-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QAhEByXHV8dBk+Ak6AJHo+C/8mqQh/yHqUj4QI41SFFHyc6s7jj5hqdLFW2hSKP2 iyiksfUQW5CU5u5/28w4mQ== 0000007789-04-000013.txt : 20040315 0000007789-04-000013.hdr.sgml : 20040315 20040315115705 ACCESSION NUMBER: 0000007789-04-000013 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040315 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ASSOCIATED BANC-CORP CENTRAL INDEX KEY: 0000007789 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 391098068 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-31343 FILM NUMBER: 04668366 BUSINESS ADDRESS: STREET 1: 1200 HANSEN ROAD CITY: GREEN BAY STATE: WI ZIP: 54304 BUSINESS PHONE: 9204917015 MAIL ADDRESS: STREET 1: 1200 HANSEN ROAD CITY: GREEN BAY STATE: WI ZIP: 54304 FORMER COMPANY: FORMER CONFORMED NAME: ASSOCIATED BANK SERVICES INC DATE OF NAME CHANGE: 19770626 10-K 1 form10k2003.txt FORM 10-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - ------- EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2003 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 (I.R.S. employer incorporation or organization) identification no.) 1200 Hansen Road Green Bay, Wisconsin 54304 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (920) 491-7000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT None SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT Common stock, par value - $0.01 per share (Title of Class) 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes X No ----- ----- As of February 29, 2004, 73,584,829 shares of common stock were outstanding. As of June 30, 2003, (the last business day of the registrant's most recently completed second fiscal quarter) the aggregate market value of the voting stock held by nonaffiliates of the registrant was approximately $2,588,597,000. Excludes approximately $110,874,000 of market value representing the outstanding shares of the registrant owned by all directors and officers who individually, in certain cases, or collectively, may be deemed affiliates. Includes approximately $187,813,000 of market value representing 6.96% of the outstanding shares of the registrant held in a fiduciary capacity by the trust company subsidiary of the registrant. DOCUMENTS INCORPORATED BY REFERENCE Part of Form 10-K Into Which Document Portions of Documents are Incorporated Proxy Statement for Annual Meeting of Part III Shareholders on April 28, 2004 ================================================================================ ASSOCIATED BANC-CORP 2003 FORM 10-K TABLE OF CONTENTS Page ---- PART I Item 1. Business 3 Item 2. Properties 8 Item 3. Legal Proceedings 8 Item 4. Submission of Matters to a Vote of Security Holders 8 PART II Item 5. Market for the Corporation's Common Equity and Related Stockholder Matters 11 Item 6. Selected Financial Data 12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 49 Item 8. Financial Statements and Supplementary Data 50 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 90 Item 9A. Controls and Procedures 90 PART III Item 10. Directors and Executive Officers of the Corporation 90 Item 11. Executive Compensation 90 Item 12. Security Ownership of Certain Beneficial Owners and Management 91 Item 13. Certain Relationships and Related Transactions 91 Item 14. Principal Accounting Fees and Services 91 PART IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 91 Signatures 93 2 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 Associated Banc-Corp and could cause those results to differ materially from those expressed in forward-looking statements contained or incorporated by reference in this document. These factors, many of which are beyond Associated Banc-Corp's control, include the following: o operating, legal, and regulatory risks; o economic, political, and competitive forces affecting Associated Banc-Corp's banking, securities, asset management, and credit services businesses; and o the risk that Associated Banc-Corp'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. Associated Banc-Corp undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. PART I ITEM 1 BUSINESS General Associated Banc-Corp (individually referred to herein as the "Parent Company," and together with all of its subsidiaries and affiliates, collectively referred to herein as the "Corporation") is a bank holding company registered pursuant to the Bank Holding Company Act of 1956, as amended (the "Act"). It was incorporated in Wisconsin in 1964 and was inactive until 1969 when permission was received from the Board of Governors of the Federal Reserve System to acquire three banks. At December 31, 2003, the Parent Company owned three commercial banks located in Illinois, Minnesota, and Wisconsin serving their respective local communities and, measured by total assets held at December 31, 2003, was the second largest commercial bank holding company headquartered in Wisconsin. The Parent Company also owned 22 limited purpose banking and nonbanking subsidiaries located in Arizona, California, Illinois, Minnesota, Nevada, and Wisconsin. Services The Parent Company provides advice and specialized services to its subsidiaries in policy and operations, including auditing, data processing, marketing/advertising, investing, legal/compliance, personnel services, trust services, risk management, facilities management, security, purchasing, treasury, finance, accounting, and other financial services functionally related to banking. Responsibility for the management of the subsidiaries remains with their respective boards of directors and officers. Services rendered to the subsidiaries by the Parent Company are intended to assist the local management of these subsidiaries to expand the scope of services offered by them. At December 31, 2003, bank subsidiaries of the Parent Company provided services through 217 locations in 151 communities. 3 Through its banking subsidiaries and various nonbanking subsidiaries, the Corporation provides a diversified range of banking and nonbanking services to individuals and businesses. These services include checking, savings, and money market deposit accounts, business, personal, educational, residential, and commercial mortgage loans, other consumer-oriented financial services, including IRA and Keogh accounts, lease financing for a variety of capital equipment for commerce and industry, and safe deposit and night depository facilities. Automated Teller Machines (ATMs), which provide 24-hour banking services to customers, are installed in many locations in the Corporation's service areas. The Corporation participates in an interstate and international shared ATM network, which allows its customers to perform banking transactions from their checking, savings, or credit card accounts at ATMs in a multi-state and international environment. Among the services designed specifically to meet the needs of businesses are various types of specialized financing, cash management services, and transfer/collection facilities. The Corporation provides lending, depository, and related financial services to individual, commercial, industrial, financial, and governmental customers. Term loans, revolving credit arrangements, letters of credit, inventory and accounts receivable financing, real estate construction lending, and international banking services are available. The Corporation is involved in the origination, servicing, and warehousing of mortgage loans and the sale of such loans to investors. The primary focus is on one- to four-family residential and multi-family properties, which are generally salable into the secondary mortgage market. The principal mortgage lending areas are Wisconsin, Minnesota, and Illinois. Nearly all long-term, fixed-rate real estate mortgage loans generated are sold in the secondary market and to other financial institutions, with the servicing of those loans retained. In addition to real estate loans, the Corporation originates and/or services consumer loans, business credit card loans, and student loans. Consumer, home equity, and student lending activities are principally conducted in Wisconsin, Minnesota, and Illinois, while the credit card base and resulting loans are principally centered in the Midwest. Lending involves credit risk. Credit risk is controlled and monitored through active asset quality management and the use of lending standards, thorough review of potential borrowers, and active asset quality administration. Active asset quality administration, including early problem loan identification and timely resolution of problems, further ensures appropriate management of credit risk and minimization of loan losses. The allowance for loan losses represents management's estimate of an amount adequate to provide for probable losses inherent in the loan portfolio. Management's evaluation of the adequacy of the allowance for loan losses is based on 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, current economic conditions, the fair value of underlying collateral, and other qualitative and quantitative factors which could affect potential credit losses. Credit risk management is discussed under sections "Critical Accounting Policies," "Loans," "Allowance for Loan Losses," and "Nonperforming Loans, Potential Problem Loans, and Other Real Estate Owned" in "Management's Discussion and Analysis of Financial Condition and Results of Operations," and under Note 1, "Summary of Significant Accounting Policies," and Note 4, "Loans," in the notes to consolidated financial statements. Additional emphasis is given to noncredit services for commercial customers, such as advice and assistance in the placement of securities, corporate cash management, and financial planning. The bank subsidiaries make available check clearing, safekeeping, loan participations, lines of credit, portfolio analyses, and other services to approximately 120 correspondent financial institutions. The Corporation offers a wide variety of fiduciary, investment management, advisory, and corporate agency services to individuals, corporations, charitable trusts, foundations, and institutional investors. It also administers (as trustee and in other fiduciary and representative capacities) pension, profit sharing, and other employee benefit plans, and personal trusts and estates. Discount and full-service brokerage services are offered by the Corporation through registered broker-dealers. These services include the sale of fixed and variable annuities, mutual funds, and securities. 4 Certain of the Corporation's subsidiaries headquartered in Arizona and Wisconsin provide commercial and individual insurance services and engage in reinsurance activities. Various life, property, casualty, credit, and mortgage insurance products are also offered. Employment advisory and counseling services are provided to the Parent Company's subsidiaries and customers through an employment advisory subsidiary. Two investment subsidiaries located in Nevada hold, manage, and trade cash, stocks, and securities and reinvest investment income. Three additional investment subsidiaries formed in Nevada and headquartered and domiciled in the Cayman Islands, provide investment services for Associated Bank, National Association and Associated Bank Minnesota, National Association. The investment subsidiaries also provide management services to the Corporation's Real Estate Investment Trust ("REIT") subsidiaries. The Corporation does not engage in any material operations in foreign countries. The Corporation is not dependent upon a single or a few customers, the loss of which would have a material adverse effect on the Corporation. No material portion of the business of the Corporation is seasonal. Employees At December 31, 2003, the Corporation had 4,091 full-time equivalent employees. Competition The financial services industry is highly competitive. The Corporation competes for loans, deposits, and financial services in all of its principal markets. The Corporation competes directly with other bank and nonbank institutions located within its markets, with out-of-market banks and bank holding companies that advertise or otherwise serve the Corporation's markets, money market and other mutual funds, brokerage houses, and various other financial institutions. Additionally, the Corporation competes with insurance companies, leasing companies, regulated small loan companies, credit unions, governmental agencies, and commercial entities offering financial services products. Competition involves efforts to obtain new deposits, the scope and type of services offered, interest rates paid on deposits and charged on loans, as well as other aspects of banking. The Corporation also faces direct competition from members of bank holding company systems that have greater assets and resources than those of the Corporation. Supervision and Regulation Financial institutions are highly regulated both at the federal and state level. Numerous statutes and regulations affect the business of the Corporation. As a registered bank holding company under the Act, the Parent Company and its nonbanking subsidiaries are regulated and supervised by the Board of Governors of the Federal Reserve System (the "FRB"). The nationally chartered bank subsidiaries are supervised and examined by the Comptroller of the Currency. The sole state chartered bank subsidiary is supervised and examined by the applicable Illinois state banking agency and by the Federal Deposit Insurance Corporation (the "FDIC"). All subsidiaries of the Parent Company that accept insured deposits are subject to examination by the FDIC. The Gramm-Leach-Bliley Act of 1999 made major amendments to the Act. The amendments, among other things, allow certain qualifying bank holding companies to engage in activities that are financial in nature and that explicitly include the underwriting and sale of insurance. The Act's provisions governing the scope and manner of the FRB's supervision of bank holding companies, the manner in which activities may be found to be financial in nature, and the extent to which state laws on insurance will apply to insurance activities of banks and bank subsidiaries were also amended. The FRB has issued regulations implementing these provisions. The Act, as amended, allows for the expansion of activities by banking organizations and permits consolidation among financial organizations generally. The Parent Company is required to act as a source of financial strength to each of its subsidiaries 5 pursuant to which it may be required to commit financial resources to support such subsidiaries in circumstances when, absent such requirements, it might not do so. The Act also requires the prior approval of the FRB to enable the Parent Company to acquire direct or indirect control of more than five percent of any class of voting shares of any bank or bank holding company. The Act further regulates the Corporation's activities, including requirements and limitations relating to capital, transactions with officers, directors and affiliates, securities issuances, dividend payments, inter-affiliate liabilities, extensions of credit, and expansion through mergers and acquisitions. The federal regulatory authorities have broad authority to enforce the regulatory requirements imposed on the Corporation. In particular, the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") and the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), and their implementing regulations, carry greater enforcement powers. Under FIRREA, all commonly controlled FDIC insured depository institutions may be held liable for any loss incurred by the FDIC resulting from a failure of, or any assistance given by the FDIC to, any commonly controlled institutions. Pursuant to certain provisions under FDICIA, the federal regulatory agencies have broad powers to take prompt corrective action if a depository institution fails to maintain certain capital levels. Prompt corrective action may include, without limitation, restricting the ability of the Corporation to pay dividends, restricting acquisitions or other activities, and placing limitations on asset growth. Pursuant to the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("Riegle-Neal Act"), an adequately capitalized and managed bank holding company may acquire banks in states other than its home state without regard to the permissibility of such acquisitions under state law, but remain subject to state requirements that a bank has been organized and operating for a period of time. Subject to certain other restrictions, the Riegle-Neal Act also authorizes banks to merge across state lines to create interstate branches. The Riegle-Neal Amendments Act of 1997 provides guidance on the application of host state laws to any branch located outside the host state. The FDIC maintains the Bank Insurance Fund ("BIF") and the Savings Association Insurance Fund ("SAIF") by assessing depository institutions an insurance premium twice a year. The amount each institution is assessed is based both on the balance of insured deposits held during the preceding two quarters, as well as on the degree of risk the institution poses to the insurance fund. FDIC assesses higher rates on those institutions that pose greater risks to the insurance funds. Effective April 1, 2000, the FDIC Board of Directors ("FDIC Board") adopted revisions to the FDIC's regulation governing deposit insurance assessments which it believes enhance the present system by allowing institutions with improving capital positions to benefit from the improvement more quickly while requiring those with failing capital to pay a higher assessment sooner. The Federal Deposit Insurance Act governs the authority of the FDIC Board to set BIF and SAIF assessment rates and directs the FDIC Board to establish a risk-based assessment system for insured depository institutions and set assessments to the extent necessary to maintain the reserve ratio at 1.25%. In 2001, Congress enacted the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA Patriot Act) Act of 2001 (the "Patriot Act"). The Patriot Act is designed to deny terrorists and criminals the ability to obtain access to the United States' financial system and has significant implications for depository institutions, brokers, dealers, and other businesses involved in the transfer of money. The Patriot Act mandates financial services companies to implement additional policies and procedures with respect to additional measures designed to address any or all of the following matters: money laundering, terrorist financing, identifying and reporting suspicious activities and currency transactions, and currency crimes. The Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley") addresses, among other things, corporate governance, auditing and accounting, executive compensation, and enhanced and timely disclosure of corporate information. The New York Stock Exchange and NASDAQ submitted corporate governance rules to the Securities and Exchange Commission ("SEC") which were approved on November 4, 2003. These changes are intended to allow stockholders to monitor the performance of companies and directors more easily and efficiently. Effective August 29, 2002, as prescribed by 6 Sections 302(a) and 906 (effective July 29, 2002) of Sarbanes-Oxley, the Corporation's chief executive officer ("CEO") and chief financial officer ("CFO") each are required to certify that the Corporation's quarterly and annual reports do not contain any untrue statement of a material fact. Section 404 of Sarbanes-Oxley, which does not become effective until 2004, requires that the CEO and CFO certify that they (i) are responsible for establishing, maintaining, and regularly evaluating the effectiveness of the Corporation's internal controls; (ii) have made certain disclosures to the Corporation's auditors and the audit committee of the Corporation's board of directors ("Board of Directors") about the Corporation's internal controls; and (iii) have included information in the Corporation's quarterly and annual reports about their evaluation and whether there have been significant changes in the Corporation's internal controls or in other factors that could significantly affect internal controls subsequent to such evaluation. The requirements under Sarbanes-Oxley will not result in any significant changes to the Corporation's current processes and procedures, and the Corporation is prepared to implement any changes necessary within the specified timeframe. At its January 22, 2003, and April 23, 2003, meetings, the Board of Directors approved a series of actions to strengthen its corporate governance practices, including the adoption of a Code of Ethics for Directors and Executive Officers, the establishment of a toll-free ethics hotline (i.e., "whistle blower"), and the revision of the following charters: Audit Committee, Administrative Committee, Nominating and Search Committee, and Corporate Development Committee. Additional information regarding the Corporation's corporate governance practices is available on its web site at www.associatedbank.com. The laws and regulations to which the Corporation is subject are constantly under review by Congress, the federal regulatory agencies, and the state authorities. These laws and regulations could be changed drastically in the future, which could affect the profitability of the Corporation, its ability to compete effectively, or the composition of the financial services industry in which the Corporation competes. Government Monetary Policies and Economic Controls The earnings and growth of the banking industry and the Corporation are affected by the credit policies of monetary authorities, including the Federal Reserve System ("Federal Reserve"). An important function of the Federal Reserve is to regulate the national supply of bank credit in order to combat recession and curb inflationary pressures. Among the instruments of monetary policy used by the Federal Reserve to implement these objectives are open market operations in U.S. government securities, changes in reserve requirements against member bank deposits, and changes in the Federal Reserve discount rate. These means are used in varying combinations to influence overall growth of bank loans, investments, and deposits, and may also affect interest rates charged on loans or paid for deposits. The monetary policies of the Federal Reserve authorities have had a significant effect on the operating results of commercial banks in the past and are expected to continue to have such an effect in the future. In view of changing conditions in the national economy and in the money markets, as well as the effect of credit policies by monetary and fiscal authorities, including the Federal Reserve, no prediction can be made as to possible future changes in interest rates, deposit levels, and loan demand, or their effect on the business and earnings of the Corporation. Available Information The Corporation files annual, quarterly, and current reports, proxy statements, and other information with the SEC. These filings are available to the public over the Internet at the SEC's web site at www.sec.gov. Shareholders may also read and copy any document that the Corporation files at the SEC's public reference room located at 450 Fifth Street, NW, Washington, DC 20549. Shareholders may call the SEC at 1-800-SEC-0330 for further information on the public reference room. The Corporation's principal Internet address is www.associatedbank.com. The Corporation makes available free of charge on www.associatedbank.com its Code of Ethics for Directors and Executive Officers and its annual report, as soon as reasonably practicable after the Corporation electronically files such material with, or furnishes it to, the SEC. In addition, shareholders may request a copy of any 7 of the Corporation's filings (excluding exhibits) at no cost by writing, telephoning, faxing, or e-mailing the Corporation at the following address, telephone number, fax number or e-mail address: Associated Banc-Corp, Attn: Shareholder Relations, 1200 Hansen Road, Green Bay, WI 54304; phone 920-491-7006; fax 920-491-7010; or e-mail to shareholders@associatedbank.com. ITEM 2 PROPERTIES The Corporation's headquarters are located in the Village of Ashwaubenon, Wisconsin, in a leased facility with approximately 30,000 square feet of office space. The space is subject to a five-year lease with two consecutive five-year extensions. At December 31, 2003, the bank subsidiaries occupied 217 offices in 151 different communities within Illinois, Minnesota, and Wisconsin. The main office of Associated Bank, National Association, is owned. The bank subsidiary main offices in downtown Chicago and Minneapolis are located in the lobbies of multistory office buildings. Most bank subsidiary branch offices are freestanding buildings that provide adequate customer parking, including drive-through facilities of various numbers and types for customer convenience. Some bank subsidiaries also have branch offices in supermarket locations or in retirement communities. In addition, the Corporation owns other real property that, when considered in the aggregate, is not material to its financial position. ITEM 3 LEGAL PROCEEDINGS 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. ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 2003. Executive Officers of the Corporation Pursuant to General Instruction G of Form 10-K, the following list is included as an unnumbered item in Part I of this report in lieu of being included in the Proxy Statement for the Annual Meeting of Shareholders to be held April 28, 2004. The following is a list of names and ages of executive officers of the Corporation indicating all positions and offices held by each such person and each such person's principal occupation(s) or employment during the past five years. The Date of Election refers to the date the person was first elected an officer of the Corporation. Officers are appointed annually by the Board of Directors at the meeting of directors immediately following the annual meeting of shareholders. There are no family relationships among these officers nor any arrangement or understanding between any officer and any other person pursuant to which the officer was selected. No person other than those listed below has been chosen to become an executive officer of the Corporation.

10 PART II ITEM 5 MARKET FOR THE CORPORATION'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Information in response to this item is incorporated by reference to the table "Market Information" on Page 77 and the discussion of dividend restrictions in Note 11, "Stockholders' Equity," of the notes to consolidated financial statements included under Item 8 of this document. The Corporation's common stock is traded on The Nasdaq Stock Market under the symbol ASBC. The approximate number of equity security holders of record of common stock, $.01 par value, as of February 29, 2004, was 9,707. Certain of the Corporation's shares are held in "nominee" or "street" name and the number of beneficial owners of such shares is approximately 28,832. Payment of future dividends is within the discretion of the Board of Directors and will depend, among other factors, on earnings, capital requirements, and the operating and financial condition of the Corporation. At the present time, the Corporation expects that dividends will continue to be paid in the future. 11 ITEM 6 SELECTED FINANCIAL DATA TABLE 1: EARNINGS SUMMARY AND SELECTED FINANCIAL DATA (In Thousands, except per share data)

12 ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion is management's analysis to assist in the understanding and evaluation of the consolidated financial condition and results of operations of the Corporation. It should be read in conjunction with the consolidated financial statements and footnotes and the selected financial data presented elsewhere in this report. During 2003, the Corporation merged Associated Card Services Bank, National Association, and Associated Bank Illinois, National Association, into Associated Bank, National Association, to create a single national banking charter headquartered in Green Bay, Wisconsin. Also during 2003, the Corporation merged Wisconsin Finance Corporation, Citizens Financial Services, Inc., and Signal Finance Company into a single finance company under the name Riverside Finance, Inc. During the second quarter of 2002, the Corporation merged the Minnesota bank subsidiaries (Associated Bank Minnesota, Signal Bank National Association, and Signal Bank South National Association) into a single national banking charter under the name Associated Bank Minnesota, National Association. The financial discussion that follows may refer to the effect of the Corporation's business combination activity, detailed under section, "Business Combinations," and Note 2, "Business Combinations," of the notes to consolidated financial statements. The detailed financial discussion focuses on 2003 results compared to 2002. Discussion of 2002 results compared to 2001 is predominantly in section "2002 Compared to 2001." Critical Accounting Policies In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. Estimates that are particularly susceptible to significant change include the determination of the allowance for loan losses, 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 accounting principles generally accepted in the United States of America 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 13 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 Note 1, "Summary of Significant Accounting Policies," and Note 4, "Loans," of the notes to consolidated financial statements and 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 1, "Summary of Significant Accounting Policies," and Note 5, "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 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 1, "Summary of Significant Accounting Policies," and Note 15, "Derivative 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 Note 1, "Summary of Significant Accounting Policies," and Note 13, "Income Taxes," of the notes to consolidated financial statements and section "Income Taxes." Segment Review As described in Note 20, "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. 14 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"). Overview The Corporation is a multi-bank holding company headquartered in Wisconsin, providing a diversified range of banking and nonbanking services to individuals and businesses primarily in its three-state footprint (Wisconsin, Illinois and Minnesota). The Corporation's primary sources of revenue are net interest income (predominantly from loans and deposits, though also from investments and other funding sources), and noninterest income, particularly fees and other revenue from financial services provided to customers. Business volumes and pricing drive revenue potential, and tend to be influenced by overall economic factors, including market interest rates, business spending, consumer confidence, economic growth, and competitive conditions within the marketplace as well. Noninterest income growth in 2003 was led by mortgage banking income. During 2003, interest rates reached record lows, resulting in an unprecedented volume of mortgage loan originations and refinances. As a result, mortgage banking income was up 25% over 2002. A rapid rise in mortgage interest rates, particularly during late third quarter, slowed mortgage loan volume. Industry expectations are for mortgage originations to fall dramatically in 2004, and as such the Corporation expects lower mortgage banking income for 2004. Noninterest income sources continue to be diversified, including the Corporation's acquisition of an insurance agency in 2003. The Corporation's loan mix changed during 2003, though total loans were $10.3 billion at year-end 2003, unchanged from year-end 2002. Competitive pricing on new and refinanced loans in the low rate environment put downward pressure on loan yields and the net interest margin in 2003. Residential mortgage loans decreased 11.7%, strongly influenced by high refinance activity. Home equity (an area of emphasis for 2003 and an attractive product to consumers given the low rate environment) and other consumer loans combined grew 5.4%, and commercial loans grew 3.0%. Increases in business spending and consumer confidence in 2004, along with an increase in interest rates, could create an environment for increased earnings from loans for 2004. Growth in deposits continued to be strong throughout 2003. This growth reflects a number of strategic initiatives to grow the deposit base, as well as customer preference to keep funds more liquid in this prolonged low interest rate environment. Deposit growth initiatives will continue in 2004. Asset quality administration was active during 2003 with early identification of potential problems and progress on several larger problem credits. At year-end 2003 nonperforming loans were higher than historic levels, but a 1.73% allowance for loan losses to loans ratio was deemed adequate by management. Certain economic indicators suggest that business spending has begun to increase and that business and consumer financial positions are improving in line with recent economic improvements. While uncertainty exists as to how robust or sustainable this trend may be, the impact of such improvements would likely be positive to the Corporation's credit quality indicators and could lead to a lower provision for loan losses in 2004 than in 2003. The efficiency ratio (defined as noninterest expense divided by the sum of taxable equivalent net interest income plus noninterest income, excluding net asset and securities gains) was 49.84% for 2003 and 49.95% for 2002. The Corporation has and will continue to monitor costs. 15 Performance Summary The Corporation recorded net income of $228.7 million for the year ended December 31, 2003, an increase of $18.0 million or 8.5% over the $210.7 million earned in 2002. Basic earnings per share for 2003 were $3.10, a 9.9% increase over 2002 basic earnings per share of $2.82. Earnings per diluted share were $3.07, a 10.0% increase over 2002 diluted earnings per share of $2.79. Return on average assets and return on average equity for 2003 were 1.53% and 17.58%, respectively, compared to 1.47% and 17.10%, respectively, for 2002. Cash dividends of $1.33 per share paid in 2003 increased by 9.9% over 2002. Key factors behind these results were: o Taxable equivalent net interest income was $535.7 million for 2003, $10.3 million or 2.0% higher than 2002. Although taxable equivalent interest income decreased $63.9 million, interest expense decreased by $74.2 million. The 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 $21.6 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 $11.3 million). Average earning assets increased $652 million to $13.9 billion, while interest-bearing liabilities increased $459 million to $11.9 billion. o Net interest income and net interest margin were impacted in 2003 by the sustained low interest rate environment, competitive pricing pressures, higher earning asset balances, and total deposit growth. The average Federal funds rate of 1.12% in 2003 was 55 basis points ("bp") lower than the 1.67% average rate in 2002. o The net interest margin for 2003 was 3.84%, compared to 3.95% in 2002. The 11 bp decrease in net interest margin is attributable to the net of a 3 bp decrease in interest rate spread (the net of a 75 bp decrease in the yield on earning assets, substantially offset by a 72 bp lower cost of interest-bearing liabilities), and an 8 bp lower contribution from net free funds. o Total loans were $10.3 billion at December 31, 2003, relatively unchanged from December 31, 2002. Commercial loan balances grew $188 million (3.0%) and represented 63% of total loans at December 31, 2003, compared to 61% at year-end 2002. Total deposits were $9.8 billion at December 31, 2003, an increase of $668 million or 7.3% from year-end 2002, particularly in lower-costing deposits. o Asset quality was affected by the impact of challenging economic conditions on customers. Net charge offs were $31.7 million, an increase of $3.4 million over 2002, with the majority of the increase attributable to charge offs in the commercial loan portfolio. Net charge offs were 0.30% of average loans compared to 0.28% in 2002. The provision for loan losses decreased to $46.8 million compared to $50.7 million in 2002. The ratio of allowance for loan losses to loans was 1.73% and 1.58% at December 31, 2003 and 2002, respectively. Nonperforming loans were $121.5 million, representing 1.18% of total loans at year-end 2003, compared to $99.3 million or 0.96% of total loans at year-end 2002. o Noninterest income was $246.4 million for 2003, $30.6 million or 14.2% higher than 2002, led by strong results in mortgage banking and retail commissions. Mortgage banking revenue increased $16.6 million (25.0%) to $83.0 million, driven by strong secondary mortgage production and resultant loan sales. Retail commissions grew $7.3 million (40.0%) over 2002, primarily attributable to the acquisition of CFG Insurance Services, Inc. ("CFG") in April 2003 (see section "Business Combinations"). o Noninterest expense was $388.7 million, up $18.6 million or 5.0% over 2002, due principally to personnel expense. Personnel expense rose $19.0 million or 10.0%, primarily due to the timing of acquisitions and merit increases between the years. o Income tax expense increased to $93.1 million, up $7.5 million from 2002. The increase was primarily attributable to higher net income before tax as the effective tax rate was unchanged at 28.9%. 16 Business Combinations In 2003 there was one completed business combination. On April 1, 2003, the Corporation consummated its cash acquisition of 100% of the outstanding shares of CFG, a closely held insurance agency headquartered in Minnetonka, Minnesota. Effective 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 prior to the consummation date were not included in the accompanying consolidated financial statements. 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. There was one completed business combination during 2002. On February 28, 2002, the Corporation consummated its acquisition of 100% of the outstanding common shares of Signal Financial Corporation ("Signal"), a financial holding company headquartered in Mendota Heights, Minnesota. Signal operated banking branches in nine locations in the Twin Cities and Eastern Minnesota. As a result of the acquisition, the Corporation expanded its Minnesota presence, particularly in the Twin Cities area. The Signal transaction was consummated through the issuance of approximately 4.1 million shares of common stock and $58.4 million in cash for a purchase price of $192.5 million. The value of the shares was determined using the closing stock price of the Corporation's stock on September 10, 2001, the initiation date of the transaction. Goodwill of approximately $119.7 million and other intangibles of approximately $5.6 million recognized in the transaction were assigned to the banking segment. The acquisition was accounted for under the purchase method of accounting; thus, the results of operations prior to the consummation date were not included in the accompanying consolidated financial statements. There were no business combinations during 2001. The Corporation's business combination activity is further summarized in Note 2, "Business Combinations," of the notes to consolidated financial statements. INCOME STATEMENT ANALYSIS Net Interest Income Net interest income in the consolidated statements of income (which excludes the taxable equivalent adjustment) was $510.8 million, compared to $501.3 million in 2002. The taxable equivalent adjustments (the adjustments to bring tax-exempt interest to a level that would yield the same after-tax income had that income been subject to taxation using a 35% tax rate) of $24.9 million for 2003 and $24.0 million for 2002 resulted in fully taxable equivalent net interest income of $535.7 million and $525.3 million, respectively. Net interest income is the primary source of the Corporation's revenue. Net interest income is the difference between interest income on earning assets, such as loans and securities, and the interest expense on interest-bearing deposits and other borrowings used to fund interest-earning and other assets or activities. The amount of net interest income is affected by changes in interest rates and by the amount and composition of earning assets and interest-bearing liabilities. Additionally, net interest income is impacted by the sensitivity of the balance sheet to changes in interest rates, which factors in characteristics such as the fixed or variable nature of the financial instruments, contractual maturities, repricing frequencies, and the use of interest rate swaps and caps. Interest rate spread and net interest margin are utilized to measure and explain changes in net interest income. Interest rate spread is the difference between the yield on earning assets and the rate paid for interest-bearing liabilities that fund those assets. The net interest margin is expressed as the percentage of net interest income to average earning assets. The net interest margin exceeds the interest rate spread because noninterest-bearing sources of funds ("net free funds"), principally demand deposits and stockholders' equity, also support earning assets. To compare tax-exempt asset yields to taxable yields, the yield on tax-exempt loans and securities is computed on a taxable equivalent basis. Net interest income, interest rate spread, and net interest margin are discussed on a taxable equivalent basis. 17 Table 2 provides average balances of earning assets and interest-bearing liabilities, the associated interest income and expense, and the corresponding interest rates earned and paid, as well as net interest income, interest rate spread, and net interest margin on a taxable equivalent basis for the three years ended December 31, 2003. Tables 3 through 5 present additional information to facilitate the review and discussion of taxable equivalent net interest income, interest rate spread, and net interest margin. Taxable equivalent net interest income was $535.7 million for 2003, an increase of $10.3 million or 2.0% from 2002. The increase in taxable equivalent net interest income was a function of a higher level of earning assets, offset by unfavorable interest rate changes. The net interest margin for 2003 was 3.84%, compared to 3.95% in 2002. The 11 bp compression in net interest margin is attributable to a 3 bp decrease in interest rate spread (with a 75 bp decrease in the yield on earning assets, substantially offset by a 72 bp lower cost of interest-bearing liabilities), and an 8 bp lower contribution from net free funds (impacted by the lower 2003 rate environment, despite a $194 million increase in average net free funds). Interest rates were generally stable and historically low during both 2003 and 2002. Comparatively, the Federal funds rate at December 31, 2003, was at a 45-year low of 1.00%, 25 bp lower than at December 31, 2002, while the average Federal funds rate for 2003 was 55 bp lower than for 2002. As shown in the rate/volume analysis in Table 3, volume changes added $21.6 million to taxable equivalent net interest income, while rate changes resulted in an $11.3 million decrease, for a net increase of $10.3 million. From a volume perspective, the growth and composition change of earning assets added $31.3 million to taxable equivalent net interest income in 2003, while the growth and composition of interest-bearing liabilities cost an additional $9.7 million, netting a $21.6 million increase to taxable equivalent net interest income. Rate changes on earning assets reduced interest income by $95.2 million, while the changes in rates on interest-bearing liabilities lowered interest expense by $83.9 million, for a net unfavorable impact of $11.3 million. For 2003, the yield on earning assets fell 75 bp to 5.39%, driven primarily by an 81 bp decline in the loan yield. The average loan yield was 5.46%. 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 in 2003. The yield on securities and short-term investments combined was down 54 bp to 5.19%. The earning asset rate changes reduced interest income by $95.2 million, a combination of $77.5 million lower interest on loans and $17.7 million lower interest on securities and short-term investments combined. For 2003, the cost of interest-bearing liabilities decreased 72 bp to 1.83%, aided by the lower rate environment. The combined average cost of interest-bearing deposits was 1.62%, down 66 bp from 2002, benefiting from a larger mix of lower-costing transaction accounts, as well as from lower rates on interest-bearing deposit products in general. The cost of wholesale funds (comprised of all short-term borrowings and long-term funding) decreased 85 bp to 2.21% for 2003, favorably impacted by lower rates year-over-year and the maturity of higher-rate wholesale funds during the year. The interest-bearing liability rate changes resulted in $83.9 million lower interest expense, with $42.8 million attributable to interest-bearing deposits and $41.1 million due to wholesale funding. Average earning assets were $13.9 billion in 2003, an increase of $652 million, or 4.9%, from 2002. Loans accounted for the majority of the growth in earning assets, increasing by $620 million, or 6.2%, to $10.6 billion on average in 2003 and representing 76.2% of average earning assets compared to 75.2% for 2002. For 2003, taxable equivalent interest income on loans increased $29.9 million from growth, but decreased $77.5 million from the impact of the low rate environment (as noted above), for a net decrease of $47.6 million versus last year (See Table 3). Balances of securities and short-term investments combined increased $32 million on average. Taxable equivalent interest income on securities and short-term investments for 2003 increased $1.4 million from volume changes, but decreased $17.7 million from the impact of the rate environment, for a net $16.3 million decrease to taxable equivalent interest income. 18 Average interest-bearing liabilities increased $459 million, or 4.0%, from 2002, while net free funds increased $194 million, both supporting the growth in earning assets. Average noninterest-bearing demand deposits (a component of net free funds) increased by $180 million, or 12.0%. Interest-bearing deposits grew, on average, $207 million, or 2.8%, to $7.6 billion, the net result of increases in interest-bearing demand and savings deposits and declines in money market accounts and time deposits. Interest expense on interest-bearing deposits for 2003 decreased $42.8 million from the impact of the rate environment and decreased $3.1 million from volume and mix changes, for a net $45.9 million decrease to interest expense. Average wholesale funding sources increased by $251 million. The Corporation continued its shift of funding (given the continued low rate environment) from short-term borrowing sources to long-term funding, increasing its average long-term funding by $424 million to 17.7% of average interest-bearing liabilities (compared to 14.7% for 2002). For 2003, interest expense on wholesale funding increased by $12.8 million due to volume changes and decreased by $41.1 million from lower rates, for a net decrease of $28.3 million versus the prior year. 19 TABLE 2: Average Balances and Interest Rates (interest and rates on a taxable equivalent basis)

20 TABLE 3: Rate/Volume Analysis (1)

TABLE 4: Interest Rate Spread and Interest Margin (on a taxable equivalent basis)

21 TABLE 5: Selected Average Balances

Provision for Loan Losses The provision for loan losses in 2003 was $46.8 million. The provision for loan losses for 2002 was $50.7 million, and $28.2 million for 2001. At December 31, 2003, the allowance for loan losses was $177.6 million, compared to $162.5 million at December 31, 2002, and $128.2 million at December 31, 2001. Net charge offs were $31.7 million for 2003, compared to $28.3 million for 2002 and $20.2 million for 2001. Net charge offs as a percent of average loans were 0.30%, 0.28%, and 0.22% for 2003, 2002, and 2001, respectively. The ratio of the allowance for loan losses to total loans was 1.73%, up from 1.58% at December 31, 2002, and 1.42% at December 31, 2001. Nonperforming loans at December 31, 2003, were $121.5 million, compared to $99.3 million at December 31, 2002, and $52.1 million at December 31, 2001. 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 22 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, Potential Problem Loans, and Other Real Estate Owned." Noninterest Income Noninterest income was $246.4 million for 2003, $30.6 million or 14.2% higher than 2002. Fee income as a percentage of total revenues (defined as total noninterest income less gains or losses on asset and investment sales ("fee income") divided by taxable equivalent net interest income plus fee income) was 31.3% for 2003 compared to 29.1% for 2002. TABLE 6: Noninterest Income

Trust service fees for 2003 were $29.6 million, up $1.7 million (6.1%) from 2002. The change was predominantly the result of new business, increases in the fee structure on personal trust accounts, and an improving stock market. The market value of assets under management was $4.1 billion at December 31, 2003 compared to $3.5 billion at December 31, 2002, reflecting higher year-end equity values compared to 2002. Service charges on deposit accounts were $50.3 million, $4.3 million (9.3%) higher than 2002. The increase was a function of higher volumes associated with the larger deposit account base, higher service charges on business accounts (attributable to lower earnings credit rates), and higher fees on overdrafts/nonsufficient funds. Mortgage banking income consists of servicing fees, the gain or loss on sales of mortgage loans to the secondary market, and other related fees. Mortgage banking income was $83.0 million in 2003, an increase of $16.6 million or 25.0% over 2002. The increase was primarily a result of increased income associated with higher secondary mortgage loan production (mortgage loan production to be sold to the secondary market) and resultant sales. Secondary mortgage loan production was $4.3 billion for 2003, up 34.2% over the $3.2 billion for 2002. Gains on loan sales were up $14.1 million (the net of realized gains up $20.3 million and a $6.2 million decline in the fair value of the mortgage derivatives position). The mortgage portfolio serviced for others was $5.9 billion and $5.4 billion at December 31, 2003 and 2002, respectively. 23 Credit card and other nondeposit fees were $23.7 million for 2003, a decrease of $3.8 million or 13.9% from 2002, primarily attributable to lower merchant fees, given the merchant processing sale and services agreement consummated in March 2003. In February 2003, the Corporation entered into a 10-year agreement with an outside vendor to provide merchant processing services for the Corporation's merchant customers. The agreement resulted in a gain of $3.4 million (recorded in other noninterest income) and replaces gross merchant discount fees with revenue sharing on new and existing merchant business over the life of the agreement. Thus, credit card fees were down $5.7 million versus 2002 (i.e. reduced merchant discount fees, offset partly by increased inclearing fees), while other nondeposit fees were up $1.9 million (primarily CFG-related advisory fees). Retail commission income (which includes commissions from insurance and brokerage product sales) was $25.6 million, up $7.3 million or 40.0% compared to 2002. Other insurance revenues were up $8.6 million, while fixed annuities commissions decreased $2.0 million. Other insurance revenue was favorably impacted by the CFG acquisition but offset partly by lower loan insurance commissions, which were affected by legislation in late 2002 requiring single premium credit insurance premiums on loans with real estate to be collected based on monthly outstanding balances. Fixed annuities commissions declined during 2003, in part due to the prolonged low rate environment, customer preference for more attractive rate-driven products, and the recent recovery in the equity markets. Brokerage commissions, including variable annuities, were up $0.7 million, reflecting recent renewed customer interest in the stock market. Other income was $18.2 million for 2003, an increase of $2.5 million over 2002. Other income for 2003 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 the aforementioned credit card merchant processing sale and services agreement. Change in vendor arrangements for both ATM services and check printing lowered revenue (down $1.2 million and $0.6 million, respectively), while correspondingly lowered ATM and check printing costs (included in Other expense). Other income for 2002 included a $0.5 million gain on the sale of stock in a regional ATM network. Asset sale gains for 2003 were $1.6 million, including a $1.3 million net premium on the sales of $17 million in deposits from two branches and a $0.4 million net gain on the sale of other real estate owned properties. Asset sale gains for 2002 were $0.7 million. Investment securities net gains for 2003 were $0.7 million, attributable to a $1.0 million gain on the sale of Sallie Mae stock, partially offset by of a $0.3 million other-than-temporary write down on a collateralized mortgage obligation ("CMO") security. The 2002 investment securities net losses of $0.4 million included a $0.8 million other-than-temporary write down on the same CMO security. 24 Noninterest Expense Total noninterest expense for 2003 was $388.7 million, an increase of $18.6 million or 5.0% over 2002. TABLE 7: Noninterest Expense

Personnel expense (including salary-related expenses and fringe benefit expenses) increased $19.0 million or 10.0% over 2002 and represented 53.5% of total noninterest expense in 2003 compared to 51.1% in 2002. Average full-time equivalent employees were 4,123 for 2003, compared to 4,072 for 2002. Total salary-related expenses increased $15.8 million or 10.9% in 2003, primarily due to the timing of acquisitions, increased severance, and merit increases between the years. Fringe benefits increased $3.2 million or 7.3% in 2003, attributable to the increased cost of premium based benefits (up $1.2 million or 8.1%) and other fringe benefit expenses commensurate with the salary-related expense increase. Occupancy expense increased 7.8% to support the larger branch and office network, particularly attributable to the Signal and CFG acquisitions. Equipment expense declined principally in computer depreciation expense due to aging equipment and lower replacement costs. Data processing costs increased to $23.3 million, up $2.2 million or 10.7% over 2002, due to processing for a larger base operation, as well as web-based and other technology enhancements. Business development and advertising increased to $15.2 million for 2003, up $1.4 million or 10.0% compared to 2002. 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 $0.9 million between 2003 and 2002, including a $12.3 million addition to the valuation allowance during 2003 (the net of a $15.8 million addition to the valuation allowance in the first nine months of 2003 and a $3.5 million reversal to the valuation allowance in the fourth quarter of 2003) versus a $17.6 million addition to the valuation allowance during 2002 and a $4.4 million increase in the amortization of the mortgage servicing rights asset. While the strong mortgage refinance activity benefited mortgage banking income, it increased the prepayment speeds of the Corporation's mortgage portfolio serviced for others, a key factor behind the valuation of mortgage servicing rights. However, during the second half of 2003 (and particularly fourth quarter 2003), mortgage interest rates began to rise, slowing both prepayment speeds and mortgage refinance activity. See Note 1, "Summary of Significant Accounting Policies," of the notes to consolidated financial statements for the Corporation's accounting policy for mortgage servicing rights 25 and section "Critical Accounting Policies." 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 reserve 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 $42.5 million, net of a $22.6 million valuation allowance at December 31, 2003, and represented 72 bp of the $5.9 billion portfolio of residential mortgage loans serviced for others. See Note 5, "Goodwill and Other Intangible Assets," of the notes to consolidated financial statements for additional disclosure. Intangible amortization expense increased to $3.0 million, primarily due to additional core deposit and other intangible assets resulting from the Signal and CFG acquisitions. Loan expense was $7.6 million, down $7.0 million from 2002, predominantly due to lower merchant processing costs, given the sale of the merchant processing during the first quarter of 2003 (as noted in section "Noninterest Income"). Other expense was up $3.7 million over 2002, attributable primarily to a $2.5 million charge on commercial letters of credit given the deterioration of the financial condition of a borrower, and $1.1 million higher foreclosure costs (including a $0.5 million write down on one commercial other real estate owned property). Income Taxes Income tax expense for 2003 was $93.1 million, up $7.5 million from 2002 income tax expense of $85.6 million. The Corporation's effective tax rate (income tax expense divided by income before taxes) was 28.9% in both 2003 and 2002. See Note 1, "Summary of Significant Accounting Policies," of the notes to consolidated financial statements for the Corporation's income tax accounting policy and section "Critical Accounting Policies." Income tax expense recorded in the consolidated statements of income involves 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 Note 13, "Income Taxes," of the notes to consolidated financial statements for more information. BALANCE SHEET ANALYSIS Loans Total loans were $10.3 billion at December 31, 2003, relatively unchanged (down $11 million or 0.1%) from December 31, 2002. Commercial loans were $6.5 billion, up $188 million or 3.0%. Commercial loans grew to represent 63% of total loans at the end of 2003, up from 61% at year-end 2002. Home equity and other consumer loans combined grew $86 million or 5.4%, while residential mortgage loans decreased 11.7%, strongly influenced by lower interest rates and high refinance activity. 26 TABLE 8: Loan Composition

Commercial, financial, and agricultural loans were $2.1 billion at the end of 2003, down $98 million or 4.4% since year-end 2002, and comprised 21% of total loans outstanding, down from 22% at the end of 2002. The commercial, financial, and agricultural loan classification primarily consists of commercial loans to middle market companies and small businesses. Loans of this type are in a diverse range of industries. The credit risk related to commercial loans is largely influenced by general economic conditions and the resulting impact on a borrower's operations. Borrower demand in this loan sector has been cautious during 2003, and price competition has been strong. Within the commercial, financial, and agricultural classification, loans to finance agricultural production totaled only 0.3% of total loans at both December 31, 2003 and 2002. Real estate construction loans grew $167 million or 18.4% to $1.1 billion, representing 10% of the total loan portfolio at the end of 2003, compared to $911 million or 9% at the end of 2002. Loans in this classification are primarily short-term interim loans that provide financing for the acquisition or development of commercial real estate, such as multifamily or other commercial development projects. Real estate construction loans are made to developers and project managers who are well known to the Corporation, have prior successful project experience, and are well capitalized. Projects undertaken by these developers are carefully reviewed by the Corporation to ensure that they are economically viable. Loans of this type are primarily made to customers based in the Corporation's tri-state market in which the Corporation has a thorough knowledge of the local market economy. The credit risk associated with real estate construction loans is generally confined to specific geographic areas, but is also influenced by general economic conditions. The Corporation controls the credit risk on these types of loans by making loans in familiar markets to developers, underwriting the loans to meet the requirements of institutional investors in the secondary market, reviewing the merits of individual projects, controlling loan structure, and monitoring project progress and construction advances. Commercial real estate includes loans secured by farmland, multifamily properties, and nonfarm/nonresidential real estate properties. Commercial real estate totaled $3.2 billion at December 31, 2003, up $118 million or 3.8% over December 31, 2002, and comprised 32% of total loans outstanding versus 30% at year-end 2002. Commercial real estate loans involve borrower characteristics similar to those discussed above for commercial loans and real estate construction projects. Loans of this type are mainly for business and industrial properties, multifamily properties, and community purpose properties. Loans are primarily made to customers based in Wisconsin, Illinois, and Minnesota. Credit risk is managed in a similar manner to commercial loans and real estate construction by employing sound underwriting guidelines, lending to borrowers in local markets and businesses, and formally reviewing the borrower's financial soundness and relationship on an ongoing basis. In many cases the Corporation will take additional real estate collateral to further secure the overall lending relationship. 27 Residential real estate loans totaled $3.1 billion at the end of 2003, down $181 million or 5.5% from the prior year and comprised 30% of total loans outstanding versus 32% at year-end 2002. Loans in this classification include residential mortgage (which consists of conventional home mortgages and second mortgages) and home equity lines. Residential mortgage loans generally limit the maximum loan to 80% of collateral value. Residential mortgage loans were $2.1 billion at December 31, 2003, down $285 million or 11.7% compared to the prior year, principally due to high refinance activity prompted by lower interest rates and the subsequent sale of newer, fixed-rate loan production into the secondary market. Home equity lines grew by $104 million, or 12.0%, to $969 million in 2003, an attractive product to consumers given the lower rate environment and an area of emphasis in 2003. Consumer loans to individuals totaled $698 million at December 31, 2003, down $18 million or 2.6% compared to 2002, representing 7% of the year-end loan portfolio. Consumer loans include short-term installment loans, direct and indirect automobile loans, recreational vehicle loans, credit card loans (which are primarily business-oriented), student loans, and other personal loans. Individual borrowers may be required to provide related collateral or a satisfactory endorsement or guaranty from another person, depending on the specific type of loan and the creditworthiness of the borrower. Credit risk for these types of loans is generally greatly influenced by general economic conditions, the characteristics of individual borrowers, and the nature of the loan collateral. Credit risk is primarily controlled by reviewing the creditworthiness of the borrowers as well as taking appropriate collateral and guaranty positions. Factors that are important to managing overall credit quality are sound loan underwriting and administration, systematic monitoring of existing loans and commitments, effective loan review on an ongoing basis, early identification of potential problems, an adequate allowance for loan losses, and sound nonaccrual and charge off policies. An active credit risk management process is used for commercial loans to further ensure that sound and consistent credit decisions are made. Credit risk is controlled by detailed underwriting procedures, comprehensive loan administration, and periodic review of borrowers' outstanding loans and commitments. Borrower relationships are formally reviewed on an ongoing basis for early identification of potential problems. Further analyses by customer, industry, and geographic location are performed to monitor trends, financial performance, and concentrations. The loan portfolio is widely diversified by types of borrowers, industry groups, and market areas within our primary three-state area. Significant loan concentrations are considered to exist for a financial institution when there are amounts loaned to numerous borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. At December 31, 2003, no significant concentrations existed in the Corporation's portfolio in excess of 10% of total loans. TABLE 9: Loan Maturity Distribution and Interest Rate Sensitivity

28 Allowance for Loan Losses The loan portfolio is the primary asset subject to credit risk. Credit risks are inherently different for each loan type. Credit risk is controlled and monitored through the use of lending standards, a thorough review of potential borrowers, and on-going review of loan payment performance. Active asset quality administration, including early problem loan identification and timely resolution of problems, aids in the management of credit risk and minimization of loan losses. Credit risk management for each loan type is discussed briefly in the section entitled "Loans." 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 quantitative factors which could affect probable credit losses. Assessing these factors involves significant judgment. Management considers the allowance for loan losses a critical accounting policy (see section "Critical Accounting Policies"). See management's allowance for loan losses accounting policy in Note 1, "Summary of Significant Accounting Policies," and Note 4, "Loans," of the notes to consolidated financial statements for additional allowance for loan losses disclosures. At December 31, 2003, the allowance for loan losses was $177.6 million, compared to $162.5 million at December 31, 2002, and $128.2 million at year-end 2001. As of December 31, 2003, the allowance for loan losses to total loans was 1.73% and covered 146% of nonperforming loans, compared to 1.58% and 164%, respectively, at December 31, 2002, and 1.42% and 246%, respectively, at December 31, 2001. Total loans were relatively unchanged at $10.3 billion for both December 31, 2003 and 2002, though commercial loans (defined as commercial real estate; commercial, financial and agricultural loans; real estate construction loans; and lease financing) grew $188 million. From year-end 2001 to 2002, loans were up $1.3 billion (with $760 million in loans from the Signal acquisition), with growth particularly in commercial loans (up $1.1 billion). With this growth and impacts of the sluggish economy on various borrowers, nonperforming loans trended upward, to $121.5 million at December 31, 2003, from $99.3 million and $52.1 million at year-end 2002 and 2001, respectively. Net charge offs were $31.7 million, $28.3 million and $20.2 million for 2003, 2002 and 2001, respectively. The provision for loan losses is predominantly a function of the result of the methodology and other qualitative and quantitative factors used to determine the adequacy of the allowance for loan losses. The provision for loan losses was $46.8 million, $50.7 million and $28.2 million for 2003, 2002 and 2001, respectively. Tables 10 and 11 provide additional information regarding activity in the allowance for loan losses, Table 12 provides additional information regarding nonperforming loans, and Table 8 provides information on loan growth and composition. Net charge offs were $31.7 million or 0.30% of average loans for 2003, compared to $28.3 million or 0.28% of average loans for 2002, and $20.2 million or 0.22% of average loans for 2001 (see Table 10). The $3.4 million increase in net charge offs for 2003 compared to 2002 was primarily due to commercial net charge offs. Commercial net charge offs for 2003 were $24.3 million (up $4.0 million compared to 2002) and as a percent of total net charge offs were 76%, 72% and 76% for 2003, 2002 and 2001, respectively. Specifically, net charge offs of commercial real estate loans were $13.0 million, up $7.7 million over 2002, while net charge offs of commercial, financial, and agricultural loans were $9.7 million, down $3.7 million. Five commercial credits in the construction and hospitality industries accounted for approximately $16.5 million of the 2003 net charge offs. Several commercial credits with greater than $0.5 million charged off accounted for approximately $13.0 million of the 2002 net charge offs. Loans charged off are subject to continuous review, and specific efforts are taken to achieve maximum recovery of principal, accrued interest, and related expenses. 29 TABLE 10: Loan Loss Experience

TABLE 11: Allocation of the Allowance for Loan Losses

30 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 8), net charge offs (see Table 10), and nonperforming loans (see Table 12). As previously discussed, total loans from year-end 2002 to 2003 were relatively flat (down $11 million or 0.1%); however, the loan mix shifted. During 2003 the commercial loan portfolio grew to represent 63% of total loans at year-end 2003 compared to 61% last year-end. This segment of the loan portfolio carries greater inherent credit risk (described under section "Loans"). With growth particularly in commercial loans and impacts of the sluggish economy on various borrowers, nonperforming loans to total loans grew to 1.18% for 2003 compared to 0.96% for 2002. Net charge offs for 2003 increased to $31.7 million, with the majority of the increase attributable to charge offs in the commercial loan portfolio. The allocation of the Corporation's allowance for loan losses for the last five years is shown in Table 11. The allocation methodology applied by the Corporation, designed to assess the adequacy of the allowance for loan losses, focuses on changes in the size and character of the loan portfolio, changes in levels of impaired and 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 quantitative factors. Because each of the criteria used is subject to change, the allocation of the allowance for loan losses is made for analytical purposes and is not necessarily indicative of the trend of future loan losses in any particular loan category. The total allowance is available to absorb losses from any segment of the portfolio. Management continues to target and maintain the allowance for loan losses equal to the allocation methodology plus an unallocated portion, as determined by economic conditions and other qualitative and quantitative factors affecting the Corporation's borrowers. Management allocates the allowance for loan losses for credit losses by pools of risk. The commercial loan allocations are based on a quarterly review of individual loans, loan types, and industries. The retail loan (residential mortgage, home equity, and consumer) allocation is based primarily on analysis of historical delinquency and charge off statistics and trends. Minimum loss factors used by the Corporation for criticized loan categories are consistent with regulatory agency factors. Loss factors for non-criticized loan categories are based primarily on loan type, historical loan loss experience, and industry statistics. The mechanism used to address differences between estimated and actual loan loss experience includes review of recent nonperforming loan trends, underwriting trends, external factors, and management's judgment relating to current assumptions. The allocation methods used for December 31, 2003 and 2002 were comparable. Factors used for criticized loans (defined as specific loans warranting either specific allocation or a criticized status of watch, special mention, substandard, doubtful or loss), as well as for non-criticized loan categories, were unchanged between the years. At both December 31, 2003 and 2002, current economic conditions carried various uncertainties requiring management's judgment as to the impact on the business results of numerous individual borrowers and certain industries. Additionally, the pace at which the financial results of a borrower's company can take a downturn from challenging and varied economic conditions continued to be a factor for both years. At year-end 2003, 57% of the allowance (compared to 55% at year-end 2002) was allocated to criticized loans, including $10 million of allowance identified for a previously disclosed commercial manufacturing credit ($17 million outstanding at December 31, 2003) for which management had doubts concerning the future collectibility of the loan. The primary shift in the allowance allocation was the amount allocated to commercial real estate loans at year-end 2003, which was $69.9 million, representing 39% (compared to 35% at year-end 2002) of the allowance for loan losses. A greater amount of these loans were in criticized categories (10% versus 9% at year-end 2002); charge offs of this loan type increased (to $13.7 million for 2003, more than double) between the years; these loans represented 44% of nonperforming loans (compared to 24% at year-end 2002); and commercial real estate loans grew to represent 32% of total loans at December 31, 2003 (compared to 30% at year-end 2002). As noted under the section "Loans," the credit risk of this loan category is largely influenced by the impact on borrowers of general economic conditions, which have been noted to be challenging and uncertain. The allowance allocated to commercial, financial, and agricultural loans was $63.9 million at year-end 2003, representing 36% (versus 40% at year-end 2002) of the 31 allowance for loan losses. Commercial, financial and agricultural loans declined 4.4% since year-end 2002, to represent 21% of total loans at December 31, 2003 compared to 22% at December 31, 2002; net charge offs were $9.7 million (down $3.7 million); and as a percent of nonperforming loans, these loans represented 36% (versus 48% at year-end 2002). The allocation methods used for December 31, 2002 and 2001 were comparable. Factors used for criticized loans, as well as for non-criticized loan categories, were unchanged between the years. At both December 31, 2002 and 2001, current economic conditions carried various uncertainties requiring management's judgment as to the possible impact to individual borrowers. Thus, at year-end 2002, 55% of the allowance (compared to 48% at year-end 2001) was allocated to criticized loans, including $10 million of allowance identified for a $21 million commercial manufacturing credit for which management had doubts concerning the future collectibility of the loan given current economic conditions. While the payments for this credit were current during 2002, the credit was added to nonaccrual loans during second quarter 2002. The primary shift in the allowance allocation was the amount allocated to commercial, financial, and agricultural loans at year-end 2002 which was $65.0 million, representing 40% (compared to 34% at year-end 2001) of the allowance for loan losses. A greater amount of these loans were in criticized categories (22% versus 18% at year-end 2001); charge offs of this loan type have increased (to $15.0 million for 2002, up 33%) between the years; these loans represented 48% of nonperforming loans (compared to 26% last year-end); and commercial, financial, and agricultural loans grew to represent 22% of total loans at December 31, 2002 (compared to 20% at year-end 2001). The allowance allocated to commercial real estate was 35% at year-end 2002, down from 37% at year-end 2001. In 2001 for this category, a greater amount of these loans were in criticized loan categories, which materialized into greater charge offs during 2002 (see Table 10). While commercial real estate loans grew 18.9% since year-end 2001, they represented 30% of total loans at December 31, 2002, relatively unchanged from 29% last year. Management believes the allowance for loan losses to be adequate at December 31, 2003. 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, Potential Problem 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 review of all pools of risk in the loan portfolio to ensure that problem loans are identified quickly and the risk of loss is minimized. 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 approximately $13.0 million and $20.2 million at December 31, 2003 and 2002, respectively, of nonperforming student loans. Loans are generally placed on nonaccrual status when contractually past due 90 days or more as to interest or principal payments. Additionally, whenever management becomes aware of facts or circumstances that may adversely impact the collectibility of principal or interest on loans, it is 32 management's practice to place such loans on nonaccrual status immediately, rather than delaying such action until the loans become 90 days past due. Previously accrued and uncollected interest on such loans is reversed, amortization of related loan fees is suspended, and income is recorded only to the extent that interest payments are subsequently received in cash and a determination has been made that the principal balance of the loan is collectible. If collectibility of the principal is in doubt, payments received are applied to loan principal. Loans past due 90 days or more but still accruing interest are also included in nonperforming loans. Loans past due 90 days or more but still accruing are classified as such where the underlying loans are both well secured (the collateral value is sufficient to cover principal and accrued interest) and are in the process of collection. Also included in nonperforming loans are "restructured" loans. Restructured loans involve the granting of some concession to the borrower involving the modification of terms of the loan, such as changes in payment schedule or interest rate. TABLE 12: Nonperforming Loans and Other Real Estate Owned

Nonperforming loans at December 31, 2003, were $121.5 million, compared to $99.3 million at December 31, 2002, and $52.1 million at December 31, 2001. The ratio of nonperforming loans to total loans at the end of 2003 was 1.18%, as compared to 0.96% and 0.58% at December 31, 2002 and 2001, respectively. Of the $22.2 million increase in nonperforming loans between year-end 2002 and 2003, nonaccrual loans increased $19.8 million and accruing loans past due 90 days or more increased $3.6 million, while restructured loans decreased $1.2 million. Of the $47.2 million increase in nonperforming loans between year-end 2001 and 2002, nonaccrual loans increased $45.9 million, restructured loans increased $1.0 million, and accruing loans past due 90 days or more increased $0.3 million. The Corporation's allowance for loan losses to nonperforming loans was 146% at year-end 2003, down from 164% at year-end 2002 and 246% at year-end 2001. The upward trend in nonperforming loans was primarily due to increases in commercial nonperforming loans, and mostly due to specific larger commercial credits. Commercial nonaccrual loans were $95.8 million at December 31, 2003 (up $22.8 million from year-end 2002), and represented 84%, 78%, and 67% of total nonaccrual loans at year-end 2003, 2002, and 2001, respectively. Additionally, accruing commercial loans past due 90 days or more were $5.8 million at December 31, 2003, and represented 77%, 27%, and 47% of total accruing loans past due 90 days or more at year-end 2003, 2002 and 2001, respectively. For year-end 2003 versus 2002, the $22.8 million increase in commercial nonaccrual loans was predominantly attributable to the addition, during the second quarter of 2003, of two large commercial credits (totaling approximately $20 million at December 31, 2003, one in the construction industry and 33 one in the hospitality industry). The $3.6 million increase from year-end 2002 to year-end 2003 in accruing loans past due 90 days or more was primarily attributable to one large commercial credit ($2.5 million at December 31, 2003), while the decrease in restructured loans was due to one large commercial credit that was transferred to nonaccrual status and subsequently charged off. For year-end 2002 versus 2001, the increase in commercial nonaccrual loans was predominantly attributable to the addition of a previously disclosed commercial manufacturing relationship (totaling $21 million at year-end 2002) for which payments were current; however, the Corporation had doubts concerning the future collectibility of the loan and set aside $10 million of the allowance for loan losses for this credit. This credit remains in the commercial portfolio at December 31, 2003 ($17 million outstanding) with continued concerns of collectibility and $10 million of the allowance for loan losses set aside. The remaining rise in nonaccrual loans for 2002 was primarily attributable to the commercial loan portfolio, but not concentrated within any industry. Other real estate owned decreased to $5.5 million at December 31, 2003, compared to $11.4 million and $2.7 million at year-end 2002 and 2001, respectively. 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 2002, while three other commercial properties (at $1.1 million, $1.5 million, and $2.7 million) were added during 2003. 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. Net gains on sales of other real estate owned were $472,000, $53,000, and $643,000 for 2003, 2002, and 2001, respectively. Management actively seeks to ensure properties held are monitored to minimize the Corporation's risk of loss. The following table shows, for those loans accounted for on a nonaccrual basis and restructured loans for the years ended as indicated, the gross interest that would have been recorded if the loans had been current in accordance with their original terms and the amount of interest income that was included in interest income for the period. TABLE 13: Foregone Loan Interest Years Ended December 31, -------------------------------- 2003 2002 2001 -------------------------------- ($ in Thousands) Interest income in accordance with original terms $ 7,620 $ 6,866 $ 4,840 Interest income recognized (2,898) (4,313) (2,694) -------------------------------- Reduction in interest income $ 4,722 $ 2,553 $ 2,146 ================================ Potential problem loans are certain loans bearing risk ratings by management that are not in nonperforming 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 another 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 December 31, 2003, potential problem loans totaled $245 million, compared to $212 million at December 31, 2002. The $33 million increase from December 31, 2002 to December 31, 2003, is primarily attributable to deterioration in certain loans in the commercial manufacturing sector (accountable for approximately $28 million of the increase). 34 Investment Securities Portfolio The investment securities portfolio is intended to provide the Corporation with adequate liquidity, flexibility in asset/liability management, a source of stable income, and is structured with minimum credit exposure to the Corporation. Investment securities classified as available for sale are carried at fair market value in the consolidated balance sheet. At December 31, 2003, the total carrying value of investment securities represented 25% of total assets, compared to 22% at year-end 2002. On average, the investment portfolio represented 24% and 25% of average earning assets for 2003 and 2002, respectively. The classification of securities as held to maturity or available for sale is determined at the time of purchase. The Corporation generally classifies investment purchases as available for sale, consistent with the Corporation's investment philosophy of maintaining flexibility to manage the investment portfolio, particularly in light of asset/liability management strategies, possible securities sales in response to changes in interest rates or prepayment risk, the need to manage liquidity or regulatory capital, and other factors. TABLE 14: Investment Securities Portfolio At December 31, -------------------------------------- 2003 2002 2001 -------------------------------------- ($ in Thousands) Investment Securities Available for Sale: U.S. Treasury securities $ 36,588 $ 44,967 $ 15,071 Federal agency securities 167,859 222,787 196,175 Obligations of state and political subdivisions 868,974 851,710 847,887 Mortgage-related securities 2,232,920 1,672,542 1,642,851 Other securities (debt and equity) 368,388 440,126 414,399 -------------------------------------- Total amortized cost $3,674,729 $3,232,132 $3,116,383 ====================================== Total fair value and carrying value $3,773,784 $3,362,669 $3,197,021 ====================================== At December 31, 2003 and 2002, mortgage-related securities (which include predominantly mortgage-backed securities and collateralized mortgage obligations) represented 59.2% and 50.7%, respectively, of total investment securities based on carrying value. The fair value of mortgage-related securities are subject to inherent risks based upon the future performance of the underlying collateral (i.e., mortgage loans) for these securities, such as prepayment risk and interest rate changes. At December 31, 2003, the Corporation's securities portfolio did not contain securities of any single issuer that were payable from and secured by the same source of revenue or taxing authority where the aggregate carrying value of such securities exceeded 10% of stockholders' equity or approximately $135 million (stockholders' equity was $1.3 billion at December 31, 2003). During 2002, a CMO (included in mortgage-related securities) was determined to have an other-than-temporary impairment that resulted in a write down on the security of $0.8 million during 2002 and $0.3 million during 2003 based on continued evaluation. See Note 3, "Investment Securities," of the notes to consolidated financial statements for more information. 35 TABLE 15: Investment Securities Portfolio Maturity Distribution (1) - At December 31, 2003

Deposits Deposits are the Corporation's largest source of funds. See also section "Liquidity." The Corporation competes with other bank and nonbank institutions, as well as with investment alternatives such as money market or other mutual funds and brokerage houses for deposits. The Corporation's nonbrokered deposit growth was impacted by competitive factors, as well as other investment opportunities available to customers. During both 2003 and 2002, the Corporation has actively marketed its transaction accounts (business demand deposits, interest-bearing demand deposits, and money market accounts), which offer competitive, market-indexed rates and greater customer flexibility. Additionally, customer preference to keep funds more liquid in this prolonged low rate environment has aided general deposit growth. At December 31, 2003, deposits were $9.8 billion, up $668 million or 7.3% over December 31, 2002. The sale of two branches during 2003 reduced deposits by $17 million. Selected period-end deposit information is detailed in Note 7, "Deposits," of the notes to consolidated financial statements, including a maturity distribution of all time deposits at December 31, 2003. A maturity distribution of certificates of deposit and other time deposits of $100,000 or more at December 31, 2003, is shown in Table 17. Table 16 summarizes the distribution of average deposit balances. The mix of deposits changed during 2003 as customers reacted to prolonged low and uncertain interest rates as well as unsteady market conditions. At December 31, 2003, noninterest-bearing demand deposits were 18% of deposits, compared to 19% at year-end 2002. Interest-bearing transaction accounts (savings, interest-bearing demand, and money market deposits) grew to 49% of deposits versus 45% at the end of 2002. Given the lower interest rate environment and scheduled maturities, total time deposits declined to 33% of deposits at year-end 2003 compared to 36% at year-end 2002. On average, deposits were $9.3 billion for 2003, up $387 million or 4.3% over the average for 2002. Average nonbrokered deposits for 2003 were $9.1 billion, up $472 million or 5.5% compared to 2002. 36 TABLE 16: Average Deposits Distribution

TABLE 17: Maturity Distribution-Certificates of Deposit and Other Time Deposits of $100,000 or More December 31, 2003 ---------------------------------------------- Certificates of Deposit Other Time Deposits ---------------------------------------------- ($ in Thousands) Three months or less $457,495 $59,524 Over three months through six months 112,144 34,575 Over six months through twelve months 76,760 25,000 Over twelve months 233,051 --- ---------------------------------------------- Total $879,450 $119,099 ============================================== Other Funding Sources Other funding sources, including short-term borrowings, long-term debt, and company-obligated mandatorily redeemable preferred securities ("wholesale funds"), were $4.0 billion at December 31, 2003, down $0.5 billion from $4.5 billion at December 31, 2002. See also section "Liquidity." Short-term borrowings decreased $461 million, primarily in Federal funds purchased and securities sold under agreements to repurchase. Short-term borrowings are primarily comprised of Federal funds purchased; securities sold under agreements to repurchase; short-term Federal Home Loan Bank advances; notes payable to banks; and treasury, tax, and loan notes. The Federal Home Loan Bank advances included in short-term borrowings are those with original maturities of less than one year. The treasury, tax, and loan notes are demand notes representing secured borrowings from the U.S. Treasury, collateralized by qualifying securities and loans. The funds are placed with the subsidiary banks at the discretion of the U.S. Treasury and may be called at any time. See Note 8, "Short-term Borrowings," of the notes to consolidated financial statements for additional information on short-term borrowings, and Table 18 for specific disclosure required for major short-term borrowing categories. Long-term debt at December 31, 2003, was $1.9 billion, down $55 million from December 31, 2002, due primarily to the issuance of $50 million of bank notes, $203 million of long-term repurchase agreements, and $250 million of long-term Federal Home Loan Bank advances, net of the repayments of $302 million of long-term Federal Home Loan Bank advances and $250 million of bank notes. See Note 9, "Long-term Debt," of the notes to consolidated financial statements for additional information on long-term debt. In addition, during 2002 the Corporation issued $175 million of company-obligated mandatorily redeemable preferred securities. See Note 10, "Company-Obligated Mandatorily Redeemable Preferred Securities," of the notes to consolidated financial statements for additional information on the preferred securities and details regarding the impact of recent accounting pronouncements requiring the deconsolidation of the preferred securities. 37 Wholesale funds on average were $4.2 billion for 2003, up $251 million or 6.3% over 2002. The mix of wholesale funding continued to shift toward longer-term instruments, with average long-term funding representing 49.5% of wholesale funds compared to 42.0% in 2002, in response to certain asset/liability objectives and low interest rates. Within the short-term borrowing categories, average Federal funds purchased and securities sold under agreements to repurchase were down $237 million, while other short-term borrowing sources were up $65 million. TABLE 18: Short-Term Borrowings

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. TABLE 19: Credit Ratings at December 31, 2003 Moody's S&P Fitch Ratings ------- --- ------------- Bank short-term P1 A2 F1 Bank long-term A2 A- A- Corporation short-term P2 A2 F1 Corporation long-term A3 BBB+ A- Subordinated debt long-term Baa1 BBB BBB+ 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 38 varying depositor type, term, funding market, and instrument. As noted above, the Parent Company and certain subsidiary banks are rated by Moody's, Standard and Poor's (S&P), 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 shareholders, 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. Dividends received in cash from subsidiaries totaled $179.5 million in 2003 and represent a primary funding source. At December 31, 2003, $136.8 million in dividends could be paid to the parent by its subsidiaries without obtaining prior regulatory approval, subject to the capital needs of the banks. As discussed in Item 1, 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 December 31, 2003. In addition, $200 million of commercial paper was available at December 31, 2003, under the Parent Company's $200 million commercial paper program. In May 2002, the Parent Company filed a "shelf" registration statement under which the Parent Company may offer up to $300 million of trust preferred securities. In May 2002 $175 million of trust preferred securities were issued, bearing a 7.625% fixed coupon rate. At December 31, 2003, $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 issued $200 million in a subordinated note offering, bearing a 6.75% fixed coupon rate and 10-year maturity. At December 31, 2003, $300 million was available under the shelf registration. Investment securities are an important tool to the Corporation's liquidity objective. As of December 31, 2003, 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, $1.6 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 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 December 31, 2003, $300 million of long-term bank notes and $200 million of short-term bank notes were outstanding. At December 31, 2003, $1.5 billion was available under this program. The banks have also established federal funds lines with major banks totaling approximately $3.6 billion and the ability to borrow from the Federal Home Loan Bank ($0.9 billion was outstanding at December 31, 2003). In addition, the bank subsidiaries also accept Eurodollar deposits, issue institutional certificates of deposit, and from time to time offer brokered certificates of deposit. As reflected in Table 22, the Corporation has various financial obligations, including contractual obligations and other commitments, which may require future cash payments. The relatively shorter 39 maturities in time deposits is not out of the ordinary to the Corporation's experience of its customer base preference. While the time deposits indicate shorter maturities and a declining trend (largely due to the reduced attractiveness of time deposits in the prolonged low rate environment), liquidity was supported by strong growth in non-time deposits. Continued strategic emphasis on deposit growth should further support this liquidity source. The Corporation has been purposely extending its long-term funding sources primarily to take advantage of extending maturities in the low rate environment. While this commits the Corporation contractually to future cash payments, it is supportive of interest rate risk and liquidity management strategies. 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. For the year ended December 31, 2003, net cash provided from operating and financing activities was $496.8 million and $9.1 million, respectively, while investing activities used net cash of $551.0 million, for a net decrease in cash and cash equivalents of $45.1 million since year-end 2002. Generally, during 2003, deposit growth was strong, while net asset growth since year-end 2002 was moderate (up 1.4%). Thus, the reliance on other funding sources was reduced, particularly short-term borrowings and long-term debt. 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 shareholders. For the year ended December 31, 2002, net cash provided from operating and financing activities was $298.6 million and $75.8 million, respectively, while investing activities used net cash of $534.8 million, for a net decrease in cash and cash equivalents of $160.4 million since year-end 2001. Generally, during 2002, anticipated maturities of time deposits occurred and net asset growth since year-end 2001 was up due to the Signal acquisition. Other funding sources were utilized, particularly long-term debt, to finance the Signal acquisition, replenish the net decrease in deposits, repay short-term borrowings, provide for common stock repurchases, and pay cash dividends to the Corporation's shareholders. Quantitative and Qualitative Disclosures about Market Risk Market risk arises from exposure to changes in interest rates, exchange rates, commodity prices, and other relevant market rate or price risk. The Corporation faces market risk in the form of interest rate risk through other than trading activities. Market risk from other than trading activities in the form of interest rate risk is measured and managed through a number of methods. The Corporation uses financial modeling techniques that measure the sensitivity of future earnings due to changing rate environments to measure interest rate risk. Policies established by the Corporation's Asset/Liability Committee and approved by the Board of Directors limit exposure of earnings at risk. General interest rate movements are used to develop sensitivity as the Corporation feels it has no primary exposure to a specific point on the yield curve. These limits are based on the Corporation's exposure to a 100 bp and 200 bp immediate and sustained parallel rate move, either upward or downward. Interest Rate Risk In order to measure earnings sensitivity to changing rates, the Corporation uses three different measurement tools: static gap analysis, simulation of earnings, and economic value of equity. The static gap analysis starts with contractual repricing information for assets, liabilities, and off-balance sheet instruments. These items are then combined with repricing estimations for administered rate (interest-bearing demand deposits, savings, and money market accounts) and non-rate related products (demand deposit accounts, other assets, and other liabilities) to create a baseline repricing balance sheet. In addition to the contractual information, residential mortgage whole loan products and mortgage-backed securities are adjusted based on industry estimates of prepayment speeds that capture the expected prepayment of principal above the contractual amount based on how far away the contractual coupon is from market coupon rates. 40 The following table represents the Corporation's consolidated static gap position as of December 31, 2003. TABLE 20: Interest Rate Sensitivity Analysis

The static gap analysis in Table 20 provides a representation of the Corporation's earnings sensitivity to changes in interest rates. It is a static indicator that does not reflect various repricing characteristics and may not necessarily indicate the sensitivity of net interest income in a changing interest rate environment. At the end of 2002, the Corporation's balance sheet was asset sensitive to interest rate movements. (Asset sensitive means that assets will reprice faster than liabilities. In a rising rate environment, an asset sensitive bank will generally benefit.) During 2003, the Corporation remained asset sensitive as a result of issuing long-term funding, growth in demand deposits, and shortening of the mortgage portfolio and investment portfolio due to faster prepayment experience. Interest rate risk of embedded positions (including prepayment and early withdrawal options, lagged interest rate changes, administered interest rate products, and cap and floor options within products) require a more dynamic measuring tool to capture earnings risk. Earnings simulation and economic value of equity are used to more completely assess interest rate risk. Along with the static gap analysis, determining the sensitivity of short-term future earnings to a hypothetical plus or minus 100 bp and 200 bp parallel rate shock can be accomplished through the use of simulation modeling. In addition to the assumptions used to create the static gap, simulation of earnings includes the modeling of the balance sheet as an ongoing entity. Future business assumptions involving administered rate products, prepayments for future rate-sensitive balances, and the reinvestment of maturing assets and liabilities are included. These items are then modeled to project net interest income based on a hypothetical change in interest rates. The resulting net interest income 41 for the next 12-month period is compared to the net interest income amount calculated using flat rates. This difference represents the Corporation's earnings sensitivity to a plus or minus 100 bp parallel rate shock. The resulting simulations for December 31, 2003, projected that net interest income would increase by approximately 1.7% of budgeted net interest income if rates rose by a 100 bp shock, and projected that the net interest income would decrease by approximately 1.1% if rates fell by a 100 bp shock. At December 31, 2002, the 100 bp shock up was projected to increase budgeted net interest income by approximately 3.9%, and the 100 bp shock down was projected to decrease budgeted net interest income by approximately 4.0%. Economic value of equity is another tool used to measure the impact of interest rates on the present value of assets, liabilities and off-balance sheet financial instruments. This measurement is a longer-term analysis of interest rate risk as it evaluates every cash flow produced by the current balance sheet. The projected changes for earnings simulation and economic value of equity for both 2003 and 2002 were within the Corporation's interest rate risk policy. These results are based solely on immediate and sustained parallel changes in market rates and do not reflect the earnings sensitivity that may arise from other factors. These factors may include changes in the shape of the yield curve, the change in spread between key market rates, or accounting recognition of the impairment of certain intangibles. The above results are also considered to be conservative estimates due to the fact that no management action to mitigate potential income variances are included within the simulation process. This action could include, but would not be limited to, delaying an increase in deposit rates, extending liabilities, using financial derivative products to hedge interest rate risk, changing the pricing characteristics of loans, or changing the growth rate of certain assets and liabilities. The Corporation uses interest rate derivative financial instruments as an asset/liability management tool to hedge mismatches in interest rate exposure indicated by the net interest income simulation described above. They are used to modify the Corporation's exposures to interest rate fluctuations and provide more stable spreads between loan yields and the rate on their funding sources. In 2003, the Corporation entered into $96 million in notional amounts of new interest rate swaps to reduce interest rate risk. Interest rate swaps involve the exchange of fixed- and variable-rate payments without the exchange of the underlying notional amount on which the interest payments are calculated. Table 21: Interest Rate Swap Hedging Portfolio Notional Balances and Yield by Maturity Date Notional Weighted Average Weighted Average Maturity Amount Rate Received Rate Paid - ------------------------------------------------------------------------------- ($ in Thousands) Less than 1 year $ 22,148 3.30% 5.93% 1 - 5 years 232,176 3.41 6.25 5 - 10 years 500,134 3.81 4.61 Over 10 years 181,731 7.47 2.35 ---------------------------------------------------- $936,189 4.41% 4.61% ==================================================== To hedge against rising interest rates, the Corporation may use interest rate caps. Counterparties to these interest cap agreements pay the Corporation based on the notional amount and the difference between current rates and strike rates. At December 31, 2003, there were $200 million of interest rate caps outstanding, which have a six month LIBOR strike of 4.72%. To hedge against falling interest rates, the Corporation may use interest rate floors. Like caps, counterparties to interest rate floor agreements pay the Corporation based on the notional amount and the difference between current rates and strike rates. There were no floors outstanding at December 31, 2003. Derivative financial instruments are also discussed in Note 15, "Derivative and Hedging Activities," of the notes to consolidated financial statements. 42 Contractual Obligations, Commitments, Off-Balance Sheet Risk, and Contingent Liabilities Through the normal course of operations, the Corporation has entered into certain contractual obligations and other commitments. Such obligations generally relate to funding of operations through deposits or debt issuances, as well as leases for premises and equipment. 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. The following table summarizes significant contractual obligations and other commitments at December 31, 2003. The payment amounts represent those amounts contractually due to the recipient and do not include any unamoritized premiums or discounts, hedge basis adjustments, or other similar carrying value adjustments. Further discussion of the nature of each obligation is included in the referenced note to the consolidated financial statements. Table 22: Contractual Obligations and Other Commitments

The Corporation also has obligations under its retirement plans as described in Note 12, "Retirement Plans," of the notes to consolidated financial statements. The Corporation does not expect to make a contribution to its pension plan during 2004 due to the funded status of the plan. The Corporation also enters into derivative contracts under which the Corporation is required to either receive cash from or pay cash to counterparties depending on changes in interest rates. Derivative contracts are carried at fair value on the consolidated balance sheet with the fair value representing the net present value of expected future cash receipts or payments based on market interest rates as of the balance sheet date. The fair value of the contracts change daily as market interest rates change. Because the derivative liabilities recorded on the balance sheet at December 31, 2003, do not represent the amounts that may ultimately be paid under these contracts, these liabilities are not included in the table of contractual obligations presented above. Further discussion of derivative instruments is included in Note 1, "Summary of Significant Accounting Policies," and Note 15, "Derivative and Hedging Activities," of the notes to consolidated financial statements. A summary of significant commitments at December 31, 2003, is as follows: 2003 ------------------ ($ in Thousands) Commitments to extend credit, excluding commitments to originate mortgage loans $3,732,150 Commitments to originate residential mortgage loans held for sale 114,058 ------------------ Total commitments to extend credit 3,846,208 Commercial letters of credit 19,665 Standby letters of credit 338,954 Forward commitments to sell loans $ 152,000 ================== Further discussion of these commitments is included in Note 14, "Commitments, Off-Balance Sheet Risk, and Contingent Liabilities," of the notes to consolidated financial statements. 43 The Corporation may also have liabilities under certain contractual agreements contingent upon the occurrence of certain events. A discussion of significant contractual arrangements under which the Corporation may be held contingently liable, including guarantee arrangements, is included in Note 14, "Commitments, Off-Balance Sheet Risk, and Contingent Liabilities," of the notes to consolidated financial statements. Capital Stockholders' equity at December 31, 2003, increased $76 million to $1.3 billion, or $18.39 per share compared with $17.13 per share at the end of 2002. Stockholders' equity is also described in Note 11, "Stockholders' Equity," of the notes to consolidated financial statements. The increase in stockholders' equity for 2003 was primarily composed of the retention of earnings and the exercise of stock options, with offsetting decreases to stockholders' equity from the payment of cash dividends and the repurchase of common stock. Additionally, stockholders' equity at year-end 2003 included $52.1 million of accumulated other comprehensive income versus $60.3 million at December 31, 2002. The decrease in accumulated other comprehensive income was predominantly related to a decrease in unrealized gains on securities available for sale (due primarily to declines in the market value of mortgage-related securities), lower unrealized losses on cash flow hedges, and a change in the additional pension obligation (See Note 12, "Retirement Plans," of the notes to consolidated financial statements), net of the related tax effect. Stockholders' equity to assets at December 31, 2003 was 8.84%, compared to 8.46% at the end of 2002. TABLE 23: Capital At December 31, --------------------------------------- 2003 2002 2001 --------------------------------------- (In Thousands, except per share data) Total stockholders' equity $1,348,427 $1,272,183 $1,070,416 Tier 1 capital 1,221,647 1,165,481 924,871 Total capital 1,572,770 1,513,424 1,253,036 Market capitalization 3,137,696 2,521,083 2,305,698 --------------------------------------- Book value per common share $ 18.39 $ 17.13 $ 14.89 Cash dividends per common share 1.33 1.21 1.11 Stock price at end of period 42.80 33.94 32.08 Low closing price for the period 32.15 27.20 27.05 High closing price for the period 43.13 38.25 33.55 --------------------------------------- Total equity/assets 8.84% 8.46% 7.87% Tier 1 leverage ratio 8.37 7.94 7.03 Tier 1 risk-based capital ratio 10.86 10.52 9.71 Total risk-based capital ratio 13.99 13.66 13.15 --------------------------------------- Shares outstanding (period end) 73,311 74,281 71,869 Basic shares outstanding (average) 73,745 74,685 72,587 Diluted shares outstanding (average) 74,507 75,493 73,167 ======================================= Cash dividends paid in 2003 were $1.33 per share, compared with $1.21 per share in 2002, an increase of 9.9%. Cash dividends per share have increased at a 9.1% compounded rate during the past five years. 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 condition in markets served, and strength of management. As of December 31, 2003 and 2002, the Corporation's Tier 1 risk-based capital ratios, total risk-based capital (Tier 1 and Tier 2) ratios, and Tier 1 leverage ratios were in excess of regulatory minimum and 44 well capitalized requirements. It is management's intent to exceed the minimum requisite capital levels. Capital ratios are included in Note 18, "Regulatory Matters," of the notes to consolidated financial statements. As discussed in Note 10, "Company-Obligated Mandatorily Redeemable Preferred Securities," and Note 18, "Regulatory Matters," of the notes to consolidated financial statements, the preferred securities qualify as Tier 1 Capital for the Corporation under Federal Reserve Board guidelines. As a result of recent accounting pronouncements, the Federal Reserve Board is currently evaluating whether deconsolidation of the trust will affect the qualification of the preferred securities as Tier 1 capital. 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. 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 1.6 million shares (400,000 shares per quarter) in 2003 and 2002. Of these authorizations, approximately 1.3 million shares were repurchased for $43.3 million during 2002 (with approximately 1.0 million shares reissued in connection with stock options exercised), while none were repurchased during 2003 (with approximately 1.1 million shares reissued in connection with stock options exercised). 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 11.0 million shares on a combined basis. Under these authorizations, approximately 2.1 million shares were repurchased for $74.5 million during 2003 at an average cost of $36.17 per share, while during 2002 approximately 1.3 million shares were repurchased for $44.0 million at an average cost of $32.69 per share. At December 31, 2003, approximately 3.7 million shares remain authorized to repurchase. The repurchase of shares will be based on market opportunities, capital levels, growth prospects, and other investment opportunities. Shares repurchased and not retired are held as treasury stock and, accordingly, are accounted for as a reduction of stockholders' equity. Management believes that a strong capital position is necessary to take advantage of opportunities for profitable geographic and product expansion, and to provide depositor and investor confidence. Management actively reviews capital strategies for the Corporation and each of its subsidiaries in light of perceived business risks, future growth opportunities, industry standards, and regulatory requirements. It is management's intent to maintain an optimal capital and leverage mix for growth and for shareholder return. Fourth Quarter 2003 Results Net income for fourth quarter 2003 was $55.6 million, $2.2 million higher than the $53.4 million earned in the fourth quarter of 2002. Basic and diluted earnings per share for fourth quarter 2003 were $0.76 and $0.75, respectively, compared to $0.72 and $0.71, respectively, for fourth quarter 2002. Taxable equivalent net interest income for fourth quarter 2003 was $133.4 million, $2.3 million lower than fourth quarter 2002. Volume variances were unfavorable by $0.6 million (primarily from lower average loans), while rate variances were unfavorable by $1.7 million (primarily from unfavorable rate variance on earning assets greater than favorable rate variance on interest-bearing liabilities). Average earning assets declined $41 million (0.3%) to $13.8 billion, the net of a $204 million decline in average loans and a $163 million increase in average investments. Interest-bearing liabilities decreased $155 million, the result of a $646 million growth in average interest-bearing deposits (predominantly growth in interest-bearing demand deposits), offset by an $801 million decline in average wholesale funding (particularly short-term borrowings given deposit growth). The average Fed funds rate for fourth quarter 2003 of 1.00% was 45 bp lower than fourth quarter 2002. For fourth quarter 2003, net interest margin was 3.81%, 6 bp lower than fourth quarter 2002, the result of a 6 bp lower contribution from net free funds (which contributed less due to lower rates, despite increased balances). The yield 45 on earning assets for fourth quarter 2003 was 5.22% or 55 bp lower than fourth quarter 2002, primarily attributable to lower loan yields. The rate on interest-bearing liabilities also decreased 55 bp to 1.68%, also due principally to the repricing of deposit products and wholesale funds in the lower interest rate environment. The provision for loan losses of $9.6 million in fourth quarter 2003 was $5.0 million lower than fourth quarter 2002. Less provision was provided in light of flat loan growth as well asset quality differences between the quarters. The allowance for loan losses to loans was 1.73% at December 31, 2003, compared to 1.58% at December 31, 2002 (see sections, "Loans," "Allowance for Loan Losses," and "Nonperforming Loans, Potential Problem Loans, and Other Real Estate Owned.") Noninterest income in fourth quarter 2003 was $10.2 million lower than the comparable quarter in 2002, driven by a $16.7 million decrease in mortgage banking income and a $3.9 increase in retail commissions. Although 2003 secondary mortgage production was up $1.1 billion from 2002, production declined significantly in fourth quarter 2003, especially reflecting lower refinancing activity due to the upward movement in mortgage rates. Secondary mortgage production was $0.5 billion in fourth quarter 2003 versus $1.2 billion in fourth quarter 2002, resulting in decreased gains on sales (down $13.2 million). Retail commissions were up $3.9 million, with increases in insurance commissions (up $3.4 million, attributable to the CFG acquisition) and brokerage commissions, including variable annuities (up $0.5 million). Trust service fees increased $2.1 million, reflecting new business, increases in the fee structure on personal trust accounts, and improved equity markets. A $1.7 million increase in asset sales gains was a result of a $1.4 million gain in fourth quarter 2003 (with $1.3 million gain from two branch sales) compared to a $0.4 million loss in fourth quarter 2002. Credit card and other nondeposit fees were down $1.6 million, due to lower merchant fees related to the merchant processing sale in March 2003. Noninterest expense between the comparable quarters was down $6.9 million. Mortgage servicing rights expense decreased by $9.6 million, due to a $3.5 million recovery of mortgage servicing rights valuation allowance in fourth quarter 2003 versus a $6.7 million addition in fourth quarter 2002, a function of the significant change in prepayment speeds in the servicing portfolio between the fourth quarter periods. Loan expenses were down $2.8 million, with credit card loan expenses down $1.9 million (due to the merchant processing sale in March 2003) and mortgage loan expenses down $0.9 million (impacted by lower secondary mortgage production between the comparable quarters). Personnel expense was $4.3 million higher, with salary-related expenses up $4.4 million, attributable to the expanded employee base from CFG and merit increases between the years. Income tax expense was down $2.9 million between the fourth quarters due to a decrease in the effective tax rate from 26.73% for fourth quarter 2003 compared to 30.3% for fourth quarter 2002, resulting from a beneficial structural change within the Corporation's retirement plans, adjustments to the valuation allowance, and state apportionment factors. 46 TABLE 24: Selected Quarterly Financial Data The following is selected financial data summarizing the results of operations for each quarter in the years ended December 31, 2003 and 2002: 2003 Quarter Ended ----------------------------------------------- December 31 September 30 June 30 March 31 ----------------------------------------------- (In Thousands, except per share data) Interest income $176,458 $181,819 $183,704 $185,383 Interest expense 49,321 52,843 56,509 57,929 ----------------------------------------------- Net interest income 127,137 128,976 127,195 127,454 Provision for loan losses 9,603 12,118 12,132 12,960 Investment securities gains (losses), net --- 1 1,027 (326) Income before income tax expense 75,891 82,975 81,304 81,546 Net income 55,609 58,386 56,669 57,993 =============================================== Basic net income per share $ 0.76 $ 0.79 $ 0.77 $ 0.78 Diluted net income per share 0.75 0.79 0.76 0.77 Basic weighted average shares 73,310 73,473 73,959 74,252 Diluted weighted average shares 74,332 74,323 74,683 74,974 2002 Quarter Ended ----------------------------------------------- December 31 September 30 June 30 March 31 ----------------------------------------------- (In Thousands, except per share data) Interest income $196,178 $199,765 $201,857 $194,306 Interest expense 66,465 71,407 76,089 76,879 ----------------------------------------------- Net interest income 129,713 128,358 125,768 117,427 Provision for loan losses 14,614 12,831 12,003 11,251 Investment securities gains (losses), net (801) 374 --- --- Income before income tax expense 76,685 76,000 72,481 71,160 Net income 53,441 53,472 52,344 51,462 =============================================== Basic net income per share $ 0.72 $ 0.71 $ 0.69 $ 0.70 Diluted net income per share 0.71 0.70 0.68 0.70 Basic weighted average shares 74,497 75,158 75,922 73,142 Diluted weighted average shares 75,202 76,047 77,041 74,042 2002 Compared to 2001 The Corporation recorded net income of $210.7 million for the year ended December 31, 2002, an increase of $31.2 million or 17.4% over the $179.5 million earned in 2001. Basic earnings per share for 2002 were $2.82, a 14.2% increase over 2001 basic earnings per share of $2.47. Earnings per diluted share were $2.79, a 13.9% increase over 2001 diluted earnings per share of $2.45. Return on average assets and return on average equity for 2002 were 1.47% and 17.10%, respectively, compared to 1.37% and 17.31%, respectively, for 2001. Cash dividends of $1.21 per share paid in 2002 increased by 9.3% over 2001. Key factors behind these results are discussed below. Taxable equivalent net interest income was $525.3 million for 2002, $81.1 million or 18.3% higher than 2001. Although taxable equivalent interest income decreased $86.7 million, interest expense decreased by $167.8 million. The increase in taxable equivalent net interest income was due to changes in interest rates (adding $45.8 million) and increased volume of earning assets and liabilities, together with changes in product mix (adding $35.3 million). Average earning assets increased $1.0 billion to $13.3 billion, including the impact of the acquisition of Signal on February 28, 2002 (see section "Business Combinations"). Net interest income and net interest margin were impacted in 2002 by the low interest rate environment, competitive pricing pressures, higher earning asset balances, and funding strategies to 47 take advantage of lower interest rates. While the Federal Reserve lowered interest rates eleven times during 2001, producing an average Federal funds rate of 3.88% for 2001, interest rates in 2002 remained level at 1.75% until November when the Federal Reserve reduced the rate by 50 bp, for an average rate of 1.67% in 2002. The net interest margin for 2002 was 3.95%, compared to 3.62% in 2001. The 33 bp increase in net interest margin is attributable to the net of a 50 bp increase in interest rate spread (the net of a 172 bp lower cost of interest-bearing liabilities offset by a 122 bp decrease in the yield on earning assets), and a 17 bp lower contribution from net free funds. Total loans were $10.3 billion at December 31, 2002, an increase of $1.3 billion or 14.2% over December 31, 2001, attributable in large part to the Signal acquisition, which added $760 million in loans at consummation date. Commercial loan balances grew $1.1 billion (20.4%) and represented 61% of total loans at December 31, 2002, compared to 58% at year-end 2001. Total deposits were $9.1 billion at December 31, 2002, including $785 million acquired with the Signal acquisition. To take advantage of the lower rate environment, the Corporation increased long-term debt by $803 million and issued $175 million of company-obligated mandatorily redeemable preferred securities. See Note 10, "Company-Obligated Mandatorily Redeemable Preferred Securities," of the notes to consolidated financial statements for additional information on the preferred securities and details regarding the impact of recent accounting pronouncements requiring the deconsolidation of the preferred securities. Asset quality was affected by the impact of challenging economic conditions on customers. The provision for loan losses increased to $50.7 million compared to $28.2 million in 2001. Net charge offs were $28.3 million, an increase of $8.1 million over 2001, due primarily to the charge off of several commercial credits. Net charge offs were 0.28% of average loans compared to 0.22% in 2001. The ratio of allowance for loan losses to loans was 1.58% and 1.42% at December 31, 2002 and 2001, respectively. Nonperforming loans were $99.3 million, representing 0.96% of total loans at year-end 2002, compared to $52.1 million or 0.58% of total loans last year. See sections, "Allowance for Loan Losses" and "Nonperforming Loans, Potential Problem Loans, and Other Real Estate Owned" for more discussion. Noninterest income was $215.8 million for 2002, $23.5 million or 12.2% higher than 2001, led by strong results in mortgage banking and service charge revenue. Mortgage banking revenue increased by $16.0 million (31.6%) driven by strong secondary mortgage production ($3.2 billion for 2002 compared to $2.3 billion for 2001), while service charges on deposit accounts were up $8.2 million (21.8%) over 2001, due largely to higher volumes associated with a larger account base. Noninterest expense was $370.1 million, up $35.0 million or 10.4% over 2001, due principally to the Corporation's larger operating base and increases in mortgage servicing rights expense. Personnel expense rose $20.3 million or 12.0%, reflecting the expanded employee base, as well as higher base salaries and fringe benefit costs. Mortgage servicing rights expense increased $10.5 million, a function of increases to both the valuation allowance and higher amortization of the mortgage servicing rights asset. Income tax expense increased to $85.6 million, up $14.1 million from 2001. The increase was primarily attributable to higher net income before tax. The effective tax rate in 2002 was 28.9% compared to 28.5% for 2001. 48 Subsequent Event On January 28, 2004, the Board of Directors declared a $0.34 per share dividend payable on February 16, 2004, to shareholders of record as of February 2, 2004. Future Accounting Pronouncements Note 1, "Summary of Significant Accounting Policies," of the notes to consolidated financial statements discusses new accounting policies adopted by the Corporation during 2003 and the expected impact of accounting policies recently issued or proposed but not yet required to be adopted. To the extent the adoption of new accounting standards materially affects the Corporation's financial condition, results of operations, or liquidity, the impacts are discussed in the applicable sections of this financial review and the notes to consolidated financial statements. ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information required by this item is set forth in Item 7 under the captions "Quantitative and Qualitative Disclosures About Market Risk" and "Interest Rate Risk." 49 ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ASSOCIATED BANC-CORP CONSOLIDATED BALANCE SHEETS December 31, ------------------------------ 2003 2002 ------------------------------ (In Thousands, except share data) ASSETS Cash and due from banks $ 389,140 $ 430,691 Interest-bearing deposits in other financial institutions 7,434 5,502 Federal funds sold and securities purchased under agreements to resell 3,290 8,820 Investment securities available for sale, at fair value 3,773,784 3,362,669 Loans held for sale 104,336 305,836 Loans 10,291,810 10,303,225 Allowance for loan losses (177,622) (162,541) - ------------------------------------------------------------------------------- Loans, net 10,114,188 10,140,684 Premises and equipment 131,315 132,713 Goodwill 224,388 212,112 Other intangible assets 63,509 41,565 Other assets 436,510 402,683 - ------------------------------------------------------------------------------- Total assets $ 15,247,894 $ 15,043,275 =============================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Noninterest-bearing demand deposits $ 1,814,446 $ 1,773,699 Interest-bearing deposits, excluding Brokered certificates of deposit 7,813,267 7,117,503 Brokered certificates of deposit 165,130 233,650 - ------------------------------------------------------------------------------- Total deposits 9,792,843 9,124,852 Short-term borrowings 1,928,876 2,389,607 Long-term debt 1,852,219 1,906,845 Company-obligated mandatorily redeemable preferred securities 181,941 190,111 Accrued expenses and other liabilities 143,588 159,677 - ------------------------------------------------------------------------------- Total liabilities 13,899,467 13,771,092 - ------------------------------------------------------------------------------- Stockholders' equity Preferred stock (Par value $1.00 per share, authorized 750,000 shares, no shares issued) --- --- Common stock (Par value $0.01 per share, authorized 100,000,000 shares, issued 73,442,555 and 75,503,410 shares at December 31, 2003 and 2002, respectively) 734 755 Surplus 575,975 643,956 Retained earnings 724,356 607,944 Accumulated other comprehensive income 52,089 60,313 Deferred compensation (1,981) --- Treasury stock, at cost (81,909 shares in 2003 and 1,222,812 shares in 2002) (2,746) (40,785) - ------------------------------------------------------------------------------- Total stockholders' equity 1,348,427 1,272,183 - ------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 15,247,894 $ 15,043,275 =============================================================================== See accompanying notes to consolidated financial statements. 50 ASSOCIATED BANC-CORP CONSOLIDATED STATEMENTS OF INCOME For the Years Ended December 31, ------------------------------------- 2003 2002 2001 ------------------------------------- (In Thousands, except per share data) INTEREST INCOME Interest and fees on loans $ 578,816 $ 626,378 $ 692,646 Interest and dividends on investment securities and deposits with other financial institutions: Taxable 108,624 125,568 146,548 Tax-exempt 39,761 39,771 40,385 Interest on federal funds sold and securities purchased under agreements to resell 163 389 1,043 - ------------------------------------------------------------------------------- Total interest income 727,364 792,106 880,622 - ------------------------------------------------------------------------------- INTEREST EXPENSE Interest on deposits 123,122 169,021 298,930 Interest on short-term borrowings 29,156 51,372 130,546 Interest on long-term debt, including preferred securities 64,324 70,447 29,161 - ------------------------------------------------------------------------------- Total interest expense 216,602 290,840 458,637 - ------------------------------------------------------------------------------- NET INTEREST INCOME 510,762 501,266 421,985 Provision for loan losses 46,813 50,699 28,210 - ------------------------------------------------------------------------------- Net interest income after provision for loan losses 463,949 450,567 393,775 - ------------------------------------------------------------------------------- NONINTEREST INCOME Trust service fees 29,577 27,875 29,063 Service charges on deposit accounts 50,346 46,059 37,817 Mortgage banking 83,037 66,415 50,463 Credit card and other nondeposit fees 23,669 27,492 26,731 Retail commissions 25,571 18,264 16,872 Bank owned life insurance income 13,790 13,841 12,916 Asset sale gains, net 1,569 657 1,997 Investment securities gains (losses), net 702 (427) 718 Other 18,174 15,644 15,765 - ------------------------------------------------------------------------------- Total noninterest income 246,435 215,820 192,342 - ------------------------------------------------------------------------------- NONINTEREST EXPENSE Personnel expense 208,040 189,066 168,767 Occupancy 28,077 26,049 23,947 Equipment 12,818 14,835 14,426 Data processing 23,273 21,024 19,596 Business development and advertising 15,194 13,812 13,071 Stationery and supplies 6,705 7,044 6,921 FDIC expense 1,428 1,533 1,661 Mortgage servicing rights expense 29,553 30,473 19,987 Goodwill amortization --- --- 6,511 Intangible amortization expense 2,961 2,283 1,867 Loan expense 7,550 14,555 11,176 Other 53,069 49,387 47,178 - ------------------------------------------------------------------------------- Total noninterest expense 388,668 370,061 335,108 - ------------------------------------------------------------------------------- Income before income taxes 321,716 296,326 251,009 Income tax expense 93,059 85,607 71,487 - ------------------------------------------------------------------------------- Net income $ 228,657 $ 210,719 $ 179,522 =============================================================================== Earnings per share: Basic $ 3.10 $ 2.82 $ 2.47 Diluted $ 3.07 $ 2.79 $ 2.45 Average shares outstanding: Basic 73,745 74,685 72,587 Diluted 74,507 75,493 73,167 =============================================================================== See accompanying notes to consolidated financial statements. 51 ASSOCIATED BANC-CORP CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(continued on next page) 52 ASSOCIATED BANC-CORP CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (continued)

See accompanying notes to consolidated financial statements. 53 ASSOCIATED BANC-CORP CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes to consolidated financial statements. 54 ASSOCIATED BANC-CORP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2003, 2002, and 2001 NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The accounting and reporting policies of the Corporation conform to accounting principles generally accepted in the United States of America and to general practice within the financial services industry. The following is a description of the more significant of those policies. Business The Corporation provides a full range of banking and related financial services to individual and corporate customers through its network of bank and nonbank subsidiaries. The Corporation is subject to competition from other financial and non-financial institutions that offer similar or competing products and services. The Corporation is regulated by federal and state agencies and is subject to periodic examinations by those agencies. Basis of Financial Statement Presentation The consolidated financial statements include the accounts of the Parent Company and subsidiaries, all of which are wholly owned. All significant intercompany balances and transactions have been eliminated in consolidation. Results of operations of companies purchased and accounted for under the purchase method of accounting are included from the date of acquisition. Certain amounts in the 2002 and 2001 consolidated financial statements, as well as certain amounts in the previously issued 2003 earnings press release, have been reclassified to conform with the 2003 Form 10-K presentation. In particular, for presentation purposes and greater comparability with industry practice, certain loan origination costs in the consolidated statements of income were reclassified against gains on the sales of mortgage loans for 2003, 2002, and 2001. These reclassifications resulted in an equal decrease to both noninterest income and noninterest expense of $6.1 million in 2003, $4.5 million in 2002, and $3.3 million in 2001. The reclassifications had no effect on stockholders' equity or net income as previously reported. 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. Investment Securities Securities are classified as held to maturity, available for sale, or trading at the time of purchase. In 2003 and 2002, all securities purchased were classified as available for sale. Investment securities classified as held to maturity, which management has the positive intent and ability to hold to maturity, are reported at amortized cost, adjusted for amortization of premiums and accretion of discounts, using a method that approximates level yield. The amortized cost of debt securities classified as held to maturity or available for sale is adjusted for amortization of premiums and accretion of discounts to the earlier of call date or maturity, or in the case of mortgage-related securities, over the estimated life of the security. Such amortization and accretion is included in interest income from the related security. Available for sale securities are reported at fair value with unrealized gains and losses, net of related deferred income taxes, included in stockholders' equity as a separate component of other comprehensive income. The cost of securities sold is based on the specific identification method. Any security for which there has been an other-than-temporary impairment of value is written down to its estimated fair value through a charge to earnings and a new cost basis is established. Realized securities 55 gains or losses and declines in value judged to be other-than-temporary are included in investment securities gains (losses), net, in the consolidated statements of income. Loans Loans and leases are carried at the principal amount outstanding, net of any unearned income. Unearned income from direct leases is recognized on a basis that generally approximates a level yield on the outstanding balances receivable. Loan origination fees and certain direct loan origination costs are deferred, and the net amount is amortized over the contractual life of the related loans or over the commitment period as an adjustment of yield. Loans are generally placed on nonaccrual status when contractually past due 90 days or more as to interest or principal payments. Additionally, whenever management becomes aware of facts or circumstances that may adversely impact the collectibility of principal or interest on loans, it is management's practice to place such loans on nonaccrual status immediately, rather than delaying such action until the loans become 90 days past due. Previously accrued and uncollected interest on such loans is reversed, amortization of related loan fees is suspended, and income is recorded only to the extent that interest payments are subsequently received in cash and a determination has been made that the principal balance of the loan is collectible. If collectibility of the principal is in doubt, payments received are applied to loan principal. A nonaccrual loan is returned to accrual status when the obligation has been brought current and the ultimate collectibility of the total contractual principal and interest is no longer in doubt. Loans Held for Sale Loans held for sale are recorded at the lower of cost or market as determined on an aggregate basis and generally consist of current production of certain fixed-rate first mortgage loans. Holding costs are treated as period costs. Allowance for Loan Losses The allowance for loan losses is a reserve for estimated credit losses. Actual credit losses, net of recoveries, are deducted from the allowance for loan losses. A provision for loan losses, which is a charge against earnings, is recorded to bring the allowance for loan losses to a level that, in management's judgment, is adequate to absorb probable losses in the loan portfolio. The allocation methodology applied by the Corporation, designed to assess the adequacy of the allowance for loan losses, 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. Management maintains the allowance for loan losses using an allocation methodology plus an unallocated portion, as determined by economic conditions and other qualitative and quantitative factors affecting the Corporation's borrowers. Management allocates the allowance for loan losses by pools of risk. The commercial loan (commercial, financial, and agricultural; real estate construction; commercial real estate; and lease financing) allocation is based on a quarterly review of individual loans, loan types, and industries. The retail loan (residential mortgage, home equity, and consumer) allocation is based on analysis of historical delinquency and charge off statistics and trends. Minimum loss factors used by the Corporation for criticized loan categories are consistent with regulatory agency classifications and factors. Loss factors for non-criticized loan categories are based primarily on historical loan loss experience. Management, considering current information and events regarding the borrowers' ability to repay their obligations, considers a loan to be impaired when it is probable that the Corporation will be unable to collect all amounts due according to the contractual terms of the note agreement, including principal and interest. Management has determined that commercial, financial, and agricultural loans, 56 commercial real estate loans, and real estate construction loans that are on nonaccrual status or have had their terms restructured meet this definition. Large groups of homogeneous loans, such as mortgage and consumer loans, are collectively evaluated for impairment. The amount of impairment is measured based upon the loan's observable market price, the estimated fair value of the collateral for collateral-dependent loans, or alternatively, the present value of expected future cash flows discounted at the loan's effective interest rate. Interest income on impaired loans is recorded when cash is received and only if principal is considered to be fully collectible. Management believes that the allowance for loan losses is adequate. While management uses available information to recognize losses on loans, future additions to the allowance for loan losses may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Corporation's allowance for loan losses. Such agencies may require the Corporation to recognize additions to the allowance for loan losses or 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 examinations. Other Real Estate Owned Other real estate owned is included in other assets in the consolidated balance sheets and is comprised of property acquired through a foreclosure proceeding or acceptance of a deed-in-lieu of foreclosure, and loans classified as in-substance foreclosure. Other real estate owned is recorded at the lower of recorded investment in the loans at the time of acquisition or the fair value of the properties, less estimated selling costs. Any write-down in the carrying value of a property at the time of acquisition is charged to the allowance for loan losses. Any subsequent write-downs to reflect current fair market value, as well as gains and losses on disposition and revenues and expenses incurred in maintaining such properties, are treated as period costs. Other real estate owned totaled $5.5 million and $11.4 million at December 31, 2003 and 2002, respectively. Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed on the straight-line method over the estimated useful lives of the related assets or the lease term. Maintenance and repairs are charged to expense as incurred, while additions or major improvements are capitalized and depreciated over their estimated useful lives. Estimated useful lives of the assets are 3 to 20 years for land improvements, 5 to 40 years for buildings, 3 to 5 years for computers, and 3 to 20 years for furniture, fixtures, and other equipment. Leasehold improvements are amortized on a straight-line basis over the lesser of the lease terms or the estimated useful lives of the improvements. Goodwill and Other Intangible Assets The excess of the cost of an acquisition over the fair value of the net assets acquired consist primarily of goodwill, core deposit intangibles, and other intangibles (primarily related to customer relationships acquired). Core deposit intangibles have finite lives and are amortized on an accelerated basis to expense over periods of 7 to 10 years. The other intangibles have finite lives and are amortized on an accelerated basis to expense over a weighted average life of 16 years. The Corporation reviews long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, in which case an impairment charge would be recorded. Prior to January 1, 2002, goodwill was amortized to expense over periods up to 40 years for acquisitions made before 1983 and for periods up to 25 years for acquisitions made after 1982. The Corporation adopted SFAS No. 142, "Goodwill and Other Intangible Assets," ("SFAS 142") and SFAS No. 147, "Acquisitions of Certain Financial Institutions," ("SFAS 147") effective January 1, 2002. Under SFAS 142, goodwill and indefinite life intangibles are no longer amortized but are subject to 57 impairment tests on at least an annual basis. Any impairment of goodwill or intangibles will be recognized as an expense in the period of impairment. The Corporation was required to complete the transitional goodwill impairment test within six months of adoption of SFAS 142 and to record the impairment, if any, by the end of the fiscal year. The Corporation completed the transitional goodwill impairment test in the second quarter of 2002 as of January 1, 2002. No impairment loss was recorded as of January 1, 2002. No impairment loss was necessary from the January 1, 2002, and May 1, 2002 and 2003, impairment tests described above under the Corporation's adoption of SFAS 142, including the $7.4 million of goodwill related to SFAS 147. Note 5 includes a summary of the Corporation's goodwill, core deposit intangibles, and other intangibles. Note 19 provides disclosures regarding the impact of SFAS 142 and SFAS 147 on the Corporation's consolidated financial statements. SFAS 147 amends SFAS No. 72, "Accounting for Certain Acquisitions of Banking or Thrift Institutions," ("SFAS 72") to remove the acquisition of financial institutions from the scope of that statement and provides guidance on the accounting for the impairment or disposal of acquired long-term customer-relationship intangible assets. Except for transactions between two or more mutual enterprises, SFAS 147 requires acquisitions of financial institutions that meet the definition of a business combination to be accounted for in accordance with SFAS No. 141, "Business Combinations," ("SFAS 141") and SFAS 142. The provisions of SFAS 147 were effective on October 1, 2002, with earlier application permitted. The Corporation adopted SFAS 147 effective September 30, 2002. At January 1, 2002, the Corporation had $7.4 million of goodwill from certain business combinations that was continuing to be amortized in 2002 under SFAS 72, prior to the issuance of SFAS 147. With the adoption of SFAS 147, which removed certain acquisitions from the scope of SFAS 72 and included them under SFAS 142, the Corporation ceased such amortization. The amount of such amortization was $0.25 million pre-tax per quarter, or approximately 0.3 of a cent of diluted earnings per share per quarter in 2002. The Corporation discontinued such amortization effective January 1, 2002, the same date as the Corporation's adoption of SFAS 142, and has restated any prior financial information as required by SFAS 147. Mortgage Servicing Rights The Corporation sells residential mortgage loans in the secondary market and typically retains the right to service the loans sold. Upon sale, a mortgage servicing rights asset is capitalized, which represents the then current fair value of future net cash flows expected to be realized for performing servicing activities. Mortgage servicing rights, when purchased, are initially recorded at cost. Mortgage servicing rights are carried at the lower of the initial capitalized amount, net of accumulated amortization, or fair value, and are included in other intangible assets in the consolidated balance sheets. 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. Impairment is assessed using stratifications based on the risk characteristics of the underlying loans, such as bulk acquisitions versus loan-by-loan, loan type, interest rate, and estimated prepayment speeds of the underlying mortgages serviced. The value of mortgage servicing rights is adversely affected when mortgage interest rates decline and mortgage loan prepayments increase. A valuation allowance is established to the extent the carrying value of the mortgage servicing rights exceeds the estimated fair value by stratification. If it is later determined all or a portion of the temporary impairment no longer exists for a stratification, the valuation allowance is reduced through a recovery to earnings. An other-than-temporary impairment (i.e., recoverability is considered remote when considering interest rates and loan pay off activity) is recognized as a write-down of the mortgage servicing rights asset and the related valuation allowance (to the extent a valuation reserve 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. 58 Income Taxes Amounts provided for income tax expense are based on income reported for financial statement purposes and do not necessarily represent amounts currently payable under tax laws. Deferred income taxes, which arise principally from temporary differences between the period in which certain income and expenses are recognized for financial accounting purposes and the period in which they affect taxable income, are included in the amounts provided for income taxes. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the period which the deferred tax assets are deductible, management believes it is more likely than not the Corporation will realize the benefits of these deductible differences, net of the existing valuation allowances at December 31, 2003. The Corporation files a consolidated federal income tax return and individual Parent Company and subsidiary state income tax returns. Accordingly, amounts equal to tax benefits of those subsidiaries having taxable federal losses or credits are offset by other subsidiaries that incur federal tax liabilities. Derivative Financial Instruments and Hedging Activities SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities," and SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," (collectively referred to as "SFAS 133") requires derivative instruments, including derivative instruments embedded in other contracts, to be carried at fair value on the balance sheet with changes in the fair value recorded directly in earnings. As required, the Corporation adopted SFAS 133 on January 1, 2001. In accordance with the transition provisions of SFAS 133, upon adoption the Corporation recorded a cumulative effect of $1.3 million, net of taxes of $843,000, in accumulated other comprehensive income to recognize at fair value all derivatives that are designated as cash flow hedge instruments. Due to immateriality, net gains on derivatives designated as fair value hedges were recorded in earnings at adoption. All derivatives are recognized on the consolidated balance sheet at their fair value. On the date the derivative contract is entered into, the Corporation designates the derivative, except for mortgage banking derivatives for which changes in fair value of the derivative is recorded in earnings, as either a fair value hedge (i.e., a hedge of the fair value of a recognized asset or liability) or a cash flow hedge (i.e., a hedge of the variability of cash flows to be received or paid related to a recognized asset or liability). The Corporation formally documents all relationships between hedging instruments and hedging items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as fair value hedges or cash flow hedges to specific assets or liabilities on the balance sheet. The Corporation also formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. If it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, the Corporation discontinues hedge accounting prospectively. For a derivative designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive income and the ineffective portions of changes in the fair value of cash flow hedges are recognized in earnings. The Corporation discontinues hedge accounting prospectively when it is determined that the derivative is no longer effective in offsetting changes in the fair value or cash flows of the hedged item, 59 the derivative expires or is sold, terminated, or exercised, the derivative is dedesignated as a hedging instrument, or management determines that designation of the derivative as a hedging instrument is no longer appropriate. When hedge accounting is discontinued because it is determined that the derivative no longer qualifies as an effective fair value hedge, the Corporation continues to carry the derivative on the balance sheet at its fair value and no longer adjusts the hedged asset or liability for changes in fair value. The adjustment of the carrying amount of the hedged asset or liability is accounted for in the same manner as other components of the carrying amount of that asset or liability. Stock-Based Compensation As allowed under SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") and SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of 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 2003, 50,000 restricted stock shares were awarded, and expense of approximately $451,000 was recorded for the year ended December 31, 2003. For purposes of providing the pro forma disclosures required under SFAS 123, the fair value of stock options granted in 2003, 2002, and 2001 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 that 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.

The following assumptions were used in estimating the fair value for options granted in 2003, 2002, and 2001:

The weighted average per share fair values of options granted in 2003, 2002, and 2001 were $8.08, $7.73, and $7.06, 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 an accelerated expense recognition for proforma disclosure purposes. Cash and Cash Equivalents For purposes of the consolidated statements of cash flows, cash and cash equivalents are considered to include cash and due from banks, interest-bearing deposits in other financial institutions, and federal funds sold and securities purchased under agreements to resell. Per Share Computations 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. Also see Notes 11 and 19. Recent Accounting Pronouncements In December 2003, the FASB issued 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 beginning after December 15, 2003. The adoption had no effect on the Corporation's results of operations, financial position, or liquidity. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS 150"). SFAS 150 establishes standards for how 61 an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS 150 is effective for financial instruments, except mandatorily redeemable financial instruments, entered into or modified after May 31, 2003. For certain mandatorily redeemable financial instruments the effective date has been deferred indefinitely. The adoption had no effect on the Corporation's results of operations, financial position, or liquidity. In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" ("SFAS 149"). SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This Statement amends SFAS No. 133 for decisions made as part of the Derivatives Implementation Group process and in connection with implementation issues raised in relation to the application of the definition of a derivative. SFAS 149 is effective for contracts entered into or modified after June 30, 2003. 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. The application of FIN 46R will result in the deconsolidation of a subsidiary relating to the issuance of trust preferred securities. The assets and liabilities of the subsidiary trust were deconsolidated in the first quarter of 2004 and totaled $180 million. See Note 10 for further discussion of this trust and the Corporation's related obligations. The Corporation does not believe that the application of FIN 46R had a material impact on the results of operations, financial position, or liquidity. 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 2 BUSINESS COMBINATIONS: In 2003 there was one completed business combination. On April 1, 2003, the Corporation consummated its cash acquisition of 100% of the outstanding shares of 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 prior to the consummation date were not included in the accompanying consolidated financial statements. The acquisition is individually 62 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. There was one completed business combination during 2002. On February 28, 2002, the Corporation consummated its acquisition of 100% of the outstanding common shares of Signal. Signal operated banking branches in nine locations in the Twin Cities and Eastern Minnesota. As a result of the acquisition, the Corporation expanded its Minnesota banking presence, particularly in the Twin Cities area. The Signal transaction was accounted for under the purchase method of accounting; thus, the results of operations prior to the consummation date were not included in the accompanying consolidated financial statements. The Signal transaction was consummated through the issuance of approximately 4.1 million shares of common stock and $58.4 million in cash for a purchase price of $192.5 million. The value of the shares was determined using the closing stock price of the Corporation's stock on September 10, 2001, the initiation date of the transaction. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed of Signal at the date of the acquisition. $ in Millions --------------- Investment securities available for sale $ 163.8 Loans 760.0 Allowance for loan losses (12.0) Other assets 118.1 Intangible asset 5.6 Goodwill 119.7 ----------- Total assets acquired $ 1,155.2 ----------- Deposits $ 784.8 Borrowings 165.5 Other liabilities 12.4 ----------- Total liabilities assumed $ 962.7 ----------- Net assets acquired $ 192.5 =========== The other intangible asset represents a core deposit intangible with a ten-year estimated life. The $119.7 million of goodwill was assigned to the banking segment. The following represents required supplemental pro forma disclosure of total revenue, net income, and earnings per share as though the Signal acquisition had been completed at the beginning of the year of acquisition. Year ended December 31, 2002 2001 ---------------------------- (In Thousands, except per share data) Total revenue $731,398 $673,363 Net income 209,829 190,444 Basic earnings per share 2.78 2.48 Diluted earnings per share 2.75 2.45 63 NOTE 3 INVESTMENT SECURITIES: The amortized cost and fair values of securities available for sale at December 31, 2003 and 2002, were as follows:

Equity securities include Federal Reserve and Federal Home Loan Bank stock which had a fair value of $25.3 million and $112.5 million, respectively, at December 31, 2003, and $28.4 million and $103.4 million, respectively, at December 31, 2002. The following represents gross unrealized losses and the related fair value of securities available for sale, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2003.

Management does not believe any individual unrealized loss as of December 31, 2003 represents an other-than-temporary impairment. The unrealized losses reported for mortgage-related securities relate primarily to securities issued by government agencies such as the Federal National Mortgage Association and Federal Home Loan Mortgage Corporation ("FHLMC"). These unrealized losses are primarily attributable to changes in interest rates and individually were 4% or less of their respective amortized cost basis. Not included in the above table is a CMO (included in mortgage-related securities) determined to have an other-than-temporary impairment that resulted in a write-down on the security of $0.8 million during 2002 and $0.3 million during 2003 based on continued evaluation. As 64 of December 31, 2003, this CMO had a carrying value of $1.8 million. The unrealized losses associated with the other equity securities are comprised primarily of FHLMC preferred stock and is predominantly attributable to changes in interest rates. At December 31, 2003, the amortized cost of these FHLMC preferred shares was $8.7 million, based on $50 per share, while the market value per share was approximately $44. The Corporation currently has both the intent and ability to hold the securities contained in the previous table for a time necessary to recover the amortized cost. The amortized cost and fair values of investment securities available for sale at December 31, 2003, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. 2003 ---------------------------- Amortized Fair Cost Value ---------------------------- ($ in Thousands) Due in one year or less $ 240,617 $ 245,135 Due after one year through five years 431,841 459,887 Due after five years through ten years 313,719 334,387 Due after ten years 303,173 326,053 ---------------------------- Total debt securities 1,289,350 1,365,462 Mortgage-related securities 2,232,920 2,233,412 Equity securities 152,459 174,910 ---------------------------- Total securities available for sale $3,674,729 $3,773,784 ============================ Total proceeds and gross realized gains and losses from sale of securities available for sale (with other-than-temporary write-downs on securities included in gross losses) for each of the three years ended December 31 were: 2003 2002 2001 ---------------------------------- ($ in Thousands) Proceeds $1,263 $27,793 $135,627 Gross gains 1,029 374 1,322 Gross losses (327) (801) (604) Pledged securities with a carrying value of approximately $1.6 billion and $1.8 billion at December 31, 2003, and December 31, 2002, respectively, were pledged to secure certain deposits, Federal Home Loan Bank advances, or for other purposes as required or permitted by law. NOTE 4 LOANS: Loans at December 31 are summarized below.

65 A summary of the changes in the allowance for loan losses for the years indicated is as follows: 2003 2002 2001 ------------------------------------- ($ in Thousands) Balance at beginning of year $ 162,541 $ 128,204 $ 120,232 Balance related to acquisition --- 11,985 --- Provision for loan losses 46,813 50,699 28,210 Charge offs (37,107) (32,179) (22,639) Recoveries 5,375 3,832 2,401 ------------------------------------- Net charge offs (31,732) (28,347) (20,238) ------------------------------------- Balance at end of year $ 177,622 $ 162,541 $ 128,204 ===================================== The following table presents nonperforming loans at December 31: December 31, ------------------------ 2003 2002 ------------------------ ($ in Thousands) Nonaccrual loans $113,944 $94,132 Accruing loans past due 90 days or more 7,495 3,912 Restructured loans 43 1,258 ------------------------- Total nonperforming loans $121,482 $99,302 ========================= Management has determined that commercial, financial, and agricultural loans, commercial real estate loans, and real estate construction loans that have nonaccrual status or have had their terms restructured are impaired loans. The following table presents data on impaired loans at December 31: 2003 2002 -------------------- ($ in Thousands) Impaired loans for which an allowance has been provided $68,571 $42,574 Impaired loans for which no allowance has been provided 29,079 33,603 -------------------- Total loans determined to be impaired $97,650 $76,177 ==================== Allowance for loan losses related to impaired loans $33,497 $20,579 ====================

The Corporation has granted loans to their directors, executive officers, or their related subsidiaries. These loans were made on substantially the same terms, including rates and collateral, as those prevailing at the time for comparable transactions with other unrelated customers, and do not involve more than a normal risk of collection. These loans to related parties are summarized as follows: 2003 ----------------- ($ in Thousands) Balance at beginning of year $ 33,054 New loans 46,096 Repayments (48,782) Changes due to status of executive officers and directors (882) ----------- Balance at end of year $ 29,486 =========== The Corporation serves the credit needs of its customers by offering a wide variety of loan programs to customers, primarily in Wisconsin, Illinois, and Minnesota. The loan portfolio is widely diversified by 66 types of borrowers, industry groups, and market areas. Significant loan concentrations are considered to exist for a financial institution when there are amounts loaned to a multiple number of borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. At December 31, 2003, no significant concentrations existed in the Corporation's loan portfolio in excess of 10% of total loans. NOTE 5 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, 2002, or 2001. Goodwill of $212 million is assigned to the banking segment and goodwill of $12 million is assigned to the wealth management segment. The change in the carrying amount of goodwill was as follows. Goodwill 2003 2002 - -------- --------------------- ($ in Thousands) Balance at beginning of year $212,112 $ 92,397 Goodwill acquired 12,276 119,715 --------------------- Balance at end of year $224,388 $212,112 ===================== Goodwill amortization expense was zero for the years ended December 31, 2003 and 2002, and $6.5 million for the year ended December 31, 2001. See Note 19 for the disclosure of net income and per share amounts excluding goodwill amortization, net of any income tax effects, due to the adoption of SFAS 142 and SFAS 147 in 2002. Other Intangible Assets: - ----------------------- The Corporation has other intangible assets that are amortized, consisting of core deposit intangibles, other intangibles (primarily related to customer relationships acquired in connection with the CFG acquisition), and mortgage servicing rights. The core deposit intangibles and mortgage servicing rights are assigned to the Corporation's banking segment, while the other intangibles are assigned to the Corporation's wealth management segment. For core deposit intangibles and other intangibles, changes in the gross carrying amount, accumulated amortization, and net book value were as follows. 2003 2002 ---------------------- ($ in Thousands) Core deposit intangibles: - ------------------------ Gross carrying amount $ 28,165 $ 28,165 Accumulated amortization (20,682) (18,923) ---------------------- Net book value $ 7,483 $ 9,242 ====================== Additions during the period $ --- $ 5,600 Amortization during the period (1,759) (2,283) Other intangibles: - ----------------- Gross carrying amount $ 14,751 $ --- Accumulated amortization (1,202) --- ---------------------- Net book value $ 13,549 $ --- ====================== Additions during the period $ 14,751 $ --- Amortization during the period (1,202) --- 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 67 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 reserve is available) and then against earnings. During the second and third quarters of 2003 mortgage rates fell to record lows. Given the extended period of historically low interest rates and the impact on mortgage banking volumes, refinances, and secondary markets, the Corporation evaluated its mortgage servicing rights asset for possible other-than-temporary impairment. As a result, $18.1 million was determined to be other than temporarily impaired during 2003. A summary of changes in the balance of the mortgage servicing rights asset and the mortgage servicing rights valuation allowance was as follows. Mortgage servicing rights 2003 2002 - ------------------------- ----------------------- ($ in Thousands) Mortgage servicing rights at beginning of year $60,685 $42,786 Additions 39,707 30,730 Amortization (17,212) (12,831) Other-than-temporary impairment (18,118) --- ----------------------- Mortgage servicing rights at end of year $65,062 $60,685 ----------------------- Valuation allowance at beginning of year (28,362) (10,720) Additions (15,832) (17,642) Reversals 3,491 --- Other-than-temporary impairment 18,118 --- ----------------------- Valuation allowance at end of year (22,585) (28,362) ---------------------- Mortgage servicing rights, net $42,477 $32,323 ======================= At December 31, 2003, the Corporation was servicing one- to four-family residential mortgage loans owned by other investors with balances totaling $5.93 billion compared to $5.44 billion and $5.23 billion at December 31, 2002 and 2001, respectively. The fair value of mortgage servicing rights was approximately $42.5 million (representing 72 bp of loans serviced) at December 31, 2003, compared to $32.3 million (representing 59 bp of loans serviced) at December 31, 2002, and $32.1 million (representing 61 bp of loans serviced) at December 31, 2001. Mortgage servicing rights expense, which includes the amortization of the mortgage servicing rights and increases or decreases to the valuation allowance associated with the mortgage servicing rights, was $29.6 million, $30.5 million, and $20.0 million for the years ended December 31, 2003, 2002, and 2001, respectively. 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 December 31, 2003. 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

68 NOTE 6 PREMISES AND EQUIPMENT: A summary of premises and equipment at December 31 is as follows:

Depreciation and amortization of premises and equipment totaled $15.1 million in 2003, $17.1 million in 2002, and $16.2 million in 2001. The Corporation and certain subsidiaries are obligated under a number of noncancelable operating leases for other facilities and equipment, certain of which provide for increased rentals based upon increases in cost of living adjustments and other operating costs. The approximate minimum annual rentals and commitments under these noncancelable agreements and leases with remaining terms in excess of one year are as follows: ($ in Thousands) ---------------- 2004 $ 7,368 2005 6,793 2006 5,892 2007 5,558 2008 4,504 Thereafter 15,527 --------- Total $45,642 ========= Total rental expense under leases, net of sublease income, totaled $9.2 million in 2003, $8.3 million in 2002, and $7.3 million in 2001. NOTE 7 DEPOSITS: The distribution of deposits at December 31 is as follows. 2003 2002 --------------------------- ($ in Thousands) Noninterest-bearing demand deposits $1,814,446 $1,773,699 Savings deposits 890,092 895,855 Interest-bearing demand deposits 2,330,478 1,468,193 Money market deposits 1,573,678 1,754,313 Brokered certificates of deposit 165,130 233,650 Other time deposits 3,019,019 2,999,142 -------------------------- Total deposits $9,792,843 $9,124,852 ========================== 69 Time deposits of $100,000 or more were $999 million and $856 million at December 31, 2003 and 2002, respectively. Aggregate annual maturities of all time deposits at December 31, 2003, are as follows: Maturities During Year Ending December 31, ($ in Thousands) - ------------------------------------------------------------------------------- 2004 $2,008,241 2005 711,562 2006 157,497 2007 191,291 2008 46,097 Thereafter 69,461 ---------- Total $3,184,149 ========== NOTE 8 SHORT-TERM BORROWINGS: Short-term borrowings at December 31 are as follows: 2003 2002 -------------------------- ($ in Thousands) Federal funds purchased and securities sold under agreements to repurchase $1,340,996 $2,240,286 Bank notes 200,000 --- Federal Home Loan Bank advances --- 100,000 Treasury, tax, and loan notes 361,894 38,450 Other borrowed funds 25,986 10,871 -------------------------- Total short-term borrowing $1,928,876 $2,389,607 ========================== Included in short-term borrowings are Federal Home Loan Bank advances with original maturities of less than one year. The short-term bank notes are variable rate and mature in the first quarter of 2004. The treasury, tax, and loan notes are demand notes representing secured borrowings from the U.S. Treasury, collateralized by qualifying securities and loans. At December 31, 2003, the Parent Company had $100 million of established lines of credit with various nonaffiliated banks, which were not drawn on at December 31, 2003. Borrowings under these lines accrue interest at short-term market rates. Under the terms of the credit agreement, a variety of advances and interest periods may be selected by the Parent Company. During 2000, a $200 million commercial paper program was initiated, of which, no amounts were outstanding at December 31, 2003 or 2002. NOTE 9 LONG-TERM DEBT: Long-term debt (debt with original contractual maturities greater than one year) at December 31 is as follows: 2003 2002 -------------------------- ($ in Thousands) Federal Home Loan Bank advances (1) $ 912,138 $ 964,931 Bank notes (2) 300,000 500,000 Subordinated debt, net (3) 204,351 208,356 Repurchase agreements (4) 429,175 226,175 Other borrowed funds 6,555 7,383 -------------------------- Total long-term debt $1,852,219 $1,906,845 ========================== (1) Long-term advances from the Federal Home Loan Bank had maturities through 2017 and had weighted-average interest rates of 2.96% at December 31, 2003, and 3.74% at December 31, 2002. These advances had a combination of fixed and variable rates, predominantly fixed. Of the balances outstanding at December 31, 2003, $24 million is callable by the Federal Home Loan Bank during the first quarter of 2004. 70 (2) The long-term bank notes had maturities through 2007 and had weighted-average interest rates of 2.20% at December 31, 2003, and 2.15% at December 31, 2002. These advances had a combination of fixed and variable rates. (3) In August 2001, the Corporation issued $200 million of 10-year subordinated debt. This debt was issued at a discount and has a fixed interest rate of 6.75%. During 2001, the Corporation entered into a fair value hedge to hedge the interest rate risk on the subordinated debt. As of December 31, 2003 and 2002, the fair value of the derivative was a $5.5 million gain and a $9.6 million gain, respectively. The subordinated debt qualifies under the risk-based capital guidelines as Tier 2 supplementary capital for regulatory purposes. (4) The long-term repurchase agreements had maturities through 2006 and had weighted-average interest rates of 1.67% at December 31, 2003 and 2.36% at December 31, 2002. These advances had a combination of fixed and variable rates, predominantly fixed. Of the balances outstanding at December 31, 2003, $229 million is callable during the first quarter of 2004. The table below summarizes the maturities of the Corporation's long-term debt at December 31, 2003: Year ($ in Thousands) - ------------------------------------------------------------------------------- 2004 $1,026,325 2005 300,000 2006 157,275 2007 100,000 2008 13,500 Thereafter 255,119 ----------- Total long-term debt $1,852,219 =========== Under agreements with the Federal Home Loan Banks of Chicago and Des Moines, Federal Home Loan Bank advances (short-term and long-term) are secured by the subsidiary banks' qualifying mortgages (such as residential mortgage, residential mortgage loans held for sale, home equity, and commercial real estate) and by specific investment securities for certain Federal Home Loan Bank advances. Note 10 COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES: On May 30, 2002, ASBC Capital I (the "ASBC Trust"), a Delaware business trust 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 are eliminated, along with the related income statement effects, in the consolidated financial statements. The Corporation used the proceeds from the sales of the Debentures for general corporate purposes. Effective in the first quarter of 2004, in accordance with recent guidance provided on the application of FIN 46R, the Corporation will be 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) will be reflected in the Corporation's consolidated balance sheet as long-term debt. The deconsolidation of the net assets and results of operations of this trust will have virtually no 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 debt obligation related to the ASBC Trust will increase 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. 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. 71 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. As discussed in Note 18, as a result of FIN 46R, the Federal Reserve Board is currently evaluating whether deconsolidation of the trust will affect the qualification of the preferred securities as Tier 1 capital. 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 May 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 $6.9 million gain at December 31, 2003, and a $15.1 million gain at December 31, 2002. Given the fair value hedge, the Preferred Securities are carried on the balance sheet at fair value. Note 11 Stockholders' Equity: On April 24, 2002, the Board of Directors declared a 10% stock dividend, payable May 15 to shareholders of record at the close of business on April 29. All share and per share data in the accompanying consolidated financial statements has been adjusted to reflect the 10% stock dividend paid. As a result of the stock dividend, the Corporation distributed approximately 7.0 million shares of common stock. Any fractional shares resulting from the dividend were paid in cash. Share and price information has been adjusted to reflect all stock splits and dividends. The Corporation's Articles of Incorporation authorize the issuance of 750,000 shares of preferred stock at a par value of $1.00 per share. No shares have been issued. At December 31, 2003, subsidiary net assets equaled $1.3 billion, of which approximately $136.8 million could be transferred to the Corporation in the form of cash dividends without prior regulatory approval, subject to the capital needs of each subsidiary. 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 1.6 million shares (400,000 shares per quarter) in 2003 and 2002. Of these authorizations, approximately 1.3 million shares were repurchased for $43.3 million during 2002 (with approximately 1.0 million shares reissued in connection with stock options exercised), while none were repurchased during 2003 (with approximately 1.1 million shares reissued in connection with stock options exercised). 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 11.0 million shares on a combined basis. Under these authorizations, approximately 2.1 million shares were repurchased for $74.5 million during 2003 at an average cost of $36.17 per share, while during 2002 approximately 1.3 million shares were repurchased for $44.0 million at an average cost of $32.69 per share. At December 31, 2003, approximately 3.7 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 Board of Directors approved the implementation of a broad-based stock option grant effective July 28, 1999. This stock option grant provided all qualifying employees with an opportunity and an incentive to buy shares of the Corporation and align their financial interest with the growth in value of the Corporation's shares. These options have 10-year terms, fully vest in two years, and have exercise prices equal to 100% of market value on the date of grant. As of December 31, 2003, approximately 1.8 million shares remain available for granting. In January 2002, the Board of Directors, with subsequent approval of the Corporation's shareholders, approved an amendment, increasing the number of shares available to be issued by an additional 72 3.3 million shares, to the Amended and Restated Long-Term Incentive Stock Plan ("Stock Plan"). The Stock Plan was adopted by the Board of Directors and originally approved by shareholders in 1987 and amended in 1994, 1997, and 1998. Options are generally exercisable up to 10 years from the date of grant and vest over two to three years. As of December 31, 2003, approximately 3.2 million shares remain available for grants. The stock incentive plans of acquired companies were terminated at each respective merger date. Option holders under such plans received the Corporation's common stock, or options to buy the Corporation's common stock, based on the conversion terms of the various merger agreements. The historical option information presented below has been restated to reflect the options originally granted under the acquired companies' plans.

The following table summarizes information about the Corporation's stock options outstanding at December 31, 2003:

The pro forma disclosures required under SFAS 123, as amended by SFAS 148, are included in Note 1. 73 NOTE 12 RETIREMENT PLANS: The Corporation has a noncontributory defined benefit retirement plan (the "Plan") covering substantially all full-time employees. The benefits are based primarily on years of service and the employee's compensation paid. The Corporation's funding policy is to pay at least the minimum amount required by the funding requirements of federal law and regulations. The following tables set forth the Plan's funded status and net periodic benefit cost: 2003 2002 ------------------------ ($ in Thousands) Change in Fair Value of Plan Assets Fair value of plan assets at beginning of year $45,429 $32,336 Actual gain (loss) on plan assets 9,795 (3,784) Employer contributions 17,542 19,489 Gross benefits paid (3,382) (2,612) ------------------------ Fair value of plan assets at end of year $69,384 $45,429 ======================== Change in Benefit Obligation Net benefit obligation at beginning of year $54,464 $45,767 Service cost 5,857 4,582 Interest cost 3,603 3,257 Plan amendments --- 206 Actuarial loss 2,283 3,264 Gross benefits paid (3,382) (2,612) ------------------------ Net benefit obligation at end of year $62,825 $54,464 ======================== Funded Status Excess (deficit) of plan assets over (under) benefit obligation $ 6,559 $(9,035) Unrecognized net actuarial loss 15,762 18,046 Unrecognized prior service cost 589 663 Unrecognized net transition asset (736) (1,060) ------------------------ Net prepaid asset at end of year in the balance sheet $22,174 $8,614 ======================== Amounts Recognized in the Statement of Financial Position Consists of Prepaid benefit cost $22,174 $ --- Accrued benefit cost --- (7,503) Intangible assets --- 663 Accumulated other comprehensive income --- 15,454 ------------------------ Net amount recognized $22,174 $8,614 ======================== The accumulated benefit obligation for the Plan was $61.2 million and $52.9 million at December 31, 2003 and 2002, respectively. 74 2003 2002 2001 ----------------------------------- ($ in Thousands) Components of Net Periodic Benefit Cost Service cost $5,857 $4,582 $3,950 Interest cost 3,603 3,257 2,889 Expected return on plan assets (5,301) (3,963) (3,474) Amortization of: Transition asset (324) (323) (324) Prior service cost 74 74 63 Actuarial gain 73 --- --- ----------------------------------- Total net periodic benefit cost $3,982 $3,627 $3,104 =================================== Weighted average assumptions used to determine benefit obligations: Discount rate 6.25% 6.75% Rate of increase in compensation levels 5.00 5.00 Weighted average assumptions used to determine net periodic benefit costs: Discount rate 6.75% 7.25% 7.50% Rate of increase in compensation levels 5.00 5.00 5.00 Expected long-term rate of return on plan assets 8.75 9.00 9.00 =================================== The overall expected long-term rate of return on assets was 8.75% and 9.00% as of December 31, 2003 and 2002, respectively. The expected long-term rate of return was estimated using market benchmarks for equities and bonds applied to the plan's anticipated asset allocations. The expected return on equities was computed utilizing a valuation framework, which projected future returns based on current equity valuations rather than historical returns. The asset allocation for the Plan as of the measurement date by asset category was as follows: 2003 2002 ------------------------- Asset Category Equity securities 66% 60% Debt securities 32 38 Other 2 2 ------------------------- Total 100% 100% ========================= The asset classes used to manage plan assets will include common stocks, fixed income or debt securities, and cash equivalents. A diversified portfolio using these assets will provide liquidity, current income, and growth of income and growth of principal. The anticipated asset allocation ranges are equity securities of 55-65%, debt securities of 35-45%, and other cash equivalents of 0-5%. The Corporation and its subsidiaries also have a Profit Sharing/Retirement Savings Plan (the "plan"). The Corporation's contribution is determined annually by the Administrative Committee of the Board of Directors, based in part on performance-based formulas provided in the plan. Total expense related to contributions to the plan was $12.3 million, $11.8 million, and $10.5 million in 2003, 2002, and 2001, respectively. An additional pension obligation is required when the accumulated benefit obligation exceeds the sum of the fair value of plan assets and the accrued pension expense. At December 31, 2003, the Corporation's additional pension obligation was zero, while at December 31, 2002, the Corporation's additional pension obligation was $16.1 million, of which $9.2 million was included as a reduction in accumulated other comprehensive income, net of tax benefit of $6.2 million, and $0.7 million was included as an intangible asset as part of other assets in the consolidated balance sheet. 75 At this time, the Corporation does not expect to make a contribution to its pension plan in 2004. The Corporation regularly reviews the funding of its pension plans. Therefore, it is possible that after that review, the Corporation may decide to make a contribution to the pension plan at that time. NOTE 13 INCOME TAXES: The current and deferred amounts of income tax expense (benefit) are as follows: Years ended December 31, 2003 2002 2001 --------------------------------------- ($ in Thousands) Current: Federal $103,321 $99,730 $54,726 State 2,940 755 113 --------------------------------------- Total current 106,261 100,485 54,839 Deferred: Federal (12,793) (16,214) 14,947 State (409) 1,336 1,701 --------------------------------------- Total deferred (13,202) (14,878) 16,648 --------------------------------------- Total income tax expense $93,059 $85,607 $71,487 ======================================= Temporary differences between the amounts reported in the financial statements and the tax bases of assets and liabilities resulted in deferred taxes. Deferred tax assets and liabilities at December 31 are as follows: 2003 2002 ------------------------ ($ in Thousands) Gross deferred tax assets: Allowance for loan losses $ 74,497 $ 67,900 Accrued liabilities 6,079 5,946 Deferred compensation 10,304 9,310 Securities valuation adjustment 10,214 8,893 Deposit base intangible 3,078 3,370 Mortgage banking activity --- 1,552 Benefit of tax loss carryforwards 16,971 15,323 Other 4,828 5,825 ------------------------ Total gross deferred tax assets 125,971 118,119 Valuation allowance for deferred tax assets (8,445) (12,149) ------------------------ 117,526 105,970 Gross deferred tax liabilities: Real estate investment trust income 27,612 41,330 Prepaids 6,552 251 Mortgage banking activity 3,297 --- Deferred loan fee income and other loan yield adjustment 7,494 6,927 State income taxes 13,127 11,928 Other 7,467 6,860 ------------------------ Total gross deferred tax liabilities 65,549 67,296 ------------------------ Net deferred tax assets 51,977 38,674 Tax effect of unrealized gain related to available for sale securities (35,843) (48,879) Tax effect of unrealized loss related to derivative instruments 7,991 9,326 Tax effect of additional pension obligation --- 6,167 ------------------------ (27,852) (33,386) ------------------------ Net deferred tax assets including tax effected items $ 24,125 $ 5,288 ======================== 76 Components of the 2002 net deferred tax assets have been adjusted to reflect the filing of corporate income tax returns. For financial reporting purposes, a valuation allowance has been recognized to offset deferred tax assets related to state net operating loss carryforwards of certain subsidiaries and other temporary differences due to the uncertainty that the assets will be realized. If it is subsequently determined that all or a portion of these deferred tax assets will be realized, the tax benefit for these items will be used to reduce deferred tax expense for that period. At December 31, 2003, the Corporation had state net operating losses of $209 million and federal net operating losses of $1.3 million that will expire in the years 2004 through 2017. The effective income tax rate differs from the statutory federal tax rate. The major reasons for this difference are as follows: 2003 2002 2001 ------------------------- Federal income tax rate at statutory rate 35.0% 35.0% 35.0% Increases (decreases) resulting from: Tax-exempt interest and dividends (4.2) (4.6) (5.1) State income taxes (net of federal income taxes) 0.5 0.5 0.5 Increase in cash surrender value of life insurance (1.5) (1.6) (1.8) Other (0.9) (0.4) (0.1) ------------------------- Effective income tax rate 28.9% 28.9% 28.5% ========================= A savings bank acquired by the Corporation in 1997 qualified under provisions of the Internal Revenue Code that permitted it to deduct from taxable income an allowance for bad debts that differed from the provision for such losses charged to income for financial reporting purposes. Accordingly, no provision for income taxes has been made for $79.2 million of retained income at December 31, 2003. If income taxes had been provided, the deferred tax liability would have been approximately $31.8 million. Management does not expect this amount to become taxable in the future, therefore no provision for income taxes has been made. NOTE 14 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 rates. 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 77 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 activity, as defined by SFAS 133, is further summarized in Note 15. The following is a summary of lending-related commitments at December 31: 2003 2002 ------------------------- ($ in Thousands) Commitments to extend credit, excluding commitments to originate mortgage loans (1) $3,732,150 $3,559,497 Commercial letters of credit (1) 19,665 59,186 Standby letters of credit (2) 338,954 267,858 (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 December 31, 2003 or 2002. (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 $2.3 million at December 31, 2003, as an estimate of the fair value of these financial instruments. No fair value liability was required at December 31, 2002. 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 December 31, 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 commercial letters of credit, of which $2.2 million remained at December 31, 2003. 78 NOTE 15 DERIVATIVE 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 on its consolidated balance sheet from changes in interest rates. The contract or notional amount of a derivative is used to determine, along with the other terms of the derivative, the amounts to be exchanged between the counterparties. Because the contract or notional amount does not represent amounts exchanged by the parties, it is not a measure of loss exposure related to the use of derivatives nor of exposure to liquidity risk. The Corporation is exposed to credit risk in the event of nonperformance by counterparties to financial instruments. As the Corporation generally enters into transactions only with high quality counterparties, no losses with counterparty nonperformance on derivative financial instruments has occurred. Further, the Corporation obtains collateral and uses master netting arrangements when available. To mitigate counterparty risk, interest rate swap agreements generally contain language outlining collateral pledging requirements for each counterparty. Collateral must be posted when the market value exceeds a certain threshold. The threshold limits are determined from the credit ratings of each counterparty. Upgrades or downgrades to the credit ratings of either counterparty would lower or raise the threshold limits. Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates, currency exchange rates, or commodity prices. The market risk associated with interest rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. Interest rate swap contracts are entered into primarily as an asset/liability management strategy to modify interest rate risk. Interest rate swap contracts are exchanges of interest payments, such as fixed rate payments for floating rate payments, based on a notional principal amount. Payments related to the Corporation's swap contracts are made monthly, quarterly, or semi-annually by one of the parties depending on the specific terms of the related contract. The primary risk associated with all swaps is the exposure to movements in interest rates and the ability of the counterparties to meet the terms of the contract. At December 31, 2003 and 2002, the Corporation had $936 million and $854 million, respectively, of interest rate swaps outstanding. Included in this amount were $361 million and $279 million, respectively, at December 31, 2003 and 2002, in receive variable/pay fixed interest rate swaps used to convert specific fixed rate loans into floating rate assets. The remaining swap contracts used for interest rate risk management of $575 million at December 31, 2003 and 2002, were used to hedge interest rate risk of various other specific liabilities. At December 31, 2003, the Corporation pledged $24.8 million of collateral for swap agreements compared to $24.0 million at December 31, 2002.

79 Not included in the above table for December 31, 2003, were three customer swaps with a notional amount of $20.7 million for which the Corporation has mirror swaps. There were no such customer swaps at December 31, 2002. The fair value of these customer swaps is recorded in earnings and the net impact for 2003 was immaterial. Interest rate floors and caps are interest rate protection instruments that involve the payment from the seller to the buyer of an interest differential. This differential represents the difference between a short-term rate (e.g., six-month LIBOR) and an agreed upon rate (the strike rate) applied to a notional principal amount. By buying a cap, the Corporation will be paid the differential by a counterparty should the short-term rate rise above the strike level of the agreement. The primary risk associated with purchased floors and caps is the ability of the counterparties to meet the terms of the agreement. As of December 31, 2003 and 2002, the Corporation had purchased caps for asset/liability management of $200 million. 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 the hedge. The ineffective portion of the hedge is recorded as an increase or decrease in the related income statement classification of the item being hedged. 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. At December 31, 2003, the estimated fair value of the interest rate swaps and the cap designated as cash flow hedges was a $19.9 million unrealized loss, or $11.9 million, net of tax benefit of $8.0 million, carried as a component of accumulated other comprehensive income. At December 31, 2002, the estimated fair value of the interest rate swaps and the cap designated as cash flow hedges was a $23.2 million unrealized loss, or $13.9 million, net of tax benefit of $9.3 million, carried as a component of accumulated other comprehensive income. These instruments are used to hedge the exposure to the variability in interest payments of variable rate liabilities. The ineffective portion of the hedges recorded through the statements of income was immaterial. For the years ended December 31, 2003 and 2002, the Corporation recognized interest expense of $7.7 million and $13.4 million, respectively, for interest rate swaps accounted for as cash flow hedges. As of December 31, 2003, approximately $7.8 million of the deferred net losses on derivative instruments that are recorded in accumulated other comprehensive income are expected to be reclassified to interest expense within the next twelve months. Currently, none of the existing amounts within accumulated other comprehensive income are expected to be reclassified into earnings for ineffectiveness during 2003. At December 31, 2003 and 2002, the estimated fair value of the interest rate swaps designated as fair value hedges was an unrealized gain of $2.6 million and an unrealized gain of $10.0 million, respectively, carried as a component of other liabilities. These swaps hedge against changes in the fair value of certain loans and long-term debt. The fair value of the mortgage derivatives at December 31, 2003, was a net loss of $0.2 million, a decrease of $5.2 million from the December 31, 2002, net gain of $5.0 million, and is recorded in mortgage banking income. The $0.2 million net fair value loss for mortgage derivatives is composed of the net loss on commitments to sell approximately $152.0 million of loans to various investors and the net gain on commitments to fund approximately $114.1 million of loans to individual borrowers. The $5.0 million net fair value gain for mortgage derivatives is comprised of the net loss on commitments to sell approximately $538.3 million of loans to various investors and the net gain on commitments to fund approximately $550.1 million of loans to individual borrowers. 80 NOTE 16 PARENT COMPANY ONLY FINANCIAL INFORMATION: Presented below are condensed financial statements for the Parent Company: BALANCE SHEETS --------------------------- 2003 2002 --------------------------- ($ in Thousands) ASSETS Cash and due from banks $ 924 $ 638 Notes receivable from subsidiaries 374,878 281,258 Investment in subsidiaries 1,316,773 1,377,239 Other assets 103,837 101,304 --------------------------- Total assets $1,796,412 $1,760,439 =========================== LIABILITY AND STOCKHOLDERS' EQUITY Long-term debt $ 391,705 $ 403,880 Accrued expenses and other liabilities 56,280 84,376 --------------------------- Total liabilities 447,985 488,256 Stockholders' equity 1,348,427 1,272,183 --------------------------- Total liabilities and stockholders' equity $1,796,412 $1,760,439 =========================== STATEMENTS OF INCOME For the Years Ended December 31, ------------------------------- 2003 2002 2001 ------------------------------- ($ in Thousands) INCOME Dividends from subsidiaries $179,500 $172,000 $ 90,000 Management and service fees from subsidiaries 43,146 35,346 26,482 Interest income on notes receivable 9,172 5,641 4,590 Other income 2,464 3,510 3,428 ------------------------------- Total income 234,282 216,497 124,500 ------------------------------- EXPENSE Interest expense on borrowed funds 11,474 12,627 8,107 Provision for loan losses --- 500 (800) Personnel expense 29,219 22,918 19,766 Other expense 20,241 15,191 11,379 ------------------------------- Total expense 60,934 51,236 38,452 ------------------------------- Income before income tax benefit and equity in undistributed income 173,348 165,261 86,048 Income tax benefit (1,093) (1,759) (48) ------------------------------- Income before equity in undistributed net income of subsidiaries 174,441 167,020 86,096 Equity in undistributed net income of subsidiaries 54,216 43,699 93,426 ------------------------------- Net income $228,657 $210,719 $179,522 =============================== 81 STATEMENTS OF CASH FLOWS

NOTE 17 FAIR VALUE OF FINANCIAL INSTRUMENTS: SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires that the Corporation disclose estimated fair values for its financial instruments. Fair value estimates, methods, and assumptions are set forth below for the Corporation's financial instruments. 82 The estimated fair values of the Corporation's financial instruments on the balance sheet at December 31 are as follows:

Cash and due from banks, interest-bearing deposits in other financial institutions, federal funds sold and securities purchased under agreements to resell, and accrued interest receivable - For these short-term instruments, the carrying amount is a reasonable estimate of fair value. Investment securities held to maturity, investment securities available for sale, and trading account securities - The fair value of investment securities held to maturity, investment securities available for sale, and trading account securities, except certain state and municipal securities, is estimated based on bid prices published in financial newspapers or bid quotations received from securities dealers. The fair value of certain state and municipal securities is not readily available through market sources other than dealer quotations, so fair value estimates are based on quoted market prices of similar instruments, adjusted for differences between the quoted instruments and the instruments being valued. There were no investment securities held to maturity or trading account securities at December 31, 2003 or 2002. Loans held for sale - Fair value is estimated using the prices of the Corporation's existing commitments to sell such loans and/or the quoted market prices for commitments to sell similar loans. Loans - Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial, commercial real estate, residential mortgage, credit card, and other consumer. The fair value of other types of loans is estimated by discounting the future cash 83 flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for similar maturities. Future cash flows are also adjusted for estimated reductions or delays due to delinquencies, nonaccruals, or potential charge offs. Deposits - The fair value of deposits with no stated maturity such as noninterest-bearing demand deposits, savings, interest-bearing demand deposits, and money market accounts, is equal to the amount payable on demand as of December 31. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities. Accrued interest payable and short-term borrowings - For these short-term instruments, the carrying amount is a reasonable estimate of fair value. Long-term debt and company-obligated mandatorily redeemable preferred securities - - Rates currently available to the Corporation for debt with similar terms and remaining maturities are used to estimate fair value of existing borrowings. Interest rate swap and cap agreements - The fair value of interest rate swap and cap agreements is obtained from dealer quotes. These values represent the estimated amount the Corporation would receive or pay to terminate the agreements, taking into account current interest rates and, when appropriate, the current creditworthiness of the counterparties. Standby letters of credit - The fair value of standby letters of credit represent deferred fees arising from the related off-balance sheet financial instruments. These deferred fees approximate the fair value of these instruments and are based on several factors, including the remaining terms of the agreement and the credit standing of the customer. Commitments to originate mortgage loans held for sale - The fair value of commitments to originate mortgage loans held for sale is estimated by comparing the Corporation's cost to acquire mortgages and the current price for similar mortgage loans, taking into account the terms of the commitments and the creditworthiness of the counterparties. Forward commitments to sell residential mortgage loans - The fair value of forward commitments to sell residential mortgage loans is the estimated amount that the Corporation would receive or pay to terminate the forward delivery contract at the reporting date based on market prices for similar financial instruments. Limitations - Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Corporation's entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Corporation's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. NOTE 18 REGULATORY MATTERS: Restrictions on Cash and Due From Banks The Corporation's bank subsidiaries are required to maintain certain vault cash and reserve balances with the Federal Reserve Bank to meet specific reserve requirements. These requirements approximated $6.0 million at December 31, 2003. Regulatory Capital Requirements The Corporation and the subsidiary banks are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if 84 undertaken, could have a direct material effect on the Corporation's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Corporation must meet specific capital guidelines that involve quantitative measures of the Corporation's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Corporation's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Corporation to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 2003, that the Corporation meets all capital adequacy requirements to which it is subject. As of December 31, 2003 and 2002, the most recent notifications from the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation categorized the subsidiary banks as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the subsidiary banks must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the institutions' category. The actual capital amounts and ratios of the Corporation and its significant subsidiaries are presented below. No deductions from capital were made for interest rate risk in 2003 or 2002. As discussed in Note 10, the preferred securities held by the ASBC Trust qualify as Tier 1 Capital for the Corporation under Federal Reserve Board guidelines. As a result of the issuance of FIN 46, the Federal Reserve Board is currently evaluating whether deconsolidation of the ASBC Trust will affect the qualification of the preferred securities as Tier 1 capital. 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.

NOTE 19 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 24, 2002, the Board of Directors declared a 10% stock dividend, payable May 15 to shareholders of record at the close of business on April 29. All share and per share data in the accompanying consolidated financial statements has been adjusted to reflect the declaration of the 10% stock dividend. As a result of the stock dividend, the Corporation distributed approximately 7.0 million shares of common stock. Any fractional shares resulting from the dividend were paid in cash. 86 Presented below are the calculations for basic and diluted earnings per share as reported, as well as adjusted to exclude the amortization of goodwill affected by adopting SFAS 142 and SFAS 147 in 2001.

NOTE 20 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 "Other" segment is comprised of wealth management (including insurance, brokerage, and trust/asset management), as well as intersegment eliminations and residual revenues and expenses, representing the difference between actual amounts incurred and the amounts allocated to operating segments. 87 The accounting policies of the segments are the same as those described in Note 1. Selected segment information is presented below. Consolidated Banking Other Total ------------------------------------------ ($ in Thousands) 2003 Net interest income $ 510,213 $ 549 $ 510,762 Provision for loan losses 46,813 --- 46,813 Noninterest income 194,186 52,249 246,435 Depreciation and amortization 47,307 1,571 48,878 Other noninterest expense 297,314 42,476 339,790 Income taxes 93,227 (168) 93,059 ----------------------------------------- Net income $ 219,738 $ 8,919 $ 228,657 ========================================== Total assets $15,195,428 $ 52,466 $15,247,894 ========================================== 2002 Net interest income $ 501,244 $ 22 $ 501,266 Provision for loan losses 50,699 --- 50,699 Noninterest income 186,001 29,819 215,820 Depreciation and amortization 51,230 222 51,452 Other noninterest expense 298,370 20,239 318,609 Income taxes 86,345 (738) 85,607 ------------------------------------------ Net income $ 200,601 $ 10,118 $ 210,719 ========================================== Total assets $15,015,136 $ 28,139 $15,043,275 ========================================== 2001 Net interest income $ 421,253 $ 732 $ 421,985 Provision for loan losses 28,210 --- 28,210 Noninterest income 161,730 30,612 192,342 Depreciation and amortization 46,616 365 46,981 Other noninterest expense 256,290 31,837 288,127 Income taxes 71,893 (406) 71,487 ------------------------------------------ Net income (loss) $ 179,974 $ (452) $ 179,522 ========================================== Total assets $13,578,328 $ 26,046 $13,604,374 ========================================== 88 INDEPENDENT AUDITORS' REPORT ASSOCIATED BANC-CORP The Board of Directors Associated Banc-Corp: We have audited the accompanying consolidated balance sheets of Associated Banc-Corp and subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2003. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Associated Banc-Corp and subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for goodwill in 2002. /s/ KPMG LLP KPMG LLP Chicago, Illinois March 8, 2004 89 Market Information Market Price Range Sales Prices Dividends ---------------------------- Paid Book Value High Low Close - ------------------------------------------------------------------------------- 2003 4th Quarter $0.34 $18.39 $43.13 $38.81 $42.80 3rd Quarter 0.34 17.77 38.90 37.12 37.89 2nd Quarter 0.34 17.88 38.41 32.15 36.61 1st Quarter 0.31 17.41 35.22 32.33 32.33 - ------------------------------------------------------------------------------- 2002 4th Quarter $0.31 $17.13 $34.21 $27.20 $33.94 3rd Quarter 0.31 17.03 36.96 30.64 31.73 2nd Quarter 0.31 16.84 38.25 33.63 37.71 1st Quarter 0.28 16.23 35.29 30.37 34.57 - ------------------------------------------------------------------------------- Annual dividend rate: $1.36 Market information has been restated for the 10% stock dividend declared April 24, 2002, paid on May 15, 2002, to shareholders of record at the close of business on April 29, 2002. ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A 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 CEO and CFO 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 annual report on Form 10-K. 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. PART III ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION The information in the Corporation's definitive Proxy Statement, prepared for the 2004 Annual Meeting of Shareholders, which contains information concerning directors of the Corporation, under the caption "Election of Directors," is incorporated herein by reference. The information concerning "Executive Officers of the Corporation," as a separate item, appears in Part I of this document. ITEM 11 EXECUTIVE COMPENSATION The information in the Corporation's definitive Proxy Statement, prepared for the 2004 Annual Meeting of Shareholders, which contains information concerning this item, under the caption "Executive Compensation," is incorporated herein by reference. 90 ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information in the Corporation's definitive Proxy Statement, prepared for the 2004 Annual Meeting of Shareholders, which contains information concerning this item, under the captions "Stock Ownership," and "Equity Compensation Plan Information," is incorporated herein by reference. ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information in the Corporation's definitive Proxy Statement, prepared for the 2004 Annual Meeting of Shareholders, which contains information concerning this item under the caption "Interest of Management in Certain Transactions," is incorporated herein by reference. ITEM 14 PRINCIPAL ACCOUNTING FEES AND SERVICES The information in the Corporation's definitive Proxy Statement, prepared for the 2004 Annual Meeting of Shareholders, which contains information concerning this item under the caption "Audit and Non-Audit Fees," is incorporated herein by reference. PART IV ITEM 15 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1 and 2 Financial Statements and Financial Statement Schedules The following financial statements and financial statement schedules are included under a separate caption "Financial Statements and Supplementary Data" in Part II, Item 8 hereof and are incorporated herein by reference. Consolidated Balance Sheets - December 31, 2003 and 2002 Consolidated Statements of Income - For the Years Ended December 31, 2003, 2002, and 2001 Consolidated Statements of Changes in Stockholders' Equity - For the Years Ended December 31, 2003, 2002, and 2001 Consolidated Statements of Cash Flows - For the Years Ended December 31, 2003, 2002, and 2001 Notes to Consolidated Financial Statements Independent Auditors' Report (a) 3 Exhibits Required by Item 601 of Regulation S-K

Schedules and exhibits other than those listed are omitted for the reasons that they are not required, are not applicable or that equivalent information has been included in the financial statements, and notes thereto, or elsewhere herein. (b) Reports on Form 8-K A report on Form 8-K dated October 16, 2003, was filed under Item 12, Results of Operations and Financial Condition, reporting Associated Banc-Corp released its earnings for the quarter ended September 30, 2003. A report on Form 8-K dated October 22, 2003, was filed under Item 5, Other Events, announcing the Associated Banc-Corp Board of Directors declared its third quarter dividend. 92 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ASSOCIATED BANC-CORP Date: March 15, 2004 By: /s/ PAUL S. BEIDEMAN ----------------------- ----------------------------------------- Paul S. Beideman President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ PAUL S. BEIDEMAN /s/ Ronald R. Harder* - ------------------------------------- ------------------------------------ Paul S. Beideman Ronald R. Harder President and Chief Executive Officer Director /s/ JOSEPH B. SELNER /s/ William R. Hutchinson * - ------------------------------------- ------------------------------------ Joseph B. Selner William R. Hutchinson Chief Financial Officer Director Principal Financial Officer and Principal Accounting Officer /s/ H.B. Conlon * /s/ Dr. George R. Leach * - ------------------------------------- ------------------------------------ H. B. Conlon Dr. George R. Leach Director Director /s/ Ruth M. Crowley * /s/ John C. Meng * - ------------------------------------- ------------------------------------ Ruth M. Crowley John C. Meng Director Director /s/ Robert S. Gaiswinkler * /s/ J. Douglas Quick * ------------------------------------ ------------------------------------ Robert S. Gaiswinkler J. Douglas Quick Director Director /s/ Robert C. Gallagher* /s/ John C. Seramur * - ------------------------------------- ------------------------------------ Robert C. Gallagher John C. Seramur Director Vice Chairman * /s/ BRIAN R. BODAGER -------------------- Brian R. Bodager Attorney-in-Fact Date: March 15, 2004 93 EX-23 2 exhibit23.htm EXHIBIT 23 - KPMG CONSENT Exhibit 23

EXHIBIT 23

Consent of Independent Public Accountants

The Board of Directors
Associated Banc-Corp.:

Re: Registration Statement on Form S-8

    |X|   #2-77435      |X|  #33-63545
    |X|   #2-99096      |X|  #33-67436
    |X|   #33-16952       |X|  #33-86790
    |X|   #33-24822       |X|  #333-46467
    |X|   #33-35560       |X|  #333-74307
   |X|   #33-54658

Re: Registration Statement on Form S-3

    |X|   #2-98922       |X|  #33-63557
    |X|   #33-28081       |X|  #33-67434
    |X|   #333-59482       |X|  #333-87578

We consent to incorporation by reference in the Registration Statements on Form S-8 and S-3 of Associated Banc-Corp of our report dated March 8, 2004 relating to the consolidated balance sheets of Associated Banc-Corp and Subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2003, which report appears in the December 31, 2003 annual report on Form 10-K of Associated Banc-Corp.

Our report refers to a change in the method of accounting for goodwill in 2002.

/s/ KPMG LLP

Chicago, Illinois

March 12, 2004

EX-24 3 exhibit24.htm EXHIBIT 24- POA Exhibit 24

EXHIBIT 24

DIRECTOR’S POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Associated Banc-Corp, a Wisconsin corporation (the “Corporation”), which is planning to file with the Securities and Exchange Commission (the “SEC”), Washington, D.C., under the provisions of the Securities Act of 1934 (the “Act”), a Form 10-K, the form which must be used for annual reports pursuant to Section 13 or 15(d) of the Act, and Proxy Statement in accordance with Regulation 14A and Schedule 14A under the Act and Regulation S-K and Rule 14a-3(b) under the Act, for the reporting period ending December 31, 2003, hereby constitutes and appoints Brian R. Bodager his true and lawful attorney-in-fact and agent.

Said attorney-in-fact and agent shall have full power to act for him and in his name, place, and stead in any and all capacities, to sign such Form 10-K and Proxy Statement and any and all amendments thereto (including post-effective amendments), with power where appropriate to affix the corporate seal of the Corporation thereto and to attest such seal, and to file such Form 10-K and Proxy Statement and each amendment (including post-effective amendments) so signed, with all exhibits thereto, and any and all documents in connection therewith, with the SEC, and to appear before the SEC in connection with any matter relating to such Form 10-K and Proxy Statement and to any and all amendments thereto (including post-effective amendments).

The undersigned hereby grants such attorney-in-fact and agent full power and authority to do and perform any and all acts and things requisite and necessary to be done as he might or could do in person, and hereby ratifies and confirms all that such attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of the 28^th day of January, 2004.

/s/ Harry B. Conlon

Harry B. Conlon
Director

DIRECTOR’S POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of the 8th day of March, 2004.

/s/ Ruth M. Crowley

Ruth M. Crowley
Director

DIRECTOR’S POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of the 28^th day of January, 2004.

/s/ Robert S. Gaiswinkler

Robert S. Gaiswinkler
Director

DIRECTOR’S POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of the 28^th day of January, 2004.

/s/ Robert C. Gallagher

Robert C. Gallagher
Director

DIRECTOR’S POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of the 28^th day of January, 2004.

/s/ Ronald R. Harder

Ronald R. Harder
Director

DIRECTOR’S POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of the 28^th day of January, 2004.

/s/ William R. Hutchinson

William R. Hutchinson
Director

DIRECTOR’S POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of the 28^th day of January, 2004.

/s/ George R. Leach

George R. Leach
Director

DIRECTOR’S POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of the 28^th day of January, 2004.

/s/ John C. Meng

John C. Meng
Director

DIRECTOR’S POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of the 28^th day of January, 2004.

/s/ J. Douglas Quick

J. Douglas Quick
Director

DIRECTOR’S POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as of the 28^th day of January, 2004.

/s/ John C. Seramur

John C. Seramur
Director

EX-31 4 exhibit31-1.htm EXHIBIT 31.1 - PSB 302 CERT Exhibit 31.1

EXHIBIT 31.1

CERTIFICATION UNDER SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, Paul S. Beideman, certify that:

1. I have reviewed this annual report on Form 10-K of Associated Banc-Corp;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintain disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant’s internal controls over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

(a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial data information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Dated: March 15, 2004
/s/ Paul S. Beideman

Paul S. Beideman
President & Chief Executive Officer

EX-31 5 exhibit31-2.htm EXHIBIT 31.2 - JBS 302 CERT. Exhibit 31.2

EXHIBIT 31.2

CERTIFICATION UNDER SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, Joseph B. Selner, certify that:

1. I have reviewed this annual report on Form 10-K of Associated Banc-Corp;

Joseph B. Selner
Chief Financial Officer

EX-32 6 exhibit32.htm EXHIBIT 32- 906 CERT Exhibit 32

EXHIBIT 32

Certification by the Chief Executive Officer and Chief FinancialOfficer
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of Associated Banc-Corp, a Wisconsin corporation (the “Company”), does hereby certify that:

1. The accompanying Annual Report of the Company on Form 10-K for the year ended December 31, 2003 (the “Report”), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

2. Information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/Paul S. Beideman

Paul S. Beideman
Chief Executive Officer
March 15, 2004

/s/Joseph B. Selner

Joseph B. Selner
Chief Financial Officer
March 15, 2004

EX-21 7 exhibit21.htm EXHIBIT 21 - SUBSIDIARIES Exhibit 21

EXHIBIT 21

Subsidiaries of the Corporation

The following bank subsidiaries are national banks and are organized under the laws of the United States:

   Associated Bank, National Association
   Associated Bank Minnesota, National Association
   Associated Trust Company, National Association

The following bank subsidiary is a state bank organized under the laws of the State of Illinois:

Associated Bank Chicago

The following non-bank subsidiaries are organized under the laws of the State of Wisconsin:

    Associated Commercial Finance, Inc.
    Associated Financial Group, LLC
    Associated Illinois Real Estate Corp.
    Associated Investment Management, LLC
    Associated Investment Services, Inc.
    Associated Minnesota Real Estate Corp.
    Associated Mortgage, Inc.
    Associated Wisconsin Real Estate Corp.

The following non-bank subsidiary is organized under the laws of the State of Arizona:

Banc Life Insurance Corporation

The following non-bank subsidiary is organized under the laws of the State of California:

Mortgage Finance Corporation

The following non-bank subsidiary is organized under the laws of the State of Minnesota:

Riverside Finance, Inc.

The following non-bank subsidiaries are organized under the laws of the State of Nevada:

    ASBC Investment Corp.
    ASBC Investment Corp-Illinois
    ASBC Investment Corp-Minnesota
    Associated Green Bay Investment Corp.
    Associated Illinois Investment Corp.
    Associated Minnesota Investment Corp.

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EXHIBIT 23

Consent of Independent Public Accountants

/s/ KPMG LLP

EXHIBIT 24

EXHIBIT 31.1

CERTIFICATION UNDER SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

CERTIFICATION

EXHIBIT 31.2

CERTIFICATION UNDER SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

CERTIFICATION

EXHIBIT 32

Certification by the Chief Executive Officer and Chief FinancialOfficer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Certification by the Chief Executive Officer and Chief FinancialOfficer
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002