UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20459

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2014, or

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

For the transition period fromto

Commission File No. 0-10587

FULTON FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

PENNSYLVANIA	23-2195389
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
One Penn Square, P.O. Box 4887, Lancaster, Pennsylvania	17604
(Address of principal executive offices)	(Zip Code)

(717) 291-2411

(Registrant’s telephone number, including area code)

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  ý    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨

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

Large accelerated filer	ý	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Common Stock, $2.50 Par Value – 188,969,000 shares outstanding as of April 30, 2014.

FULTON FINANCIAL CORPORATION

FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 2014

INDEX

Description		Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
(a)	Consolidated Balance Sheets - March 31, 2014 and December 31, 2013	3
(b)	Consolidated Statements of Income - Three months ended March 31, 2014 and 2013	4
(c)	Consolidated Statements of Comprehensive Income - Three months ended March 31, 2014 and 2013	5
(d)	Consolidated Statements of Shareholders’ Equity - Three months ended March  31, 2014 and 2013	6
(e)	Consolidated Statements of Cash Flows - Three months ended March 31, 2014 and 2013	7
(f)	Notes to Consolidated Financial Statements	8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		35
Item 3. Quantitative and Qualitative Disclosures about Market Risk		55
Item 4. Controls and Procedures		60
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		61
Item 1A. Risk Factors		61
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		61
Item 3. Defaults Upon Senior Securities		61
Item 4. Mine Safety Disclosures		61
Item 5. Other Information		62
Item 6. Exhibits		62
Signatures		63
Exhibit Index		64

2

Item 1. Financial Statements

FULTON FINANCIAL CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except per-share data)

	March 31, 2014			December 31, 2013
	(unaudited)
ASSETS
Cash and due from banks	$	260,389		$	218,540
Interest-bearing deposits with other banks	225,428			163,988
Federal Reserve Bank and Federal Home Loan Bank stock	81,634			84,173
Loans held for sale	24,417			21,351
Available for sale investment securities	2,501,198			2,568,434
Loans, net of unearned income	12,733,792			12,782,220
Less: Allowance for loan losses	(197,089		)	(202,780		)
Net Loans	12,536,703			12,579,440
Premises and equipment	225,647			226,021
Accrued interest receivable	43,376			44,037
Goodwill and intangible assets	532,747			533,076
Other assets	480,350			495,574
Total Assets	$	16,911,889		$	16,934,634
LIABILITIES
Deposits:
Noninterest-bearing	$	3,359,900		$	3,283,172
Interest-bearing	9,310,017			9,208,014
Total Deposits	12,669,917			12,491,186
Short-term borrowings:
Federal funds purchased	361,098			582,436
Other short-term borrowings	708,586			676,193
Total Short-Term Borrowings	1,069,684			1,258,629
Accrued interest payable	16,972			15,218
Other liabilities	213,136			222,830
Federal Home Loan Bank advances and long-term debt	883,461			883,584
Total Liabilities	14,853,170			14,871,447
SHAREHOLDERS’ EQUITY
Common stock, $2.50 par value, 600 million shares authorized, 217.9 million shares issued in 2014 and 217.8 million shares issued in 2013	544,821			544,568
Additional paid-in capital	1,434,546			1,432,974
Retained earnings	490,517			463,843
Accumulated other comprehensive loss	(21,889		)	(37,341		)
Treasury stock, at cost, 29.1 million shares in 2014 and 25.2 million shares in 2013	(389,276		)	(340,857		)
Total Shareholders’ Equity	2,058,719			2,063,187
Total Liabilities and Shareholders’ Equity	$	16,911,889		$	16,934,634
See Notes to Consolidated Financial Statements

3

FULTON FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per-share data)	Three months ended March 31
	2014		2013
INTEREST INCOME
Loans, including fees	$	131,830	$	134,130
Investment securities:
Taxable	13,266		13,397
Tax-exempt	2,348		2,481
Dividends	332		390
Loans held for sale	134		495
Other interest income	882		429
Total Interest Income	148,792		151,322
INTEREST EXPENSE
Deposits	7,896		10,401
Short-term borrowings	633		509
Long-term debt	10,698		10,768
Total Interest Expense	19,227		21,678
Net Interest Income	129,565		129,644
Provision for credit losses	2,500		15,000
Net Interest Income After Provision for Credit Losses	127,065		114,644
NON-INTEREST INCOME
Service charges on deposit accounts	11,711		14,111
Investment management and trust services	10,958		10,096
Other service charges and fees	8,927		8,510
Mortgage banking income	3,605		8,173
Other	3,305		3,896
Investment securities gains, net	—		2,473
Total Non-Interest Income	38,506		47,259
NON-INTEREST EXPENSE
Salaries and employee benefits	59,566		61,212
Net occupancy expense	13,603		11,844
Other outside services	3,812		2,860
Data processing	3,796		3,903
Equipment expense	3,602		3,908
Software	2,925		2,748
Professional fees	2,904		3,047
FDIC insurance expense	2,689		2,847
Operating risk loss	1,828		1,766
Marketing	1,584		1,872
Other real estate owned and repossession expense	983		2,854
Intangible amortization	315		534
Other	11,947		11,541
Total Non-Interest Expense	109,554		110,936
Income Before Income Taxes	56,017		50,967
Income taxes	14,234		11,740
Net Income	$	41,783	$	39,227
PER SHARE:
Net Income (Basic)	$	0.22	$	0.20
Net Income (Diluted)	0.22		0.20
Cash Dividends	0.08		0.08
See Notes to Consolidated Financial Statements

4

FULTON FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)

	Three months ended March 31
	2014			2013
Net Income	$	41,783		$	39,227
Other Comprehensive Income (Loss), net of tax:
Unrealized gain on securities	13,933			125
Reclassification adjustment for postretirement amendment gains and securities gains included in net income	(944		)	(1,608		)
Non-credit related unrealized gain on other-than-temporarily impaired debt securities	189			1,083
Unrealized gain on derivative financial instruments	34			34
Unrecognized pension and postretirement income	2,144			—
Amortization of net unrecognized pension and postretirement items	96			328
Other Comprehensive Income (Loss)	15,452			(38		)
Total Comprehensive Income	$	57,235		$	39,189
See Notes to Consolidated Financial Statements

5

FULTON FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

THREE MONTHS ENDED MARCH 31, 2014 AND 2013

(in thousands, except per-share data)

	Common Stock						Retained Earnings						Treasury Stock			Total
	Shares Outstanding		Amount		Additional Paid-in Capital					Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2013	192,652		$	544,568	$	1,432,974	$	463,843		$	(37,341	)	$	(340,857	)	$	2,063,187
Net income							41,783									41,783
Other comprehensive income (loss)										15,452						15,452
Stock issued, including related tax benefits	198		253		539								1,385			2,177
Stock-based compensation awards					1,033											1,033
Acquisition of treasury stock	(4,000	)											(49,804		)	(49,804		)
Common stock cash dividends - $0.08 per share							(15,109		)							(15,109		)
Balance at March 31, 2014	188,850		$	544,821	$	1,434,546	$	490,517		$	(21,889	)	$	(389,276	)	$	2,058,719
Balance at December 31, 2012	199,225		$	542,093	$	1,426,267	$	363,937		$	5,675		$	(256,316	)	$	2,081,656
Net income							39,227									39,227
Other comprehensive income (loss)										(38		)				(38		)
Stock issued, including related tax benefits	297		393		196								2,146			2,735
Stock-based compensation awards					847											847
Acquisition of treasury stock	(4,246	)											(47,046		)	(47,046		)
Common stock cash dividends - $0.08 per share							(15,618		)							(15,618		)
Balance at March 31, 2013	195,276		$	542,486	$	1,427,310	$	387,546		$	5,637		$	(301,216	)	$	2,061,763
See Notes to Consolidated Financial Statements

6

FULTON FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

	Three months ended March 31
	2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	41,783		$	39,227
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	2,500			15,000
Depreciation and amortization of premises and equipment	6,629			6,171
Net amortization of investment securities premiums	1,435			3,846
Investment securities gains, net	—			(2,473		)
Net (increase) decrease in loans held for sale	(3,066		)	4,854
Amortization of intangible assets	315			534
Stock-based compensation	1,033			847
Excess tax benefits from stock-based compensation	(25		)	(88		)
Decrease (increase) in accrued interest receivable	661			(1,699		)
Decrease in other assets	7,271			7,074
Increase in accrued interest payable	1,754			2,063
Increase (decrease) in other liabilities	182			(11,713		)
Total adjustments	18,689			24,416
Net cash provided by operating activities	60,472			63,643
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale	12,548			56,896
Proceeds from maturities of securities held to maturity	—			35
Proceeds from maturities of securities available for sale	79,045			199,910
Purchase of securities available for sale	(11,700		)	(334,660		)
(Increase) decrease in short-term investments	(58,901		)	73,275
Net decrease (increase) in loans	40,017			(249,229		)
Net purchases of premises and equipment	(6,255		)	(5,202		)
Net cash provided by (used in) investing activities	54,754			(258,975		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand and savings deposits	94,093			19,339
Net increase (decrease) in time deposits	84,638			(115,042		)
(Decrease) increase in short-term borrowings	(188,945		)	258,567
Repayments of long-term debt	(123		)	(5,042		)
Net proceeds from issuance of common stock	2,152			2,647
Excess tax benefits from stock-based compensation	25			88
Dividends paid	(15,413		)	—
Acquisition of treasury stock	(49,804		)	(47,046		)
Net cash (used in) provided by financing activities	(73,377		)	113,511
Net Increase (Decrease) in Cash and Due From Banks	41,849			(81,821		)
Cash and Due From Banks at Beginning of Period	218,540			256,300
Cash and Due From Banks at End of Period	$	260,389		$	174,479
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest	$	17,473		$	19,615
Income taxes	631			5,086
See Notes to Consolidated Financial Statements

7

FULTON FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE A – Basis of Presentation

The accompanying unaudited consolidated financial statements of Fulton Financial Corporation (the Corporation) have been prepared in conformity with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities as of the date of the financial statements as well as revenues and expenses during the period. Actual results could differ from those estimates. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. The Corporation evaluates subsequent events through the filing date of this Form 10-Q with the Securities and Exchange Commission (SEC).

NOTE B – Net Income Per Share

Basic net income per share is calculated as net income divided by the weighted average number of shares outstanding.

Diluted net income per share is calculated as net income divided by the weighted average number of shares outstanding plus the incremental number of shares added as a result of converting common stock equivalents, calculated using the treasury stock method. The Corporation’s common stock equivalents consist of outstanding stock options and restricted stock.

A reconciliation of weighted average shares outstanding used to calculate basic net income per share and diluted net income per share follows:

	Three months ended March 31
	2014	2013
	(in thousands)
Weighted average shares outstanding (basic)	189,467	196,299
Effect of dilutive securities	1,022	918
Weighted average shares outstanding (diluted)	190,489	197,217

For the three months ended March 31, 2014 and March 31, 2013, 3.1 million and 3.7 million shares issuable under stock options, respectively, were excluded from the diluted net income per share computation as their effect would have been anti-dilutive.

8

NOTE C – Accumulated Other Comprehensive Income (Loss)

The following table presents changes in other comprehensive income (loss):

	Before-Tax Amount			Tax Effect			Net of Tax Amount
	(in thousands)
Three months ended March 31, 2014
Unrealized gain (loss) on securities	$	21,435		$	(7,502	)	$	13,933
Reclassification adjustment for postretirement gains included in net income (1)	(1,452		)	508			(944		)
Non-credit related unrealized gains (losses) on other-than-temporarily impaired debt securities	291			(102		)	189
Unrealized gain on derivative financial instruments	52			(18		)	34
Unrecognized pension and postretirement income	3,291			(1,147		)	2,144
Amortization of net unrecognized pension and postretirement items (1)	149			(53		)	96
Total Other Comprehensive Income (Loss)	$	23,766		$	(8,314	)	$	15,452
Three months ended March 31, 2013
Unrealized gain (loss) on securities	$	192		$	(67	)	$	125
Reclassification adjustment for securities gains included in net income (2)	(2,473		)	865			(1,608		)
Non-credit related unrealized gains (losses) on other-than-temporarily impaired debt securities	1,666			(583		)	1,083
Unrealized gain on derivative financial instruments	54			(20		)	34
Amortization of net unrecognized pension and postretirement items (1)	505			(177		)	328
Total Other Comprehensive Income (Loss)	$	(56	)	$	18		$	(38	)

(1) Amounts reclassified out of accumulated other comprehensive income. Before-tax amounts included within "Salaries and employee benefits" on the consolidated statements of income. See Note H, "Employee Benefit Plans," for additional details.

(2) Amounts reclassified out of accumulated other comprehensive income. Before-tax amounts included within "Investment securities gains, net" on the consolidated statements of income. See Note D, "Investment Securities," for additional details.

The following table presents changes in each component of accumulated other comprehensive income (loss), net of tax:

	Unrealized Gains (Losses) on Investment Securities Not Other-Than-Temporarily Impaired			Unrealized Non-Credit Gains (Losses) on Other-Than-Temporarily Impaired Debt Securities		Unrealized Effective Portions of Losses on Forward-Starting Interest Rate Swaps			Unrecognized Pension and Postretirement Plan Income (Costs)			Total
	(in thousands)
Three months ended March 31, 2014
Balance at December 31, 2013	$	(27,510	)	$	1,652	$	(2,682	)	$	(8,801	)	$	(37,341	)
Other comprehensive income (loss) before reclassifications	13,933			189		—			2,144			16,266
Amounts reclassified from accumulated other comprehensive income (loss)	—			—		34			(848		)	(814		)
Balance at March 31, 2014	$	(13,577	)	$	1,841	$	(2,648	)	$	(7,505	)	$	(21,889	)
Three months ended March 31, 2013
Balance at December 31, 2012	$	26,361		$	613	$	(2,818	)	$	(18,481	)	$	5,675
Other comprehensive income (loss) before reclassifications	125			1,083		—			—			1,208
Amounts reclassified from accumulated other comprehensive income (loss)	(1,608		)	—		34			328			(1,246		)
Balance at March 31, 2013	$	24,878		$	1,696	$	(2,784	)	$	(18,153	)	$	5,637

9

NOTE D – Investment Securities

The following table presents the amortized cost and estimated fair values of investment securities, which were all classified as available for sale:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(in thousands)
March 31, 2014
Equity securities	$	34,231	$	11,524	$	(21	)	$	45,734
U.S. Government securities	526		—		—			526
U.S. Government sponsored agency securities	275		6		(1		)	280
State and municipal securities	278,019		7,190		(1,756		)	283,453
Corporate debt securities	100,348		6,292		(6,088		)	100,552
Collateralized mortgage obligations	1,031,968		7,638		(32,869		)	1,006,737
Mortgage-backed securities	914,502		13,582		(11,881		)	916,203
Auction rate securities	159,379		2		(11,668		)	147,713
	$	2,519,248	$	46,234	$	(64,284	)	$	2,501,198

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(in thousands)
December 31, 2013
Equity securities	$	33,922	$	12,355	$	(76	)	$	46,201
U.S. Government securities	525		—		—			525
U.S. Government sponsored agency securities	720		7		(1		)	726
State and municipal securities	281,810		6,483		(3,444		)	284,849
Corporate debt securities	100,468		5,685		(7,404		)	98,749
Collateralized mortgage obligations	1,069,138		8,036		(44,776		)	1,032,398
Mortgage-backed securities	949,328		13,881		(17,497		)	945,712
Auction rate securities	172,299		234		(13,259		)	159,274
	$	2,608,210	$	46,681	$	(86,457	)	$	2,568,434

Securities carried at $1.8 billion as of March 31, 2014 and $1.7 billion as of December 31, 2013 were pledged as collateral to secure public and trust deposits and customer repurchase agreements.

Equity securities include common stocks of financial institutions ($39.8 million at March 31, 2014 and $40.6 million at December 31, 2013) and other equity investments ($5.9 million at March 31, 2014 and $5.6 million at December 31, 2013).

As of March 31, 2014, the financial institutions stock portfolio had a cost basis of $28.5 million and a fair value of $39.8 million, including an investment in a single financial institution with a cost basis of $20.0 million and a fair value of $27.9 million. The fair value of this investment accounted for 70.1% of the fair value of the Corporation's investments in the common stocks of publicly traded financial institutions. No other investment within the financial institutions stock portfolio exceeded 5% of the portfolio's fair value.

10

The amortized cost and estimated fair values of debt securities as of March 31, 2014, by contractual maturity, are shown in the following table. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

		Amortized Cost		Estimated Fair Value
	(in thousands)
Due in one year or less		$	30,424	$	30,517
Due from one year to five years		67,544		71,350
Due from five years to ten years		199,377		203,240
Due after ten years		241,202		227,417
		538,547		532,524
Mortgage-backed securities		914,502		916,203
Collateralized mortgage obligations		1,031,968		1,006,737
		$	2,485,017	$	2,455,464

There were no losses recognized for the other-than-temporary impairment of investments during the three months ended March 31, 2014 and 2013. The following table presents information related to the gross realized gains and losses on the sales of equity and debt securities:

	Gross Realized Gains		Gross Realized Losses			Net Gains
Three months ended March 31, 2014	(in thousands)
Equity securities	$	1	$	—		$	1
Debt securities	322		(323		)	(1		)
Total	$	323	$	(323	)	$	—
Three months ended March 31, 2013
Equity securities	$	1,139	$	—		$	1,139
Debt securities	1,334		—			1,334
Total	$	2,473	$	—		$	2,473

The following table presents a summary of the cumulative credit related other-than-temporary impairment charges, recognized as components of earnings, for debt securities held by the Corporation at March 31, 2014 and 2013:

	Three months ended March 31
	2014			2013
	(in thousands)
Balance of cumulative credit losses on debt securities, beginning of period	$	(20,691	)	$	(23,079	)
Reductions for increases in cash flows expected to be collected that are recognized over the remaining life of the security	4			—
Balance of cumulative credit losses on debt securities, end of period	$	(20,687	)	$	(23,079	)

11

The following table presents the gross unrealized losses and estimated fair values of investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2014:

	Less than 12 months					12 months or longer					Total
	Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses
	(in thousands)
U.S. Government sponsored agency securities	$	—	$	—		$	50	$	(1	)	$	50	$	(1	)
State and municipal securities	50,286		(1,510		)	3,996		(246		)	54,282		(1,756		)
Corporate debt securities	3,939		(58		)	38,804		(6,030		)	42,743		(6,088		)
Collateralized mortgage obligations	416,584		(13,921		)	313,758		(18,948		)	730,342		(32,869		)
Mortgage-backed securities	621,165		(11,881		)	—		—			621,165		(11,881		)
Auction rate securities	—		—			147,619		(11,668		)	147,619		(11,668		)
Total debt securities	1,091,974		(27,370		)	504,227		(36,893		)	1,596,201		(64,263		)
Equity securities	3		(1		)	118		(20		)	121		(21		)
	$	1,091,977	$	(27,371	)	$	504,345	$	(36,913	)	$	1,596,322	$	(64,284	)

The Corporation’s collateralized mortgage obligations and mortgage-backed securities have contractual terms that generally do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. Because the decline in market value of these securities is attributable to changes in interest rates and not credit quality, and because the Corporation does not have the intent to sell and does not believe it will more likely than not be required to sell any of these securities prior to a recovery of their fair value to amortized cost, the Corporation does not consider these investments to be other-than-temporarily impaired as of March 31, 2014.

The unrealized holding losses on auction rate securities, or auction rate certificates (ARCs), are attributable to liquidity issues resulting from the failure of periodic auctions. The Corporation had previously purchased ARCs for investment management and trust customers as short-term investments with fair values that could be derived based on periodic auctions under normal market conditions. During 2008 and 2009, the Corporation purchased ARCs from these customers due to the failure of these periodic auctions, which made these previously short-term investments illiquid.

As of March 31, 2014, approximately $143 million, or 97%, of the ARCs were rated above investment grade, with approximately $6 million, or 4%, AAA rated and $103 million, or 70%, AA rated. Approximately $4 million, or 3%, of ARCs were either not rated or rated below investment grade by at least one ratings agency. Of this amount, approximately $3 million, or 59%, of the student loans underlying these ARCs have principal payments which are guaranteed by the federal government. In total, approximately $146 million, or 99%, of the student loans underlying the ARCs have principal payments that are guaranteed by the federal government.

During the first quarter of 2014, the Corporation sold ARCs with a total book value of $11.9 million, with no gain or loss upon sale. As of March 31, 2014, all ARCs were current and making scheduled interest payments. Based on management’s evaluations, ARCs with a fair value of $147.7 million were not subject to any other-than-temporary impairment charges as of March 31, 2014. The Corporation does not have the intent to sell and does not believe it will more likely than not be required to sell any of these securities prior to a recovery of their fair value to amortized cost, which may be at maturity.

For its investments in equity securities, particularly its investments in stocks of financial institutions, management evaluates the near-term prospects of the issuers in relation to the severity and duration of the impairment. Based on that evaluation and the Corporation’s ability and intent to hold those investments for a reasonable period of time sufficient for a recovery of fair value, the Corporation does not consider those investments with unrealized holding losses as of March 31, 2014 to be other-than-temporarily impaired.

12

The majority of the Corporation's available for sale corporate debt securities are issued by financial institutions. The following table presents the amortized cost and estimated fair value of corporate debt securities:

	March 31, 2014				December 31, 2013
	Amortized cost		Estimated fair value		Amortized cost		Estimated fair value
	(in thousands)
Single-issuer trust preferred securities	$	47,502	$	41,879	$	47,481	$	40,531
Subordinated debt	47,436		50,429		47,405		50,327
Pooled trust preferred securities	2,825		5,659		2,997		5,306
Corporate debt securities issued by financial institutions	97,763		97,967		97,883		96,164
Other corporate debt securities	2,585		2,585		2,585		2,585
Available for sale corporate debt securities	$	100,348	$	100,552	$	100,468	$	98,749

The Corporation’s investments in single-issuer trust preferred securities had an unrealized loss of $5.6 million at March 31, 2014.The Corporation did not record any other-than-temporary impairment charges for single-issuer trust preferred securities during the three months ended March 31, 2014 or 2013. Six of the Corporation's 22 single-issuer trust preferred securities were rated below investment grade by at least one ratings agency, with an amortized cost of $13.5 million and an estimated fair value of $11.7 million at March 31, 2014. All of the single-issuer trust preferred securities rated below investment grade were rated BB or Ba. Three single-issuer trust preferred securities with an amortized cost of $4.7 million and an estimated fair value of $3.8 million at March 31, 2014 were not rated by any ratings agency.

As of March 31, 2014, all eight of the Corporation's pooled trust preferred securities, with an amortized cost of $2.8 million and an estimated fair value of $5.7 million, were rated below investment grade by at least one ratings agency, with ratings ranging from C to Ca. The class of securities held by the Corporation was below the most senior tranche, with the Corporation’s interests being subordinate to other investors in the pool. The Corporation determines the fair value of pooled trust preferred securities based on quotes provided by third-party brokers.

The amortized cost of pooled trust preferred securities is the purchase price of the securities, net of cumulative credit related other-than-temporary impairment charges, determined using an expected cash flows model. The most significant input to the expected cash flows model is the expected payment deferral rate for each pooled trust preferred security. The Corporation evaluates the financial metrics, such as capital ratios and non-performing assets ratios, of the individual financial institution issuers that comprise each pooled trust preferred security to estimate its expected deferral rate.

Based on management’s evaluations, corporate debt securities with a fair value of $100.6 million were not subject to any additional other-than-temporary impairment charges as of March 31, 2014. The Corporation does not have the intent to sell and does not believe it will more likely than not be required to sell any of these securities prior to a recovery of their fair value to amortized cost, which may be at maturity.

As mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), in December 2013, five regulatory bodies issued final rulings (Final Rules) implementing certain prohibitions and restrictions on the ability of a banking entity and non-bank financial company supervised by the Federal Reserve Board to engage in proprietary trading and have certain ownership interests in, or relationships with, a "covered fund" (the so-called "Volcker Rule"). The Final Rules generally treat as a covered fund any entity that would be an investment company under the Investment Company Act of 1940 (1940 Act) but for the application of the exemptions from SEC registration set forth in Section 3(c)(1) (fewer than 100 beneficial owners) or Section 3(c)(7) (qualified purchasers) of the 1940 Act. The Final Rules also require regulated entities to establish an internal compliance program that is consistent with the extent to which it engages in activities covered by the Volcker Rule, which must include making regular reports about those activities to regulators. Although the Final Rules provide some tiering of compliance and reporting obligations based on size, the fundamental prohibitions of the Volcker Rule apply to banking entities of any size, including the Corporation. Banking entities have until July 21, 2015 to conform their activities and investments to the requirements of the Final Rules. While the Corporation does not engage in proprietary trading or in any other activities prohibited by the Final Rules, the Corporation will continue to evaluate whether any of its investments that fall within the definition of a "covered fund" and would need to be disposed of by July 21, 2015. However, based on the Corporation's evaluation to date, it does not currently expect the Final Rules will have a material effect on its business, financial condition or results of operations.

13

NOTE E – Loans and Allowance for Credit Losses

Loans, Net of Unearned Income

Loans, net of unearned income are summarized as follows:

	March 31, 2014			December 31, 2013
	(in thousands)
Real-estate - commercial mortgage	$	5,137,454		$	5,101,922
Commercial - industrial, financial and agricultural	3,574,130			3,628,420
Real-estate - home equity	1,740,496			1,764,197
Real-estate - residential mortgage	1,331,465			1,337,380
Real-estate - construction	584,217			573,672
Consumer	270,021			283,124
Leasing and other	103,192			99,256
Overdrafts	3,034			4,045
Loans, gross of unearned income	12,744,009			12,792,016
Unearned income	(10,217		)	(9,796		)
Loans, net of unearned income	$	12,733,792		$	12,782,220

Allowance for Credit Losses

The allowance for credit losses consists of the allowance for loan losses and the reserve for unfunded lending commitments. The allowance for loan losses represents management’s estimate of incurred losses in the loan portfolio as of the balance sheet date and is recorded as a reduction to loans. The reserve for unfunded lending commitments represents management’s estimate of incurred losses in its unfunded loan commitments and is recorded in other liabilities on the consolidated balance sheet. The allowance for credit losses is increased by charges to expense, through the provision for credit losses, and decreased by charge-offs, net of recoveries.

The Corporation’s allowance for credit losses includes: (1) specific allowances allocated to loans evaluated for impairment under the Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC) Section 310-10-35; and (2) allowances calculated for pools of loans measured for impairment under FASB ASC Subtopic 450-20.

The Corporation segments its loan portfolio by general loan type, or "portfolio segments," as presented in the table under the heading, "Loans, Net of Unearned Income," above. Certain portfolio segments are further disaggregated and evaluated collectively for impairment based on "class segments," which are largely based on the type of collateral underlying each loan. For commercial loans, class segments include loans secured by collateral and unsecured loans. Construction loan class segments include loans secured by commercial real estate, loans to commercial borrowers secured by residential real estate and loans to individuals secured by residential real estate. Consumer loan class segments include direct consumer installment loans and indirect automobile loans.

The following table presents the components of the allowance for credit losses:

	March 31, 2014		December 31, 2013
	(in thousands)
Allowance for loan losses	$	197,089	$	202,780
Reserve for unfunded lending commitments	1,917		2,137
Allowance for credit losses	$	199,006	$	204,917

14

The following table presents the activity in the allowance for credit losses:

	Three months ended March 31
	2014			2013
	(in thousands)
Balance at beginning of period	$	204,917		$	225,439
Loans charged off	(10,268		)	(22,106		)
Recoveries of loans previously charged off	1,857			3,194
Net loans charged off	(8,411		)	(18,912		)
Provision for credit losses	2,500			15,000
Balance at end of period	$	199,006		$	221,527

The following table presents the activity in the allowance for loan losses by portfolio segment:

	Real Estate - Commercial Mortgage			Commercial - Industrial, Financial and Agricultural			Real Estate - Home Equity			Real Estate - Residential Mortgage			Real Estate - Construction			Consumer			Leasing and other and overdrafts			Unallocated			Total
	(in thousands)
Three months ended March 31, 2014
Balance at December 31, 2013	$	55,659		$	50,330		$	28,222		$	33,082		$	12,649		$	3,260		$	3,370		$	16,208		$	202,780
Loans charged off	(1,386		)	(5,125		)	(1,651		)	(846		)	(214		)	(751		)	(295		)	—			(10,268		)
Recoveries of loans previously charged off	44			744			356			116			224			209			164			—			1,857
Net loans charged off	(1,342		)	(4,381		)	(1,295		)	(730		)	10			(542		)	(131		)	—			(8,411		)
Provision for loan losses (1)	(560		)	4,614			5,533			977			(2,817		)	606			(1,228		)	(4,405		)	2,720
Balance at March 31, 2014	$	53,757		$	50,563		$	32,460		$	33,329		$	9,842		$	3,324		$	2,011		$	11,803		$	197,089
Three months ended March 31, 2013
Balance at December 31, 2012	$	62,928		$	60,205		$	22,776		$	34,536		$	17,287		$	2,367		$	2,752		$	21,052		$	223,903
Loans charged off	(4,133		)	(9,502		)	(2,404		)	(3,050		)	(1,986		)	(550		)	(481		)	—			(22,106		)
Recoveries of loans previously charged off	1,064			379			331			81			671			506			162			—			3,194
Net loans charged off	(3,069		)	(9,123		)	(2,073		)	(2,969		)	(1,315		)	(44		)	(319		)	—			(18,912		)
Provision for loan losses (1)	4,126			5,590			2,998			1,917			32			(37		)	354			70			15,050
Balance at March 31, 2013	$	63,985		$	56,672		$	23,701		$	33,484		$	16,004		$	2,286		$	2,787		$	21,122		$	220,041

(1) The provision for loan losses excluded a $220,000 decrease in the reserve for unfunded lending commitments for the three months ended March 31, 2014 and excluded a $50,000 decrease in the reserve for unfunded lending commitments for the three months ended March 31, 2013. The total provision for credit losses, comprised of allocations for both funded and unfunded loans, was $2.5 million for the three months ended March 31, 2014 and $15.0 million for the three months ended March 31, 2013.

15

The following table presents loans, net of unearned income and their related allowance for loan losses, by portfolio segment:

	Real Estate - Commercial Mortgage		Commercial - Industrial, Financial and Agricultural		Real Estate - Home Equity		Real Estate - Residential Mortgage		Real Estate - Construction		Consumer		Leasing and other and overdrafts		Unallocated (1)		Total
	(in thousands)
Allowance for loan losses at March 31, 2014
Measured for impairment under FASB ASC Subtopic 450-20	$	37,363	$	36,859	$	22,969	$	11,618	$	7,256	$	3,309	$	2,011	$	11,803	$	133,188
Evaluated for impairment under FASB ASC Section 310-10-35	16,394		13,704		9,491		21,711		2,586		15		—		N/A		63,901
	$	53,757	$	50,563	$	32,460	$	33,329	$	9,842	$	3,324	$	2,011	$	11,803	$	197,089
Loans, net of unearned income at March 31, 2014
Measured for impairment under FASB ASC Subtopic 450-20	$	5,075,556	$	3,528,857	$	1,726,342	$	1,279,783	$	555,852	$	270,004	$	96,009	N/A		$	12,532,403
Evaluated for impairment under FASB ASC Section 310-10-35	61,898		45,273		14,154		51,682		28,365		17		—		N/A		201,389
	$	5,137,454	$	3,574,130	$	1,740,496	$	1,331,465	$	584,217	$	270,021	$	96,009	N/A		$	12,733,792
Allowance for loan losses at March 31, 2013
Measured for impairment under FASB ASC Subtopic 450-20	$	40,920	$	38,988	$	14,947	$	10,075	$	8,838	$	2,271	$	2,758	$	21,122	$	139,919
Evaluated for impairment under FASB ASC Section 310-10-35	23,065		17,684		8,754		23,409		7,166		15		29		N/A		80,122
	$	63,985	$	56,672	$	23,701	$	33,484	$	16,004	$	2,286	$	2,787	$	21,122	$	220,041
Loans, net of unearned income at March 31, 2013
Measured for impairment under FASB ASC Subtopic 450-20	$	4,646,355	$	3,591,753	$	1,675,577	$	1,247,976	$	554,757	$	309,120	$	89,195	N/A		$	12,114,733
Evaluated for impairment under FASB ASC Section 310-10-35	83,575		66,730		13,869		55,478		42,840		18		45		N/A		262,555
	$	4,729,930	$	3,658,483	$	1,689,446	$	1,303,454	$	597,597	$	309,138	$	89,240	N/A		$	12,377,288

(1) The unallocated allowance, which was approximately 6% and 10% of the total allowance for credit losses as of March 31, 2014 and March 31, 2013, respectively, was, in the opinion of management, reasonable and appropriate given that the estimates used in the allocation process are inherently imprecise.

N/A – Not applicable.

In March 2013, the Corporation sold $9.9 million of non-accrual commercial mortgage, commercial and construction loans to an investor, resulting in a total increase to charge-offs of $5.2 million during the three months ended March 31, 2013, as detailed in the following table.

	Real Estate - Commercial mortgage			Commercial - industrial, financial and agricultural			Real Estate - Construction			Total
	(in thousands)
Unpaid principal balance of loans sold	$	7,690		$	4,730		$	740		$	13,160
Charge-offs prior to sale	(2,420		)	(710		)	(150		)	(3,280		)
Net recorded investment in loans sold	5,270			4,020			590			9,880
Proceeds from sale, net of selling expenses	2,770			1,730			140			4,640
Total charge-off upon sale	$	(2,500	)	$	(2,290	)	$	(450	)	$	(5,240	)
Existing allocation for credit losses on sold loans	$	(2,870	)	$	(1,960	)	$	(300	)	$	(5,130	)

Impaired Loans

A loan is considered to be impaired if it is probable that all amounts will not be collected according to the contractual terms of the loan agreement. Impaired loans consist of all loans on non-accrual status and accruing troubled debt restructurings (TDRs). An allowance for loan losses is established for an impaired loan if its carrying value exceeds its estimated fair value. Impaired loans to borrowers with total outstanding commitments greater than $1.0 million are evaluated individually for impairment. Impaired loans to borrowers with total outstanding commitments less than $1.0 million are pooled and measured for impairment collectively. All loans evaluated for impairment under FASB ASC Section 310-10-35 are measured for losses on a quarterly basis. As of March 31, 2014 and December 31, 2013, substantially all of the Corporation’s individually evaluated impaired loans with total outstanding balances greater than $1.0 million were measured based on the estimated fair value of each loan’s collateral. Collateral

16

could be in the form of real estate, in the case of impaired commercial mortgages and construction loans, or business assets, such as accounts receivable or inventory, in the case of commercial and industrial loans. Commercial and industrial loans may also be secured by real property.

As of March 31, 2014 and 2013, approximately79%and 73%, respectively, of impaired loans with principal balances greater than $1.0 million, whose primary collateral is real estate, were measured at estimated fair value using state certified third-party appraisals that had been updated within the preceding 12 months.

When updated certified appraisals are not obtained for loans to commercial borrowers evaluated for impairment under FASB ASC Section 310-10-35 that are secured by real estate, fair values are estimated based on the original appraisal values, as long as the original appraisal indicated a strong loan-to-value position and, in the opinion of the Corporation's internal loan evaluation staff, there has not been a significant deterioration in the collateral value since the original appraisal was performed. Original appraisals are typically used only when the estimated collateral value, as adjusted appropriately for the age of the appraisal, results in a current loan-to-value ratio that is lower than the Corporation's loan-to-value requirements for new loans, generally less than 70%.

The following table presents total impaired loans by class segment:

	March 31, 2014						December 31, 2013
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Unpaid Principal Balance		Recorded Investment		Related Allowance
	(in thousands)
With no related allowance recorded:
Real estate - commercial mortgage	$	27,433	$	23,491	$	—	$	28,892	$	24,494	$	—
Commercial - secured	23,862		20,867		—		23,890		21,383		—
Real estate - home equity	399		300		—		399		300		—
Real estate - residential mortgage	317		317		—		—		—		—
Construction - commercial residential	26,475		20,705		—		18,943		13,740		—
Construction - commercial	2,992		1,962		—		2,996		1,976		—
	81,478		67,642				75,120		61,893
With a related allowance recorded:
Real estate - commercial mortgage	47,010		38,407		16,394		43,282		35,830		14,444
Commercial - secured	36,309		23,765		13,232		34,267		22,324		13,315
Commercial - unsecured	693		641		472		1,113		1,048		752
Real estate - home equity	19,420		13,854		9,491		20,383		14,337		9,059
Real estate - residential mortgage	61,733		51,365		21,711		63,682		51,097		21,745
Construction - commercial residential	15,753		4,963		2,212		25,769		14,579		3,493
Construction - commercial	481		191		76		485		195		77
Construction - other	718		544		298		719		548		301
Consumer - direct	15		15		13		11		11		10
Consumer - indirect	15		2		2		2		2		2
	182,147		133,747		63,901		189,713		139,971		63,198
Total	$	263,625	$	201,389	$	63,901	$	264,833	$	201,864	$	63,198

As of March 31, 2014 and December 31, 2013, there were $67.6 million and $61.9 million, respectively, of impaired loans that did not have a related allowance for loan loss. The estimated fair values of the collateral for these loans exceeded their carrying amount, or they were previously charged down to collateral values. Accordingly, no specific valuation allowance was considered to be necessary.

17

The following table presents average impaired loans by class segment:

Three months ended March 31
2014		2013
Average Recorded Investment	Interest Income Recognized (1)	Average Recorded Investment	Interest Income Recognized (1)