ASSOCIATED BANC-CORP - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549

FORM 10-Q
(Mark One)

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

For the quarterly period ended June 30, 2004
------------------------------------------

OR

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 0-5519
---------------------------------------------------------

Associated Banc-Corp
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

Wisconsin 39-1098068
- -------------------------------------------------------------------------------
(State or other jurisdiction of (IRS employer identification no.)
incorporation or organization)

1200 Hansen Road, Green Bay, Wisconsin 54304
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)

(920)491-7000
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)

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

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 X No
------- -------

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes X No
------- -------

APPLICABLE ONLY TO CORPORATE ISSUERS:

The number of shares outstanding of registrant's common stock, par value $0.01
per share, at July 31, 2004, was 110,095,787 shares.

1

ASSOCIATED BANC-CORP
TABLE OF CONTENTS

Page No.

PART I. Financial Information

Item 1. Financial Statements (Unaudited):

Consolidated Balance Sheets -
June 30, 2004, June 30, 2003 and December 31, 2003 3

Consolidated Statements of Income -
Three and Six Months Ended June 30, 2004 and 2003 4

Consolidated Statement of Changes in Stockholders'
Equity - Six Months Ended June 30, 2004 5

Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2004 and 2003 6

Notes to Consolidated Financial Statements 7

Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 19

Item 3. Quantitative and Qualitative Disclosures About
Market Risk 39

Item 4. Controls and Procedures 39

PART II. Other Information

Item 2. Changes in Securities, Use of Proceeds and Issuer
Purchases of Equity Securities 40

Item 4. Submission of Matters to a Vote of Security Holders 41

Item 6. Exhibits and Reports on Form 8-K 42

Signatures 43

2

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements:

ASSOCIATED BANC-CORP
Consolidated Balance Sheets
(Unaudited)

June 30, June 30, December 31,
2004 2003 2003
---------------------------------------------
(In Thousands, except share data)
ASSETS

Cash and due from banks $ 309,804 $ 393,882 $ 389,140
Interest-bearing deposits in other financial 11,353 13,456 7,434
institutions
Federal funds sold and securities purchased under
agreements to resell 39,245 14,550 3,290
Investment securities available for sale, at fair value 3,799,842 3,374,834 3,773,784
Loans held for sale 69,891 392,563 104,336
Loans 10,556,603 10,387,364 10,291,810
Allowance for loan losses (177,980) (172,440) (177,622)
--------------------------------------------
Loans, net 10,378,623 10,214,924 10,114,188
Premises and equipment 129,401 131,436 131,315
Goodwill 232,528 224,388 224,388
Other intangible assets 73,977 50,556 63,509
Other assets 457,892 408,227 436,510
--------------------------------------------
Total assets $ 15,502,556 $ 15,218,816 $ 15,247,894
============================================

LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing demand deposits $ 1,822,716 $ 1,833,703 $ 1,814,446
Interest-bearing deposits, excluding brokered
certificates of deposit 7,497,441 7,455,900 7,813,267
Brokered certificates of deposit 263,435 163,857 165,130
--------------------------------------------
Total deposits 9,583,592 9,453,460 9,792,843
Short-term borrowings 2,588,103 2,079,371 1,928,876
Long-term funding 1,827,326 2,204,517 2,034,160
Accrued expenses and other liabilities 124,641 163,222 143,588
--------------------------------------------
Total liabilities 14,123,662 13,900,570 13,899,467

Stockholders' equity
Preferred stock -- -- --
Common stock (par value $0.01 per share,
authorized 250,000,000 shares, issued
110,458,038, 111,465,915 and
110,163,832 shares, respectively) 1,105 743 734
Surplus 584,853 606,660 575,975
Retained earnings 791,432 664,280 724,356
Accumulated other comprehensive income 15,305 65,822 52,089
Deferred compensation (1,981) (1,744) (1,981)
Treasury stock, at cost (410,360, 787,069 and
122,863 shares, respectively) (11,820) (17,515) (2,746)
--------------------------------------------
Total stockholders' equity 1,378,894 1,318,246 1,348,427
--------------------------------------------
Total liabilities and stockholders' equity $ 15,502,556 $ 15,218,816 $ 15,247,894
============================================

See accompanying notes to consolidated financial statements.

3

ITEM 1. Financial Statements Continued:

ASSOCIATED BANC-CORP
Consolidated Statements of Income
(Unaudited)

Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
------------------------------------------------
(In Thousands, except per share data)

INTEREST INCOME
Interest and fees on loans $ 137,449 $ 147,785 $ 272,701 $ 296,281
Interest and dividends on investment securities and
deposits with other financial institutions:
Taxable 30,767 25,923 61,799 52,720
Tax exempt 10,267 9,942 20,502 19,997
Interest on federal funds sold and securities
purchased under agreements to resell 68 54 95 89
------------------------------------------------
Total interest income 178,551 183,704 355,097 369,087
INTEREST EXPENSE
Interest on deposits 26,656 31,558 54,210 63,548
Interest on short-term borrowings 7,241 8,442 13,780 17,009
Interest on long-term funding 12,775 16,509 26,153 33,881
------------------------------------------------
Total interest expense 46,672 56,509 94,143 114,438
------------------------------------------------
NET INTEREST INCOME 131,879 127,195 260,954 254,649
Provision for loan losses 5,889 12,132 11,065 25,092
------------------------------------------------
Net interest income after provision for loan losses 125,990 115,063 249,889 229,557
NONINTEREST INCOME
Trust service fees 8,043 7,796 15,911 14,426
Service charges on deposit accounts 13,141 12,462 25,538 24,273
Mortgage banking 9,045 27,113 18,071 51,613
Credit card and other nondeposit fees 6,074 5,192 11,745 12,588
Retail commission income 13,162 7,407 22,519 10,710
Bank owned life insurance income 3,641 3,450 6,996 6,841
Asset sale gains (losses), net 218 (790) 440 (668)
Investment securities gains (losses), net (569) 1,027 1,362 701
Other 2,742 4,771 5,874 11,550
------------------------------------------------
Total noninterest income 55,497 68,428 108,456 132,034
NONINTEREST EXPENSE
Personnel expense 53,612 51,733 105,888 100,569
Occupancy 6,864 7,151 14,336 14,266
Equipment 2,878 3,190 5,877 6,434
Data processing 6,128 5,602 11,801 11,220
Business development and advertising 4,057 3,553 6,714 6,916
Stationery and supplies 1,429 1,634 2,655 3,313
Mortgage servicing rights expense (2,368) 13,021 4,404 24,619
Intangible amortization expense 934 870 1,716 1,220
Loan expense 1,670 950 3,056 4,298
Other 14,415 14,483 26,828 25,886
------------------------------------------------
Total noninterest expense 89,619 102,187 183,275 198,741
------------------------------------------------
Income before income taxes 91,868 81,304 175,070 162,850
Income tax expense 27,363 24,635 51,005 48,188
------------------------------------------------
NET INCOME $ 64,505 $ 56,669 $ 124,065 $ 114,662
================================================
Earnings per share:
Basic $ 0.59 $ 0.51 $ 1.13 $ 1.03
Diluted $ 0.58 $ 0.51 $ 1.11 $ 1.02
Average shares outstanding:
Basic 110,116 110,938 110,205 111,157
Diluted 111,520 112,025 111,647 112,166

See accompanying notes to consolidated financial statements.

4

ITEM 1. Financial Statements Continued:

ASSOCIATED BANC-CORP
Consolidated Statement of Changes in Stockholders' Equity
(Unaudited)
Accumulated
Other
Common Retained Comprehensive Deferred Treasury
Stock Surplus Earnings Income Compensation Stock Total
----------------------------------------------------------------------------------
(In Thousands, except per share data)

Balance, December 31, 2003 $ 734 $575,975 $724,356 $ 52,089 $ (1,981) $ (2,746) $1,348,427
Comprehensive income:
Net income --- --- 124,065 --- --- --- 124,065
Net unrealized gains on derivative
instruments arising during the
period, net of taxes of $1.3 million --- --- --- 1,933 --- --- 1,933
Add: reclassification adjustment to
interest expense for interest
differential, net of taxes of $1.6
million --- --- --- 2,360 --- --- 2,360
Net unrealized losses on available
for sale securities arising during
the period, net of taxes of $22.6
million --- --- --- (40,205) --- --- (40,205)
Less: reclassification adjustment for
net gains on available for sale
securities realized in net income,
net of taxes of $0.5 million --- --- --- (872) --- --- (872)
-----------
Comprehensive income 87,281
-----------
Cash dividends, $0.4767 per share --- --- (52,541) --- --- --- 52,541)
Common stock issued:
Incentive stock options 2 5,474 (4,448) --- --- 11,760 12,788
3-for-2 stock split effected in the
form of a stock dividend 369 (369) --- --- --- --- ---
Purchase of treasury stock --- --- --- --- --- (20,834) (20,834)
Tax benefit of stock options --- 3,773 --- --- --- --- 3,773
----------------------------------------------------------------------------------
Balance, June 30, 2004 $1,105 $584,853 $791,432 $15,305 $(1,981) $(11,820) $1,378,894
==================================================================================
See accompanying notes to consolidated financial statements.

5

ITEM 1. Financial Statements Continued:

ASSOCIATED BANC-CORP
Consolidated Statements Of Cash Flows
(Unaudited)
For the Six Months

Ended June 30,
2004 2003
---------------------------
($ in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 124,065 $ 114,662
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 11,065 25,092
Depreciation and amortization 7,801 8,267
Provision for (recovery of) valuation
allowance on mortgage servicing rights, net (4,154) 15,832
Amortization (accretion) of:
Mortgage servicing rights 8,558 8,787
Other intangible assets 1,716 1,220
Investment premiums and discounts 11,450 10,774
Deferred loan fees and costs 98 (173)
Gain on sales of securities, net (1,362) (701)
Gain (loss) on sales of assets, net (440) 668
Gain on sales of loans held for sale, net (7,483) (32,602)
Mortgage loans originated and acquired for sale (938,812) (2,326,541)
Proceeds from sales of mortgage loans held
for sale 980,741 2,272,416
(Increase) decrease in interest receivable
and other assets 1,814 (1,525)
Decrease in interest payable and other
liabilities (10,651) (8,936)
---------------------------
Net cash provided by operating activities 184,406 87,240
---------------------------

CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans (289,865) (101,965)
Capitalization of mortgage servicing rights (10,662) (20,080)
Purchases of:
Securities available for sale (474,529) (783,355)
Premises and equipment, net of disposals (2,762) (5,885)
Proceeds from:
Sales of securities available for sale 31,021 1,263
Maturities of securities available for sale 348,582 773,134
Sales of other real estate owned and other assets 5,342 3,327
Net cash paid in business combinations (17,344) (18,025)
---------------------------
Net cash used in investing activities (410,217) (151,586)
---------------------------

CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits (202,375) 328,608
Net cash paid in sale of branch deposits (6,575) --
Net increase (decrease) in short-term borrowings 659,226 (310,235)
Repayment of long-term funding (603,340) (305,846)
Proceeds from issuance of long-term funding 400,000 405,090
Cash dividends (52,541) (48,218)
Proceeds from exercise of incentive stock options 12,788 13,793
Purchase and retirement of treasury stock -- (41,340)
Purchase of treasury stock (20,834) (631)
---------------------------
Net cash provided by financing activities 186,349 41,221
---------------------------
Net decrease in cash and cash equivalents (39,462) (23,125)
Cash and cash equivalents at beginning of period 399,864 445,013
---------------------------
Cash and cash equivalents at end of period $ 360,402 $ 421,888
===========================
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest $ 96,215 $ 117,068
Income taxes 42,792 63,947
Supplemental schedule of noncash investing activities:
Loans transferred to other real estate 6,467 7,670

See accompanying notes to consolidated financial statements.

6

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 Securities and Exchange Commission and,
therefore, certain information and footnote disclosures normally presented in
accordance with U.S. generally accepted accounting principles have been omitted
or abbreviated. The information contained in the consolidated financial
statements and footnotes in Associated Banc-Corp's 2003 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, changes in stockholders' equity, and cash flows
of Associated Banc-Corp (individually referred to herein as the "Parent
Company," and together with all of its subsidiaries and affiliates, collectively
referred to herein as the "Corporation") 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 material intercompany
transactions and balances have been eliminated. The results of operations for
the interim periods are not necessarily indicative of the results to be expected
for the full year.

In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenues and expenses for
the period. Actual results could differ significantly from those estimates.
Estimates that are particularly susceptible to significant change include the
determination of the allowance for loan losses, mortgage servicing rights,
derivative financial instruments and hedging activities, and income taxes.

On April 28, 2004, the Board of Directors declared a 3-for-2 stock split,
effected in the form of a stock dividend, payable on May 12, 2004, to
shareholders of record at the close of business on May 7, 2004. Any fractional
shares resulting from the stock split were paid in cash. All share and per share
information has been restated to reflect the effect of this stock split (see
Note 4).

NOTE 2: Reclassifications

Certain items in the prior period consolidated financial statements have been
reclassified to conform with the June 30, 2004 presentation.

NOTE 3: New Accounting Pronouncements

In December 2003, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 132 (revised December 2003), "Employers' Disclosures about Pensions
and Other Postretirement Benefits, an amendment of FASB Statements No. 87, 88,
and 106," ("SFAS 132"). SFAS 132 revises employers' disclosures about pension
plans and other postretirement benefit plans. This Statement does not change the
measurement or recognition of pension plans and other postretirement benefit
plans required by FASB Statements No. 87, "Employers' Accounting for Pensions,"
No. 88, "Employers' Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits," and No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." The revised SFAS
132 retains the disclosure requirements contained in the original SFAS 132 and
requires additional disclosures about the assets, obligations, cash flows, and
net periodic benefit cost of defined benefit pension plans and other defined
benefit postretirement plans. In general, the annual provisions of SFAS 132 are
effective for fiscal years ending after December 15, 2003, and the
interim-period disclosures are effective for interim periods

7

beginning after December 15, 2003. See Note 11 for further discussion of the
Corporation's retirement plans. The adoption had no material impact on the
Corporation's results of operations, financial position, or liquidity.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). This interpretation provides guidance on
how to identify a variable interest entity and determine when the assets,
liabilities, noncontrolling interests, and results of operations of a variable
interest entity are to be included in an entity's consolidated financial
statements. A variable interest entity exists when either the total equity
investment at risk is not sufficient to permit the entity to finance its
activities by itself, or the equity investors lack one of three characteristics
associated with owning a controlling financial interest. Those characteristics
include the direct or indirect ability to make decisions about an entity's
activities through voting rights or similar rights, the obligation to absorb the
expected losses of an entity if they occur, or the right to receive the expected
residual returns of the entity if they occur. The adoption had no material
impact on the Corporation's results of operations, financial position, or
liquidity.

In December 2003, the FASB reissued FIN 46 ("FIN 46R") with certain
modifications and clarifications. Application of FIN 46R was effective for
interests in certain variable interest entities as of December 31, 2003, and for
all other types of variable interest entities for periods ending after March 15,
2004, unless FIN 46 was previously applied. Under the application of FIN 46R a
previously consolidated subsidiary relating to the issuance of trust preferred
securities was deconsolidated in the first quarter of 2004. See Note 7 for
further discussion of this trust and the Corporation's related obligations. The
adoption had no material impact on the Corporation's results of operations,
financial position, or liquidity.

In March 2004, the SEC issued Staff Accounting Bulletin ("SAB") No. 105,
"Application of Accounting Principles to Loan Commitments," ("SAB 105"). SAB 105
provides guidance regarding loan commitments accounted for as derivative
instruments. Specifically, SAB 105 requires servicing assets to be recognized
only once the servicing asset has been contractually separated from the
underlying loan by sale or securitization of the loan with servicing retained.
As such, consideration for the expected future cash flows related to the
associated servicing of the loan may not be recognized in valuing the loan
commitment. This will result in a lower fair value mark of loan commitments, and
recognition of the value of the servicing asset later upon sale or
securitization of the underlying loan. The provisions of SAB 105 were effective
for loan commitments accounted for as derivatives entered into after March 31,
2004. The adoption of SAB 105 resulted in approximately $1 million lower fair
value mark on commitments to originate residential mortgage loans held for sale
at June 30, 2004. See Note 8 for further discussion of the Corporation's loan
commitments accounted for as derivative instruments.

In December 2003, the AICPA's Accounting Standards Executive Committee issued
Statement of Position ("SOP") 03-3, "Accounting for Certain Loans or Debt
Securities Acquired in a Transfer," ("SOP 03-3"). SOP 03-3 addresses accounting
for differences between contractual cash flows and cash flows expected to be
collected from an investor's initial investment in loans or debt securities
acquired in a transfer if those differences are attributable, at least in part,
to credit quality. The provisions of this SOP are effective for loans acquired
in fiscal years beginning after December 15, 2004. The Corporation does not
expect the requirements of SOP 03-3 to have a material impact on the results of
operations, financial position, or liquidity.

NOTE 4: Earnings Per Share

Basic earnings per share is calculated by dividing net income by the weighted
average number of common shares outstanding. Diluted earnings per share is
calculated by dividing net income by the weighted average number of shares
adjusted for the dilutive effect of outstanding stock options.

On April 28, 2004, the Board of Directors declared a 3-for-2 stock split,
effected in the form of a stock dividend, payable on May 12, 2004, to
shareholders of record at the close of business on May 7, 2004. All share and
per share information in the accompanying consolidated financial statements has
been restated to reflect the effect of this stock split.

8

Presented below are the calculations for basic and diluted earnings per share.

Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
-----------------------------------------
(In Thousands, except per share data)

Net income $ 64,505 $ 56,669 $124,065 $114,662
=========================================
Weighted average shares outstanding 110,116 110,938 110,205 111,157
Effect of dilutive stock options outstanding 1,404 1,087 1,442 1,009
-----------------------------------------
Diluted weighted average shares outstanding 111,520 112,025 111,647 112,166
=========================================
Basic earnings per share $ 0.59 $ 0.51 $ 1.13 $ 1.03
=========================================
Diluted earnings per share $ 0.58 $ 0.51 $ 1.11 $ 1.02
=========================================

NOTE 5: Business Combinations

Completed Business Combinations:
- -------------------------------
On April 1, 2003, the Corporation consummated its cash acquisition of 100% of
the outstanding shares of CFG Insurance Services, Inc. ("CFG"), a closely-held
insurance agency headquartered in Minnetonka, Minnesota. Effective in June 2003,
CFG operated as Associated Financial Group, LLC. CFG, an independent, full-line
insurance agency, was acquired to enhance the growth of the Corporation's
existing insurance business. The acquisition was accounted for under the
purchase method of accounting; thus, the results of operations of CFG prior to
the consummation date were not included in the accompanying consolidated
financial statements. The acquisition was individually immaterial to the
consolidated financial results. Goodwill of approximately $12 million and other
intangibles of approximately $15 million recognized in the transaction at
acquisition were assigned to the wealth management segment.

On April 1, 2004, the Corporation (through its subsidiary Associated Financial
Group, LLC) consummated its cash acquisition of 100% of the outstanding shares
of Jabas Group, Inc. ("Jabas"). Jabas is an insurance agency specializing in
employee benefit products headquartered in Kimberly, Wisconsin, and was acquired
to enhance the Corporation's existing insurance business. Jabas operates as part
of Associated Financial Group, LLC. The acquisition was accounted for under the
purchase method of accounting. Goodwill of approximately $8 million and other
intangibles of approximately $6 million recognized in the transaction at
acquisition were assigned to the wealth management segment. In addition,
goodwill may increase in the future as contingent payments may be made to the
former Jabas shareholders through December 31, 2007, if Jabas exceeds certain
performance targets.

Pending Business Combination:
- ----------------------------
On April 28, 2004, the Corporation announced the signing of a definitive
agreement to acquire First Federal Capital Corp ("First Federal"). Based upon
the Corporation's closing stock price on April 27, 2004 (the date of the signing
of the definitive agreement) and other terms of the Merger Agreement and
estimated direct costs, the acquisition is valued at approximately $613 million,
including stock options, of which, 10% will be paid in cash and the remainder in
the Corporation's stock. First Federal shareholders will receive 0.9525 shares
(restated for 3-for-2 stock split) of the Corporation's stock for each share of
First Federal stock they hold, an equivalent amount of cash, or a combination
thereof. First Federal, based in La Crosse, Wisconsin, is a $3.7 billion savings
bank with 91 banking locations serving more than 40 communities in Wisconsin,
northern Illinois, and southern Minnesota. As a result of the acquisition, the
Corporation will enhance its current branch distribution, strengthen its
community banking model, and increase revenue streams. The transaction will be
accounted for under the purchase method and is expected to be completed in the
fourth quarter of 2004, pending approval by regulators and First Federal
shareholders.

9

NOTE 6: Goodwill and Other Intangible Assets

Goodwill:
- --------
Goodwill is not amortized, but is subject to impairment tests on at least an
annual basis. No impairment loss was necessary in 2003 or through June 30, 2004.
At June 30, 2004, goodwill of $212 million is assigned to the banking segment
and goodwill of $20 million is assigned to the wealth management segment. The
change in the carrying amount of goodwill was as follows.

As of and for the
As of and for the six months ended year ended
June 30, 2004 June 30, 2003 December 31, 2003
-----------------------------------------------------
Goodwill: ($ in Thousands)
- ---------

Balance at beginning of period $224,388 $212,112 $212,112
Goodwill acquired 8,140 12,276 12,276
-----------------------------------------------------
Balance at end of period $232,528 $224,388 $224,388
=====================================================

Other Intangible Assets:
- -----------------------
The Corporation has other intangible assets that are amortized, consisting of
core deposit intangibles, other intangibles (primarily related to customer
relationships acquired in connection with the CFG and Jabas acquisitions), and
mortgage servicing rights. The core deposit intangibles and mortgage servicing
rights are assigned to the banking segment, while the other intangibles are
assigned to the wealth management segment.

For core deposit intangibles and other intangibles, changes in the gross
carrying amount, accumulated amortization, and net book value were as follows:

As of and for the
As of and for the six months ended year ended
June 30, 2004 June 30, 2003 December 31, 2003
-----------------------------------------------------
($ in Thousands)

Core deposit intangibles: (1)
- ------------------------
Gross carrying amount $ 16,783 $ 28,165 $ 28,165
Accumulated amortization (10,098) (19,743) (20,682)
-----------------------------------------------------
Net book value $ 6,685 $ 8,422 $ 7,483
=====================================================
Amortization during the period $ (798) $ (819) $ (1,759)

Other intangibles:
- -----------------
Gross carrying amount $ 20,677 $ 14,751 $ 14,751
Accumulated amortization (2,120) (401) (1,202)
-----------------------------------------------------
Net book value $ 18,557 $ 14,350 $ 13,549
=====================================================
Additions during the period $ 5,926 $ 14,751 $ 14,751
Amortization during the period (918) (401) (1,202)

(1) Core deposit intangibles of $11.4 million were fully amortized during 2003
and have been removed from both the gross carrying amount and the
accumulated amortization for 2004.

Mortgage servicing rights are amortized in proportion to and over the period of
estimated servicing income. The Corporation periodically evaluates its mortgage
servicing rights asset for impairment. A valuation allowance is established to
the extent the carrying value of the mortgage servicing rights exceeds the
estimated fair value by stratification. An other-than-temporary impairment is
recognized as a write-down of the mortgage servicing rights asset and the
related valuation allowance (to the extent valuation allowance is available) and
then against earnings. Given changes in interest rates, especially the extended
period of historically low interest rates experienced during 2003, and the
impact on mortgage banking volumes, refinances, prepayment speeds, and secondary
markets, the Corporation evaluated its mortgage servicing rights asset for
possible other-than-temporary impairment. As a result, $5.5 million and $9.1
million was determined to be other-than-temporarily impaired for the six months
ended June 30, 2004 and 2003,

10

respectively, and $18.1 million for the year ended December 31, 2003. A summary
of changes in the balance of the mortgage servicing rights asset and the
mortgage servicing rights valuation allowance was as follows.

As of and for the
As of and for the six months ended year ended
June 30, 2004 June 30, 2003 December 31, 2003
-----------------------------------------------------
Mortgage servicing rights: ($ in Thousands)
- --------------------------

Mortgage servicing rights at
beginning of period $ 65,062 $ 60,685 $ 60,685
Additions 10,662 20,080 39,707
Amortization (8,558) (8,787) (17,212)
Permanent impairment (5,470) (9,076) (18,118)
-----------------------------------------------------
Mortgage servicing rights
at end of period 61,696 62,902 65,062
-----------------------------------------------------
Valuation allowance at
beginning of period (22,585) (28,362) (28,362)
Additions (2,500) (15,832) (15,832)
Reversals 6,654 --- 3,491
Permanent impairment 5,470 9,076 18,118
-----------------------------------------------------
Valuation allowance at
end of period (12,961) (35,118) (22,585)
-----------------------------------------------------
Mortgage servicing rights, net $ 48,735 $ 27,784 $ 42,477
=====================================================

At June 30, 2004, the Corporation was servicing one- to four- family residential
mortgage loans owned by other investors with balances totaling $6.01 billion,
compared to $5.47 billion and $5.93 billion at June 30 and December 31, 2003,
respectively. The fair value of servicing was approximately $48.7 million
(representing 81 basis points ("bp") of loans serviced) at June 30, 2004,
compared to $27.8 million (or 51 bp of loans serviced) at June 30, 2003 and
$42.5 million (or 72 bp of loans serviced) at December 31, 2003.

Mortgage servicing rights expense, which includes the amortization of mortgage
servicing rights and increases or decreases to the valuation allowance
associated with the mortgage servicing rights, was $4.4 million and $24.6
million for the six months ended June 30, 2004 and 2003, respectively, and $29.6
million for the year ended December 31, 2003.

The following table shows the estimated future amortization expense for
amortizing intangible assets. The projections of amortization expense for the
next five years are based on existing asset balances, the current interest rate
environment, and prepayment speeds as of June 30, 2004. The actual amortization
expense the Corporation recognizes in any given period may be significantly
different depending upon changes in interest rates, market conditions,
regulatory requirements, and events or circumstances that indicate the carrying
amount of an asset may not be recoverable.

Estimated amortization expense:

Core Deposit Mortgage Servicing
Intangibles Other Intangibles Rights
-------------------------------------------------------
($ in Thousands)

Six months ending December 31, 2004 $ 700 $ 1,100 $ 8,100
Year ending December 31, 2005 1,000 1,800 14,200
Year ending December 31, 2006 1,000 1,400 11,600
Year ending December 31, 2007 1,000 1,300 9,500
Year ending December 31, 2008 1,000 1,200 7,400
=======================================================

11

NOTE 7: Long-term Funding

Long-term funding at June 30 was as follows:

2004 2003
------------------------
($ in Thousands)

Federal Home Loan Bank advances $ 711,974 $1,114,415
Bank notes 300,000 350,000
Repurchase agreements 426,175 331,175
Subordinated debt, net 198,517 215,030
Junior subordinated debentures, net 184,088 ---
Other borrowed funds 6,572 2,348
------------------------
Total long-term debt $1,827,326 $2,012,968
Company-obligated mandatorily
redeemable preferred securities, net --- 191,549
========================
Total long-term funding $1,827,326 $2,204,517
========================

Federal Home Loan Bank advances:
- -------------------------------
Long-term advances from the Federal Home Loan Bank had maturities through 2017
and had weighted-average interest rates of 2.54% at June 30, 2004, and 3.16% at
June 30, 2003. These advances had a combination of fixed and variable rates,
predominantly fixed.

Bank notes:
- ----------
The long-term bank notes had maturities through 2007 and had weighted-average
interest rates of 2.43% at June 30, 2004, and 2.17% at June 30, 2003. These
advances had a combination of fixed and variable rates.

Repurchase agreements:
- ---------------------
The long-term repurchase agreements had maturities through 2007 and had
weighted-average interest rates of 1.78% at June 30, 2004, and 1.77% at June 30,
2003. These advances had a combination of fixed and variable rates,
predominantly fixed.

Subordinated debt:
- -----------------
In August 2001, the Corporation issued $200 million of 10-year subordinated
debt. This debt was issued at a discount and has a fixed coupon interest rate of
6.75%. The Corporation also entered into a fair value hedge to hedge the
interest rate risk on the subordinated debt. As of June 30, 2004 and 2003, the
fair value of the derivative was a $0.4 million loss and a $16.2 million gain,
respectively. The subordinated debt qualifies under the risk-based capital
guidelines as Tier 2 supplementary capital for regulatory purposes.

Junior subordinated debentures and Company-obligated
Mandatorily Redeemable Preferred Securities:
- -------------------------------------------
On May 30, 2002, ASBC Capital I (the "ASBC Trust"), a Delaware business trust
whose common stock was wholly owned by the Corporation, completed the sale of
$175 million of 7.625% preferred securities (the "Preferred Securities"). The
Preferred Securities are traded on the New York Stock Exchange under the symbol
"ABW PRA." The ASBC Trust used the proceeds from the offering to purchase a like
amount of 7.625% Junior Subordinated Debentures (the "Debentures") of the
Corporation. The Debentures are the sole assets of the ASBC Trust and were
eliminated, along with the related income statement effects, in the consolidated
financial statements for 2003 and prior years.

Effective in the first quarter of 2004, in accordance with guidance provided on
the application of FIN 46R, the Corporation was required to deconsolidate the
ASBC Trust from its consolidated financial statements. Accordingly, the
Debentures issued by the Corporation to ASBC Trust (as opposed to the trust
preferred securities issued by the ASBC Trust) are reflected in the
Corporation's consolidated balance sheet as long-term funding. The
deconsolidation of the net assets and results of operations of this trust did
not have a material impact on the Corporation's financial statements since the
Corporation continues to be obligated to repay the Debentures held by the ASBC
Trust and guarantees repayment of the Preferred Securities issued by the ASBC
Trust. The consolidated long-term funding obligation related to the ASBC Trust
increased from $175 million to $180 million upon deconsolidation, with the
difference representing the Corporation's common ownership interest in the ASBC
Trust recorded in investment securities available for sale.

12

The Preferred Securities accrue and pay dividends quarterly at an annual rate of
7.625% of the stated liquidation amount of $25 per Preferred Security. The
Corporation has fully and unconditionally guaranteed all of the obligations of
the ASBC Trust. The guarantee covers the quarterly distributions and payments on
liquidation or redemption of the Preferred Securities, but only to the extent of
funds held by the ASBC Trust. The Preferred Securities are mandatorily
redeemable upon the maturity of the Debentures on June 15, 2032, or upon earlier
redemption as provided in the Indenture. The Corporation has the right to redeem
the Debentures on or after May 30, 2007.

The Preferred Securities qualify under the risk-based capital guidelines as Tier
1 capital for regulatory purposes within certain limitations. The Federal
Reserve Board could re-evaluate the qualification of the preferred securities as
Tier 1 capital at anytime. If it is determined that the preferred securities no
longer qualify as Tier 1 capital, the effect of such a change is not expected to
affect the Corporation's well-capitalized status.

During 2002, the Corporation entered into a fair value hedge to hedge the
interest rate risk on the Debentures. The fair value of the derivative was a
$3.7 million gain at June 30, 2004, and a $16.5 million gain at June 30, 2003.
Given the fair value hedge, the Debentures are carried on the balance sheet at
fair value.

NOTE 8: Derivatives and Hedging Activities

The Corporation uses derivative instruments primarily to hedge the variability
in interest payments or protect the value of certain assets and liabilities
recorded in its consolidated balance sheet from changes in interest rates. The
predominant derivative and hedging activities include interest rate swaps,
interest rate caps, and certain mortgage banking activities. Interest rate swaps
are entered into primarily as an asset/liability management strategy to modify
interest rate risk, while interest rate caps are entered into as interest rate
protection instruments.

The Corporation measures the effectiveness of its hedges on a periodic basis.
Any difference between the fair value change of the hedge versus the fair value
change of the hedged item is considered to be the "ineffective" portion of a
fair value hedge. The ineffective portion of a fair value hedge is recorded as
an increase or decrease in the related income statement classification of the
item being hedged. Ineffective portions of changes in the fair value of cash
flow hedges are recognized in earnings. For the mortgage derivatives, which are
not accounted for as hedges, changes in the fair value are recorded as an
adjustment to mortgage banking income.

Estimated Fair
Notional Market Value Weighted Average
Amount Gain/(Loss) Receive Rate Pay Rate Maturity
-----------------------------------------------------------------------
June 30, 2004 ($ in Thousands)
- -------------

Interest Rate Risk Management hedges:
Swaps-receive variable / pay fixed (1), (3) $200,000 $(13,417) 1.14% 5.03% 83 months
Swaps-receive fixed / pay variable (2), (4) 375,000 3,256 7.21% 2.95% 205 months
Swaps-receive variable / pay fixed (2), (5) 323,953 (2,076) 3.34% 6.31% 47 months
Caps-written (1), (3) 200,000 678 Strike 4.72% --- 26 months
======================================================================

June 30, 2003
Interest Rate Risk Management hedges:
Swaps-receive variable / pay fixed (1), (3) $200,000 $(31,279) 1.39% 5.03% 95 months
Swaps-receive fixed / pay variable (2), (4) 375,000 32,793 7.21% 2.85% 217 months
Swaps-receive variable / pay fixed (2), (5) 326,639 (19,658) 3.48% 6.40% 54 months
Caps-written (1), (3) 200,000 1,015 Strike 4.72% --- 38 months
======================================================================
(1) Cash flow hedges (2) Fair value hedges
(3) Hedges variable rate long-term debt (4) Hedges fixed rate long-term debt
(5) Hedges specific longer-term fixed rate commercial loans

13

Not included in the above table were customer swaps with a notional amount of
$94.6 million and $31.1 million as of June 30, 2004 and 2003, respectively, for
which the Corporation has mirror swaps. The change in fair value of these
customer swaps is recorded in earnings and the net impact for 2004 and 2003 was
immaterial.

Commitments to originate residential mortgage loans held for sale and forward
commitments to sell residential mortgage loans represent the Corporation's
mortgage derivatives, the fair value of which are included in other liabilities
on the consolidated balance sheets. The net fair value of the mortgage
derivatives at June 30, 2004, was a $0.7 million loss, compared to a $6.5
million gain at June 30, 2003. The net fair value change is recorded in mortgage
banking income in the consolidated statements of income. The $0.7 million net
fair value loss on mortgage derivatives at June 30, 2004, is composed of the net
gain on commitments to fund approximately $112 million of loans to individual
borrowers and the net loss on commitments to sell approximately $135 million of
loans to various investors. The $6.5 million net fair value gain on mortgage
derivatives at June 30, 2003, is comprised of the net gain on commitments to
fund approximately $1.1 billion of loans to individual borrowers and the net
loss on commitments to sell approximately $962 million of loans to various
investors. As previously discussed in Note 3, the Corporation adopted SAB 105
effective April 1, 2004.

NOTE 9: Contractual Obligations, Commitments,
Off-Balance Sheet Risk, and Contingent Liabilities

Commitments and Off-Balance Sheet Risk

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 rate. These financial instruments include
lending-related commitments.

Lending-related Commitments

Through the normal course of operations, the Corporation has entered into
certain contractual obligations and other commitments. As a financial services
provider the Corporation routinely enters into commitments to extend credit.
While contractual obligations represent future cash requirements of the
Corporation, a significant portion of commitments to extend credit may expire
without being drawn upon. Such commitments are subject to the same credit
policies and approval process accorded to loans made by the Corporation.

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
agreements to lend to customers at predetermined interest rates as long as there
is no violation of any condition established in the contracts. 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.

Under SFAS 133, commitments to originate residential mortgage loans held for
sale and forward commitments to sell residential mortgage loans are defined as
derivatives and are therefore required to be recorded on the consolidated
balance sheet at fair value. The Corporation's derivative and hedging activities
are further summarized in Note 8. The following is a summary of lending-related
commitments.

14

June 30,
------------------------
2004 2003
------------------------
($ in Thousands)

Commitments to extend credit, excluding $3,717,762 $3,337,320
commitments to originate mortgage loans (1)
Commercial letters of credit (1) 19,979 47,455
Standby letters of credit (2) 340,050 299,815

(1) 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 is not
material at June 30, 2004 or 2003.
(2) As required by FASB Interpretation No. 45, an interpretation of FASB
Statements No. 5, 57, and 107, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness
of Others," the Corporation has established a liability of $2.9 million and
$1.2 million at June 30, 2004 and 2003, respectively, as an estimate of the
fair value of these financial instruments.

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 commitments generally have fixed expiration
dates or other termination clauses and may require payment of a fee. The
Corporation uses the same credit policies in making commitments and conditional
obligations as it does for extending loans to customers. The Corporation
evaluates each customer's creditworthiness on a case-by-case basis. 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 many
of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.

Contingent Liabilities

In the ordinary course of business, the Corporation may be named as defendant in
or be a party to various pending and threatened legal proceedings. In view of
the intrinsic difficulty in ascertaining the outcome of such matters, the
Corporation cannot state what the eventual outcome of any such proceeding will
be. Management believes, based upon discussions with legal counsel and current
knowledge, that liabilities arising out of any such proceedings (if any) will
not have a material adverse effect on the consolidated financial position,
results of operations, or liquidity of the Corporation.

As part of the Corporation's agency agreement with an outside vendor, the
Corporation has guaranteed certain credit card accounts provided the cardholder
is unable to meet the credit card obligations. At June 30, 2004 and 2003, the
Corporation's estimated maximum exposure was approximately $1 million.

A contingent liability is required to be established if it is probable that the
Corporation will incur a loss on the performance of a letter of credit. During
the second quarter of 2003, given the deterioration of the financial condition
of a borrower, the Corporation established a $2.5 million liability for standby
letters of credit, of which $0.9 million remained at June 30, 2004.

NOTE 10: Stock-Based Compensation

As allowed under SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"), the Corporation accounts for stock-based compensation cost under the
intrinsic value method of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25), and related
Interpretations, under which no compensation cost has been recognized for any
periods presented, except with respect to restricted stock awards. Compensation
expense for employee stock options is generally not recognized if the exercise
price of the option equals or exceeds the fair value of the stock on the date of
grant, as such options would have no intrinsic value at the date of grant.

The Corporation may issue common stock with restrictions to certain key
employees. The shares are restricted as to transfer, but are not restricted as
to dividend payment or voting rights. Transfer restrictions lapse over three or
five years, depending upon whether the award is fixed or performance-based, are
contingent upon continued employment, and for performance awards are based on
earnings per share performance goals. The Corporation amortizes the expense over
the vesting period. During second quarter

15

2003, 75,000 restricted stock shares were awarded, and expense of approximately
$352,000 and $101,000 was recorded for the six months ended June 30, 2004 and
2003, respectively.

For purposes of providing the pro forma disclosures required under SFAS 123, the
fair value of stock options granted in the comparable three and six month
periods ended June 30, 2004 and 2003 was estimated at the date of grant using a
Black-Scholes option pricing model which was originally developed for use in
estimating the fair value of traded options which have different characteristics
from the Corporation's employee stock options. The model is also sensitive to
changes in the subjective assumptions that can materially affect the fair value
estimate. As a result, management believes the Black-Scholes model may not
necessarily provide a reliable single measure of the fair value of employee
stock options. The following table illustrates the effect on net income and
earnings per share if the Corporation had applied the fair value recognition
provisions of SFAS 123.

For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------------------------------------------
2004 2003 2004 2003
-------------------------------------------------------
($ in Thousands, except per share amounts)

Net income, as reported $ 64,505 $ 56,669 $ 124,065 $ 114,662
Add: Stock-based employee compensation expense
included in reported net income, net of
related tax effects 102 61 211 61
Less: Total stock-based compensation expense determined
under fair value based method for all awards, net of
related tax effects (1,022) (740) (1,938) (1,444)
-------------------------------------------------------
Net income, as adjusted $ 63,585 $ 55,990 $ 122,338 $ 113,279
=======================================================

Basic earnings per share, as reported $ 0.59 $ 0.51 $ 1.13 $ 1.03
Less: Total stock-based compensation expense determined
under fair value based method for all awards, net of
related tax effects (0.01) (0.01) (0.02) (0.01)
-------------------------------------------------------
Basic earnings per share, as adjusted $ 0.58 $ 0.50 $ 1.11 $ 1.02
=======================================================

Diluted earnings per share, as reported $ 0.58 $ 0.51 $ 1.11 $ 1.02
Less: Total stock-based compensation expense determined
under fair value based method for all awards, net of
related tax effects (0.01) (0.01) (0.02) (0.01)
-------------------------------------------------------
Diluted earnings per share, as adjusted $ 0.57 $ 0.50 $ 1.09 $ 1.01
=======================================================

The following assumptions were used in estimating the fair value for options
granted in 2004 and 2003:
2004 2003
--------------------
Dividend yield 3.37% 3.71%
Risk-free interest rate 3.59% 3.27%
Weighted average expected life 7 yrs 7 yrs
Expected volatility 28.10% 28.24%

The weighted average per share fair values of options granted in the comparable
six-month periods of 2004 and 2003 were $6.74 and $4.95, respectively. The
annual expense allocation methodology prescribed by SFAS 123 attributes a higher
percentage of the reported expense to earlier years than to later years,
resulting in accelerated expense recognition for proforma disclosure purposes.

16

NOTE 11: Retirement Plans

Three months ended Six months ended
June 30, June 30,
------------------------------------------
2004 2003 2004 2003
------------------------------------------
Components of Net Periodic Benefit Cost ($ in Thousands)
- ----------------------------------------

Service cost $ 1,775 $ 1,464 $ 3,550 $ 2,929
Interest cost 960 901 1,920 1,802
Expected return on plan assets (1,566) (1,325) (3,133) (2,651)
Amortization of:
Transition asset (81) (81) (162) (162)
Prior service cost 19 19 37 37
Actuarial loss 71 18 143 37
-----------------------------------------
Total net periodic benefit cost $ 1,178 $ 996 $ 2,355 $ 1,992
=========================================

As previously disclosed in its notes to consolidated financial statements for
the year ended December 31, 2003, the Corporation does not expect to make a
contribution to its pension plan in 2004. The Corporation regularly reviews the
funding of its pension plans. Therefore, it is possible that after that review,
the Corporation may decide to make a contribution to the pension plan at that
time.

NOTE 12: Segment Reporting

SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," requires selected financial and descriptive information about
reportable operating segments. The statement uses a "management approach"
concept as the basis for identifying reportable segments. The management
approach is based on the way that management organizes the segments within the
enterprise for making operating decisions, allocating resources, and assessing
performance. Consequently, the segments are evident from the structure of the
enterprise's internal organization, focusing on financial information that an
enterprise's chief operating decision-makers use to make decisions about the
enterprise's operating matters.

The Corporation's primary segment is banking, conducted through its bank and
lending subsidiaries. For purposes of segment disclosure under this statement,
these have been combined as one segment, as these segments have similar economic
characteristics and the nature of their products, services, processes,
customers, delivery channels, and regulatory environment are similar. Banking
includes: a) community banking - lending and deposit gathering to businesses
(including business-related services such as cash management and international
banking services) and to consumers (including mortgages and credit cards); b)
corporate banking - specialized lending (such as commercial real estate), lease
financing, and banking to larger businesses and metro or niche markets; and c)
the support to deliver banking services.

The Corporation's other segment is wealth management (including insurance,
brokerage, and trust/asset management). The wealth management segment is
included in "Other," along with intersegment eliminations and residual revenues
and expenses, representing the difference between actual amounts incurred and
the amounts allocated to operating segments.

17

Selected segment information is presented below.

Consolidated
Banking Other Total
- ----------------------------------------------------------------------------------------
As of and for the six months ended ($ in Thousands)
June 30, 2004

Total assets $15,430,727 $71,829 $15,502,556
=============================================
Net interest income $ 260,737 $ 217 $ 260,954
Provision for loan losses 11,065 --- 11,065
Noninterest income 70,430 38,026 108,456
Depreciation and amortization 16,924 1,151 18,075
Other noninterest expense 140,232 24,968 165,200
Income taxes 48,816 2,189 51,005
---------------------------------------------
Net income $ 114,130 $ 9,935 $ 124,065
=============================================
As of and for the six months ended
June 30, 2003

Total assets $15,159,125 $59,691 $15,218,816
=============================================
Net interest income $ 254,351 $ 298 $ 254,649
Provision for loan losses 25,092 --- 25,092
Noninterest income 107,187 24,847 132,034
Depreciation and amortization 17,634 640 18,274
Other noninterest expense 161,553 18,914 180,467
Income taxes 47,969 219 48,188
---------------------------------------------
Net income $ 109,290 $ 5,372 $ 114,662
=============================================
- ----------------------------------------------------------------------------------------

Consolidated
Banking Other Total
- ----------------------------------------------------------------------------------------
As of and for the three months ended ($ in Thousands)
June 30, 2004

Total assets $15,430,727 $71,829 $15,502,556
=============================================

Net interest income $ 131,793 $ 86 $ 131,879
Provision for loan losses 5,889 --- 5,889
Noninterest income 34,626 20,871 55,497
Depreciation and amortization 8,438 685 9,123
Other noninterest expense 67,348 13,148 80,496
Income taxes 26,046 1,317 27,363
---------------------------------------------
Net income $ 58,698 $ 5,807 $ 64,505
=============================================

As of and for the three months ended
June 30, 2003

Total assets $15,159,125 $59,691 $15,218,816
=============================================

Net interest income $ 127,057 $ 138 $ 127,195
Provision for loan losses 12,132 --- 12,132
Noninterest income 53,026 15,402 68,428
Depreciation and amortization 8,943 596 9,539
Other noninterest expense 81,879 10,769 92,648
Income taxes 24,001 634 24,635
---------------------------------------------
Net income $ 53,128 $ 3,541 $ 56,669
=============================================
- ----------------------------------------------------------------------------------------

18

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

Special Note Regarding Forward-Looking Statements

Statements made in this document and in documents that are incorporated by
reference which are not purely historical are forward-looking statements, as
defined in the Private Securities Litigation Reform Act of 1995, including any
statements regarding descriptions of management's plans, objectives, or goals
for future operations, products or services, and forecasts of its revenues,
earnings, or other measures of performance. Forward-looking statements are based
on current management expectations and, by their nature, are subject to risks
and uncertainties. These statements may be identified by the use of words such
as "believe," "expect," "anticipate," "plan," "estimate," "should," "will,"
"intend," or similar expressions.

Shareholders should note that many factors, some of which are discussed
elsewhere in this document and in the documents that are incorporated by
reference, could affect the future financial results of the Corporation and
could cause those results to differ materially from those expressed in
forward-looking statements contained in this document or incorporated by
reference in this document. These factors, many of which are beyond the
Corporation's control, include the following:

o operating, legal, and regulatory risks;

o economic, political, and competitive forces affecting the Corporation's
banking, securities, asset management, and credit services businesses; and

o the risk that the Corporation's analyses of these risks and forces could be
incorrect and/or that the strategies developed to address them could be
unsuccessful.

These factors should be considered in evaluating the forward-looking statements,
and undue reliance should not be placed on such statements. Forward-looking
statements speak only as of the date they are made. The Corporation undertakes
no obligation to update or revise any forward-looking statements, whether as a
result of new information, future events, or otherwise.

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 Form 10-Q and should be read in conjunction therewith. The
detailed discussion focuses on the six months ended June 30, 2004 and the
comparable period in 2003. Discussion of second quarter 2004 results compared to
second quarter 2003 is predominantly in section, "Comparable Second Quarter
Results."

The following discussion refers to the Corporation's business combination
activity that may impact the comparability of certain financial data (see Note
5, "Business Combinations," of the notes to consolidated financial statements).
In particular, consolidated financial results for 2004 reflect six month's
contribution from its April 1, 2003 purchase acquisition of CFG and three
month's contribution from its April 1, 2004 purchase acquisition of Jabas, while
consolidated financial results for 2003 reflect three month's contribution of
CFG and no contribution from Jabas.

On April 28, 2004, the Board of Directors declared a 3-for-2 stock split,
effected in the form of a stock dividend, payable on May 12, 2004, to
shareholders of record at the close of business on May 7, 2004. All share and
per share information in the accompanying consolidated financial statements has
been restated to reflect the effect of this stock split.

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.

19

Estimates that are particularly susceptible to significant change include the
determination of the allowance for loan losses, mortgage servicing rights
valuation, derivative financial instruments and hedging activities, and income
taxes.

The consolidated financial statements of the Corporation are prepared in
conformity with U.S. generally accepted accounting principles and follow general
practices within the industries in which it operates. This preparation requires
management to make estimates, assumptions, and judgments that affect the amounts
reported in the financial statements and accompanying notes. These estimates,
assumptions, and judgments are based on information available as of the date of
the financial statements; accordingly, as this information changes, actual
results could differ from the estimates, assumptions, and judgments reflected in
the financial statements. Certain policies inherently have a greater reliance on
the use of estimates, assumptions, and judgments and, as such, have a greater
possibility of producing results that could be materially different than
originally reported. Management believes the following policies are both
important to the portrayal of the Corporation's financial condition and results
and require subjective or complex judgments and, therefore, management considers
the following to be critical accounting policies. The critical accounting
policies are discussed directly with the Audit Committee of the Corporation.

Allowance for Loan Losses:
- -------------------------
Management's evaluation process used to determine the
adequacy of the allowance for loan losses is subject to the use of estimates,
assumptions, and judgments. The evaluation process combines several factors:
management's ongoing review and grading of the loan portfolio, consideration of
past loan loss experience, trends in past due and nonperforming loans, risk
characteristics of the various classifications of loans, existing economic
conditions, the fair value of underlying collateral, and other qualitative and
quantitative factors which could affect probable credit losses. Because current
economic conditions can change and future events are inherently difficult to
predict, the anticipated amount of estimated loan losses, and therefore the
adequacy of the allowance, could change significantly. As an integral part of
their examination process, various regulatory agencies also review the allowance
for loan losses. Such agencies may require that certain loan balances be charged
off when their credit evaluations differ from those of management, based on
their judgments about information available to them at the time of their
examination. The Corporation believes the allowance for loan losses is adequate
and properly recorded in the consolidated financial statements. See section
"Allowance for Loan Losses."

Mortgage Servicing Rights Valuation:
- --------------------------------------
The fair value of the Corporation's mortgage servicing rights asset is important
to the presentation of the consolidated financial statements since the mortgage
servicing rights are carried on the consolidated balance sheet at the lower of
amortized cost or fair value. Mortgage servicing rights do not trade in an
active open market with readily observable prices. As such, like other
participants in the mortgage banking business, the Corporation relies on an
internal discounted cash flow model to estimate the fair value of its mortgage
servicing rights and consults periodically with third parties as to the
assumptions used and that the resultant valuation is within the context of the
market. While the Corporation believes that the values produced by its internal
model are indicative of the fair value of its mortgage servicing rights
portfolio, these values can change significantly depending upon the then current
interest rate environment, estimated prepayment speeds of the underlying
mortgages serviced, and other economic conditions. The proceeds that might be
received should the Corporation actually consider a sale of the mortgage
servicing rights portfolio could differ from the amounts reported at any point
in time. The Corporation believes the mortgage servicing rights asset is
properly recorded in the consolidated financial statements. See Note 6,
"Goodwill and Other Intangible Assets," of the notes to consolidated financial
statements and section "Noninterest Expense."

Derivative Financial Instruments and Hedge Accounting:
- -----------------------------------------------------
In various aspects of its business, the Corporation uses derivative financial
instruments to modify exposures to changes in interest rates and market prices
for other financial instruments. Substantially all of these derivative financial
instruments are designated as hedges for financial reporting purposes. The
application of the hedge accounting policy requires judgment in the assessment
of hedge effectiveness, identification of similar hedged item groupings, and
measurement of changes in the fair value of hedged items. However, if in the
future the derivative financial instruments used by the Corporation no longer
qualify for hedge accounting treatment and, consequently, the change in the fair

20

value of hedged items could be recognized in earnings, the impact on the
consolidated results of operations and reported earnings could be significant.
The Corporation believes hedge effectiveness is evaluated properly in the
consolidated financial statements. See Note 8, "Derivatives and Hedging
Activities," of the notes to consolidated financial statements.

Income Tax Accounting:
- ---------------------
The assessment of tax assets and liabilities involves the use of estimates,
assumptions, interpretations, and judgments concerning certain accounting
pronouncements and federal and state tax codes. There can be no assurance that
future events, such as court decisions or positions of federal and state taxing
authorities, will not differ from management's current assessment, the impact of
which could be significant to the consolidated results of operations and
reported earnings. The Corporation believes the tax assets and liabilities are
adequate and properly recorded in the consolidated financial statements. See
section "Income Taxes."

Segment Review

As described in Note 12, "Segment Reporting," of the notes to consolidated
financial statements, the Corporation's primary reportable segment is banking,
conducted through its bank and lending subsidiaries. Banking includes: a)
community banking - lending and deposit gathering to businesses (including
business-related services such as cash management and international banking
services) and to consumers (including mortgages and credit cards); b) corporate
banking - specialized lending (such as commercial real estate), lease financing,
and banking to larger businesses and metro or niche markets; and c) the support
to deliver banking services.

The Corporation's profitability is primarily dependent on net interest income,
noninterest income, the level of the provision for loan losses, noninterest
expense, and taxes of its banking segment. The consolidated discussion is
therefore predominantly describing the banking segment results. The critical
accounting policies primarily affect the banking segment, with the exception of
income tax accounting, which affects both the banking and other segments (see
section "Critical Accounting Policies").

Results of Operations - Summary

- -------------------------------------------------------------------------------------------------------
TABLE 1 (1)
Summary Results of Operations: Trends
($ in Thousands, except per share data)
2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
2004 2004 2003 2003 2003
- -------------------------------------------------------------------------------------------------------

Net income (Quarter) $ 64,505 $59,560 $ 55,609 $ 58,386 $ 56,669
Net income (Year-to-date) 124,065 59,560 228,657 173,048 114,662

Earnings per share - basic (Quarter) $ 0.59 $ 0.54 $ 0.51 $ 0.53 $ 0.51
Earnings per share - basic (Year-to-date) 1.13 0.54 2.07 1.56 1.03

Earnings per share - diluted (Quarter) $ 0.58 $ 0.53 $ 0.50 $ 0.53 $ 0.51
Earnings per share - diluted 1.11 0.53 2.05 1.55 1.02
(Year-to-date)

Return on average assets (Quarter) 1.67% 1.57% 1.49% 1.53% 1.51%
Return on average assets (Year-to-date) 1.62 1.57 1.53 1.54 1.55

Return on average equity (Quarter) 18.87% 17.37% 16.85% 17.75% 17.37%
Return on average equity (Year-to-date) 18.12 17.37 17.58 17.82 17.86

Efficiency ratio (Quarter) (2) 46.17% 50.28% 51.02% 48.83% 50.68%
Efficiency ratio (Year-to-date) (2) 48.18 50.28 49.84 49.47 49.79

Net interest margin (Quarter) 3.80% 3.80% 3.81% 3.78% 3.79%
Net interest margin (Year-to-date) 3.80 3.80 3.84 3.82 3.83

(1) All per share financial information has been restated to reflect the effect
of the 3-for-2 stock split.

(2) Noninterest expense divided by sum of taxable equivalent net interest income
plus noninterest income, excluding investment securities gains (losses),
net, and asset sales gains (losses), net.
- -------------------------------------------------------------------------------------------------------

21

Net income for the six months ended June 30, 2004 totaled $124.1 million, or
$1.13 and $1.11 for basic and diluted earnings per share, respectively.
Comparatively, net income for the six months ended June 30, 2003 was $114.7
million, or $1.03 and $1.02 for basic and diluted earnings per share,
respectively. Year-to-date 2004 results generated an annualized return on
average assets of 1.62% and an annualized return on average equity of 18.12%,
compared to 1.55% and 17.86%, respectively, for the comparable period in 2003.
The net interest margin for the first six months of 2004 was 3.80% compared to
3.83% for the first six months of 2003.

Net Interest Income and Net Interest Margin

Net interest income on a taxable equivalent basis for the six months ended June
30, 2004, was $273.7 million, an increase of $6.6 million or 2.5% over the
comparable period last year. As indicated in Tables 2 and 3, the $6.6 million
increase in taxable equivalent net interest income was attributable to favorable
volume variances (with balance sheet growth and differences in the mix of
average earning assets and average interest-bearing liabilities adding $11.0
million to taxable equivalent net interest income), offset partly by unfavorable
rate variances (as the impact of changes in the interest rate environment
reduced taxable equivalent net interest income by $4.4 million).

The net interest margin for the first six months of 2004 was 3.80%, down 3 basis
points ("bp") from 3.83% for the comparable period in 2003. This comparable
period decrease was attributable to a 1 bp increase in interest rate spread (the
net of a 37 bp decrease in the yield on earning assets and a 38 bp decrease in
the cost of interest-bearing liabilities), and a 4 bp lower contribution from
net free funds (particularly reflecting the lower interest rate environment in
2004).

Interest rates were relatively stable and historically low, with one interest
rate decrease of 25 bp during June 2003 and one interest rate increase of 25 bp
during June 2004. The average Federal funds rate of 1.00% for year-to-date 2004
was 24 bp lower than the 1.24% average for year-to-date 2003. The Corporation
had positioned the balance sheet to be slightly asset sensitive (which means
that generally assets will reprice faster than liabilities); thus, the prolonged
low interest rate environment favorably lowered the cost of funding, but also
lowered earning asset yields, putting pressure on the net interest margin.

The yield on earning assets was 5.11% for year-to-date 2004, down 37 bp from the
comparable six-month period last year. The average loan yield was down 41 bp to
5.15%, as competitive pricing on new and refinanced loans and the repricing of
variable rate loans in the lower interest rate environment put downward pressure
on loan yields. The average yield on investments and other earning assets
decreased 20 bp to 5.02%, impacted by faster prepayments (particularly on
mortgage-related securities) and reinvestment in the lower rate environment.

The cost of interest-bearing liabilities was 1.55% for year-to-date 2004, down
38 bp compared to the first six months of 2003, aided by the lower rate
environment. The average cost of interest-bearing deposits was 1.38%, down 35 bp
from year-to-date 2003, benefiting from lower rates on interest-bearing deposit
products in general, as well as from a larger mix of lower-costing transaction
accounts. The cost of wholesale funds (comprised of short-term borrowings and
long-term funding) was 1.87%, down 39 bp from year-to-date 2003, also favorably
impacted by lower rates between comparable periods, as higher-priced advances
matured and new, lower-costing funding was added.

Average earning assets increased by $419 million (3.0%) over the comparable
six-month period last year. Average investments and other earning assets were up
$521 million (notably mortgage-related securities), as the Corporation utilized
balance sheet leveraging strategies, while average loans decreased $102 million
(representing 73.7% of average earning assets for year-to-date 2004 compared to
76.6% for year-to-date 2003). Decreases in average residential real estate,
which is inclusive of mortgage loans held for sale, (down $279 million) and
consumer loans (down $32 million) were offset by increases in commercial loans
(up $209 million). Commercial loans grew to represent 62.6% of average loans for
the first six months of 2004 compared to 60.0% for the comparable period in
2003.

22

Average interest-bearing liabilities increased $243 million (2.0%) over the
comparable period of 2003, and net free funds increased $176 million, both
supporting the growth in earning assets. Average noninterest-bearing demand
deposits (a component of net free funds) increased by $131 million, or 8.2%. The
growth in average interest-bearing liabilities was comprised primarily of growth
in interest-bearing deposits (up $501 million, or 6.7%), which reduced the need
for wholesale funding. Wholesale funding was down $258 million (representing
34.8% of average interest-bearing liabilities for year-to-date 2004 compared to
37.7% for year-to-date 2003), notably in long-term funding, which decreased $342
million to represent 15.0% of average interest-bearing liabilities for
year-to-date 2004 versus 18.1% for year-to-date 2003.

- ----------------------------------------------------------------------------------------------------------------
TABLE 2
Net Interest Income Analysis-Taxable Equivalent Basis
($ in Thousands)
- ----------------------------------------------------------------------------------------------------------------
Six Months ended June 30, 2004 Six Months ended June 30, 2003
-------------------------------- ---------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
- ----------------------------------------------------------------------------------------------------------------

Earning assets:
Loans: (1) (2) (3)
Commercial $ 6,608,371 $160,794 4.82% $ 6,399,244 $166,188 5.17%
Residential real estate 3,272,422 88,955 5.45 3,551,134 104,600 5.92
Consumer 678,683 23,441 6.94 711,008 26,003 7.37
---------------------- ----------------------
Total loans 10,559,476 273,190 5.15 10,661,386 296,791 5.56
Investments and other (1) 3,773,659 94,698 5.02 3,252,902 84,804 5.22
---------------------- ----------------------
Total earning assets 14,333,135 367,888 5.11 13,914,288 381,595 5.48
Other assets, net 1,046,506 1,028,042
----------- -----------
Total assets $15,379,641 $14,942,330
=========== ===========
Interest-bearing liabilities:
Interest-bearing deposits:
Savings deposits $ 918,775 $ 1,684 0.37% $ 927,413 $ 2,884 0.63%
Interest-bearing demand deposits 2,380,375 9,571 0.81 1,591,942 6,925 0.88
Money market deposits 1,537,955 5,952 0.78 1,668,467 8,264 1.00
Time deposits, excluding Brokered CDs 2,880,996 35,739 2.49 3,032,421 43,614 2.90
---------------------- ----------------------
Total interest-bearing
deposits,excluding Brokered CDs 7,718,101 52,946 1.38 7,220,243 61,687 1.72
Brokered CDs 206,527 1,264 1.23 203,719 1,861 1.84
---------------------- ----------------------

Total interest-bearing deposits 7,924,628 54,210 1.38 7,423,962 63,548 1.73
Wholesale funding 4,232,740 39,933 1.87 4,490,450 50,890 2.26
---------------------- -----------
Total interest-bearing liabilities 12,157,368 94,143 1.55 11,914,412 114,438 1.93
------ -------
Noninterest-bearing demand deposits 1,718,881 1,587,968
Other liabilities 126,674 145,146
Stockholders' equity 1,376,718 1,294,804
------------- -----------
Total liabilities and equity $15,379,641 $14,942,330
============= ===========
Interest rate spread 3.56% 3.55%
Net free funds 0.24 0.28
----- -----
Taxable equivalent net interest
income and net interest margin $273,745 3.80% $267,157 3.83%
================== =================
Taxable equivalent adjustment 12,791 12,508
-------- --------
Net interest income $260,954 $254,649
======== ========

(1) The yield on tax exempt loans and securities is computed on a taxable
equivalent basis using a tax rate of 35% for all periods presented.

(2) Nonaccrual loans and loans held for sale are included in the average
balances.

(3) Interest income includes net loan fees.

- ----------------------------------------------------------------------------------------------------------------

23

- ----------------------------------------------------------------------------------------------------------------
TABLE 2 (continued)
Net Interest Income Analysis-Taxable Equivalent Basis
($ in Thousands)
- ----------------------------------------------------------------------------------------------------------------
Three Months ended June 30, 2004 Three Months ended June 30, 2003
-------------------------------- ---------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
- ----------------------------------------------------------------------------------------------------------------

Earning assets:
Loans: (1) (2) (3)
Commercial $ 6,684,527 $ 81,007 4.80% $ 6,470,954 $ 83,333 5.10%
Residential real estate 3,334,052 45,095 5.42 3,564,125 51,778 5.81
Consumer 666,963 11,573 6.97 708,351 12,940 7.32
---------------------- ----------------------
Total loans 10,685,542 137,675 5.13 10,743,430 148,051 5.48
Investments and other (1) 3,795,159 47,263 4.98 3,248,185 41,884 5.16
---------------------- ----------------------
Total earning assets 14,480,701 184,938 5.09 13,991,615 189,935 5.41
Other assets, net 1,017,304 1,024,882
----------- -----------
Total assets $15,498,005 $15,016,497
=========== ===========
Interest-bearing liabilities:
Interest-bearing deposits:
Savings deposits $ 939,025 $ 843 0.36% $ 945,048 $ 1,431 0.61%
Interest-bearing demand deposits 2,396,737 4,871 0.82 1,696,412 3,812 0.90
Money market deposits 1,498,900 2,790 0.75 1,632,710 3,999 0.98
Time deposits, excluding Brokered CDs 2,824,920 17,327 2.47 3,052,046 21,549 2.83
---------------------- ----------------------
Total interest-bearing
deposits, excluding Brokered CDs 7,659,582 25,831 1.36 7,326,216 30,791 1.69
Brokered CDs 268,709 825 1.24 175,215 767 1.76
---------------------- ----------------------

Total interest-bearing deposits 7,928,291 26,656 1.35 7,501,431 31,558 1.69
Wholesale funding 4,303,442 20,016 1.85 4,440,446 24,951 2.23
---------------------- ----------------------

Total interest-bearing liabilities 12,231,733 46,672 1.53 11,941,877 56,509 1.89
------ ------
Noninterest-bearing demand deposits 1,773,654 1,619,773
Other liabilities 117,986 146,342
Stockholders' equity 1,374,632 1,308,505
----------- ----------
Total liabilities and equity $15,498,005 $15,016,497
=========== ===========
Interest rate spread 3.56% 3.52%
Net free funds 0.24 0.27
----- -----
Taxable equivalent net interest
income and net interest margin $138,266 3.80% $133,426 3.79%
================== =================
Taxable equivalent adjustment 6,387 6,231
-------- --------
Net interest income $131,879 $127,195
======== ========
- ----------------------------------------------------------------------------------------------------------------

24

- -------------------------------------------------------------------------------------------------
TABLE 3
Volume / Rate Variance - Taxable Equivalent Basis
($ in Thousands)
- -------------------------------------------------------------------------------------------------
Comparison of
Six months ended June 30, 2004 versus 2003
------------------------------------------
Variance Attributable to
------------------------
Income/Expense
Variance (1) Volume Rate
- -------------------------------------------------------------------------------------------------

INTEREST INCOME: (2)
Loans:
Commercial $ (5,394) $ 5,543 $(10,937)
Residential real estate (15,645) (7,259) (8,386)
Consumer (2,562) (2,848) 286
--------------------------------------
Total loans (23,601) (4,564) (19,037)
Investments and other 9,894 13,382 (3,488)
--------------------------------------
Total interest income $(13,707) $ 8,818 $(22,525)
INTEREST EXPENSE:
Interest-bearing deposits:
Savings deposits $ (1,200) $ (27) $ (1,173)
Interest-bearing demand deposits 2,646 3,221 (575)
Money market deposits (2,312) (605) (1,707)
Time deposits, excluding brokered CDs (7,875) (2,073) (5,802)
--------------------------------------
Interest-bearing deposits, excluding brokered CDs (8,741) 516 (9,257)
Brokered CDs (597) 27 (624)
--------------------------------------
Total interest-bearing deposits (9,338) 543 (9,881)
Wholesale funding (10,957) (2,704) (8,253)
--------------------------------------
Total interest expense (20,295) (2,161) (18,134)
--------------------------------------
Net interest income, taxable equivalent $ 6,588 $ 10,979 $ (4,391)
======================================

(1) The change in interest due to both rate and volume has been allocated
proportionately to volume variance and rate variance based on the
relationship of the absolute dollar change in each.

(2) The yield on tax-exempt loans and securities is computed on a taxable
equivalent basis using a tax rate of 35% for all periods presented.

- -------------------------------------------------------------------------------------------------

25

- -------------------------------------------------------------------------------------------------
TABLE 3 (continued)
Volume / Rate Variance - Taxable Equivalent Basis
($ in Thousands)
- -------------------------------------------------------------------------------------------------
Comparison of
Three months ended June 30, 2004 versus 2003
--------------------------------------------
Variance Attributable to
------------------------
Income/Expense
Variance (1) Volume Rate
- -------------------------------------------------------------------------------------------------

INTEREST INCOME: (2)
Loans:
Commercial $ (2,326) $ 2,684 $ (5,010)
Residential real estate (6,683) (2,872) (3,811)
Consumer (1,367) (1,617) 250
--------------------------------------
Total loans (10,376) (1,805) (8,571)
Investments and other 5,379 6,962 (1,583)
--------------------------------------
Total interest income $ (4,997) $ 5,157 $(10,154)
INTEREST EXPENSE:
Interest-bearing deposits:
Savings deposits $ (588) $ (9) $ (579)
Interest-bearing demand deposits 1,059 1,444 (385)
Money market deposits (1,209) (310) (899)
Time deposits, excluding brokered CDs (4,222) (1,546) (2,676)
--------------------------------------
Interest-bearing deposits, excluding brokered CDs (4,960) (421) (4,539)
Brokered CDs 58 330 (272)
--------------------------------------
Total interest-bearing deposits (4,902) (91) (4,811)
Wholesale funding (4,935) (755) (4,180)
--------------------------------------
Total interest expense (9,837) (846) (8,991)
--------------------------------------
Net interest income, taxable equivalent $ 4,840 $ 6,003 $ (1,163)
======================================
- --------------------------------------------------------------------------------------------------

Provision for Loan Losses

The provision for loan losses for the first six months of 2004 was $11.1
million, compared to $25.1 million for the same period in 2003. At June 30,
2004, the allowance for loan losses was $178.0 million, compared to $177.6
million at December 31, 2003, and $172.4 million at June 30, 2003. Net charge
offs were $10.7 million and $15.2 million for the six months ended June 30, 2004
and 2003, respectively. Annualized net charge offs as a percent of average loans
for year-to-date 2004 were 0.20%, compared to 0.30% for the full year 2003 and
0.29% for the comparable year-to-date period in 2003. The ratio of the allowance
for loan losses to total loans was 1.69%, down from 1.73% at December 31, 2003
and up from 1.66% at June 30, 2003. Nonperforming loans at June 30, 2004, were
$85.9 million, compared to $121.5 million at December 31, 2003, and $117.2
million at June 30, 2003. See Table 8.

The provision for loan losses is predominantly a function of the methodology and
other qualitative and quantitative factors used to determine the adequacy of the
allowance for loan losses which focuses on changes in the size and character of
the loan portfolio, changes in levels of impaired and other nonperforming loans,
historical losses on each portfolio category, the risk inherent in specific
loans, concentrations of loans to specific borrowers or industries, existing
economic conditions, the fair value of underlying collateral, and other factors
which could affect potential credit losses. See additional discussion under
sections "Allowance for Loan Losses," and "Nonperforming Loans and Other Real
Estate Owned."

26

Noninterest Income

For the six months ended June 30, 2004, noninterest income was $108.4 million,
down $23.6 million or 17.9% compared to $132.0 million for year-to-date 2003.
The change between comparable periods was impacted by mortgage banking income
(notably lower revenue from significantly lower refinancing activity throughout
the industry), the timing of a 2003 sale and services agreement relating to the
Corporation's credit card merchant processing business, and partially offset by
the acquisitions of CFG and Jabas.

- ---------------------------------------------------------------------------------------------------------------------------
TABLE 4
Noninterest Income
($ in Thousands)
- ---------------------------------------------------------------------------------------------------------------------------
2nd Qtr. 2nd Qtr. Dollar Percent YTD YTD Dollar Percent
2004 2003 Change Change 2004 2003 Change Change
- ---------------------------------------------------------------------------------------------------------------------------

Trust service fees $ 8,043 $ 7,796 $ 247 3.2% $ 15,911 $ 14,426 $ 1,485 10.3%
Service charges on deposit accounts 13,141 12,462 679 5.4 25,538 24,273 1,265 5.2
Mortgage banking 9,045 27,113 (18,068) (66.6) 18,071 51,613 (33,542) (65.0)
Credit card & other nondeposit fees 6,074 5,192 882 17.0 11,745 12,588 (843) (6.7)
Retail commissions 13,162 7,407 5,755 77.7 22,519 10,710 11,809 110.3
Bank owned life insurance income 3,641 3,450 191 5.5 6,996 6,841 155 2.3
Other 2,742 4,771 (2,029) (42.5) 5,874 11,550 (5,676) (49.1)
------------------------------------------------------------------------------------
Subtotal $55,848 $68,191 $(12,343) (18.1)% $106,654 $132,001 $(25,347) (19.2)%
Asset sale gains (losses), net 218 (790) 1,008 N/M 440 (668) 1,108 N/M
Investment securities gains
(losses), net (569) 1,027 (1,596) N/M 1,362 701 661 N/M
------------------------------------------------------------------------------------
Total noninterest income $55,497 $68,428 $(12,931) (18.9)% $108,456 $132,034 $(23,578) (17.9)%
====================================================================================
N/M - Not meaningful.
- ---------------------------------------------------------------------------------------------------------------------------

Trust service fees were $15.9 million, up $1.5 million, or 10.3%, between the
comparable six-month periods. The change was predominantly the result of new
business, increases in the fee structure on personal trust accounts in mid-2003,
and an improving stock market. The market value of assets under management was
$4.3 billion at June 30, 2004 compared to $3.8 billion at June 30, 2003,
reflecting higher equity values compared to the prior year.

Service charges on deposit accounts were $25.5 million, up $1.3 million, or
5.2%, a function of both higher service charges on business accounts and higher
fees on overdrafts/nonsufficient funds (due to rate increases and higher
volumes).

Mortgage banking income in 2004 was affected by a slowdown in refinancing
activity throughout the industry due to higher mortgage rates. Mortgage banking
income, consisting of servicing fees, the gain or loss on sales of mortgage
loans to the secondary market, and other related fees, was $18.1 million for the
first half of 2004, down $33.5 million from the comparable period in 2003. The
decrease was driven primarily by reduced secondary mortgage loan production
(mortgage loan production to be sold to the secondary market) and resultant
sales. Secondary mortgage loan production declined 60% between the comparable
six-month periods ($0.9 billion in the first half of 2004 versus $2.3 billion in
the first half of 2003). The lower production levels impacted both gains on
sales of loans and volume-related fees, collectively down $33.7 million.
Servicing fees on the portfolio serviced for others were up $0.2 million between
comparable periods, due largely to an increase in the portfolio serviced for
others ($6.01 billion at June 30, 2004, versus $5.47 billion at June 30, 2003).

Credit card and other nondeposit fees were $11.7 million for the first six
months of 2004, a decrease of $0.8 million or 6.7% from year-to-date 2003. The
decrease was attributable predominantly to lower credit card fees associated
with a merchant processing sale and services agreement signed in March 2003,
partially offset by increases in other commercial and retail fees.

Retail commission income (which includes commissions from insurance and
brokerage product sales) was $22.5 million, up $11.8 million between comparable
periods, largely impacted by the acquisitions of CFG on April 1, 2003 and Jabas
on April 1, 2004. Insurance commissions were up $10.9 million (including $1.5
million increase in fixed annuities) and brokerage commissions were up $0.9
million (including $0.2 million increase in variable annuities), aided by
stronger financial market performance.

27

Other noninterest income was $5.9 million for the first six months of 2004, down
$5.7 million versus the comparable period in 2003, which included a $1.5 million
gain on the sale of out-of-market credit card accounts and a $3.4 million gain
recognized in connection with a credit card merchant processing sale and
services agreement. Asset sale gains for 2004 were $0.4 million, including a
$0.3 million net premium on the sale of $7 million in deposits from one branch
and $0.3 million net gain on the sale of an other real estate owned property,
while asset sale losses for 2003 were $0.7 million, including a $0.6 million
loss on the sale of an other real estate owned property. The 2004 investment
securities gain of $1.4 million was the net result of a $1.9 million gain on the
sale of common stock holdings during first quarter, net of a second quarter $0.2
million other-than-temporary write-down on a security and a $0.4 million loss on
the sale of securities. The 2003 investment securities net gain of $0.7 million
was the net result of a second quarter $1.0 million gain on the sale of common
stock holdings, net of a first quarter $0.3 million other-than-temporary
write-down on a security.

Noninterest Expense

Noninterest expense was $183.3 million, down $15.5 million compared to last
year, with higher costs due to the CFG and Jabas acquisitions more than offset
by lower mortgage servicing rights expense and loan expense.

- ---------------------------------------------------------------------------------------------------------------------------
TABLE 5
Noninterest Expense
- ---------------------------------------------------------------------------------------------------------------------------
2nd Qtr. 2nd Qtr. Dollar Percent YTD YTD Dollar Percent
2004 2003 Change Change 2004 2003 Change Change
- ---------------------------------------------------------------------------------------------------------------------------
($ in Thousands)

Personnel expense $53,612 $ 51,733 $ 1,879 3.6% $105,888 $100,569 $ 5,319 5.3%
Occupancy 6,864 7,151 (287) (4.0) 14,336 14,266 70 0.5
Equipment 2,878 3,190 (312) (9.8) 5,877 6,434 (557) (8.7)
Data processing 6,128 5,602 526 9.4 11,801 11,220 581 5.2
Business development &
advertising 4,057 3,553 504 14.2 6,714 6,916 (202) (2.9)
Stationery and supplies 1,429 1,634 (205) (12.5) 2,655 3,313 (658) (19.9)
Mortgage servicing rights
expense (2,368) 13,021 (15,389) (118.2) 4,404 24,619 (20,215) (82.1)
Intangible amortization expense 934 870 64 7.4 1,716 1,220 496 40.7
Loan expense 1,670 950 720 75.8 3,056 4,298 (1,242) (28.9)
Other 14,415 14,483 (68) (0.5) 26,828 25,886 942 3.6
-----------------------------------------------------------------------------------
Total noninterest expense $89,619 $102,187 $(12,568) (12.3)% $183,275 $198,741 $(15,466) (7.8)%
===================================================================================
- ---------------------------------------------------------------------------------------------------------------------------

Personnel expense (including salary-related expenses and fringe benefit
expenses) increased $5.3 million or 5.3% over the first six months of 2003. The
increase was attributable to the CFG and Jabas acquisitions, annual merit
increases, and higher commission-based compensation, mitigated by lower costs
due to lower overtime and temporary help and a reduction in full-time equivalent
employees throughout the organization created by operating efficiencies and more
disciplined hiring. Average full-time equivalent employees were 4,017 for the
first six months of 2004 compared to 4,111 for the first six months of 2003.
Salary-related expenses increased $3.7 million or 4.8% due principally to merit
increases between the years and higher commission-based compensation. Fringe
benefits were up $1.6 million or 6.8% over the first half of 2003, due primarily
to the increased cost of premium based benefits and other benefit plans.

Equipment expense declined $0.6 million, principally in equipment and computer
depreciation expense, given aging equipment and lower replacement costs. Data
processing costs increased to $11.8 million, up $0.6 million over the comparable
period in 2003, due to web-based and other technology enhancements and
conversions. Stationery and supplies were down $0.7 million and business
development and advertising were down $0.2 million, both reflecting corporate
initiatives to reduce selected discretionary expenses in 2004.

Mortgage servicing rights expense includes both the amortization of the mortgage
servicing rights asset and increases or decreases to the valuation allowance
associated with the mortgage servicing rights asset. Mortgage servicing rights
expense decreased by $20.2 million between the six-month periods, with a $4.2
million recovery of the valuation allowance during year-to-date 2004 versus a
$15.8 million addition to the valuation allowance for year-to-date 2003, and
minimal change in the amortization of the mortgage servicing

28

rights asset. Periods of strong mortgage refinance activity, particularly seen
in the first half of 2003, increased the prepayment speeds of the Corporation's
mortgage portfolio serviced for others, then slowed through the second half of
2003 and into 2004. While the continued reduction in refinancing activity in
2004 reduced mortgage banking income (as noted in section "Noninterest Income"),
it also further slowed prepayment speeds in the servicing portfolio, supporting
greater value of the mortgage servicing asset and lowering mortgage servicing
rights expense. The fair value of servicing was approximately $48.7 million
(representing 81 bp of loans serviced) at June 30, 2004, compared to $27.8
million (or 51 bp of loans serviced) at June 30, 2003. Estimated prepayment
speeds are a key factor behind the valuation of mortgage servicing rights.
Mortgage servicing rights are considered a critical accounting policy given that
estimating the fair value of the mortgage servicing rights involves judgment,
particularly of estimated prepayment speeds of the underlying mortgages serviced
and the overall level of interest rates. Loan type and note rate are the
predominant risk characteristics of the underlying loans used to stratify
capitalized mortgage servicing rights for purposes of measuring impairment. A
valuation allowance is established to the extent the carrying value of the
mortgage servicing rights exceeds the estimated fair value by stratification.
Net income could be affected if management's estimates of the prepayment speeds
or other factors differ materially from actual prepayments. An
other-than-temporary impairment is recognized as a write-down of the mortgage
servicing rights asset and the related valuation allowance (to the extent
valuation allowance is available) and then against earnings. A direct write-down
permanently reduces the carrying value of the mortgage servicing rights asset
and valuation allowance, precluding subsequent recoveries. Mortgage servicing
rights, included in other intangible assets on the consolidated balance sheet,
were $48.7 million, net of a $13.0 million valuation allowance at June 30, 2004.
See section "Critical Accounting Policies" and Note 6, "Goodwill and Other
Intangible Assets," of the notes to consolidated financial statements.

Loan expense was $3.1 million, down $1.2 million between comparable periods,
primarily due to lower merchant processing costs, given the sale of the merchant
processing during the first quarter of 2003, and lower mortgage loan expenses.
Other expense was up $0.9 million from year-to-date 2003, attributable
principally to higher loan collection and foreclosure expenses.

Income Taxes

Income tax expense for the first six months of 2004 was $51.0 million, up $2.8
million from the comparable period in 2003. The effective tax rate (income tax
expense divided by income before taxes) was 29.1% and 29.6% for year-to-date
2004 and year-to-date 2003, respectively.

Income tax expense recorded in the consolidated statements of income involves
the interpretation and application of certain accounting pronouncements and
federal and state tax codes, and is, therefore, considered a critical accounting
policy. The Corporation undergoes examination by various taxing authorities.
Such taxing authorities may require that changes in the amount of tax expense or
valuation allowance be recognized when 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."

Balance Sheet

At June 30, 2004, total assets were $15.5 billion, an increase of $0.3 billion,
or 1.9%, over June 30, 2003. The growth in assets was comprised principally of
increases in investment securities (up $425 million, notably in mortgage-related
securities) and loans (up $169 million), offset by a decrease of $323 million in
loans held for sale. Commercial loans grew $126 million, or 1.9%, since June 30,
2003 to represent 64% of total loans at June 30, 2004. Home equity loans grew
$116 million, or 12.9%, an area of growth emphasis; while residential mortgage
loans decreased $32 million. Total deposits of $9.6 billion at June 30, 2004
were up $130 million, or 1.4%, compared to a year ago. Interest-bearing
transaction accounts (savings, interest-bearing demand, and money market) grew
by $444 million (10.2%). Brokered CDs increased $100 million, while other time
deposits declined $403 million to 28% of deposits at June 30, 2004 versus 33% at
June 30, 2003, attributable to scheduled maturities, the low interest rate
environment, and improvements in market conditions. Short-term borrowings grew
$509 million, primarily in federal funds purchased. Long-term funding was down
$377 million since June 30, 2003, as Federal Home Loan Bank advances and bank
notes

29

matured and were replaced by short-term borrowings or smaller issuances of
Federal Home Loan Bank advances and repurchase agreements (see Note 7,
"Long-term Funding," of the notes to consolidated financial statements).

Since year-end 2003 the balance sheet increased $0.3 billion, 3.4% annualized
growth, principally from loan growth. Loans grew $265 million, primarily in
commercial loans (up $228 million) and residential real estate (up $68 million),
while consumer loans decreased $31 million. Deposits decreased $209 million to
$9.6 billion at June 30, 2004, attributable to a $303 million decline in other
time deposits, partially offset by a $98 million increase in brokered CDs.
Short-term borrowings grew $659 million (primarily in federal funds purchased
and securities sold under agreements to repurchase), while long-term funding
declined $207 million (due to scheduled maturities of Federal Home Loan Bank
advances). See Tables 6 and 7 for period end loan and deposit composition,
respectively.

- ----------------------------------------------------------------------------------------------------------------------
TABLE 6
Period End Loan Composition
($ in Thousands)
- ----------------------------------------------------------------------------------------------------------------------
June 30, % of June 30, % of Dec. 31, % of
2004 Total 2003 Total 2003 Total
- ----------------------------------------------------------------------------------------------------------------------

Commercial, financial &agricultural $ 2,247,779 21% $ 2,312,143 22% $ 2,116,463 21%
Real estate-construction 1,118,284 11 975,415 10 1,077,731 10
Commercial real estate 3,292,783 31 3,255,918 31 3,246,954 32
Lease financing 48,979 1 38,666 -- 38,968 --
-------------------------------------------------------------------------
Commercial 6,707,825 64 6,582,142 63 6,480,116 63
Residential mortgage 2,170,984 20 2,202,690 21 2,145,227 21
Home equity 1,011,489 10 895,952 9 968,744 9
-------------------------------------------------------------------------
Residential real estate 3,182,473 30 3,098,642 30 3,113,971 30
Consumer 666,305 6 706,580 7 697,723 7
-------------------------------------------------------------------------
Total loans $10,556,603 100% $10,387,364 100% $10,291,810 100%
=========================================================================
- ----------------------------------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------------------
TABLE 7
Period End Deposit Composition
($ in Thousands)
- ----------------------------------------------------------------------------------------------------------------------
June 30, % of June 30, % of Dec. 31, % of
2004 Total 2003 Total 2003 Total
- ----------------------------------------------------------------------------------------------------------------------

Noninterest-bearing demand $ 1,822,716 19% $ 1,833,703 19% $ 1,814,446 18%
Savings 948,755 10 942,027 10 890,092 9
Interest-bearing demand 2,355,287 25 1,797,065 19 2,330,478 24
Money market 1,477,513 15 1,598,317 17 1,573,678 16
Brokered CDs 263,435 3 163,857 2 165,130 2
Other time 2,715,886 28 3,118,491 33 3,019,019 31
-----------------------------------------------------------------------
Total deposits $ 9,583,592 100% $ 9,453,460 100% $ 9,792,843 100%
=======================================================================
Total deposits, excluding Brokered CDs $ 9,320,157 97% $ 9,289,603 98% $ 9,627,713 98%
=======================================================================
- ----------------------------------------------------------------------------------------------------------------------

Allowance for Loan Losses

The loan portfolio is the primary asset subject to credit risk. Credit risks are
inherently different for each different loan type. Credit risk is controlled and
monitored through the use of lending standards, a thorough review of potential
borrowers, and on-going review of loan payment performance. Active asset quality
administration, including early problem loan identification and timely
resolution of problem loans, aids in the management of credit risk and
minimization of loan losses.

30

- -------------------------------------------------------------------------------------------------------------
TABLE 8
Allowance for Loan Losses and Nonperforming Assets
($ in Thousands)
- -------------------------------------------------------------------------------------------------------------
At and for the At and for the
six months ended year ended
June 30, December 31,
- -------------------------------------------------------------------------------------------------------------

2004 2003 2003
--------------------------------------------
Allowance for Loan Losses:
Balance at beginning of period $177,622 $162,541 $162,541
Provision for loan losses 11,065 25,092 46,813
Charge offs (12,722) (17,291) (37,107)
Recoveries 2,015 2,098 5,375
-------------------------------------------
Net charge offs (10,707) (15,193) (31,732)
-------------------------------------------
Balance at end of period $177,980 $172,440 $177,622
===========================================

Nonperforming Assets:
Nonaccrual loans $ 80,622 $110,820 $113,944
Accruing loans past due 90 days or more 5,207 6,311 7,495
Restructured loans 40 46 43
-------------------------------------------
Total nonperforming loans 85,869 117,177 121,482
Other real estate owned 6,613 14,707 5,457
-------------------------------------------
Total nonperforming assets $ 92,482 $131,884 $126,939
===========================================

Ratios:
Allowance for loan losses to net charge offs (annualized) 8.27x 5.63x 5.60x
Net charge offs to average loans (annualized) 0.20% 0.29% 0.30%
Allowance for loan losses to total loans 1.69% 1.66% 1.73%
Nonperforming loans to total loans 0.81% 1.13% 1.18%
Nonperforming assets to total assets 0.60% 0.87% 0.83%
Allowance for loan losses to nonperforming loans 207% 147% 146%
- -------------------------------------------------------------------------------------------------------------

As of June 30, 2004, the allowance for loan losses was $178.0 million compared
to $172.4 million at June 30, 2003, and $177.6 million at December 31, 2003. The
allowance for loan losses at June 30, 2004 increased $5.6 million since June 30,
2003 and $0.4 million since December 31, 2003. At June 30, 2004, the allowance
for loan losses to total loans was 1.69% and covered 207% of nonperforming
loans, compared to 1.66% and 147%, respectively, at June 30, 2003, and 1.73% and
146%, respectively, at December 31, 2003. Table 8 provides additional
information regarding activity in the allowance for loan losses and
nonperforming assets.

Gross charge offs were $12.7 million for the six months ended June 30, 2004,
$17.3 million for the comparable period ended June 30, 2003, and $37.1 million
for year-end 2003, while recoveries for the corresponding periods were $2.0
million, $2.1 million and $5.4 million, respectively. The ratio of net charge
offs to average loans on an annualized basis was 0.20%, 0.29%, and 0.30% for the
six-month periods ended June 30, 2004 and June 30, 2003, and for the 2003 year,
respectively. Five commercial credits in various industries accounted for
approximately $5.5 million of the net charge offs for the six months ended June
30, 2004, while a few commercial credits in the construction and hospitality
industry accounted for approximately $9.3 million and $16.5 million of the net
charge offs for the six months ended June 30, and the year ended December 31,
2003, respectively.

The allowance for loan losses represents management's estimate of an amount
adequate to provide for probable credit losses in the loan portfolio at the
balance sheet date. To assess the adequacy of the allowance for loan losses, an
allocation methodology is applied by the Corporation, which focuses on changes
in the size and character of the loan portfolio, changes in levels of impaired
or other nonperforming loans, the risk inherent in specific loans,
concentrations of loans to specific borrowers or industries, existing economic
conditions, underlying collateral, historical losses on each portfolio category,
and other qualitative and

31

quantitative factors which could affect probable credit losses. Assessing these
numerous factors involves significant judgment. Management considers the
allowance for loan losses a critical accounting policy (see section "Critical
Accounting Policies"). The change in the allowance for loan losses is a function
of a number of factors, including but not limited to changes in the loan
portfolio (see Table 6), net charge offs and nonperforming loans (see Table 8).

The allocation methods used for June 30, 2004, June 30, 2003, and December 31,
2003 were comparable, using specific allocations or factors for criticized loans
and for non-criticized loan categories, as defined by the Corporation. Factors
applied are reviewed periodically and adjusted to reflect changes in trends or
other risks. Current economic conditions at each period end carried various
uncertainties requiring management's judgment as to the impact on the business
results of numerous individual borrowers and certain industries. Total loans at
June 30, 2004, were up $169 million (1.6%) since June 30, 2003, primarily in the
commercial portfolio, which grew $126 million, or 1.9%, to represent 64% of
total loans versus 63% a year ago (see Table 6). Total loans increased $265
million compared to December 31, 2003, with commercial loans accounting for the
majority of growth (up $228 million, or 7.1%, annualized). Nonperforming loans
were $85.9 million, or 0.81% of total loans at June 30, 2004, down from $117.2
million, or 1.13% of loans a year ago, and $121.5 million, or 1.18% of loans at
year-end 2003. Approximately $22 million of the $35.6 million improvement in
nonperforming loans since year-end came from paydowns on four large problem
loans, as management continues to work through problem credits. As a result,
criticized commercial loans were down modestly (9%) since December 31, 2003, as
several larger loans were removed from criticized loans as loan paydowns were
received (as noted above) or were upgraded to lower-risk categories due to
overall credit improvements; however, potential problem loans have increased 13%
since December 31, 2003 (see section "Nonperforming Loans and Other Real Estate
Owned"). The allowance for loan losses to loans was 1.69%, 1.66% and 1.73% for
June 30, 2004, and June 30 and December 31, 2003, respectively.

Management believes the allowance for loan losses to be adequate at June 30,
2004.

Consolidated net income could be affected if management's estimate of the
allowance for loan losses is subsequently materially different, requiring
additional or less provision for loan losses to be recorded. Management
carefully considers numerous detailed and general factors, its assumptions, and
the likelihood of materially different conditions that could alter its
assumptions. While management uses currently available information to recognize
losses on loans, future adjustments to the allowance for loan losses may be
necessary based on changes in economic conditions and the impact of such change
on the Corporation's borrowers. As an integral part of their examination
process, various regulatory agencies also review the allowance for loan losses.
Such agencies may require that certain loan balances be charged off when their
credit evaluations differ from those of management, based on their judgments
about information available to them at the time of their examination.

Nonperforming Loans and Other Real Estate Owned

Management is committed to an aggressive nonaccrual and problem loan
identification philosophy. This philosophy is implemented through the ongoing
monitoring and reviewing of all pools of risk in the loan portfolio to ensure
that problem loans are identified quickly and the risk of loss is minimized.

Nonperforming loans are considered one indicator of potential future loan
losses. Nonperforming loans are defined as nonaccrual loans, loans 90 days or
more past due but still accruing, and restructured loans. The Corporation
specifically excludes from its definition of nonperforming loans student loan
balances that are 90 days or more past due and still accruing and that have
contractual government guarantees as to collection of principal and interest.
The Corporation had $9 million, $16 million and $13 million of these loans at
June 30, 2004, June 30, 2003, and December 31, 2003, respectively.

Table 8 provides detailed information regarding nonperforming assets, which
include nonperforming loans and other real estate owned. Nonperforming assets to
total assets were 0.60%, 0.87%, and 0.83% at June 30, 2004, June 30, 2003, and
December 31, 2003, respectively.

32

Total nonperforming loans at June 30, 2004 were down $31.3 million from June 30,
2003 and $35.6 million from year-end 2003. The ratio of nonperforming loans to
total loans was 0.81% at June 30, 2004, as compared to 1.13% and 1.18% at June
30, 2003, and year-end 2003, respectively. Compared to June 30, 2003, nonaccrual
loans account for the majority of the $31.3 million decrease in nonperforming
loans, with the majority of the improvement attributable to the paydowns on four
large problem credits (totaling approximately $22 million, with one each in the
hospitality industry, the construction industry, a golf course, and multi-family
housing), as management continues to work through problem credits. Nonaccrual
loans decreased $30.2 million and accruing loans past due 90 or more days were
down $1.1 million between June periods-ends. Compared to December 31, 2003,
nonaccrual loans also account for the majority of the $35.6 million decrease in
nonperforming loans (nonaccrual loans down $33.3 million and accruing loans past
due 90 or more days down $2.3 million), with the majority of the improvement
also attributable to the paydowns noted previously.

Other real estate owned was $6.6 million at June 30, 2004, compared to $14.7
million at June 30, 2003, and $5.5 million at year-end 2003. The change in other
real estate owned was predominantly due to the addition and subsequent sale of
commercial real estate properties. An $8.0 million property was added during
fourth quarter 2002, three commercial properties (at $1.1 million, $1.5 million,
and $2.7 million) were added during 2003, and a $1.3 million commercial property
was added during first quarter 2004. The $1.5 million property was sold during
the second quarter of 2003 (at a net loss of $0.6 million), the $8.0 million
property was sold during the third quarter of 2003 (at a net gain of $1.0
million), and the $2.7 million property was sold during the fourth quarter of
2003 (at a small gain). Also during fourth quarter 2003, a $0.5 million
write-down was recorded in other noninterest expense on another commercial
property in other real estate owned.

Potential problem loans are certain loans bearing risk ratings by management
that are not in nonperforming loan status but where there are doubts 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. The
level of potential problem loans is a predominant factor in determining the
relative level of risk in the loan portfolio and in the determination of the
level of the allowance for loan losses. The loans that have been reported as
potential problem loans are not concentrated in a particular industry but rather
cover a diverse range of businesses. At June 30, 2004, potential problem loans
totaled $277 million, compared to $236 million at June 30, 2003, and $245
million at December 31, 2003.

Liquidity

The objective of liquidity 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 meet its commitments as they fall due. Funds are
available from a number of sources, primarily from the core deposit base and
from loans and securities repayments and maturities. Additionally, liquidity is
provided from sales of the securities portfolio, lines of credit with major
banks, the ability to acquire large and brokered deposits, and the ability to
securitize or package loans for sale.

The Corporation's liquidity management framework includes measurement of several
key elements, such as wholesale funding as a percent of total assets and liquid
assets to short-term wholesale funding. The Corporation's liquidity framework
also incorporates contingency planning to assess the nature and volatility of
funding sources and to determine alternatives to these sources. The contingency
plan would be activated to ensure the Corporation's funding commitments could be
met in the event of general market disruption or adverse economic conditions.

Strong capital ratios, credit quality, and core earnings are essential to
retaining high credit ratings and, consequently, cost-effective access to the
wholesale funding markets. A downgrade or loss in credit ratings could have an
impact on the Corporation's ability to access wholesale funding at favorable
interest rates. As a result, capital ratios, asset quality measurements, and
profitability ratios are monitored on an ongoing basis as part of the liquidity
management process.

33

While core deposits and loan and investment repayment are principal sources of
liquidity, funding diversification is another key element of liquidity
management. Diversity is achieved by strategically varying depositor type, term,
funding market, and instrument. The Parent Company and certain subsidiary banks
are rated by Moody's, Standard and Poor's, and Fitch. These ratings, along with
the Corporation's other ratings, provide opportunity for greater funding
capacity and funding alternatives.

The Parent Company manages its liquidity position to provide the funds necessary
to pay dividends to stockholders, service debt, invest in subsidiaries,
repurchase common stock, and satisfy other operating requirements. The Parent
Company's primary funding sources to meet its liquidity requirements are
dividends and service fees from subsidiaries, borrowings with major banks,
commercial paper issuance, and proceeds from the issuance of equity. The
subsidiary banks are subject to regulation and, among other things, may be
limited in their ability to pay dividends or transfer funds to the Parent
Company. Accordingly, consolidated cash flows as presented in the consolidated
statements of cash flows may not represent cash immediately available for the
payment of cash dividends to the shareholders or for other cash needs.

In addition to dividends and service fees from subsidiaries, the Parent Company
has multiple funding sources that could be used to increase liquidity and
provide additional financial flexibility. These sources include a revolving
credit facility, commercial paper, and two shelf registrations to issue debt and
preferred securities or a combination thereof. The Parent Company has available
a $100 million revolving credit facility with established lines of credit from
nonaffiliated banks, of which $100 million was available at June 30, 2004. In
addition, $200 million of commercial paper was available at June 30, 2004, under
the Parent Company's commercial paper program.

In May 2002, the Parent Company filed a "shelf" registration statement under
which up to $300 million of trust preferred securities may be offered. In May
2002, $175 million of trust preferred securities were issued, bearing a 7.625%
fixed coupon rate. At June 30, 2004, $125 million was available under the trust
preferred shelf. In May 2001, the Parent Company filed a "shelf" registration
statement whereby the Parent Company may offer up to $500 million of any
combination of the following securities, either separately or in units: debt
securities, preferred stock, depositary shares, common stock, and warrants. In
August 2001, the Parent Company obtained $200 million in a subordinated note
offering, bearing a 6.75% fixed coupon rate and 10-year maturity. At June 30,
2004, $300 million was available under the shelf registration.

Investment securities are an important tool to the Corporation's liquidity
objective. As of June 30, 2004, all securities are classified as available for
sale and are reported at fair value on the consolidated balance sheet. Of the
$3.8 billion investment portfolio at June 30, 2004, $2.0 billion were pledged to
secure certain deposits, Federal Home Loan Bank advances, or for other purposes
as required or permitted by law. The remaining securities could be pledged or
sold to enhance liquidity, if necessary.

The bank subsidiaries have a variety of funding sources (in addition to key
liquidity sources, such as core deposits, loan sales, loan and investment
portfolio repayments and maturities, and loan and investment portfolio sales)
available to increase financial flexibility. A $2 billion bank note program
associated with Associated Bank, National Association, was established during
2000. Under this program, short-term and long-term debt may be issued. As of
June 30, 2004, $300 million of long-term bank notes and $200 million of
short-term bank notes were outstanding. At June 30, 2004, $1.5 billion was
available under this program. The banks have also established federal funds
lines with major banks and the ability to borrow from the Federal Home Loan Bank
($0.8 billion was outstanding at June 30, 2004). In addition, the bank
subsidiaries also accept Eurodollar deposits, issue institutional certificates
of deposit, and from time to time offer brokered certificates of deposit.

For the six months ended June 30, 2004, net cash provided from operating and
financing activities was $184.4 million and $186.3 million, respectively, while
investing activities used net cash of $410.2 million, for a net decrease in cash
and cash equivalents of $39.5 million since year-end 2003. In the first six
months of 2004 maturities of time deposits occurred (down $303 million or 20%
annualized) and net asset growth since

34

year-end 2003 was moderate (up $255 million or 3% annualized). Therefore, other
funding sources were utilized, particularly short-term borrowings, to fund asset
growth, replenish the net decrease in deposits, provide for the repayment of
long-term debt and common stock repurchases, and payment of cash dividends to
the Corporation's stockholders.

For the six months ended June 30, 2003, net cash provided from operating and
financing activities was $87.2 million and $41.2 million, respectively, while
investing activities used net cash of $151.5 million, for a net decrease in cash
and cash equivalents of $23.1 million since year-end 2002. In the first six
months of 2003 deposit growth was strong (up $329 million), while net asset
growth since year-end 2002 was moderate (up $176 million or 2% annualized).
Thus, the reliance on other funding sources was reduced, particularly short-term
borrowings. The deposit growth provided for the repayment of short-term
borrowings and long-term debt, common stock repurchases, and the payment of cash
dividends to the Corporation's stockholders.

Capital

On April 28, 2004, the Board of Directors declared a 3-for-2 stock split,
effected in the form of a stock dividend, payable on May 12, 2004, to
shareholders of record at the close of business on May 7, 2004. All share and
per share information in the accompanying consolidated financial statements has
been restated to reflect the effect of this stock split.

In January 2004, the Board of Directors, with subsequent approval of the
Corporation's shareholders, approved an amendment to the Articles of
Incorporation of the Corporation to increase the number of authorized shares of
the Corporation's Common Stock from 100,000,000 to 250,000,000 shares.

Stockholders' equity at June 30, 2004 increased to $1.4 billion, up $60.6
million compared to June 30, 2003. The increase in equity between the two
periods was primarily composed of the retention of earnings and the exercise of
stock options, with partially offsetting decreases to equity from the payment of
dividends and the repurchase of common stock. Additionally, stockholders' equity
at June 30, 2004, included $15.3 million of accumulated other comprehensive
income versus $65.8 million at June 30, 2003. The decrease in accumulated other
comprehensive income was predominantly related to a decrease in unrealized gains
on securities available for sale, partially offset by a change in the additional
pension obligation and lower unrealized losses on cash flow hedges, net of the
tax effect. The ratio of stockholders' equity to assets was 8.89% and 8.66% at
June 30, 2004 and 2003, respectively.

Stockholders' equity grew $30.5 million since year-end 2003. The increase in
equity between the two periods was primarily composed of the retention of
earnings and the exercise of stock options, with partially offsetting decreases
to equity from the payment of dividends and the repurchase of common stock.
Additionally, stockholders' equity at year-end 2003 included $52.1 million of
accumulated other comprehensive income versus $15.3 million at June 30, 2004.
The decrease in accumulated other comprehensive income was predominantly related
to lower unrealized gains on securities available for sale, partially offset by
lower unrealized losses on cash flow hedges, net of the tax effect.
Stockholders' equity to assets at June 30, 2004 was 8.89%, compared to 8.84% at
December 31, 2003.

Cash dividends of $0.4767 per share were paid in year-to-date 2004, compared to
$0.4333 per share in year-to-date 2003, representing an increase of 10.0%.

The Board of Directors has authorized management to repurchase shares of the
Corporation's common stock each quarter in the market, to be made available for
issuance in connection with the Corporation's employee incentive plans and for
other corporate purposes. For the Corporation's employee incentive plans, the
Board of Directors authorized the repurchase of up to 3.0 million shares in 2004
(750,000 shares per quarter) and up to 2.4 million shares (600,000 shares per
quarter) in 2003. Of these authorizations, 697,000 shares were repurchased for
$20.1 million during the first six months of 2004 at an average cost of $28.91
per share, while none were repurchased during 2003. Additionally, under two
separate actions in 2000 and one action in 2003, the Board of Directors
authorized the repurchase and cancellation of the Corporation's outstanding

35

shares, not to exceed approximately 16.5 million shares on a combined basis.
Under these authorizations no shares were repurchased during the first six
months of 2004, while approximately 1.8 million shares were repurchased during
year-to-date 2003 at an average cost of $23.11 per share. At June 30, 2004,
approximately 5.6 million shares remain authorized to repurchase. The repurchase
of shares will be based on market opportunities, capital levels, growth
prospects, and other investment opportunities.

The adequacy of the Corporation's capital is regularly reviewed to ensure that
sufficient capital is available for current and future needs and is in
compliance with regulatory guidelines. The assessment of overall capital
adequacy depends on a variety of factors, including asset quality, liquidity,
stability of earnings, changing competitive forces, economic conditions in
markets served and strength of management. The capital ratios of the Corporation
and its banking affiliates are greater than minimums required by regulatory
guidelines. The Corporation's capital ratios are summarized in Table 9.

- -----------------------------------------------------------------------------------------------------------------
TABLE 9 (1)
Capital Ratios
(In Thousands, except per share data)
- -----------------------------------------------------------------------------------------------------------------
June 30, March 31, Dec. 31, Sept. 30, June 30,
2004 2004 2003 2003 2003
- -----------------------------------------------------------------------------------------------------------------

Total stockholders' equity $1,378,894 $1,395,293 $1,348,427 $1,300,948 $1,318,246
Tier 1 capital 1,275,924 1,255,142 1,221,647 1,189,657 1,177,457
Total capital 1,631,109 1,607,707 1,572,770 1,538,751 1,526,884
Market capitalization 3,260,722 3,289,616 3,137,330 2,774,558 2,699,844
---------------------------------------------------------------------
Book value per common share $ 12.53 $ 12.67 $ 12.26 $ 11.84 $ 11.92
Cash dividend per common share 0.2500 0.2267 0.2267 0.2267 0.2267
Stock price at end of period 29.63 29.86 28.53 25.26 24.41
Low closing price for the quarter 27.09 28.08 25.87 24.75 21.43
High closing price for the quarter 30.13 30.37 28.75 25.93 25.61
---------------------------------------------------------------------
Total equity / assets 8.89% 9.00% 8.84% 8.61% 8.66%
Tier 1 leverage ratio 8.37 8.36 8.37 7.98 7.97
Tier 1 risk-based capital ratio 11.06 11.00 10.86 10.64 10.48
Total risk-based capital ratio 14.14 14.10 13.99 13.76 13.58
---------------------------------------------------------------------
Shares outstanding (period end) 110,048 110,168 109,966 109,840 110,604
Basic shares outstanding (average) 110,116 110,294 109,965 110,209 110,938
Diluted shares outstanding (average) 111,520 111,830 111,499 111,485 112,025

(1) All share and per share financial information has been restated to reflect
the effect of the 3-for-2 stock split.
- -----------------------------------------------------------------------------------------------------------------------

Contractual Obligations, Commitments, Off-Balance Sheet Risk,
and Contingent Liabilities

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
commitments to extend credit, commitments to originate residential mortgage
loans held for sale, commercial letters of credit, standby letters of credit,
forward commitments to sell residential mortgage loans, interest rate swaps, and
interest rate caps. Please refer to the Corporation's Annual Report on Form 10-K
for the year ended December 31, 2003, for discussion with respect to the
Corporation's quantitative and qualitative disclosures about its fixed and
determinable contractual obligations. Items disclosed in the Annual Report on
Form 10-K have not materially changed since that report was filed. A discussion
of the Corporation's derivative instruments at June 30, 2004, is included in
Note 8, "Derivatives and Hedging Activities," of the notes to consolidated
financial statements and a discussion of the Corporation's commitments is
included in Note 9, "Contractual Obligations, Commitments, Off-Balance Sheet
Risk, and Contingent Liabilities," of the notes to consolidated financial
statements.

Comparable Second Quarter Results

Net income for second quarter 2004 was $64.5 million, up $7.8 million or 13.8%
from second quarter 2003 net income of $56.7 million. Return on average equity
was 18.87%, up 150 bp from the second quarter of 2003, while return on average
assets increased by 16 bp to 1.67%. See Tables 1 and 10.

36

Taxable equivalent net interest income for the second quarter of 2004 was $138.3
million, $4.8 million higher than the second quarter of 2003. Volume variances
favorably impacted taxable equivalent net interest income by $6.0 million
(primarily from growth of investments and other earning assets), while rate
variances were unfavorable by $1.2 million (as the unfavorable rate variance on
earning assets was greater than the favorable rate variance on interest-bearing
liabilities). See Tables 2 and 3. Growth in average earning assets (up $489
million to $14.5 billion) was funded by increases in interest-bearing
liabilities (up $290 million to $12.2 billion) and net free funds (led by
average noninterest-bearing demand deposits, up $199 million). Average
investments grew $547 million to $3.8 billion (primarily from balance sheet
leveraging during fourth quarter 2003), while average loans were $10.7 billion,
down $58 million between the comparable second quarter periods. Average
interest-bearing deposits grew $427 million; however, the mix shifted from
non-brokered time deposits and money market deposits to interest-bearing demand
deposits and brokered certificates of deposit. Due to the growth in
interest-bearing deposits, wholesale funding decreased $137 million to $4.3
billion (and represented 35.2% of interest-bearing liabilities for the second
quarter of 2004 compared to 37.2% for the second quarter of 2003).

The net interest margin of 3.80% was up 1 bp from 3.79% for the second quarter
of 2003, the net result of a 4 bp improvement in the interest rate spread (i.e.,
a 32 bp drop in the earning asset yield, net of a 36 bp decrease in the average
cost of interest-bearing liabilities) and a 3 bp lower contribution from net
free funds. The lower interest rate environment (the average Fed funds rate for
the second quarter of 2004 was 23 bp lower than the second quarter of 2003), as
well as refinancing pressures and competition, unfavorably impacted the rate
sensitive earning assets. As a result, the yields on earning assets declined
(particularly in loan yields which were down 35 bp). On the funding side, total
interest-bearing deposits cost 1.35% on average for second quarter 2004, down 34
bp from the comparable quarter in 2003 and the rate on wholesale funding was
down 38 bp.

The provision for loan losses for the second quarter of 2004 was $5.9 million,
down from the second quarter of 2003 of $12.1 million. The allowance for loan
losses to loans at June 30, 2004 was 1.69% compared to 1.66% at June 30, 2003.
Net charge offs were $5.6 million for the three months ended June 30, 2004 and
$10.1 million for the comparable quarter in 2003. Annualized net charge offs as
a percent of average loans for second quarter were 0.21% versus 0.38% for the
comparable quarter of 2003. Total nonperforming loans were $85.9 million, down
from $117.2 million at June 30, 2003. See Tables 6 and 8 and discussion under
sections "Provision for Loan Losses," "Allowance for Loan Losses," and
"Nonperforming Loans and Other Real Estate Owned."

Noninterest income was $55.5 million for the second quarter of 2004, down $12.9
million from the second quarter of 2003 (see Table 4), with the majority of the
decrease from mortgage banking income. Mortgage banking income was down $18.1
million, reflecting the industry-wide slowdown in refinancing activity
(secondary mortgage production decreased to $0.6 billion for the second quarter
of 2004 versus $1.2 billion for the second quarter of 2003). Retail commissions
were up $5.8 million, primarily in insurance and fixed annuities, positively
impacted by the Jabas acquisition. Credit card and other nondeposit fees
increased $0.9 million, primarily in other commercial and retail service fees,
and service charges on deposits grew $0.7 million, attributable to higher
service charges on business accounts and higher fees on overdrafts/nonsufficient
funds. Other income declined $2.0 million, with second quarter 2003 including a
$1.5 million gain on the sale of out-of-market credit card accounts.

Noninterest expense for the second quarter of 2004 was down $12.6 million from
the second quarter of 2003 (see Table 5), reflecting lower mortgage servicing
rights expense as well as the company's larger operating base. Mortgage
servicing rights expense was down $15.4 million, primarily the result of a $6.7
million recovery of the valuation allowance in the second quarter of 2004 versus
an $8.5 million addition to the valuation allowance in the second quarter of
2003. Personnel expense increased $1.9 million (with increases of $1.3 million
in salary-related expenses and $0.6 million in fringe benefits), particularly
attributable to the

37

Jabas acquisition and annual merit increases between the periods.

Income taxes were up $2.7 million between comparable quarters, primarily due to
the increase in income before tax as the effective tax rate was relatively level
(at 29.8% for the second quarter of 2004 compared to 30.3% for the second
quarter of 2003).

Sequential Quarter Results

Net income for the second quarter of 2004 was $64.5 million, up $4.9 million or
8.3% from first quarter 2004 net income of $59.6 million. Return on average
equity was 18.87%, up 150 bp from the first quarter of 2004, while return on
average assets increased 10 bp to 1.67%. See Tables 1 and 10.

- ------------------------------------------------------------------------------------------------------------------------
TABLE 10
Selected Quarterly Information
($ in Thousands)
- -----------------------------------------------------------------------------------------------------------------------
For the Quarter Ended
--------------------------------------------------------------------------
June 30, March 31, Dec. 31, Sept. 30, June 30,
2004 2004 2003 2003 2003
- -----------------------------------------------------------------------------------------------------------------------

Summary of Operations:
Net interest income $ 131,879 $ 129,075 $ 127,137 $ 128,976 $ 127,195
Provision for loan losses 5,889 5,176 9,603 12,118 12,132
Noninterest income 55,497 52,959 52,477 61,924 68,428
Noninterest expense 89,619 93,656 94,120 95,807 102,187
Income taxes 27,363 23,642 20,282 24,589 24,635
-------------------------------------------------------------------------
Net income $ 64,505 $ 59,560 $ 55,609 $ 58,386 $ 56,669
=========================================================================

Taxable equivalent net interest income $ 138,266 $ 135,479 $ 133,367 $ 135,141 $ 133,426
Net interest margin 3.80% 3.80% 3.81% 3.78% 3.79%

Average Balances:
Assets $15,498,005 $15,261,277 $14,852,390 $15,152,676 $15,016,497
Earning assets 14,480,701 14,185,569 13,828,992 14,128,702 13,991,615
Interest-bearing liabilities 12,231,733 12,083,003 11,637,646 11,955,420 11,941,877
Loans 10,685,542 10,433,411 10,354,726 10,813,769 10,743,430
Deposits 9,701,945 9,585,074 9,679,789 9,485,000 9,121,204
Stockholders' equity 1,374,632 1,378,804 1,309,167 1,304,983 1,308,505

Asset Quality Data:
Allowance for loan losses to total loans 1.69% 1.69% 1.73% 1.71% 1.66%
Nonperforming loans to total loans 0.81% 0.89% 1.18% 1.22% 1.13%
Nonperforming assets to total assets 0.60% 0.65% 0.83% 0.87% 0.87%
Net chargeoffs to average loans
(annualized) 0.21% 0.20% 0.31% 0.31% 0.38%
- -----------------------------------------------------------------------------------------------------------------------

Taxable equivalent net interest income for the second quarter of 2004 was $138.3
million, $2.8 million higher than first quarter 2004. Volume variances impacted
taxable equivalent net interest income favorably by $3.4 million (primarily from
loan growth), while rate variances were unfavorable by $0.6 million (primarily
from unfavorable rate variance on earning assets exceeding favorable rate
variance on interest-bearing liabilities). The net interest margin between the
second and first quarters of 2003 was unchanged at 3.80%, reflecting a 1 bp
higher contribution from net free funds offset by a 1 bp decrease in interest
rate spread (i.e., a 5 bp drop in the earning asset yield, net of a 4 bp
decrease in the average cost of interest-bearing liabilities). Average earning
assets increased $295 million (8.4% annualized) between the sequential quarters,
attributable to a $252 million increase in average loans (the net of a $152
million increase in commercial loans, $123 million increase in residential real
estate loans, and a $23 million decrease in consumer loans), and a $43 million
increase in average investments. The earning asset growth was funded by growth
in average interest-bearing liabilities and net free funds. Average
interest-bearing liabilities were up $149 million, primarily in wholesale
funding (up $141 million, predominantly in short-term borrowings). Net free
funds were up $146 million, led by increased average demand deposits (up $110
million, following the usual cyclical first quarter downturn in these balances).

38

The provision for loan losses for the second quarter of 2004 was $5.9 million,
up from $5.2 million for the first quarter of 2004. The allowance for loan
losses to loans at both June 30 and March 31, 2004 was 1.69%. Net charge offs
were $5.6 million for second quarter 2004, compared to $5.1 million for first
quarter 2004. Annualized net charge offs as a percent of average loans for
second quarter were 0.21% versus 0.20% for first quarter 2004. Total
nonperforming loans were $85.9 million, down from $93.6 million at March 31,
2004, attributable to the paydowns on four large problem credits (totaling
approximately $6 million). See discussion under sections "Provision for Loan
Losses," "Allowance for Loan Losses," and "Nonperforming Loans and Other Real
Estate Owned."

Noninterest income increased $2.5 million to $55.5 million between sequential
quarters. Retail commission income was up $3.8 million, predominantly in
insurance and fixed annuities, benefiting from the Jabas acquisition on April 1,
2004. Service charges on deposit accounts grew $0.7 million, attributable to
higher fees on overdrafts/nonsufficient funds. The $2.5 million unfavorable
change in investment securities gains (losses) was due to a $0.2 million
other-than-temporary write-down on a security and a $0.4 million loss on the
sale of treasury securities during second quarter versus a $1.9 million gain on
the sale of common stock holdings during first quarter.

On a sequential quarter basis, noninterest expense decreased $4.0 million.
Mortgage servicing rights expense decreased $9.1 million, predominantly due to a
$6.7 recovery of the valuation allowance in the second quarter compared to a
$2.5 million addition to the valuation allowance in the first quarter. Personnel
expense was up $1.3 million, particularly attributable to the Jabas acquisition.
Following tightly controlled discretionary spending in the first quarter of
2004, business development and advertising was up $1.4 million (in support of
planned business campaigns), data processing was up $0.5 million (attributable
to seasonal trust tax processing, as well as planned system conversions), and
legal and professional fees were up for planned consultant activities.

Recent Accounting Pronouncements

The recent accounting pronouncements have been described in Note 3, "New
Accounting Pronouncements," of the notes to consolidated financial statements.

Subsequent Events

On July 28, 2004, the Board of Directors declared a $0.25 per share dividend
payable on August 16, 2004, to shareholders of record as of August 6, 2004. This
cash dividend has not been reflected in the accompanying consolidated financial
statements.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

The Corporation has not experienced any material changes to its market risk
position since December 31, 2003, from that disclosed in the Corporation's 2003
Form 10-K Annual Report.

ITEM 4. Controls and Procedures

The Corporation maintains a system of internal controls and procedures designed
to provide reasonable assurance as to the reliability of its published financial
statements and other disclosures included in this report. Within the 90-day
period prior to the date of this report, the Corporation evaluated the
effectiveness of the design and operation of its disclosure controls and
procedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934. Based
upon that evaluation, the Corporation's Chief Executive Officer and Chief
Financial Officer concluded that the Corporation's disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Corporation required to be included in this quarterly report on
Form 10-Q.

There have been no significant changes in the Corporation's internal controls or
in other factors which could significantly affect internal controls subsequent
to the date of such evaluation.

39

ASSOCIATED BANC-CORP
PART II - OTHER INFORMATION

ITEM 2. Changes in Securities, Use of Proceeds and Issuer
Purchases of Equity Securities

On April 28, 2004, the Board of Directors declared a 3-for-2 stock split,
effected in the form of a stock dividend, payable on May 12, 2004, to
shareholders of record at the close of business on May 7, 2004. All share and
per share information in the accompanying consolidated financial statements has
been restated to reflect the effect of this stock split.

The Board of Directors has authorized management to repurchase shares of the
Corporation's common stock each quarter in the market, to be made available for
issuance in connection with the Corporation's employee incentive plans and for
other corporate purposes. For the Corporation's employee incentive plans, the
Board of Directors authorized the repurchase of up to 3.0 million shares in 2004
(750,000 shares per quarter) and up to 2.4 million shares (600,000 shares per
quarter) in 2003. Of these authorizations, 697,000 shares were repurchased for
$20.1 million during the first six months of 2004 at an average cost of $28.91
per share, while none were repurchased during 2003. Additionally, under two
separate actions in 2000 and one action in 2003, the Board of Directors
authorized the repurchase and cancellation of the Corporation's outstanding
shares, not to exceed approximately 16.5 million shares on a combined basis.
Under these authorizations no shares were repurchased during the first six
months of 2004, while approximately 1.8 million shares were repurchased during
year-to-date 2003 at an average cost of $23.11 per share. At June 30, 2004,
approximately 5.6 million shares remain authorized to repurchase. The repurchase
of shares will be based on market opportunities, capital levels, growth
prospects, and other investment opportunities.

Following are the Corporation's monthly common stock purchases during the first
six months of 2004 (in thousands, expect per share data):

Total Number of Average Price
Period Shares Purchased Paid per Share
- -------------------------------------------------------------------------------

January 1, 2004 -
January 31, 2004 15,000 $28.90
February 1, 2004 -
February 29, 2004 121,500 28.80
March 1, 2004 -
March 31, 2004 355,500 29.51
April 1, 2004 -
April 30, 2004 --- ---
May 1, 2004 -
May 31, 2004 195,000 28.78
June 1, 2004 -
June 30, 2004 10,000 28.97
-----------------------------
Total 697,000 $28.91
=============================

40

ITEM 4: Submission of Matters to a Vote of Security Holders

(a) The corporation held its Annual Meeting of Shareholders on April
28, 2004. Proxies were solicited by corporation management
pursuant to Regulation 14A under the Securities Exchange Act of
1934.

(b) Directors elected at the Annual Meeting were Paul S. Beideman,
Robert C. Gallagher, John C. Meng, and Ruth M. Crowley.

(c) The matters voted upon and the results of the voting were as
follows:

(i) Election of the below-named nominees to the Board of
Directors of the Corporation:

FOR WITHHELD

All Nominees: 256,949,836 3,640,050

By Nominee:

Paul S. Beideman 64,203,724 943,747
Robert C. Gallagher 64,118,644 1,028,827
John C. Meng 64,076,934 1,070,537
Ruth M. Crowley 64,550,533 596,937

(ii) Approval of the Amendment to the Associated Banc-Corp
Articles of Incorporation to increase the number of shares
outstanding to 250,000,000.

FOR AGAINST ABSTAIN
--- ------- -------

56,227,222 8,504,132 416,116

(iii)Ratification of the selection of KPMG LLP as independent
auditors of Associated for the year ending December 31,
2004.

FOR AGAINST ABSTAIN
--- ------- -------

62,458,210 2,448,853 240,407

(d) Not applicable

41

ITEM 6: Exhibits and Reports on Form 8-K

(a) Exhibits:

Exhibit 11, Statement regarding computation of per-share
earnings. See Note 4 of the notes to consolidated financial
statements in Part I Item I.

Exhibit (31.1), Certification Under Section 302 of Sarbanes-Oxley
by Paul S. Beideman, Chief Executive Officer, is attached hereto.

Exhibit (31.2), Certification Under Section 302 of Sarbanes-Oxley
by Joseph B. Selner, Chief Financial Officer, is attached hereto.

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 is attached
hereto.

(b) Reports on Form 8-K:

A report on Form 8-K dated April 1, 2004, was filed under Item 5,
Other Events, announcing Associated Banc-Corp (through its
subsidiary Associated Financial Group, LLC) acquired 100% of the
outstanding shares of Jabas Group, Inc.

A report on Form 8-K dated April 8, 2004, was filed under Item 5,
Other Events, announcing the appointment of Karen T. Beckwith to
Associated Banc-Corp's Board of Directors.

A report on Form 8-K dated April 23, 2004, was filed under Item
12, Results of Operations and Financial Condition, reporting
Associated Banc-Corp released its earnings for the quarter ended
March 31, 2004.

A report on Form 8-K dated April 28, 2004, was filed under Item
5, Other Events, announcing the Associated Banc-Corp Board of
Directors declared a 3-for-2 stock split and its second quarter
dividend.

A report on Form 8-K dated April 28, 2004, was filed under Item
9, Regulation FD Disclosures, to announce the signing of a
definitive agreement to acquire First Federal Capital Corp.

A report on Form 8-K dated April 28, 2004, was filed under Item
5, Other Events, to announce the shareholders of Associated
Banc-Corp approved an amendment to the Articles of Incorporation
to increase the number of authorized shares to 250,000,000.

A report on Form 8-K/A dated April 28, 2004, was filed under Item
2, Acquisition of Assets, to submit the Agreement and Plan of
Merger between Associated Banc-Corp and First Federal Capital
Corp as an additional exhibit to the previous Form 8-K filing.

42

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: August 6, 2004 /s/ Paul S. Beideman
-------------------------------------
Paul S. Beideman
President and Chief Executive Officer

Date: August 6, 2004 /s/ Joseph B. Selner
-------------------------------------
Joseph B. Selner
Chief Financial Officer

43