ASB 10-Q Quarterly Report March 31, 2021

ASSOCIATED BANC-CORP

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended: March 31, 2021


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

Commission file number: 001-31343

Associated Banc-Corp

(Exact name of registrant as specified in its charter)


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


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

( 920 ) 491-7500

(Registrant’s telephone number, including area code )

(not applicable)

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

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


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

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

Yes ☑ No ☐

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

Yes ☑ No ☐

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

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

Yes ☐ No ☑

APPLICABLE ONLY TO CORPORATE ISSUERS:

The number of shares outstanding of registrant’s common stock, par value $0.01 per share, at April 23, 2021 was 152,808,020 .


ASSOCIATED BANC-CORP
Table of Contents


		Page
PART I. Financial Information

	Item 1. Financial Statements (Unaudited):	5

	Consolidated Balance Sheets	5

	Consolidated Statements of Income	6

	Consolidated Statements of Comprehensive Income	7

	Consolidated Statements of Changes in Stockholders’ Equity	8

	Consolidated Statements of Cash Flows	9

	Notes to Consolidated Financial Statements	11

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	50

	Item 3. Quantitative and Qualitative Disclosures About Market Risk	75

	Item 4. Controls and Procedures	76

PART II. Other Information

	Item 1. Legal Proceedings	77

	Item 1A. Risk Factors	77

	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	77

	Item 6. Exhibits	79

	Signatures	80


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


ABRC			Associated Benefits & Risk Consulting, the Corporation's insurance division which was sold on June 30, 2020

ACL			Allowance for Credit Losses on Loans and Investments
ACLL			Allowance for Credit Losses on Loans

AFS			Available for Sale
ALCO			Asset / Liability Committee
ARRC			Alternative Reference Rate Committee
ASC			Accounting Standards Codification
Associated / Corporation / our / we			Associated Banc-Corp collectively with all of its subsidiaries and affiliates
Associated Bank / the Bank			Associated Bank, National Association
ASU			Accounting Standards Update

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


CRA			Community Reinvestment Act
CRE			Commercial Real Estate

EAR			Earnings at Risk
Economic Aid Act			Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act

Exchange Act			Securities Exchange Act of 1934, as amended
FASB			Financial Accounting Standards Board
FDIC			Federal Deposit Insurance Corporation
Federal Reserve			Board of Governors of the Federal Reserve System
FFELP			Federal Family Education Loan Program
FHLB			Federal Home Loan Bank
FHLMC			Federal Home Loan Mortgage Corporation
FICO			Fair Isaac Corporation, provider of a broad-based risk score to aid in credit decisions
First Staunton			First Staunton Bancshares, Incorporated
FNMA			Federal National Mortgage Association

FTEs			Full-time equivalent employees
FTP			Funds Transfer Pricing
GAAP			Generally Accepted Accounting Principles
GNMA			Government National Mortgage Association
GSEs			Government-Sponsored Enterprises
HTM			Held to Maturity



LIBOR			London Interbank Offered Rate
LTV			Loan-to-Value


MSRs			Mortgage Servicing Rights


MVE			Market Value of Equity
Net Free Funds			Noninterest-bearing sources of funds
NII			Net Interest Income
NPAs			Nonperforming Assets


OREO			Other Real Estate Owned
Parent Company			Associated Banc-Corp individually
PCD			Purchased Credit Deteriorated
PPP			Paycheck Protection Program
PPPLF			Paycheck Protection Program Liquidity Facility
RAP			Retirement Account Plan - the Corporation's noncontributory defined benefit retirement plan
Repurchase Agreements			Securities sold under agreements to repurchase
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 applicable equity compensation plan
Rockefeller			Rockefeller Capital Management
S&P			Standard & Poor's
SBA			Small Business Administration
SEC			U.S. Securities and Exchange Commission
Series C Preferred Stock			The Corporation's 6.125% Non-Cumulative Perpetual Preferred Stock, Series C, liquidation preference $1,000 per share
Series D Preferred Stock			The Corporation's 5.375% Non-Cumulative Perpetual Preferred Stock, Series D, liquidation preference $1,000 per share
Series E Preferred Stock			The Corporation's 5.875% Non-Cumulative Perpetual Preferred Stock, Series E, liquidation preference $1,000 per share
Series F Preferred Stock			The Corporation's 5.625% Non-Cumulative Perpetual Preferred Stock, Series F, liquidation preference $1,000 per share
SOFR			Secured Overnight Finance Rate

TDR			Troubled Debt Restructuring
USI			USI Insurance Services LLC
Whitnell			Whitnell & Co.
YTD			Year-to-Date

Table of Contents


PART I - FINANCIAL INFORMATION

ITEM 1.			Financial Statements:

ASSOCIATED BANC-CORP

Consolidated Balance Sheets


	March 31, 2021		December 31, 2020
(In Thousands, except share and per share data)	(Unaudited)		(Audited)
Assets
Cash and due from banks	$	356,285	$	416,154
Interest-bearing deposits in other financial institutions	1,590,494		298,759
Federal funds sold and securities purchased under agreements to resell	—		1,135
Investment securities AFS, at fair value	3,356,949		3,085,441
Investment securities HTM, net, at amortized cost	1,857,087		1,878,938
Equity securities	15,673		15,106
Federal Home Loan Bank and Federal Reserve Bank stocks, at cost	168,281		168,280
Residential loans held for sale	153,151		129,158

Loans	24,162,328		24,451,724
Allowance for loan losses	( 352,938 )		( 383,702 )
Loans, net	23,809,389		24,068,022
Tax credit and other investments	303,701		297,232

Premises and equipment, net	398,671		418,914
Bank and corporate owned life insurance	680,831		679,647
Goodwill	1,104,992		1,109,300
Other intangible assets, net	64,701		68,254
Mortgage servicing rights, net	49,500		41,961

Interest receivable	86,466		90,263
Other assets	579,084		653,219
Total assets	$	34,575,255	$	33,419,783
Liabilities and Stockholders' Equity
Noninterest-bearing demand deposits	$	8,496,194	$	7,661,728
Interest-bearing deposits	19,180,972		18,820,753
Total deposits	27,677,166		26,482,481
Federal funds purchased and securities sold under agreements to repurchase	138,507		192,971
Commercial paper	51,171		59,346

FHLB advances	1,629,966		1,632,723
Other long-term funding	549,729		549,465

Allowance for unfunded commitments	50,776		47,776
Accrued expenses and other liabilities	350,160		364,088
Total liabilities	30,447,474		29,328,850
Stockholders’ Equity
Preferred equity	353,512		353,512
Common equity
Common stock	1,752		1,752
Surplus	1,706,786		1,720,329
Retained earnings	2,520,144		2,458,920
Accumulated other comprehensive income (loss)	( 4,193 )		12,618
Treasury stock, at cost	( 450,222 )		( 456,198 )
Total common equity	3,774,268		3,737,421
Total stockholders’ equity	4,127,780		4,090,933
Total liabilities and stockholders’ equity	$	34,575,255	$	33,419,783
Preferred shares authorized (par value $ 1.00 per share)	750,000		750,000
Preferred shares issued and outstanding	364,458		364,458
Common shares authorized (par value $ 0.01 per share)	250,000,000		250,000,000
Common shares issued	175,216,409		175,216,409
Common shares outstanding	153,684,904		153,540,224

Numbers may not sum due to rounding.

See accompanying notes to consolidated financial statements.

Table of Contents

Item 1. Financial Statements Continued:

ASSOCIATED BANC-CORP

Consolidated Statements of Income (Unaudited)


	Three Months Ended March 31,
(In Thousands, except per share data)	2021		2020
Interest income
Interest and fees on loans	$	174,049	$	224,786
Interest and dividends on investment securities
Taxable	7,014		20,272
Tax-exempt	14,162		14,882
Other interest	1,694		3,304
Total interest income	196,920		263,244
Interest expense
Interest on deposits	5,909		36,666
Interest on federal funds purchased and securities sold under agreements to repurchase	26		368
Interest on other short-term funding	6		36

Interest on FHLB advances	9,493		17,626
Interest on long-term funding	5,585		5,607
Total interest expense	21,018		60,303
Net interest income	175,902		202,942
Provision for credit losses	( 23,004 )		53,001
Net interest income after provision for credit losses	198,906		149,941
Noninterest income
Wealth management fees	22,414		20,816
Service charges and deposit account fees	14,855		15,222
Card-based fees	9,743		9,597
Other fee-based revenue	4,596		4,497
Capital markets, net	8,118		7,935
Mortgage banking, net	23,925		6,143
Bank and corporate owned life insurance	2,702		3,094
Insurance commissions and fess	76		22,608
Asset gains (losses), net	4,809		( 77 )
Investment securities gains (losses), net	( 39 )		6,118
Gains on sale of branches, net (a)	1,002		—
Other	3,141		2,352
Total noninterest income	95,343		98,306
Noninterest expense
Personnel	104,026		114,200
Technology	20,740		20,799
Occupancy	16,156		16,069
Business development and advertising	4,395		5,826
Equipment	5,518		5,439
Legal and professional	6,530		5,160
Loan and foreclosure costs	2,220		3,120
FDIC assessment	4,750		5,500
Other intangible amortization	2,236		2,814

Other	8,775		13,263
Total noninterest expense	175,347		192,191
Income (loss) before income taxes	118,903		56,056
Income tax expense (benefit)	24,602		10,219
Net income	94,301		45,838
Preferred stock dividends	5,207		3,801
Net income available to common equity	$	89,094	$	42,037
Earnings per common share
Basic	$	0.58	$	0.27
Diluted	$	0.58	$	0.27
Average common shares outstanding
Basic	152,355		154,701
Diluted	153,688		155,619

Numbers may not sum due to rounding.

(a) Includes the deposit premium on the sale of branches net of miscellaneous costs to sell. See Note 2 Acquisitions and Dispositions for additional details on the branch sales.

See accompanying notes to consolidated financial statements.

Table of Contents

Item 1. Financial Statements Continued:

ASSOCIATED BANC-CORP

Consolidated Statements of Comprehensive Income (Unaudited)


	Three Months Ended March 31,
($ in Thousands)	2021		2020

Net income	$	94,301	$	45,838
Other comprehensive income (loss), net of tax
Investment securities AFS
Net unrealized gains (losses)	( 23,979 )		26,419
Amortization of net unrealized (gains) losses on AFS securities transferred to HTM securities	518		556
Reclassification adjustment for net losses (gains) realized in net income	39		( 6,118 )


Income tax (expense) benefit	5,851		( 5,225 )
Other comprehensive income (loss) on investment securities AFS	( 17,571 )		15,632
Defined benefit pension and postretirement obligations
Amortization of prior service cost	( 37 )		( 38 )
Amortization of actuarial loss (gain)	1,050		808

Income tax (expense) benefit	( 253 )		( 193 )
Other comprehensive income (loss) on pension and postretirement obligations	760		577
Total other comprehensive income (loss)	( 16,811 )		16,209
Comprehensive income	$	77,490	$	62,046

Numbers may not sum due to rounding.

See accompanying notes to consolidated financial statements.

Table of Contents

Item 1. Financial Statements Continued:

ASSOCIATED BANC-CORP

Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)


(In Thousands, except per share data)	Preferred Equity		Common Stock		Surplus		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total
Balance, December 31, 2020	$	353,512	$	1,752	$	1,720,329	$	2,458,920	$	12,618	$	( 456,198 )	$	4,090,933


Comprehensive income
Net income	—		—		—		94,301		—		—		94,301
Other comprehensive income (loss)	—		—		—		—		( 16,811 )		—		( 16,811 )
Comprehensive income													77,490
Common stock issued
Stock-based compensation plans, net	—		—		( 16,986 )		—		—		27,542		10,556


Purchase of treasury stock, open market purchases	—		—		—		—		—		( 17,973 )		( 17,973 )
Purchase of treasury stock, stock-based compensation plans	—		—		—		—		—		( 3,593 )		( 3,593 )
Cash dividends
Common stock, $0.18 per share	—		—		—		( 27,870 )		—		—		( 27,870 )
Preferred stock (a)	—		—		—		( 5,207 )		—		—		( 5,207 )




Stock-based compensation expense, net	—		—		3,444		—		—		—		3,444




Balance, March 31, 2021	$	353,512	$	1,752	$	1,706,786	$	2,520,144	$	( 4,193 )	$	( 450,222 )	$	4,127,780

Numbers may not sum due to rounding.

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


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

Comprehensive income													62,046
Common stock issued
Stock-based compensation plans, net	—		—		( 20,659 )		—		—		23,555		2,896


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


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



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

Numbers may not sum due to rounding.

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

See accompanying notes to consolidated financial statements.

Table of Contents

Item 1. Financial Statements Continued:

ASSOCIATED BANC-CORP

Consolidated Statements of Cash Flows (Unaudited)


	Three Months Ended March 31,
($ in Thousands)	2021		2020
Cash Flow From Operating Activities
Net income	$	94,301	$	45,838
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Provision for credit losses	( 23,004 )		53,001
Depreciation and amortization	12,038		14,971
Addition to (recovery of) valuation allowance on mortgage servicing rights, net	( 10,578 )		9,098
Amortization of mortgage servicing rights	6,388		3,635
Amortization of other intangible assets	2,236		2,814
Amortization and accretion on earning assets, funding, and other, net	7,941		5,728
Net amortization of tax credit investments	8,301		6,486
Losses (gains) on sales of investment securities, net	39		( 6,118 )
Asset (gains) losses, net	( 4,809 )		77
(Gains) losses on sale of branch, net	( 1,002 )		—
(Gain) loss on mortgage banking activities, net	( 10,326 )		( 14,274 )
Mortgage loans originated and acquired for sale	( 412,645 )		( 310,254 )
Proceeds from sales of mortgage loans held for sale	400,135		297,265

Changes in certain assets and liabilities
(Increase) decrease in interest receivable	3,797		( 1,181 )
Increase (decrease) in interest payable	( 8,694 )		( 6,511 )
Increase (decrease) in expense payable	( 12,818 )		( 61,924 )
(Increase) decrease in net derivative position	69,829		( 77,369 )
Increase (decrease) in unsettled trades	3,000		—
(Increase) decrease in net income tax position	10,627		( 23,556 )
Net change in other assets and other liabilities	23,012		42,192
Net cash provided by (used in) operating activities	157,768		( 20,083 )
Cash Flow From Investing Activities
Net decrease (increase) in loans	274,733		( 1,395,767 )
Purchases of
AFS securities	( 809,140 )		( 93,487 )
HTM securities	( 37,215 )		( 29,463 )
Federal Home Loan Bank and Federal Reserve Bank stocks	( 1 )		( 49,794 )
Premises, equipment, and software, net of disposals	( 6,477 )		( 11,045 )
Other intangibles	—		( 200 )
Proceeds from
Sales of AFS securities	51,295		365,239

Sale of Federal Home Loan Bank and Federal Reserve Bank stocks	—		55,000
Prepayments, calls, and maturities of AFS investment securities	419,235		186,496
Prepayments, calls, and maturities of HTM investment securities	97,196		84,360
Sales, prepayments, calls, and maturities of other assets	8,525		10,482
Net cash received in Whitnell sale	2,484		—
Net change in tax credit and alternative investments	( 12,990 )		( 17,877 )
Net cash (paid) received in acquisition	—		( 31,452 )
Net cash provided by (used in) investing activities	( 12,354 )		( 927,507 )
Cash Flow From Financing Activities
Net increase (decrease) in deposits	1,225,867		1,443,965
Net decrease in deposits due to branch sales	( 31,083 )		—
Net increase (decrease) in short-term funding	( 62,639 )		( 324,317 )
Net increase (decrease) in short-term FHLB advances	—		30,000
Repayment of long-term FHLB advances	( 2,954 )		( 5,464 )
Proceeds from long-term FHLB advances	251		—



(Repayment) proceeds of finance lease principal	( 37 )		1

Proceeds from issuance of common stock for stock-based compensation plans	10,556		2,896




Purchase of treasury stock, open market purchases	( 17,973 )		( 71,255 )
Purchase of treasury stock, stock-based compensation plans	( 3,593 )		( 5,555 )
Cash dividends on common stock	( 27,870 )		( 28,392 )
Cash dividends on preferred stock	( 5,207 )		( 3,801 )
Net cash provided by (used in) financing activities	1,085,319		1,038,079
Net increase (decrease) in cash and cash equivalents	1,230,732		90,488
Cash and cash equivalents at beginning of period	716,048		588,744
Cash and cash equivalents at end of period (a)	$	1,946,780	$	679,232

Numbers may not sum due to rounding.

(a) No restricted cash due to the Federal Reserve reducing the required reserve ratio to zero

See accompanying notes to consolidated financial statements.

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ASSOCIATED BANC-CORP

Consolidated Statements of Cash Flows (Unaudited)


	Three Months Ended March 31,
($ in Thousands)	2021		2020
Supplemental disclosures of cash flow information
Cash paid for interest	$	29,258	$	66,316
Cash paid for (received from) income and franchise taxes	( 114 )		1,373
Loans and bank premises transferred to OREO	15,426		3,374
Capitalized mortgage servicing rights	3,348		3,716
Loans transferred into held for sale from portfolio, net	5,582		205,065
Unsettled trades to purchase securities	3,000		—
Acquisition
Fair value of assets acquired, including cash and cash equivalents	—		457,448
Fair value ascribed to goodwill and intangible assets	—		22,538
Fair value of liabilities assumed	—		479,985

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Item 1. Financial Statements Continued:

ASSOCIATED BANC-CORP

Notes to Consolidated Financial Statements

These interim consolidated financial statements have been prepared according to the rules and regulations of the SEC and, therefore, certain information and footnote disclosures normally presented in accordance with GAAP have been omitted or abbreviated. The information contained on the consolidated financial statements and footnotes in Associated Banc-Corp's 2020 Annual Report on Form 10-K should be referred to in connection with the reading of these unaudited interim financial statements.

Note 1 Basis of Presentation

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

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

Note 2 Acquisitions and Dispositions

Acquisitions:

The Corporation did not have any acquisitions during the first quarter of 2021.

2020

First Staunton Acquisition

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

The Corporation recorded approximately $ 15 million in goodwill related to the First Staunton acquisition. Goodwill created by the acquisition is not tax deductible. See Note 8 for additional information on goodwill, as well as the carrying amount and amortization of CDI assets related to the First Staunton acquisition.

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


($ in Thousands)	Purchase Accounting Adjustments		February 14, 2020
Assets
Cash and cash equivalents	$	—	$	44,782
Investment securities AFS	( 24 )		98,743
Federal Home Loan Bank and Federal Reserve Bank stocks, at cost	—		781
Loans	( 4,808 )		369,741
Premises and equipment, net	( 3,005 )		4,865
Bank owned life insurance	9		6,770
Goodwill			14,812
Core deposit intangibles (included in other intangible assets, net on the face of the consolidated balance sheets)	7,379		7,379
OREO (included in other assets on the face of the consolidated balance sheets)	670		762
Other assets	2,795		7,692
Total assets			$	556,328
Liabilities
Deposits	$	1,285	$	438,684
Other borrowings	61		34,613
Accrued expenses and other liabilities	179		6,730
Total liabilities			$	480,028
Total consideration paid			$	76,300

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

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


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

The Corporation acquired no PCD securities in connection with the acquisition.

Assumptions

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

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

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

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

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

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Dispositions:

2021

On March 1, 2021, the Corporation closed on the sale of its wealth management subsidiary Whitnell to Rockefeller for a purchase price of $ 8 million. Associated reported a first quarter 2021 pre-tax gain of approximately $ 2 million, included in asset gains (losses), net on the consolidated statements of income, in conjunction with the sale.

On February 26, 2021, the Bank completed the sale of one branch located in Monroe, Wisconsin to Summit Credit Union. Under the terms of the transaction, Associated Bank sold $ 31 million in total deposits and no loans. Associated Bank received an approximately 4% purchase premium on deposits transferred.

2020

On June 30, 2020, the Corporation completed the sale of ABRC to USI for $ 266 million in cash. Associated recorded a second quarter 2020 pre-tax book gain of approximately $ 163 million in conjunction with the sale.

On December 11, 2020, the Bank completed the sale of five branches in Peoria, Illinois to Morton Community Bank. Under the terms of the transaction, the Bank sold $ 180 million in total deposits and no loans. Associated Bank received a 4% purchase premium on deposits transferred . With the sale of these branches, the Bank exited the Peoria market.

On December 11, 2020, the Bank completed the sale of two branches in southwest Wisconsin to Royal Bank. Under the terms of the transaction, Associated Bank sold $ 53 million in total deposits and no loans. Associated Bank received a 4% purchase premium on deposits transferred in the Prairie du Chien and Richland Center branches.

Note 3 Summary of Significant Accounting Policies

The accounting and reporting policies of the Corporation conform to U.S. GAAP and to general practice within the financial services industry. A discussion of these policies can be found in Note 1 Summary of Significant Accounting Policies included in the Corporation’s 2020 Annual Report on Form 10-K. There have been no changes to the Corporation's significant accounting policies since December 31, 2020.

New Accounting Pronouncements Adopted

Standard

Description

Date of adoption

Effect on financial statements

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 were effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption of the amendment was permitted.

1st Quarter 2021

Adoption of this amendment did not have a material impact on the Corporation's results of operation, financial position or liquidity.

ASU 2020-08 Codification Improvements to Subtopic 310-20, Receivables-Nonrefundable Fees and Other Costs

The FASB issued this amendment to clarify that an entity should reevaluate whether a callable debt security is within the scope of paragraph 310-20-35-33 for each reporting period. The amendments in this Update were effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption of the amendments was not permitted.

1st Quarter 2021

Adoption of this amendment did not have a material impact on the Corporation's results of operation, financial position or liquidity.

Future Accounting Pronouncements

There are no accounting pronouncements recently issued or proposed that have not yet been adopted by the Corporation.

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Note 4 Earnings Per Common Share

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


	Three Months Ended March 31,
(In Thousands, except per share data)	2021		2020
Net income	$	94,301	$	45,838
Preferred stock dividends	( 5,207 )		( 3,801 )
Net income available to common equity	$	89,094	$	42,037
Common shareholder dividends	( 27,661 )		( 28,264 )
Unvested share-based payment awards	( 209 )		( 128 )
Undistributed earnings	$	61,224	$	13,645
Undistributed earnings allocated to common shareholders	$	60,836	$	13,555
Undistributed earnings allocated to unvested share-based payment awards	387		90
Undistributed earnings	$	61,224	$	13,645
Basic
Distributed earnings to common shareholders	$	27,661	$	28,264
Undistributed earnings allocated to common shareholders	60,836		13,555
Total common shareholders earnings, basic	$	88,497	$	41,819
Diluted
Distributed earnings to common shareholders	$	27,661	$	28,264
Undistributed earnings allocated to common shareholders	60,836		13,555
Total common shareholders earnings, diluted	$	88,497	$	41,819
Weighted average common shares outstanding	152,355		154,701
Effect of dilutive common stock awards	1,333		918

Diluted weighted average common shares outstanding	153,688		155,619
Basic earnings per common share	$	0.58	$	0.27
Diluted earnings per common share	$	0.58	$	0.27

Non-dilutive common stock options of approximately 3 million and 4 million for the three months ended March 31, 2021 and 2020, respectively, were excluded from the earnings per common share calculation.

Note 5 Stock-Based Compensation

The fair values of stock options and restricted stock awards (including restricted stock units) are amortized as compensation expense on a straight-line basis over the vesting period of the grants. For colleagues who meet the definition of retirement eligible under the 2017 Incentive Compensation Plan and the 2020 Incentive Compensation Plan, expenses related to stock options and restricted stock awards are fully recognized on the date the colleague meets the definition of normal or early retirement. Compensation expense recognized is included in personnel expense on the consolidated statements of income.

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

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The Corporation did not grant stock options in the first three months of 2021. The following assumptions were used in estimating the fair value for options granted for the full year 2020:


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

A summary of the Corporation’s stock option activity for the three months ended March 31, 2021 is presented below:


Stock Options	Shares (a)	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value (a)
Outstanding at December 31, 2020	6,473	$	19.77	6.23 years	$	2,005

Exercised	615	15.96
Forfeited or expired	35	20.99
Outstanding at March 31, 2021	5,823	$	20.17	6.21 years	$	13,099
Options Exercisable at March 31, 2021	4,240	$	20.19	5.39 years	$	10,154

(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 three months ended March 31, 2021, the intrinsic value of stock options exercised was $ 3 million compared to less than $ 1 million for the three months ended March 31, 2020. The total fair value of stock options vested was $ 3 million for both the three months ended March 31, 2021 and 2020.

The Corporation recognized compensation expense for the vesting of stock options of $ 403 thousand for the three months ended March 31, 2021, compared to $ 2 million for the three months ended March 31, 2020. Included in compensation expense for 2021 was no expense for the accelerated vesting of stock options granted to retirement eligible colleagues. At March 31, 2021, the Corporation had approximately $ 2 million of unrecognized compensation expense related to stock options that is expected to be recognized over the remaining requisite service periods that extend predominately through the first quarter of 2024 .

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

The following table summarizes information about the Corporation’s restricted stock awards activity for the three months ended March 31, 2021:


Restricted Stock Awards	Shares (a)	Weighted Average Grant Date Fair Value
Outstanding at December 31, 2020	2,293	$	20.70
Granted	771	19.59
Vested	571	21.69
Forfeited	28	24.13
Outstanding at March 31, 2021	2,466	$	19.72

(a) In thousands

The Corporation amortizes the expense related to restricted stock awards as compensation expense over the vesting period specified in the grant's award agreement. Performance-based restricted stock awards granted during 2020 and 2021 will vest ratably over a period of three years . Service-based restricted stock awards granted during 2020 and 2021 will vest ratably over a period of four years . Expense for restricted stock awards issued of approximately $ 3 million was recorded for the three months ended March 31, 2021 and $ 9 million was recorded for the three months ended March 31, 2020. Included in compensation expense for the first three months of 2021 was approximately $ 1 million of expense for the accelerated vesting of restricted stock awards granted to retirement eligible colleagues. The Corporation had $ 24 million of unrecognized compensation costs related to restricted stock awards at March 31, 2021 that are expected to be recognized over the remaining requisite service periods that extend predominately through the first quarter of 2025 .

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

Note 6 Investment Securities

Investment securities are classified as AFS, HTM, or equity on the consolidated balance sheets at the time of purchase. The amortized cost and fair values of securities AFS and HTM at March 31, 2021 were as follows:


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


Investment securities AFS
U. S. Treasury securities	$	54,237	$	—	$	( 544 )	$	53,693
Agency securities	15,000		—		( 96 )		14,904
Obligations of state and political subdivisions (municipal securities)	411,964		21,218		—		433,182
Residential mortgage-related securities
FNMA / FHLMC	1,910,644		5,956		( 5,647 )		1,910,954
GNMA	119,913		3,451		—		123,365

Commercial mortgage-related securities
FNMA / FHLMC	93,902		2,330		( 1,883 )		94,349
GNMA	381,158		8,254		—		389,411
Asset backed securities
FFELP	325,812		1,675		( 1,554 )		325,933
SBA	8,216		—		( 57 )		8,160

Other debt securities	3,000		—		—		3,000
Total investment securities AFS	$	3,323,846	$	42,885	$	( 9,782 )	$	3,356,949
Investment securities HTM
U. S. Treasury securities	$	1,000	$	20	$	—	$	1,019
Obligations of state and political subdivisions (municipal securities)	1,455,462		106,933		( 994 )		1,561,401
Residential mortgage-related securities
FNMA / FHLMC	47,480		2,471		—		49,951
GNMA	87,717		3,353		—		91,070
Commercial mortgage-related securities
FNMA/FHLMC	63,844		157		( 2,138 )		61,863
GNMA	201,648		5,611		( 21 )		207,238
Total investment securities HTM	$	1,857,150	$	118,544	$	( 3,154 )	$	1,972,541

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The amortized cost and fair values of securities AFS and HTM at December 31, 2020 were as follows:


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


Investment securities AFS
U. S. Treasury securities	$	26,436	$	95	$	—	$	26,531
Agency securities	24,985		53		—		25,038
Obligations of state and political subdivisions (municipal securities)	425,057		25,605		—		450,662
Residential mortgage-related securities
FNMA / FHLMC	1,448,806		12,935		( 500 )		1,461,241
GNMA	231,364		4,176		( 3 )		235,537

Commercial mortgage-related securities
FNMA / FHLMC	19,654		3,250		—		22,904
GNMA	511,429		13,327		—		524,756
Asset backed securities
FFELP	329,030		1,172		( 3,013 )		327,189
SBA	8,637		—		( 53 )		8,584
Other debt securities	3,000		—		—		3,000
Total investment securities AFS	$	3,028,399	$	60,612	$	( 3,570 )	$	3,085,441
Investment securities HTM
U. S. Treasury securities	$	999	$	25	$	—	$	1,024
Obligations of state and political subdivisions (municipal securities)	1,441,900		133,544		—		1,575,445
Residential mortgage-related securities
FNMA / FHLMC	54,599		2,891		—		57,490
GNMA	114,553		4,260		—		118,813
Commercial mortgage-related securities
FNMA / FHLMC	11,211		—		—		11,211
GNMA	255,742		9,218		—		264,960
Total investment securities HTM	$	1,879,005	$	149,938	$	—	$	2,028,943

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 AFS and HTM at March 31, 2021, are shown below:


	AFS					HTM
($ in Thousands)	Amortized Cost		Fair Value			Amortized Cost		Fair Value
Due in one year or less	$	9,575	$	9,588		$	35,299	$	35,587
Due after one year through five years	79,504		79,813			47,810		49,383
Due after five years through ten years	357,498		373,906			179,382		188,263
Due after ten years	37,624		41,472			1,193,970		1,289,186
Total debt securities	484,201		504,778			1,456,461		1,562,420
Residential mortgage-related securities
FNMA / FHLMC	1,910,644		1,910,954			47,480		49,951
GNMA	119,913		123,365			87,717		91,070

Commercial mortgage-related securities
FNMA / FHLMC	93,902		94,349			63,844		61,863
GNMA	381,158		389,411			201,648		207,238
Asset backed securities
FFELP	325,812		325,933			—		—
SBA	8,216		8,160			—		—

Total investment securities	$	3,323,846	$	3,356,949		$	1,857,150	$	1,972,541
Ratio of fair value to amortized cost			101.0		%			106.2		%

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On a quarterly basis, the Corporation refreshes the credit quality of each HTM security. The following table summarizes the credit quality indicators of HTM securities at amortized cost at March 31, 2021:


($ in Thousands)	AAA		AA		A		Not Rated		Total
U. S. Treasury securities	$	1,000	$	—	$	—	$	—	$	1,000
Obligations of state and political subdivisions (municipal securities)	582,675		860,882		11,711		193		1,455,462
Residential mortgage-related securities
FNMA / FHLMC	47,480		—		—		—		47,480
GNMA	87,717		—		—		—		87,717
Commercial mortgage-related securities
FNMA / FHLMC	63,844		—		—		—		63,844
GNMA	201,648		—		—		—		201,648
Total HTM securities	$	984,363	$	860,882	$	11,711	$	193	$	1,857,150

The following table summarizes the credit quality indicators of HTM securities at amortized cost at December 31, 2020:


($ in Thousands)	AAA		AA		A		Total
U. S. Treasury securities	$	999	$	—	$	—	$	999
Obligations of state and political subdivisions (municipal securities)	567,252		860,607		14,041		1,441,900
Residential mortgage-related securities
FNMA / FHLMC	54,599		—		—		54,599
GNMA	114,553		—		—		114,553
Commercial mortgage-related securities
FNMA / FHLMC	11,211		—		—		11,211
GNMA	255,742		—		—		255,742
Total HTM securities	$	1,004,357	$	860,607	$	14,041	$	1,879,005

Investment securities gains (losses), net includes proceeds from the sale of investment securities as well as any applicable write-ups or write-downs of investment securities. The proceeds from the sale of investment securities for the three months ended March 31, 2021 and 2020, are shown below:


	Three Months Ended March 31,
($ in Thousands)		2021		2020
Gross gains on AFS securities		$	36	$	6,198


Gross (losses) on AFS securities		( 75 )		( 80 )



Investment securities gains (losses), net		$	( 39 )	$	6,118
Proceeds from sales of investment securities		$	51,295	$	365,239

During the first quarter of 2021, the Corporation sold $ 51 million of lower yielding U.S. Treasury and Agency securities at a slight loss to take advantage of the steeper yield curve by reinvesting the proceeds into similar but higher yielding, longer duration securities.

During the first quarter of 2020, the Corporation sold $ 281 million of primarily prepayment sensitive mortgage-related securities at a gain of $ 6 million. Additionally, in February 2020, the Corporation sold $ 84 million of certain securities acquired in the First Staunton acquisition that did not fit the parameters of the Corporation's current investment strategy.

Investment securities with a carrying value of approximately $ 1.5 billion and $ 1.6 billion at March 31, 2021 and December 31, 2020, respectively, were pledged to secure certain deposits or for other purposes as required or permitted by law.

Accrued interest receivable on HTM securities totaled $ 12 million and $ 14 million at March 31, 2021 and December 31, 2020, respectively. Accrued interest receivable on AFS securities totaled $ 8 million at both March 31, 2021 and December 31, 2020. Accrued interest receivable on both HTM and AFS securities is included in interest receivable on the consolidated balance sheets. There was no interest income reversed for investments going into nonaccrual at both March 31, 2021 and 2020.

A security is considered past due once it is 30 days past due under the terms of the agreement. At both March 31, 2021 and December 31, 2020, the Corporation had no past due HTM securities.

The allowance for credit losses on HTM securities was approximately $ 63 ,000 at March 31, 2021 and approximately $ 67 ,000 at December 31, 2020, attributable entirely to the Corporation's municipal securities, included in investment securities HTM, net, at amortized cost on the consolidated balance sheets. The Corporation also holds U.S. Treasury and mortgage-related securities

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

The following represents gross unrealized losses and the related fair value of investment securities AFS and HTM, aggregated by investment category and length of time individual securities have been in a continuous unrealized loss position, at March 31, 2021:


	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 AFS
U.S. Treasury securities	5	$	( 544 )	$	53,693	—	$	—	$	—	$	( 544 )	$	53,693
Agency securities	1	( 96 )		14,904		—	—		—		( 96 )		14,904
Obligations of state and political subdivisions (municipal securities)	1	—		910		—	—		—		—		910
Residential mortgage-related securities
FNMA / FHLMC	24	( 5,647 )		756,359		—	—		—		( 5,647 )		756,359
GNMA	1	—		253		—	—		—		—		253

Commercial mortgage-related securities
FNMA / FHLMC	2	( 1,883 )		72,435		—	—		—		( 1,883 )		72,435
GNMA	1	—		78		—	—		—		—		78
Asset backed securities
FFELP	—	—		—		15	( 1,554 )		141,652		( 1,554 )		141,652
SBA	—	—		—		14	( 57 )		7,750		( 57 )		7,750


Total	35	$	( 8,171 )	$	898,632	29	$	( 1,611 )	$	149,402	$	( 9,782 )	$	1,048,033
Investment securities HTM
Obligations of state and political subdivisions (municipal securities)	33	$	( 994 )	$	62,908	—	$	—	$	—	$	( 994 )	$	62,908



Commercial mortgage-related securities
FNMA / FHLMC	6	( 2,138 )		41,105		—	—		—		( 2,138 )		41,105
GNMA	2	( 21 )		22,205		—	—		—		( 21 )		22,205
Total	41	$	( 3,154 )	$	126,218	—	$	—	$	—	$	( 3,154 )	$	126,218

For comparative purposes, the following represents gross unrealized losses and the related fair value of investment securities AFS and HTM, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2020:


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


Residential mortgage-related securities
FNMA / FHLMC	7	$	( 500 )	$	163,002	—	$	—	$	—	$	( 500 )	$	163,002
GNMA	2	( 3 )		9,784		—	—		—		( 3 )		9,784

GNMA commercial mortgage-related securities	1	—		287		—	—		—		—		287
Asset backed securities
FFELP	1	( 129 )		9,267		16	( 2,885 )		178,681		( 3,013 )		187,948
SBA	14	( 53 )		8,379		—	—		—		( 53 )		8,379
Other debt securities	2	—		2,000		—	—		—		—		2,000

Total	27	$	( 685 )	$	192,720	16	$	( 2,885 )	$	178,681	$	( 3,570 )	$	371,400
Investment securities HTM



GNMA residential mortgage-related securities	1	$	—	$	325	—	$	—	$	—	$	—	$	325

Total	1	$	—	$	325	—	$	—	$	—	$	—	$	325

The Corporation reviews the AFS investment securities portfolio on a quarterly basis to monitor its credit exposure. A determination as to whether a security’s decline in fair value is the result of credit risk takes into consideration numerous factors and the relative significance of any single factor can vary by security. Some factors the Corporation may consider in the impairment analysis include the extent to which the security has been in an unrealized loss position, the change in security

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rating, financial condition and near-term prospects of the issuer, as well as the security and industry specific economic conditions.

Based on the Corporation’s evaluation, management does not believe any unrealized losses at March 31, 2021 represent credit deterioration as these unrealized losses are primarily attributable to changes in interest rates and the current market conditions. The U.S. Treasury 3 year and 5 year rates increased by 18 bp and 56 bp, respectively, from December 31, 2020. The Corporation does not intend to sell nor does it believe that it will be required to sell the securities in an unrealized loss position before recovery of their amortized cost basis.

FHLB and Federal Reserve Bank stocks: The Corporation is required to maintain Federal Reserve Bank stock and FHLB stock as a member of both the Federal Reserve System and the FHLB, and in amounts as required by these institutions. These equity securities are “restricted” in that they can only be sold back to the respective institutions or another member institution at par. Therefore, they are less liquid than other marketable equity securities and their fair value is equal to amortized cost. The Corporation had FHLB stock of $ 82 million at both March 31, 2021 and December 31, 2020. The Corporation had Federal Reserve Bank stock of $ 87 million at both March 31, 2021 and December 31, 2020. Accrued interest receivable on FHLB stock totaled approximately $ 944 ,000 and approximately $ 972 ,000 at March 31, 2021 and December 31, 2020, respectively. There was approximately $ 370 ,000 of accrued interest receivable on Federal Reserve Bank stock at March 31, 2021 and none at December 31, 2020. Accrued interest receivable on both FHLB stock and Federal Reserve Bank stock is included in interest receivable on the consolidated balance sheets.

Equity Securities

Equity securities with readily determinable fair values: The Corporation's portfolio of equity securities with readily determinable fair values is primarily comprised of CRA Qualified Investment mutual funds. At both March 31, 2021 and December 31, 2020, 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 primarily consists of 77,996 Visa Class B restricted shares, 77,000 of which the Corporation received in 2008 as part of Visa's initial public offering and carried at fair value after the Corporation donated 42,039 Visa Class B restricted shares to the Corporation's Charitable Remainder Trust during the second quarter of 2019, with the subsequent sale of those shares resulting in an observable market price after the shares were previously carried at a zero cost basis. During the first quarter of 2020, the Corporation acquired 996 Visa Class B restricted shares from the acquisition of First Staunton, and those shares are carried at a zero cost basis due to the lack of an observable market price since the time of acquisition. The Corporation had equity securities without readily determinable fair values of $ 14 million at March 31, 2021 and $ 13 million at December 31, 2020 .

Note 7 Loans

The period end loan composition was as follows:


($ in Thousands)	March 31, 2021		December 31, 2020
PPP	$	836,566	$	767,757
Commercial and industrial	7,664,501		7,701,422
Commercial real estate — owner occupied	883,237		900,912
Commercial and business lending	9,384,303		9,370,091
Commercial real estate — investor	4,260,706		4,342,584
Real estate construction	1,882,299		1,840,417
Commercial real estate lending	6,143,004		6,183,001
Total commercial	15,527,307		15,553,091
Residential mortgage	7,685,218		7,878,324
Home equity	651,647		707,255
Other consumer	298,156		313,054
Total consumer	8,635,020		8,898,632
Total loans	$	24,162,328	$	24,451,724

Accrued interest receivable on loans totaled $ 64 million at March 31, 2021, and $ 66 million at December 31, 2020, and is included in interest receivable on the consolidated balance sheets. Interest accrued but not received for loans placed on nonaccrual is reversed against interest income. The amount of accrued interest reversed totaled approximately $ 98 ,000 for the three months ended March 31, 2021, and approximately $ 327 ,000 for the three months ended March 31, 2020.

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T he following table presents commercial and consumer loans by credit quality indicator by vintage year at March 31, 2021:


					Term Loans Amortized Cost Basis by Origination Year (a)
($ in Thousands)	Rev Loans Converted to Term (a)		Rev Loans Amortized Cost Basis		YTD 2021		2020		2019		2018		2017		Prior		Total
PPP: (b)
Risk rating:
Pass	$	—	$	—	$	281,120	$	527,971	$	—	$	—	$	—	$	—	$	809,091
Special Mention	—		—		1,642		3,434		—		—		—		—		5,076
Potential Problem	—		—		9,450		12,948		—		—		—		—		22,398

PPP	$	—	$	—	$	292,213	$	544,353	$	—	$	—	$	—	$	—	$	836,566
Commercial and industrial:
Risk rating:
Pass	$	2,009	$	2,170,406	$	378,782	$	1,303,573	$	1,333,680	$	1,119,175	$	389,390	$	694,910	$	7,389,917
Special Mention	—		7,298		96		3,805		59,502		48,156		207		185		119,249
Potential Problem	1,800		20,492		4,166		17,407		34,437		37,587		1,761		6,294		122,143
Nonaccrual	—		—		—		6,143		725		16,530		334		9,461		33,192
Commercial and industrial	$	3,809	$	2,198,196	$	383,045	$	1,330,929	$	1,428,343	$	1,221,448	$	391,692	$	710,849	$	7,664,501
Commercial real estate - owner occupied:
Risk rating:
Pass	$	11,868	$	20,916	$	59,551	$	174,514	$	210,032	$	128,471	$	81,020	$	184,983	$	859,487
Special Mention	—		—		—		5,014		2,080		—		424		260		7,777
Potential Problem	—		622		105		3,992		1,066		652		2,035		7,493		15,965
Nonaccrual	—		—		—		—		—		—		—		7		7
Commercial real estate - owner occupied	$	11,868	$	21,538	$	59,656	$	183,520	$	213,178	$	129,123	$	83,479	$	192,743	$	883,237
Commercial and business lending:
Risk rating:
Pass	$	13,877	$	2,191,322	$	719,454	$	2,006,059	$	1,543,712	$	1,247,646	$	470,410	$	879,893	$	9,058,495
Special Mention	—		7,298		1,738		12,253		61,582		48,156		631		444		132,102
Potential Problem	1,800		21,114		13,721		34,347		35,502		38,238		3,796		13,786		160,506
Nonaccrual	—		—		—		6,143		725		16,530		334		9,468		33,200
Commercial and business lending	$	15,677	$	2,219,734	$	734,913	$	2,058,802	$	1,641,521	$	1,350,571	$	475,170	$	903,592	$	9,384,303
Commercial real estate - investor:
Risk rating:
Pass	$	—	$	153,847	$	344,412	$	1,106,623	$	989,271	$	635,944	$	208,367	$	445,269	$	3,883,733
Special Mention	—		—		1,776		83,975		104,806		16,161		8,897		17,121		232,735
Potential Problem	—		802		5,473		52,576		8,952		1,787		2,840		13,321		85,752
Nonaccrual	—		—		—		8,883		15,605		19,522		14,173		302		58,485
Commercial real estate - investor	$	—	$	154,649	$	351,662	$	1,252,057	$	1,118,634	$	673,414	$	234,276	$	476,014	$	4,260,706
Real estate construction:
Risk rating:
Pass	$	5,732	$	26,865	$	125,807	$	756,890	$	628,967	$	228,127	$	21,478	$	16,815	$	1,804,950
Special Mention	—		—		—		529		3,648		58,826		42		—		63,045
Potential Problem	—		—		12		131		13,713		—		—		119		13,977
Nonaccrual	—		—		—		—		—		—		—		327		327
Real estate construction	$	5,732	$	26,865	$	125,819	$	757,550	$	646,328	$	286,953	$	21,520	$	17,262	$	1,882,299
Commercial real estate lending:
Risk rating:
Pass	$	5,732	$	180,712	$	470,219	$	1,863,513	$	1,618,239	$	864,072	$	229,845	$	462,084	$	5,688,683
Special Mention	—		—		1,776		84,504		108,453		74,987		8,939		17,121		295,780
Potential Problem	—		802		5,486		52,708		22,665		1,787		2,840		13,440		99,728
Nonaccrual	—		—		—		8,883		15,605		19,522		14,173		630		58,813
Commercial real estate lending	$	5,732	$	181,515	$	477,481	$	2,009,607	$	1,764,962	$	960,368	$	255,796	$	493,275	$	6,143,004

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					Term Loans Amortized Cost Basis by Origination Year (a)
($ in Thousands)	Rev Loans Converted to Term (a)		Rev Loans Amortized Cost Basis		YTD 2021		2020		2019		2018		2017		Prior		Total
Total commercial:
Risk rating:
Pass	$	19,609	$	2,372,034	$	1,189,673	$	3,869,571	$	3,161,950	$	2,111,718	$	700,255	$	1,341,977	$	14,747,179
Special Mention	—		7,298		3,514		96,757		170,035		123,143		9,569		17,565		427,882
Potential Problem	1,800		21,916		19,207		87,055		58,167		40,026		6,636		27,227		260,234
Nonaccrual	—		—		—		15,026		16,330		36,052		14,507		10,098		92,012
Total commercial	$	21,409	$	2,401,249	$	1,212,394	$	4,068,409	$	3,406,483	$	2,310,939	$	730,967	$	1,396,867	$	15,527,307
Residential mortgage:
Risk rating:
Pass	$	—	$	—	$	449,381	$	2,205,662	$	1,280,604	$	545,743	$	881,884	$	2,257,349	$	7,620,622
Special Mention	—		—		—		121		—		37		133		525		816
Potential Problem	—		—		72		510		561		674		126		582		2,524
Nonaccrual	—		—		—		1,765		3,160		6,431		8,243		41,657		61,256
Residential mortgage	$	—	$	—	$	449,452	$	2,208,058	$	1,284,324	$	552,885	$	890,386	$	2,300,113	$	7,685,218
Home equity:
Risk rating:
Pass	$	1,891	$	526,777	$	71	$	2,080	$	11,595	$	13,535	$	10,333	$	75,385	$	639,776
Special Mention	—		25		—		—		—		60		—		265		350
Potential Problem	—		1,563		—		—		—		20		—		146		1,729
Nonaccrual	262		91		10		786		118		366		413		8,008		9,792
Home equity	$	2,153	$	528,455	$	81	$	2,866	$	11,713	$	13,981	$	10,745	$	83,805	$	651,647
Other consumer:
Risk rating:
Pass	$	171	$	156,829	$	1,908	$	8,330	$	8,674	$	2,974	$	1,351	$	117,360	$	297,427
Special Mention	—		452		—		—		40		—		—		5		497

Nonaccrual	13		93		—		15		35		10		23		56		231
Other consumer	$	183	$	157,375	$	1,908	$	8,345	$	8,749	$	2,984	$	1,374	$	117,421	$	298,156
Total consumer:
Risk rating:
Pass	$	2,062	$	683,606	$	451,360	$	2,216,072	$	1,300,872	$	562,252	$	893,567	$	2,450,094	$	8,557,824
Special Mention	—		477		—		121		40		96		133		795		1,663
Potential Problem	—		1,563		72		510		561		694		126		728		4,254
Nonaccrual	274		184		10		2,566		3,313		6,807		8,678		49,722		71,280
Total consumer	$	2,336	$	685,830	$	451,442	$	2,219,269	$	1,304,787	$	569,850	$	902,504	$	2,501,338	$	8,635,020
Total loans:
Risk rating:
Pass	$	21,671	$	3,055,640	$	1,641,033	$	6,085,644	$	4,462,823	$	2,673,970	$	1,593,822	$	3,792,071	$	23,305,003
Special Mention	—		7,775		3,514		96,877		170,076		123,240		9,703		18,360		429,545
Potential Problem	1,800		23,479		19,279		87,565		58,729		40,720		6,761		27,955		264,488
Nonaccrual	274		184		10		17,592		19,643		42,859		23,185		59,819		163,292
Total loans	$	23,745	$	3,087,079	$	1,663,836	$	6,287,678	$	4,711,270	$	2,880,788	$	1,633,471	$	3,898,205	$	24,162,328

(a) Revolving loans converted to term loans are also reported in their year of origination

(b) The Corporation’s policy is to assign risk ratings at the borrower level. PPP loans are 100% guaranteed by the SBA and therefore the Corporation considers these loans to have a risk profile similar to pass rated loans.

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The following table presents commercial and consumer loans by credit quality indicator by vintage year at December 31, 2020:


					Term Loans Amortized Cost Basis by Origination Year (a)
($ in Thousands)	Rev Loans Converted to Term (a)		Rev Loans Amortized Cost Basis		2020		2019		2018		2017		2016		Prior		Total
PPP: (b)
Risk rating:
Pass	$	—	$	—	$	745,767	$	—	$	—	$	—	$	—	$	—	$	745,767
Special Mention	—		—		3,988		—		—		—		—		—		3,988
Potential Problem	—		—		18,002		—		—		—		—		—		18,002

PPP	$	—	$	—	$	767,757	$	—	$	—	$	—	$	—	$	—	$	767,757
Commercial and industrial:
Risk rating:
Pass	$	4,628	$	2,177,138	$	1,389,260	$	1,435,519	$	1,182,302	$	483,957	$	305,998	$	453,734	$	7,427,908
Special Mention	—		10,159		2,719		39,854		37,042		113		215		67		90,169
Potential Problem	2,565		7,237		19,331		28,413		56,580		2,269		6,477		1,179		121,487
Nonaccrual	16,852		—		6,238		5,789		17,014		16,623		8,781		7,414		61,859
Commercial and industrial	$	24,045	$	2,194,534	$	1,417,548	$	1,509,575	$	1,292,938	$	502,962	$	321,471	$	462,394	$	7,701,422
Commercial real estate - owner occupied:
Risk rating:
Pass	$	1,150	$	18,022	$	185,861	$	209,069	$	128,360	$	99,546	$	147,366	$	79,111	$	867,335
Special Mention	—		113		1,882		3,122		300		658		264		—		6,339
Potential Problem	—		3,486		4,104		8,916		—		1,490		4,437		3,747		26,179
Nonaccrual	—		—		—		—		—		318		—		740		1,058
Commercial real estate - owner occupied	$	1,150	$	21,621	$	191,847	$	221,107	$	128,660	$	102,012	$	152,067	$	83,598	$	900,912
Commercial and business lending:
Risk rating:
Pass	$	5,778	$	2,195,160	$	2,320,888	$	1,644,588	$	1,310,662	$	583,503	$	453,364	$	532,845	$	9,041,009
Special Mention	—		10,272		8,589		42,976		37,342		771		479		67		100,496
Potential Problem	2,565		10,723		41,437		37,329		56,580		3,759		10,915		4,926		165,668
Nonaccrual	16,852		—		6,238		5,789		17,014		16,941		8,781		8,154		62,917
Commercial and business lending	$	25,195	$	2,216,154	$	2,377,152	$	1,730,682	$	1,421,598	$	604,974	$	473,539	$	545,992	$	9,370,091
Commercial real estate - investor:
Risk rating:
Pass	$	10,971	$	171,497	$	1,249,644	$	976,332	$	720,237	$	271,987	$	341,658	$	211,360	$	3,942,714
Special Mention	—		—		90,235		97,333		12,339		—		21,882		8,465		230,254
Potential Problem	—		838		16,343		13,575		30,911		2,279		239		27,209		91,396
Nonaccrual	19,803		—		10,141		53,056		446		14,267		—		309		78,220
Commercial real estate - investor	$	30,774	$	172,335	$	1,366,364	$	1,140,297	$	763,933	$	288,533	$	363,779	$	247,343	$	4,342,584
Real estate construction:
Risk rating:
Pass	$	776	$	47,880	$	645,925	$	738,561	$	294,910	$	25,219	$	2,420	$	16,768	$	1,771,682
Special Mention	—		—		487		494		48,283		42		—		30		49,336
Potential Problem	—		—		135		—		18,803		—		93		15		19,046
Nonaccrual	—		—		—		—		—		16		—		338		353
Real estate construction	$	776	$	47,880	$	646,547	$	739,055	$	361,996	$	25,277	$	2,513	$	17,150	$	1,840,417
Commercial real estate lending:
Risk rating:
Pass	$	11,746	$	219,377	$	1,895,569	$	1,714,893	$	1,015,146	$	297,205	$	344,078	$	228,127	$	5,714,396
Special Mention	—		—		90,722		97,827		60,622		42		21,882		8,494		279,590
Potential Problem	—		838		16,479		13,575		49,714		2,279		332		27,224		110,442
Nonaccrual	19,803		—		10,141		53,056		446		14,283		—		647		78,573
Commercial real estate lending	$	31,549	$	220,215	$	2,012,911	$	1,879,352	$	1,125,929	$	313,810	$	366,292	$	264,493	$	6,183,001

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					Term Loans Amortized Cost Basis by Origination Year (a)
($ in Thousands)	Rev Loans Converted to Term (a)		Rev Loans Amortized Cost Basis		2020		2019		2018		2017		2016		Prior		Total
Total commercial:
Risk rating:
Pass	$	17,524	$	2,414,537	$	4,216,457	$	3,359,482	$	2,325,808	$	880,708	$	797,441	$	760,973	$	14,755,405
Special Mention	—		10,272		99,311		140,803		97,964		813		22,361		8,562		380,086
Potential Problem	2,565		11,561		57,916		50,905		106,295		6,038		11,247		32,150		276,111
Nonaccrual	36,655		—		16,379		58,845		17,460		31,224		8,781		8,801		141,490
Total commercial	$	56,745	$	2,436,370	$	4,390,063	$	3,610,033	$	2,547,526	$	918,783	$	839,831	$	810,485	$	15,553,091
Residential mortgage:
Risk rating:
Pass	$	—	$	—	$	2,185,240	$	1,490,589	$	615,118	$	998,072	$	911,797	$	1,612,971	$	7,813,788
Special Mention	—		—		—		355		330		102		126		537		1,450
Potential Problem	—		—		1,200		689		652		—		179		1,028		3,749
Nonaccrual	—		—		1,478		2,271		5,882		7,116		11,003		31,587		59,337
Residential mortgage	$	—	$	—	$	2,187,918	$	1,493,903	$	621,983	$	1,005,290	$	923,105	$	1,646,124	$	7,878,324
Home equity:
Risk rating:
Pass	$	10,224	$	569,389	$	2,057	$	12,968	$	15,792	$	11,594	$	5,803	$	76,165	$	693,767
Special Mention	596		631		—		39		14		39		4		804		1,532
Potential Problem	—		1,922		—		—		—		—		—		146		2,068
Nonaccrual	1,600		100		965		134		410		319		711		7,249		9,888
Home equity	$	12,421	$	572,041	$	3,022	$	13,141	$	16,216	$	11,952	$	6,518	$	84,364	$	707,255
Other consumer:
Risk rating:
Pass	$	70	$	165,114	$	9,525	$	10,309	$	3,987	$	1,872	$	1,185	$	120,425	$	312,416
Special Mention	5		438		13		16		11		4		7		8		498

Nonaccrual	5		33		9		49		21		10		—		18		140
Other consumer	$	81	$	165,585	$	9,547	$	10,374	$	4,019	$	1,886	$	1,192	$	120,451	$	313,054
Total consumer:
Risk rating:
Pass	$	10,294	$	734,502	$	2,196,822	$	1,513,865	$	634,897	$	1,011,539	$	918,785	$	1,809,561	$	8,819,971
Special Mention	602		1,069		13		410		356		145		137		1,349		3,480
Potential Problem	—		1,922		1,200		689		652		—		179		1,174		5,817
Nonaccrual	1,605		133		2,452		2,454		6,313		7,445		11,714		38,854		69,364
Total consumer	$	12,501	$	737,626	$	2,200,487	$	1,517,417	$	642,218	$	1,019,128	$	930,816	$	1,850,939	$	8,898,632
Total loans:
Risk rating:
Pass (c)	$	27,819	$	3,149,039	$	6,413,278	$	4,873,347	$	2,960,705	$	1,892,247	$	1,716,226	$	2,570,534	$	23,575,376
Special Mention	602		11,341		99,324		141,213		98,320		958		22,498		9,911		383,566
Potential Problem	2,565		13,483		59,116		51,593		106,947		6,038		11,426		33,324		281,928
Nonaccrual	38,260		133		18,831		61,298		23,773		38,669		20,496		47,655		210,854
Total loans	$	69,246	$	3,173,996	$	6,590,550	$	5,127,451	$	3,189,745	$	1,937,912	$	1,770,647	$	2,661,424	$	24,451,724

(a) Revolving loans converted to term loans are also reported in their year of origination

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, and appropriate policies for allowance for loan losses, allowance for unfunded commitments, nonaccrual loans, and charge offs.

For commercial loans, management has determined the pass credit quality indicator to include credits exhibiting 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.

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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 loans generally have a well-defined weakness, or weaknesses, which may jeopardize liquidation of the debt, and are characterized by the distinct possibility the Corporation will sustain some loss if the deficiencies are not corrected. Management has determined commercial loan relationships in nonaccrual status, and commercial and consumer loan relationships with their terms restructured in a TDR, meet the criteria to be individually evaluated. Commercial loans classified as special mention, potential problem, and nonaccrual are reviewed at a minimum on a quarterly basis, while pass credits, which are performing rated credits, are generally 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 March 31, 2021:


	Accruing
($ in Thousands)	Current (a)		30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Nonaccrual (b)(c)		Total
PPP	$	836,566	$	—	$	—	$	—	$	—	$	836,566
Commercial and industrial	7,630,593		444		82		190		33,192		7,664,501
Commercial real estate - owner occupied	883,229		—		—		—		7		883,237
Commercial and business lending	9,350,388		444		82		190		33,200		9,384,303
Commercial real estate - investor	4,196,221		5,999		—		—		58,485		4,260,706
Real estate construction	1,880,995		977		—		—		327		1,882,299
Commercial real estate lending	6,077,216		6,976		—		—		58,813		6,143,004
Total commercial	15,427,603		7,420		82		190		92,012		15,527,307
Residential mortgage	7,619,602		3,494		479		387		61,256		7,685,218
Home equity	639,503		2,002		350		—		9,792		651,647
Other consumer	295,556		681		589		1,098		231		298,156
Total consumer	8,554,661		6,177		1,417		1,485		71,280		8,635,020
Total loans	$	23,982,264	$	13,597	$	1,500	$	1,675	$	163,292	$	24,162,328

(a) Any loans deferred in connection with the COVID-19 pandemic are considered current in accordance with Section 4013 of the CARES Act.

(b) Of the total nonaccrual loans, $ 99 million, or 61 %, were current with respect to payment at March 31, 2021.

(c) No interest income was recognized on nonaccrual loans for the three months ended March 31, 2021. In addition, there were $ 16 million of nonaccrual loans for which there was no related ACLL at March 31, 2021.

The following table presents loans by past due status at December 31, 2020:


	Accruing
($ in Thousands)	Current (a)		30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Nonaccrual (b)(c)		Total
PPP	$	767,757	$	—	$	—	$	—	$	—	$	767,757
Commercial and industrial	7,633,269		2,819		3,300		175		61,859		7,701,422
Commercial real estate - owner occupied	899,480		158		215		—		1,058		900,912
Commercial and business lending	9,300,506		2,977		3,516		175		62,917		9,370,091
Commercial real estate - investor	4,251,571		1,024		11,769		—		78,220		4,342,584
Real estate construction	1,839,073		991		—		—		353		1,840,417
Commercial real estate lending	6,090,644		2,015		11,769		—		78,573		6,183,001
Total commercial	15,391,150		4,992		15,284		175		141,490		15,553,091
Residential mortgage	7,808,294		8,975		1,410		308		59,337		7,878,324
Home equity	692,565		3,071		1,731		—		9,888		707,255
Other consumer	310,200		1,039		560		1,115		140		313,054
Total consumer	8,811,060		13,085		3,701		1,423		69,364		8,898,632
Total loans	$	24,202,209	$	18,077	$	18,985	$	1,598	$	210,854	$	24,451,724

(a) Any loans deferred in connection with the COVID-19 pandemic are considered current in accordance with Section 4013 of the CARES Act.

(b) Of the total nonaccrual loans, $ 128 million, or 61 %, were current with respect to payment at December 31, 2020.

(c) No interest income was recognized on nonaccrual loans for the year ended December 31, 2020. In addition, there were $ 28 million of nonaccrual loans for which there was no related ACLL at December 31, 2020.

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Troubled Debt Restructurings

Loans are considered restructured loans if concessions have been granted to borrowers that are experiencing financial difficulty.

The following table presents nonaccrual and performing restructured loans by loan portfolio:


	March 31, 2021				December 31, 2020
($ in Thousands)	Performing Restructured Loans		Nonaccrual Restructured Loans (a)		Performing Restructured Loans		Nonaccrual Restructured Loans (a)

Commercial and industrial	$	11,985	$	2,114	$	12,713	$	6,967
Commercial real estate — owner occupied	1,488		—		1,711		—
Commercial real estate — investor	13,627		220		26,435		225
Real estate construction	256		109		260		111
Residential mortgage	10,462		13,537		7,825		11,509
Home equity	1,929		1,644		1,957		1,379
Other consumer	1,073		—		1,191		—
Total restructured loans (b)	$	40,820	$	17,624	$	52,092	$	20,190

(a) Nonaccrual restructured loans have been included within nonaccrual loans.
(b) Does not include any restructured loans related to the COVID-19 pandemic in accordance with Section 4013 of the CARES Act.

The Corporation had a recorded investment of $ 6 million in loans modified as TDRs during the three months ended March 31, 2021, of which $ 3 million were in accrual status, included in pass or special mention based on their risk rating within the credit quality tables, and $ 3 million were in nonaccrual, within the credit quality tables, pending a sustained period of repayment. Short-term loan modifications made in good faith to help ease the adverse effects of the COVID-19 pandemic are not categorized as TDRs in accordance with the CARES Act. The following table provides the number of loans modified in a TDR by loan portfolio, the recorded investment, and unpaid principal balance for the three months ended March 31, 2021 and 2020:


	Three Months Ended March 31, 2021					Three Months Ended March 31, 2020
($ in Thousands)	Number of Loans	Recorded Investment (a)		Unpaid Principal Balance (b)		Number of Loans	Recorded Investment (a)		Unpaid Principal Balance (b)

Commercial and industrial	—	$	—	$	—	1	$	48	$	48
Commercial real estate — owner occupied	—	—		—		1	290		321
Commercial real estate — investor	4	1,693		1,693		1	570		1,740
Real estate construction	—	—		—		1	122		122
Residential mortgage	20	3,876		3,902		18	3,592		3,668
Home equity	1	430		430		8	277		277

Total loans modified	25	$	5,999	$	6,025	30	$	4,899	$	6,175

(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. During the three months ended March 31, 2021, restructured loan modifications of commercial loans primarily included maturity date extensions and payment schedule modifications. Restructured loan modifications of consumer loans primarily included maturity date extensions, interest rate concessions, non-reaffirmed Chapter 7 bankruptcies, or a combination of these concessions for the three months ended March 31, 2021.

The following table provides the number of loans modified in a TDR during the previous twelve months which subsequently defaulted during the three months ended March 31, 2021 and 2020, and the recorded investment in these restructured loans as of March 31, 2021 and 2020:


	Three Months Ended March 31, 2021			Three Months Ended March 31, 2020
($ in Thousands)	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment





Residential mortgage	1	97		3	388
Home equity	—	—		2	88

Total loans modified	1	$	97	5	$	476

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All loans modified in a TDR are individually evaluated for impairment. The nature and extent of the impairment of restructured loans, including those which have experienced a subsequent payment default, are considered in the determination of an appropriate level of the ACLL.

The Corporation analyzes loans for classification as a probable TDR. This analysis includes identifying customers that are showing possible liquidity issues in the near term without reasonable access to alternative sources of capital. At March 31, 2021, the Corporation had $ 49 million in loans meeting this classification compared to $ 68 million at December 31, 2020. Of the loans classified as probable TDRs at March 31, 2021, $ 36 million were related to the commercial and industrial portfolio and $ 13 million were related to the CRE portfolio.

Allowance for Credit Losses on Loans

The ACLL is comprised of the allowance for loan losses and the allowance for unfunded commitments. The level of the ACLL represents management’s estimate of an amount appropriate to provide for expected lifetime credit losses in the loan portfolio at the balance sheet date. The expected lifetime credit losses are the product of multiplying the Corporation's estimates of probability of default, loss given default, and the individual loan level exposure at default on an undiscounted basis. A main factor in the determination of the ACLL is the economic forecast. The Corporation utilized Moody's baseline forecast, updated during March 2021, in the allowance model. The forecast is applied over a 2 year reasonable and supportable period with straight-line reversion to the historical losses over the second year of the period. The allowance for unfunded commitments is maintained at a level believed by management to be sufficient to absorb expected lifetime losses related to unfunded credit facilities (including unfunded loan commitments and letters of credit). See Note 12 for additional information on the change in the allowance for unfunded commitments.

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The following table presents a summary of the changes in the ACLL by portfolio segment for the three months ended March 31, 2021:


($ in Thousands)	December 31, 2020		Charge offs		Recoveries		Net Charge offs		Provision for credit losses		March 31, 2021		ACLL / Loans
Allowance for loan losses
PPP	$	531	$	—	$	—	$	—	$	76	$	607
Commercial and industrial	142,793		( 3,123 )		4,490		1,367		( 19,453 )		124,707
Commercial real estate — owner occupied	11,274		—		4		4		508		11,786
Commercial and business lending	154,598		( 3,123 )		4,494		1,370		( 18,869 )		137,099
Commercial real estate — investor	93,435		( 8,739 )		2,854		( 5,886 )		1,694		89,243
Real estate construction	59,193		( 3 )		31		29		( 4,979 )		54,243
Commercial real estate lending	152,629		( 8,742 )		2,885		( 5,857 )		( 3,286 )		143,486
Total commercial	307,226		( 11,865 )		7,379		( 4,487 )		( 22,155 )		280,585
Residential mortgage	42,996		( 243 )		134		( 109 )		2,328		45,215
Home equity	18,849		( 238 )		583		344		( 2,822 )		16,371
Other consumer	14,630		( 827 )		315		( 511 )		( 3,351 )		10,767
Total consumer	76,475		( 1,308 )		1,031		( 277 )		( 3,845 )		72,353
Total loans	$	383,702	$	( 13,174 )	$	8,410	$	( 4,764 )	$	( 26,000 )	$	352,938
Allowance for unfunded commitments

Commercial and industrial	22,311		—		—		—		2,417		24,728
Commercial real estate — owner occupied	266		—		—		—		38		304
Commercial and business lending	22,577		—		—		—		2,455		25,033
Commercial real estate — investor	636		—		—		—		15		651
Real estate construction	18,887		—		—		—		422		19,309
Commercial real estate lending	19,523		—		—		—		437		19,960
Total commercial	42,101		—		—		—		2,892		44,993

Home equity	3,118		—		—		—		( 199 )		2,919
Other consumer	2,557		—		—		—		307		2,865
Total consumer	5,675		—		—		—		108		5,783
Total loans	$	47,776	$	—	$	—	$	—	$	3,000	$	50,776
Allowance for credit losses on loans
PPP	$	531	$	—	$	—	$	—	$	76	$	607	0.07	%
Commercial and industrial	165,105		( 3,123 )		4,490		1,367		( 17,037 )		149,435		1.95	%
Commercial real estate — owner occupied	11,539		—		4		4		547		12,090		1.37	%
Commercial and business lending	177,175		( 3,123 )		4,494		1,370		( 16,414 )		162,132		1.73	%
Commercial real estate — investor	94,071		( 8,739 )		2,854		( 5,886 )		1,709		89,894		2.11	%
Real estate construction	78,080		( 3 )		31		29		( 4,557 )		73,552		3.91	%
Commercial real estate lending	172,152		( 8,742 )		2,885		( 5,857 )		( 2,849 )		163,446		2.66	%
Total commercial	349,327		( 11,865 )		7,379		( 4,487 )		( 19,262 )		325,578		2.10	%
Residential mortgage	42,996		( 243 )		134		( 109 )		2,328		45,215		0.59	%
Home equity	21,967		( 238 )		583		344		( 3,021 )		19,290		2.96	%
Other consumer	17,187		( 827 )		315		( 511 )		( 3,044 )		13,631		4.57	%
Total consumer	82,150		( 1,308 )		1,031		( 277 )		( 3,738 )		78,136		0.90	%
Total loans	$	431,478	$	( 13,174 )	$	8,410	$	( 4,764 )	$	( 23,000 )	$	403,714	1.67	%

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The following table presents a summary of the changes in the ACLL by portfolio segment for the year ended December 31, 2020:


($ in Thousands)	Dec. 31, 2019		Cumulative effect of ASU 2016-13 adoption (CECL)		Jan. 1, 2020		Charge offs		Recoveries		Net Charge offs		Gross up of allowance for PCD loans at acquisition		Provision recorded at acquisition		Provision for credit losses		Dec. 31, 2020		ACLL / Loans
Allowance for loan losses
PPP	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	531	$	531
Commercial and industrial	91,133		52,919		144,052		( 80,320 )		7,004		( 73,316 )		293		408		71,355		142,793
Commercial real estate — owner occupied	10,284		( 1,851 )		8,433		( 419 )		147		( 272 )		890		255		1,967		11,274
Commercial and business lending	101,417		51,068		152,485		( 80,739 )		7,151		( 73,588 )		1,183		663		73,853		154,598
Commercial real estate — investor	40,514		2,041		42,555		( 22,920 )		643		( 22,277 )		753		472		71,933		93,435
Real estate construction	24,915		7,467		32,382		( 19 )		49		31		435		492		25,854		59,193
Commercial real estate lending	65,428		9,508		74,937		( 22,938 )		692		( 22,246 )		1,188		964		97,787		152,629
Total commercial	166,846		60,576		227,422		( 103,677 )		7,844		( 95,834 )		2,371		1,627		171,641		307,226
Residential mortgage	16,960		33,215		50,175		( 1,867 )		500		( 1,367 )		651		403		( 6,864 )		42,996
Home equity	10,926		11,649		22,575		( 1,719 )		1,978		259		422		374		( 4,781 )		18,849
Other consumer	6,639		7,016		13,655		( 4,790 )		1,101		( 3,689 )		61		140		4,462		14,630
Total consumer	34,525		51,880		86,405		( 8,376 )		3,579		( 4,797 )		1,134		917		( 7,183 )		76,475
Total loans	$	201,371	$	112,457	$	313,828	$	( 112,053 )	$	11,422	$	( 100,631 )	$	3,504	$	2,543	$	164,457	$	383,702
Allowance for unfunded commitments

Commercial and industrial	12,276		( 3,998 )		8,278		—		—		—		—		61		13,972		22,311
Commercial real estate — owner occupied	127		—		127		—		—		—		—		4		135		266
Commercial and business lending	12,403		( 3,998 )		8,405		—		—		—		—		65		14,108		22,577
Commercial real estate — investor	530		246		776		—		—		—		—		2		( 141 )		636
Real estate construction	7,532		18,347		25,879		—		—		—		—		45		( 7,038 )		18,887
Commercial real estate lending	8,062		18,593		26,655		—		—		—		—		47		( 7,179 )		19,523
Total commercial	20,465		14,595		35,060		—		—		—		—		112		6,929		42,101

Home equity	1,038		2,591		3,629		—		—		—		—		66		( 577 )		3,118
Other consumer	405		1,504		1,909		—		—		—		—		—		649		2,557
Total consumer	1,443		4,095		5,538		—		—		—		—		66		72		5,675
Total loans	$	21,907	$	18,690	$	40,597	$	—	$	—	$	—	$	—	$	179	$	7,000	$	47,776
Allowance for credit losses on loans
PPP	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	531	$	531	0.07	%
Commercial and industrial	103,409		48,921		152,330		( 80,320 )		7,004		( 73,316 )		293		469		85,327		165,105		2.14	%
Commercial real estate — owner occupied	10,411		( 1,851 )		8,560		( 419 )		147		( 272 )		890		259		2,102		11,539		1.28	%
Commercial and business lending	113,820		47,070		160,890		( 80,739 )		7,151		( 73,588 )		1,183		728		87,961		177,175		1.89	%
Commercial real estate — investor	41,044		2,287		43,331		( 22,920 )		643		( 22,277 )		753		474		71,792		94,071		2.17	%
Real estate construction	32,447		25,814		58,261		( 19 )		49		31		435		537		18,816		78,080		4.24	%
Commercial real estate lending	73,490		28,101		101,591		( 22,938 )		692		( 22,246 )		1,188		1,011		90,608		172,152		2.78	%
Total commercial	187,311		75,171		262,482		( 103,677 )		7,844		( 95,834 )		2,371		1,739		178,569		349,327		2.25	%
Residential mortgage	16,960		33,215		50,175		( 1,867 )		500		( 1,367 )		651		403		( 6,864 )		42,996		0.55	%
Home equity	11,964		14,240		26,204		( 1,719 )		1,978		259		422		440		( 5,358 )		21,967		3.11	%
Other consumer	7,044		8,520		15,564		( 4,790 )		1,101		( 3,689 )		61		140		5,111		17,187		5.49	%
Total consumer	35,968		55,975		91,943		( 8,376 )		3,579		( 4,797 )		1,134		983		( 7,112 )		82,150		0.92	%
Total loans	$	223,278	$	131,147	$	354,425	$	( 112,053 )	$	11,422	$	( 100,631 )	$	3,504	$	2,722	$	171,457	$	431,478	1.76	%

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Loans Acquired in Acquisitions

Loans acquired in a business combination after January 1, 2020 are recorded in accordance with ASC Topic 326. See Note 2 for more information on loans acquired in a business combination. After January 1, 2020, acquired loans were segregated into two types:

• Non-PCD loans are accounted for in accordance with ASC Topic 310-20 "Nonrefundable Fees and Other Costs" as these loans do not show evidence of credit deterioration since origination. The allowance for loan losses on these loans is recorded through provision for credit losses on the consolidated statements of income at acquisition.

• PCD loans are loans demonstrating more than insignificant credit deterioration and are accounted for with ASC Topic 326-30. Under this guidance, the credit mark on acquired assets grosses up the ACLL and the amortized cost of the loan.

Note 8 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.

The Corporation conducted its most recent annual impairment testing in May 2020, utilizing a quantitative assessment of goodwill impairment which included determining the estimated fair value of each reporting unit, utilizing an equally weighted combination of discounted cash flow and market-based approaches, and comparing that fair value to each reporting unit’s carrying amount (including goodwill). An impairment loss is recognized if the carrying amount of a reporting unit exceeds its fair value. Based on the quantitative assessment, management concluded that the estimated fair value exceeded the carrying value (including goodwill) for each reporting unit. Therefore, based on the step one quantitative analysis, no impairment was required. There have been no events since the May 2020 impairment testing that have changed the Corporation's impairment assessment conclusion. There were no impairment charges recorded in 2020 or the first three months of 2021.

Each of the valuation techniques employed by the Corporation requires significant assumptions. Depending upon the specific approach, assumptions are made regarding the economic environment including forecasted cash flow projections, expected net interest margins, long-term growth rates, discount rates for cash flows, control premiums, and price-to-forward earnings multiples. Changes to any one of these assumptions could result in significantly different results. A sustained decline in the Corporation’s expected future cash flows or estimated growth rates, or a prolonged decline in the price of the Corporation’s common stock due to deterioration in the economic environment, may necessitate additional interim testing, which could result in an impairment charge to goodwill in future reporting periods.

At both March 31, 2021 and December 31, 2020, the Corporation had goodwill of $ 1.1 billion. During the first quarter of 2021, there was a reduction of $4 million related to the sale of Whitnell.

Other Intangible Assets

The Corporation has other intangible assets that are amortized, consisting of CDIs and MSRs. For CDIs and other intangibles, changes in the gross carrying amount, accumulated amortization, and net book value were as follows:


($ in Thousands)	Three Months Ended March 31, 2021		Year Ended December 31, 2020
Core deposit intangibles
Gross carrying amount at the beginning of the year	$	88,109	$	80,730
Additions during the period	—		7,379
Accumulated amortization	( 23,408 )		( 21,205 )
Net book value	$	64,701	$	66,904
Amortization during the year	$	2,203	$	8,749
Other intangibles
Gross carrying amount at the beginning of the year	$	2,000	$	38,970
Additions during the period	—		200
Reductions due to sale	( 1,317 )		( 17,435 )
Accumulated amortization	( 683 )		( 20,385 )
Net book value	$	—	$	1,350
Amortization during the year	$	33	$	1,443

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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.

The Corporation evaluates its MSRs asset for impairment at minimum on a quarterly basis. 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 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. 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 12 for a discussion of the recourse provisions on sold residential mortgage loans. See Note 13 which further discusses fair value measurement relative to the MSRs asset.

A summary of changes in the balance of the MSRs asset and the MSRs valuation allowance is as follows:


($ in Thousands)	Three Months Ended March 31, 2021			Year Ended December 31, 2020
Mortgage servicing rights
Mortgage servicing rights at beginning of period	$	59,967		$	67,607
Additions from acquisition	—			1,357
Additions	3,348			13,667
Amortization	( 6,388 )			( 22,664 )
Mortgage servicing rights at end of period	$	56,927		$	59,967
Valuation allowance at beginning of period	$	( 18,006 )		$	( 302 )
(Additions) recoveries, net	10,578			( 17,704 )
Valuation allowance at end of period	$	( 7,428 )		$	( 18,006 )
Mortgage servicing rights, net	$	49,500		$	41,961
Fair value of mortgage servicing rights	$	49,541		$	41,990
Portfolio of residential mortgage loans serviced for others (“servicing portfolio”)	$	7,313,308		$	7,743,956
Mortgage servicing rights, net to servicing portfolio	0.68		%	0.54		%
Mortgage servicing rights expense (a)	$	( 4,190 )		$	40,369

(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 March 31, 2021. 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		Mortgage Servicing Rights
Nine Months Ending December 31, 2021	$	6,608	$	8,345
2022	8,811		11,550
2023	8,811		8,909
2024	8,811		6,983
2025	8,811		5,547
2026	8,811		4,466
Beyond 2026	14,038		11,125
Total Estimated Amortization Expense	$	64,701	$	56,927

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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) and long-term funding (funding with original contractual maturities greater than one year):


($ in Thousands)	March 31, 2021		December 31, 2020
Short-Term Funding
Federal funds purchased	$	7,450	$	7,070
Securities sold under agreements to repurchase	131,057		185,901
Federal funds purchased and securities sold under agreements to repurchase	138,507		192,971
Commercial paper	51,171		59,346
Total short-term funding	$	189,678	$	252,317
Long-Term Funding

Bank senior notes, at par, due 2021	$	300,000	$	300,000
Corporation subordinated notes, at par, due 2025	250,000		250,000

Finance leases	1,091		1,128
Capitalized costs	( 1,362 )		( 1,663 )

FHLB advances	1,629,966		$	1,632,723
Total long-term funding	2,179,694		2,182,188




Total short and long-term funding	$	2,369,372	$	2,434,505

Securities Sold Under Agreements 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 11 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 March 31, 2021, the Corporation pledged agency mortgage-related securities with a fair value of $ 192 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.

The remaining contractual maturity of the securities sold under agreements to repurchase on the consolidated balance sheets as of March 31, 2021 and December 31, 2020 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
March 31, 2021
Repurchase agreements
Agency mortgage-related securities	$	131,057	$	—	$	—	$	—	$	131,057
Total	$	131,057	$	—	$	—	$	—	$	131,057
December 31, 2020
Repurchase agreements
Agency mortgage-related securities	$	185,901	$	—	$	—	$	—	$	185,901
Total	$	185,901	$	—	$	—	$	—	$	185,901

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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.

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

In connection with the construction of new branches in Oshkosh and Eau Claire, Wisconsin, the Corporation entered into land leases with options to purchase the underlying land for a fixed price, which the Corporation now expects to exercise. The finance leases have fixed interest rates of approximately 1.00 %. See Note 18 for additional disclosure regarding the Corporation’s leases.

Note 10 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.

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 $ 67 million of investment securities as collateral at March 31, 2021, and pledged $ 72 million of investment securities as collateral at December 31, 2020. At March 31, 2021, the Corporation posted $ 21 million of cash collateral compared to $ 31 million at December 31, 2020.

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.

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.

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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 11 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.

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.

The following table presents the total notional amounts and gross fair values of the Company’s derivatives, as well as the balance sheet netting adjustments as of March 31, 2021 and December 31, 2020. The derivative assets and liabilities are presented on a gross basis prior to the application of bilateral collateral and master netting agreements, but after the variation margin payments with central clearing organizations have been applied as settlement, as applicable. Total derivative assets and liabilities are adjusted to take into consideration the effects of legally enforceable master netting agreements and cash collateral received or paid as of March 31, 2021 and December 31, 2020. The resulting net derivative asset and liability fair values are included in other assets and accrued expenses and other liabilities, respectively, on the consolidated balance sheets.


	March 31, 2021								December 31, 2020
	Asset				Liability				Asset				Liability
($ in Thousands)	Notional Amount		Fair Value		Notional Amount		Fair Value		Notional Amount		Fair Value		Notional Amount		Fair Value
Not designated as hedging instruments
Interest rate-related instruments	$	3,654,732	$	121,020	$	3,654,732	$	28,382	$	3,639,679	$	192,518	$	3,639,679	$	25,680
Foreign currency exchange forwards	448,395		3,044		439,381		2,828		411,292		4,909		398,890		4,836
Commodity contracts	70,633		5,808		70,758		5,098		87,547		12,486		83,214		11,155
Mortgage banking (a)(b)	292,704		11,171		408,500		—		226,818		9,624		335,500		2,046

Gross derivatives before netting			$	141,043			$	36,308			$	219,537			$	43,716
Less: Legally enforceable master netting agreements	2,643				2,643				1,936				1,936
Less: Cash collateral pledged/received	1,581				17,583				10,879				25,625
Total derivative instruments, after netting	$	136,819			$	16,082			$	206,722			$	16,155

(a) Mortgage derivative assets include interest rate lock commitments and mortgage derivative liabilities include forward commitments.

(b) Includes $ 4 million forward commitment fair value.

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The Corporation terminated its $ 500 million fair value hedge during the fourth quarter of 2019. At March 31, 2021, the amortized cost basis of the closed portfolios which had previously been used in the terminated hedging relationship was $ 534 million and is included in loans and investment securities, AFS, at fair value on the consolidated balance sheets. This amount includes $ 3 million of hedging adjustments on the discontinued hedging relationships.

The table below identifies the effect of fair value hedge accounting on the Corporation's consolidated statements of income for the three months ended March 31, 2021 and 2020:


	Location and Amount of Gain or (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships
	Three Months Ended March 31,
	2021				2020
($ 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 the fair value hedge is recorded	$	( 485 )	$	—	$	( 322 )	$	( 262 )
The effects of fair value hedging: Gain or (loss) on fair value hedging relationships in Subtopic 815-20
Interest contracts
Hedged items	( 485 )		—		( 322 )		( 262 )
Derivatives designated as hedging instruments (a)	—		—		—		—

(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 for the three months ended March 31, 2021 and 2020:


	Consolidated Statements of Income Category of Gain / (Loss) Recognized in Income	Three Months Ended March 31,
($ in Thousands)		2021		2020
Derivative Instruments
Interest rate-related instruments — customer and mirror, net	Capital markets, net	$	2,938	$	( 3,090 )
Foreign currency exchange forwards	Capital markets, net	143		( 122 )
Commodity contracts	Capital markets, net	( 621 )		746
Interest rate lock commitments (mortgage)	Mortgage banking, net	( 2,708 )		9,928
Forward commitments (mortgage)	Mortgage banking, net	( 6,300 )		( 10,262 )

Note 11 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. See Note 10 for additional information on the Corporation’s derivative and hedging activities.

Securities Sold Under Agreements 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

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(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 interest rate, commodity, and foreign exchange assets and liabilities subject to an enforceable master netting arrangement. The interest, commodity and foreign exchange agreements the Corporation has with its commercial customers are not subject to an enforceable master netting arrangement and are therefore excluded from this table:


	Gross Amounts Recognized		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)			Derivative Liabilities Offset		Cash Collateral Received						Net Amount
Derivative assets
March 31, 2021	$	4,496	$	( 2,643 )	$	( 1,581 )	$	272	$	—	$	272
December 31, 2020	13,441		( 1,936 )		( 10,879 )		626		—		626

	Gross Amounts Recognized		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)			Derivative Assets Offset		Cash Collateral Pledged						Net Amount
Derivative liabilities
March 31, 2021	$	20,393	$	( 2,643 )	$	( 17,583 )	$	167	$	—	$	167
December 31, 2020	27,951		( 1,936 )		( 25,625 )		390		—		390

Note 12 Commitments, Off-Balance Sheet Arrangements, Legal Proceedings and Regulatory Matters


($ in Thousands)	March 31, 2021		December 31, 2020
Commitments to extend credit, excluding commitments to originate residential mortgage loans held for sale (a)(b)	$	10,102,713	$	10,010,492
Commercial letters of credit (a)	7,301		3,642
Standby letters of credit (c)	247,473		278,798

(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 March 31, 2021 or December 31, 2020.

(b) Interest rate lock commitments to originate residential mortgage loans held for sale are considered derivative instruments and are disclosed in Note 10.

(c) The Corporation has established a liability of $ 3 million for both March 31, 2021 and December 31, 2020, 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 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 expected lifetime losses related to unfunded commitments (including unfunded loan commitments and letters of credit). The following table presents a summary of the changes in the allowance for unfunded commitments:

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($ in Thousands)	Three Months Ended March 31, 2021		Year Ended December 31, 2020
Allowance for Unfunded Commitments
Balance at beginning of period	$	47,776	$	21,907
Cumulative effect of ASU 2016-13 adoption (CECL)	N/A		18,690
Balance at beginning of period, adjusted	47,776		40,597
Provision for unfunded commitments	3,000		7,000
Amount recorded at acquisition	—		179
Balance at end of period	$	50,776	$	47,776

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 10. 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 the 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 March 31, 2021 was $ 280 million, compared to $ 272 million at December 31, 2020, 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 $ 8 million and $ 6 million for the three months ended March 31, 2021 and 2020, respectively. The Corporation's remaining investment in qualified affordable housing projects accounted for under the proportional amortization method totaled $ 277 million at March 31, 2021 and $ 268 million at December 31, 2020.

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 $ 119 million and $ 118 million at March 31, 2021 and December 31, 2020, respectively.

For the three months ended March 31, 2021 and the year ended December 31, 2020, the Corporation did no t 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 was $ 23 million and $ 25 million at March 31, 2021 and December 31, 2020, respectively, 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.

A lawsuit, Evans et al v. Associated Banc-Corp et al , was filed in the United States District Court for the Eastern District of Wisconsin - Green Bay Division on January 13, 2021 by one current and one former participant in the Associated Banc-Corp 401(k) and Employee Stock Ownership Plan (the “Plan”) as representatives of a putative class. The plaintiffs alleged that Associated Banc-Corp, the Associated Banc-Corp Plan Administrative Committee, and current and past members of such committee during the relevant time period (the “Defendants”) breached their fiduciary duties with respect to the Plan in violation of Employee Retirement Income Security Act of 1974, as amended, by applying an imprudent and inappropriate preference for products associated with Associated Banc-Corp within the Plan, and that the Defendants failed to monitor or control the recordkeeping expenses paid to Associated Trust Company, N.A. On March 18, 2021, the Defendants filed a motion to dismiss. On April 8, 2021, the plaintiffs filed an amended complaint which dropped the record keeping claim, added Associated Trust Company N.A. and Kellogg Asset Management, LLC as defendants, and alleged various breaches of fiduciary duty related to the selection and monitoring of, and the fees charged by, proprietary collective investment trusts. The plaintiffs, in part, seek an accounting and disgorgement of certain profits, as well as certain equitable restitution and equitable monetary relief. The Corporation intends to vigorously defend against this lawsuit. It is not possible for management to assess the probability of a material adverse outcome or reasonably estimate the amount of any potential loss at this time with respect to this lawsuit.

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 aggregate principal balances of $ 2 million and $ 10 million for the three months ended March 31, 2021 and the year ended December 31, 2020, respectively. There were $ 109 thousand of loss reimbursement and settlement claims paid for the three months ended March 31, 2021 and there were no such

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claims for the year ended December 31, 2020. Make whole requests during 2020 and the first three months of 2021 generally arose from loans sold during the period of January 1, 2012 to December 31, 2020. Since January 1, 2012, loans sold totaled $ 14.7 billion at the time of sale, and consisted primarily of loans sold to GSEs. As of March 31, 2021, approximately $ 6.5 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, included in accrued expenses and other liabilities on the consolidated balance sheets, was $ 1 million as of March 31, 2021 and $ 2 million as of December 31, 2020.

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 March 31, 2021 and December 31, 2020, there were approximately $ 27 million and $ 36 million, respectively, of residential mortgage loans sold 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 March 31, 2021 and December 31, 2020, there were $ 31 million and $ 33 million, respectively, of such residential mortgage loans with credit risk recourse, upon which there have been negligible historical losses to the Corporation.

Note 13 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).

The valuation methodologies for assets and liabilities measured at fair value on a recurring and non-recurring basis are described in the Fair Value Measurements note in the Corporation’s 2020 Annual Report on Form 10-K.

The table below presents the Corporation’s financial instruments measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020, aggregated by the level in the fair value hierarchy within which those measurements fall:

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($ in Thousands)	Fair Value Hierarchy	March 31, 2021		December 31, 2020
Assets
Investment securities AFS
U.S. Treasury securities	Level 1	$	53,693	$	26,531
Agency securities	Level 2	14,904		25,038
Obligations of state and political subdivisions (municipal securities)	Level 2	433,182		450,662
Residential mortgage-related securities
FNMA / FHLMC	Level 2	1,910,954		1,461,241
GNMA	Level 2	123,365		235,537

Commercial mortgage-related securities
FNMA / FHLMC	Level 2	94,349		22,904
GNMA	Level 2	389,411		524,756
Asset backed securities
FFELP	Level 2	325,933		327,189
SBA	Level 2	8,160		8,584
Other debt securities	Level 2	3,000		3,000

Total investment securities AFS	Level 1	$	53,693	$	26,531
Total investment securities AFS	Level 2	3,303,257		3,058,910

Equity securities with readily determinable fair values	Level 1	1,684		1,661
Residential loans held for sale	Level 2	153,151		129,158
Interest rate-related instruments (a)	Level 2	121,020		192,518
Foreign currency exchange forwards (a)	Level 2	3,044		4,909

Commodity contracts (a)	Level 2	5,808		12,486


Interest rate lock commitments to originate residential mortgage loans held for sale	Level 3	6,917		9,624
Forward commitments to sell residential mortgage loans	Level 3	4,255		—
Liabilities
Interest rate-related instruments (a)	Level 2	$	28,382	$	25,680
Foreign currency exchange forwards (a)	Level 2	2,828		4,836
Commodity contracts (a)	Level 2	5,098		11,155


Forward commitments to sell residential mortgage loans	Level 3	—		2,046

(a) Figures are presented gross before netting. See Note 10 and Note 11 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.

The table below presents a rollforward of the consolidated balance sheets amounts for the three months ended March 31, 2021 and the year ended December 31, 2020, for the Corporation's mortgage derivatives measured on a recurring basis and classified within Level 3 of the fair value hierarchy:


($ in Thousands)	Interest rate lock commitments to originate residential mortgage loans held for sale		Forward commitments to sell residential mortgage loans		Total
Balance December 31, 2019	$	2,527	$	710	$	1,817
New production	72,659		( 3,505 )		76,164
Closed loans / settlements	( 76,001 )		( 12,587 )		( 63,414 )
Other	10,439		17,427		( 6,988 )
Mortgage derivative gain (loss)	7,097		1,335		5,762

Balance December 31, 2020	$	9,624	$	2,046	$	7,579
New production	$	16,629	$	( 1,203 )	$	17,832
Closed loans / settlements	( 14,186 )		2,501		( 16,687 )
Other	( 5,151 )		( 7,598 )		2,447
Mortgage derivative gain (loss)	( 2,708 )		( 6,300 )		3,593

Balance March 31, 2021	$	6,917	$	( 4,255 )	$	11,171

The closing ratio on interest rate lock commitments to originate residential mortgage loans held for sale is a Level 3 measurement, and was 89 % at March 31, 2021.

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The following table presents the carrying value of equity securities without readily determinable fair values still held as of March 31, 2021 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 March 31, 2021:


($ in Thousands)
Equity securities without readily determinable fair values
Carrying value as of December 31, 2020	$	13,444
Carrying value changes	—
Additions	544
Carrying value as of March 31, 2021	$	13,989

Cumulative upward carrying value changes between January 1, 2018 and March 31, 2021	$	13,444
Cumulative downward carrying value changes/impairment between January 1, 2018 and March 31, 2021	$	—

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:

Consolidated Statements of Income
Category of Adjustment
Recognized in Income

Adjustment Recognized on the Consolidated Statements of Income (c)

($ in Thousands)

Fair Value Hierarchy

Fair Value

March 31, 2021

Assets

Individually evaluated loans (a)

Level 3

93,201

Provision for credit losses

( 1,613 )

OREO (b)

Level 2

10,326

Other noninterest expense

3,681

Mortgage servicing rights

Level 3

49,541

Mortgage banking, net

10,578

December 31, 2020

Assets

Individually evaluated loans (a)

Level 3

138,752

Provision for credit losses

97,519

OREO (b)

Level 2

6,125

Other noninterest expense

3,747

Mortgage servicing rights

Level 3

41,990

Mortgage banking, net

( 17,704 )

(a) Includes probable TDRs which are individually analyzed, net of the related allowance for credit losses.

(b) 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 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 individually evaluated loans.

The table below presents information about these inputs and further discussion is found above:


March 31, 2021	Valuation Technique	Significant Unobservable Input	Range of Inputs			Weighted Average Input Applied
Mortgage servicing rights	Discounted cash flow	Discount rate	9 %	-	14 %	9 %
Mortgage servicing rights	Discounted cash flow	Constant prepayment rate	10 %	-	45 %	16 %
Individually evaluated loans	Appraisals / Discounted cash flow	Collateral / Discount factor	25 %	-	38 %	34 %

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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:


		March 31, 2021				December 31, 2020
($ in Thousands)	Fair Value Hierarchy Level	Carrying Amount		Fair Value		Carrying Amount		Fair Value

Financial assets
Cash and due from banks	Level 1	$	356,285	$	356,285	$	416,154	$	416,154
Interest-bearing deposits in other financial institutions	Level 1	1,590,494		1,590,494		298,759		298,759
Federal funds sold and securities purchased under agreements to resell	Level 1	—		—		1,135		1,135
Investment securities AFS	Level 1	53,693		53,693		26,531		26,531
Investment securities AFS	Level 2	3,303,257		3,303,257		3,058,910		3,058,910
Investment securities HTM, net	Level 1	1,000		1,019		999		1,024
Investment securities HTM, net	Level 2	1,856,088		1,971,459		1,877,939		2,027,852

Equity securities with readily determinable fair values	Level 1	1,684		1,684		1,661		1,661
Equity securities without readily determinable fair values	Level 3	13,989		13,989		13,444		13,444
FHLB and Federal Reserve Bank stocks	Level 2	168,281		168,281		168,280		168,280
Residential loans held for sale	Level 2	153,151		153,151		129,158		129,158

Loans, net	Level 3	23,809,389		23,723,543		24,068,022		24,012,738
Bank and corporate owned life insurance	Level 2	680,831		680,831		679,647		679,647

Derivatives (other assets) (a)	Level 2	129,872		129,872		209,913		209,913
Interest rate lock commitments to originate residential mortgage loans held for sale (other assets)	Level 3	6,917		6,917		9,624		9,624
Forward commitments to sell residential mortgage loans (other assets)	Level 3	4,255		4,255		—		—
Financial liabilities
Noninterest-bearing demand, savings, interest-bearing demand, and money market accounts	Level 3	$	26,115,814	$	26,115,814	$	24,725,451	$	24,725,451
Brokered CDs and other time deposits (b)	Level 2	1,561,352		1,566,421		1,757,030		1,766,200
Short-term funding	Level 2	189,678		189,672		252,317		252,303
FHLB advances	Level 2	1,629,966		1,693,172		1,632,723		1,760,727
Other long-term funding	Level 2	549,729		576,183		549,465		578,233

Standby letters of credit (c)	Level 2	2,549		2,549		2,731		2,731

Derivatives (accrued expenses and other liabilities) (a)	Level 2	36,308		36,308		41,671		41,671
Forward commitments to sell residential mortgage loans (accrued expenses and other liabilities)	Level 3	—		—		2,046		2,046

(b) When the estimated fair value is less than the carrying value, the carrying value is reported as the fair value.

(c) The commitment on standby letters of credit was $ 247 million at March 31, 2021 and $ 279 million at December 31, 2020. See Note 12 for additional information on the standby letters of credit and for information on the fair value of lending-related commitments.

Note 14 Retirement Plans

The Corporation has a noncontributory defined benefit retirement account 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.

The First Staunton acquisition closed on February 14, 2020 , and the employees who met the required criteria as a result of the transaction became eligible to participate in the RAP on February 15, 2020 , with their vesting service credit based on their prior hours of service with First Staunton. See Note 2 for additional information on the First Staunton acquisition.

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The components of net periodic pension cost and net periodic benefit cost for the RAP and Postretirement Plan for the three months ended March 31, 2021 and 2020 were as follows:


	Three Months Ended March 31,
($ in Thousands)	2021		2020
Components of Net Periodic Benefit Cost
RAP
Service cost	$	2,075	$	2,165
Interest cost	1,623		2,008
Expected return on plan assets	( 6,430 )		( 6,405 )
Amortization of prior service cost	( 18 )		( 19 )
Amortization of actuarial loss (gain)	1,050		808
Total net periodic pension cost	$	( 1,701 )	$	( 1,444 )







Postretirement Plan
Interest cost	$	13	$	20
Amortization of prior service cost	( 19 )		( 19 )

Total net periodic benefit cost	$	( 6 )	$	1

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. The weighted-average interest crediting rate was 2.80 % at both March 31, 2021 and December 31, 2020.

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. There were no contributions during the three months ended March 31, 2021 and 2020.

Note 15 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 the Corporation’s 2020 Annual Report on Form 10-K 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 taxes, and equity to each segment. Allocation methodologies are subject to periodic 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 consolidated totals reflect the Corporation's net interest income. The net FTP allocation is reflected as net intersegment 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

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determined based on an ACLL model using the methodologies described in the Corporation’s 2020 Annual Report on Form 10-K. 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 expense and bank-wide expense accruals (including amortization of CDIs and other intangible assets associated with acquisitions, acquisition-related costs, and asset gains on disposed business units) 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. 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 brief description of each business segment is presented below. A more in-depth discussion of these segments can be found in the Segment Reporting footnote in the Corporation’s 2020 Annual Report on Form 10-K.

The Corporate and Commercial Specialty segment serves a wide range of customers including larger businesses, developers, not-for-profits, municipalities, and financial institutions by providing lending and deposit solutions as well as the support to deliver, fund, and manage such banking solutions. In addition, this segment provides a variety of investment, fiduciary, and retirement planning products and services to individuals and small to mid-sized businesses. During the first quarter of 2021, the Corporation sold its wealth management subsidiary Whitnell. The Communi ty, Consumer, and Business segment serves individuals, as well as small and mid-sized businesses, by providing lending and deposit solutions. In addition, the Corporation offered insurance and risk consulting services. The Risk Management and Shared Services segment includes key shared operational functions and also includes 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).

Information about the Corporation’s segments is presented below:


	Corporate and Commercial Specialty
	Three Months Ended March 31,
($ in Thousands)	2021		2020
Net interest income	$	93,161	$	107,753
Net intersegment interest income (expense)	6,684		( 10,726 )
Segment net interest income	99,845		97,028
Noninterest income (a)	43,031		38,733
Total revenue	142,876		135,761
Provision for credit losses	17,509		12,172
Noninterest expense	57,725		54,304
Income (loss) before income taxes	67,642		69,284
Income tax expense (benefit)	12,649		12,940
Net income	$	54,993	$	56,344






Allocated goodwill	$	525,836	$	530,144


	Community, Consumer, and Business
	Three Months Ended March 31,
($ in Thousands)	2021		2020
Net interest income	$	68,275	$	74,927
Net intersegment interest income (expense)	12,875		18,665
Segment net interest income	81,150		93,592
Noninterest income	46,128		53,350
Total revenue	127,278		146,942
Provision for credit losses	5,099		5,108
Noninterest expense	97,346		113,777
Income (loss) before income taxes	24,834		28,057
Income tax expense (benefit)	5,215		5,892
Net income	$	19,618	$	22,165






Allocated goodwill	$	579,156	$	661,244

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	Risk Management and Shared Services
	Three Months Ended March 31,
($ in Thousands)	2021		2020
Net interest income	$	14,465	$	20,261
Net intersegment interest income (expense)	( 19,559 )		( 7,939 )
Segment net interest income	( 5,094 )		12,322
Noninterest income	6,184		6,223
Total revenue	1,091		18,545
Provision for credit losses	( 45,612 )		35,720
Noninterest expense	20,275		24,110
Income (loss) before income taxes	26,427		( 41,285 )
Income tax expense (benefit)	6,737		( 8,613 )
Net income	$	19,690	$	( 32,672 )






Allocated goodwill	$	—	$	—


	Consolidated Total
	Three Months Ended March 31,
($ in Thousands)	2021		2020
Net interest income	$	175,902	$	202,942
Net intersegment interest income (expense)	—		—
Segment net interest income	175,902		202,942
Noninterest income (a)	95,343		98,306
Total revenue	271,245		301,248
Provision for credit losses	( 23,004 )		53,001
Noninterest expense	175,347		192,191
Income (loss) before income taxes	118,903		56,056
Income tax expense (benefit)	24,602		10,219
Net income	$	94,301	$	45,838






Allocated goodwill	$	1,104,992	$	1,191,388

(a) Includes $ 2 million pre-tax gain on sale of Whitnell.

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Note 16 Accumulated Other Comprehensive Income (Loss)

The following tables summarize the components of accumulated other comprehensive income (loss) at March 31, 2021 and 2020, including changes during the preceding three month periods as well as any reclassifications out of accumulated other comprehensive income (loss):


($ in Thousands)	Investment Securities AFS		Defined Benefit Pension and Postretirement Obligations		Accumulated Other Comprehensive Income (Loss)
Balance December 31, 2020	$	41,325	$	( 28,707 )	$	12,618
Other comprehensive income (loss) before reclassifications	( 23,979 )		—		( 23,979 )
Amounts reclassified from accumulated other comprehensive income (loss)
Investment securities losses (gains), net	39		—		39
Personnel expense	—		( 37 )		( 37 )

Other expense	—		1,050		1,050


Interest income	518		—		518
Income tax (expense) benefit	5,851		( 253 )		5,598
Net other comprehensive income (loss) during period	( 17,571 )		760		( 16,811 )
Balance March 31, 2021	$	23,754	$	( 27,947 )	$	( 4,193 )

Balance December 31, 2019	$	3,989	$	( 37,172 )	$	( 33,183 )
Other comprehensive income (loss) before reclassifications	26,419		—		26,419
Amounts reclassified from accumulated other comprehensive income (loss)
Investment securities losses (gains), net	( 6,118 )		—		( 6,118 )
Personnel expense	—		( 38 )		( 38 )
Other expense	—		808		808


Interest income	556		—		556
Income tax (expense) benefit	( 5,225 )		( 193 )		( 5,418 )
Net other comprehensive income (loss) during period	15,632		577		16,209
Balance March 31, 2020	$	19,620	$	( 36,595 )	$	( 16,974 )

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Note 17 Revenue from Contracts with Customers

Revenue from contracts with customers 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
	Three Months Ended March 31,
($ in Thousands)	2021		2020
Wealth management fees	$	22,414	$	20,106
Service charges and deposit account fees	4,905		3,551
Card-based fees (a)	435		515
Insurance commissions and fees	24		76
Other revenue	685		788
Noninterest income (in-scope of Topic 606)	$	28,463	$	25,036
Noninterest income (out-of-scope of Topic 606)	14,568		13,697
Total noninterest income	$	43,031	$	38,733



	Community, Consumer, and Business
	Three Months Ended March 31,
($ in Thousands)	2021		2020
Wealth management fees	$	—	$	710
Service charges and deposit account fees	9,935		11,665
Card-based fees (a)	9,325		9,045
Insurance commissions and fees	50		22,529
Other revenue	3,579		2,286
Noninterest income (in-scope of Topic 606)	$	22,889	$	46,235
Noninterest income (out-of-scope of Topic 606)	23,239		7,115
Total noninterest income	$	46,128	$	53,350


	Risk Management and Shared Services
	Three Months Ended March 31,
($ in Thousands)	2021		2020

Service charges and deposit account fees	15		5
Card-based fees (a)	4		47
Insurance commissions and fees	2		3
Other revenue	389		23
Noninterest income (in-scope of Topic 606)	$	409	$	77
Noninterest income (out-of-scope of Topic 606)	5,775		6,146
Total noninterest income	$	6,184	$	6,223



	Consolidated Total
	Three Months Ended March 31,
($ in Thousands)	2021		2020

Wealth management fees	$	22,414	$	20,816
Service charges and deposit account fees	14,855		15,222
Card-based fees (a)	9,764		9,607
Insurance commissions and fees	76		22,608
Other revenue	4,653		3,096
Noninterest income (in-scope of Topic 606)	$	51,762	$	71,348
Noninterest income (out-of-scope of Topic 606)	43,581		26,958
Total noninterest income	$	95,343	$	98,306

(a) Certain card-based fees are out-of-scope of Topic 606.

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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

Service charges and deposit account fees						Service charges and deposit account fees consist of monthly service fees (i.e. business analyzed 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 and deposit account fees is primarily received immediately or in the following month through a direct charge to 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 consist 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.

Note 18 Leases

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

These leases have original terms of 1 year or longer with remaining maturities up to 42 years, some of which include options to extend the lease term. An analysis of the lease options has been completed and any purchase options or 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:


	Three Months Ended March 31,
($ in Thousands)	2021		2020
Operating lease costs	$	2,240	$	2,623
Finance lease costs	39		36
Operating lease cash flows	2,963		2,731
Finance lease cash flows	40		21

The lease classifications on the consolidated balance sheets were as follows:


($ in Thousands)	Consolidated Balance Sheets Category	March 31, 2021		December 31, 2020
		Amount
Operating lease right-of-use asset	Premises and equipment	$	32,071	$	31,994
Finance lease right-of-use asset	Other assets	854		962
Operating lease liability	Accrued expenses and other liabilities	36,079		36,425
Finance lease liability	Other long-term funding	1,091		1,128

The lease payment obligations, weighted-average remaining lease term, and weighted-average discount rate were as follows:

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	March 31, 2021					December 31, 2020
($ in Thousands)	Lease payments		Weighted-average lease term (in years)	Weighted-average discount rate		Lease payments		Weighted-average lease term (in years)	Weighted-average discount rate
Operating leases
Equipment	$	385	2.24	0.46	%	$	386	2.49	0.46	%
Retail and corporate offices	33,707		5.94	3.27	%	34,036		6.04	3.33	%
Land	6,165		8.83	3.10	%	6,385		8.99	3.09	%
Total operating leases	$	40,257	6.33	3.22	%	$	40,806	6.45	3.27	%
Finance leases
Land	$	1,105	1.40	1.05	%	$	1,145	1.65	1.05	%
Total finance leases	$	1,105	1.40	1.05	%	$	1,145	1.65	1.05	%

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
Nine Months Ending December 31, 2021	$	6,591	$	132	$	6,724
2022	7,111		973		8,084
2023	6,010		—		6,010
2024	5,274		—		5,274
2025	4,110		—		4,110
Beyond 2025	11,160		—		11,160
Total lease payments	$	40,257	$	1,105	$	41,362
Less: interest	4,178		14		4,192
Present value of lease payments	$	36,079	$	1,091	$	37,170

As of March 31, 2021 and December 31, 2020, additional operating leases, primarily retail and corporate offices, that had not yet commenced totaled $ 15 million and $ 17 million, respectively. The leases that had not yet commenced as of March 31, 2021, will commence between April 2021 and October 2023 with lease terms of 1 year to 6 years.

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ITEM 2.			Management's Discussion and Analysis of Financial Condition and Results of Operations

Special Note Regarding Forward-Looking Statements

This report contains statements that may constitute forward-looking statements within the meaning of the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, such as statements other than historical facts contained or incorporated by reference into this report. These forward-looking statements include statements with respect to the Corporation’s financial condition, results of operations, plans, objectives, future performance and business, including statements preceded by, followed by or that include the words “believes,” “expects,” or “anticipates,” references to estimates or similar expressions. Future filings by the Corporation with the SEC, and future statements other than historical facts contained in written material, press releases and oral statements issued by, or on behalf of the Corporation may also constitute forward-looking statements.

All forward-looking statements contained in this report or which may be contained in future statements made for or on behalf of the Corporation are based upon information available at the time the statement is made and the Corporation assumes no obligation to update any forward-looking statements, except as required by federal securities law. Forward-looking statements are subject to significant risks and uncertainties, and the Corporation’s actual results may differ materially from the expected results discussed in such forward-looking statements. Factors that might cause actual results to differ from the results discussed in forward-looking statements include, but are not limited to, the risk factors in Item 1A, Risk Factors, in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2020, in the Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, in Item 1A of Part 2 herein, and as may be described from time to time in the Corporation’s subsequent SEC filings.

Overview

The following discussion and analysis is presented to assist in the understanding and evaluation of the Corporation’s financial condition and results of operations. It is intended to complement the unaudited consolidated financial statements, footnotes, and supplemental financial data appearing elsewhere in this Quarterly Report on Form 10-Q and should be read in conjunction therewith. Management continually evaluates strategic acquisition opportunities and various other strategic alternatives that could involve the sale or acquisition of branches or other assets, or the consolidation or creation of subsidiaries. Within the tables presented, certain columns and rows may not sum due to the use of rounded numbers for disclosure purposes.

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Performance Summary

• Average loans of $24.5 billion increased $1.2 billion, or 5%, compared to the first three months of 2020, driven by an increase in PPP and CRE loans. The Corporation expects 2021 commercial loan growth, excluding PPP, of 2% to 4%.

• Average deposits of $26.8 billion increased $2.5 billion, or 10%, from the first three months of 2020, driven primarily by government stimulus related inflows.

• Net interest income of $176 million decreased $27 million, or 13%, from the first three months of 2020, and n et interest margin was 2.39% compared to 2.84% for the first three months of 2020, both decreases are primarily due to a lower interest rate environment. The Corporation expects a full year margin of 2.45% to 2.55%.

• Provision for credit losses had a release of $23 million , compared to provision expense of $53 million for the first three months of 2020. The Corporation expects full year provision to be nominal.

• Noninterest income of $95 million decreased $3 million , or 3%, from the first three months of 2020. The Corporation expects 2021 noninterest income of $310 million to $330 million, reflecting positive fee income trends which we expect will outpace margin pressure. In addition, mortgage banking revenue is expected to remain elevated in the second quarter of 2021 with potential further MSRs recoveries should rates move higher.

• Noninterest expense of $175 million decreased $17 million , or 9%, from the first three months of 2020 due to a decrease in personnel expense of $10 million , or 9%, primarily due to having fewer employees. During the first quarter of 2021, the Corporation began hiring staff for the purpose of originating auto-secured loans indirectly through dealers beginning in the fall of 2021 and expects a total of 55-60 FTEs by year end. As a result of the new indirect auto lending initiative, additional mortgage commission, and incentive and compensation expenses, the Corporation expects 2021 noninterest expense of $690 million to $695 million.

Table 1 Summary Results of Operations: Trends



($ in Thousands, except per share data)	1Q21			4Q20			3Q20		2Q20			1Q20
Net income	$	94,301		$	67,002		$	45,214	$	148,718		$	45,838
Net income available to common equity	89,094			61,795			40,007		144,573			42,037
Earnings per common share - basic	0.58			0.40			0.26		0.94			0.27
Earnings per common share - diluted	0.58			0.40			0.26		0.94			0.27
Effective tax rate	20.69		%	20.10		%	N/M		25.62		%	18.23		%

N/M = Not Meaningful

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Table 2 Net Interest Income Analysis


	Three Months Ended
	March 31, 2021						December 31, 2020						March 31, 2020
($ 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 PPP lending	$	806,699	$	8,900	4.47	%	$	929,859	$	10,854	4.64	%	$	—	$	—	—	%
Commercial and business lending (excl PPP loans)	8,537,301		54,091		2.57	%	8,513,750		57,473		2.69	%	8,380,113		80,217		3.85	%
Commercial real estate lending	6,171,202		44,315		2.91	%	6,157,622		44,636		2.88	%	5,329,568		57,499		4.34	%
Total commercial	15,515,202		107,307		2.80	%	15,601,230		112,963		2.88	%	13,709,681		137,716		4.04	%
Residential mortgage	7,962,691		55,504		2.79	%	8,029,585		60,292		3.00	%	8,404,351		69,961		3.33	%
Retail	985,456		11,630		4.75	%	1,051,022		13,035		4.95	%	1,194,586		17,473		5.86	%
Total loans	24,463,349		174,442		2.88	%	24,681,837		186,290		3.01	%	23,308,618		225,149		3.88	%
Investment securities
Taxable	2,976,469		7,014		0.94	%	3,155,508		9,746		1.24	%	3,460,224		20,272		2.34	%
Tax-exempt (a)	1,900,346		17,844		3.76	%	1,909,512		17,870		3.74	%	1,974,247		18,603		3.77	%
Other short-term investments	991,844		1,694		0.69	%	985,091		1,699		0.69	%	473,604		3,304		2.81	%
Investments and other	5,868,659		26,553		1.81	%	6,050,111		29,315		1.94	%	5,908,075		42,179		2.86	%
Total earning assets	30,332,008		$	200,994	2.67	%	30,731,948		$	215,605	2.80	%	29,216,693		$	267,329	3.67	%
Other assets, net	3,352,135						3,343,844						3,360,311
Total assets	$	33,684,143					$	34,075,792					$	32,577,005
Liabilities and Stockholders' equity
Interest-bearing liabilities
Interest-bearing deposits
Savings	$	3,810,321	$	332	0.04	%	$	3,628,458	$	356	0.04	%	$	2,868,840	$	1,800	0.25	%
Interest-bearing demand	5,713,270		1,178		0.08	%	5,739,983		1,215		0.08	%	5,307,230		8,755		0.66	%
Money market	6,875,730		1,059		0.06	%	6,539,583		1,121		0.07	%	6,538,658		10,806		0.66	%
Network transaction deposits	1,080,109		327		0.12	%	1,265,748		468		0.15	%	1,434,128		4,601		1.29	%
Time deposits	1,658,568		3,014		0.74	%	1,888,074		4,602		0.97	%	2,636,231		10,703		1.63	%
Total interest-bearing deposits	19,137,998		5,909		0.13	%	19,061,847		7,762		0.16	%	18,785,088		36,666		0.79	%
Federal funds purchased and securities sold under agreements to repurchase	136,144		26		0.08	%	164,091		32		0.08	%	194,406		368		0.76	%
Commercial paper	42,774		6		0.05	%	40,128		5		0.05	%	34,282		25		0.29	%
PPPLF	—		—		—	%	464,119		410		0.35	%	—		—		—	%
Other short-term funding	—		—		—	%	—		—		—	%	16,997		11		0.25	%
FHLB advances	1,631,895		9,493		2.36	%	1,660,274		9,888		2.37	%	3,231,999		17,626		2.19	%
Long-term funding	549,585		5,585		4.07	%	549,307		5,585		4.07	%	549,465		5,607		4.08	%
Total short and long-term funding	2,360,397		15,109		2.58	%	2,877,919		15,920		2.20	%	4,027,149		23,637		2.36	%
Total interest-bearing liabilities	21,498,395		$	21,018	0.40	%	21,939,766		$	23,682	0.43	%	22,812,237		$	60,303	1.06	%
Noninterest-bearing demand deposits	7,666,561						7,677,003						5,506,861
Other liabilities	415,195						405,430						416,107
Stockholders’ Equity	4,103,991						4,053,593						3,841,800
Total liabilities and stockholders’ equity	$	33,684,143					$	34,075,792					$	32,577,005
Interest rate spread					2.27	%					2.37	%					2.61	%
Net free funds					0.12	%					0.12	%					0.23	%
Fully tax-equivalent net interest income and net interest margin ("NIM")			$	179,976	2.39	%			$	191,923	2.49	%			$	207,026	2.84	%
Fully tax-equivalent adjustment			4,074						3,930						4,084
Net interest income			$	175,902					$	187,993					$	202,942

Numbers may not sum due to rounding

(a) 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.

(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.

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Notable Contributions to the Change in Net Interest Income

• Average loans of $24.5 billion increased $1.2 billion, or 5%, compared to the first three months of 2020, primarily driven by an increase of $842 million, or 16%, in CRE loans as loans in the pipeline continued to fund along with slower payoffs. PPP loan originations, which began last April, increased average loans by $807 million. Partially offsetting this growth was a decrease of $442 million, o r 5%, in residential mortgages as the lower rate environment has resulted in higher levels of refinances.

• Net interest income on the consolidated statements of income (which excludes the fully tax-equivalent adjustment) was $176 million for the first three months of 2021 compared to $203 million for the first three months of 2020. Fully tax-equivalent net interest income of $180 million for the first three months of 2021 was $27 million, or 13%, lower than the first three months of 2020. The net interest margin for the first three months of 2021 was 2.39% compared to 2.84% for the first three months of 2020. The decreases were attributable to a lower interest rate environment and increased liquidity primarily related to monetary and fiscal stimulus programs. To lessen the impact of the lower rate environment, the Corporation began requiring LIBOR floors in applicable loan restructurings, renewals of existing loan transactions, and any new loan transactions. See sections Interest Rate Risk and Quantitative and Qualitative Disclosures about Market Risk for a discussion of interest rate risk and market risk.

• Average interest-bearing liabilities of $21.5 billion for the first three months of 2021 were down $1.3 billion, or 6%, compared to the first three months of 2020. On average, FHLB advances decreased $1.6 billion, or 50%, primarily driven by the Corporation's prepayment of $950 million in FHLB advances during the third quarter of 2020. Interest-bearing deposits increased $353 million, or 2%, primarily driven by a combined increase of $1.7 billion, or 11%, in savings, money market and interest bearing demand deposits, partially offset by a combined decrease of $1.3 billion, or 33%, in higher cost network and time deposits. Average noninterest-bearing demand deposits of $7.7 billion for the first three months of 2021 were up $2.2 billion, or 39% versus the first three months of 2020. Government stimulus programs and a partially closed down economy has led to customers holding higher deposit balances.

• The cost of interest-bearing liabilities was 0.40% for the first three months of 2021, which was a 66 bp drop from the first three months of 2020 primarily attributed to the federal funds rate decreases which occurred in March 2020.

• The Federal Reserve lowered the federal funds target interest to a range of 0.00% to 0.25% in March 2020, which has remained constant through the end of the first quarter of 2021.

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 ACLL, which focuses on changes in the size and character of the loan portfolio, changes in levels of individually evaluated and other nonaccrual loans, historical losses and delinquencies in each portfolio category, the risk inherent in specific loans, concentrations of loans to specific borrowers or industries, existing economic conditions and economic forecasts, the fair value of underlying collateral, and other factors which could affect potential credit losses. The forecast the Corporation used for March 31, 2021 was the Moody's baseline scenario from March 2021 over a 2 year reasonable and supportable period with straight-line reversion to historical losses over the second year of the period. See additional discussion under the sections titled, Loans, Credit Risk, Nonperforming Assets, and Allowance for Credit Losses on Loans.

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Noninterest Income

Table 3 Noninterest Income


									1Q21 Changes vs
($ in Thousands, except as noted)	1Q21		4Q20		3Q20		2Q20		1Q20		4Q20		1Q20
Wealth management fees	$	22,414	$	22,073	$	21,152	$	20,916	$	20,816	2	%	8	%
Service charges and deposit account fees	14,855		15,318		14,283		11,484		15,222		(3)	%	(2)	%
Card-based fees	9,743		9,848		10,195		8,893		9,597		(1)	%	2	%
Other fee-based revenue	4,596		4,998		4,968		4,774		4,497		(8)	%	2	%
Total fee-based revenue	51,608		52,237		50,598		46,068		50,132		(1)	%	3	%
Capital markets, net	8,118		5,898		7,222		6,910		7,935		38	%	2	%
Mortgage servicing fees, net (a)	(1,397)		(973)		(957)		(781)		2,062		(44)	%	N/M
Gains (losses) and fair value adjustments on loans held for sale	14,744		14,733		14,536		20,976		9,756		—	%	51	%
Fair value adjustment on portfolio loans transferred to held for sale	—		—		509		—		3,423		—	%	(100)	%
Mortgage servicing rights (impairment) recovery	10,578		776		(1,451)		(7,932)		(9,098)		N/M		N/M
Mortgage banking, net	23,925		14,537		12,636		12,263		6,143		65	%	N/M
Bank and corporate owned life insurance	2,702		3,978		3,074		3,625		3,094		(32)	%	(13)	%
Insurance commissions and fees	76		92		114		22,430		22,608		(17)	%	(100)	%
Other	3,141		2,879		2,232		2,737		2,352		9	%	34	%
Subtotal	89,570		79,621		75,877		94,034		92,264		12	%	(3)	%
Asset gains (losses), net	4,809		(1,356)		(339)		157,361		(77)		N/M		N/M
Investment securities gains(losses), net	(39)		—		7		3,096		6,118		N/M		N/M
Gain/loss on the sale of branches, net	1,002		7,449		—		—		—		(87)	%	N/M
Total noninterest income	$	95,343	$	85,714	$	75,545	$	254,490	$	98,306	11	%	(3)	%
Mortgage loans originated for sale during period	$	412,645	$	323,101	$	458,361	$	550,419	$	310,254	28	%	33	%
Mortgage loan settlements during period	400,135		338,794		598,509		725,003		297,265		18	%	35	%
Mortgage portfolio loans transferred to held for sale during period	—		—		69,532		—		199,587		—	%	(100)	%
Assets under management, at market value (b)	12,553		13,314		12,195		11,755		10,454		(6)	%	20	%

N/M = Not Meaningful

(a) Includes mortgage origination and servicing fees, net of mortgage servicing rights amortization.

(b) $ in millions. Excludes assets held in brokerage accounts.

Notable Contributions to the Change in Noninterest Income

• Mortgage banking, net was up $18 million from the first three months of 2020 due to an $11 million recovery of MSRs impairment during the quarter, compared to impairment of $9 million during the first three months of 2020.

• Insurance commission and fees was down $23 million, from the first three months of 2020, driven by the sale of ABRC during the second quarter of 2020, which largely eliminated insurance commissions and fees.

• Asset gains (losses), net was up $5 million from the first three months of 2020, driven by a gain of $2 million from the sale of Whitnell and gains of $3 million from private equity investments.

• Investment securities gains (losses), net was down $6 million from the first three of 2020 due to fewer securities being sold at a gain.

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Noninterest Expense

Table 4 Noninterest Expense


									1Q21 Change vs
($ in Thousands)	1Q21		4Q20		3Q20		2Q20		1Q20		4Q20		1Q20
Personnel	$	104,026	$	98,033	$	108,567	$	111,350	$	114,200	6	%	(9)	%
Technology	20,740		19,574		19,666		21,174		20,799		6	%	—	%
Occupancy	16,156		15,678		17,854		14,464		16,069		3	%	1	%
Business development and advertising	4,395		5,421		3,626		3,556		5,826		(19)	%	(25)	%
Equipment	5,518		5,555		5,399		5,312		5,439		(1)	%	1	%
Legal and professional	6,530		5,737		5,591		5,058		5,160		14	%	27	%
Loan and foreclosure costs	2,220		3,758		2,118		3,605		3,120		(41)	%	(29)	%
FDIC assessment	4,750		5,700		3,900		5,250		5,500		(17)	%	(14)	%
Other intangible amortization	2,236		2,253		2,253		2,872		2,814		(1)	%	(21)	%
Loss on prepayments of FHLB advances	—		—		44,650		—		—		N/M		N/M
Other	8,775		11,141		13,963		10,766		13,263		(21)	%	(34)	%
Total noninterest expense	$	175,347	$	172,850	$	227,587	$	183,407	$	192,191	1	%	(9)	%
Average FTEs (a)	4,020		4,134		4,374		4,701		4,631		(3)	%	(13)	%

(a) Average FTEs without overtime

Notable Contributions to the Change in Noninterest Expense

• Personnel expense decreased $10 million or 9% from the first three months of 2020, primarily due to having fewer employees as a result of the sale of ABRC, corporate restructurings and branch sales, offset by an increase in incentives and commission.

Income Taxes

The Corporation recognized income tax expense of $25 million for the three months ended March 31, 2021, compared to income tax expense of $10 million for the three months ended March 31, 2020. The Corporation's effective tax rate was 20.69% for the first three months of 2021, compared to an effective tax rate of 18.23% for the first three months of 2020. The higher income tax expense was driven primarily by an increase in income before tax. The Corporation expects a full year effective tax rate of 19% to 21%, assuming no change in the corporate tax rate.

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 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 section Critical Accounting Policies, in the Corporation’s 2020 Annual Report on Form 10-K for additional information on income taxes.

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Balance Sheet Analysis

• At March 31, 2021, total assets were $34.6 billion, up $1.2 billion, or 3%, from December 31, 2020 and up $667 million, or 2%, from March 31, 2020.

• Interest bearing deposits in other financial institutions were $1.6 billion at March 31, 2021, up $1.3 billion and $1.4 billion from December 31, 2020 and March 31, 2020, respectively, primarily due to excess reserves being held at the Federal Reserve.

• Lo ans of $24.2 billion at March 31, 2021 were down $289 million , or 1%, from December 31, 2020 and down $203 million, or 1% from March 31, 2020 . See Note 7 Loans for additional details.

• At March 31, 2021, total deposits of $27.7 billion were up $1.2 billion, or 5%, from December 31, 2020 and were up $2.0 billion , or 8%, from March 31, 2020. Government stimulus programs and a partially closed down economy has led to customers holding higher deposit balances. See section Deposits and Customer Funding for additional information on deposits.

• FHLB advances were $1.6 billion at both March 31, 2021 and December 31, 2020, and down $1.6 billion, or 49%, from March 31, 2020, primarily driven by the Corporation's prepayment of $950 million in long-term FHLB advances during the third quarter of 2020.

• Preferred equity was $354 million at both March 31, 2021 and December 31, 2020, and up $97 million, or 38%, from March 31, 2020. On June 9, 2020, the Corporation issued $100 million, or $97 million net of issuance costs, of 5.625% Non-Cumulative Perpetual Preferred Stock, Series F.

Loans

Table 5 Period End Loan Composition


	March 31, 2021				December 31, 2020				September 30, 2020				June 30, 2020				March 31, 2020
($ in Thousands)	Amount		% of Total		Amount		% of Total		Amount		% of Total		Amount		% of Total		Amount		% of Total
PPP	$	836,566	3	%	$	767,757	3	%	$	1,022,217	4	%	$	1,012,033	4	%	$	—	—	%
Commercial and industrial	7,664,501		32	%	7,701,422		31	%	7,933,404		32	%	7,968,709		32	%	8,517,974		35	%
Commercial real estate — owner occupied	883,237		4	%	900,912		4	%	904,997		4	%	914,385		4	%	940,687		4	%
Commercial and business lending	9,384,303		39	%	9,370,091		38	%	9,860,618		39	%	9,895,127		40	%	9,458,661		39	%
Commercial real estate — investor	4,260,706		18	%	4,342,584		18	%	4,320,926		17	%	4,174,125		17	%	4,038,036		17	%
Real estate construction	1,882,299		8	%	1,840,417		8	%	1,859,609		7	%	1,708,189		7	%	1,544,858		6	%
Commercial real estate lending	6,143,004		25	%	6,183,001		25	%	6,180,536		25	%	5,882,314		24	%	5,582,894		23	%
Total commercial	15,527,307		64	%	15,553,091		64	%	16,041,154		64	%	15,777,441		64	%	15,041,555		62	%
Residential mortgage	7,685,218		32	%	7,878,324		32	%	7,885,523		32	%	7,933,518		32	%	8,132,417		33	%


Home equity	651,647		3	%	707,255		3	%	761,593		3	%	795,671		3	%	844,901		3	%
Other consumer	298,156		1	%	313,054		1	%	315,483		1	%	326,040		1	%	346,761		1	%
Total consumer	8,635,020		36	%	8,898,632		36	%	8,962,599		36	%	9,055,230		36	%	9,324,079		38	%
Total loans	$	24,162,328	100	%	$	24,451,724	100	%	$	25,003,753	100	%	$	24,832,671	100	%	$	24,365,633	100	%

The Corporation has long-term guidelines relative to the proportion of Commercial and Business, CRE, and Consumer loan commitments 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 2020 and the first three months of 2021. Furthermore, certain sub-asset classes within the respective portfolios are 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 March 31, 2021 are summarized in the following table:

Table 6 Loan Distribution and Interest Rate Sensitivity


($ in Thousands)	Within 1 Year (a)		1-5 Years		After 5 Years		Total		% of Total
PPP	$	—	$	836,566	$	—	$	836,566	3	%
Commercial and industrial	7,079,691		479,171		105,640		7,664,501		32	%
Commercial real estate — owner occupied	478,388		237,177		167,671		883,237		4	%
Commercial real estate — investor	3,866,975		292,594		101,137		4,260,706		18	%
Real estate construction	1,859,917		12,057		10,324		1,882,299		8	%
Residential mortgage - Adjustable (b)	508,921		1,125,983		1,729,486		3,364,391		14	%
Residential mortgage - Fixed	37,612		95,429		4,187,785		4,320,827		18	%
Home equity	27,204		92,789		531,654		651,647		3	%
Other consumer	41,482		59,335		197,339		298,156		1	%
Total loans	$	13,900,190	$	3,231,100	$	7,031,037	$	24,162,328	100	%
Fixed rate	$	5,404,162	$	1,921,843	$	4,737,476	$	12,063,481	50	%
Floating or adjustable rate	8,496,028		1,309,257		2,293,561		12,098,846		50	%
Total	$	13,900,190	$	3,231,100	$	7,031,037	$	24,162,328	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 March 31, 2021, $17.5 billion, or 72%, of the loans outstanding were floating rate, adjustable rate, re-pricing within one year, or maturing within one year.

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 7 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 March 31, 2021, no significant concentrations existed in the Corporation’s 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.

Table 7 Largest Commercial and Business Lending Industry Group Exposures


March 31, 2021	% of Total Loans		% of Total Commercial and Business Lending
Finance and Insurance	7	%	19	%
Utilities	7	%	18	%
Manufacturing and Wholesale Trade	6	%	17	%
Real Estate	5	%	12	%

The remaining commercial and business lending portfolio is spread over a diverse range of industries, none of which exceed 2% 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.

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Commercial real estate - investor: CRE-investor is comprised of loans secured by various non-owner occupied or investor income producing property types.

Table 8 Largest Commercial Real Estate Investor Property Type Exposures


March 31, 2021	% of Total Loans		% of Total Commercial Real Estate - Investor
Multi-Family	5	%	30	%
Office	4	%	24	%
Retail	3	%	19	%
Industrial	3	%	18	%

The remaining CRE-investor portfolio is spread over various other property types, none of which exceed 2% 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 developers, reviewing the merits of individual projects, controlling loan structure, and monitoring project progress and construction advances.

Table 9 Largest Real Estate Construction Property Type Exposures


March 31, 2021	% of Total Loans		% of Total Real Estate Construction
Multi-Family	3	%	38	%

The remaining real estate construction portfolio is spread over various other property types, none of which exceed 2% of total loans.

The Corporation’s current lending standards for CRE 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 March 31, 2021. The majority of the on balance sheet residential mortgage portfolio consists of LIBOR or constant maturity treasury based, hybrid, adjustable rate mortgage loans with initial fixed rate terms of 3, 5, 7, or 10 years. The rates on these mortgages adjust based upon the movement in the underlying index which is then added to a margin and rounded to the nearest 0.125%. That result is then subjected to any periodic caps to produce the borrower's interest rate for the coming term.

In 2014, the Financial Stability Oversight Council and Financial Stability Board raised concerns about the reliability and robustness of LIBOR and called for the development of alternative interest rate benchmarks. The ARRC, through authority from the Federal Reserve, have selected the SOFR as the alternative rate and developed a paced transition plan which addresses the risk that LIBOR may not exist beyond the end of 2021. There are still many components of this plan which have not been fully decided or implemented in the industry. As a result, the Corporation is reaching out to certain borrowers offering an opportunity to refinance or modify their loans to avoid any uncertainty around the LIBOR transition. Performing borrowers can modify or refinance to a fixed interest rate or an adjustable rate mortgage tied to the one-year treasury adjusted to a constant maturity of one-year with an appropriate margin. This provides the Bank and borrower with greater certainty around the loan structure.

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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 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 balance sheet. 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 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 of credit and loans consist of a combination of both borrower FICO and the original cumulative LTV against the property securing the loan. During the second quarter of 2020, in the volatile economic environment, the Corporation reduced its exposure by reducing its maximum LTV on home equity lines of credit from 90% to 80%, among other changes, while maintaining the minimum acceptable FICO 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. During the third quarter of 2020, based upon an analysis of market conditions and uncertainty around the timing and scope of the anticipated economic recovery, the Corporation temporarily suspended new applications for home equity lines of credit. Due to improving economic conditions, the Corporation resumed applications for home equity lines of credit in the first quarter of 2021. The loans in the Corporation's portfolio generally have an original term of 20 years with principal and interest payments required. See section Loans for additional information on loans.

Other consumer: Other consumer consists of student loans, short-term personal installment loans, and credit cards. The Corporation had $115 million and $118 million of student loans at March 31, 2021 and December 31, 2020, respectively, the majority of which are government guaranteed. As a result of the COVID-19 pandemic and the passage of the CARES Act, government guaranteed student loans had been placed on an administrative forbearance through September 30, 2020. Subsequently, on August 8, 2020, President Trump directed the Secretary of Education to continue to suspend loan payments, stop collections, and waive interest on U.S. Department of Education held federal student loans through December 31, 2020. On December 4, 2020, the relief measures were extended through January 31, 2021, and on January 20, 2021, President Biden extended the federal student loan relief through September 30, 2021. Credit risk for non-government guaranteed student loans, 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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COVID-19 Update:

Beginning on April 3, 2020, the Corporation began originating SBA loans under the PPP, which are included in commercial and business lending loans, to help businesses keep their workforce employed and cover other working capital needs during the COVID-19 pandemic. All complete eligible applications for the PPP have been processed in the order in which they have been received. The Corporation began submitting PPP forgiveness applications on behalf of our customers on September 14, 2020. Forgiveness payments from the SBA began to be received in the fourth quarter of 2020. The Corporation received approximately $248 million and $221 million of forgiveness payments in 2020 and 2021, respectively, with nearly all of the remaining loans expected to be forgiven throughout the remainder of 2021. On December 27, 2020, the Economic Aid Act was signed into law, which included another round of PPP funding. The Corporation began originating the new round of PPP loans in January 2021. As of March 31, 2021, the Corporation had funded $293 million of PPP loans in this most recent round.

The following table summarizes the balance segmentation of the PPP loans and associated deferred fees as of March 31, 2021:

Table 10 Paycheck Protection Program Loan Segmentation


	Round 1 & 2					Round 3					Total
	Originated Loans	Originated Balance		Outstanding Balance		Originated Loans	Originated Balance		Outstanding Balance		Outstanding Balance
($ in Thousands)
>=$2,000,000	99	$	335,534	$	292,427	10	$	20,000	$	20,000	$	312,427
< $2,000,000 And > $350,000	485	386,245		118,800		145	106,778		106,778		225,578
<=$350,000	7,495	344,007		133,126		4,158	165,753		165,434		298,560
Total	8,079	$	1,065,786	$	544,353	4,313	$	292,531	$	292,213	$	836,566
Deferred fees				$	6,072				$	11,504	$	17,576

The following table summarizes loan forbearances outstanding in response to the COVID-19 pandemic as of March 31, 2021 as a result of the loan forbearance program:

Table 11 COVID-19 Loan Forbearances


($ in Thousands)	March 31, 2021		December 31, 2020		September 30, 2020		June 30, 2020		March 31, 2020
Commercial and business lending	$	5,521	$	12,377	$	61,535	$	187,708	$	345
Commercial real estate	12,115		18,368		248,842		675,382		595
Total consumer	19,724		47,835		375,794		724,921		428
Total	$	37,360	$	78,579	$	686,171	$	1,588,011	$	1,368

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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. Table 12 provides detailed information regarding NPAs, which include nonaccrual loans, OREO, and other NPAs:

Table 12 Nonperforming Assets


($ in Thousands)	March 31, 2021			December 31, 2020			September 30, 2020			June 30, 2020			March 31, 2020
Nonperforming assets

Commercial and industrial	$	33,192		$	61,859		$	105,899		$	80,239		$	58,854
Commercial real estate — owner occupied	7			1,058			2,043			1,932			1,838
Commercial and business lending	33,200			62,917			107,941			82,171			60,692
Commercial real estate — investor	58,485			78,220			50,458			11,172			1,091
Real estate construction	327			353			392			503			486
Commercial real estate lending	58,813			78,573			50,850			11,675			1,577
Total commercial	92,012			141,490			158,792			93,846			62,269
Residential mortgage	61,256			59,337			62,331			66,656			64,855
Home equity	9,792			9,888			10,277			10,829			9,378
Other consumer	231			140			190			276			215
Total consumer	71,280			69,364			72,798			77,761			74,448
Total nonaccrual loans	163,292			210,854			231,590			171,607			136,717
Commercial real estate owned	2,092			2,185			2,113			2,968			3,105
Residential real estate owned	1,501			1,194			1,535			3,573			5,994
Bank properties real estate owned	20,995			10,889			15,335			13,723			13,431
OREO	24,588			14,269			18,983			20,264			22,530
Other nonperforming assets	—			—			909			909			6,004
Total nonperforming assets	$	187,880		$	225,123		$	251,481		$	192,780		$	165,251








Accruing loans past due 90 days or more
Commercial	$	190		$	175		$	763		$	385		$	436
Consumer	1,485			1,423			1,091			1,081			1,819
Total accruing loans past due 90 days or more	$	1,675		$	1,598		$	1,854		$	1,466		$	2,255
Restructured loans (accruing) (a)
Commercial	$	27,356		$	41,119		$	18,407		$	18,189		$	18,767
Consumer	13,464			10,973			8,485			7,114			7,618
Total restructured loans (accruing)	$	40,820		$	52,092		$	26,891		$	25,303		$	26,384
Nonaccrual restructured loans (included in nonaccrual loans)	$	17,624		$	20,190		$	23,844		$	25,362		$	24,204
Ratios
Nonaccrual loans to total loans	0.68		%	0.86		%	0.93		%	0.69		%	0.56		%
NPAs to total loans plus OREO	0.78		%	0.92		%	1.01		%	0.78		%	0.68		%
NPAs to total assets	0.54		%	0.67		%	0.72		%	0.54		%	0.49		%

Allowance for credit losses on loans to nonaccrual loans	247.23		%	204.63		%	190.85		%	249.74		%	288.24		%

(a) Does not include any restructured loans related to COVID-19 in accordance with Section 4013 of the CARES Act.

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Table 12 Nonperforming Assets (continued)


($ in Thousands)	March 31, 2021		December 31, 2020		September 30, 2020		June 30, 2020		March 31, 2020
Accruing loans 30-89 days past due

Commercial and industrial	$	526	$	6,119	$	298	$	716	$	976
Commercial real estate — owner occupied	—		373		870		199		51
Commercial and business lending	526		6,492		1,167		916		1,027
Commercial real estate — investor	5,999		12,793		409		13,874		14,462
Real estate construction	977		991		111		385		179
Commercial real estate lending	6,976		13,784		520		14,260		14,641
Total commercial	7,502		20,276		1,687		15,175		15,668
Residential mortgage	3,973		10,385		6,185		3,023		10,102


Home equity	2,352		4,802		5,609		3,108		7,001
Other consumer	1,270		1,599		1,351		1,482		1,777
Total consumer	7,594		16,786		13,144		7,613		18,879
Total accruing loans 30-89 days past due	$	15,097	$	37,062	$	14,831	$	22,788	$	34,547








Potential problem loans
PPP (a)	$	22,398	$	18,002	$	19,161	$	19,161	$	—
Commercial and industrial	122,143		121,487		144,159		176,270		149,747
Commercial real estate — owner occupied	15,965		26,179		22,808		15,919		15,802
Commercial and business lending	160,506		165,668		186,129		211,350		165,550
Commercial real estate — investor	85,752		91,396		100,459		88,237		61,030
Real estate construction	13,977		19,046		2,178		2,170		1,753
Commercial real estate lending	99,728		110,442		102,637		90,407		62,783
Total commercial	260,234		276,111		288,766		301,758		228,333
Residential mortgage	2,524		3,749		2,396		3,157		3,322
Home equity	1,729		2,068		1,632		1,921		2,238

Total consumer	4,254		5,817		4,028		5,078		5,559
Total potential problem loans	$	264,488	$	281,928	$	292,794	$	306,836	$	233,892

(a) The Corporation’s policy is to assign risk ratings at the borrower level. PPP loans are 100% guaranteed by the SBA and therefore the Corporation considers these loans to have a risk profile similar to pass rated loans.

Nonaccrual loans: Nonaccrual loans are considered to be one indicator of potential future loan losses. See Note 7 Loans of the notes to consolidated financial statements for additional nonaccrual loan disclosures. See also sections Credit Risk and Allowance for Credit Losses on Loans.

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 are 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 7 Loans of the notes to consolidated financial statements for additional restructured loans disclosures.

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 ACLL. Potential problem loans are generally defined by management to include loans rated as substandard by management that are collectively evaluated (not nonaccrual loans or accruing TDRs); 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 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.

Other nonperforming assets: 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, and during 2020, the Corporation wrote the value for the ownership interest down to zero.

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Allowance for Credit Losses on Loans

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 timely resolution of problems, aids in the management of credit risk and the minimization of loan losses. Credit risk management for each loan type is discussed in the section entitled Credit Risk. See Note 7 Loans of the notes to consolidated financial statements for additional disclosures on the ACLL.

To assess the appropriateness of the ACLL, the Corporation 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 and economic forecasts, the fair value of underlying collateral, funding assumptions on lines, and other qualitative and quantitative factors which could affect potential credit losses. The Corporation utilized the Moody's baseline forecast for March 2021 in the allowance model. The forecast is applied over a 2 year reasonable and supportable period with straight-line reversion to historical losses over the second year of the period. Assessing these factors involves significant judgment. Because each of the criteria used is subject to change, the ACLL is not necessarily indicative of the trend of future credit losses on loans in any particular segment. Therefore, management considers the ACLL a critical accounting policy, see section Critical Accounting Policies for additional information on the ACLL. See section Nonperforming Assets for a detailed discussion on asset quality. See also Note 7 Loans of the notes to consolidated financial statements for additional ACLL disclosures. Table 5 provides information on loan growth and period end loan composition, Table 12 provides additional information regarding NPAs, and Table 13 and Table 14 provide additional information regarding activity in the ACLL.

The loan segmentation used in calculating the ACLL at March 31, 2021 and December 31, 2020 was generally comparable. The methodology to calculate the ACLL consists of the following components: a valuation allowance estimate is established for commercial and consumer loans determined by the Corporation to be individually evaluated, using discounted cash flows, estimated fair value of underlying collateral, and/or other data available. 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 ACLL 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.

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Table 13 Allowance for Credit Losses on Loans


	Quarter Ended
($ in Thousands)		March 31, 2021			December 31, 2020			September 30, 2020			June 30, 2020			March 31, 2020
Allowance for Loan Losses
Balance at beginning of period		$	383,702		$	384,711		$	363,803		$	337,793		$	201,371
Cumulative effect of ASU 2016-13 adoption (CECL)		N/A			N/A			N/A			N/A			112,457
Balance at beginning of period, adjusted		383,702			384,711			363,803			337,793			313,828
Provision for loan losses		(26,000)			26,500			50,500			52,500			34,957
Provision for loan losses recorded at acquisition		N/A			N/A			N/A			N/A			2,543
Gross up of allowance for PCD loans at acquisition		N/A			N/A			N/A			N/A			3,504
Charge offs		(13,174)			(30,315)			(34,079)			(28,351)			(19,308)
Recoveries		8,410			2,805			4,488			1,861			2,268
Net (charge offs) recoveries		(4,764)			(27,510)			(29,592)			(26,490)			(17,040)
Balance at end of period		$	352,938		$	383,702		$	384,711		$	363,803		$	337,793
Allowance for Unfunded Commitments
Balance at beginning of period		$	47,776		$	57,276		$	64,776		$	56,276		$	21,907
Cumulative effect of ASU 2016-13 adoption (CECL)		N/A			N/A			N/A			N/A			18,690
Balance at beginning of period, adjusted		47,776			57,276			64,776			56,276			40,597
Provision for unfunded commitments		3,000			(9,500)			(7,500)			8,500			15,500
Amount recorded at acquisition		—			—			—			—			179
Balance at end of period		$	50,776		$	47,776		$	57,276		$	64,776		$	56,276
Allowance for credit losses on loans		$	403,714		$	431,478		$	441,988		$	428,579		$	394,069
Provision for credit losses on loans		(23,000)			17,000			43,000			61,000			53,000
Net loan (charge offs) recoveries

Commercial and industrial		$	1,367		$	(8,514)		$	(24,834)		$	(24,919)		$	(15,049)
Commercial real estate — owner occupied		4			143			(416)			1			—
Commercial and business lending		1,370			(8,371)			(25,249)			(24,919)			(15,048)
Commercial real estate — investor		(5,886)			(18,696)			(3,609)			28			—
Real estate construction		29			43			(21)			(3)			11
Commercial real estate lending		(5,857)			(18,653)			(3,630)			25			11
Total commercial		(4,487)			(27,024)			(28,879)			(24,893)			(15,037)
Residential mortgage		(109)			(162)			(79)			(215)			(912)


Home equity		344			335			156			(303)			71
Other consumer		(511)			(659)			(790)			(1,078)			(1,162)
Total consumer		(277)			(486)			(712)			(1,596)			(2,003)
Total net (charge offs) recoveries		$	(4,764)		$	(27,510)		$	(29,592)		$	(26,490)		$	(17,040)








Ratios

Allowance for credit losses on loans to total loans		1.67		%	1.76		%	1.77		%	1.73		%	1.62		%

Allowance for credit losses on loans to net charge offs (annualized)		20.9x			3.9x			3.8x			4.0x			5.7x
Loan Evaluation Method for ACLL
Individually evaluated for impairment		43,262			79,831			88,030			81,243			72,084
Collectively evaluated for impairment		360,452			351,646			353,957			347,336			321,985
Total ACLL		403,714			431,478			441,988			428,579			394,069
Loan Balance
Individually evaluated for impairment		180,006			259,497			256,536			218,293			223,962
Collectively evaluated for impairment		23,982,321			24,192,227			24,747,216			24,614,378			24,141,672
Total loan balance		24,162,328			24,451,724			25,003,753			24,832,671			24,365,633

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Table 14 Annualized Net (Charge Offs) Recoveries (a)


	Quarter Ended
(In basis points)		March 31, 2021	December 31, 2020	September 30, 2020	June 30, 2020	March 31, 2020
Net loan (charge offs) recoveries

Commercial and industrial		7	(45)	(126)	(121)	(81)
Commercial real estate — owner occupied		—	6	(18)	—	—
Commercial and business lending		6	(35)	(103)	(100)	(72)
Commercial real estate — investor		(55)	(173)	(34)	—	—
Real estate construction		1	1	—	—	—
Commercial real estate lending		(38)	(121)	(24)	—	—
Total commercial		(12)	(69)	(73)	(64)	(44)
Residential mortgage		(1)	(1)	—	(1)	(4)
Home equity		21	18	8	(15)	3
Other consumer		(68)	(83)	(98)	(128)	(134)
Total consumer		(1)	(2)	(3)	(7)	(8)
Total net (charge offs) recoveries		(8)	(44)	(47)	(42)	(29)

(a) Annualized ratio of net charge offs to average loans by loan type.

Notable Contributions to the Change in the Allowance for Credit Losses on Loans

• Total loans decreased $289 million, or 1%, from December 31, 2020 and decreased $203 million, or 1%, from March 31, 2020. The decrease from March 31, 2020 was primarily driven by decreases in consumer lending, which was partially offset by an increase in CRE loans. 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.

• Potential problem loans decreased $17 million, or 6%, from December 31, 2020, but increased $31 million, or 13%, from March 31, 2020. The decrease from December 31, 2020 was primarily due to decreases in CRE and commercial and business lending, while the increase from March 31, 2020 was primarily driven by CRE loans. CRE loans were negatively impacted during the COVID-19 pandemic and saw an increase in potential problem loans throughout 2020. As economic conditions have improved throughout 2021, there have been decreases in CRE potential problem loans. See Table 12 for additional information regarding potential problem loans.

• Total nonaccrual loans decreased $48 million, or 23%, from December 31, 2020, but increased $27 million, or 19%, from March 31, 2020. The decrease from December 31, 2020 was primarily due to decreases in commercial and industrial loans and CRE - investor loans, while the increase from March 31, 2020 was primarily driven by an increase in CRE lending, which was partially offset by a decrease in commercial and industrial lending. As economic conditions trended downward in 2020, due to the COVID-19 pandemic, nonaccrual loans increased. As economic conditions have been improving throughout 2021, nonaccrual loans have decreased. See Note 7 Loans of the notes to consolidated financial statements and Table 12 for additional disclosures on the changes in asset quality.

• Net charge offs decreased $12 million from March 31, 2020, primarily driven by decreased charge off amounts in commercial and industrial loans. See Table 13 and Table 14 for additional information on the activity in the ACLL.

Management believes the level of ACLL to be appropriate at March 31, 2021.

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Deposits and Customer Funding

The following table summarizes the composition of our deposits and customer funding:

Table 15 Period End Deposit and Customer Funding Composition


	March 31, 2021				December 31, 2020				September 30, 2020				June 30, 2020				March 31, 2020
($ in Thousands)	Amount		% of Total		Amount		% of Total		Amount		% of Total		Amount		% of Total		Amount		% of Total
Noninterest-bearing demand	$	8,496,194	31	%	$	7,661,728	29	%	$	7,489,048	28	%	$	7,573,942	29	%	$	6,107,386	24	%
Savings	4,032,830		15	%	3,650,085		14	%	3,529,423		13	%	3,394,930		13	%	3,033,039		12	%
Interest-bearing demand	5,748,353		21	%	6,090,869		23	%	5,979,449		22	%	5,847,349		22	%	6,170,071		24	%
Money market	7,838,437		28	%	7,322,769		28	%	7,687,775		29	%	7,486,319		28	%	7,717,739		30	%
Brokered CDs	—		—	%	—		—	%	—		—	%	4,225		—	%	65,000		—	%
Other time	1,561,352		6	%	1,757,030		7	%	2,026,852		8	%	2,244,680		8	%	2,568,345		10	%
Total deposits	$	27,677,166	100	%	$	26,482,481	100	%	$	26,712,547	100	%	$	26,551,444	100	%	$	25,661,580	100	%
Customer funding (a)	182,228				245,247				198,741				178,398				142,174
Total deposits and customer funding	$	27,859,394			$	26,727,727			$	26,911,289			$	26,729,842			$	25,803,754
Network transaction deposits (b)	$	1,054,634			$	1,197,093			$	1,390,778			$	1,496,958			$	1,731,996

Net deposits and customer funding (total deposits and customer funding, excluding Brokered CDs and network transaction deposits)	$	26,804,761			$	25,530,634			$	25,520,511			$	25,228,660			$	24,006,758

Time deposits of more than $250,000	$	246,037			$	341,068			$	463,739			$	559,434			$	756,195

(a) Securities sold under agreement to repurchase and commercial paper.

(b) Included above in interest-bearing demand and money market.

• Total deposits, which are the Corporation's largest source of funds, increased $1.2 billion, or 5%, from December 31, 2020, and increased $2.0 billion, or 8%, from March 31, 2020, primarily driven by customers holding proceeds from government stimulus programs in their deposit accounts.

• Noninterest-bearing deposits increased $834 million, or 11%, from December 31, 2020, and increased $2.4 billion, or 39%, from March 31, 2020. Savings accounts increased $383 million, or 10%, from December 31, 2020, and increased $1.0 billion, or 33%, from March 31, 2020. These increases were primarily due to government stimulus program inflows.

• Time deposits decreased $196 million, or 11%, from December 31, 2020, and decreased $1.1 billion, or 41%, from March 31, 2020, due to higher priced time deposits rolling off as they mature.

• Non-maturity deposit accounts, comprised of savings, money market, and demand (both interest and noninterest-bearing) accounts, comprised 94% of the Corporation's total deposits at March 31, 2021.

• Included in the above amounts were $1.1 billion of network deposits, primarily sourced from other financial institutions and intermediaries. These represented 4% of the Corporation's total deposits at March 31, 2021. Network deposits decreased $142 million, or 12%, from December 31, 2020, and decreased $677 million, or 39%, from March 31, 2020.

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 percentage 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 March 31, 2021, the Corporation was in compliance with its internal liquidity objectives and had sufficient asset-based liquidity to meet its obligations under a stressed scenario.

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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 6 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 March 31, 2021, the Bank had $5.7 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 March 31, 2021, the Bank had $752 million available for discount window borrowings.

• A $200 million Parent Company commercial paper program, of which $51 million was outstanding as of March 31, 2021.

• Dividends and service fees from subsidiaries, as well as the proceeds from issuance of capital, which 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.

• Other issuances by the Parent Company; the Corporation intends to file an updated 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 CDs, network transaction deposits, and brokered CDs.

• 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 March 31, 2021 are displayed below:

Table 16 Credit Ratings


	Moody’s	S&P
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	Negative	Stable

For the three months ended March 31, 2021, net cash provided by operating activities and financing activities was $158 million and $1.1 billion, respectively, while net cash used in investing activities was $12 million for a net increase in cash and cash equivalents of $1.2 billion since year-end 2020. At March 31, 2021, assets of $34.6 billion increased $1.2 billion, or 3%, from year-end 2020, primarily driven by a $1.3 billion increase in interest-bearing deposits in other financial institutions, offset by a $289 million, or 1%, decrease in loans. On the funding side, deposits of $27.7 billion increased $1.2 billion, or 5%, from year-end related to deposit inflows from government stimulus programs.

For the three months ended March 31, 2020, net cash used in operating activities and investing activities was $20 million and $928 million, respectively, while net cash provided by financing activities was $1.0 billion for a net increase in cash and cash equivalents of $90 million since year-end 2019. At March 31, 2020, assets of $33.9 billion increased $1.5 billion, or 5%, from year-end 2019, primarily driven by a $1.5 billion, or 7%, increase in loans as customers drew on their lines to enhance their liquidity in response to the uncertainty surrounding the COVID-19 pandemic. Additionally, on February 14, 2020, the Corporation added $370 million in loans from the First Staunton acquisition. On the funding side, deposits of $25.7 billion increased $1.9 billion, or 8%, from year-end as advances on customer's loans were deposited into their deposit account

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increasing their liquidity. Additionally, on February 14, 2020, the Corporation assumed $439 million of deposits from the First Staunton acquisition.

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 are 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.

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 the first three months of 2021.

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 asset sensitive at March 31, 2021.

For further discussion of the Corporation's interest rate risk and corresponding key assumptions, see the Interest Rate Risk section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Corporation’s 2020 Annual Report on Form 10-K.

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 17 Estimated % Change in Rate Sensitive Earnings at Risk Over 12 Months


	Dynamic Forecast March 31, 2021		Static Forecast March 31, 2021		Dynamic Forecast December 31, 2020		Static Forecast December 31, 2020
Gradual Rate Change
100 bp increase in interest rates	6.6	%	6.4	%	6.2	%	6.3	%
200 bp increase in interest rates	13.9	%	13.3	%	12.8	%	12.7	%

At March 31, 2021, the MVE profile indicates an increase in net balance sheet value due to instantaneous upward changes in rates.

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Table 18 Market Value of Equity Sensitivity


	March 31, 2021		December 31, 2020
Instantaneous Rate Change
100 bp increase in interest rates	0.9	%	1.9	%
200 bp increase in interest rates	1.4	%	2.8	%

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 March 31, 2021, at those amounts contractually due to the recipient, including any unamortized premiums or discounts, hedge basis adjustments, or other similar carrying value adjustments.

Table 19 Contractual Obligations and Other Commitments


($ in Thousands)	One Year or Less		One to Three Years		Three to Five Years		Over Five Years		Total
Time deposits	$	1,194,134	$	307,396	$	59,817	$	5	$	1,561,352
Short-term funding	189,678		—		—		—		189,678
FHLB advances	17,822		7,337		1,000,466		604,340		1,629,966

Other long-term funding	299,865		923		248,940		—		549,729

Operating leases	7,516		11,189		8,093		9,281		36,079
Commitments to extend credit	5,444,007		3,875,437		1,040,485		151,284		10,511,213
Total	$	7,153,022	$	4,202,282	$	2,357,802	$	764,911	$	14,478,017

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 commitments and derivative instruments. A discussion of the Corporation’s derivative instruments at March 31, 2021 is included in Note 10 Derivative and Hedging Activities of the notes to consolidated financial statements. A discussion of the Corporation’s lending-related commitments is included in Note 12 Commitments, Off-Balance Sheet Arrangements, Legal Proceedings and Regulatory Matters of the notes to consolidated financial statements. See Note 9 Short and Long-Term Funding of the notes to consolidated financial statements for additional information on the Corporation’s short-term funding, FHLB advances, and long-term funding. See also Note 18 Leases of the notes to consolidated financial statements for additional information on the Corporation's operating leases.

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 March 31, 2021, the capital ratios of the Corporation and its banking subsidiaries were in excess of regulatory minimum requirements. The Corporation’s capital ratios are summarized in the following table.

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Table 20 Capital Ratios


	Quarter Ended
($ in Thousands)		March 31, 2021			December 31, 2020			September 30, 2020			June 30, 2020			March 31, 2020
Risk-based Capital (a)
CET1		$	2,759,473		$	2,706,010		$	2,671,739		$	2,651,286		$	2,421,135
Tier 1 capital		3,112,239			3,058,809			3,024,710			3,004,424			2,676,951
Total capital		3,682,720			3,632,807			3,601,705			3,577,757			3,249,807
Total risk-weighted assets		25,640,395			25,903,415			26,141,710			25,864,463			25,866,140
CET1 capital ratio		10.76		%	10.45		%	10.22		%	10.25		%	9.36		%
Tier 1 capital ratio		12.14		%	11.81		%	11.57		%	11.62		%	10.35		%
Total capital ratio		14.36		%	14.02		%	13.78		%	13.83		%	12.56		%
Tier 1 leverage ratio		9.53		%	9.37		%	9.02		%	9.08		%	8.50		%
Selected Equity and Performance Ratios
Total stockholders’ equity / assets		11.94		%	12.24		%	11.66		%	11.34		%	11.18		%
Dividend payout ratio (b)		31.03		%	45.00		%	69.23		%	19.15		%	66.67		%
Return on average assets		1.14		%	0.78		%	0.51		%	1.72		%	0.57		%
Annualized noninterest expense / average assets		2.11		%	2.02		%	2.55		%	2.12		%	2.37		%

(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) Ratio is based upon basic earnings per common share.

See Part II, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds, for information on the shares repurchased during the first quarter of 2021.

In February 2019, the federal bank regulatory agencies issued a final rule (the "2019 CECL Rule") that revised certain capital regulations to account for changes to credit loss accounting under GAAP. The rule included a transition option that allowed banking organizations to phase in, over a three-year period, the day-one impact of CECL adoption on regulatory capital ratios. In August 2020, the federal bank regulatory agencies issued a final rule that maintains the three-year transition option of the 2019 CECL Rule and also provided an option to delay for two years an estimate of the effect of CECL on regulatory capital, relative to the incurred loss methodology's effect on regulatory capital, followed by a three-year transition period. The Corporation has elected to utilize the CECL Transition Provision granted by the banking regulators. Under these provisions, the Day 1 capital impact relating to the adoption of ASU 2016-13 and 25% of the difference between the period end ACL and the Day 1 ACL will be 100% deferred for 2 years, and then phased in over the next 3 years. At March 31, 2021, the Corporation had a modified CECL transitional amount of $111 million.

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Non-GAAP Measures

Table 21 Non-GAAP Measures


	Quarter Ended
($ in Thousands)		March 31, 2021			December 31, 2020			September 30, 2020			June 30, 2020			March 31, 2020
Selected equity and performance ratios (a)(b)
Tangible common equity / tangible assets		7.80		%	7.94		%	7.50		%	7.25		%	6.90		%
Return on average equity		9.32		%	6.58		%	4.46		%	15.55		%	4.80		%
Return on average tangible common equity		14.03		%	9.75		%	6.36		%	25.45		%	7.31		%
Return on average CET1		13.25		%	9.16		%	5.98		%	23.71		%	6.84		%

Return on average tangible assets		1.18		%	0.81		%	0.52		%	1.78		%	0.59		%
Average stockholders' equity / average assets		12.18		%	11.90		%	11.35		%	11.04		%	11.79		%
Tangible common equity reconciliation (a)
Common equity		$	3,774,268		$	3,737,421		$	3,691,796		$	3,670,612		$	3,533,755
Goodwill and other intangible assets, net		(1,169,694)			(1,177,554)			(1,178,409)			(1,180,661)			(1,284,111)
Tangible common equity		$	2,604,575		$	2,559,867		$	2,513,387		$	2,489,951		$	2,249,644
Tangible Assets Reconciliation (a)
Total assets		$	34,575,255		$	33,419,783		$	34,698,746		$	35,501,464		$	33,908,056
Goodwill and other intangible assets, net		(1,169,694)			(1,177,554)			(1,178,409)			(1,180,661)			(1,284,111)
Tangible assets		$	33,405,561		$	32,242,230		$	33,520,337		$	34,320,803		$	32,623,944
Average tangible common equity and average CET1 reconciliation (a)(b)
Common equity		$	3,750,479		$	3,699,957		$	3,680,687		$	3,566,293		$	3,585,083
Goodwill and other intangible assets, net		(1,174,617)			(1,178,165)			(1,179,796)			(1,281,176)			(1,272,175)
Tangible common equity		2,575,862			2,521,792			2,500,891			2,285,117			2,312,908
Modified CECL transitional amount		115,649			122,828			120,228			115,272			101,340
Accumulated other comprehensive loss (income)		(5,337)			(3,668)			(3,682)			7,663			10,398
Deferred tax assets (liabilities), net		40,608			41,578			42,183			44,777			46,635
Average CET1		$	2,726,782		$	2,682,530		$	2,659,620		$	2,452,829		$	2,471,281
Average tangible assets reconciliation (a)
Total assets		$	33,684,143		$	34,075,792		$	35,550,359		$	34,845,943		$	32,577,005
Goodwill and other intangible assets, net		(1,174,617)			(1,178,165)			(1,179,796)			(1,281,176)			(1,272,175)
Tangible assets		$	32,509,526		$	32,897,626		$	34,370,563		$	33,564,768		$	31,304,829




Efficiency ratio reconciliation (c)
Federal Reserve efficiency ratio		65.74		%	59.68		%	85.41		%	43.49		%	70.37		%
Fully tax-equivalent adjustment		(0.97)		%	(0.84)		%	(1.29)		%	(0.39)		%	(0.96)		%
Other intangible amortization		(0.82)		%	(0.82)		%	(0.87)		%	(0.65)		%	(0.95)		%
Fully tax-equivalent efficiency ratio		63.96		%	58.02		%	83.25		%	42.46		%	68.47		%
Acquisition related costs adjustment		(0.01)		%	—		%	(0.08)		%	(0.12)		%	(0.58)		%
Provision for unfunded commitments adjustment		(1.09)		%	3.42		%	2.87		%	(1.91)		%	(5.18)		%
Asset gains (losses), net adjustment		1.12		%	(0.30)		%	(0.11)		%	22.10		%	(0.02)		%
Branch Sales		0.24		%	1.68		%	—		%	—		%	—		%
3Q 2020 Initiatives (d)		—		%	—		%	(22.90)		%	—		%	—		%
Adjusted efficiency ratio		64.21		%	62.83		%	63.02		%	62.53		%	62.70		%

(a) The ratio tangible common equity to tangible assets excludes goodwill and other intangible assets, net. 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) These 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.

(c) 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 excludes the provision for unfunded commitments, other intangible amortization, acquisition related costs, and 3Q 2020 initiatives, divided by the sum of fully tax-equivalent net interest income plus noninterest income, excluding investment securities gains (losses), net, acquisition related costs, asset gains (losses), net, and gain on sale of branches. Management believes the adjusted efficiency ratio is a meaningful measure as it enhances the comparability of net interest income arising from taxable and tax-exempt sources and provides a better measure as to how the Corporation is managing its expenses by adjusting for acquisition related costs, provision for unfunded commitments, asset gains (losses), net, branch sales, and third quarter of 2020 initiatives.

(d) Third quarter of 2020 initiatives consisted of cost saving efforts that were executed during the third quarter of 2020. These initiatives included a $45 million loss on prepayment of FHLB advances, $10 million in severance, and $6 million in write-downs related to branch sales and lease breakage related to announced branch consolidations.

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Sequential Quarter Results

The Corporation reported net income of $94 million for the first quarter of 2021, compared to net income of $67 million for the fourth quarter of 2020. Net income available to common equity was $89 million for the first quarter of 2021, or $0.58 for both basic and diluted earnings per common share. Comparatively, net income available to common equity for the fourth quarter of 2020 was $62 million, or $0.40 for both basic and diluted earnings per common share (see Table 1).

Fully tax-equivalent net interest income for the first quarter of 2021 was $180 million, $12 million, or 6%, lower than the fourth quarter of 2020. The net interest margin in the first quarter of 2021 was down 10 bp to 2.39%. Average earning assets decreased $400 million, or 1%, to $30.3 billion in the first quarter of 2021, with decreases of $218 million in loans and $181 million in investments. On the funding side, short and long-term funding decreased $518 million from the fourth quarter of 2020 primarily due to the paydown of PPPLF borrowings (see Table 2).

The provision for credit losses had a release of $23 million for the first quarter of 2021, compared to $17 million of expense for the fourth quarter of 2020 (see Table 13). See discussion under sections: Provision for Credit Losses, Nonperforming Assets, and Allowance for Credit Losses on Loans.

Noninterest income for the first quarter of 2021 increased $10 million, or 11%, from the fourth quarter of 2020, primarily due to the increase of $9 million in mortgage banking, net, driven by the recovery of MSRs impairment (see Table 3).

Noninterest expense of $175 million increased $2 million, or 1%, from the fourth quarter of 20 20, primarily due to higher personnel expense, partially offset by OREO write downs related to the closure of branches during the fourth quarter of 2020. (see Table 4).

For the first quarter of 2021, the Corporation recognized income tax expense of $25 million, compared to income tax expense of $17 million for the fourth quarter of 2020. The higher income tax expense during the first quarter of 2021 compared to the fourth quarter of 2020 was primarily driven by an increase in income before taxes. See Income Taxes section for a detailed discussion on income taxes.

Segment Review

As discussed in Note 15 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.

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Table 22 Selected Segment Financial Data


	Three Months Ended March 31,
($ in Thousands)		2021			2020			% Change
Corporate and Commercial Specialty
Total revenue (a)		$	142,876		$	135,761		5	%
Provision for credit losses		17,509			12,172			44	%
Noninterest expense		57,725			54,304			6	%
Income tax expense (benefit)		12,649			12,940			(2)	%
Net income		54,993			56,344			(2)	%
Average earning assets		14,562,174			12,993,498			12	%
Average loans		14,629,667			13,045,630			12	%
Average deposits		9,561,666			9,027,986			6	%
Average allocated capital (Average CET1) (b)		1,467,932			1,328,293			11	%
Return on average allocated capital (ROCET1) (b)		15.19		%	17.06		%	-187 bp
Community, Consumer, and Business
Total revenue		$	127,278		$	146,942		(13)	%
Provision for credit losses		5,099			5,108			—	%
Noninterest expense		97,346			113,777			(14)	%
Income tax expense (benefit)		5,215			5,892			(11)	%
Net income		19,618			22,165			(11)	%
Average earning assets		9,102,883			9,390,271			(3)	%
Average loans		9,034,449			9,329,349			(3)	%
Average deposits		16,080,866			13,691,417			17	%
Average allocated capital (Average CET1) (b)		498,630			549,689			(9)	%
Return on average allocated capital (ROCET1) (b)		15.96		%	16.22		%	-26 bp
Risk Management and Shared Services
Total revenue		$	1,091		$	18,545		(94)	%
Provision for credit losses		(45,612)			35,720			N/M
Noninterest expense		20,275			24,110			(16)	%
Income tax expense (benefit)		6,737			(8,613)			N/M
Net income		19,690			(32,672)			N/M
Average earning assets		6,666,951			6,832,924			(2)	%
Average loans		799,233			933,639			(14)	%
Average deposits		1,162,027			1,572,546			(26)	%
Average allocated capital (Average CET1) (b)		760,220			593,299			28	%
Return on average allocated capital (ROCET1) (b)		7.73		%	(24.72)		%	N/M
Consolidated Total
Total revenue (a)		$	271,245		$	301,248		(10)	%
Return on average allocated capital (ROCET1) (b)		13.25		%	6.84		%	N/M

N/M = Not meaningful

(a) Includes $2 million pre-tax gain on sale of Whitnell.

(b) The Federal Reserve establishes capital adequacy requirements for the Corporation, including CET1. For segment reporting purposes, the return on CET1 ("ROCET1") reflects return on average allocated CET1. 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.

Notable Changes in Segment Financial Data

The Corporate and Commercial Specialty segment consists of lending and deposit solutions to larger businesses, developers, not-for-profits, municipalities, and financial institutions, and the support to deliver, fund, and manage such banking solutions. In addition, this segment provides a variety of investment, fiduciary, and retirement planning products and services to individuals and small to mid-sized businesses. During the first quarter of 2021, the Corporation sold its wealth management subsidiary Whitnell.

• Revenue increased $7 million, or 5%, from the three months ended March 31, 2020. The increase was primarily driven by an increase of $5 million in asset gains/losses, net, including a $2 million pre-tax gain on sale of Whitnell.

• Credit provision increased $5 million, or 44%, as loans in the pipeline continued to fund along with slower payoffs.

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• Average loans increased $1.6 billion, or 12%, primarily driven by an $808 million increase in commercial and business loans, which is largely related to PPP loans, and a $744 million increase in CRE loans.

The Community, Consumer, and Business segment consists of lending, deposit solutions, and historically offered ancillary financial services, primarily insurance and risk consulting, to individuals and small to mid-sized businesses.

• Revenue decreased $20 million, or 13%, from the three months ended March 31, 2020. The decrease was primarily due to a $22 million decrease in insurance commissions and fees as a result of the sale of ABRC, which was partially offset by a $17 million increase in net mortgage banking income as a result of an $11 million recovery of MSRs impairment during the first three months of 2021, compared to impairment of $9 million during the first three months of 2020. In addition, net interest income decreased from the first three months of 2021 largely driven by the current interest rate environment.

• Noninterest expense decreased $16 million, or 14%, from the three months ended March 31, 2020. The decrease was primarily driven by a $12 million decrease in personnel expense, largely driven by a reduction in FTEs as a result of branch consolidations and the sale of ABRC.

• Average deposits increased $2.4 billion, or 17%, from the three months ended March 31, 2020. The increase was primarily driven by customers holding proceeds from government stimulus programs and tax returns in their deposit accounts.

The Risk Management and Shared Services segment includes key shared Corporate functions, Parent Company activity, intersegment eliminations, and residual revenues and expenses.

• Revenues decreased $17 million, or 94%, from the three months ended March 31, 2020. The decrease was primarily driven by the FTP charge on loans decreasing faster than the FTP credit paid for deposits as a result of the current interest rate environment.

• Credit provision decreased $81 million as a result of improving credit quality within the loan portfolio and an improving economic forecast.

• Noninterest expense decreased $4 million from the three months ended March 31, 2020. The decrease was primarily driven by lower fringe benefit costs.

• Average deposits decreased $411 million, or 26%, from the three months ended March 31, 2020. The decrease was primarily driven by a decrease in higher cost network deposits.

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 ACLL, goodwill impairment assessment, MSRs valuation, and income taxes. A discussion of these policies can be found in the Critical Accounting Policies section in Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Corporation’s 2020 Annual Report on Form 10-K. There has been no changes in the Corporation's application of critical accounting policies since December 31, 2020.

Recent Developments

On April 27, 2021, the Corporation’s Board of Directors declared a regular quarterly cash dividend of $0.18 per common share, payable on June 15, 2021 to shareholders of record at the close of business on June 1, 2021. The Board of Directors also declared a regular quarterly cash dividend of $0.3828125 per depositary share on Associated's 6.125% Series C Perpetual Preferred Stock, payable on June 15, 2021 to shareholders of record at the close of business on June 1, 2021. 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 June 15, 2021 to shareholders of record at the close of business on June 1, 2021. 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 June 15, 2021 to shareholders of record at the close of business on June 1, 2021. The Board of Directors also declared a regular quarterly cash dividend of $0.3515625 per depositary share on Associated's 5.625% Series F Perpetual Preferred Stock, payable on June 15, 2021 to shareholders of record at the close of business on June 1, 2021.

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On April 27, 2021, the Corporation announced it is calling for the redemption of all of its outstanding depositary shares representing a 1/40th interest in a share of the Corporation’s 6.125% Series C Non-Cumulative Perpetual Preferred Stock (the “Depositary Shares”) on June 15, 2021 (the “Redemption Date”). There are 2.6 million Depositary Shares outstanding. The Depositary Shares will be redeemed at a redemption price of $25 per Depositary Share, plus an amount equal to any declared and unpaid dividends to the Redemption Date.


ITEM 3.			Quantitative and Qualitative Disclosures About Market Risk

Information required by this item is set forth in Item 2 under the captions Quantitative and Qualitative Disclosures about Market Risk and Interest Rate Risk.

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ITEM 4.			Controls and Procedures

The Corporation maintains disclosure controls and procedures as required under Rule 13a-15 promulgated under the Securities Exchange Act of 1934, as amended, that are designed to ensure that information required to be disclosed in the Corporation's 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 March 31, 2021, 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 March 31, 2021.

No changes were made to the Corporation’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act of 1934) during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

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PART II - OTHER INFORMATION


ITEM 1.			Legal Proceedings

The information required by this item is set forth in Part I, Item 1 under Note 12 Commitments, Off-Balance Sheet Arrangements, Legal Proceedings and Regulatory Matters of the notes to consolidated financial statements.


ITEM 1A.			Risk Factors

The following risk factors supplement the Risk Factors described in the Corporation’s 2020 Annual Report on Form 10-K and should be read in conjunction therewith

Changes in the federal, state, or local tax laws may negatively impact our financial performance. On March 31, 2021, President Biden unveiled his infrastructure plan, which includes a proposal to increase the federal corporate tax rate from 21% to 28% as part of a package of tax reforms to help fund the spending proposals in the plan. The Biden plan is in the early stages of the legislative process, which is expected to proceed this year due to the Democratic Party's majority in both houses of Congress. If adopted as proposed, the increase of the corporate tax rate would adversely affect our results of operations in future periods.


ITEM 2.			Unregistered Sales of Equity Securities and Use of Proceeds

During the first quarter of 2021, the Corporation repurchased approximately $22 million of common stock, including $18 million of open market purchases and $4 million of repurchases related to tax withholding on equity compensation, or approximately 1.2 million shares, of common stock. The repurchase details are presented in the table below:

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

January 1, 2021 - January 31, 2021	983,920	$	18.58	966,354	—
February 1, 2021 - February 28, 2021	142,689	19.27		—	—
March 1, 2021 - March 31, 2021	27,182	20.78		—	—
Total	1,153,791	$	18.71	966,354	4,434,321

(a) During the first quarter of 2021, the Corporation repurchased 187,437 common shares for minimum tax withholding settlements on equity compensation. These purchases do not count against the maximum number of shares that may yet be purchased under the Board of Directors’ authorization described below.

(b) At March 31, 2021, there remained approximately $95 million authorized to be repurchased in the aggregate. Approximately 4.4 million shares of common stock remained available to be repurchased under this Board authorization based on the closing share price on March 31, 2021.

Repurchases under Board authorized repurchase programs are subject to any necessary regulatory approvals and other limitations and may occur from time to time in open market purchases, block transactions, private transactions, accelerated share repurchases, or similar facilities.

Preferred Stock Purchases

During the first quarter of 2021, the Corporation did not repurchase any shares of preferred stock.

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, of which all of such depository shares remained available to repurchase as of March 31, 2021. Using the closing stock price on March 31, 2021 of $26.12, a total of approximately 383,000 shares remained available to be repurchased under the previously approved Board authorizations.

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, of which approximately $14 million remained available to repurchase as of March 31,

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2021. Using the closing stock price on March 31, 2021 of $25.57, a total of approximately 565,000 shares remained available to be repurchased under the previously approved Board authorizations.

The repurchase of depositary shares is based on market and investment opportunities, capital levels, growth prospects, and regulatory constraints. Such repurchases may occur from time to time in open market purchases, block transactions, private transactions, accelerated share repurchase programs, or similar facilities.


ITEM 6.			Exhibits

(a) Exhibits:


Exhibit (10.1), Form of Retention Restricted Stock Award Agreement between Associated Banc-Corp, Nicole M. Kitowski, Michael O. Meinolf and Tammy C. Stadler
Exhibit (10.2), Offer Letter, dated March 4, 2021, by and between Associated Banc-Corp and Andrew J. Harmening, incorporated by reference from the Company's Current Report on Form 8-K, dated March 10, 2021.
Exhibit (31.1), Certification Under Section 302 of Sarbanes-Oxley by Philip B. Flynn, Chief Executive Officer.
Exhibit (31.2), Certification Under Section 302 of Sarbanes-Oxley by 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 Sarbanes-Oxley.
Exhibit (101), Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Unaudited Consolidated Balance Sheets, (ii) Unaudited Consolidated Statements of Income, (iii) Unaudited Consolidated Statements of Comprehensive Income, (iv) Unaudited Consolidated Statements of Changes in Stockholders’ Equity, (v) Unaudited Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements.


Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.



						ASSOCIATED BANC-CORP
						(Registrant)

Date: April 27, 2021						/s/ Philip B. Flynn
						Philip B. Flynn
						President and Chief Executive Officer

Date: April 27, 2021						/s/ Christopher J. Del Moral-Niles
						Christopher J. Del Moral-Niles
						Chief Financial Officer

Date: April 27, 2021						/s/ Tammy C. Stadler
						Tammy C. Stadler
						Principal Accounting Officer

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Part I - Financial Information Item 1. Financial Statements:Item 1. Financial Statements Continued:Note 1 Basis Of Presentation Note 2 Acquisitions and Dispositions Note 3 Summary Of Significant Accounting Policies Note 4 Earnings Per Common Share Note 5 Stock-based Compensation Note 6 Investment Securities Note 7 Loans Note 8 Goodwill and Other Intangible Assets Note 9 Short and Long-term Funding Note 10 Derivative and Hedging Activities Note 11 Balance Sheet Offsetting Note 12 Commitments, Off-balance Sheet Arrangements, Legal Proceedings and Regulatory Matters Note 13 Fair Value Measurements Note 14 Retirement Plans Note 15 Segment Reporting Note 16 Accumulated Other Comprehensive Income (loss)Note 17 Revenue From Contracts with Customers Note 18 Leases Item 2. Management's Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II - Other Information Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 6. Exhibits

Exhibits

Exhibit (10.1), Form of Retention Restricted Stock Award Agreement between Associated Banc-Corp, Nicole M. Kitowski, Michael O. Meinolf and Tammy C. Stadler Exhibit (10.2), Offer Letter, dated March 4, 2021, by and between Associated Banc-Corp and Andrew J. Harmening, incorporated by reference from the Company's Current Report on Form 8-K, dated March 10, 2021. Exhibit (31.1), Certification Under Section 302 of Sarbanes-Oxley by Philip B. Flynn, Chief Executive Officer. Exhibit (31.2), Certification Under Section 302 of Sarbanes-Oxley by 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 Sarbanes-Oxley.

ASB 10-Q Quarter ended March 31, 2021

Exhibits