted Stock
Shares(a)
Weighted Average
Grant Date Fair Value
Outstanding at December 31, 2018 1,993    $ 21.92   
Granted 1,180    22.20   
Vested (710)   20.61   
Forfeited (69)   23.84   
Outstanding at December 31, 2019 2,393    $ 22.39   
(a) In thousands
The Corporation amortizes the expense related to restricted stock awards as compensation expense over the vesting period specified in the grant. Expense for restricted stock awards of approximately $21 million was recorded for year ended December 31, 2019, $13 million for the year ended December 31, 2018 and $18 million for the year ended December 31, 2017. Included in compensation expense for 2019 was approximately $4 million of expense for the accelerated vesting of restricted stock awards granted to retirement eligible colleagues. The Corporation had $20 million of unrecognized compensation costs related to restricted stock awards at December 31, 2019, that is expected to be recognized over the remaining requisite service periods that extend predominantly through first quarter 2023. 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.

As described in Note 10, of the notes to consolidated financial statements, the Board of Directors has authorized management to repurchase shares of the Corporation’s common stock each quarter 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 will be based on market and investment opportunities, capital levels, growth prospects, and the receipt of any necessary regulatory approvals. Such repurchases may occur from time to time in open market purchases, block transactions, private transactions, accelerated share repurchase programs, or similar facilities.
Note 12 Retirement Plans
The Corporation has a noncontributory defined benefit retirement plan, the RAP, covering substantially all employees who meet participation requirements. The benefits are based primarily on years of service and the employee’s compensation paid. Employees of acquired entities generally participate in the RAP after consummation of the business combinations. Any retirement plans of acquired entities are typically merged into the RAP after completion of the mergers, and credit is usually given to employees for years of service at the acquired institution for vesting and eligibility purposes.
The Corporation also provides legacy healthcare access to a limited group of retired employees from a previous acquisition in the Postretirement Plan. There are no other active retiree healthcare plans.
Bank Mutual was acquired on February 1, 2018. The Bank Mutual Pension Plan was merged into the RAP on December 31, 2018. Bank Mutual's Postretirement Plan was merged into the Corporation's Postretirement Plan during the first quarter of 2018. The reported figures in 2018 for both the RAP and Postretirement Plan only include 11 months of Bank Mutual expense due to the timing of the Bank Mutual acquisition.
The Huntington branch acquisition closed on June 14, 2019, and the employees gained as a result of the transaction became eligible to participate in the RAP on the same date, with their vesting service credit based on their prior hours of service with Huntington. See Note 2 for additional information on the Huntington branch acquisition.
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The funded status and amounts recognized in the 2019 and 2018 consolidated balance sheets, as measured on December 31, 2019 and 2018, respectively, for the RAP and Postretirement Plan were as follows:
  RAP Postretirement
Plan
RAP Bank Mutual Pension Postretirement
Plan
($ in Thousands) 2019 2019 2018 2018 2018
Change in Fair Value of Plan Assets
Fair value of plan assets at beginning of year $ 390,564    $ —    $ 331,609    N/A    $ —   
Fair value of Bank Mutual plan assets at February 1, 2018 N/A    —    N/A    59,445    —   
Actual return on plan assets 67,377    —    (14,609)   (1,665)   —   
Employer contributions —    270    4,340    37,537    292   
Gross benefits paid (15,907)   (270)   (10,582)   (15,513)   (292)  
Bank Mutual plan assets transferred at December 31, 2018 N/A    —    79,805    (79,805)   —   
Fair value of plan assets at end of year(a)
$ 442,034    $ —    $ 390,564    $ —    $ —   
Change in Benefit Obligation
Net benefit obligation at beginning of year $ 233,658    $ 2,523    $ 186,423    N/A    $ 2,478   
Net Bank Mutual benefit obligation at February 1, 2018 N/A    —    N/A    66,364    576   
Service cost 7,263    —    7,540    —    —   
Interest cost 9,752    104    6,727    2,398    108   
Actuarial (gain) loss 25,810    188    (8,000)   (1,701)   (347)  
Gross benefits paid (15,907)   (270)   (10,582)   (2,644)   (292)  
Lump sums paid —    —    —    (12,868)   —   
Bank Mutual benefit obligations transferred at December 31, 2018 N/A    —    $ 51,549    (51,549)   —   
Net benefit obligation at end of year(a)
$ 260,576    $ 2,545    $ 233,658    $ —    $ 2,523   
Funded (unfunded) status $ 181,458    $ (2,545)   $ 156,906    $ —    $ (2,523)  
Noncurrent assets $ 181,458    $ —    $ 156,906    $ —    $ —   
Current liabilities —    (214)   —    —    (219)  
Noncurrent liabilities —    (2,330)   —    —    (2,304)  
Asset (Liability) Recognized on the Consolidated Balance Sheets $ 181,458    $ (2,545)   $ 156,906    $ —    $ (2,523)  
(a) The fair value of the plan assets represented 170% and 167% of the net benefit obligation of the pension plan at December 31, 2019 and 2018, respectively.
Amounts recognized in accumulated other comprehensive (income) loss, net of tax, as of December 31, 2019 and 2018 follow:
RAP Postretirement
Plan
RAP Postretirement
Plan
($ in Thousands) 2019 2019 2018 2018
Prior service cost $ (249)   $ (533)   $ (303)   $ (588)  
Net actuarial loss 37,075    126    50,238    (17)  
Amount not yet recognized in net periodic benefit cost, but recognized in accumulated other comprehensive (income) loss $ 36,827    $ (406)   $ 49,935    $ (605)  
Other changes in plan assets and benefit obligations recognized in OCI, net of tax, in 2019 and 2018 were as follows:
RAP Postretirement
Plan
RAP Postretirement
Plan
($ in Thousands) 2019 2019 2018 2018
Net actuarial gain (loss) $ 17,235    $ (188)   $ (28,959)   $ 347   
Amortization of prior service cost (73)   (75)   (73)   (75)  
Amortization of actuarial loss (gain) 480    (4)   2,195     
Adjustment for adoption of ASU 2018-02 —    —    (5,235)   —   
Income tax (expense) benefit (4,532)   67    6,838    (71)  
Total Recognized in OCI $ 13,109    $ (200)   $ (25,234)   $ 209   
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The components of net pension cost for the RAP for 2019, 2018, and 2017 were as follows:
($ in Thousands) 2019 2018 2017
Service cost $ 7,263    $ 7,540    $ 6,955   
Interest cost 9,752    9,125    7,121   
Expected return on plan assets (24,332)   (23,195)   (19,646)  
Amortization of prior service cost (73)   (73)   (73)  
Amortization of actuarial loss (gain) 480    2,195    2,278   
Recognized settlement loss (gain) —    809    —   
Total net periodic pension cost $ (6,910)   $ (3,600)   $ (3,365)  
The components of net periodic benefit cost for the Postretirement Plan for 2019, 2018, and 2017 were as follows:
($ in Thousands) 2019 2018 2017
Interest cost $ 104    $ 108    $ 101   
Amortization of prior service cost (75)   (75)   (75)  
Amortization of actuarial loss (gain) (4)      
Total net periodic benefit cost $ 25    $ 41    $ 30   
The components of net periodic pension cost and net periodic benefit cost, other than the service cost component, are included in the line item other of noninterest expense on the consolidated statements of income. The service cost components are included in personnel on the consolidated statements of income.
As of December 31, 2019, the estimated actuarial losses and prior service cost that will be amortized during 2020 from accumulated other comprehensive income into net periodic pension cost for the RAP includes expense of $3 million for actuarial losses and income of approximately $75,000 for the prior service cost. For the Postretirement Plan, the estimated actuarial losses and prior service cost that will be amortized during 2020 from accumulated other comprehensive income into net periodic benefit cost includes income of approximately $75,000 for the prior service cost while no actuarial gains or losses are expected.
RAP Postretirement
Plan
RAP Postretirement
Plan
2019 2019 2018 2018
Weighted average assumptions used to determine benefit obligations
Discount rate 3.20  % 3.20  % 4.30  % 4.30  %
Rate of increase in compensation levels 2.00  % N/A 3.00  % N/A
Weighted average assumptions used to determine net periodic benefit costs
Discount rate(a)
4.30  % 4.30  % 3.77  % 3.77  %
Rate of increase in compensation levels 3.00  % N/A 3.00  % N/A
Expected long-term rate of return on plan assets(b)
6.00  % N/A 5.93  % N/A
(a) Weighted average of the 2018 fiscal year discount rate assumption for the RAP was 3.70% and the Bank Mutual Pension Plan was 4.00%
(b) Weighted average of the 2018 fiscal year expected return on asset assumption for the RAP was 6.00% and the Bank Mutual Pension Plan was 5.50%
The expected long-term (more than 20 years) rate of return was estimated using market benchmarks for equities and bonds applied to the RAP’s anticipated asset allocations. The expected return on equities was computed utilizing a valuation framework, which projected future returns based on current equity valuations rather than historical returns. The actual rates of return for the RAP assets were 18.29% and (3.69)% for 2019 and 2018, respectively.
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The RAP’s investments are exposed to various risks, such as interest rate, market, and credit risks. Due to the level of risks associated with certain investments and the level of uncertainty related to changes in the value of the investments, it is at least reasonably possible that changes in risks in the near term could materially affect the amounts reported. The investment objective for the RAP is to maximize total return with a tolerance for average risk. The RAP has a diversified portfolio designed to provide liquidity, current income, and growth of income and principal, with anticipated asset allocation ranges of: equity securities 50 to 70%, fixed-income securities 30 to 50%, other cash equivalents 0 to 10%, and alternative securities 0 to 15%. Based on changes in economic and market conditions, the Corporation could be outside of the allocation ranges for brief periods of time. The asset allocation for the RAP as of the December 31, 2019 and 2018 measurement dates, respectively, by asset category were as follows:
Asset Category 2019 2018
Equity securities 51  % 49  %
Fixed-income securities 33  % 34  %
Group annuity contracts 11  % 12  %
Alternative securities % %
Other % %
Total 100  % 100  %
The RAP assets include cash equivalents, such as money market accounts, mutual funds, common / collective trust funds (which include investments in equity and bond securities), and a group annuity contract. Money market accounts are stated at cost plus accrued interest, mutual funds are valued at quoted market prices, investments in common / collective trust funds are valued at the amount at which units in the funds can be withdrawn, and the group annuity contract is valued at fair value by discounting the related cash flows based on current yields of similar instruments with comparable durations and considering the credit worthiness of the issuer. The group annuity contract was obtained as part of the Bank Mutual Pension Plan that was acquired on February 1, 2018 and merged into the RAP on December 31, 2018.
Based on these inputs, the following table summarizes the fair value of the RAP’s investments as of December 31, 2019 and 2018:
    Fair Value Measurements Using
($ in Thousands) December 31, 2019 Level 1 Level 2 Level 3
RAP Investments
Money market account $ 8,903    $ 8,903    $ —    $ —   
Common /collective trust funds 155,964    155,964    —    —   
Mutual funds 227,112    227,112    —    —   
Group annuity contracts 50,055    —    —    50,055   
Total RAP Investments $ 442,034    $ 391,979    $ —    $ 50,055   
  Fair Value Measurements Using
($ in Thousands) December 31, 2018 Level 1 Level 2 Level 3
RAP Investments
Money market account $ 7,159    $ 7,159    $ —    $ —   
Common /collective trust funds 138,020    138,020    —    —   
Mutual funds 198,120    198,120    —    —   
Group annuity contracts 47,265    —    —    47,265   
Total RAP Investments $ 390,564    $ 343,299    $ —    $ 47,265   
The following presents a summary of the changes in the fair value of the RAP's Level 3 asset during the periods indicated. As noted above, the Corporation's Level 3 asset consists entirely of a group annuity contract issued by a life insurance company.
Fair Value Reconciliation of Level 3 RAP Investments 2019
2018(a)
Fair value of group annuity contract at beginning of period $ 47,265    $ 49,191   
Return on plan assets 5,495    565   
Benefits paid (2,704)   (2,491)  
Fair value of group annuity contract at end of period $ 50,055    $ 47,265   
(a) Period begins on February 1, the date the Corporation acquired the group annuity contract from the Bank Mutual acquisition.
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The Corporation’s funding policy is to pay at least the minimum amount required by federal law and regulations, with consideration given to the maximum funding amounts allowed. The Corporation regularly reviews the funding of its RAP. The Corporation did not make any contributions to the RAP during 2019. The Corporation made contributions of $38 million to the Bank Mutual Pension Plan and $4 million to the RAP during 2018, with the plans merging on December 31, 2018.
The projected benefit payments were calculated using the same assumptions as those used to calculate the benefit obligations listed above. The projected benefit payments for the RAP and Postretirement Plan at December 31, 2019, reflecting expected future services, were as follows:
($ in Thousands) RAP Postretirement Plan
Estimated future benefit payments
2020 $ 19,659    $ 218   
2021 19,755    213   
2022 20,729    208   
2023 20,392    202   
2024 20,710    196   
2025-2029 91,264    867   
The health care trend rate is an assumption as to how much the Postretirement Plan’s medical costs will change each year in the future. There are no remaining participants under age 65 in the Postretirement Plan. The actual change in 2019 health care premium rates for post-65 coverage was an increase of 2.00%. The health care trend rate assumption for post-65 coverage is an increase of 5.75% in 2020 with the rate of increase decreasing 0.25% in each succeeding year, to an ultimate rate of 5.00% for 2023 and future years.
A one percentage point change in the assumed health care cost trend rate would have the following effect:
  2019 2018
($ in Thousands) 100 bp Increase 100 bp Decrease 100 bp Increase 100 bp Decrease
Effect on total of service and interest cost $   $ (6)   $   $ (6)  
Effect on postretirement benefit obligation $ 170    $ (148)   $ 164    $ (143)  
The Corporation also has a 401(k) and Employee Stock Ownership Plan (the “401(k) plan”). The Corporation’s contribution is determined by the Compensation and Benefits Committee of the Board of Directors. Total expenses related to contributions to the 401(k) plan were $16 million, $16 million, and $14 million in 2019, 2018, and 2017, respectively.

Note 13 Income Taxes
The current and deferred amounts of income tax expense (benefit) were as follows:
  Years Ended December 31,
($ in Thousands) 2019 2018 2017
Current
Federal $ 50,560    $ 20,246    $ 76,525   
State 15,327    12,593    11,576   
Total current 65,887    32,839    88,101   
Deferred
Federal 14,094    34,941    19,755   
State (261)   12,006    1,647   
Total deferred 13,833    46,947    21,402   
Total income tax expense $ 79,720    $ 79,786    $ 109,503   
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Temporary differences between the amounts reported on the financial statements and the tax bases of assets and liabilities resulted in deferred taxes. Deferred tax assets and liabilities at December 31, 2019 and 2018 were as follows:
($ in Thousands) 2019 2018
Deferred tax assets
Allowance for loan losses $ 48,790    $ 61,143   
Allowance for other losses 7,236    8,304   
Accrued liabilities 4,005    3,736   
Deferred compensation 28,018    24,754   
Benefit of tax loss and credit carryforwards 13,444    10,126   
Nonaccrual interest 1,299    1,666   
Net unrealized losses on available-for-sale securities —    25,731   
Net unrealized losses on pension and postretirement benefits 12,174    16,640   
Other 3,495    1,916   
Total deferred tax assets 118,461    154,015   
Valuation allowance for deferred tax assets (251)   (251)  
Total deferred tax assets after valuation allowance $ 118,211    $ 153,764   
Deferred tax liabilities
Prepaid expenses $ 62,227    $ 61,250   
Goodwill 21,099    20,178   
Mortgage banking activities 17,418    17,428   
Deferred loan fee income 12,190    11,892   
State deferred taxes 722    518   
Lease financing 199    410   
Bank premises and equipment 18,348    18,655   
Purchase accounting 13,738    12,414   
Deferred gains from equity securities and other investments 4,810    —   
Net unrealized gains on available-for-sale securities 1,139    —   
Other 1,156    684   
Total deferred tax liabilities $ 153,045    $ 143,429   
Net deferred tax assets (liabilities) $ (34,836)   $ 10,335   
At December 31, 2019 and December 31, 2018, the valuation allowance for deferred tax assets of approximately $251,000 was related to the deferred tax benefit of specific federal tax loss carryforwards of $3 million from a 2017 acquisition. The changes in the valuation allowance related to net operating losses for 2019 and 2018 were as follows:
($ in Thousands) 2019 2018
Valuation allowance for deferred tax assets, beginning of year $ (251)   $ (269)  
(Increase) decrease in current year —    18   
Valuation allowance for deferred tax assets, end of year $ (251)   $ (251)  
At December 31, 2019, the Corporation had state net operating loss carryforwards of $106 million (of which $49 million was acquired from various acquisitions) that will begin expiring in 2031. At December 31, 2019, the Corporation had state tax credit carryforwards of $5 million that will begin expiring in 2034.
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The effective income tax rate differs from the statutory federal tax rate. The major reasons for this difference were as follows:
2019 2018 2017
Federal income tax rate at statutory rate 21.0  % 21.0  % 35.0  %
Increases (decreases) resulting from:
Tax-exempt interest and dividends (3.3) % (2.6) % (4.1) %
State income taxes (net of federal benefit) 3.5  % 3.7  % 2.9  %
Bank owned life insurance (0.8) % (0.7) % (1.7) %
Tax effect of tax credits and benefits, net of related expenses (0.9) % (0.7) % (0.7) %
Tax reserve adjustments / settlements 0.2  % 1.5  % (1.2) %
Net tax benefit from stock-based compensation (0.2) % (0.5) % (1.3) %
Tax Act impact on deferred remeasurement —  % —  % 3.5  %
Tax planning in response to the Tax Act —  % (3.6) % —  %
FDIC premium 0.5  % 0.9  % —  %
Other (0.4) % 0.3  % (0.1) %
Effective income tax rate 19.6  % 19.3  % 32.3  %

Savings banks acquired by the Corporation in 1997 and 2004 qualified under provisions of the Internal Revenue Code that permitted them to deduct from taxable income an allowance for bad debts that differed from the provision for such losses charged to income for financial reporting purposes. Accordingly, no provision for income taxes has been made for $100 million of retained income at December 31, 2019. If income taxes had been provided, the deferred tax liability would have been approximately $25 million. Management does not expect this amount to become taxable in the future; therefore, no provision for income taxes has been made.
The Corporation and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Corporation’s federal income tax returns are open and subject to examination from the 2016 tax return year and forward. The years open to examination by state and local government authorities varies by jurisdiction.
A reconciliation of the beginning and ending amount of unrecognized tax benefits was as follows:
($ in Millions) 2019 2018
Balance at beginning of year $   $  
Subtractions for tax positions related to prior years —    —   
Subtractions for settlements with tax authorities —    (3)  
Additions for tax positions related to current year    
Balance at end of year $   $  
At December 31, 2019 and 2018, the total amounts of unrecognized tax benefits that, if recognized, would affect the effective tax rate were $2 million and $1 million, respectively.
The Corporation recognizes interest and penalties accrued related to unrecognized tax benefits in the income tax expense line on the consolidated statements of income. Interest and penalty benefits were negligible at December 31, 2019 and $1 million December 31, 2018. Accrued interest and penalties were negligible at both December 31, 2019 and December 31, 2018. Management does not anticipate significant adjustments to the total amount of unrecognized tax benefits within the next twelve months.

Note 14 Derivative and Hedging Activities
The Corporation is exposed to certain risk arising from both its business operations and economic conditions. The Corporation principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Corporation manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Corporation enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Corporation's derivative financial instruments are used to manage differences in the amount, timing, and duration of the Corporation's known or expected cash receipts and its known or expected cash payments principally related to the Corporation's assets.
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The contract or notional amount of a derivative is used to determine, along with the other terms of the derivative, the amounts to be exchanged between the counterparties. The Corporation is exposed to credit risk in the event of nonperformance by counterparties to financial instruments. To mitigate the counterparty risk, contracts generally contain language outlining collateral pledging requirements for each counterparty. For non-centrally cleared derivatives, collateral must be posted when the market value exceeds certain mutually agreed upon threshold limits. Securities and cash are often pledged as collateral. The Corporation pledged $57 million of investment securities as collateral at December 31, 2019, and pledged $36 million of investment securities as collateral at December 31, 2018. Cash is often pledged as collateral for interest rate swaps and derivatives that are not centrally cleared. At December 31, 2019, the Corporation posted $14 million cash collateral compared to $1 million at December 31, 2018.
Federal regulations require the Corporation to clear all LIBOR interest rate swaps through a clearing house, if possible. For derivatives cleared through central clearing houses the variation margin payments are legally characterized as daily settlements of the derivative rather than collateral. The Corporation's clearing agent for interest rate derivative contracts that are centrally cleared through the Chicago Mercantile Exchange (CME) and the London Clearing House (LCH) settles the variation margin daily. As a result, the variation margin payment and the related derivative instruments are considered a single unit of account for accounting and financial reporting purposes. Depending on the net position, the fair value is reported in other assets or accrued expenses and other liabilities on the consolidated balance sheets. The daily settlement of the derivative exposure does not change or reset the contractual terms of the instrument.
See Note 18 for fair value information and disclosures and see Note 1 for the Corporation's accounting policy for derivative and hedging activities.
Fair Value Hedges of Interest Rate Risk
The Corporation is exposed to changes in the fair value of certain of its pools of prepayable fixed-rate assets due to changes in benchmark interest rates. The Corporation used interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate. Interest rate swaps designated as fair value hedges involved the payment of fixed-rate amounts to a counterparty in exchange for the Corporation receiving variable-rate payments over the life of the agreements without the exchange of the underlying notional amount. For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk were recognized in interest income. During the fourth quarter of 2019, the Corporation terminated the outstanding fair value hedges.
Derivatives to Accommodate Customer Needs

The Corporation also facilitates customer borrowing activity by entering into various derivative contracts which are designated as free standing derivative contracts. Free standing derivative products are entered into primarily for the benefit of commercial customers seeking to manage their exposures to interest rate risk, foreign currency, and commodity prices. These derivative contracts are not designated against specific assets and liabilities on the consolidated balance sheets or forecasted transactions and, therefore, do not qualify for hedge accounting treatment. Such derivative contracts are carried at fair value in other assets and accrued expenses and other liabilities on the consolidated balance sheets with changes in the fair value recorded as a component of capital markets, net, and typically include interest rate-related instruments (swaps and caps), foreign currency exchange forwards, and commodity contracts. See Note 15 for additional information and disclosures on balance sheet offsetting.

Interest rate-related instruments: The Corporation provides interest rate risk management services to commercial customers, primarily forward interest rate swaps and caps. The Corporation’s market risk from unfavorable movements in interest rates related to these derivative contracts is generally economically hedged by concurrently entering into offsetting derivative contracts. The offsetting derivative contracts have identical notional values, terms, and indices.

Foreign currency exchange forwards: The Corporation provides foreign currency exchange services to customers, primarily forward contracts. The Corporation's customers enter into a foreign currency exchange forward with the Corporation as a means for them to mitigate exchange rate risk. The Corporation mitigates its risk by then entering into an offsetting foreign currency exchange derivative contract.

Commodity contracts: Commodity contracts are entered into primarily for the benefit of commercial customers seeking to manage their exposure to fluctuating commodity prices. The Corporation mitigates its risk by then entering into an offsetting commodity derivative contract.

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Mortgage Derivatives

Interest rate lock commitments to originate residential mortgage loans held for sale and forward commitments to sell residential mortgage loans are considered derivative instruments, and the fair value of these commitments is recorded in other assets and accrued expenses and other liabilities on the consolidated balance sheets with the changes in fair value recorded as a component of mortgage banking, net.

Written and Purchased Options (Time Deposit)

Historically, the Corporation had entered into written and purchased option derivative instruments to facilitate an equity linked time deposit product (the “Power CD”), which the Corporation ceased offering in September 2013. The Power CD was a time deposit that provided the purchaser a guaranteed return of principal at maturity plus a potential equity return (a written option), while the Corporation received a known stream of funds based on the equity return (a purchased option). The written and purchased options are mirror derivative instruments, which are carried at fair value on the consolidated balance sheets. The last Power CD matured in November 2019.

The table below identifies the balance sheet category and fair values of the Corporation’s derivative instruments:
  December 31, 2019 December 31, 2018
Asset Liability Asset Liability
($ in Thousands) Notional Amount Fair
Value
Notional Amount Fair
Value
Notional Amount Fair
Value
Notional Amount Fair
Value
Designated as hedging instruments
Interest rate-related instruments $ —    $ —    $ —    $ —    $ —    $ —    $ 500,000    $ 40   
Not designated as hedging instruments
Interest rate-related instruments 3,029,877    77,024    3,029,877    13,073    2,707,204    52,796    2,707,204    52,653   
Foreign currency exchange forwards 272,636    4,226    264,653    4,048    117,879    721    69,153    675   
Commodity contracts 255,089    20,528    255,165    19,624    331,727    35,426    315,861    34,340   
Mortgage banking(a)
255,291    2,527    263,000    710    191,222    2,208    139,984    2,072   
Time deposits —    —    —    —    11,185    109    11,185    109   
Total not designated as hedging instruments 104,305    37,455    91,260    89,849   
Gross derivatives before netting $ 104,305    $ 37,455    $ 91,260    $ 89,889   
Less: Legally enforceable master netting agreements 10,410    10,410    5,322    5,322   
Less: Cash collateral pledged/received 1,408    11,365    27,593    63   
Total derivative instruments, after netting(b)
$ 92,487    $ 15,680    $ 58,345    $ 84,504   
(a) Mortgage derivative assets include interest rate lock commitments and mortgage derivative liabilities include forward commitments.
(b) The fair values of derivative assets are included in other assets, while the fair values of derivative liabilities are included in accrued expenses and other liabilities, on the consolidated balance sheets.
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The following table presents amounts that were recorded on the consolidated balance sheets related to cumulative basis adjustment for fair value hedges:
Line Item on the Consolidated Balance Sheets in Which the Hedged Item is Included
Carrying Amount of the Hedged Assets/(Liabilities)
Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/(Liabilities)(b)
($ in Thousands) December 31, 2019
 Loans and investment securities available for sale(a)
$ 505,371    $ 5,371   
Total $ 505,371    $ 5,371   
(a) These amounts include the amortized cost basis of closed portfolios used to designated hedging relationships in which the hedged item is the last layer expected to be remaining at the end of the hedging relationship. At December 31, 2019, the amortized cost basis of the closed portfolios used in these hedging relationships was $893 million; the positive cumulative basis adjustments associated with these hedging relationships was approximately $5 million; and the amounts of the designated hedged items were $500 million which were terminated during the fourth quarter of 2019.
(b) The balance includes $5 million of hedging adjustment on discontinued hedging relationships.
The table below identifies the effect of fair value hedge accounting on the Corporation's consolidated statements of income during the twelve months ended December 31, 2019:
Location and Amount of Gain or (Loss) Recognized on Consolidated Statements of Income in Fair Value and Cash Flow Hedging Relationships
Year Ended December 31, 2019 Year Ended December 31, 2018
($ in Thousands) Interest Income Other Income (Expense) Interest Income Other Income (Expense)
Total amounts of income and expense line items presented on the consolidated statements of income in which the effects of fair value or cash flow hedges are recorded(a)
$ (448)   $ —    $ (1,325)   $ —   
The effects of fair value and cash flow hedging: Gain or (loss) on fair value hedging relationships in Subtopic 815-20
Interest contracts
Hedged items 5,871    —    (502)   —   
Derivatives designated as hedging instruments(a)
(6,319)   —    (823)   —   
(a) Includes net settlements on the derivatives
The table below identifies the effect of derivatives not designated as hedging instruments on the Corporation's consolidated statements of income during the twelve months ended December 31, 2019 and 2018:
Consolidated Statements of Income Category of
Gain / (Loss) Recognized in Income
For the Year Ended December 31,
($ in Thousands) 2019 2018
Derivative Instruments
Interest rate-related instruments — customer and mirror, net Capital market fees, net $ (1,393)   $ (316)  
Interest rate lock commitments (mortgage) Mortgage banking, net 319    670   
Forward commitments (mortgage) Mortgage banking, net 1,362    (1,759)  
Foreign currency exchange forwards Capital market fees, net 132    (110)  
Commodity contracts Capital market fees, net (1,763)   (314)  

Note 15 Balance Sheet Offsetting
Interest Rate-Related Instruments, Commodity Contracts, and Foreign Exchange Forwards (“Interest, Commodity, and Foreign Exchange Agreements”)

The Corporation enters into interest rate-related instruments to facilitate the interest rate risk management strategies of commercial customers, commodity contracts to manage commercial customers' exposure to fluctuating commodity prices, and foreign exchange forwards to manage customers' exposure to fluctuating foreign exchange rates. The Corporation mitigates these risks by entering into equal and offsetting agreements with highly rated third-party financial institutions. The Corporation is party to master netting arrangements with its financial institution counterparties that create single net settlements of all legal claims or obligations to pay or receive the net amount of settlement of the individual interest, commodity, and foreign exchange agreements. Collateral, usually in the form of investment securities and cash, is posted by the counterparty with net liability positions in accordance with contract thresholds. Derivatives subject to a legally enforceable master netting agreement are reported on a net basis, net of cash collateral, in other assets and accrued expenses and other liabilities, on the face of the consolidated balance sheets. In the third quarter of 2019, the Corporation elected to offset derivative assets and liabilities and cash collateral with the same counterparty where it has a legally enforceable master netting agreement in place. See the
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derivatives section within Note 1 for additional information on the change in accounting policy and Note 14 for additional information on the Corporation’s derivative and hedging activities.
Securities Sold Under Agreement to Repurchase
The Corporation enters into agreements under which it sells securities subject to an obligation to repurchase the same or similar securities. These repurchase agreements are accounted for as collateralized financing arrangements (i.e., secured borrowings) and not as a sale and subsequent repurchase of securities (i.e., there is no offsetting or netting of the investment securities assets with the repurchase agreement liabilities). The right of set-off for a repurchase agreement resembles a secured borrowing, whereby the collateral would be used to settle the fair value of the repurchase agreement should the Corporation be in default (e.g., fails to make an interest payment to the counterparty). In addition, the Corporation does not enter into reverse repurchase agreements; therefore, there is no such offsetting to be done with the repurchase agreements. See Note 9 for additional disclosures on repurchase agreements.
The following table presents the assets and liabilities subject to an enforceable master netting arrangement. The interest, commodity and foreign exchange agreements we have with our commercial customers are not subject to an enforceable master netting arrangement, and therefore, are excluded from this table:
  Gross Amounts Subject to Master Netting Arrangements Offset on the Consolidated Balance Sheets Net Amounts Presented on the Consolidated Balance Sheets Gross Amounts Not Offset on the Consolidated Balance Sheets
 ($ in Thousands)
Gross Amounts Recognized Derivative Liabilities Offset Cash Collateral Received Net
Amount
Derivative assets(a)
December 31, 2019 $ 11,864    $ (10,410)   $ (1,408)   $ 45    $ —    $ 45   
December 31, 2018 65,596    (5,322)   (27,593)   32,681    (31,837)   843   
Gross Amounts Subject to Master Netting Arrangements Offset on the Consolidated Balance Sheets Net Amounts Presented on the Consolidated Balance Sheets Gross Amounts Not Offset on the Consolidated Balance Sheets
 ($ in Thousands) Gross Amounts Recognized Derivative Assets Offset Cash Collateral Pledged Net
Amount
Derivative liabilities(a)
December 31, 2019 $ 22,189    $ (10,410)   $ (11,365)   $ 413    $ —    $ 413   
December 31, 2018 22,951    (5,322)   (63)   17,567    (17,551)   16   
(a) Includes interest, commodity, and foreign exchange agreements.

Note 16 Commitments, Off-Balance Sheet Arrangements, and Legal Proceedings
The Corporation utilizes a variety of financial instruments in the normal course of business to meet the financial needs of its customers and to manage its own exposure to fluctuations in interest rates. These financial instruments include lending-related and other commitments (see below) as well as derivative instruments (see Note 14). The following is a summary of lending-related commitments:
($ in Thousands) 2019 2018
Commitments to extend credit, excluding commitments to originate residential mortgage loans held for sale(a)(b)
$ 9,024,412    $ 8,720,293   
Commercial letters of credit(a)
7,081    7,599   
Standby letters of credit(c)
277,969    255,904   
(a) These off-balance sheet financial instruments are exercisable at the market rate prevailing at the date the underlying transaction will be completed and, thus, are deemed to have no current fair value, or the fair value is based on fees currently charged to enter into similar agreements and was not material at December 31, 2019 and 2018.
(b) Interest rate lock commitments to originate residential mortgage loans held for sale are considered derivative instruments and are disclosed in Note 14.
(c) The Corporation has established a liability of $3 million and $2 million at December 31, 2019 and December 31, 2018, respectively, as an estimate of the fair value of these financial instruments.
Lending-related Commitments
As a financial services provider, the Corporation routinely enters into commitments to extend credit. Such commitments are subject to the same credit policies and approval process accorded to loans made by the Corporation, with each customer’s creditworthiness evaluated on a case-by-case basis. The commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. The Corporation’s exposure to credit loss in the event of nonperformance by the other party to these financial instruments is represented by the contractual amount of those instruments. The amount of
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collateral obtained, if deemed necessary by the Corporation upon extension of credit, is based on management’s credit evaluation of the customer. Since a significant portion of commitments to extend credit are subject to specific restrictive loan covenants or may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash flow requirements. An allowance for unfunded commitments is maintained at a level believed by management to be sufficient to absorb estimated probable losses related to unfunded commitments (including unfunded loan commitments and letters of credit). The allowance for unfunded commitments totaled $22 million and $24 million at December 31, 2019 and December 31, 2018, respectively, and is included in accrued expenses and other liabilities on the consolidated balance sheets. See Note 1 for the Corporation’s accounting policy on the allowance for unfunded commitments. See Note 4 for additional information on the allowance for unfunded commitments.
Lending-related commitments include commitments to extend credit, commitments to originate residential mortgage loans held for sale, commercial letters of credit, and standby letters of credit. Commitments to extend credit are legally binding agreements to lend to customers at predetermined interest rates, as long as there is no violation of any condition established in the contracts. Interest rate lock commitments to originate residential mortgage loans held for sale and forward commitments to sell residential mortgage loans are considered derivative instruments, and the fair value of these commitments is recorded on the consolidated balance sheets. The Corporation’s derivative and hedging activity is further described in Note 14. Commercial and standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Commercial letters of credit are issued specifically to facilitate commerce and typically result in the commitment being drawn on when the underlying transaction is consummated between the customer and the third party, while standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party.
Other Commitments
The Corporation invests in qualified affordable housing projects, federal and state historic projects, new market projects, and opportunity zone funds for the purpose of community reinvestment and obtaining tax credits and other tax benefits. Return on the Corporation's investment in these projects and funds comes in the form of tax credits and tax losses that pass through to the Corporation, and deferral or elimination of capital gain recognition for tax purposes. The aggregate carrying value of these investments at December 31, 2019, was $248 million, compared to $136 million at December 31, 2018, included in tax credit and other investments on the consolidated balance sheets. The Corporation utilizes the proportional amortization method to account for investments in qualified affordable housing projects.
Under the proportional amortization method, the Corporation amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits. The Corporation recognized additional income tax expense attributable to the amortization of investments in qualified affordable housing projects of $19 million, $17 million, and $8 million during the years ended December 31, 2019, 2018, and 2017, respectively. The Corporation's remaining investment in qualified affordable housing projects accounted for under the proportional amortization method totaled $234 million at December 31, 2019 and $132 million at December 31, 2018.
The Corporation’s unfunded equity contributions relating to investments in qualified affordable housing, federal and state historic projects, and new market projects are recorded in accrued expenses and other liabilities on the consolidated balance sheets. The Corporation’s remaining unfunded equity contributions totaled $123 million and $51 million at December 31, 2019 and 2018, respectively.
During the years ended December 31, 2019 and 2018, the Corporation did not record any impairment related to qualified affordable housing investments.
The Corporation has principal investment commitments to provide capital-based financing to private and public companies through either direct investment in specific companies or through investment funds and partnerships. The timing of future cash requirements to fund such principal investment commitments is generally dependent on the investment cycle, whereby privately held companies are funded by private equity investors and ultimately sold, merged, or taken public through an initial offering, which can vary based on overall market conditions, as well as the nature and type of industry in which the companies operate. The Corporation also invests in loan pools that support CRA loans. The timing of future cash requirements to fund these pools is dependent upon loan demand, which can vary over time. The aggregate carrying value of these investments at December 31, 2019, was $26 million, compared to $25 million at December 31, 2018, included in tax credit and other investments on the consolidated balance sheets.
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Legal Proceedings
The Corporation is party to various pending and threatened claims and legal proceedings arising in the normal course of business activities, some of which involve claims for substantial amounts. Although there can be no assurance as to the ultimate outcomes, the Corporation believes it has meritorious defenses to the claims asserted against it in its currently outstanding matters and intends to continue to defend itself vigorously with respect to such legal proceedings. The Corporation will consider settlement of cases when, in management’s judgment, it is in the best interests of the Corporation and its shareholders.
On at least a quarterly basis, the Corporation assesses its liabilities and contingencies in connection with all pending or threatened claims and litigation, utilizing the most recent information available. On a matter by matter basis, an accrual for loss is established for those matters which the Corporation believes it is probable that a loss may be incurred and that the amount of such loss can be reasonably estimated. Once established, each accrual is adjusted as appropriate to reflect any subsequent developments. Accordingly, management’s estimate will change from time to time, and actual losses may be more or less than the current estimate. For matters where a loss is not probable, or the amount of the loss cannot be estimated, no accrual is established.
Resolution of legal claims is inherently unpredictable, and in many legal proceedings various factors exacerbate this inherent unpredictability, including where the damages sought are unsubstantiated or indeterminate, it is unclear whether a case brought as a class action will be allowed to proceed on that basis, discovery is not complete, the proceeding is not yet in its final stages, the matters present legal uncertainties, there are significant facts in dispute, there are a large number of parties (including where it is uncertain how liability, if any, will be shared among multiple defendants), or there is a wide range of potential results.
The Corporation does not believe it is presently subject to any legal proceedings the resolution of which would have a material adverse effect on our business, financial condition, operating results, or cash flows.
Regulatory Matters
A variety of consumer products, including mortgage and deposit products, and certain fees and charges related to such products, have come under increased regulatory scrutiny. It is possible that regulatory authorities could bring enforcement actions, including civil money penalties, or take other actions against the Corporation and the Bank in regard to these consumer products. The Bank could also determine of its own accord, or be required by regulators, to refund or otherwise make remediation payments to customers in connection with these products. It is not possible at this time for management to assess the probability of a material adverse outcome or reasonably estimate the amount of any potential loss related to such matters.
Mortgage Repurchase Reserve
The Corporation sells residential mortgage loans to investors in the normal course of business. Residential mortgage loans sold to others are predominantly conventional residential first lien mortgages originated under the Corporation's usual underwriting procedures, and are most often sold on a nonrecourse basis, primarily to the GSEs. The Corporation’s agreements to sell residential mortgage loans in the normal course of business usually require certain representations and warranties on the underlying loans sold, related to credit information, loan documentation, collateral, and insurability. Subsequent to being sold, if a material underwriting deficiency or documentation defect is discovered, the Corporation may be obligated to repurchase the loan or reimburse the GSEs for losses incurred (collectively, “make whole requests”). The make whole requests and any related risk of loss under the representations and warranties are largely driven by borrower performance.
As a result of make whole requests, the Corporation has repurchased loans with principal balances of approximately $2 million for both years ended December 31, 2019 and 2018. The loss reimbursement and settlement claims paid for the years ended December 31, 2019 and 2018, respectively, were negligible. Make whole requests during 2018 and 2019 generally arose from loans sold during the period of January 1, 2012 to December 31, 2018. Since January 1, 2012, loans sold totaled $12.5 billion at the time of sale, and consisted primarily of loans sold to GSEs. As of December 31, 2019, approximately $7.4 billion of these sold loans remain outstanding.
The balance in the mortgage repurchase reserve at the balance sheet date reflects the estimated amount of potential loss the Corporation could incur from repurchasing a loan, as well as loss reimbursements, indemnifications, and other settlement resolutions. The mortgage repurchase reserve was approximately $795,000 and $752,000 at December 31, 2019 and 2018, respectively.
The Corporation may also sell residential mortgage loans with limited recourse (limited in that the recourse period ends prior to the loan’s maturity, usually after certain time and / or loan paydown criteria have been met), whereby repurchase could be required if the loan had defined delinquency issues during the limited recourse periods. At December 31, 2019 and December 31, 2018, there were approximately $39 million and $47 million, respectively, of residential mortgage loans sold
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with such recourse risk. There have been limited instances and immaterial historical losses on repurchases for recourse under the limited recourse criteria.
The Corporation has a subordinate position to the FHLB in the credit risk on residential mortgage loans it sold to the FHLB in exchange for a monthly credit enhancement fee. The Corporation has not sold loans to the FHLB with such credit risk retention since February 2005. At December 31, 2019 and December 31, 2018, there were $45 million and $57 million, respectively, of such residential mortgage loans with credit risk recourse, upon which there have been negligible historical losses to the Corporation.
Note 17 Parent Company Only Financial Information
Presented below are condensed financial statements for the Parent Company:
Balance Sheets

December 31,
($ in Thousands) 2019 2018
Assets
Cash and due from banks $ 17,427    $ 16,245   
Interest-bearing deposits in other financial institutions 27,186    38,374   
Notes and interest receivable from subsidiaries 201,551    453,615   
Investments in and receivable due from subsidiaries 3,925,596    3,787,574   
Other assets 46,234    47,448   
Total assets $ 4,217,994    $ 4,343,256   
Liabilities and Stockholders' Equity
Commercial paper $ 32,016    $ 45,423   
Senior notes, at par —    250,000   
Subordinated notes, at par 250,000    250,000   
Long-term funding capitalized costs (1,428)   (2,043)  
Total long-term funding 248,572    497,957   
Accrued expenses and other liabilities 15,282    18,988   
Total liabilities 295,870    562,368   
Preferred equity 256,716    256,716   
Common equity 3,665,407    3,524,171   
Total stockholders’ equity 3,922,124    3,780,888   
Total liabilities and stockholders’ equity $ 4,217,994    $ 4,343,256   

Statements of Income

  For the Years Ended December 31,
($ in Thousands) 2019 2018 2017
Income
Income from subsidiaries $ 341,789    $ 354,637    $ 253,485   
Interest income on notes receivable from subsidiaries 13,983    12,199    4,175   
Other income 761    994    1,763   
Total income 356,532    367,830    259,423   
Expense
Interest expense on short and long-term funding 16,802    18,355    18,464   
Other expense 6,583    11,736    6,927   
Total expense 23,384    30,091    25,391   
Income before income tax expense 333,148    337,739    234,032   
Income tax expense 6,359    4,176    4,768   
Net income 326,790    333,562    229,264   
Preferred stock dividends 15,202    10,784    9,347   
Net income available to common equity $ 311,587    $ 322,779    $ 219,917   
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Statements of Cash Flows
  For the Years Ended December 31,
($ in Thousands) 2019 2018 2017
Cash Flows from Operating Activities
Net income $ 326,790    $ 333,562    $ 229,264   
Adjustments to reconcile net income to net cash provided by operating activities:
(Increase) decrease in equity in undistributed net income (loss) of subsidiaries (21,789)   (18,636)   (40,485)  
(Gain) loss on sales of assets, net —    —    (88)  
Net change in other assets and accrued expenses and other liabilities 265    (92,366)   (9,589)  
Net cash provided by operating activities 305,266    222,562    179,102   
Cash Flows from Investing Activities
Proceeds from sales of investment securities —    827    2,618   
Net (increase) decrease in notes receivable from subsidiaries 250,000    (139,317)   (300,000)  
Net (increase) decrease in loans —    2,210    1,058   
Net cash provided by (used in) investing activities 250,000    (136,280)   (296,324)  
Cash Flows from Financing Activities
Net increase (decrease) in commercial paper (13,406)   (22,044)   (34,221)  
Redemption of Corporation's senior notes (250,000)   —    —   
Proceeds from issuance of common stock for stock-based compensation plans 11,216    18,408    27,619   
Proceeds from issuance of preferred stock —    97,315    —   
Purchase of preferred stock —    (537)   —   
Common stock warrants exercised —    (1)   —   
Purchase of common stock returned to authorized but unissued —    (33,075)   (37,031)  
Issuance of treasury stock for acquisition —    91,296    —   
Purchase of treasury stock (186,076)   (213,598)   (9,290)  
Cash dividends on common stock (111,804)   (105,519)   (76,417)  
Cash dividends on preferred stock (15,202)   (10,784)   (9,347)  
Net cash used in financing activities (565,272)   (178,540)   (138,687)  
Net increase (decrease) in cash and cash equivalents (10,006)   (92,258)   (255,909)  
Cash and cash equivalents at beginning of year 54,619    146,877    402,786   
Cash and cash equivalents at end of year $ 44,613    $ 54,619    $ 146,877   

Note 18 Fair Value Measurements
Fair value represents the estimated price at which an orderly transaction to sell an asset or to transfer a liability would take place between market participants at the measurement date under current market conditions (i.e., an exit price concept). See Note 1 for the Corporation’s accounting policy for fair value measurements.
Following is a description of the valuation methodologies used for the Corporation’s more significant instruments measured on a recurring basis at fair value, including the general classification of such instruments pursuant to the valuation hierarchy.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Investment Securities Available For Sale: Where quoted prices are available in an active market, investment securities are classified in Level 1 of the fair value hierarchy. If quoted market prices are not available for the specific security, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows, with consideration given to the nature of the quote and the relationship of recently evidenced market activity to the fair value estimate, and are classified in Level 2 of the fair value hierarchy. Lastly, in certain cases where there is limited activity or less transparency around inputs to the estimated fair value, securities are classified within Level 3 of the fair value hierarchy. To validate the fair value estimates, assumptions, and controls, the Corporation looks to transactions for similar instruments and utilizes independent pricing provided by third party vendors or brokers and relevant market indices. While none of these sources are solely indicative of fair value, they serve as directional indicators for the appropriateness of the Corporation’s fair value estimates. The Corporation has determined that the fair value measures of its investment securities are classified predominantly within Level 2 of the fair value hierarchy. See Note 3 for additional disclosure regarding the Corporation’s investment securities.
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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. Since quoted prices for the Corporation's equity securities are readily available in an active market, they are classified within Level 1 of the fair value hierarchy. See Note 3 for additional disclosure regarding the Corporation’s equity securities.
Residential Loans Held For Sale: Residential loans held for sale, which consist generally of current production of certain fixed-rate, first-lien residential mortgage loans, are carried at estimated fair value. Management has elected the fair value option to account for all newly originated mortgage loans held for sale, which results in the financial impact of changing market conditions being reflected currently in earnings as opposed to being dependent upon the timing of sales. Therefore, the continually adjusted values better reflect the price the Corporation expects to receive from the sale of such loans. The estimated fair value is based on what secondary markets are currently offering for portfolios with similar characteristics, which the Corporation classifies as a Level 2 fair value measurement.
Derivative Financial Instruments (Interest Rate-Related Instruments): The Corporation utilizes interest rate swaps to hedge exposure to interest rate risk and variability of fair value related to changes in the underlying interest rate of the hedged item. These hedged interest rate swaps are classified as fair value hedges. During the fourth quarter of 2019, the Corporation terminated the outstanding fair value hedges. See Note 14 for additional disclosure regarding the Corporation's fair value hedges.
In addition, the Corporation offers interest rate-related instruments (swaps and caps) to service its customers’ needs, for which the Corporation simultaneously enters into offsetting derivative financial instruments (i.e., mirror interest rate-related instruments) with third parties to manage its interest rate risk associated with these financial instruments. The valuation of the Corporation’s derivative financial instruments is determined using discounted cash flow analysis on the expected cash flows of each derivative and also includes a nonperformance / credit risk component (credit valuation adjustment). See Note 14 for additional disclosure regarding the Corporation’s interest rate-related instruments.
The discounted cash flow analysis component in the fair value measurement reflects the contractual terms of the derivative financial instruments, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. More specifically, the fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) with the variable cash payments (or receipts) based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. Likewise, the fair values of interest rate options (i.e., interest rate caps) are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates fall below (or rise above) the strike rate of the floors (or caps), with the variable interest rates used in the calculation of projected receipts on the floor (or cap) based on an expectation of future interest rates derived from observable market interest rate curves and volatilities.
The Corporation also incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative financial instruments for the effect of nonperformance risk, the Corporation has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.
While the Corporation has determined that the majority of the inputs used to value its interest rate-related derivative financial instruments fall within Level 2 of the fair value hierarchy, the credit valuation adjustments utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. The Corporation has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions as of December 31, 2019 and 2018, and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivative financial instruments. Therefore, the Corporation has determined that the fair value measures of its derivative financial instruments in their entirety are classified within Level 2 of the fair value hierarchy.
Derivative Financial Instruments (Foreign Currency Exchange Forwards):  The Corporation provides foreign currency exchange services to customers. In addition, the Corporation may enter into a foreign currency exchange forward to mitigate the exchange rate risk attached to the cash flows of a loan or as an offsetting contract to a forward entered into as a service to its customer. The valuation of the Corporation’s foreign currency exchange forwards is determined using quoted prices of foreign currency exchange forwards with similar characteristics, with consideration given to the nature of the quote and the relationship of recently evidenced market activity to the fair value estimate, and is classified within Level 2 of the fair value hierarchy. See Note 14 for additional disclosures regarding the Corporation’s foreign currency exchange forwards.
Derivative Financial Instruments (Commodity Contracts):  The Corporation enters into commodity contracts to manage commercial customers' exposure to fluctuating commodity prices, for which the Corporation simultaneously enters into offsetting derivative financial instruments (i.e., mirror commodity contracts) with third parties to manage its risk associated
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with these financial instruments. The valuation of the Corporation’s commodity contracts is determined using quoted prices of the underlying instruments, and also includes a nonperformance / credit risk component (credit valuation adjustment). See Note 14 for additional disclosures regarding the Corporation’s commodity contracts.
The Corporation also incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty's nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative financial instruments for the effect of nonperformance risk, the Corporation has considered the impact of netting and any applicable credit enhancements, such as collateral postings.
While the Corporation has determined that the majority of the inputs used to value its derivative financial instruments fall within Level 2 of the fair value hierarchy, the credit valuation adjustments utilize Level 3 inputs, such as probability of default and loss given default of the underlying loans to evaluate the likelihood of default by itself and its counterparties. The Corporation has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions as of December 31, 2019 and 2018, and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivative financial instruments. Therefore, the Corporation has determined that the fair value measures of its derivative financial instruments in their entirety are classified within Level 2 of the fair value hierarchy.
The table below presents the Corporation’s financial instruments measured at fair value on a recurring basis as of December 31, 2019 and 2018, aggregated by the level in the fair value hierarchy within which those measurements fall:
($ in Thousands) Fair Value Hierarchy December 31, 2019 December 31, 2018
Assets
Investment securities available for sale
U.S. Treasury securities  Level 1    $ —    $ 999   
Obligations of state and political subdivisions (municipal securities) Level 2    546,160    —   
Residential mortgage-related securities
FNMA / FHLMC  Level 2    132,660    295,252   
GNMA  Level 2    985,139    2,128,531   
Private-label  Level 2    —    1,003   
Commercial mortgage-related securities
FNMA / FHLMC Level 2    21,728    —   
GNMA  Level 2    1,310,207    1,220,797   
FFELP asset-backed securities  Level 2    263,693    297,360   
Other debt securities  Level 2    3,000    3,000   
Total investment securities available for sale  Level 1    —    999   
Total investment securities available for sale  Level 2    3,262,586    3,945,943   
Equity securities with readily determinable fair values Level 1    1,646    1,568   
Residential loans held for sale
 Level 2    136,280    64,321   
Interest rate-related instruments(a)
 Level 2    77,024    52,796   
Foreign currency exchange forwards(a)
 Level 2    4,226    721   
Commodity contracts(a)
 Level 2    20,528    35,426   
Purchased options (time deposit) Level 2    —    109   
Interest rate lock commitments to originate residential mortgage loans held for sale  Level 3    2,527    2,208   
Liabilities
Interest rate-related instruments(a)
 Level 2    $ 13,073    $ 52,653   
Foreign currency exchange forwards(a)
 Level 2    4,048    675   
Commodity contracts(a)
Level 2    19,624    34,340   
Written options (time deposit)  Level 2    —    109   
Interest rate products (designated as hedging instruments) Level 2    —    40   
Forward commitments to sell residential mortgage loans  Level 3    710    2,072   
(a) Figures presented gross before netting. See Note 14 and Note 15 for information relating to the impact of offsetting derivative assets and liabilities and cash collateral with the same counterparty where there is a legally enforceable master netting agreement in place.



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The table below presents a rollforward of the consolidated balance sheets amounts for the years ended December 31, 2019 and 2018, for financial instruments measured on a recurring basis and classified within Level 3 of the fair value hierarchy:
($ in Thousands) Derivative Financial Instruments
Balance December 31, 2017 $ 1,225   
Total net gains (losses) included in income
Mortgage derivative gain (loss) (1,085)  
Balance December 31, 2018 $ 140   
Total net gains (losses) included in income
Mortgage derivative gain (loss) 1,681   
Balance December 31, 2019 $ 1,817   

For Level 3 assets and liabilities measured at fair value on a recurring basis as of December 31, 2019, the Corporation utilized the following valuation techniques and significant unobservable inputs:
Derivative Financial Instruments (Mortgage Derivative — Interest Rate Lock Commitments to Originate Residential Mortgage Loans Held For Sale):  The fair value is determined by the change in value from each loan's rate lock date to the expected rate lock expiration date based on the underlying loan attributes, estimated closing ratios, and investor price matrix determined to be reasonably applicable to each loan commitment. The closing ratio calculation takes into consideration historical experience and loan-level attributes, particularly the change in the current interest rates from the time of initial rate lock. The closing ratio is periodically reviewed for reasonableness and reported to the Associated Mortgage Risk Management Committee. At December 31, 2019, the closing ratio was 86%.
Derivative Financial Instruments (Mortgage Derivative—Forward Commitments to Sell Mortgage Loans):  Mortgage derivatives include forward commitments to deliver closed-end residential mortgage loans into conforming Agency MBS or conforming Cash Forward sales. The fair value of such instruments is determined by the difference of current market prices for such traded instruments or available from forward cash delivery commitments and the original traded price for such commitments.
The Corporation also relies on an internal valuation model to estimate the fair value of its forward commitments to sell residential mortgage loans (i.e., an estimate of what the Corporation would receive or pay to terminate the forward delivery contract based on market prices for similar financial instruments), which includes matching specific terms and maturities of the forward commitments against applicable investor pricing available. While there are Level 2 and 3 inputs used in the valuation models, the Corporation has determined that the majority of the inputs significant in the valuation of both of the mortgage derivatives fall within Level 3 of the fair value hierarchy. See Note 14 for additional disclosure regarding the Corporation’s mortgage derivatives.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Following is a description of the valuation methodologies used for the Corporation’s more significant instruments measured on a nonrecurring basis at the lower of amortized cost or estimated fair value, including the general classification of such instruments pursuant to the valuation hierarchy.
Commercial Loans Held For Sale:  Commercial loans held for sale are carried at the lower of cost or estimated fair value. The estimated fair value is based on a discounted cash flow analysis, which the Corporation classifies as a Level 2 nonrecurring fair value measurement.
OREO: Certain OREO, upon initial recognition, was re-measured and reported at fair value through a charge off to the allowance for loan losses based upon the estimated fair value of the OREO, less estimated selling costs. The fair value of OREO, upon initial recognition or subsequent impairment, was estimated using appraised values, which the Corporation classifies as a Level 2 nonrecurring fair value measurement.
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For Level 3 assets and liabilities measured at fair value on a nonrecurring basis as of December 31, 2019, the Corporation utilized the following valuation techniques and significant unobservable inputs.
Impaired Loans:  The Corporation considers a loan impaired when it is probable that the Corporation will be unable to collect all amounts due according to the original contractual terms of the note agreement, including both principal and interest. Management has determined that commercial and consumer loan relationships that have nonaccrual status or have had their terms restructured in a troubled debt restructuring meet this impaired loan definition. For individually evaluated impaired loans, the amount of impairment is based upon the present value of expected future cash flows discounted at the loan’s effective interest rate, the estimated fair value of the underlying collateral for collateral-dependent loans, or the estimated liquidity of the note. See Note 4 for additional information regarding the Corporation’s impaired loans.
Mortgage Servicing Rights:  MSRs do not trade in an active, open market with readily observable prices. While sales of MSRs do occur, the precise terms and conditions typically are not readily available to allow for a “quoted price for similar assets” comparison. Accordingly, the Corporation utilizes an independent valuation from a third party which uses a discounted cash flow model to estimate the fair value of its MSRs. The valuation model incorporates prepayment assumptions to project MSRs cash flows based on the current interest rate scenario, which is then discounted to estimate an expected fair value of the MSRs. The valuation model considers portfolio characteristics of the underlying mortgages, contractually specified servicing fees, prepayment assumptions, discount rate assumptions, delinquency rates, late charges, other ancillary revenue, costs to service, and other economic factors. The Corporation periodically reviews and assesses the underlying inputs and assumptions used in the model. In addition, the Corporation compares its fair value estimates and assumptions to observable market data for MSRs, where available, and to recent market activity and actual portfolio experience. Due to the nature of the valuation inputs, MSRs are classified within Level 3 of the fair value hierarchy. The Corporation uses the amortization method (i.e., lower of amortized cost or estimated fair value measured on a nonrecurring basis), not fair value measurement accounting, for its MSRs assets.
The discounted cash flow analyses that generate expected market prices utilize the observable characteristics of the MSRs portfolio, as well as certain unobservable valuation parameters. The significant unobservable inputs used in the fair value measurement of the Corporation’s MSRs are the weighted average constant prepayment rate and weighted average discount rate. Significant increases (decreases) in any of those inputs in isolation could result in a significantly lower (higher) fair value measurement.
These parameter assumptions fall within a range that the Corporation, in consultation with an independent third party, believes purchasers of servicing would apply to such portfolios sold into the current secondary servicing market. Discussions are held with members from Treasury and the Community, Consumer, and Business segment to reconcile the fair value estimates and the key assumptions used by the respective parties in arriving at those estimates. The Associated Mortgage Risk Management Committee is responsible for providing control over the valuation methodology and key assumptions. To assess the reasonableness of the fair value measurement, the Corporation also compares the fair value and constant prepayment rate to a value calculated by an independent third party on an annual basis. See Note 5 for additional disclosure regarding the Corporation’s MSRs.
Equity Securities Without Readily Determinable Fair Values: The Corporation measures equity securities without readily determinable fair values at cost less impairment (if any), plus or minus observable price changes from an identical or similar investment of the same issuer, with such changes recognized in earnings. Included in equity securities without readily determinable fair values are 77,000 Visa Class B restricted shares carried at fair value. These shares are currently subject to certain transfer restrictions and will be convertible into Visa Class A shares upon final resolution of certain litigation matters involving Visa. Based on the current conversion factor, the Corporation expects 77,000 shares of Visa Class B to convert to 124,956 shares of Visa Class A upon the litigation resolution.
In its determination of the new carrying values upon observable price changes, the Corporation will adjust the prices if deemed necessary to arrive at the Corporation's estimated fair values. Such adjustments may include adjustments to reflect the different rights and obligations of similar securities and other adjustments. See Note 3 for additional disclosure regarding the Corporation’s equity securities without readily determinable fair values.
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The following table presents the carrying value of equity securities without readily determinable fair values still held as of December 31, 2019 that are measured under the measurement alternative and the related adjustments recorded during the periods presented for those securities with observable price changes. These securities are included in the nonrecurring fair value tables when applicable price changes are observable. Also shown are the cumulative upward and downward adjustments for the Corporation's equity securities without readily determinable fair values as of December 31, 2019:

($ in Thousands)
Equity securities without readily determinable fair values
Carrying value as of December 31, 2018 $ —   
Upward carrying value changes 13,444   
Carrying value as of December 31, 2019 $ 13,444   
Cumulative upward carrying value changes between January 1, 2018 and December 31, 2019 $ 13,444   
Cumulative downward carrying value changes between January 1, 2018 and December 31, 2019 $ —   

The table below presents the Corporation’s assets measured at fair value on a nonrecurring basis, aggregated by the level in the fair value hierarchy within which those measurements fall:
($ in Thousands) Fair Value Hierarchy Fair Value Consolidated Statements of Income Category of
Adjustment Recognized in Income
Adjustment Recognized on the Consolidated Statements of Income
December 31, 2019
Assets
Impaired loans(a)
Level 3    $ 45,792   
Provision for credit losses(b)
$ (66,172)  
OREO(c)
Level 2    3,565    Other noninterest expense    (1,860)  
Mortgage servicing rights Level 3    72,532    Mortgage banking, net    (63)  
Equity securities Level 3 13,444    Investment securities gains (losses), net 13,444   
December 31, 2018
Assets
Impaired loans(a)
Level 3    $ 26,191   
Provision for credit losses(b)
$ (14,521)  
OREO(c)
Level 2    2,200    Other noninterest expense    (1,545)  
Mortgage servicing rights Level 3    81,012    Mortgage banking, net    545   
(a) Represents individually evaluated impaired loans, net of the related allowance for loan losses.
(b) Represents provision for credit losses on individually evaluated impaired loans.
(c) If the fair value of the collateral exceeds the carrying amount of the asset, no charge off or adjustment is necessary, the asset is not considered to be carried at fair value, and is therefore not included in the table.
Certain nonfinancial assets and nonfinancial liabilities measured at fair value on a nonrecurring basis include the fair value analysis in the second step of a goodwill impairment test, and intangible assets and other nonfinancial long-lived assets measured at fair value for impairment assessment.
The Corporation's significant Level 3 measurements which employ unobservable inputs that are readily quantifiable pertain to MSRs and impaired loans.
The table below presents information about these inputs and further discussion is found above:
December 31, 2019 Valuation Technique Significant Unobservable Input Weighted Average Input Applied
Mortgage servicing rights Discounted cash flow    Discount rate    9%   
Mortgage servicing rights Discounted cash flow    Constant prepayment rate    12%   
Impaired loans Appraisals / Discounted cash flow    Collateral / Discount factor    44%   

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Fair Value of Financial Instruments
The Corporation is required to disclose estimated fair values for its financial instruments.
Fair value estimates are set forth below for the Corporation’s financial instruments:
  December 31, 2019 December 31, 2018
($ in Thousands) Fair Value Hierarchy Level Carrying Amount Fair Value Carrying Amount Fair Value
Financial assets
Cash and due from banks  Level 1    $ 373,380    $ 373,380    $ 507,187    $ 507,187   
Interest-bearing deposits in other financial institutions  Level 1    207,624    207,624    221,226    221,226   
Federal funds sold and securities purchased under agreements to resell  Level 1    7,740    7,740    148,285    148,285   
Investment securities held to maturity Level 1    999    1,018    —    —   
Investment securities held to maturity Level 2    2,204,084    2,275,447    2,740,511    2,710,271   
Investment securities available for sale  Level 1    —    —    999    999   
Investment securities available for sale Level 2    3,262,586    3,262,586    3,945,943    3,945,943   
Equity securities with readily determinable fair values Level 1    1,646    1,646    1,568    1,568   
Equity securities without readily determinable fair values Level 3    13,444    13,444    —    —   
FHLB and Federal Reserve Bank stocks Level 2    227,347    227,347    250,534    250,534   
Residential loans held for sale Level 2    136,280    136,280    64,321    64,321   
Commercial loans held for sale Level 2    15,000    15,000    14,943    14,943   
Loans, net Level 3    22,620,068    22,399,621    22,702,406    22,317,395   
Bank and corporate owned life insurance Level 2    671,948    671,948    663,203    663,203   
Derivatives (other assets)(a)
Level 2    101,778    101,778    89,052    89,052   
Interest rate lock commitments to originate residential mortgage loans held for sale (other assets) Level 3    2,527    2,527    2,208    2,208   
Financial liabilities
Noninterest-bearing demand, savings, interest-bearing demand, and money market accounts Level 3    $ 21,156,261    $ 21,156,261    $ 22,081,992    $ 22,081,992   
Brokered CDs and other time deposits(b)
Level 2    2,622,803    2,622,803    2,815,401    2,815,401   
Short-term funding(c)
Level 2    465,113    465,113    157,074    157,074   
Long-term funding Level 2    549,343    588,774    795,611    826,612   
FHLB advances Level 2    3,180,967    3,207,793    3,574,371    3,565,572   
Standby letters of credit(d)
Level 2    2,710    2,710    2,482    2,482   
Derivatives (accrued expenses and other liabilities)(a)
Level 2    36,745    36,745    87,817    87,817   
Forward commitments to sell residential mortgage loans (accrued expenses and other liabilities)  Level 3    710    710    2,072    2,072   
(a) Figures presented gross before netting. See Note 14 and Note 15 for information relating to the impact of offsetting derivative assets and liabilities and cash collateral with the same counterparty where there is a legally enforceable master netting agreement in place.
(b) When the estimated fair value is less than the carrying value, the carrying value is reported as the fair value.
(c) The carrying amount is a reasonable estimate of fair value for existing short-term funding.
(d) The commitment on standby letters of credit was $278 million and $256 million at December 31, 2019 and 2018, respectively. See Note 16 for additional information on the standby letters of credit and for information on the fair value of lending-related commitments.

Note 19 Regulatory Matters
Restrictions on Cash and Due From Banks
The Corporation’s bank subsidiary is required to maintain certain vault cash and reserve balances with the Federal Reserve Bank to meet specific reserve requirements. These requirements approximated $189 million at December 31, 2019.
Regulatory Capital Requirements
The Corporation and its subsidiary bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Corporation’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation must meet specific capital guidelines that involve quantitative measures of the Corporation’s assets, liabilities, and certain off-
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balance sheet items as calculated under regulatory accounting practices. The Corporation’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Corporation to maintain minimum amounts and ratios (set forth in the table below) of total and Common equity Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of December 31, 2019 and 2018, that the Corporation meets all capital adequacy requirements to which it is subject.
For additional information on the capital requirements applicable for the Corporation and the Bank, please see Part I, Item 1.
As of December 31, 2019 and 2018, the most recent notifications from the OCC and the FDIC categorized the subsidiary bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the subsidiary bank must maintain minimum ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the institution’s category. The actual capital amounts and ratios of the Corporation and its significant subsidiary are presented below. No deductions from capital were made for interest rate risk in 2019 or 2018.
  Actual For Capital Adequacy
Purposes
To Be Well Capitalized
Under Prompt Corrective
Action Provisions(b)
($ in Thousands) Amount
Ratio(a)
Amount
Ratio(a)
Amount    
Ratio(a)    
As of December 31 , 2019
Associated Banc-Corp
Total capital $ 3,208,625    13.21  % $ 1,943,711     ≥ 8.00  %
Tier 1 capital 2,736,776    11.26  % 1,457,783     ≥ 6.00  %
Common equity Tier 1 capital 2,480,698    10.21  % 1,093,337     ≥ 4.50  %
Leverage 2,736,776    8.83  % 1,239,431    4.00  %
Associated Bank, N.A.
Total capital $ 2,892,650    11.95  % $ 1,936,732    8.00  % $ 2,420,915    10.00  %
Tier 1 capital 2,669,372    11.03  % 1,452,549     ≥ 6.00  % 1,936,732    8.00  %
Common equity Tier 1 capital 2,469,578    10.20  % 1,089,412     ≥ 4.50  % 1,573,595    6.50  %
Leverage 2,669,372    8.63  % 1,236,565    4.00  % 1,545,706    5.00  %
As of December 31 , 2018
Associated Banc-Corp
Total capital $ 3,216,575    13.49  % $ 1,907,403    8.00  %
Tier 1 capital 2,705,939    11.35  % 1,430,553     ≥ 6.00  %
Common equity Tier 1 capital 2,449,721    10.27  % 1,072,914     ≥ 4.50  %
Leverage 2,705,939    8.49  % 1,275,048     ≥ 4.00  %
Associated Bank, N.A.
Total capital $ 2,909,064    12.25  % $ 1,900,536    8.00  % $ 2,375,671    10.00  %
Tier 1 capital 2,646,705    11.14  % 1,425,402    6.00  % 1,900,536    8.00  %
Common equity Tier 1 capital 2,446,782    10.30  % 1,069,052     ≥ 4.50  % 1,544,186    6.50  %
Leverage 2,646,705    8.32  % 1,272,804     ≥ 4.00  % 1,591,006    5.00  %
(a) When fully phased-in on January 1, 2019, the Basel III capital rules included a capital conservation buffer of 2.5% that was added on top of each of the minimum risk-based capital ratios noted above. Implementation began on January 1, 2016 at the 0.625% level and has increased each subsequent January 1, until it reached 2.5% on January 1, 2019.
(b) Prompt corrective action provisions are not applicable at the bank holding company level.
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Note 20 Earnings Per Common Share
See Note 1 for the Corporation’s accounting policy on earnings per common share. Presented below are the calculations for basic and diluted earnings per common share:
  For the Years Ended December 31,
 ($ in Thousands, except per share data) 2019 2018 2017
Net income $ 326,790    $ 333,562    $ 229,264   
Preferred stock dividends (15,202)   (10,784)   (9,347)  
Net income available to common equity 311,587    322,779    219,917   
Common shareholder dividends (111,091)   (104,981)   (75,967)  
Unvested share-based payment awards (713)   (537)   (450)  
Undistributed earnings 199,784    217,260    143,500   
Undistributed earnings allocated to common shareholders 198,424    216,199    142,593   
Undistributed earnings allocated to unvested share-based payment awards 1,360    1,060    907   
Undistributed earnings $ 199,784    $ 217,260    $ 143,500   
Basic
Distributed earnings to common shareholders $ 111,091    $ 104,981    $ 75,967   
Undistributed earnings allocated to common shareholders 198,424    216,199    142,593   
Total common shareholders earnings, basic $ 309,514    $ 321,181    $ 218,560   
Diluted
Distributed earnings to common shareholders $ 111,091    $ 104,981    $ 75,967   
Undistributed earnings allocated to common shareholders 198,424    216,199    142,593   
Total common shareholders earnings, diluted $ 309,514    $ 321,181    $ 218,560   
Weighted average common shares outstanding $ 160,534    $ 167,345    $ 150,877   
Effect of dilutive common stock awards 1,398    1,985    2,038   
Effect of dilutive common stock warrants —    402    732   
Diluted weighted average common shares outstanding $ 161,932    $ 169,732    $ 153,647   
Basic earnings per common share $ 1.93    $ 1.92    $ 1.45   
Diluted earnings per common share $ 1.91    $ 1.89    $ 1.42   
Anti-dilutive common stock options of approximately 3 million at the year ended December 31, 2019, 2 million at the year ended December 31, 2018, and 1 million for the year ended December 31, 2017, were excluded from the earnings per common share calculation.
Note 21 Segment Reporting
The Corporation utilizes a risk-based internal profitability measurement system to provide strategic business unit reporting. The profitability measurement system is based on internal management methodologies designed to produce consistent results and reflect the underlying economics of the units. Certain strategic business units have been combined for segment information reporting purposes where the nature of the products and services, the type of customer and the distribution of those products and services are similar. The three reportable segments are Corporate and Commercial Specialty; Community, Consumer, and Business; and Risk Management and Shared Services. The financial information of the Corporation’s segments has been compiled utilizing the accounting policies described in Note 1, with certain exceptions. The more significant of these exceptions are described herein.
The reportable segment results are presented based on the Corporation's internal management accounting process. The management accounting policies and processes utilized in compiling segment financial information are highly subjective and, unlike financial accounting, are not based on authoritative guidance similar to U.S. GAAP. As a result, reported segments and the financial information of the reported segments are not necessarily comparable with similar information reported by other financial institutions. Furthermore, changes in management structure or allocation methodologies and procedures may result in changes in previously reported segment financial data. Additionally, the information presented is not indicative of how the segments would perform if they operated as independent entities.
To determine financial performance of each segment, the Corporation allocates FTP assignments, the provision for credit losses, certain noninterest expenses, income tax, and equity to each segment. Allocation methodologies are subject to periodic
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adjustment as the internal management accounting system is revised, the interest rate environment evolves, and business or product lines within the segments change. Also, because the development and application of these methodologies is a dynamic process, the financial results presented may be periodically reviewed.
The Corporation allocates net interest income using an internal FTP methodology that charges users of funds (assets) and credits providers of funds (liabilities, primarily deposits) based on the maturity, prepayment, and / or re-pricing characteristics of the assets and liabilities. The net effect of this allocation is offset in the Risk Management and Shared Services segment to ensure the consolidated total reflects the Corporation's net interest income. The net FTP allocation is reflected as net intersegment interest income (expense) in the accompanying tables.
A credit provision is allocated to segments based on the expected long-term annual net charge off rates attributable to the credit risk of loans managed by the segment during the period. In contrast, the level of the consolidated provision for credit losses is determined based on an incurred loss model using the methodologies described in Note 1 to assess the overall appropriateness of the allowance for loan losses and the allowance for unfunded commitments. The net effect of the credit provision is recorded in Risk Management and Shared Services. Indirect expenses incurred by certain centralized support areas are allocated to segments based on actual usage (for example, volume measurements) and other criteria. Certain types of administrative expenses and bank-wide expense accruals (including amortization of core deposit and other intangible assets associated with acquisitions) are generally not allocated to segments. Income taxes are allocated to segments based on the Corporation’s estimated effective tax rate, with certain segments adjusted for any tax-exempt income or non-deductible expenses, the net tax residual is recorded in Risk Management and Shared Services. Equity is allocated to the segments based on regulatory capital requirements and in proportion to an assessment of the inherent risks associated with the business of the segment (including interest, credit and operating risk).
A description of each business segment is presented below.
Corporate and Commercial Specialty: The Corporate and Commercial Specialty segment serves a wide range of customers including larger businesses, developers, not-for-profits, municipalities, and financial institutions. In serving this segment we compete based on an in-depth understanding of our customers’ financial needs, the ability to match market competitive solutions to those needs, and the highest standards of relationship and service excellence in the delivery of these services. Delivery of services is provided through our corporate and commercial units, our commercial real estate unit, as well as our specialized industries and commercial financial services units. Within this segment we provide the following products and services: (1) lending solutions, such as commercial loans and lines of credit, commercial real estate financing, construction loans, letters of credit, leasing, asset based lending, and, for our larger clients, loan syndications; (2) deposit and cash management solutions such as commercial checking and interest-bearing deposit products, cash vault and night depository services, liquidity solutions, payables and receivables solutions, and information services, and (3) specialized financial services such as interest rate risk management, foreign exchange solutions, and commodity hedging.
Community, Consumer, and Business: The Community, Consumer, and Business segment serves individuals, as well as small and mid-sized businesses. In serving this segment we compete based on providing a broad range of solutions to meet the needs of our customers in their entire financial lifecycle, convenient access to our services through multiple channels such as branches, phone based services, online and mobile banking, and a relationship based business model which assists our customers in navigating any changes and challenges in their financial circumstances. Delivery of services is provided through our various consumer banking, community banking, and private client units. Within this segment we provide the following products and services: (1) lending solutions such as residential mortgages, home equity loans and lines of credit, personal and installment loans, real estate financing, business loans, and business lines of credit; (2) deposit and transactional solutions such as checking, credit, debit and pre-paid cards, online banking and bill pay, and money transfer services; (3) investable funds solutions such as savings, money market deposit accounts, IRA accounts, certificates of deposit, fixed and variable annuities, full-service, discount and on-line investment brokerage; investment advisory services; trust and investment management accounts; (4) insurance and benefits related products and services; and (5) fiduciary services such as administration of pension, profit-sharing and other employee benefit plans, fiduciary and corporate agency services, and institutional asset management.
Risk Management and Shared Services: The Risk Management and Shared Services segment includes Corporate Risk Management, Credit Administration, Finance, Treasury, Operations and Technology, which are key shared functions. The segment also includes Parent Company activity, intersegment eliminations and residual revenue and expenses, representing the difference between actual amounts incurred and the amounts allocated to operating segments, including interest rate risk residuals (FTP mismatches) and credit risk and provision residuals (long term credit charge mismatches). The earning assets within this segment include the Corporation’s investment portfolio, and capital includes both allocated and any remaining unallocated capital. All acquisition costs are included in this segment.
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Information about the Corporation’s segments is presented below:
Corporate and Commercial Specialty
For the Years Ended December 31,
($ in Thousands) 2019 2018 2017
Net interest income $ 450,532    $ 457,613    $ 360,789   
Net intersegment interest income (expense) (76,064)   (56,356)   (3,737)  
Segment net interest income 374,467    401,258    357,051   
Noninterest income 53,282    52,321    52,297   
Total revenue 427,749    453,578    409,348   
Credit provision 52,382    44,592    42,298   
Noninterest expense 156,348    160,399    156,890   
Income (loss) before income taxes 219,019    248,587    210,160   
Income tax expense (benefit) 41,209    47,850    71,655   
Net income $ 177,809    $ 200,737    $ 138,505   
Allocated goodwill $ 525,836    $ 524,525    $ 428,000   

Community, Consumer, and Business
For the Years Ended December 31,
($ in Thousands) 2019 2018 2017
Net interest income $ 332,850    $ 357,245    $ 316,008   
Net intersegment interest income (expense) 103,468    87,737    45,353   
Segment net interest income 436,318    444,982    361,361   
Noninterest income 307,750    295,647    266,250   
Total revenue 744,067    740,629    627,611   
Credit provision 20,043    20,083    20,400   
Noninterest expense 547,423    541,771    490,567   
Income (loss) before income taxes 176,601    178,775    116,645   
Income tax expense (benefit) 37,105    37,543    40,826   
Net income $ 139,496    $ 141,232    $ 75,819   
Allocated goodwill $ 650,394    $ 644,498    $ 548,238   

Risk Management and Shared Services
For the Years Ended December 31,
($ in Thousands) 2019 2018 2017
Net interest income $ 52,292    $ 64,722    $ 64,423   
Net intersegment interest income (expense) (27,403)   (31,382)   (41,615)  
Segment net interest income 24,889    33,341    22,808   
Noninterest income 19,793    7,600    14,133   
Total revenue 44,682    40,941    36,941   
Credit provision (56,425)   (64,675)   (36,698)  
Noninterest expense(a)
90,217    119,629    61,677   
Income (loss) before income taxes 10,890    (14,013)   11,962   
Income tax expense (benefit) 1,405    (5,606)   (2,978)  
Net income $ 9,484    $ (8,407)   $ 14,941   
Allocated goodwill $ —    $ —    $ —   

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Consolidated Total
For the Years Ended December 31,
($ in Thousands) 2019 2018 2017
Net interest income $ 835,674    $ 879,580    $ 741,220   
Net intersegment interest income (expense) —    —    —   
Segment net interest income 835,674    879,580    741,220   
Noninterest income 380,824    355,568    332,680   
Total revenue 1,216,498    1,235,148    1,073,900   
Credit provision 16,000    —    26,000   
Noninterest expense 793,988    821,799    709,133   
Income (loss) before income taxes 406,509    413,349    338,767   
Income tax expense (benefit) 79,720    79,786    109,503   
Net income $ 326,790    $ 333,562    $ 229,264   
Allocated goodwill $ 1,176,230    $ 1,169,023    $ 976,239   
(a) For the year ended December 31, 2019, the Risk Management and Shared Services segment includes approximately $7 million of acquisition related costs. For the year ended December 31, 2018, the Risk Management and Shared Services segment includes approximately $29 million of acquisition related costs within noninterest expense and approximately $2 million of acquisition related asset losses, net of asset gains within noninterest income.
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Note 22 Accumulated Other Comprehensive Income (Loss)
The following table summarizes the components of accumulated other comprehensive income (loss) at December 31, 2019, 2018, and 2017 respectively, including changes during the years then ended as well as any reclassifications out of accumulated other comprehensive income (loss):
($ in Thousands) Investment
Securities
Available
For Sale
Defined Benefit
Pension and
Postretirement
Obligations
Accumulated
Other
Comprehensive
Income (Loss)
Balance, December 31, 2016 $ (20,079)   $ (34,600)   $ (54,679)  
Other comprehensive income (loss) before reclassifications (27,040)   14,273    (12,767)  
Amounts reclassified from accumulated other comprehensive income (loss)
Personnel expense —    (148)   (148)  
Other expense —    2,282    2,282   
Interest income (2,665)   —    (2,665)  
Income tax (expense) benefit 11,331    (6,112)   5,219   
Net other comprehensive income (loss) during period (18,374)   10,295    (8,079)  
Balance, December 31, 2017 $ (38,453)   $ (24,305)   $ (62,758)  
Other comprehensive income (loss) before reclassifications $ (39,891)   $ (28,612)   $ (68,503)  
Amounts reclassified from accumulated other comprehensive income (loss)
Investment securities losses (gains), net 1,985    —    1,985   
Personnel expense —    (148)   (148)  
Other expense —    2,203    2,203   
Interest income (572)   —    (572)  
Adjustment for adoption of ASU 2016-01 (84)   —    (84)  
Adjustment for adoption of ASU 2018-02 (8,419)   (5,235)   (13,654)  
Income tax (expense) benefit 9,791    6,767    16,558   
Net other comprehensive income (loss) during period (37,189)   (25,025)   (62,214)  
Balance, December 31, 2018 $ (75,643)   $ (49,330)   $ (124,972)  
Other comprehensive income (loss) before reclassifications $ 111,592    $ 16,296    $ 127,887   
Amounts reclassified from accumulated other comprehensive income (loss)
Investment securities losses (gains), net (5,957)   —    (5,957)  
Personnel expense —    (148)   (148)  
Other expense —    476    476   
Interest income 895    —    895   
Income tax (expense) benefit (26,898)   (4,465)   (31,363)  
Net other comprehensive income (loss) during period 79,631    12,158    91,789   
Balance, December 31, 2019 $ 3,989    $ (37,172)   $ (33,183)  

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Note 23 Revenue Recognition

Revenue is recognized when obligations under the terms of a contract with the Corporation's customer are satisfied. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. We do not have any material significant payment terms as payment is received at or shortly after the satisfaction of the performance obligation.

The Corporation's disaggregated revenue by major source is presented below:

Corporate and Commercial Specialty
For the Years Ended December 31,
($ in Thousands) 2019 2018 2017
Service charges and deposit account fees $ 12,883    $ 14,981    $ 16,006   
Card-based fees(a)
1,373    1,334    1,125   
Other revenue 1,002    694    811   
 Noninterest Income (in-scope of Topic 606) $ 15,258    $ 17,009    $ 17,941   
Noninterest Income (out-of-scope of Topic 606) 38,024    35,311    34,355   
 Total Noninterest Income $ 53,282    $ 52,321    $ 52,297   

Community, Consumer, and Business
For the Years Ended December 31,
($ in Thousands) 2019 2018 2017
 Insurance commissions and fees $ 89,091    $ 89,472    $ 81,468   
Wealth management fees(b)
83,467    82,341    70,126   
Service charges and deposit account fees 50,203    51,025    48,344   
Card-based fees(a)
38,349    38,439    33,849   
Other revenue 10,952    11,087    10,095   
 Noninterest Income (in-scope of Topic 606) $ 272,062    $ 272,363    $ 243,883   
Noninterest Income (out-of-scope of Topic 606) 35,687    23,284    22,367   
 Total Noninterest Income $ 307,750    $ 295,647    $ 266,250   

Risk Management and Share Services
For the Years Ended December 31,
($ in Thousands) 2019 2018 2017
 Insurance commissions and fees $ 13    $ 39    $  
Wealth management fees(b)
—    222    —   
Service charges and deposit account fees 49    69    77   
Card-based fees(a)
190    37    23   
Other revenue 675    345    245   
 Noninterest Income (in-scope of Topic 606) $ 926    $ 712    $ 351   
Noninterest Income (out-of-scope of Topic 606) 18,866    6,889    13,783   
 Total Noninterest Income $ 19,793    $ 7,600    $ 14,133   

Consolidated Total
For the Years Ended December 31,
($ in Thousands) 2019 2018 2017
 Insurance commissions and fees $ 89,104    $ 89,511    $ 81,474   
Wealth management fees(b)
83,467    82,562    70,126   
Service charges and deposit account fees 63,135    66,075    64,427   
Card-based fees(a)
39,912    39,810    34,997   
Other revenue 12,629    12,126    11,151   
 Noninterest Income (in-scope of Topic 606) $ 288,247    $ 290,084    $ 262,175   
Noninterest Income (out-of-scope of Topic 606) 92,577    65,484    70,505   
 Total Noninterest Income $ 380,824    $ 355,568    $ 332,680   
(a) Certain card-based fees are out-of-scope of Topic 606.
(b) Includes trust, asset management, brokerage, and annuity fees.


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Below is a listing of performance obligations for the Corporation's main revenue streams:
Revenue Stream Noninterest income in-scope of Topic 606
Insurance commissions and fees The Corporation's insurance revenue has two distinct performance obligations. The first performance obligation is the selling of the policy as an agent for the carrier. This performance obligation is satisfied upon binding of the policy. The second performance obligation is the ongoing servicing of the policy which is satisfied over the life of the policy. For employee benefits, the payment is typically received monthly. For property and casualty, payments can vary, but are typically received at, or in advance, of the policy period.
Service charges and deposit account fees Service charges on deposit accounts consist of monthly service fees (i.e. business analysis fees and consumer service charges) and other deposit account related fees. The Corporation's performance obligation for monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Other deposit account related fees are largely transactional based, and therefore, the Corporation's performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to the customers’ accounts.
Card-based fees(a)
Card-based fees are primarily comprised of debit and credit card income, ATM fees, and merchant services income. Debit and credit card income is primarily comprised of interchange fees earned whenever the Corporation's debit and credit cards are processed through card payment networks. ATM and merchant fees are largely transactional based, and therefore, the Corporation's performance obligation is satisfied, and related revenue recognized, at a point in time. Payment is typically received immediately or in the following month.
Trust and asset management fees(b)
Trust and asset management income is primarily comprised of fees earned from the management and administration of trusts and other customer assets. The Corporation's performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and the applicable fee rate. Payment is generally received a few days after month end through a direct charge to the customers’ accounts. The Corporation's performance obligation for these transactional-based services is generally satisfied, and related revenue recognized, at a point in time (i.e., as incurred). Payment is received shortly after services are rendered.
Brokerage and advisory fees(b)
Brokerage and advisory fees primarily consists of investment advisory, brokerage, retirement services, and annuities. The Corporation's performance obligation for investment advisory services and retirement services is generally satisfied, and the related revenue recognized, over the period in which the services are provided. The performance obligation for annuities is satisfied upon sale of the annuity, and therefore, the related revenue is primarily recognized at the time of sale. Payment for these services are typically received immediately or in advance of the service.
(a) Certain card-based fees are out-of-scope of Topic 606.
(b) Trust and asset management fees and brokerage and advisory fees are included in wealth management fees.
Arrangements with Multiple Performance Obligations
The Corporation's contracts with customers may include multiple performance obligations. For such arrangements, we allocate revenue to each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based on the expected cost plus margin.

Note 24 Recent Developments
On February 4, 2020, the Corporation's Board of Directors declared a regular quarterly cash dividend of $0.18 per common share, payable on March 16, 2020 to shareholders of record at the close of business on March 2, 2020. The Board of Directors also declared a regular quarterly cash dividend of $0.3828125 per depositary share on Associated Banc-Corp's 6.125% Series C Perpetual Preferred Stock, payable on March 16, 2020 to shareholders of record at the close of business on March 2, 2020. The Board of Directors also declared a regular quarterly cash dividend of $0.3359375 per depositary share on Associated's 5.375% Series D Perpetual Preferred Stock, payable on March 16, 2020 to shareholders of record at the close of business on March 2, 2020. The Board of Directors also declared a regular quarterly cash dividend of $0.3671875 per depositary share on Associated's 5.875% Series E Perpetual Preferred Stock, payable on March 16, 2020 to shareholders of record at the close of business on March 2, 2020.



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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
Associated Banc-Corp:


Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Associated Banc-Corp and subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three‑year period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 11, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.


Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.


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Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Assessment of the allowance for loan losses related to loans collectively evaluated for impairment

As discussed in Notes 1 and 4 to the consolidated financial statements, the Company's allowance for loan losses related to loans collectively evaluated for impairment (ALL) was $185.2 million of a total allowance for loan losses of $201.4 million as of December 31, 2019. The Company estimated the ALL using a historical loss methodology that estimates the probability of default (PD) and loss given default (LGD), which are based on loan grades for commercial loans and credit reports for consumer loans. Such amounts are adjusted for qualitative factors.

We identified the assessment of the ALL as a critical audit matter because it involved significant measurement uncertainty requiring complex auditor judgment, and knowledge and experience in the industry. The assessment of the ALL encompassed the evaluation of the ALL methodology, including the methodologies used to estimate (1) the PD and LGD and their key factors and assumptions, including the loan grades for commercial loans, credit reports for consumer loans, the historical loan loss and delinquency experience, the loss emergence periods, and how loans with similar risk characteristics are segmented and (2) the qualitative factors. The assessment also included an evaluation of the mathematical accuracy of certain ALL calculations.

The primary procedures we performed to address the critical audit matter included the following. We tested certain internal controls over the Company's ALL process, including controls related to the (1) development and approval of the ALL methodology, (2) determination of the key factors and assumptions used to estimate the PD and LGD including the loan grades for commercial loans, credit reports for consumer loans, historical loan loss and delinquency experience, how loans with similar risk characteristics are segmented, and the loss emergence periods, (3) development of the qualitative factors, and (4) calculation of the ALL. We evaluated the Company's process to develop the ALL by testing certain sources of data, factors, and assumptions that the Company used, and considered the relevance and reliability of such data, factors, and assumptions, and tested the mathematical accuracy of certain calculations of the ALL. In addition, we involved credit risk professionals with specialized industry knowledge and experience, who assisted in:

evaluating the Company's ALL methodology for compliance with U.S. generally accepted accounting principles,
evaluating the appropriateness of the methodology used to develop the key assumptions for the PD and LGD including loan grades for commercial loans, credit reports for consumer loans, and the historical loan loss and delinquency experience,
evaluating the methodology used to develop the loss emergence periods,
determining whether loans were segmented by similar risk characteristics,
evaluating the methodology used to develop the resulting qualitative factors and the effect of those factors on the ALL, and
evaluating individual loan grades for a selection of commercial loan relationships.


/s/ KPMG LLP


We have served as the Company’s auditor since 1983.

Chicago, Illinois
February 11, 2020



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ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.

ITEM 9A. Controls and Procedures
The Corporation maintains disclosure controls and procedures as required under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Corporation’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As of December 31, 2019, the Corporation’s management carried out an evaluation, under the supervision and with the participation of the Corporation’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures. Based on the foregoing, its Chief Executive Officer and Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures were effective as of December 31, 2019. No changes were made to the Corporation’s internal control over financial reporting (as defined Rule 13a-15(f) and Rule 15d-15(f) promulgated under the Exchange Act) during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.
Management’s Annual Report on Internal Control Over Financial Reporting
Management of Associated Banc-Corp is responsible for establishing and maintaining adequate internal control over financial reporting. The Corporation’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Corporation’s financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act.
As of December 31, 2019, management assessed the effectiveness of the Corporation’s internal control over financial reporting based on criteria for effective internal control over financial reporting established in Internal Control — Integrated Framework (2013), issued by the Committee of Sponsoring Organization of the Treadway Commission (COSO). Based on this assessment, management has determined that the Corporation’s internal control over financial reporting as of December 31, 2019, was effective.
KPMG LLP, the independent registered public accounting firm that audited the consolidated financial statements of the Corporation included in this Annual Report on Form 10-K, has issued an attestation report on the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2019. The report, which expresses an unqualified opinion on the effectiveness of the Corporation’s internal control over financial reporting as of December 31, 2019, is included below under the heading Report of Independent Registered Public Accounting Firm.

139










Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
Associated Banc-Corp:

Opinion on Internal Control Over Financial Reporting

We have audited Associated Banc-Corp and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements), and our report dated February 11, 2020 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes
140



in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP


Chicago, Illinois
February 11, 2020


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ITEM 9B. Other Information
None.
PART III

ITEM 10. Directors, Executive Officers and Corporate Governance
The information in the Corporation’s definitive Proxy Statement, prepared for the 2020 Annual Meeting of Shareholders, which contains information concerning this item under the captions Election of Directors and Information About the Board of Directors; and information concerning Section 16(a) compliance under the caption Delinquent Section 16(a) Reports is incorporated herein by reference. Information relating to the Corporation’s executive officers is set forth in Part I of this report.
Our Code of Business Conduct and Ethics, Corporate Governance Guidelines, committee charters for standing committees of the Board and other governance documents are all available on our website, www.associatedbank.com, "Investor Relations," "Governance Documents." We will disclose on our website amendments to or waivers from our Code of Ethics in accordance with all applicable laws and regulations. Information contained on any of our websites is not deemed to be a part of this Annual Report.

ITEM 11. Executive Compensation
The information in the Corporation’s definitive Proxy Statement, prepared for the 2020 Annual Meeting of Shareholders, which contains information concerning this item, under the captions Executive Compensation — Compensation Discussion and Analysis, Director Compensation, Compensation and Benefits Committee Interlocks and Insider Participation, and Compensation and Benefits Committee Report is incorporated herein by reference.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information in the Corporation’s definitive Proxy Statement, prepared for the 2020 Annual Meeting of Shareholders, which contains information concerning this item, under the captions Stock Ownership and Equity Compensation Plan Information is incorporated herein by reference.
Equity Compensation Plan Information
December 31, 2019 (a)
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants, and Rights
(b)
Weighted-Average Exercise Price of Outstanding Options, Warrants, and Rights
(c)
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in column (a))
Plan Category
Equity compensation plan approved by security holders 5,542,954    $ 20.13    7,561,080   
Equity compensation plans not approved by security holders —    —    —   
Total 5,542,954    $ 20.13    7,561,080   


ITEM 13. Certain Relationships and Related Transactions, and Director Independence
The information in the Corporation’s definitive Proxy Statement, prepared for the 2020 Annual Meeting of Shareholders, which contains information concerning this item under the captions Related Party Transactions, and Information about the Board of Directors, is incorporated herein by reference.

ITEM 14. Principal Accounting Fees and Services
The information in the Corporation’s definitive Proxy Statement, prepared for the 2020 Annual Meeting of Shareholders, which contains information concerning this item under the caption Fees Paid to Independent Registered Public Accounting Firm, is incorporated herein by reference.
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PART IV

ITEM 15. Exhibits and Financial Statement Schedules
(a)    1 and 2 Financial Statements and Financial Statement Schedules
The following financial statements and financial statement schedules are included under a separate caption Financial Statements and Supplementary Data in Part II, Item 8 hereof and are incorporated herein by reference.
Consolidated Balance Sheets — December 31, 2019 and 2018
Consolidated Statements of Income — For the Years Ended December 31, 2019, 2018, and 2017
Consolidated Statements of Comprehensive Income — For the Years Ended December 31, 2019, 2018, and 2017
Consolidated Statements of Changes in Stockholders’ Equity — For the Years Ended December 31, 2019, 2018, and 2017
Consolidated Statements of Cash Flows — For the Years Ended December 31, 2019, 2018, and 2017
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
(a)    3 Exhibits Required by Item 601 of Regulation S-K
Exhibit
Number
Description  
(3)(a) Amended and Restated Articles of Incorporation
(3)(b) Articles of Amendment to the Amended and Restated Articles of Incorporation of Associated Banc-Corp with respect to its 6.125% Non-Cumulative Perpetual Preferred Stock, Series C, dated June 4, 2015
(3)(c) Articles of Amendment to the Amended and Restated Articles of Incorporation of Associated Banc-Corp regarding the rights and preferences of preferred stock, effective April 25, 2012
(3)(d) Articles of Correction filed with the Wisconsin Department of Financial Institutions on June 14, 2016
(3)(e) Certificate Related to Series A Preferred Stock dated August 15, 2016
(3)(f) Articles of Amendment to the Amended and Restated Articles of Incorporation of Associated Banc-Corp with respect to its 5.375% Non-Cumulative Perpetual Preferred Stock, Series D, dated September 12, 2016
(3)(g) Amended and Restated Bylaws of Associated Banc-Corp
(3)(h) Articles of Amendment to the Amended and Restated Articles of Incorporation of Associated Banc-Corp with respect to its 5.875% Non-Cumulative Perpetual Preferred Stock, Series E, dated September 21, 2018
(3)(i) Certificate relating to the Series B Preferred Stock dated October 23, 2018
(4)(a) Instruments Defining the Rights of Security Holders, Including Indentures
The Parent Company, by signing this report, agrees to furnish the SEC, upon its request, a copy of any instrument that defines the rights of holders of long-term debt of the Corporation and its consolidated and unconsolidated subsidiaries for which consolidated or unconsolidated financial statements are required to be filed and that authorizes a total amount of securities not in excess of 10% of the total assets of the Corporation on a consolidated basis
(4)(b) Indenture, dated as of March 14, 2011, between Associated Banc-Corp and The Bank of New York Mellon Trust Company, N.A.
(4)(c) Global Note dated as of March 28, 2011 representing $300,000,000 5.125% Senior Notes due 2016
143



Exhibit
Number
Description  
(4)(d) Global Note dated as of September 13, 2011 representing $130,000,000 5.125% Senior Notes due 2016
(4)(e) Subordinated Indenture, dated as of November 13, 2014, between Associated Banc-Corp and The Bank of New York Mellon Trust Company, N.A., as trustee
(4)(f) Global Note dated as of November 13, 2014 representing $250,000,000 4.250% Subordinated Note due 2025
(4)(g) Deposit Agreement, dated June 8, 2015, among Associated Banc-Corp, Wells Fargo Bank, N.A. and the holders from time to time of the Depositary Receipts described therein, and form of Depositary Receipt
(4)(h) Deposit Agreement, dated September 15, 2016, among Associated Banc-Corp, Wells Fargo Bank, N.A., and the holders from time to time of the Depositary Receipts described therein, and form of Depositary Receipt
(4)(i) Deposit Agreement, dated September 26, 2018, among Associated Banc-Corp, Equiniti Trust Company and the holders from time to time of the Depositary Receipts described therein, and form of Depositary Receipt

(4)(j) Description of Associated Banc-Corp’s Securities
*(10)(a) Associated Banc-Corp 1987 Long-Term Incentive Stock Plan, Amended and Restated Effective January 1, 2008
*(10)(b) Associated Banc-Corp 1999 Long-Term Incentive Stock Plan, Amended and Restated Effective January 1, 2008
*(10)(c) Associated Banc-Corp 2003 Long-Term Incentive Stock Plan, Amended and Restated Effective January 1, 2008

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Exhibit
Number
Description  
*(10)(d) Associated Banc-Corp Deferred Compensation Plan
*(10)(e) Associated Banc-Corp Directors’ Deferred Compensation Plan, Restated Effective December 4, 2018
*(10)(f) Associated Banc-Corp Deferred Compensation Plan, Restated Effective November 16, 2015
*(10)(g) Amendment to Associated Banc-Corp 2003 Long-Term Incentive Stock Plan effective November 15, 2009
*(10)(h) Associated Banc-Corp 2010 Incentive Compensation Plan
*(10)(i) Associated Banc-Corp 2013 Incentive Compensation Plan
*(10)(j) Associated Banc-Corp 2017 Incentive Compensation Plan
*(10)(k) Form of Non-Qualified Stock Option Agreement
*(10)(l) Associated Banc-Corp Change of Control Plan, Restated Effective September 28, 2011
*(10)(m) Associated Banc-Corp Supplemental Executive Retirement Plan for Philip B. Flynn
*(10)(n) Form of Performance-Based Restricted Stock Unit Agreement
*(10)(o) Supplemental Executive Retirement Plan, Restated Effective January 22, 2013
*(10)(p) Supplemental Executive Retirement Plan, Restated Effective November 16, 2015
*(10)(q) Form of 2013 Incentive Compensation Plan Restricted Unit Agreement
*(10)(r) Form of Amendment to 2013 Incentive Compensation Plan Restricted Unit Agreement
*(10)(s) Form of Change of Control Agreement, by and among Associated Banc-Corp and the executive officers of Associated Banc-Corp.

*(10)(t) Form of Associated Banc-Corp 2017 Incentive Compensation Plan Restricted Stock Agreement
(18) Preferability Letter from KPMG regarding a change in accounting method dated October 31, 2019
(21) Subsidiaries of Associated Banc-Corp
(23) Consent of Independent Registered Public Accounting Firm
(24) Powers of Attorney
(31.1) Certification Under Section 302 of Sarbanes-Oxley by Philip B. Flynn, Chief Executive Officer
(31.2) Certification Under Section 302 of Sarbanes-Oxley by Christopher J. Del Moral-Niles, Chief Financial Officer
(32) Certification by the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of Sarbanes-Oxley.
(101) Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements. Filed herewith
(104) Cover page interactive data file (formatted as inline XBRL and contained in Exhibit 101) Filed herewith

* Management contracts and arrangements.
Schedules and exhibits other than those listed are omitted for the reasons that they are not required, are not applicable or that equivalent information has been included on the financial statements and notes thereto or elsewhere within.

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ITEM 16. Form 10-K Summary
Not applicable.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
  ASSOCIATED BANC-CORP
Date: February 11, 2020   By: /s/    Philip B. Flynn            
  Philip B. Flynn
  President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature    Title   Date
/s/    Philip B. Flynn    President and Chief Executive Officer
(Principal Executive Officer)
  February 11, 2020
Philip B. Flynn
/s/    Christopher J. Del Moral-Niles    Chief Financial Officer
(Principal Financial Officer)
  February 11, 2020
Christopher J. Del Moral-Niles
/s/    Tammy C. Stadler    Principal Accounting Officer   February 11, 2020
Tammy C. Stadler
Directors: John F. Bergstrom, Michael T. Crowley Jr., Philip B. Flynn, R. Jay Gerken, Judith P. Greffin, Michael J. Haddad, William R. Hutchinson, Robert A. Jeffe, Eileen A. Kamerick, Gale E. Klappa, Richard T. Lommen, Cory L. Nettles, and John (Jay) B. Williams
By:   /s/    Randall J. Erickson
  Randall J. Erickson
  As Attorney-In-Fact*

* Pursuant to authority granted by powers of attorney, copies of which are filed herewith.

146

Exhibit 4(j)

ASSOCIATED BANC-CORP
DESCRIPTION OF SECURITIES REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934
Description of Common Stock
Associated Banc-Corp (“we,” “our,” “us”) has one class of common stock, the Associated Banc-Corp common stock. Of the 250,000,000 shares of our common stock with a par value of $0.01 per share authorized, 157,171,247 shares were outstanding as of December 31, 2019, exclusive of shares held in treasury.
The following summary of the material terms and rights of our common stock is not complete. You should refer to the applicable provision of our Amended and Restated Articles of Incorporation, as amended, for a complete statement of the terms and rights of our common stock.
Dividend Rights
Holders of our common stock are entitled to receive dividends when, as, and if declared by our board of directors out of our assets legally available for payment, subject to the rights of holders of our Series C, Series D and Series E Preferred Stock and any other series of preferred stock that may be designated, issued and outstanding from time to time, if and to the extent so provided under the terms of such series. No share of our common stock is entitled to any preferential treatment with respect to dividends.
Voting Rights
Each holder of our common stock will be entitled at each shareholders’ meeting, with regard to each matter to be voted on, to cast one vote, in person or by proxy, for each share of our common stock registered in his or her name on our stock transfer books. Subject to the rights, if any, of the holders of any series of preferred stock under their respective certificates of designations and applicable law, all voting rights are vested in the holders of shares of our common stock. Voting rights are not cumulative, which means that holders of more than 50% of the shares voting for the election of directors can elect 100% of the directors, and the holders of the remaining shares will not be able to elect any directors.
Rights Upon Liquidation
Subject to and to the extent of the rights of holders of any of our preferred stock which may be designated, issued and outstanding from time to time, in the event of our liquidation, dissolution or winding up, whether voluntary or involuntary, the holders of our common stock will be entitled to receive all of our assets remaining for distribution to our shareholders, on a pro rata basis.
Miscellaneous
Shares of our common stock are not convertible into shares of any other class of capital stock. Shares of our common stock are not and will not be entitled to any preemptive or subscription rights. The issued and outstanding shares of our common stock are fully paid and nonassessable. The transfer agent, registrar, and dividend disbursement agent for our common stock shall be named in the applicable prospectus supplement.




Description of Preferred Stock
Under our Amended and Restated Articles of Incorporation, as amended, our board of directors is authorized, without further shareholder action, to issue up to 750,000 shares of preferred stock, $1.00 par value per share, in one or more series, and to determine the preferences, limitations and relative rights of each series. As of December 31, 2019, there were authorized (i) 65,000 shares of our 6.125% Non-Cumulative Perpetual Preferred Stock, Series C, with a liquidation preference of $1,000 per share, all of which were outstanding, (ii) 100,000 shares of our 5.375% Non-Cumulative Perpetual Preferred Stock, Series D, with a liquidation preference of $1,000 per share, 99,458 of which were outstanding and (iii) 100,000 shares of our 5.875% Non-Cumulative Perpetual Preferred Stock, Series E, with a liquidation preference of $1,000 per share, all of which were outstanding. We may amend our Amended and Restated Articles of Incorporation, as amended, to increase the number of authorized shares of preferred stock in a manner permitted by our Amended and Restated Articles of Incorporation and the Wisconsin Business Corporation Law.
All of our outstanding shares of preferred stock are represented by depositary shares registered pursuant to Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Each series of depositary shares is described under “Description of Depositary Shares,” below.
Under regulations adopted by the Federal Reserve Board, if the holders of any series of our preferred stock become entitled to vote for the election of directors because dividends on that series are in arrears, that series may then be deemed a “class of voting securities.” In such a case, a holder of 25% or more of the series, or a holder of 5% or more if that holder would also be considered to exercise a “controlling influence” over Associated Banc-Corp, may then be subject to regulation as a bank holding company in accordance with the Bank Holding Company Act of 1956. In addition, (1) any other bank holding company may be required to obtain the prior approval of the Federal Reserve Board to acquire or retain 5% or more of that series, and (2) any person other than a bank holding company may be required to obtain the approval of the Federal Reserve Board to acquire or retain 10% or more of that series.
The following summary is not complete. You should also refer to our Amended and Restated Articles of Incorporation, as amended, and to our Articles of Amendment relating to the series of the preferred stock being offered for the complete terms of that series of preferred stock.  
6.125% Non-Cumulative Perpetual Preferred Stock, Series C
As of [], 2020, there were 65,000 shares of our 6.125% Non-Cumulative Perpetual Preferred Stock, Series C, par value of $1.00 per share, with a liquidation preference of $1,000 per share (the “Series C Preferred Stock” or the “Series C Shares”) issued and outstanding. The depositary is the sole holder of the Series C Preferred Stock, as described under “Depositary Shares Representing the Series C, Series D, and Series E Shares” below, and all references to the holders of the Series C Shares shall mean the depositary.  However, the holders of the depositary shares representing the Series C Shares are entitled, through the depositary, to exercise the rights and preferences of the holders of the Series C Shares, as described under “Depositary Shares Representing the Series C, Series D, and Series E Shares.” This summary of the Series C Preferred Stock does not purport to be complete in all respects. This summary is subject to and qualified in its entirety by reference to our Amended and Restated Articles of Incorporation, as amended, including the Articles of Amendment with respect to the designation of the Series C Preferred Stock.
Each holder of Series C Shares is entitled to receive cash dividends when, as and if declared out of assets legally available for payment in respect of the Series C Shares by our Board of Directors or a duly authorized committee of the Board in their sole discretion.  Dividends will be non-cumulative. If we do not declare dividends or do not pay dividends in full on the Series C Shares on any date on which dividends are due, then these undeclared and unpaid dividends will not cumulate, accrue or be payable.
The Series C Shares have a fixed liquidation preference of $1,000 per share (equivalent to $25 per depositary share). If we liquidate, dissolve or wind up our business and affairs, holders of Series C Shares will be entitled to receive, out of our assets that are available for distribution to shareholders, an amount per Series C Share



equal to the liquidation preference per Share plus an amount with respect to dividends as and to the extent described below under “-Liquidation Rights.”
The Series C Shares are not convertible into, or exchangeable for, shares of our common stock or any other class or series of our stock or other securities. The Series C Shares are not subject to any sinking fund or any other obligation of us to redeem or repurchase the Series C Shares.
Ranking
The Series C Shares rank, as to the payment of dividends and the amounts to be paid upon liquidation, dissolution or winding up, senior to our common stock and any other class or series of shares ranking junior to the Series C Shares. The Series C Shares rank equally with our 5.375% Non-Cumulative Perpetual Preferred Stock, Series D, and our 5.875% Non-Cumulative Perpetual Preferred Stock, Series E, and at least equally with any other series of preferred stock ranking equal to the Series C Shares as to payment of dividends or the amounts to be paid upon liquidation, dissolution or winding up, as applicable.
During any Dividend Period (as defined below), so long as any Series C Shares remain outstanding, unless (a) the full dividends for the then-current Dividend Period on all outstanding Series C Shares have been paid, or declared and funds set aside therefor and (b) we are not in default on our obligation to redeem any Series C Shares that have been called for redemption as described below under “Redemption”:
no dividend whatsoever shall be paid or declared on our common stock or other junior stock, other than a dividend payable solely in junior stock; and
no common stock or other junior stock shall be purchased, redeemed or otherwise acquired for consideration by us.

On any Dividend Payment Date (as defined below) for which full dividends are not paid, or declared and funds set aside therefor, upon the Series C Shares and other equity securities designated as ranking on parity with the Series C Shares as to payment of dividends (“dividend parity stock”), all dividends paid or declared for payment on that Dividend Payment Date with respect to the Series C Shares and the dividend parity stock shall be shared:
first ratably by the holders of any such shares, who have the right to receive dividends with respect to Dividend Periods prior to the then-current Dividend Period, in proportion to the respective amounts of the undeclared and unpaid dividends relating to prior Dividend Periods; and
thereafter by the holders of these shares on a pro rata basis.
 We have agreed, in the Articles of Amendment to our Amended and Restated Articles of Incorporation establishing the terms of the Series C Shares, not to issue preferred stock having dividend payment dates that are not also Dividend Payment Dates for the Series C Shares.
Subject to the foregoing, such dividends (payable in cash, stock or otherwise) as may be determined by our board of directors (or a duly authorized committee of the board) may be declared and paid on our common stock and any other stock ranking equally with or junior to the Series C Shares from time to time out of any funds legally available for such payment, and the Series C Shares shall not be entitled to participate in any such dividend.
Dividends
General
Dividends on the Series C Shares are not mandatory. Holders of Series C Shares, in preference to the holders of our common stock and of any other shares of our stock ranking junior to the Series C Shares as to payment of dividends, will be entitled to receive, only when, as and if declared by our board of directors or a duly authorized committee of the board, and only out of assets legally available for the payment of dividends under Wisconsin law, non-cumulative cash dividends at a rate per annum equal to 6.125%, applied to the fixed liquidation preference of $1,000 per share (equivalent to $25 per depositary share). Dividends on the Series C Shares are payable quarterly in arrears on the 15th day of March, June, September and December of each year (each, a



“Dividend Payment Date”), with respect to the Dividend Period, or portion thereof, ending on the day preceding the respective Dividend Payment Date. A “Dividend Period” means each period commencing on (and including) a Dividend Payment Date and continuing to (but not including) the next succeeding Dividend Payment Date, except that the first Dividend Period for the initial issuance of Shares commenced upon (and included) the date of original issuance of the Series C Shares. If additional Series C Shares are issued at a future date, the first Dividend Period for such Series C Shares will commence upon (and include) (i) if the Series C Shares are issued on a Dividend Payment Date, the date on which the Series C Shares were issued and (ii) if the Series C Shares are not issued on a Dividend Payment Date, the most recent Dividend Payment Date preceding the date on which the Series C Shares were issued.
Dividends will be paid to holders of record on the 15th calendar date (whether or not a Business Day) before such Dividend Payment Date or such other record date not more than 60 days nor less than 10 days preceding such Dividend Payment Date and fixed for that purpose by our board of directors or a committee thereof in advance of payment of each particular dividend. The corresponding record dates for the depositary shares are the same as the record dates for the Series C Shares. As used in this section, “Business Day” means each weekday on which banking institutions in the City of New York are not authorized or obligated by law, regulation or executive order to close.
The dividend payable per Series C Share for any Dividend Period is computed on the basis of a 360-day year consisting of twelve 30-day months. If a Dividend Payment Date is not a Business Day, the applicable dividend will be paid on the first Business Day following that day without adjustment.
We are subject to various general regulatory policies and requirements relating to the payment of dividends, including requirements to maintain adequate capital above regulatory minimums, and dividends on the Series C Shares will not be declared, paid or set aside for payment to the extent such act would cause us to fail to comply with laws or regulations applicable thereto, including applicable capital adequacy guidelines. The Federal Reserve Board (including any successor bank regulatory authority that may become our Appropriate Federal Banking Agency, as defined below), is authorized to determine, under certain circumstances relating to the financial condition of a bank holding company, such as us, that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof. In addition, we are subject to Wisconsin state laws relating to the payment of dividends.
Dividends are Non-Cumulative
Dividends on the Series C Shares are non-cumulative. We have no obligation to pay dividends for the corresponding Dividend Period after that Dividend Payment Date or to pay interest with respect to these dividends, whether or not we declare dividends on the Series C Shares for any subsequent Dividend Period.
Redemption
Optional Redemption
The Series C Shares are not subject to any mandatory redemption, sinking fund or other similar provisions. However, the Series C Shares may be redeemed on or after June 15, 2020 (“Optional Redemption”). On that date or on any Dividend Payment Date thereafter, the Series C Shares may be redeemed from time to time, in whole or in part, at our option, subject to the approval of the Appropriate Federal Banking Agency, at the cash redemption price provided below. Dividends will not accrue on those Series C Shares on and after the redemption date. Neither the holders of Series C Shares nor the holders of the related depositary shares have the right to require the redemption or repurchase of the Series C Shares.  
Redemption Following a Regulatory Capital Event
We may redeem the Series C Shares at any time within 90 days following a regulatory capital treatment event, in whole but not in part, at our option, subject to the approval of the Federal Reserve or other Appropriate Federal Banking Agency, at the cash redemption price provided below (“Regulatory Event Redemption”). A



“regulatory capital treatment event” means our good faith determination that, as a result of (i) any amendment to, or change in, the laws or regulations of the United States (including, for the avoidance of doubt, any agency or instrumentality of the United States, including the Federal Reserve and other federal bank regulatory agencies) or any political subdivision of or in the United States that is enacted or becomes effective after the initial issuance of the Series C Shares; (ii) any proposed change in those laws or regulations that is announced after the initial issuance of the Series C Shares; or (iii) any official administrative decision or judicial decision or administrative action or other official pronouncement interpreting or applying those laws or regulations that is announced after the initial issuance of the Series C Shares, there is more than an insubstantial risk that we will not be entitled to treat the full liquidation value of the Series C Shares then outstanding as “Tier 1 Capital” (or its equivalent) for purposes of the capital adequacy guidelines or regulations of the Federal Reserve (or, as and if applicable, the capital adequacy guidelines or regulations of any successor Appropriate Federal Banking Agency), as then in effect and applicable, for as long as any Series C Share is outstanding. Dividends will not accrue on those Series C Shares on and after the redemption date. “Appropriate Federal Banking Agency” means the “appropriate federal banking agency” with respect to us as defined in Section (3)(q) of the Federal Deposit Insurance Act.
Redemption Price
The redemption price for any redemption of Series C Shares, whether an Optional Redemption or Regulatory Event Redemption, will be equal to $1,000 per Series C Share (equivalent to $25 per depositary share) plus (a) in the case of an Optional Redemption, the sum of any declared and unpaid dividends for any prior Dividend Periods, without accumulation of any undeclared dividends, or (b) in the case of a Regulatory Event Redemption, the sum of any declared and unpaid dividends for any prior Dividend Periods and accrued but unpaid and undeclared dividends for the then-current Dividend Period to but excluding the date of redemption. Any declared but unpaid dividends payable on a redemption date that occurs subsequent to the dividend record date for a Dividend Period will not be paid to the holder entitled to receive the redemption price on the redemption date, but rather will be paid to the holder of record of the redeemed shares on such dividend record date relating to the Dividend Payment Date.  
Redemption Procedures
If Series C Shares are to be redeemed, we will provide notice by first class mail, postage prepaid, addressed to the holders of record of the Series C Shares to be redeemed, mailed not less than 30 days and not more than 60 days before the date fixed for redemption thereof (provided, however, that if the Shares or the depositary shares representing the Series C Shares are held in book-entry form through The Depository Trust Company, or “DTC,” we may give this notice in any manner permitted by DTC). Any notice mailed or otherwise given as provided in this paragraph will be conclusively presumed to have been duly given, whether or not the holder receives this notice, and failure duly to give this notice by mail or otherwise, or any defect in this notice or in the mailing or provision of this notice, to any holder of Series C Shares designated for redemption will not affect the redemption of any other Series C Shares. Each notice of redemption will include a statement setting forth:
the redemption date;
the number of Series C Shares to be redeemed and, if less than all the Series C Shares held by the holder are to be redeemed, the number of Series C Shares to be redeemed from the holder;
the redemption price; and
the place or places where the Series C Shares are to be surrendered for payment of the redemption price.
If notice of redemption of any Series C Shares has been duly given and if the funds necessary for the redemption have been set aside by us for the benefit of the holders of any Series C Shares so called for redemption, then, on and after the redemption date, those Series C Shares will no longer be deemed outstanding and all rights of the holders of those Series C Shares (including the right to receive any dividends) will terminate, except the right to receive the redemption price.
In the case of any redemption of only part of the Series C Shares at the time outstanding, the Series C Shares to be redeemed will be selected either pro rata or by lot. Subject to the provisions described in this section,



the Board of Directors will have the full power and authority to prescribe the terms and conditions upon which Series C Shares shall be redeemed from time to time.
Under the Federal Reserve’s current risk-based capital guidelines applicable to bank holding companies, any redemption of the Series C Shares is subject to prior approval by the Federal Reserve. Any redemption of the Series C Shares is subject to our receipt of any required prior approval by the Federal Reserve and to the satisfaction of any conditions set forth in the capital guidelines or regulations of the Federal Reserve applicable to the redemption of the Series C Shares.
Neither the holders of the Series C Shares nor the holders of the related depositary shares have the right to require the redemption or repurchase of the Series C Shares.
Liquidation Rights
In the event that we liquidate, dissolve or wind up our business and affairs, either voluntarily or involuntarily, holders of Series C Shares will be entitled to receive an amount per Share (the “Series C Total Liquidation Amount”) equal to the fixed liquidation preference of $1,000 per Series C Share (equivalent to $25 per depositary share) plus, the sum of any declared and unpaid dividends for Dividend Periods prior to the dividend period in which the liquidation distribution is made and declared and, if applicable, a pro rata portion of any declared and unpaid dividends for the then-current Dividend Period in which the liquidation distribution is made to the date of such liquidation distribution. Holders of the Series C Shares will be entitled to receive the Series C Total Liquidation Amount out of our assets that are available for distribution to shareholders, after payment or provision for payment of our debts and other liabilities but before any distribution of assets is made to holders of our common stock or any other class or series of shares ranking junior to the Series C Shares with respect to that distribution.  
If our assets are not sufficient to pay the Series C Total Liquidation Amount in full to all holders of Series C Shares and all holders of any shares of our stock having the same rank as the Series C Shares with respect to any such distribution, the amounts paid to the holders of Series C Shares and such other shares will be paid pro rata in accordance with the respective Series C Total Liquidation Amount to which those holders are entitled. If the Series C Total Liquidation Amount per Series C Share has been paid in full to all holders of Shares and the liquidation preference of any other shares having the same rank as the Series C Shares has been paid in full, the holders of our common stock or any other shares ranking, as to such distribution, junior to the Series C Shares will be entitled to receive all of our remaining assets according to their respective rights and preferences.
For purposes of the liquidation rights, neither the sale, conveyance, lease, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of our property and assets, nor the consolidation or merger by us with or into any other entity or by another entity with or into us will constitute a liquidation, dissolution or winding up of our business or affairs.
Because we are a holding company, our rights and the rights of our creditors and our shareholders, including the holders of the Series C Shares, to participate in the assets of any of our subsidiaries upon that subsidiary’s liquidation or recapitalization may be subject to the prior claims of that subsidiary’s creditors, except to the extent that we are a creditor with recognized claims against the subsidiary.  
Voting Rights
The holders of Series C Shares will not have any voting rights and will not be entitled to elect any directors, except as indicated below or otherwise specifically required by law. Each holder of Series C Shares will have one vote per Series C Share (or one vote per 40 depositary shares) on any matter on which holders of Series C Shares are entitled to vote, including any action by written consent.
Right to Elect Two Directors Upon Non-Payment of Dividends
If and whenever the dividends on the Series C Shares and any other class or series of our stock that ranks on parity with Series C Shares as to payment of dividends and that has voting rights equivalent to those described in



this paragraph (“voting parity stock”) have not been declared and paid in an aggregate amount equal, as to any such class or series, to at least six quarterly dividends (whether or not consecutive), the authorized number of our directors then constituting our Board of Directors will automatically be increased by two. Holders of Series C Shares, together with the holders of all other affected classes and series of voting parity stock, voting as a single class, will be entitled to elect the two additional members of our Board of Directors (the “Preferred Stock Directors”) at any annual meeting of shareholders or any special meeting of the holders of Series C Shares and any voting parity stock for which dividends have not been paid, called as provided below, but only if the election of any Preferred Stock Directors would not cause us to violate the corporate governance requirement of the New York Stock Exchange (or any other exchange on which our securities may be listed) that listed companies must have a majority of independent directors. In addition, our Board of Directors shall at no time have more than two Preferred Stock Directors.
At any time after this voting power has vested as described above, our Secretary may, and upon the written request of holders of record of at least 20% of the outstanding Series C Shares and voting parity stock (addressed to the Secretary at our principal office) must, call a special meeting of the holders of Series C Shares and voting parity stock for the election of the Preferred Stock Directors. Notice for a special meeting will be given in a similar manner to that provided in our by-laws for a special meeting of the shareholders, which we will provide upon request, or as required by law. If our Secretary is required to call a meeting but does not do so within 20 days after receipt of any such request, then any holder of Series C Shares may (at our expense) call such meeting, upon notice as provided in this section, and for that purpose will have access to our stock books.
The Preferred Stock Directors elected at any such special meeting will hold office until the next annual meeting of our shareholders unless they have been previously terminated as described below. In case any vacancy occurs among the Preferred Stock Directors, a successor will be elected by our board of directors to serve until the next annual meeting of the shareholders upon the nomination of the then remaining Preferred Stock Director or, if no Preferred Stock Director remains in office, by the vote of the holders of record of a majority of the outstanding Series C Shares and voting parity stock, voting as a single class. The Preferred Stock Directors shall each be entitled to one vote per director on any matter.
If full dividends have been paid on the Series C Shares and any non-cumulative voting parity stock for at least one year and all dividends on any cumulative voting parity stock have been paid in full then the right of the holders of Series C Shares to elect the Preferred Stock Directors will cease (but subject always to the same provisions for the vesting of these voting rights in the case of any similar non-payment of dividends in respect of future Dividend Periods), the terms of office of all Preferred Stock Directors will immediately terminate and the number of directors constituting our Board of Directors will be reduced accordingly.
Other Voting Rights
So long as any Series C Shares remain outstanding, the affirmative vote of the holders of at least two-thirds of the Series C Shares outstanding at the time, given in person or by proxy, either in writing or at a meeting (voting separately as a class), will be required to:
authorize or create, or increase the authorized or issued amount of, any class or series of capital stock ranking senior to the Series C Shares with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up, or reclassify any authorized shares of capital stock into Series C Shares; or
amend, alter or repeal the provisions of our Amended and Restated Articles of Incorporation, whether by merger, consolidation or otherwise, so as to materially and adversely affect any right, preference, privilege or voting power of the Series C Shares or the holders thereof;

provided, however, that with respect to the occurrence of any event set forth in the second bullet point above, so long as any Series C Shares remain outstanding with the terms thereof materially unchanged or new shares of the surviving corporation or entity are issued with the same terms as the Series C Shares, in each case taking into account that upon the occurrence of this event we may not be the surviving entity, the occurrence of any such event



shall not be deemed to materially and adversely affect any right, preference, privilege or voting power of the Series C Shares or the holders thereof, and provided, further, that any increase in the amount of our authorized common stock or preferred stock or the creation or issuance of any other series of common stock or other equity securities ranking on a parity with or junior to the Series C Shares with respect to payment of dividends (whether such dividends are cumulative or non-cumulative) or the distribution of assets upon liquidation, dissolution or winding up and any change to the number of directors or number of classes of directors shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers.
Under Wisconsin law, the vote of the holders of a majority of the outstanding Series C Shares, voting as a separate voting group, is required for:
certain amendments to our Amended and Restated Articles of Incorporation impacting the Series C Shares;
the approval of any dividend payable in Series C Shares to holders of shares of another class or series of our stock;
the approval of any proposed share exchange that includes Series C Shares; or
the approval of any plan of merger if the plan of merger contains a provision that, if contained in a proposed amendment to our Amended and Restated Articles of Incorporation, would require action on the proposed amendment.

Further, in the case of any merger where we are the surviving corporation, the right of holders of the Series C Shares to vote separately as a group on a plan of merger does not apply if:
the articles of incorporation of the surviving corporation will not differ, with certain exceptions, from our articles of incorporation in effect prior to the merger;
each shareholder of the surviving corporation whose shares were outstanding immediately before the effective date of the merger will hold the same number of shares, with identical designations, preferences, limitation, and relative rights, immediately after the merger; and
the number of voting shares outstanding immediately after the merger, plus the number of voting shares issuable as a result of the merger, either by the conversion of securities issued pursuant to the merger or the exercise of rights or warrants issued pursuant to the merger, will not exceed by more than 20% the total number of voting shares of the surviving corporation outstanding immediately after the merger.
The foregoing voting provisions will not apply if, at or prior to the time when the act with respect to which the vote would otherwise be required, all outstanding Series C Shares shall have been redeemed or called for redemption upon proper notice and sufficient funds shall have been set aside by us for the benefit of the holders of Series C Shares to effect the redemption.
Depositary, Transfer Agent, Registrar and Paying Agent
Equiniti Trust Company is the depositary, transfer agent, registrar and paying agent for the Series C Shares.
5.375% Non-Cumulative Perpetual Preferred Stock, Series D
As of December 31, 2019, there were 99,458 shares of our 5.375% Non-Cumulative Perpetual Preferred Stock, Series D, par value of $1.00 per share, with a liquidation preference of $1,000 per share (the “Series D Preferred Stock” or the “Series D Shares”) issued and outstanding. The depositary is the sole holder of the Series D Preferred Stock, as described under “Depositary Shares Representing the Series C, Series D, and Series E Shares” below, and all references to the holders of the Series D Shares shall mean the depositary.  However, the holders of the depositary shares representing the Series D Shares are entitled, through the depositary, to exercise the rights and preferences of the holders of the Series D Shares, as described under “Depositary Shares Representing the Series C, Series D, and Series E Shares.” This summary of the Series D Preferred Stock does not purport to be complete in all respects. This summary is subject to and qualified in its entirety by reference to our Amended and Restated Articles of Incorporation, as amended, including the Articles of Amendment with respect to the designation of the Series D Preferred Stock.



Each holder of Series D Shares is entitled to receive cash dividends when, as and if declared out of assets legally available for payment in respect of the Series D Shares by our Board of Directors or a duly authorized committee of the Board in their sole discretion.  Dividends will be non-cumulative. If we do not declare dividends or do not pay dividends in full on the Series D Shares on any date on which dividends are due, then these undeclared and unpaid dividends will not cumulate, accrue or be payable.
The Series D Shares have a fixed liquidation preference of $1,000 per share (equivalent to $25 per depositary share). If we liquidate, dissolve or wind up our business and affairs, holders of Series D Shares will be entitled to receive, out of our assets that are available for distribution to shareholders, an amount per Series D Share equal to the liquidation preference per Share plus an amount with respect to dividends as and to the extent described below under “-Liquidation Rights.”
The Series D Shares are not convertible into, or exchangeable for, shares of our common stock or any other class or series of our stock or other securities. The Series D Shares are not subject to any sinking fund or any other obligation of us to redeem or repurchase the Series D Shares.
Ranking
The Series D Shares rank, as to the payment of dividends and the amounts to be paid upon liquidation, dissolution or winding up, senior to our common stock and any other class or series of shares ranking junior to the Series D Shares. The Series D Shares rank equally with our 6.125% Non-Cumulative Perpetual Preferred Stock, Series C, and our 5.875% Non-Cumulative Perpetual Preferred Stock, Series E, and at least equally with any other series of preferred stock ranking equal to the Series C Shares as to payment of dividends or the amounts to be paid upon liquidation, dissolution or winding up, as applicable.
During any Dividend Period (as defined below), so long as any Series D Shares remain outstanding, unless (a) the full dividends for the then-current Dividend Period on all outstanding Series D Shares have been paid, or declared and funds set aside therefor and (b) we are not in default on our obligation to redeem any Series D Shares that have been called for redemption as described below under “Redemption”:
no dividend whatsoever shall be paid or declared on our common stock or other junior stock, other than a dividend payable solely in junior stock; and
no common stock or other junior stock shall be purchased, redeemed or otherwise acquired for consideration by us.
On any Dividend Payment Date (as defined below) for which full dividends are not paid, or declared and funds set aside therefor, upon the Series D Shares and other equity securities designated as ranking on parity with the Series D Shares as to payment of dividends (“dividend parity stock”), all dividends paid or declared for payment on that Dividend Payment Date with respect to the Series D Shares and the dividend parity stock shall be shared:
first ratably by the holders of any such shares, who have the right to receive dividends with respect to Dividend Periods prior to the then-current Dividend Period, in proportion to the respective amounts of the undeclared and unpaid dividends relating to prior Dividend Periods; and
thereafter by the holders of these shares on a pro rata basis.
We have agreed, in the Articles of Amendment to our Amended and Restated Articles of Incorporation establishing the terms of the Series D Shares, not to issue preferred stock having dividend payment dates that are not also Dividend Payment Dates for the Series D Shares.
Subject to the foregoing, such dividends (payable in cash, stock or otherwise) as may be determined by our board of directors (or a duly authorized committee of the board) may be declared and paid on our common stock and any other stock ranking equally with or junior to the Series D Shares from time to time out of any funds legally available for such payment, and the Series D Shares shall not be entitled to participate in any such dividend.



Dividends
General
Dividends on the Series D Shares are not mandatory. Holders of Series D Shares, in preference to the holders of our common stock and of any other shares of our stock ranking junior to the Series D Shares as to payment of dividends, will be entitled to receive, only when, as and if declared by our board of directors or a duly authorized committee of the board, and only out of assets legally available for the payment of dividends under Wisconsin law, non-cumulative cash dividends at a rate per annum equal to 5.375%, applied to the fixed liquidation preference of $1,000 per share (equivalent to $25 per depositary share). Dividends on the Series D Shares are payable quarterly in arrears on the 15th day of March, June, September and December of each year (each, a “Dividend Payment Date”), with respect to the Dividend Period, or portion thereof, ending on the day preceding the respective Dividend Payment Date. A “Dividend Period” means each period commencing on (and including) a Dividend Payment Date and continuing to (but not including) the next succeeding Dividend Payment Date, except that the first Dividend Period for the initial issuance of Shares commenced upon (and included) the date of original issuance of the Series D Shares. If additional Series D Shares are issued at a future date, the first Dividend Period for such Series D Shares will commence upon (and include) (i) if the Series D Shares are issued on a Dividend Payment Date, the date on which the Series D Shares were issued and (ii) if the Series D Shares are not issued on a Dividend Payment Date, the most recent Dividend Payment Date preceding the date on which the Series D Shares were issued.
Dividends will be paid to holders of record on the 15th calendar date (whether or not a Business Day) before such Dividend Payment Date or such other record date not more than 60 days nor less than 10 days preceding such Dividend Payment Date and fixed for that purpose by our board of directors or a committee thereof in advance of payment of each particular dividend. The corresponding record dates for the depositary shares are the same as the record dates for the Series D Shares. As used in this section, “Business Day” means each weekday on which banking institutions in the City of New York are not authorized or obligated by law, regulation or executive order to close.
The dividend payable per Series D Share for any Dividend Period is computed on the basis of a 360-day year consisting of twelve 30-day months. If a Dividend Payment Date is not a Business Day, the applicable dividend will be paid on the first Business Day following that day without adjustment.
Dividends on shares of the Series D Preferred Stock are not cumulative and are not mandatory. If our Board of Directors (or a duly authorized committee of the Board) does not declare a dividend on the Series D Preferred Stock in respect of a Dividend Period, then no dividend will be deemed to have accrued for such Dividend Period, be payable on the related Dividend Payment Date, or accumulate, and we will have no obligation to pay any dividend accrued for such Dividend Period, whether or not our Board of Directors (or a duly authorized committee of the Board) declares a dividend on the Series D Preferred Stock or any other series of our preferred stock or on our common stock for any future Dividend Period. References to the “accrual” (or similar terms) of dividends herein refer only to the determination of the amount of such dividend and do not imply that any right to a dividend arises prior to the date on which a dividend is declared.
We are subject to various general regulatory policies and requirements relating to the payment of dividends, including requirements to maintain adequate capital above regulatory minimums, and dividends on the Series D Shares will not be declared, paid or set aside for payment to the extent such act would cause us to fail to comply with laws or regulations applicable thereto, including applicable capital adequacy rules and regulations. The Federal Reserve Board (including any successor bank regulatory authority that may become our Appropriate Federal Banking Agency, as defined below), is authorized to determine, under certain circumstances relating to the financial condition of a bank holding company, such as us, that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof. In addition, we are subject to Wisconsin state laws relating to the payment of dividends.



Redemption
Optional Redemption
The Series D Shares are not subject to any mandatory redemption, sinking fund or other similar provisions. However, the Series D Shares may be redeemed on or after September 15, 2021 (“Optional Redemption”). On that date or on any Dividend Payment Date thereafter, the Series D Shares may be redeemed from time to time, in whole or in part, at our option, subject to the approval of the Appropriate Federal Banking Agency, at the cash redemption price provided below. Dividends will not accrue on those Series D Shares on and after the redemption date. Neither the holders of Series D Shares nor the holders of the related depositary shares have the right to require the redemption or repurchase of the Series D Shares.  
Redemption Following a Regulatory Capital Event
We may redeem the Series D Shares at any time within 90 days following a regulatory capital treatment event, in whole but not in part, at our option, subject to the approval of the Federal Reserve or other Appropriate Federal Banking Agency, at the cash redemption price provided below (“Regulatory Event Redemption”). A “regulatory capital treatment event” means our good faith determination that, as a result of (i) any amendment to, or change in, the laws or regulations of the United States (including, for the avoidance of doubt, any agency or instrumentality of the United States, including the Federal Reserve and other federal bank regulatory agencies) or any political subdivision of or in the United States that is enacted or becomes effective after the initial issuance of the Series D Shares; (ii) any proposed change in those laws or regulations that is announced after the Issue Date (the “Issue Date”); or (iii) any official administrative decision or judicial decision or administrative action or other official pronouncement interpreting or applying those laws or regulations that is announced after the Issue Date, there is more than an insubstantial risk that we will not be entitled to treat the full liquidation preference of the Series D Shares then outstanding as “Tier 1 Capital” (or its equivalent) for purposes of the capital adequacy rules or regulations of the Federal Reserve (or, as and if applicable, the capital adequacy rules or regulations of any successor Appropriate Federal Banking Agency), as then in effect and applicable, for as long as any Series D Share is outstanding. Dividends will not accrue on those Series D Shares on and after the redemption date. “Appropriate Federal Banking Agency” means the “appropriate federal banking agency” with respect to us as defined in Section (3)(q) of the Federal Deposit Insurance Act.
Redemption Price
The redemption price for any redemption of Series D Shares, whether an Optional Redemption or Regulatory Event Redemption, will be equal to $1,000 per Series D Share (equivalent to $25 per depositary share) plus (a) in the case of an Optional Redemption, the sum of any declared and unpaid dividends for any prior Dividend Periods, without accumulation of any undeclared dividends, or (b) in the case of a Regulatory Event Redemption, the sum of any declared and unpaid dividends for any prior Dividend Periods and accrued but unpaid and undeclared dividends for the then-current Dividend Period to but excluding the date of redemption. Any declared but unpaid dividends payable on a redemption date that occurs subsequent to the dividend record date for a Dividend Period will not be paid to the holder entitled to receive the redemption price on the redemption date, but rather will be paid to the holder of record of the redeemed shares on such dividend record date relating to the Dividend Payment Date.  
Redemption Procedures
If Series D Shares are to be redeemed, we will provide notice by first class mail, postage prepaid, addressed to the holders of record of the Series D Shares to be redeemed, mailed not less than 30 days and not more than 60 days before the date fixed for redemption thereof (provided, however, that if the Shares or the depositary shares representing the Series D Shares are held in book-entry form through DTC, we may give this notice in any manner permitted by DTC). Any notice mailed or otherwise given as provided in this paragraph will be conclusively presumed to have been duly given, whether or not the holder receives this notice, and failure duly to give this notice by mail or otherwise, or any defect in this notice or in the mailing or provision of this notice, to any holder of Series



D Shares designated for redemption will not affect the redemption of any other Series D Shares. Each notice of redemption will include a statement setting forth:
the redemption date;
the number of Series D Shares to be redeemed and, if less than all the Series D Shares held by the holder are to be redeemed, the number of Series D Shares to be redeemed from the holder;
the redemption price; and
the place or places where the Series D Shares are to be surrendered for payment of the redemption price.
If notice of redemption of any Series D Shares has been duly given and if the funds necessary for the redemption have been set aside by us for the benefit of the holders of any Series D Shares so called for redemption, then, on and after the redemption date, those Series D Shares will no longer be deemed outstanding and all rights of the holders of those Series D Shares (including the right to receive any dividends) will terminate, except the right to receive the redemption price.
In the case of any redemption of only part of the Series D Shares at the time outstanding, the Series D Shares to be redeemed will be selected either pro rata or by lot. Subject to the provisions described in this section, the Board of Directors will have the full power and authority to prescribe the terms and conditions upon which Series D Shares shall be redeemed from time to time.
Under the Federal Reserve’s current risk-based capital guidelines applicable to bank holding companies, any redemption of the Series D Shares is subject to prior approval by the Federal Reserve. Any redemption of the Series D Shares is subject to our receipt of any required prior approval by the Federal Reserve and to the satisfaction of any conditions set forth in the capital rules or regulations of the Federal Reserve applicable to the redemption of the Series D Shares.
Neither the holders of the Series D Shares nor the holders of the related depositary shares have the right to require the redemption or repurchase of the Series D Shares.
Liquidation Rights
In the event that we liquidate, dissolve or wind up our business and affairs, either voluntarily or involuntarily, holders of Series D Shares will be entitled to receive an amount per Share (the “Series D Total Liquidation Amount”) equal to the fixed liquidation preference of $1,000 per Series D Share (equivalent to $25 per depositary share) plus, the sum of any declared and unpaid dividends for Dividend Periods prior to the dividend period in which the liquidation distribution is made and declared and, if applicable, a pro rata portion of any declared and unpaid dividends for the then-current Dividend Period in which the liquidation distribution is made to the date of such liquidation distribution. Holders of the Series D Shares will be entitled to receive the Series D Total Liquidation Amount out of our assets that are available for distribution to shareholders, after payment or provision for payment of our debts and other liabilities but before any distribution of assets is made to holders of our common stock or any other class or series of shares ranking junior to the Series D Shares with respect to that distribution.  
If our assets are not sufficient to pay the Series D Total Liquidation Amount in full to all holders of Series D Shares and all holders of any shares of our stock having the same rank as the Series D Shares with respect to any such distribution, the amounts paid to the holders of Series D Shares and such other shares will be paid pro rata in accordance with the respective Series D Total Liquidation Amount to which those holders are entitled. If the Series D Total Liquidation Amount per Series D Share has been paid in full to all holders of Shares and the liquidation preference of any other shares having the same rank as the Series D Shares has been paid in full, the holders of our common stock or any other shares ranking, as to such distribution, junior to the Series D Shares will be entitled to receive all of our remaining assets according to their respective rights and preferences.
For purposes of the liquidation rights, neither the sale, conveyance, lease, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of our property and assets, nor the consolidation or merger by us with or into any other entity or by another entity with or into us will constitute a liquidation, dissolution or winding up of our business or affairs.



Because we are a holding company, our rights and the rights of our creditors and our shareholders, including the holders of the Series D Shares, to participate in the assets of any of our subsidiaries upon that subsidiary’s liquidation or recapitalization may be subject to the prior claims of that subsidiary’s creditors, except to the extent that we are a creditor with recognized claims against the subsidiary.  
Voting Rights
The holders of Series D Shares will not have any voting rights and will not be entitled to elect any directors, except as indicated below or otherwise specifically required by law. Each holder of Series D Shares will have one vote per Series D Share (or one vote per 40 depositary shares) on any matter on which holders of Series D Shares are entitled to vote, including any action by written consent.
Under regulations adopted by the Federal Reserve, if the holders of shares of any series of our preferred stock, including the Series D Preferred Stock, become entitled to vote for the election of directors, such series may then be deemed a “class of voting securities” and a holder of 25% or more of such series (or a holder of 5% or more if the holder otherwise exercises a “controlling influence”) may then be subject to regulation as a bank holding company in accordance with the Bank Holding Company Act. In addition, at such time as such series is deemed a class of voting securities, (i) any other bank holding company may be required to obtain the approval of the Federal Reserve to acquire or retain 5% or more of such series, and (ii) any person other than a bank holding company may be required to file with the Federal Reserve under the Change in Bank Control Act, a federal law, to acquire or retain 10% or more of such series.
Right to Elect Two Directors upon Non-Payment of Dividends
If and whenever the dividends on the Series D Shares and any other class or series of our stock that ranks on parity with Series D Shares as to payment of dividends and that has voting rights equivalent to those described in this paragraph (“voting parity stock”) have not been declared and paid (i) in the case of the Series D Shares and any voting parity stock bearing non-cumulative dividends, in full for at least six quarterly dividend periods or their equivalent (whether or not consecutive) or (ii)  in an aggregate amount equal to full dividends for at least six quarterly dividend periods or their equivalent (whether or not consecutive), the authorized number of our directors then constituting our Board of Directors will automatically be increased by two. Holders of Series D Shares, together with the holders of all other affected classes and series of voting parity stock, voting as a single class, will be entitled to elect the two additional members of our Board of Directors (the “Preferred Stock Directors”) at any annual meeting of shareholders or any special meeting of the holders of Series D Shares and any voting parity stock for which dividends have not been paid, called as provided below, but only if the election of any Preferred Stock Directors would not cause us to violate the corporate governance requirement of the New York Stock Exchange (or any other exchange on which our securities may be listed) that listed companies must have a majority of independent directors. In addition, our Board of Directors shall at no time have more than two Preferred Stock Directors.
At any time after this voting power has vested as described above, our Secretary may, and upon the written request of holders of record of at least 20% of the outstanding Series D Shares and voting parity stock (addressed to the Secretary at our principal office) must, call a special meeting of the holders of Series D Shares and voting parity stock for the election of the Preferred Stock Directors. Notice for a special meeting will be given in a similar manner to that provided in our by-laws for a special meeting of the shareholders, which we will provide upon request, or as required by law. If our Secretary is required to call a meeting but does not do so within 20 days after receipt of any such request, then any holder of Series D Shares may (at our expense) call such meeting, upon notice as provided in this section, and for that purpose will have access to our stock books.
The Preferred Stock Directors elected at any such special meeting will hold office until the next annual meeting of our shareholders unless they have been previously terminated as described below. In case any vacancy occurs among the Preferred Stock Directors, a successor will be elected by our board of directors to serve until the next annual meeting of the shareholders upon the nomination of the then remaining Preferred Stock Director or, if no Preferred Stock Director remains in office, by the vote of the holders of record of a majority of the outstanding



Series D Shares and voting parity stock, voting as a single class. The Preferred Stock Directors shall each be entitled to one vote per director on any matter.
Whenever full dividends have been paid on the Series D Shares and any non-cumulative voting parity stock for at least one year and all dividends on any cumulative voting parity stock have been paid in full then the right of the holders of Series D Shares to elect the Preferred Stock Directors will cease (but subject always to the same provisions for the vesting of these voting rights in the case of any similar non-payment of dividends in respect of future Dividend Periods), the terms of office of all Preferred Stock Directors will immediately terminate and the number of directors constituting our Board of Directors will be reduced accordingly.
Other Voting Rights
So long as any Series D Shares remain outstanding, the affirmative vote of the holders of at least two-thirds of the Series D Shares outstanding at the time, given in person or by proxy, either in writing or at a meeting (voting separately as a class), will be required to:
authorize or create, or increase the authorized or issued amount of, any class or series of capital stock ranking senior to the Series D Shares with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up, or reclassify any authorized shares of capital stock into Series D Shares; or
amend, alter or repeal the provisions of our Amended and Restated Articles of Incorporation, whether by merger, consolidation or otherwise, so as to materially and adversely affect any right, preference, privilege or voting power of the Series D Shares or the holders thereof;
provided, however, that with respect to the occurrence of any event set forth in the second bullet point above, so long as any Series D Shares remain outstanding with the terms thereof materially unchanged or new shares of the surviving corporation or entity are issued with the same terms as the Series D Shares, in each case taking into account that upon the occurrence of this event we may not be the surviving entity, the occurrence of any such event shall not be deemed to materially and adversely affect any right, preference, privilege or voting power of the Series D Shares or the holders thereof, and provided, further, that any increase in the amount of our authorized common stock or preferred stock or the creation or issuance of any other series of common stock or other equity securities ranking on a parity with or junior to the Series D Shares with respect to payment of dividends (whether such dividends are cumulative or non-cumulative) or the distribution of assets upon liquidation, dissolution or winding up and any change to the number of directors or number of classes of directors shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers.
Under Wisconsin law, the vote of the holders of a majority of the outstanding Series D Shares, voting as a separate voting group, is required for:
certain amendments to our Amended and Restated Articles of Incorporation impacting the Series D Shares;
the approval of any dividend payable in Series D Shares to holders of shares of another class or series of our stock;
the approval of any proposed share exchange that includes Series D Shares; or
the approval of any plan of merger if the plan of merger contains a provision that, if contained in a proposed amendment to our Amended and Restated Articles of Incorporation, would require action on the proposed amendment.
Further, in the case of any merger where we are the surviving corporation, the right of holders of the Series D Shares to vote separately as a group on a plan of merger does not apply if:
the articles of incorporation of the surviving corporation will not differ, with certain exceptions, from our articles of incorporation in effect prior to the merger;
each shareholder of the surviving corporation whose shares were outstanding immediately before the effective date of the merger will hold the same number of shares, with identical designations, preferences, limitation, and relative rights, immediately after the merger; and



the number of voting shares outstanding immediately after the merger, plus the number of voting shares issuable as a result of the merger, either by the conversion of securities issued pursuant to the merger or the exercise of rights or warrants issued pursuant to the merger, will not exceed by more than 20% the total number of voting shares of the surviving corporation outstanding immediately after the merger.
The foregoing voting provisions will not apply if, at or prior to the time when the act with respect to which the vote would otherwise be required, all outstanding Series D Shares shall have been redeemed or called for redemption upon proper notice and sufficient funds shall have been set aside by us for the benefit of the holders of Series D Shares to effect the redemption.
Depositary, Transfer Agent, Registrar and Paying Agent
Equiniti Trust Company is the depositary, transfer agent, registrar and paying agent for the Series D Shares.
5.875% Non-Cumulative Perpetual Preferred Stock, Series E
As of December 31, 2019, there were 100,000 shares of our 5.875% Non-Cumulative Perpetual Preferred Stock, Series E, par value of $1.00 per share, with a liquidation preference of $1,000 per share (the “Series E Preferred Stock” or the “Series E Shares”) issued and outstanding. The depositary is the sole holder of the Series E Preferred Stock, as described under “Depositary Shares Representing the Series C, Series D, and Series E Shares” below, and all references to the holders of the Series E Shares shall mean the depositary.  However, the holders of the depositary shares representing the Series E Shares are entitled, through the depositary, to exercise the rights and preferences of the holders of the Series E Shares, as described under “Depositary Shares Representing the Series C, Series D, and Series E Shares.” This summary of the Series E Preferred Stock does not purport to be complete in all respects. This summary is subject to and qualified in its entirety by reference to our Amended and Restated Articles of Incorporation, as amended, including the Articles of Amendment with respect to the designation of the Series E Preferred Stock.
Each holder of Series E Shares is entitled to receive cash dividends when, as and if declared out of assets legally available for payment in respect of the Series E Shares by our Board of Directors or a duly authorized committee of the Board in their sole discretion.  Dividends will be non-cumulative. If we do not declare dividends or do not pay dividends in full on the Series E Shares on any date on which dividends are due, then these undeclared and unpaid dividends will not cumulate, accrue or be payable.
The Series E Shares have a fixed liquidation preference of $1,000 per share (equivalent to $25 per depositary share). If we liquidate, dissolve or wind up our business and affairs, holders of Series E Shares will be entitled to receive, out of our assets that are available for distribution to shareholders, an amount per Series E Share equal to the liquidation preference per Share plus an amount with respect to dividends as and to the extent described below under “-Liquidation Rights.”
The Series E Shares are not convertible into, or exchangeable for, shares of our common stock or any other class or series of our stock or other securities. The Series E Shares are not subject to any sinking fund or any other obligation of us to redeem or repurchase the Series E Shares.
Ranking
The Series E Shares rank, as to the payment of dividends and the amounts to be paid upon liquidation, dissolution or winding up, senior to our common stock and any other class or series of shares ranking junior to the Series E Shares. The Series E Shares rank equally with our 6.125% Non-Cumulative Perpetual Preferred Stock, Series C and 5.3.375% Non-Cumulative Perpetual Preferred Stock, Series D, and at least equally with any other series of preferred stock ranking equal to the Series C Shares as to payment of dividends or the amounts to be paid upon liquidation, dissolution or winding up, as applicable.
During any Dividend Period (as defined below), so long as any Series E Shares remain outstanding, unless (a) the full dividends for the then-current Dividend Period on all outstanding Shares have been paid, or declared and



funds set aside therefor and (b) we are not in default on our obligation to redeem any Series E Shares that have been called for redemption as described below under “-Redemption”:
no dividend whatsoever may be paid or declared on our common stock or other junior stock, other than a dividend payable solely in junior stock; and no common stock or other junior stock may be purchased, redeemed or otherwise acquired for consideration by us.
On any Dividend Payment Date (as defined below) for which full dividends are not paid, or declared and funds set aside therefor, upon the Series E Shares and other equity securities designated as ranking on parity with the Series E Shares as to payment of dividends (“dividend parity stock”), all dividends paid or declared for payment on that Dividend Payment Date with respect to the Shares and the dividend parity stock shall be shared:
first, ratably by the holders of any such shares, if any, who have the right to receive dividends with respect to Dividend Periods prior to the then-current Dividend Period, in proportion to the respective amounts of the declared and unpaid dividends and the undeclared and unpaid dividends relating to prior Dividend Periods; and
thereafter by the holders of the Series E Shares and dividend parity stock on a pro rata basis.
We have agreed, in the articles of amendment to our amended and restated articles of incorporation establishing the terms of the Series E Shares, not to issue preferred stock having dividend payment dates that are not also Dividend Payment Dates for the Series E Shares.
Subject to the foregoing, such dividends (payable in cash, stock or otherwise) as may be determined by our board of directors (or a duly authorized committee of the board) may be declared and paid on our common stock and any other stock ranking equally with or junior to the Series E Shares from time to time out of any funds legally available for such payment, and the Series E Shares shall not be entitled to participate in any such dividend.
Dividends
General
Dividends on the Series E Shares are not mandatory. Holders of Series E Shares, in preference to the holders of our common stock and of any other shares of our stock ranking junior to the Series E Shares as to payment of dividends, will be entitled to receive, only when, as and if declared by our board of directors or a duly authorized committee of the board, and only out of assets legally available for the payment of dividends under Wisconsin law, non-cumulative cash dividends at a rate per annum equal to 5.875%, applied to the stated liquidation preference of $1,000 per share (equivalent to $25 per depositary share). Dividends on the Series E Shares are payable quarterly in arrears on the 15th day of March, June, September and December of each year, (each, a “Dividend Payment Date”), with respect to the Dividend Period, or portion thereof, ending on the day preceding the respective Dividend Payment Date. A “Dividend Period” means each period commencing on (and including) a Dividend Payment Date and continuing to (but not including) the next succeeding Dividend Payment Date, except that the first Dividend Period for the initial issuance of Series E Shares commenced upon (and included) the date of original issuance of the Series E Shares. If additional Series E Shares are issued at a future date, the first Dividend Period for such Shares will commence upon (and include) (i) the date of issue, if issued on a Dividend Payment Date, or (ii) otherwise, the most recent Dividend Payment Date preceding the date of issue of such share.
Dividends will be paid to holders of record on the 15th calendar date (whether or not a Business Day) before such Dividend Payment Date or such other record date not more than 60 days nor less than 10 days preceding such Dividend Payment Date and fixed for that purpose by our board of directors or a committee thereof in advance of payment of each particular dividend. The corresponding record dates for the depositary shares are the same as the record dates for the Series E Shares. As used in this section, “Business Day” means each weekday on which banking institutions in the City of New York are not authorized or obligated by law, regulation or executive order to close.
The dividend payable per Series E Share for any Dividend Period is computed on the basis of a 360-day year consisting of twelve 30-day months. If a Dividend Payment Date is not a Business Day, the applicable dividend will be paid on the first Business Day following that day without adjustment.



Dividends on shares of the Series E Preferred Stock are not cumulative and are not be mandatory. If our board of directors (or a duly authorized committee of the board) does not declare a dividend on the Series E Preferred Stock in respect of a Dividend Period, then no dividend will be deemed to have accrued for such Dividend Period, be payable on the related Dividend Payment Date, or accumulate, and we will have no obligation to pay any dividend accrued for such Dividend Period, whether or not our board of directors (or a duly authorized committee of the board) declares a dividend on the Series E Preferred Stock or any other series of our preferred stock or on our common stock for any future Dividend Period. References to the “accrual” (or similar terms) of dividends herein refer only to the determination of the amount of such dividend and do not imply that any right to a dividend arises prior to the date on which a dividend is declared.
We are subject to various general regulatory policies and requirements relating to the payment of dividends, including requirements to maintain adequate capital above regulatory minimums, and dividends on the Series E Shares will not be declared, paid or set aside for payment to the extent such act would cause us to fail to comply with laws or regulations applicable thereto, including applicable capital adequacy rules and regulations. The Federal Reserve (including any successor bank regulatory authority that may become our Appropriate Federal Banking Agency), as defined below, is authorized to determine, under certain circumstances relating to the financial condition of a bank holding company, such as us, that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof. In addition, we are subject to Wisconsin state laws relating to the payment of dividends.
Redemption
Optional Redemption
The Series E Shares are not subject to any mandatory redemption, sinking fund or other similar provisions. However, the Series E Shares may be redeemed on or after December 15, 2023 (“Optional Redemption”). On that date or on any Dividend Payment Date thereafter, the Series E Shares may be redeemed from time to time, in whole or in part, at our option, subject to the approval of the Appropriate Federal Banking Agency, at the cash redemption price provided below. Dividends will not accrue on those Series E Shares on and after the redemption date. Neither the holders of Series E Shares nor the holders of the related depositary shares have the right to require the redemption or repurchase of the Series E Shares.
Redemption Following a Regulatory Capital Event
We may redeem the Series E Shares at any time within 90 days following a regulatory capital treatment event, in whole but not in part, at our option, subject to the approval of the Federal Reserve or other Appropriate Federal Banking Agency, at the cash redemption price provided below (“Regulatory Event Redemption”). A “regulatory capital treatment event” means our good faith determination that, as a result of (i) any amendment to, or change in, the laws or regulations of the United States (including, for the avoidance of doubt, any agency or instrumentality of the United States, including the Federal Reserve and other federal bank regulatory agencies) or any political subdivision of or in the United States that is enacted or becomes effective after the initial issuance of the Series E Shares (the “Issue Date”); (ii) any proposed change in those laws or regulations that is announced after the Issue Date; or (iii) any official administrative decision or judicial decision or administrative action or other official pronouncement interpreting or applying those laws or regulations that is announced after the Issue Date, there is more than an insubstantial risk that we will not be entitled to treat the stated liquidation preference value of the Series E Shares then outstanding as “Tier 1 Capital” (or its equivalent) for purposes of the capital adequacy rules or regulations of the Federal Reserve (or, as and if applicable, the capital adequacy rules or regulations of any successor Appropriate Federal Banking Agency), as then in effect and applicable, for as long as any Series E Shares is outstanding. Dividends will not accrue on those Series E Shares on and after the redemption date. “Appropriate Federal Banking Agency” means the “appropriate federal banking agency” with respect to us as defined in Section (3)(q) of the Federal Deposit Insurance Act.
Redemption Price
The redemption price for any redemption of Series E Shares, whether an Optional Redemption or Regulatory Event Redemption, will be equal to $1,000 per Series E Share (equivalent to $25 per depositary share)



plus (a) in the case of an Optional Redemption, the sum of any declared and unpaid dividends for any prior Dividend Periods to the redemption date, without accumulation of any undeclared dividends, or (b) in the case of a Regulatory Event Redemption, the sum of any declared and unpaid dividends for any prior Dividend Periods and accrued but unpaid and undeclared dividends for the then-current Dividend Period to but excluding the date of redemption. Any declared but unpaid dividends payable on a redemption date that occurs subsequent to the dividend record date for a Dividend Period will not be paid to the holder entitled to receive the redemption price on the redemption date, but rather will be paid to the holder of record of the redeemed shares on such dividend record date relating to the Dividend Payment Date.
Redemption Procedures
If Series E Shares are to be redeemed, we will provide notice by first class mail, postage prepaid, addressed to the holders of record of the Series E Shares to be redeemed, mailed not less than 30 days and not more than 60 days before the date fixed for redemption thereof (provided, however, that if the Series E Shares or the depositary shares representing the Series E Shares are held in book-entry form through The Depository Trust Company, or “DTC,” we may give this notice in any manner permitted by DTC). Any notice mailed or otherwise given as provided in this paragraph will be conclusively presumed to have been duly given, whether or not the holder receives this notice, and failure duly to give this notice by mail or otherwise, or any defect in this notice or in the mailing or provision of this notice, to any holder of Series E Shares designated for redemption will not affect the redemption of any other Series E Shares. Each notice of redemption will include a statement setting forth:
the redemption date;
the number of Series E Shares to be redeemed and, if less than all the Series E Shares held by the holder are to be redeemed, the number of Series E Shares to be redeemed from the holder;
the redemption price; and
the place or places where the Series E Shares are to be surrendered for payment of the redemption price.
If notice of redemption of any Series E Shares has been duly given and if the funds necessary for the redemption have been set aside by us for the benefit of the holders of any Series E Shares so called for redemption, then, on and after the redemption date, those Series E Shares will no longer be deemed outstanding and all rights of the holders of those Series E Shares (including the right to receive any dividends) will terminate, except the right to receive the redemption price.
In the case of any redemption of only part of the Series E Shares at the time outstanding, the Series E Shares to be redeemed will be selected either pro rata or by lot. Subject to the provisions described in this section, the board of directors will have the full power and authority to prescribe the terms and conditions upon which Series E Shares shall be redeemed from time to time.
Under the Federal Reserve’s current risk-based capital rules applicable to bank holding companies, any redemption of the Series E Shares is subject to prior approval by the Federal Reserve. See Any redemption of the Series E Shares is subject to our receipt of any required prior approval by the Federal Reserve and to the satisfaction of any conditions set forth in the capital rules or regulations of the Federal Reserve applicable to the redemption of the Series E Shares.
Neither the holders of the Series E Shares nor the holders of the related depositary shares have the right to require the redemption or repurchase of the Series E Shares.
Liquidation Rights
In the event that we liquidate, dissolve or wind up our business and affairs, either voluntarily or involuntarily, holders of Series E Shares will be entitled to receive an amount per Share (the “Series E Total Liquidation Amount”) equal to a stated amount of $1,000 per Series E Share (equivalent to $25 per depositary share) plus (i) the sum of any declared and unpaid dividends for Dividend Periods prior to the dividend period in which the liquidation distribution is made and declared and, (ii) if applicable, a portion of any declared and unpaid dividends for the then-current Dividend Period in which the liquidation distribution is made, pro-rated for the number of days in such Dividend Period prior to the date of such liquidation distribution. Holders of the Series E



Shares will be entitled to receive the Series E Total Liquidation Amount out of our assets that are available for distribution to shareholders, after payment or provision for payment of our debts and other liabilities but before any distribution of assets is made to holders of our common stock or any other class or series of shares ranking junior to the Series E Shares with respect to that distribution.
If our assets are not sufficient to pay the Series E Total Liquidation Amount in full to all holders of Series E Shares and all holders of any shares of our stock having the same rank as the Series E Shares with respect to any such distribution, the amounts paid to the holders of Shares and such other shares will be paid pro rata in accordance with the respective Series E Total Liquidation Amount to which those holders are entitled. If the Series E Total Liquidation Amount per Series E Share has been paid in full to all holders of Series E Shares and the liquidation preference of any other shares having the same rank as the Series E Shares has been paid in full, the holders of our common stock or any other shares ranking, as to such distribution, junior to the Series E Shares will be entitled to receive all of our remaining assets according to their respective rights and preferences.
For purposes of the liquidation rights, neither the sale, conveyance, lease, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of our property and assets, nor the consolidation or merger by us with or into any other entity or by another entity with or into us will constitute a liquidation, dissolution or winding up of our business or affairs.
Because we are a holding company, our rights and the rights of our creditors and our shareholders, including the holders of the Series E Shares, to participate in the assets of any of our subsidiaries upon that subsidiary’s liquidation or recapitalization may be subject to the prior claims of that subsidiary’s creditors, except to the extent that we are a creditor with recognized claims against the subsidiary.
Voting Rights
The holders of Series E Shares will not have any voting rights and will not be entitled to elect any directors, except as indicated below or otherwise specifically required by law. Each holder of Series E Shares will have one vote per Series E Share (or one vote per 40 depositary shares) on any matter on which holders of Series E Shares are entitled to vote, including any action by written consent.
Under regulations adopted by the Federal Reserve, if the holders of shares of any series of our preferred stock, including the Series E Shares, become entitled to vote for the election of directors, such series may then be deemed a “class of voting securities” and a holder of 25% or more of such series (or a holder of 5% or more if the holder otherwise exercises a “controlling influence”) may then be subject to regulation as a bank holding company in accordance with the Bank Holding Company Act. In addition, at such time as such series is deemed a class of voting securities, (i) any other bank holding company may be required to obtain the approval of the Federal Reserve to acquire or retain 5% or more of such series, and (ii) any person other than a bank holding company may be required to file with the Federal Reserve under the Change in Bank Control Act, a federal law, to acquire or retain 10% or more of such series.
Right to Elect Two Directors Upon Non-Payment of Dividends
If and whenever the dividends on the Series E Shares and any other class or series of our stock that ranks on parity with Series E Shares as to payment of dividends and that has voting rights equivalent to those described in this paragraph (“voting parity stock”) have not been declared and paid (i) in the case of the Shares and any voting parity stock bearing non-cumulative dividends, in full for at least six quarterly dividend periods or their equivalent (whether or not consecutive) or (ii) in the case of voting parity stock bearing cumulative dividends, in an aggregate amount equal to full dividends for at least six quarterly dividend periods or their equivalent (whether or not consecutive), the authorized number of our directors then constituting our board of directors will automatically be increased by two. Holders of Series E Shares, together with the holders of all other affected classes and series of voting parity stock, voting as a single class, will be entitled to elect the two additional members of our board of directors (the “Preferred Stock Directors”) at any annual meeting of shareholders or any special meeting of the holders of Series E Shares and any voting parity stock for which dividends have not been paid, called as provided below, but only if the election of any Preferred Stock Directors would not cause us to violate the corporate governance requirement of the New York Stock Exchange (or any other exchange on which our securities may be



listed) that listed companies must have a majority of independent directors. In addition, our board of directors shall at no time have more than two Preferred Stock Directors.
At any time after this voting power has vested as described above, our Secretary may, and upon the written request of holders of record of at least 20% of the outstanding Series E Shares and voting parity stock (addressed to the Secretary at our principal office) must, call a special meeting of the holders of Series E Shares and voting parity stock for the election of the Preferred Stock Directors. Notice for a special meeting will be given in a similar manner to that provided in our by-laws for a special meeting of the shareholders, which we will provide upon request, or as required by law. If our Secretary is required to call a meeting but does not do so within 20 days after receipt of any such request, then any holder of Series E Shares may (at our expense) call such meeting, upon notice as provided in this section, and for that purpose will have access to our stock books.
The Preferred Stock Directors elected at any such special meeting will hold office until the next annual meeting of our shareholders unless they have been previously terminated as described below. In case any vacancy occurs among the Preferred Stock Directors, a successor will be elected by our board of directors to serve until the next annual meeting of the shareholders upon the nomination of the then remaining Preferred Stock Director or, if no Preferred Stock Director remains in office, by the vote of the holders of record of a majority of the outstanding Series E Shares and voting parity stock, voting as a single class. The Preferred Stock Directors shall each be entitled to one vote per director on any matter.
Whenever full dividends have been paid on the Series E Shares and any non-cumulative voting parity stock for at least one year and all dividends on any cumulative voting parity stock have been paid in full, then the right of the holders of Series E Shares to elect the Preferred Stock Directors will cease (but subject always to the same provisions for the vesting of these voting rights in the case of any similar non-payment of dividends in respect of future Dividend Periods), the terms of office of all Preferred Stock Directors will immediately terminate and the number of directors constituting our board of directors will be reduced accordingly.
Other Voting Rights
So long as any Series E Shares remain outstanding, the affirmative vote of the holders of at least two-thirds of the Series E Shares outstanding at the time, given in person or by proxy, either in writing or at a meeting (voting separately as a class), will be required to:
authorize or create, or increase the authorized or issued amount of, any class or series of capital stock ranking senior to the Series E Shares with respect to payment of dividends or the distribution of assets upon liquidation, dissolution or winding up, or reclassify any authorized shares of capital stock into Series E Shares; or

amend, alter or repeal the provisions of our amended and restated articles of incorporation, whether by merger, consolidation or otherwise, so as to materially and adversely affect any right, preference, privilege or voting power of the Series E Shares or the holders thereof;
provided, however, that with respect to the occurrence of any event set forth in the second bullet point above, so long as any Series E Shares remain outstanding with the terms thereof materially unchanged or new shares of the surviving corporation or entity are issued with the same terms as the Series E Shares, in each case taking into account that upon the occurrence of this event we may not be the surviving entity, the occurrence of any such event shall not be deemed to materially and adversely affect any right, preference, privilege or voting power of the Series E Shares or the holders thereof, and provided, further, that any increase in the amount of our authorized common stock or preferred stock or the creation or issuance of any other series of common stock or other equity securities ranking on a parity with or junior to the Series E Shares with respect to payment of dividends (whether such dividends are cumulative or non-cumulative) or the distribution of assets upon liquidation, dissolution or winding up and any change to the number of directors or number of classes of directors shall not be deemed to materially and adversely affect such rights, preferences, privileges or voting powers.



Under the Wisconsin Business Corporation Law, the vote of the holders of a majority of the outstanding Series E Shares, voting as a separate voting group, is required for:
certain amendments to the articles of incorporation impacting the Series E Shares;
the approval of any dividend payable in Series E Shares to holders of shares of another class or series of our stock;
the approval of any proposed share exchange that includes Series E Shares; or
the approval of any plan of merger if the plan of merger contains a provision that, if contained in a proposed amendment to the articles of incorporation, would require shareholder action on the proposed amendment.
Further, in the case of any merger where we are the surviving corporation, the right of holders of the Series E Shares to vote separately as a group on a plan of merger does not apply if:
the articles of incorporation of the surviving corporation will not differ, with certain exceptions, from our articles of incorporation as in effect prior to the merger;
each shareholder of the surviving corporation whose shares were outstanding immediately before the effective date of the merger will hold the same number of shares, with identical designations, preferences, limitation, and relative rights, immediately after the merger; and
the number of voting shares outstanding immediately after the merger, plus the number of voting shares issuable as a result of the merger, either by the conversion of securities issued pursuant to the merger or the exercise of rights or warrants issued pursuant to the merger, will not exceed by more than 20% the total number of voting shares of the surviving corporation outstanding immediately after the merger.
The foregoing voting provisions will not apply if, at or prior to the time when the act with respect to which the vote would otherwise be required, all outstanding Series E Shares shall have been redeemed or called for redemption upon proper notice and sufficient funds shall have been set aside by us for the benefit of the holders of Series E Shares to effect the redemption.
Depositary, Transfer Agent, Registrar and Paying Agent
Equiniti Trust Company will act as depositary, transfer agent, registrar and paying agent for the Series E Shares.

Description of Depositary Shares
This section describes the general terms and provisions of the depositary shares, which are registered pursuant to Section 12(b) of the Exchange Act. The following summary is not complete. You should read the forms of deposit agreement and depositary receipt relating to a series of preferred stock for additional information.
Depositary Shares Representing the Series C, Series D, and Series E Shares
As of December 31,2019, there were 2,600,000 depositary shares outstanding, each representing a 1/40th ownership interest in a Series C Share, issued and outstanding, and 3,978,320 depositary shares outstanding, each representing a 1/40th ownership interest in a Series D Share, issued and outstanding, 4,000,000 depositary shares outstanding, each representing a 1/40th ownership interest in a Series E Share, issued and outstanding. We deposited the underlying Series C Shares and Series D Shares with a depositary, in each case pursuant to a deposit agreement among us, Wells Fargo Bank, N.A. (n/k/a Equiniti Trust Company), acting as depositary, and the holders from time to time of the depositary receipts evidencing the respective depositary shares. We deposited the underlying Series E Shares with a depositary, pursuant to a deposit agreement among us, Equiniti Trust Company, acting as depositary, and the holders from time to time of the depositary receipts evidencing the respective depositary shares.



Subject to the terms of the respective deposit agreements, each holder of a depositary share is entitled, through the depositary, in proportion to the applicable fraction of a Series C Share, Series D Share, or Series E share, as the case may be, represented by that depositary share, to all the rights and preferences of the Series C Shares, Series D Shares, or Series E Shares, represented thereby (including dividend, voting, redemption and liquidation rights). This description is subject to and qualified in its entirety by reference to our Amended and Restated Articles of Incorporation, including our Articles of Amendment with respect to the Series C Shares, the Series D Shares, and Series E Shares, which have been filed as exhibits to our SEC filings.
Dividends and Other Distributions
The depositary will distribute all cash dividends or other cash distributions received with respect to the preferred stock to the record holders of depositary shares representing the shares of preferred stock. These distributions will be in proportion to the number of depositary shares owned by the holders on the relevant record date. The depositary will not distribute amounts less than one cent. The depositary will distribute any balance with the next sum received for distribution to record holders of depositary shares.
If there is a distribution other than in cash, the depositary will distribute property to the holders of depositary shares, unless the depositary determines that it is not feasible to make the distribution. If this occurs, the depositary may, with our approval, sell the property and distribute the net proceeds from the sale to the holders of depositary shares.
Redemption of Depositary Shares
If the series of the preferred stock underlying the depositary shares is subject to redemption, all or a part of the depositary shares will be redeemed from the redemption proceeds of that series of the preferred stock held by the depositary. The depositary will mail notice of redemption between 30 to 60 days prior to the date fixed for redemption to the record holders of the depositary shares to be redeemed at their addresses appearing in the depositary’s records. The redemption price per depositary share will bear the same relationship to the redemption price per share of preferred stock that the depositary share bears to the underlying preferred stock. Whenever we redeem preferred stock held by the depositary, the depositary will redeem, as of the same redemption date, the number of depositary shares representing the preferred stock redeemed. If less than all the depositary shares are to be redeemed, the depositary shares to be redeemed will be selected by lot or pro rata as determined by the depositary.
After the date fixed for redemption, the depositary shares called for redemption will no longer be outstanding. When the depositary shares are no longer outstanding, all rights of the holders will cease, except the right to receive money or other property that the holders of the depositary shares were entitled to receive upon the redemption. Payments will be made when holders surrender their depositary receipts to the depositary.
Voting Preferred Stock
When the depositary receives notice of any meeting at which the holders of the preferred stock may vote, the depositary will mail information about the meeting contained in the notice, and any accompanying proxy materials, to the record holders of the depositary shares relating to the preferred stock. Each record holder of such depositary shares on the record date, which will be the same date as the record date for the preferred stock, will be entitled to instruct the depositary with regard to how the preferred stock underlying the holder’s depositary shares should be voted.
The depositary will try, if practical, to vote the number of shares of preferred stock underlying the depositary shares according to the instructions received. We will agree to take all action requested by and deemed necessary by the depositary to enable the depositary to vote the preferred stock in that manner. The depositary will not vote any preferred stock for which it does not receive specific instructions from the holders of the depositary shares relating to such preferred stock, unless otherwise indicated in the applicable prospectus supplement.



Amendment and Termination of the Deposit Agreement
The form of depositary receipt evidencing the depositary shares and any provision of the deposit agreement may be amended by agreement between us and the depositary at any time. Any amendment that materially and adversely alters the rights of the existing holders of depositary shares, however, will be effective only if approved by the record holders of at least a majority of the depositary shares then outstanding. A deposit agreement may be terminated by us or the depositary only if:
all outstanding depositary shares relating to the deposit agreement have been redeemed or reacquired by us;
all preferred stock of the relevant series has been withdrawn; or
there has been a final distribution on the preferred stock of the relevant series in connection with our liquidation, dissolution, or winding-up of our business and the distribution has been distributed to the holders of the related depositary shares.
Charges of Depositary
We will pay all transfer and other taxes and governmental charges arising solely from the existence of the depositary arrangements. We will pay associated charges of the depositary for the initial deposit of the preferred stock and any redemption of the preferred stock. Holders of depositary shares will pay transfer and other taxes and governmental charges and any other charges that are stated to be their responsibility under the deposit agreement.
Miscellaneous
We will forward to the depositary, for distribution to the holders of depositary shares, all reports and communications that we must furnish to the holders of the preferred stock.
If the depositary is prevented or delayed by law or any circumstance beyond its control in performing its obligations under the deposit agreement, neither the depositary nor we will be liable. Our obligations and the depositary’s obligations under the deposit agreement will be limited to performance in good faith of duties set forth in the deposit agreement. Neither the depositary nor we will be obligated to prosecute or defend any legal proceeding connected with any depositary shares or preferred stock unless satisfactory indemnity is furnished to us and/or the depositary. We and the depositary may rely upon documents believed to be genuine, written advice of counsel or accountants, or information provided by persons presenting preferred stock for deposit, holders of depositary shares or other persons believed to be competent.
Resignation and Removal of Depositary
The depositary may resign at any time by delivering notice to us. We may also remove the depositary at any time. Resignations or removals will take effect when a successor depositary is appointed and it accepts the appointment. The successor depositary must be appointed within 60 days after delivery of the notice of resignation or removal and must be a bank or trust company having its principal office in the U.S., and it must have a combined capital and surplus of at least $50 million.




Exhibit 21
Subsidiaries of the Parent Company
As of December 31, 2019

The following bank subsidiaries are national banks and are organized under the laws of the United States:
Associated Bank, National Association
Associated Trust Company, National Association

The following nonbank subsidiary is organized under the laws of the State of Nevada:
Associated Investment Corp.

The following nonbank subsidiaries are organized under the laws of the State of Wisconsin:
ACD Germania, LLC
Associated Community Development, LLC
Associated Financial Group, LLC
Associated Investments Inc.
Associated Investment Services, Inc.
Associated Wisconsin Real Estate Corp.
Kellogg Asset Management, LLC
Milwaukee Center Management, LLC

The following nonbank subsidiaries are organized under the laws of the State of Illinois:
Associated Acquisition Corp.
Whitnell & Co.

The following nonbank subsidiaries are organized under the laws of the State of Michigan:
GL-Mercantile Milwaukee, LLC





Exhibit 23





Consent of Independent Registered Public Accounting Firm
The Board of Directors
Associated Banc-Corp:

We consent to the incorporation by reference in the registration statement (Nos. 2-77435, 2-99096, 33-16952, 33-24822, 33-35560, 33-54658, 33-63545, 33-67436, 33-86790, 333-46467, 333-74307, 333-121012, 333-121011, 333-121010, 333-120711, 333-120713, 333-120714, 333-120710, 333-166392, 333-188233, 333-208104, 333-217689, and 333-223099) on Form S-8, (Nos. 2-98922, 33-28081, 33-63557, 33-67434, 333-202836, 333-208103 and 333-224096) on Form S-3 and (Nos. 333-195049 and 333-220067) on Form S-4 of Associated Banc-Corp of our reports dated February 11, 2020, with respect to the consolidated balance sheets of Associated Banc-Corp as of December 31, 2019 and 2018, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively, the “consolidated financial statements”), and the effectiveness of internal control over financial reporting as of December 31, 2019, which reports appear in the December 31, 2019 annual report on Form 10-K of Associated Banc-Corp.

/s/ KPMG LLP

Chicago, Illinois
February 11, 2020



Exhibit 24
POWER OF ATTORNEY FOR ANNUAL REPORT ON FORM 10-K
Each of the undersigned directors of Associated Banc-Corp (the “Corporation”) hereby designates and appoints Randall J. Erickson and Nadia Musallam, and each of them, the undersigned’s true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for the undersigned and in the undersigned’s name, place and stead to sign for the undersigned and in the undersigned’s name in the capacity as a director of the Corporation the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2019, and to file the same, with all exhibits thereto, other documents in connection therewith, and any amendments to any of the foregoing, with the Securities and Exchange Commission and any other regulatory authority, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully and to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or the undersigned’s substitute, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have each executed this Power of Attorney for Annual Report on Form 10-K, on one or more counterparts, as of the 4th day of February, 2020.


/s/ John F. Bergstrom     /s/ Robert A. Jeffe 
John F. Bergstrom     Robert A. Jeffe 

/s/ Michael T. Crowley, Jr.     /s/ Eileen A. Kamerick 
Michael T. Crowley, Jr.     Eileen A. Kamerick

/s/ Philip B. Flynn     /s/ Gale E. Klappa  
Philip B. Flynn      Gale E. Klappa 

/s/ R. Jay Gerken      /s/ Richard T. Lommen 
R. Jay Gerken       Richard T. Lommen

/s/ Judith P. Greffin     /s/ Cory L. Nettles 
Judith P. Greffin      Cory L. Nettles

/s/ Michael J. Haddad     
Michael J. Haddad     Karen T. van Lith

/s/ William R. Hutchinson     /s/ John (Jay) B. Williams 
William R. Hutchinson     John (Jay) B. Williams



Exhibit 31.1
CERTIFICATION UNDER SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
CERTIFICATIONS
I, Philip B. Flynn, certify that:
1. I have reviewed this annual report on Form 10-K of Associated Banc-Corp;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: February 11, 2020 /s/ Philip B. Flynn
Philip B. Flynn
President and Chief Executive Officer



Exhibit 31.2
CERTIFICATION UNDER SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
CERTIFICATIONS
I, Christopher J. Del Moral-Niles, certify that:
1. I have reviewed this annual report on Form 10-K of Associated Banc-Corp;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: February 11, 2020 /s/ Christopher J. Del Moral-Niles
Christopher J. Del Moral-Niles
Chief Financial Officer



Exhibit 32
Certification by the Chief Executive Officer and Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of Associated Banc-Corp, a Wisconsin corporation (the “Company”), does hereby certify that:
1. The accompanying Annual Report of the Company on Form 10-K for the quarter ended December 31, 2019 (the “Report”), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. Information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
/s/ Philip B. Flynn
Philip B. Flynn
Chief Executive Officer
February 11, 2020
 
/s/ Christopher J. Del Moral-Niles
Christopher J. Del Moral-Niles
Chief Financial Officer
February 11, 2020