UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

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 ~~September 30, 2017~~March 31, 2018, or



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

For the transition period from to

Commission File 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 checkmark 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 checkmark 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 checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Indicate by checkmark 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 ~~–175,122,000~~–175,754,000 shares outstanding as of ~~October~~April 27, ~~2017.~~2018.

FULTON FINANCIAL CORPORATION

FORM 10-Q FOR THE THREE ~~AND NINE~~ MONTHS ENDED ~~SEPTEMBER 30, 2017~~MARCH 31, 2018

INDEX



Description		Page



PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited):

(a)	Consolidated Balance Sheets - ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017	3

(b)	Consolidated Statements of Income - Three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~	4

(c)	Consolidated Statements of Comprehensive Income - Three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~	5

(d)	Consolidated Statements of Shareholders’ Equity - ~~Nine~~Three months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~	6

(e)	Consolidated Statements of Cash Flows - ~~Nine~~Three months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~	7

(f)	Notes to Consolidated Financial Statements	8

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		4139

Item 3. Quantitative and Qualitative Disclosures about Market Risk		6761

Item 4. Controls and Procedures		7063

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		7164

Item 1A. Risk Factors		7164

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		7164

Item 3. Defaults Upon Senior Securities - (not applicable)

Item 4. Mine Safety Disclosures - (not applicable)

Item 5. Other Information - (none to be reported)

Item 6. Exhibits		7164

Signatures		7265

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS

(in thousands, except per-share data)


	September 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
	(unaudited)						(unaudited)
ASSETS
Cash and due from banks	$	99,803		$	118,763		$	100,151		$	108,291
Interest-bearing deposits with other banks	582,845			233,763			210,906			293,805
Federal Reserve Bank and Federal Home Loan Bank stock	62,951			57,489			56,900			60,761
Loans held for sale	23,049			28,697			23,450			31,530
Available for sale investment securities	2,561,516			2,559,227			2,592,823			2,547,956
Loans, net of unearned income	15,486,899			14,699,272			15,696,284			15,768,247
Less: Allowance for loan losses	(172,245		)	(168,679		)	(163,217		)	(169,910		)
Net Loans	15,314,654			14,530,593			15,533,067			15,598,337
Premises and equipment	221,551			217,806			230,313			222,802
Accrued interest receivable	50,082			46,294			53,060			52,910
Goodwill and intangible assets	531,556			531,556			531,556			531,556
Other assets	614,853			620,059			616,715			588,957
Total Assets	$	20,062,860		$	18,944,247		$	19,948,941		$	20,036,905
LIABILITIES
Deposits:
Noninterest-bearing	$	4,363,915		$	4,376,137		$	4,291,821		$	4,437,294
Interest-bearing	11,777,865			10,636,727			11,185,282			11,360,238
Total Deposits	16,141,780			15,012,864			15,477,103			15,797,532
Short-term borrowings:
Federal funds purchased	5,812			278,570			395,000			220,000
Other short-term borrowings	292,939			262,747			542,852			397,524
Total Short-Term Borrowings	298,751			541,317			937,852			617,524
Accrued interest payable	10,568			9,632			9,681			9,317
Other liabilities	347,816			329,916			350,313			344,329
Federal Home Loan Bank advances and other long-term debt	1,038,159			929,403			938,499			1,038,346
Total Liabilities	17,837,074			16,823,132			17,713,448			17,807,048
SHAREHOLDERS’ EQUITY
Common stock, $2.50 par value, 600 million shares authorized, 220.9 million shares issued in 2017 and 219.9 million shares issued in 2016	552,153			549,707
Common stock, $2.50 par value, 600 million shares authorized, 221.1 million shares issued in 2018 and 220.9 million shares issued in 2017							552,682			552,232
Additional paid-in capital	1,476,150			1,467,602			1,481,545			1,478,389
Retained earnings	812,148			732,099			857,153			821,619
Accumulated other comprehensive loss	(24,203		)	(38,449		)	(67,172		)	(32,974		)
Treasury stock, at cost, 45.8 million shares in 2017 and 2016	(590,462		)	(589,844		)
Treasury stock, at cost, 45.7 million shares in 2018 and 2017							(588,715		)	(589,409		)
Total Shareholders’ Equity	2,225,786			2,121,115			2,235,493			2,229,857
Total Liabilities and Shareholders’ Equity	$	20,062,860		$	18,944,247		$	19,948,941		$	20,036,905

See Notes to Consolidated Financial Statements

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)


(in thousands, except per-share data)	Three months ended September 30				Nine months ended September 30				Three months ended March 31
	2017		2016		2017		2016		2018		2017
INTEREST INCOME
Loans, including fees	$	155,152	$	136,639	$	446,158	$	405,361	$	160,136	$	142,566
Investment securities:
Taxable	11,423		10,874		34,811		34,036		13,193		11,914
Tax-exempt	2,920		2,550		8,625		6,910		2,965		2,849
Dividends	105		143		343		438		5		129
Loans held for sale	243		210		631		529		216		187
Other interest income	1,667		1,052		3,311		2,814		1,172		842
Total Interest Income	171,510		151,468		493,879		450,088		177,687		158,487
INTEREST EXPENSE
Deposits	16,023		11,311		40,709		32,925		16,450		11,801
Short-term borrowings	578		254		2,407		739		2,041		855
Federal Home Loan Bank advances and other long-term debt	8,100		9,338		24,812		27,889		7,878		8,252
Total Interest Expense	24,701		20,903		67,928		61,553		26,369		20,908
Net Interest Income	146,809		130,565		425,951		388,535		151,318		137,579
Provision for credit losses	5,075		4,141		16,575		8,182		3,970		4,800
Net Interest Income After Provision for Credit Losses	141,734		126,424		409,376		380,353		147,348		132,779
NON-INTEREST INCOME
Investment management and trust services									12,871		11,808
Service charges on deposit accounts	13,022		13,078		38,336		38,532		11,962		12,400
Other service charges and fees	12,251		14,407		39,030		38,140		11,419		12,437
Investment management and trust services	12,157		11,425		36,097		33,660
Mortgage banking income	4,805		4,529		15,542		12,456		4,193		4,596
Other									5,411		4,326
Non-interest income before investment securities gains									45,856		45,567
Investment securities gains, net	4,597		2		7,139		1,025		19		1,106
Other	5,142		4,708		14,874		13,610
Total Non-Interest Income	51,974		48,149		151,018		137,423		45,875		46,673
NON-INTEREST EXPENSE
Salaries and employee benefits	72,894		70,696		216,626		210,097		75,768		69,236
Net occupancy expense	12,180		11,782		37,159		35,813		13,632		12,663
Data processing and software	10,301		8,727		28,334		27,477		10,473		8,979
Other outside services	6,582		5,783		19,836		17,347		8,124		5,546
Amortization of tax credit investments	3,503		—		7,652		—
Professional fees	3,388		2,535		9,056		8,221		4,816		2,737
Equipment expense	3,298		3,137		9,691		9,380		3,534		3,359
FDIC insurance expense	3,007		1,791		7,431		7,700		2,953		2,058
State Taxes									2,302		2,087
Marketing	2,089		1,774		6,309		5,314		2,250		1,986
Amortization of tax credit investments									1,637		998
Other	14,915		13,623		45,033		40,549		11,172		12,626
Total Non-Interest Expense	132,157		119,848		387,127		361,898		136,661		122,275
Income Before Income Taxes	61,551		54,725		173,267		155,878		56,562		57,177
Income taxes	12,646		13,257		35,515		36,403		7,082		13,797
Net Income	$	48,905	$	41,468	$	137,752	$	119,475	$	49,480	$	43,380

PER SHARE:
Net Income (Basic)	$	0.28	$	0.24	$	0.79	$	0.69	$	0.28	$	0.25
Net Income (Diluted)	0.28		0.24		0.78		0.69		0.28		0.25
Cash Dividends	0.11		0.10		0.33		0.29		0.12		0.11
See Notes to Consolidated Financial Statements

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)


	Three months ended September 30						Nine months ended September 30						Three months ended March 31
	2017			2016			2017			2016			2018			2017

Net Income	$	48,905		$	41,468		$	137,752		$	119,475		$	49,480		$	43,380
Other Comprehensive Income (Loss), net of tax:
Unrealized gain (loss) on securities	3,320			(3,580		)	17,861			26,285
Other Comprehensive (Loss) Income, net of tax:
Unrealized (loss) gain on securities													(27,644		)	4,273
Reclassification adjustment for securities gains included in net income	(2,988		)	(1		)	(4,639		)	(666		)	(16		)	(719		)
Amortization of unrealized loss on derivative financial instruments	—			4			—			12
Non-credit related unrealized gain on other-than-temporarily impaired debt securities													224			—
Amortization of net unrecognized pension and postretirement items	340			379			1,024			877			339			343
Other Comprehensive Income (Loss)	672			(3,198		)	14,246			26,508
Other Comprehensive (Loss) Income													(27,097		)	3,897
Total Comprehensive Income	$	49,577		$	38,270		$	151,998		$	145,983		$	22,383		$	47,277

See Notes to Consolidated Financial Statements

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER 30, 2017~~MARCH 31, 2018 AND ~~2016~~2017

(in thousands, except per-share data)


	Common Stock						Retained Earnings						Treasury Stock			Total			Common Stock					Retained Earnings						Treasury Stock			Total
	Shares Outstanding		Amount		Additional Paid-in Capital					Accumulated Other Comprehensive Income (Loss)									Shares Outstanding	Amount		Additional Paid-in Capital					Accumulated Other Comprehensive Income (Loss)

Balance at December 31, 2017																			175,170	$	552,232	$	1,478,389	$	821,619		$	(32,974	)	$	(589,409	)	$	2,229,857
Net income																								49,480									49,480
Other comprehensive loss																											(27,097		)				(27,097		)
Stock issued																			234	450		1,646								694			2,790
Stock-based compensation awards																						1,510											1,510
Reclassification of stranded tax effects ⁽¹⁾																								7,101			(7,101		)				—
Common stock cash dividends - $0.12 per share																								(21,047		)							(21,047		)
Balance at March 31, 2018																			175,404	$	552,682	$	1,481,545	$	857,153		$	(67,172	)	$	(588,715	)	$	2,235,493

Balance at December 31, 2016	174,040		$	549,707	$	1,467,602	$	732,099		$	(38,449	)	$	(589,844	)	$	2,121,115		174,040	$	549,707	$	1,467,602	$	732,099		$	(38,449	)	$	(589,844	)	$	2,121,115
Net income							137,752									137,752								43,380									43,380
Other comprehensive income										14,246						14,246											3,897						3,897
Stock issued	1,017		2,446		5,209								(618		)	7,037			303	585		3,265								881			4,731
Stock-based compensation awards					3,339											3,339						734											734
Common stock cash dividends - $0.33 per share							(57,703		)							(57,703		)
Balance at September 30, 2017	175,057		$	552,153	$	1,476,150	$	812,148		$	(24,203	)	$	(590,462	)	$	2,225,786

Balance at December 31, 2015	174,176		$	547,141	$	1,450,690	$	641,588		$	(22,017	)	$	(575,508	)	$	2,041,894
Net income							119,475									119,475
Other comprehensive income										26,508						26,508
Stock issued, including related tax benefits	454		594		2,099								2,833			5,526
Stock-based compensation awards					4,808											4,808
Acquisition of treasury stock	(1,486	)											(18,545		)	(18,545		)
Common stock cash dividends - $0.29 per share							(50,230		)							(50,230		)
Balance at September 30, 2016	173,144		$	547,735	$	1,457,597	$	710,833		$	4,491		$	(591,220	)	$	2,129,436
Common stock cash dividends - $0.11 per share																								(19,174		)							(19,174		)
Balance at March 31, 2017																			174,343	$	550,292	$	1,471,601	$	756,305		$	(34,552	)	$	(588,963	)	$	2,154,683

See Notes to Consolidated Financial Statements
(1) Result of adoption of ASU 2018-02, See Note 1 to Consolidated Financial Statements for further details.																			(1) Result of adoption of ASU 2018-02, See Note 1 to Consolidated Financial Statements for further details.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)


	Nine months ended September 30						Three months ended March 31
	2017			2016			2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	137,752		$	119,475		$	49,480		$	43,380
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	16,575			8,182			3,970			4,800
Depreciation and amortization of premises and equipment	21,013			20,547			7,329			7,032
Amortization of tax credit investments							8,364			9,128
Net amortization of investment securities premiums	7,412			7,434			2,517			2,416
Investment securities gains, net	(7,139		)	(1,025		)	(19		)	(1,106		)
Gain on sales of mortgage loans held for sale	(10,122		)	(11,967		)	(2,645		)	(3,074		)
Proceeds from sales of mortgage loans held for sale	470,927			493,457			170,693			115,417
Originations of mortgage loans held for sale	(455,157		)	(492,440		)	(159,968		)	(108,429		)
Amortization of issuance costs on long-term debt	618			347			194			168
Stock-based compensation	3,339			4,808			1,510			734
Excess tax benefits from stock-based compensation	—			(58		)
Increase in accrued interest receivable	(3,788		)	(833		)	(150		)	(61		)
Decrease (increase) in other assets	38,108			(9,075		)
Increase in other assets							(6,923		)	(4,514		)
Increase in accrued interest payable	936			2,921			364			2,874
(Decrease) increase in other liabilities	(26,027		)	2,061			(2,890		)	1,039
Total adjustments	56,695			24,359			22,346			26,424
Net cash provided by operating activities	194,447			143,834			71,826			69,804
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale	44,485			84,978			1,444			8,735
Proceeds from principal repayments and maturities of securities available for sale	321,088			426,932			78,150			98,024
Purchase of securities available for sale	(344,569		)	(484,164		)	(161,944		)	(49,430		)
Increase in short-term investments	(354,544		)	(136,450		)
Net increase in loans	(800,778		)	(567,061		)
Decrease (increase) in short-term investments							86,760			(59,135		)
Net decrease (increase) in loans							67,928			(267,383		)
Net purchases of premises and equipment	(24,758		)	(23,021		)	(14,840		)	(5,397		)
Net cash used in investing activities	(1,159,076		)	(698,786		)
Net change in tax credit investments							(20,783		)	(5,283		)
Net cash provided by (used in) investing activities							36,715			(279,869		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand and savings deposits	1,014,697			880,795
Net increase (decrease) in time deposits	114,219			(60,633		)
Decrease in short-term borrowings	(242,566		)	(233,621		)
Net (decrease) increase in demand and savings deposits							(278,626		)	112,348
Net decrease in time deposits							(41,803		)	(34,868		)
Increase (decrease) in short-term borrowings							320,328			(88,000		)
Additions to long-term debt	223,251			16,000			—			223,375
Repayments of long-term debt	(115,114		)	(603		)	(100,041		)	(15,037		)
Net proceeds from issuance of common stock	7,037			5,468			2,790			4,731
Excess tax benefits from stock-based compensation	—			58
Dividends paid	(55,855		)	(48,590		)	(19,329		)	(17,403		)
Acquisition of treasury stock	—			(18,545		)
Net cash provided by financing activities	945,669			540,329
Net cash (used in) provided by financing activities							(116,681		)	185,146
Net Decrease in Cash and Due From Banks	(18,960		)	(14,623		)	(8,140		)	(24,919		)
Cash and Due From Banks at Beginning of Period	118,763			101,120			108,291			118,763
Cash and Due From Banks at End of Period	$	99,803		$	86,497		$	100,151		$	93,844
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest	$	66,992		$	58,632		$	26,005		$	18,034
Income taxes	7,881			9,404			154			116
See Notes to Consolidated Financial Statements

FULTON FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 – 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. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Corporation's Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017. Operating results for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017.~~2018. The Corporation evaluates subsequent events through the date of filing of this Form 10-Q with the Securities and Exchange Commission ("SEC").

Recently ~~Issued~~Adopted Accounting Standards

In May 2014, the ~~FASB~~Financial Accounting Standards Board ("FASB") issued ~~ASC~~Accounting Standards Codification ("ASC") Update 2014-09, "Revenue from Contracts with Customers." This standards update ~~establishes~~established a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle prescribed by this standards update is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard applies to all contracts with customers, except those that are within the scope of other topics in the FASB ASC.The ~~standard also requires significantly expanded disclosures about revenue recognition. The FASB has issued amendments to~~Corporation adopted this standard, ~~(ASC~~and all subsequent Accounting Standards Updates ~~2016-08, 2016-10, 2016-11, 2016-12 and 2017-13). These amendments provide further clarification to~~("ASU") that modified it on January 1, 2018 under the standard. For public business entities, ASC Update 2014-09 is effective for interim and annual reporting periods beginning after December 15, 2017. For the Corporation, this standards update is effectivemodified retrospective approach with no material impact on its ~~March 31, 2018 quarterly report on Form 10-Q.~~consolidated financial statements. The Corporation ~~has~~ evaluated the impact of the adoption of ASC Update 2014-09 on its consolidated financial statements and ~~has~~did not ~~identified~~identify any significant changes in the timing of revenue recognition as a result of this amended ~~guidance at this time. In addition,~~guidance. The sources of revenue for the Corporation are interest income from loans and investments, net of interest expense on deposits and borrowings, and non-interest income. Non-interest income is ~~evaluating~~earned from various banking and financial services that the ~~expanded disclosure requirements~~Corporation offers through its subsidiary banks. Revenue is recognized as earned based on contractual terms, as transactions occur, or as services are provided. Following is further detail of the various types of revenue the Corporation earns and when it is recognized.

Interest income: Interest income is recognized on an accrual basis according to loan agreements, securities contracts or other such written contracts and is outside the scope of ASC Update 2014-09.

Investment management and trust services: Consists of trust commission income, brokerage income, money market income and insurance commission income. Trust commission income consists of advisory fees that are based on market values of clients' managed portfolios and transaction fees for fiduciary services performed, both of which are recognized as earned. Brokerage income includes advisory fees which are recognized as earned on a monthly basis and transaction fees that are recognized when transactions occur. Money market income is based on the balances held in trust accounts and is recognized monthly. Insurance commission income is earned and recognized when policies are originated. Currently, no investment management and trust service income is based on performance or investment results.

Service charges on deposit accounts: Consists of cash management, overdraft, non-sufficient fund fees and other service charges on deposit accounts. Revenue is primarily transactional and recognized when earned, at the time the transactions occur.

Other service charges and fees: Consists of branch fees, automated teller machine fees, debit card income and merchant services fees. These fees are primarily transactional, and revenue is recognized when transactions occur. Also included in other service charges and fees are letter of credit fees, foreign exchange income and commercial loan interest rate swap fees, which are outside the ~~update. The Corporation plans to adopt this update~~scope of ASC Update 2014-09.

Mortgage banking income: Consists of gains or losses on ~~January 1, 2018 under~~ the ~~modified retrospective approach~~sale of residential mortgage loans and ~~does not expect~~mortgage loan servicing income. These revenues are outside the ~~adoption~~scope of ASC Update 2014-09.

Other Income: Includes credit card income, gains on sales of Small Business Association ("SBA") loans, cash surrender value of life insurance, and other miscellaneous income. These items are either outside the scope of ASC Update 2014-09 ~~to have a material impact on its consolidated financial statements.~~or are immaterial.

In January 2016, the FASB issued ASC Update 2016-01, "Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities." ASC Update 2016-01 provides guidance regarding the income statement impact of equity investments held by an entity and the recognition of changes in fair value of financial liabilities when the fair value option is elected. This standard ~~will require~~requires equity investments to be measured at fair value, with changes recorded in net income. This ASU also requires the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes. ASC Update 2016-01 iswas effective for ~~public business entities'~~interim and annual ~~and interim~~ reporting periods beginning after December 15, ~~2017, with earlier adoption permitted.~~2017. The Corporation ~~intends to adopt~~adopted this standards update effective with its March 31, 2018 quarterly report on Form 10-Q and ~~does not expect~~ the adoption of ASC Update 2016-01 todid not have a material impact ~~on its consolidated financial statements.~~

In February 2016, the FASB issued ASC Update 2016-02, "Leases." This standards update states that a lessee should recognize the assets and liabilities that arise from all leases with a term greater than 12 months. The core principle requires the lessee to recognize a liability to make lease payments and a "right-of-use" asset. The accounting applied by the lessor is relatively unchanged. The standards update also requires expanded qualitative and quantitative disclosures. In September of 2017, the FASB issued clarifying guidance to this standard (ASC Update 2017-13). For public business entities, ASC Update 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018. ASC Update 2016-02 mandates a modified retrospective transition for all entities, which requires restatement of all comparative periods in the year of adoption. Early adoption is permitted. For the Corporation, this standards update is effective with its March 31, 2019 quarterly report on Form 10-Q. The Corporation is currently evaluating the impact of the adoption of ASC Update 2016-02 on its consolidated financial statements. The Corporation currently operates a number of branches that are leased, with the leases accounted for as operating leases that are not recognized on the consolidated balance sheet. Under ASC Update 2016-02, right-of-use assets and lease liabilities will need to be recognized on the consolidated balance sheet for these branches, which will also have an impact on regulatory capital ratios. The recognition

~~of operating leases on the consolidated balance sheet is expected to be the most significant impact of the adoption of this standards update.~~

In August 2016, the FASB issued ASC Update 2016-15, "Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments." This standards update provides guidance regarding the presentation of certain cash receipts and cash payments in the statement of cash flows, addressing eight specific cash flow classification issues, in order to reduce existing diversity in practice. ASC Update 2016-15 iswas effective for interim and annual reporting periods beginning after December 15, 2017. ~~Early adoption is permitted.~~ The Corporation ~~intends to adopt~~adopted this standards update effective with its March 31, 2018 quarterly report on Form 10-Q and ~~does not expect~~ the adoption of ASC Update 2016-15 todid not have a material impact on its consolidated financial statements.

In November 2016, the FASB issued ASC Update 2016-18, "Statement of Cash Flows - Restricted Cash." This standards update provides guidance regarding the presentation of restricted cash in the statement of cash flows. The update requires companies to include amounts generally described as restricted cash and restricted cash equivalents, along with cash and cash equivalents, when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. It also requires an entity to disclose the nature of the restrictions on cash and cash equivalents. ASC Update 2016-18 was effective for interim and annual reporting periods beginning after December 15, 2017. The Corporation adopted this standards update effective with its March 31, 2018 quarterly report on Form 10-Q and the adoption of ASC Update 2016-18 did not have a material impact on its consolidated financial statements.

In March 2017, the FASB issued ASC Update 2017-07, "Improving the Presentation of Net Periodic Pension Costs and Net Periodic Benefit Cost." This standards update requires a company to present service cost separately from the other components of net benefit cost. In addition, the update provides explicit guidance on how to present the service cost component and the other components of net benefit cost in the income statement and allows only the service cost component of net benefit cost to be eligible for capitalization. ASC Update 2017-07 was effective for interim and annual reporting periods beginning after December 15, 2017. The Corporation adopted this standards update effective with its March 31, 2018 quarterly report on Form 10-Q and the adoption of ASC Update 2017-07 did not have a material impact on its consolidated financial statements.

In February 2018, the FASB issued ASC Update 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." This ASU permits a reclassification from accumulated other comprehensive income ("AOCI") to retained earnings of the stranded tax effects resulting from the application of the Tax Cuts and Jobs Act of 2017 ("Tax Act"), which changed the corporate tax rate from 35% to 21%. This ASU is effective for interim and annual reporting periods beginning after December 15, ~~2017.~~2018, with early adoption permitted. The Corporation adopted this standards update effective January 1, 2018 and elected to reclassify $7.1 million of stranded tax effects from AOCI to retained earnings at the beginning of the period of adoption. The Corporation's policy for releasing income tax effects from accumulated other comprehensive income is to release them as investments are sold or mature and pension and post-retirement liabilities are extinguished.

Recently Issued Accounting Standards

In February 2016, the FASB issued ASC Update 2016-02, "Leases." This standards update states that a lessee should recognize the assets and liabilities that arise from all leases with a term greater than 12 months. The core principle requires the lessee to recognize a liability to make lease payments and a "right-of-use" asset. The accounting applied by the lessor is relatively unchanged. The standards update also requires expanded qualitative and quantitative disclosures. The FASB has also issued amendments to this standard (ASC Updates 2017-13, 2018-01). ASC Update 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. The Corporation intends to adopt this standards update effective with its March 31, ~~2018~~2019 quarterly report on Form ~~10-Q and does not expect~~10-Q. The Corporation is currently evaluating the impact of the adoption of ASC Update ~~2016-18 to have a material impact~~2016-02 on its consolidated financial statements. The Corporation currently operates a number of branches that are leased, with the leases accounted for as operating leases that are not recognized on the consolidated balance sheet. Under ASC Update 2016-02, right-of-use assets and lease liabilities will need to be recognized on the consolidated balance sheet for these branches, which will

also have an impact on regulatory capital ratios. The recognition of operating leases on the Corporation's consolidated balance sheet is expected to be the most significant impact of the adoption of this standards update.

In June 2016, the FASB issued ASC Update 2016-13, "Financial Instruments - Credit Losses." The new impairment model prescribed by this standards update is a single impairment model for all financial assets (i.e., loans and held to maturity investments). The recognition of credit losses would be based on an entity’s current estimate of expected losses (referred to as the Current Expected Credit Loss model, or "CECL"), as opposed to recognition of losses only when they are probable under current U.S. GAAP. ASU 2016-13 also requires new disclosures for financial assets measured at amortized cost, loans and available-for-sale debt securities. Entities will apply the standard's provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. ASC Update 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019. Early adoption is permitted. The Corporation intends to adopt this standards update effective with its March 31, 2020 quarterly report on Form 10-Q. The Corporation is currently evaluating the impact of the adoption of ASC Update 2016-13 on its consolidated financial statements and disclosures. While the Corporation is currently unable to reasonably estimate the impact of adopting ASU 2016-13, it expects that the impact of adoption could be significantly influenced by the composition, characteristics and quality of its loan portfolio as well as the prevailing economic conditions and forecasts as of the adoption date. As part of the evaluation process, the Corporation has established a steering committee and working group that includes individuals from various functional areas to assess processes, portfolio segmentation, systems requirements and needed resources to implement this new accounting standard.

In January 2017, the FASB issued ASC Update 2017-04, "Intangibles - Goodwill and Other." This standards update eliminates Step 2 of the goodwill impairment test which measures the impairment amount. Identifying and measuring impairment will take place in a single quantitative step. In addition, no separate qualitative assessment for reporting units with zero or negative carrying amount is required. Entities must disclose the existence of these reporting units and the amount of goodwill allocated to them. This update should be applied on a prospective basis, and an entity is required to disclose the nature of and reason for the change in accounting principle upon transition. ASC Update 2017-04 is effective for annual or interim goodwill impairment tests in reporting periods beginning after December 15, 2019. Early adoption is permitted. The Corporation intends to adopt this standards update effective with its 2020 goodwill impairment test and does not expect the adoption of ASC Update 2017-04 to have a material impact on its consolidated financial statements.

In March 2017, the FASB issued ASC Update 2017-07, "Improving the Presentation of Net Periodic Pension Costs and Net Periodic Benefit Cost." This standards update requires a company to present service cost separately from the other components of net benefit cost. In addition, the update provides explicit guidance on how to present the service cost component and the other components of net benefit cost in the income statement and allow only the service cost component of net benefit cost to be eligible for capitalization. ASC Update 2017-07 is effective for annual or interim reporting periods beginning after December 15, 2017. Early adoption is permitted. The Corporation intends to adopt this standards update effective with its March 31, 2018 quarterly report on Form 10-Q and does not expect the adoption of ASC Update 2017-07 to have a material impact on its consolidated financial statements.

~~In March 2017, the FASB issued ASC Update~~ 2017-08, "Premium Amortization on Purchased Callable Debt Securities." This standards update requires that a company amortize the premium on callable debt securities to the earliest call date versus current U.S. GAAP which requires amortization over the contractual life of the securities. The amortization period for callable debt securities purchased at a discount would not be impacted by the new accounting standards update. This amendment is to be adopted on a modified retrospective basis with a cumulative effect adjustment to retained earnings as of the beginning of the period of adoption. ASC Update 2017-08 is effective for annual or interim reporting periods beginning after December 15, 2018. Early adoption is permitted. The Corporation intends to adopt this standards update effective with its March 31, 2019 quarterly report on Form 10-Q and does not expect the adoption of ASC Update 2017-08 to have a material impact on its consolidated financial statements.

In May 2017, the FASB issued ASC Update 2017-09, "Scope of Modification Accounting." This standards update provides clarity and reduces both (1) diversity in practice and (2) cost and complexity, when applying the guidance in the stock compensation

standard, to a change to the terms or conditions of a share-based payment award. ASC Update 2017-09 is effective for annual or interim reporting periods beginning after December 15, 2017. Early adoption is permitted. The Corporation intends to adopt this standards update effective with its March 31, 2018 quarterly report on Form 10-Q and does not expect the adoption of ASC Update 2017-09 to have a material impact on its consolidated financial statements.

Reclassifications

Certain amounts in the ~~2016~~2017 consolidated financial statements and notes have been reclassified to conform to the 2018 presentation. On the Consolidated Statements of Cash Flows, the net change in tax credit investments is presented as cash flows from investing activities. Prior to the quarter ended March 31, 2018, these cash flows were presented as cash flows from operating activities, included in the net increase (decrease) in other liabilities. The presentation of the cash flows for the quarter ended March 31, 2017 ~~presentation.~~were changed to conform to this presentation, resulting in a $5.3 million decrease in net cash flows used in investing activities and a corresponding increase in net cash flows provided by operating activities. The change had no impact on net income or retained earnings. In addition, the Corporation will revise the Consolidated Statements of Cash Flows for each of the comparative 2017 periods in future filings.

NOTE 2 – 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, restricted stock units ("RSUs") and performance-based restricted stock units ("PSUs"). PSUs are required to be included in weighted average shares outstanding if performance measures, as defined in each PSU award agreement, are met as of the end of the period.

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 September 30		Nine months ended September 30		Three months ended March 31
	2017	2016	2017	2016	2018	2017
	(in thousands)				(in thousands)
Weighted average shares outstanding (basic)	174,991	173,020	174,582	173,248	175,303	174,150
Impact of common stock equivalents	1,225	1,044	1,194	1,017	1,265	1,427
Weighted average shares outstanding (diluted)	176,216	174,064	175,776	174,265	176,568	175,577

For the three and nine months ended September 30, 2016, 447,000 and 712,000 stock options, respectively, were excluded from the diluted net income per share computation as their effect would have been anti-dilutive. There were no stock options excluded for the three and nine months ended September 30, 2017.

NOTE 3 – Accumulated Other Comprehensive Income

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


	Before-Tax Amount			Tax Effect			Net of Tax Amount			Before-Tax Amount			Tax Effect			Net of Tax Amount
	(in thousands)									(in thousands)
Three months ended September 30, 2017
Three months ended March 31, 2018
Unrealized loss on securities										$	(34,991	)	$	7,347		$	(27,644	)
Reclassification adjustment for securities gains included in net income ⁽¹⁾										(19		)	3			(16		)
Non-credit related unrealized gains on other-than-temporarily impaired debt securities										285			(61		)	224
Amortization of net unrecognized pension and postretirement items ⁽²⁾										430			(91		)	339
Total Other Comprehensive Loss										$	(34,295	)	$	7,198		$	(27,097	)
Three months ended March 31, 2017
Unrealized gain on securities	$	5,109		$	(1,789	)	$	3,320		$	6,575		$	(2,302	)	$	4,273
Reclassification adjustment for securities gains included in net income ⁽¹⁾	(4,597		)	1,609			(2,988		)	(1,106		)	387			(719		)
Amortization of net unrecognized pension and postretirement items ⁽³⁾	523			(183		)	340
Amortization of net unrecognized pension and postretirement items ⁽²⁾										528			(185		)	343
Total Other Comprehensive Income	$	1,035		$	(363	)	$	672		$	5,997		$	(2,100	)	$	3,897
Three months ended September 30, 2016
Unrealized loss on securities	$	(5,505	)	$	1,925		$	(3,580	)
Reclassification adjustment for securities gains included in net income ⁽¹⁾	(2		)	1			(1		)
Amortization of unrealized loss on derivative financial instruments⁽²⁾	6			(2		)	4
Amortization of net unrecognized pension and postretirement items ⁽³⁾	583			(204		)	379
Total Other Comprehensive Loss	$	(4,918	)	$	1,720		$	(3,198	)

Nine months ended September 30, 2017
Unrealized gain on securities	$	27,482		$	(9,621	)	$	17,861
Reclassification adjustment for securities gains included in net income ⁽¹⁾	(7,139		)	2,500			(4,639		)
Amortization of net unrecognized pension and postretirement items ⁽³⁾	1,575			(551		)	1,024
Total Other Comprehensive Income	$	21,918		$	(7,672	)	$	14,246

Nine months ended September 30, 2016
Unrealized gain on securities	$	40,441		$	(14,156	)	$	26,285
Reclassification adjustment for securities gains included in net income ⁽¹⁾	(1,025		)	359			(666		)
Amortization of unrealized loss on derivative financial instruments ⁽²⁾	18			(6		)	12
Amortization of net unrecognized pension and postretirement items ⁽³⁾	1,349			(472		)	877
Total Other Comprehensive Income	$	40,783		$	(14,275	)	$	26,508


(1)	Amounts reclassified out of accumulated other comprehensive income. Before-tax amounts included in "Investment securities gains, net" on the consolidated statements of income. See Note 4, "Investment Securities," for additional details.


(2)	Amounts reclassified out of accumulated other comprehensive income. Before-tax amounts included in ~~"Interest expense" on the consolidated statements of income.~~


~~(3)~~	~~Amounts reclassified out of accumulated other comprehensive income. Before-tax amounts included in~~ "Salaries and employee benefits" on the consolidated statements of income. See Note 8, "Employee Benefit Plans," 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 September 30, 2017
Balance at June 30, 2017 $ (10,157 ) $ 273
$ —
$ (14,991 ) $ (24,875 )
Other comprehensive income before reclassifications 3,320
—
—
—
3,320
Amounts reclassified from accumulated other comprehensive income (loss) (2,988 ) —
—
340
(2,648 )
Balance at September 30, 2017 $ (9,825 ) $ 273
$ —
$ (14,651 ) $ (24,203 )
Three months ended September 30, 2016

Balance at June 30, 2016 $ 22,701
$ 458
$ (7 ) $ (15,463 ) $ 7,689
Other comprehensive loss before reclassifications (3,580 )
—
—
—
(3,580 )
Amounts reclassified from accumulated other comprehensive income (loss) (1 ) —
4
379
382
Balance at September 30, 2016 $ 19,120
$ 458
$ (3 ) $ (15,084 ) $ 4,491

Nine months ended September 30, 2017
Balance at December 31, 2016 $ (23,047 ) $ 273
$ —
$ (15,675 ) $ (38,449 )
Other comprehensive income before reclassifications 17,861
—
—
—
17,861
Amounts reclassified from accumulated other comprehensive income (loss) (4,639 ) —
—
1,024
(3,615 )
Balance at September 30, 2017 $ (9,825 ) $ 273
$ —
$ (14,651 ) $ (24,203 )
Nine months ended September 30, 2016
Balance at December 31, 2015 $ (6,499 ) $ 458
$ (15 ) $ (15,961 ) $ (22,017 )
Other comprehensive income before reclassifications 26,285
—
—
—
26,285
Amounts reclassified from accumulated other comprehensive income (loss) (666 ) —
12
877
223
Balance at September 30, 2016 $ 19,120
$ 458
$ (3 ) $ (15,084 ) $ 4,491



	Unrealized Gains (Losses) on Investment Securities Not Other-Than-Temporarily Impaired			Unrealized Non-Credit Gains (Losses) on Other-Than-Temporarily Impaired Debt Securities		Unrecognized Pension and Postretirement Plan Income (Costs)			Total
	(in thousands)
Three months ended March 31, 2018
Balance at December 31, 2017	$	(18,509	)	$	458	$	(14,923	)	$	(32,974	)
Other comprehensive loss before reclassifications	(27,644		)	224		—			(27,420		)
Amounts reclassified from accumulated other comprehensive income (loss)	(16		)	—		339			323
Reclassification of stranded tax effects	(3,887		)	—		(3,214		)	(7,101		)
Balance at March 31, 2018	$	(50,056	)	$	682	$	(17,798	)	$	(67,172	)
Three months ended March 31, 2017
Balance at December 31, 2016	$	(23,047	)	$	273	$	(15,675	)	$	(38,449	)
Other comprehensive income before reclassifications	4,273			—		—			4,273
Amounts reclassified from accumulated other comprehensive income (loss)	(719		)	—		343			(376		)
Balance at March 31, 2017	$	(19,493	)	$	273	$	(15,332	)	$	(34,552	)

NOTE 4 – 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		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(in thousands)									(in thousands)
September 30, 2017
March 31, 2018
U.S. Government sponsored agency securities	$	5,961	$	54	$	—		$	6,015	$	21,105	$	40	$	(183	)	$	20,962
State and municipal securities	415,313		4,005		(5,405		)	413,913		413,632		2,247		(9,780		)	406,099
Corporate debt securities	92,355		2,578		(1,956		)	92,977		101,367		2,482		(1,894		)	101,955
Collateralized mortgage obligations	601,845		1,380		(9,547		)	593,678		695,840		236		(16,376		)	679,700
Residential mortgage-backed securities	1,184,797		5,850		(8,561		)	1,182,086		1,084,582		3,006		(33,422		)	1,054,166
Commercial mortgage-backed securities	161,960		299		(627		)	161,632		231,378		15		(4,501		)	226,892
Auction rate securities	107,410		—		(9,254		)	98,156		107,410		—		(4,361		)	103,049
Total debt securities	2,569,641		14,166		(35,350		)	2,548,457
Equity securities	6,560		6,499		—			13,059
Total	$	2,576,201	$	20,665	$	(35,350	)	$	2,561,516	$	2,655,314	$	8,026	$	(70,517	)	$	2,592,823


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
	(in thousands)									(in thousands)
December 31, 2016
December 31, 2017
U.S. Government sponsored agency securities	$	132	$	2	$	—		$	134	$	5,962	$	2	$	(26	)	$	5,938
State and municipal securities	405,274		2,043		(15,676		)	391,641		405,860		5,638		(2,549		)	408,949
Corporate debt securities	112,016		1,978		(4,585		)	109,409		96,353		2,832		(1,876		)	97,309
Collateralized mortgage obligations	604,095		1,943		(12,178		)	593,860		611,927		491		(9,795		)	602,623
Residential mortgage-backed securities	1,328,192		6,546		(16,900		)	1,317,838		1,132,080		3,957		(15,241		)	1,120,796
Commercial mortgage-backed securities	25,100		—		(537		)	24,563		215,351		—		(2,596		)	212,755
Auction rate securities	107,215		—		(9,959		)	97,256		107,410		—		(8,742		)	98,668
Total debt securities	2,582,024		12,512		(59,835		)	2,534,701		2,574,943		12,920		(40,825		)	2,547,038
Equity securities	12,231		12,295		—			24,526		776		142		—			918
Total	$	2,594,255	$	24,807	$	(59,835	)	$	2,559,227	$	2,575,719	$	13,062	$	(40,825	)	$	2,547,956

Securities carried at ~~$1.9 billion and~~ $1.8 billion ~~as of September 30, 2017~~at March 31, 2018 and December 31, ~~2016, respectively,~~2017, were pledged as collateral to secure public and trust deposits and customer repurchase agreements.

Equity securities include common stocks of publicly traded financial institutions (estimated fair value of $12.1 million at September 30, 2017 and $23.5 million at December 31, 2016) and other equity investments (estimated fair value of $1.0 million at both September 30, 2017 and December 31, 2016).

As of September 30, 2017, the financial institutions stock portfolio had a cost basis of $5.8 million and an estimated fair value of $12.1 million, including an investment in a single financial institution with a cost basis of $4.2 million and an estimated fair value of $8.8 million. The estimated fair value of this investment accounted for 73.4% of the estimated fair value of the Corporation's investments in the common stocks of publicly traded financial institutions. No other investment in a single financial institution in the financial institutions stock portfolio exceeded 10% of the portfolio's estimated fair value.

The amortized cost and estimated fair values of debt securities as of ~~September 30, 2017,~~March 31, 2018, by contractual maturity, are shown in the following table. Actual maturities may differ from contractual maturities as certain investment securities are subject to call or prepayment with or without call or prepayment penalties.


		Amortized Cost		Estimated Fair Value			Amortized Cost		Estimated Fair Value
	(in thousands)					(in thousands)
Due in one year or less		$	23,940	$	24,118		$	14,055	$	14,063
Due from one year to five years		30,708		31,196			36,871		36,986
Due from five years to ten years		114,114		115,336			119,069		119,529
Due after ten years		452,277		440,411			473,519		461,487
		621,039		611,061			643,514		632,065
Residential mortgage-backed securities(1)		1,184,797		1,182,086			1,084,582		1,054,166
Commercial mortgage-backed securities(1)		161,960		161,632			231,378		226,892
Collateralized mortgage obligations(1)		601,845		593,678			695,840		679,700
Total debt securities		$	2,569,641	$	2,548,457
Total							$	2,655,314	$	2,592,823
(1) Maturities for mortgage-backed securities and collateralized mortgage obligations are dependent upon the interest rate environment and prepayments on the underlying loans.						(1) Maturities for mortgage-backed securities and collateralized mortgage obligations are dependent upon the interest rate environment and prepayments on the underlying loans.

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 (Losses)			Gross Realized Gains
Three months ended September 30, 2017	(in thousands)
Three months ended March 31, 2018									(in thousands)
Equity securities	$	4,817	$	—		$	4,817		$	9
Debt securities	12		(232		)	(220		)	10
Total	$	4,829	$	(232	)	$	4,597		$	19
Three months ended September 30, 2016
Three months ended March 31, 2017
Equity securities	$	2	$	—		$	2		$	1,045
Debt securities	—		—			—			61
Total	$	2	$	—		$	2		$	1,106

Nine months ended September 30, 2017
Equity securities	$	7,167	$	—		$	7,167
Debt securities	218		(246		)	(28		)
Total	$	7,385	$	(246	)	$	7,139
Nine months ended September 30, 2016
Equity securities	$	739	$	(10	)	$	729
Debt securities	322		(26		)	296
Total	$	1,061	$	(36	)	$	1,025

The cumulative balance of ~~credit related~~credit-related other-than-temporary impairment charges, previously recognized as components of earnings, for debt securities held by the Corporation at ~~September 30,~~March 31, 2018 and March 31, 2017 ~~and September 30, 2016~~ was ~~$10.0~~$11.5 million. There were no other-than-temporary impairment charges recognized for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 and ~~September 30, 2016.~~

March 31, 2017.

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 ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016:~~2017:


	Less than 12 months					12 months or longer					Total					Less than 12 months					12 months or longer					Total
	Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses
September 30, 2017	(in thousands)
March 31, 2018																(in thousands)
U.S. Government sponsored agency securities																$	12,499	$	(183	)	$	—	$	—		$	12,499	$	(183	)
State and municipal securities	$	121,527	$	(1,930	)	$	87,466	$	(3,475	)	$	208,993	$	(5,405	)	163,345		(3,132		)	114,024		(6,648		)	277,369		(9,780		)
Corporate debt securities	3,570		(16		)	31,533		(1,940		)	35,103		(1,956		)	9,466		(130		)	28,219		(1,764		)	37,685		(1,894		)
Collateralized mortgage obligations	85,335		(837		)	301,009		(8,710		)	386,344		(9,547		)	456,200		(7,184		)	176,076		(9,192		)	632,276		(16,376		)
Residential mortgage-backed securities	796,019		(8,359		)	5,513		(202		)	801,532		(8,561		)	527,502		(13,611		)	471,703		(19,811		)	999,205		(33,422		)
Commercial mortgage-backed securities	87,260		(627		)	—		—			87,260		(627		)	196,887		(3,884		)	21,539		(617		)	218,426		(4,501		)
Auction rate securities	—		—			98,156		(9,254		)	98,156		(9,254		)	—		—			103,049		(4,361		)	103,049		(4,361		)
Total debt securities	$	1,093,711	$	(11,769	)	$	523,677	$	(23,581	)	$	1,617,388	$	(35,350	)
Total																$	1,365,899	$	(28,124	)	$	914,610	$	(42,393	)	$	2,280,509	$	(70,517	)


	Less than 12 months					12 months or longer					Total					Less than 12 months					12 months or longer					Total
	Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses
December 31, 2016	(in thousands)
December 31, 2017																(in thousands)
U.S. Government sponsored agency securities																$	5,830	$	(26	)	$	—	$	—		$	5,830	$	(26	)
State and municipal securities	$	247,509	$	(15,676	)	$	—	$	—		$	247,509	$	(15,676	)	11,650		(50		)	118,297		(2,499		)	129,947		(2,549		)
Corporate debt securities	11,922		(110		)	34,629		(4,475		)	46,551		(4,585		)	4,544		(48		)	32,163		(1,828		)	36,707		(1,876		)
Collateralized mortgage obligations	166,905		(3,899		)	258,237		(8,279		)	425,142		(12,178		)	303,932		(2,408		)	187,690		(7,387		)	491,622		(9,795		)
Residential mortgage-backed securities	1,112,947		(16,900		)	—		—			1,112,947		(16,900		)	511,378		(4,348		)	500,375		(10,893		)	1,011,753		(15,241		)
Commercial mortgage-backed securities	24,563		(537		)	—		—			24,563		(537		)	190,985		(2,118		)	21,770		(478		)	212,755		(2,596		)
Auction rate securities	—		—			97,256		(9,959		)	97,256		(9,959		)	—		—			98,668		(8,742		)	98,668		(8,742		)
Total debt securities	$	1,563,846	$	(37,122	)	$	390,122	$	(22,713	)	$	1,953,968	$	(59,835	)
Total																$	1,028,319	$	(8,998	)	$	958,963	$	(31,827	)	$	1,987,282	$	(40,825	)

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. The change in fair value of these securities is attributable to changes in interest rates and not credit quality, and 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. Therefore, the Corporation does not consider these investments to be other-than-temporarily impaired as of ~~September 30, 2017.~~March 31, 2018.

As of ~~September 30, 2017,~~March 31, 2018, all of the auction rate securities (auction rate certificates, or "ARCs"), were rated above investment grade. All of the loans underlying the ARCs have principal payments which are guaranteed by the federal government. As of September 30, 2017, all ARCs were current and making scheduled interest payments, and based on management’s evaluations, were not subject to any other-than-temporary impairment charges for the three and nine months ended September 30, 2017. 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.

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:

September 30, 2017 December 31, 2016

Amortized
cost

Estimated
fair value

Amortized
cost

Estimated
fair value
(in thousands)
Single-issuer trust preferred securities $ 39,186
$ 38,251
$ 43,746
$ 39,829
Subordinated debt 37,147
37,859
46,231
46,723
Senior debt 12,033
12,456
18,037
18,433
Pooled trust preferred securities —
422
—
422
Corporate debt securities issued by financial institutions 88,366
88,988
108,014
105,407
Other corporate debt securities 3,989
3,989
4,002
4,002
Available for sale corporate debt securities $ 92,355
$ 92,977
$ 112,016
$ 109,409

Single-issuer trust preferred securities had an unrealized loss of $935,000 at September 30, 2017. Five of the 18 single-issuer trust preferred securities, with an amortized cost of $6.9 million and an estimated fair value of $6.6 million at September 30, 2017, were rated below investment grade by at least one ratings agency. All of the single-issuer trust preferred securities rated below investment grade were rated "BB" and "Ba". Two single-issuer trust preferred securities with an amortized cost of $3.8 million and an estimated fair value of $2.8 million at September 30, 2017 were not rated by any ratings agency.

Based on management’s evaluations, ~~no corporate debt securities~~none of the ARCs were subject to any other-than-temporary impairment charges for the three ~~and nine~~ months ended ~~September 30, 2017.~~March 31, 2018. 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.



	March 31, 2018				December 31, 2017
	Amortized cost		Estimated fair value		Amortized cost		Estimated fair value
	(in thousands)
Single-issuer trust preferred securities	$	31,352	$	30,513	$	31,335	$	30,703
Subordinated debt	54,011		54,357		49,013		49,533
Senior debt	12,029		12,245		12,031		12,392
Pooled trust preferred securities	—		865		—		707
Corporate debt securities issued by financial institutions	97,392		97,980		92,379		93,335
Other corporate debt securities	3,975		3,975		3,974		3,974
Available for sale corporate debt securities	$	101,367	$	101,955	$	96,353	$	97,309

Single-issuer trust preferred securities had an unrealized loss of $839,000 at March 31, 2018. Four of the 17 single-issuer trust preferred securities, with an amortized cost of $4.9 million and an estimated fair value of $4.7 million at March 31, 2018, were rated below investment grade by at least one ratings agency. All of the single-issuer trust preferred securities rated below investment grade were rated either "BB" or "Ba". Two single-issuer trust preferred securities with an amortized cost of $3.8 million and an estimated fair value of $3.1 million at March 31, 2018 were not rated by any ratings agency.

Based on management’s evaluations, no corporate debt securities were subject to any other-than-temporary impairment charges for the three months ended March 31, 2018. 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.

NOTE 5 – Loans and Allowance for Credit Losses

Loans, Net of Unearned Income

Loans, net of unearned income are summarized as follows:


	September 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017
	(in thousands)						(in thousands)
Real-estate - commercial mortgage	$	6,275,140		$	6,018,582		$	6,332,508		$	6,364,804
Commercial - industrial, financial and agricultural	4,223,075			4,087,486			4,299,072			4,300,297
Real-estate - residential mortgage	1,887,907			1,601,994			1,976,524			1,954,711
Real-estate - home equity	1,567,473			1,625,115			1,514,241			1,559,719
Real-estate - construction	973,108			843,649			976,131			1,006,935
Consumer	302,448			291,470			326,766			313,783
Leasing and other	278,658			246,704			297,465			291,556
Overdrafts	3,400			3,662			2,031			4,113
Loans, gross of unearned income	15,511,209			14,718,662			15,724,738			15,795,918
Unearned income	(24,310		)	(19,390		)	(28,454		)	(27,671		)
Loans, net of unearned income	$	15,486,899		$	14,699,272		$	15,696,284		$	15,768,247

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. Commercial loans include both secured 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 vehicle loans.

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 sheets. 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 individually evaluated for impairment ~~under FASB~~(FASB ASC Section ~~310-10-35;~~310-10-35); and (2) allowances calculated for pools of loans ~~measured~~collectively evaluated for impairment ~~under FASB~~(FASB ASC Subtopic ~~450-20.~~

450-20).

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


	September 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
	(in thousands)				(in thousands)
Allowance for loan losses	$	172,245	$	168,679	$	163,217	$	169,910
Reserve for unfunded lending commitments	2,504		2,646		12,802		6,174
Allowance for credit losses	$	174,749	$	171,325	$	176,019	$	176,084

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


	Three months ended September 30						Nine months ended September 30						Three months ended March 31
	2017			2016			2017			2016			2018			2017
	(in thousands)												(in thousands)
Balance at beginning of period	$	174,998		$	165,108		$	171,325		$	171,412		$	176,084		$	171,325
Loans charged off	(7,795		)	(7,672		)	(25,917		)	(29,573		)	(6,397		)	(9,407		)
Recoveries of loans previously charged off	2,471			3,592			12,766			15,148			2,362			5,929
Net loans charged off	(5,324		)	(4,080		)	(13,151		)	(14,425		)	(4,035		)	(3,478		)
Provision for credit losses	5,075			4,141			16,575			8,182			3,970			4,800
Balance at end of period	$	174,749		$	165,169		$	174,749		$	165,169		$	176,019		$	172,647

The Corporation has historically maintained an unallocated allowance for credit losses for factors and conditions that exist at the balance sheet date, but are not specifically identifiable, and to recognize the inherent imprecision in estimating and measuring loss exposure. In the second quarter of 2017, enhancements were made to allow for the impact of these factors and conditions to be quantified in the allowance allocation process. Accordingly, an unallocated allowance for credit losses is no longer necessary.

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, other and overdrafts			Unallocated			Total			Real Estate - Commercial Mortgage			Commercial - Industrial, Financial and Agricultural			Real Estate - Home Equity			Real Estate - Residential Mortgage			Real Estate - Construction			Consumer			Leasing, other and overdrafts			Unallocated		Total
	(in thousands)																											(in thousands)
Three months ended September 30, 2017
Balance at June 30, 2017	$	57,372		$	67,642		$	17,456		$	16,439		$	9,534		$	1,794		$	2,105		$	—		$	172,342
Three months ended March 31, 2018
Balance at December 31, 2017																												$	58,793		$	66,280		$	18,127		$	16,088		$	6,620		$	2,045		$	1,957		$	—	$	169,910
Loans charged off	(483		)	(2,714		)	(547		)	(195		)	(2,744		)	(373		)	(739		)	—			(7,795		)	(267		)	(4,005		)	(408		)	(162		)	(158		)	(892		)	(505		)	—		(6,397		)
Recoveries of loans previously charged off	106			665			252			219			629			193			407			—			2,471			279			1,075			206			107			306			179			210			—		2,362
Net loans charged off	(377		)	(2,049		)	(295		)	24			(2,115		)	(180		)	(332		)	—			(5,324		)	12			(2,930		)	(202		)	(55		)	148			(713		)	(295		)	—		(4,035		)
Provision for loan losses (1)	(2,008		)	5,392			1,297			220			(283		)	383			226			—			5,227			(88		)	(1,520		)	(397		)	(772		)	(844		)	571			392			—		(2,658		)
Balance at Sept 30, 2017	$	54,987		$	70,985		$	18,458		$	16,683		$	7,136		$	1,997		$	1,999		$	—		$	172,245
Three months ended September 30, 2016
Balance at June 30, 2016	$	43,740		$	51,755		$	26,170		$	21,226		$	5,772		$	2,984		$	2,518		$	8,381		$	162,546
Loans charged off	(1,350		)	(3,144		)	(709		)	(802		)	(150		)	(685		)	(832		)	—			(7,672		)
Recoveries of loans previously charged off	296			1,539			241			228			898			222			168			—			3,592
Net loans charged off	(1,054		)	(1,605		)	(468		)	(574		)	748			(463		)	(664		)	—			(4,080		)
Provision for loan losses (1)	3,171			(1,871		)	1,419			1,452			23			852			1,075			(2,061		)	4,060
Balance at September 30, 2016	$	45,857		$	48,279		$	27,121		$	22,104		$	6,543		$	3,373		$	2,929		$	6,320		$	162,526
Nine months ended September 30, 2017
Balance at March 31, 2018																												$	58,717		$	61,830		$	17,528		$	15,261		$	5,924		$	1,903		$	2,054		$	—	$	163,217
Three months ended March 31, 2017
Balance at December 31, 2016	$	46,842		$	54,353		$	26,801		$	22,929		$	6,455		$	3,574		$	3,192		$	4,533		$	168,679		$	46,842		$	54,353		$	26,801		$	22,929		$	6,455		$	3,574		$	3,192		$	4,533	$	168,679
Loans charged off	(1,949		)	(13,594		)	(1,837		)	(535		)	(3,765		)	(1,659		)	(2,578		)	—			(25,917		)	(1,224		)	(5,527		)	(698		)	(216		)	(247		)	(856		)	(639		)	—		(9,407		)
Recoveries of loans previously charged off	1,490			6,830			604			600			1,550			899			793			—			12,766			450			4,191			137			230			548			236			137			—		5,929
Net loans charged off	(459		)	(6,764		)	(1,233		)	65			(2,215		)	(760		)	(1,785		)	—			(13,151		)	(774		)	(1,336		)	(561		)	14			301			(620		)	(502		)	—		(3,478		)
Provision for loan losses (1)	8,604			23,396			(7,110		)	(6,311		)	2,896			(817		)	592			(4,533		)	16,717			1,305			2,292			(2,419		)	(925		)	745			77			578			3,222		4,875
Balance at September 30, 2017	$	54,987		$	70,985		$	18,458		$	16,683		$	7,136		$	1,997		$	1,999		$	—		$	172,245
Nine months ended September 30, 2016
Balance at December 31, 2015	$	47,866		$	57,098		$	22,405		$	21,375		$	6,529		$	2,585		$	2,468		$	8,728		$	169,054
Loans charged off	(3,406		)	(13,957		)	(3,295		)	(2,210		)	(1,218		)	(2,261		)	(3,226		)	—			(29,573		)
Recoveries of loans previously charged off	2,488			6,789			929			784			2,844			957			357			—			15,148
Net loans charged off	(918		)	(7,168		)	(2,366		)	(1,426		)	1,626			(1,304		)	(2,869		)	—			(14,425		)
Provision for loan losses (1)	(1,091		)	(1,651		)	7,082			2,155			(1,612		)	2,092			3,330			(2,408		)	7,897
Balance at September 30, 2016	$	45,857		$	48,279		$	27,121		$	22,104		$	6,543		$	3,373		$	2,929		$	6,320		$	162,526
Balance at March 31, 2017																												$	47,373		$	55,309		$	23,821		$	22,018		$	7,501		$	3,031		$	3,268		$	7,755	$	170,076

(1)

The provision for loan losses excluded ~~decreases~~an increase of ~~$152,000~~$6.6 million and ~~$142,000~~a decrease of $75,000 in the reserve for unfunded lending commitments for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and March 31, 2017, ~~respectively and increases of $81,000 and $285,000 in the reserve for unfunded lending commitments for the three and nine months ended September 30, 2016,~~ respectively. These amounts were reclassified to Other Liabilities.

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, other
and
overdrafts
Unallocated Total
(in thousands)
Allowance for loan losses at September 30, 2017:
Measured for impairment under FASB ASC Subtopic 450-20 $ 47,261
$ 55,486
$ 7,632
$ 6,488
$ 5,702
$ 1,976
$ 1,999
$ —
$ 126,544
Evaluated for impairment under FASB ASC Section 310-10-35 7,726
15,499
10,826
10,195
1,434
21
—
N/A
45,701
$ 54,987
$ 70,985
$ 18,458
$ 16,683
$ 7,136
$ 1,997
$ 1,999
$ —
$ 172,245

Loans, net of unearned income at September 30, 2017:
Measured for impairment under FASB ASC Subtopic 450-20 $ 6,228,935
$ 4,162,857
$ 1,543,551
$ 1,845,329
$ 959,584
$ 302,415
$ 257,748
N/A
$ 15,300,419
Evaluated for impairment under FASB ASC Section 310-10-35 46,205
60,218
23,922
42,578
13,524
33
—
N/A
186,480
$ 6,275,140
$ 4,223,075
$ 1,567,473
$ 1,887,907
$ 973,108
$ 302,448
$ 257,748
N/A
$ 15,486,899

Allowance for loan losses at September 30, 2016:
Measured for impairment under FASB ASC Subtopic 450-20 $ 36,151
$ 38,858
$ 17,828
$ 10,410
$ 4,422
$ 3,346
$ 2,929
$ 6,320
$ 120,264
Evaluated for impairment under FASB ASC Section 310-10-35 9,706
9,421
9,293
11,694
2,121
27
—
N/A
42,262
$ 45,857
$ 48,279
$ 27,121
$ 22,104
$ 6,543
$ 3,373
$ 2,929
$ 6,320
$ 162,526

Loans, net of unearned income at September 30, 2016:
Measured for impairment under FASB ASC Subtopic 450-20 $ 5,763,863
$ 3,972,461
$ 1,621,731
$ 1,496,461
$ 850,315
$ 283,633
$ 219,780
N/A
$ 14,208,244
Evaluated for impairment under FASB ASC Section 310-10-35 55,052
51,658
18,690
46,235
11,319
40
—
N/A
182,994
$ 5,818,915
$ 4,024,119
$ 1,640,421
$ 1,542,696
$ 861,634
$ 283,673
$ 219,780
N/A
$ 14,391,238



	Real Estate - Commercial Mortgage		Commercial - Industrial, Financial and Agricultural		Real Estate - Home Equity		Real Estate - Residential Mortgage		Real Estate - Construction		Consumer		Leasing, other and overdrafts		Unallocated		Total
	(in thousands)
Allowance for loan losses at March 31, 2018:
Loans collectively evaluated for impairment	$	50,392	$	51,314	$	6,440	$	5,610	$	5,245	$	1,887	$	2,054	N/A		$	122,942
Loans individually evaluated for impairment	8,325		10,516		11,088		9,651		679		16		—		N/A		40,275
	$	58,717	$	61,830	$	17,528	$	15,261	$	5,924	$	1,903	$	2,054	N/A		$	163,217

Loans, net of unearned income at March 31, 2018
Loans collectively evaluated for impairment	$	6,279,144	$	4,234,362	$	1,489,429	$	1,935,587	$	965,398	$	326,742	$	271,042	N/A		$	15,501,704
Loans individually evaluated for impairment	53,364		64,710		24,812		40,937		10,733		24		—		N/A		194,580
	$	6,332,508	$	4,299,072	$	1,514,241	$	1,976,524	$	976,131	$	326,766	$	271,042	N/A		$	15,696,284

Allowance for loan losses at March 31, 2017:
Loans collectively evaluated for impairment	$	37,457	$	43,155	$	14,744	$	10,581	$	4,915	$	3,007	$	3,268	$	7,755	$	124,882
Loans individually evaluated for impairment	9,916		12,154		9,077		11,437		2,586		24		—		N/A		45,194
	$	47,373	$	55,309	$	23,821	$	22,018	$	7,501	$	3,031	$	3,268	$	7,755	$	170,076

Loans, net of unearned income at March 31, 2017:
Loans collectively evaluated for impairment	$	6,067,492	$	4,119,550	$	1,576,949	$	1,620,302	$	869,225	$	288,789	$	243,983	N/A		$	14,786,290
Loans individually evaluated for impairment	51,041		48,259		18,952		44,840		13,758		37		—		N/A		176,887
	$	6,118,533	$	4,167,809	$	1,595,901	$	1,665,142	$	882,983	$	288,826	$	243,983	N/A		$	14,963,177

N/A - Not applicable.

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 or equal to $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 individually evaluated for impairment ~~under FASB ASC Section 310-10-35~~ are measured for losses on a quarterly basis. As of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, substantially all of the Corporation’s individually evaluated impaired loans with total outstanding balances greater than or equal to $1.0 million were measured based on the estimated fair value of each loan’s collateral. Collateral 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.~~estate.

As of ~~September 30,~~March 31, 2018 and 2017, approximately 72% and ~~2016, approximately 95% and 73%~~67%, respectively, of impaired loans with principal balances greater than or equal to $1.0 million, whose primary collateral is real estate, were measured at estimated fair value of the collateral using appraisals ~~performed by state certified third-party appraisers~~ that had been updated in the preceding 12 ~~months.~~months, performed by state certified third-party appraisers.

When updated appraisals are not obtained for loans 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 an acceptable loan-to-value position and, in the opinion of the Corporation's internal credit administration 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 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~~(generally less than 70%).

The following table presents total impaired loans by class segment:

September 30, 2017 December 31, 2016

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 $ 24,722
$ 21,000
$ —
$ 28,757
$ 25,447
$ —
Commercial - secured 32,738
30,053
—
29,296
25,526
—
Real estate - residential mortgage 4,603
4,603
—
4,689
4,689
—
Construction - commercial residential 14,086
9,450
—
6,271
4,795
—
76,149
65,106

69,013
60,457

With a related allowance recorded:
Real estate - commercial mortgage 32,770
25,205
7,726
37,132
29,446
10,162
Commercial - secured 33,481
29,189
14,974
27,767
22,626
13,198
Commercial - unsecured 1,236
976
525
1,122
823
455
Real estate - home equity 27,739
23,922
10,826
23,971
19,205
9,511
Real estate - residential mortgage 43,979
37,975
10,195
48,885
41,359
11,897
Construction - commercial residential 6,119
2,883
1,006
10,103
4,206
1,300
Construction - commercial 186
100
36
681
435
145
Construction - other 1,096
1,091
392
1,096
1,096
423
Consumer - direct 24
19
13
21
21
14
Consumer - indirect 14
14
8
19
19
12
146,644
121,374
45,701
150,797
119,236
47,117
Total $ 222,793
$ 186,480
$ 45,701
$ 219,810
$ 179,693
$ 47,117



	March 31, 2018						December 31, 2017
	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	$	29,862	$	27,819	$	—	$	26,728	$	22,886	$	—
Commercial	46,673		40,525		—		44,936		39,550		—
Real estate - residential mortgage	4,547		4,547		—		4,575		4,575		—
Construction	12,343		7,842		—		12,477		8,100		—
	93,425		80,733				88,716		75,111
With a related allowance recorded:
Real estate - commercial mortgage	32,863		25,545		8,325		33,710		25,895		8,112
Commercial	29,723		24,185		10,516		29,816		24,175		11,406
Real estate - home equity	28,387		24,812		11,088		28,282		24,693		11,124
Real estate - residential mortgage	41,889		36,390		9,651		42,597		37,132		9,895
Construction	6,186		2,891		679		7,308		4,097		967
Consumer	25		24		16		26		26		17
	139,073		113,847		40,275		141,739		116,018		41,521
Total	$	232,498	$	194,580	$	40,275	$	230,455	$	191,129	$	41,521

As of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, there were ~~$65.1~~$80.7 million and ~~$60.5~~$75.1 million, respectively, of impaired loans that did not have a related allowance for loan loss. The estimated fair values of the collateral securing these loans exceeded their carrying amount, or ~~they~~the loans were previously charged down to realizable collateral values. Accordingly, no specific valuation allowance was considered to be necessary.

The following table presents average impaired loans by class segment:

Three months ended September 30 Nine months ended September 30
2017 2016 2017 2016
Average
Recorded
Investment Interest
Income (1) Average
Recorded
Investment Interest
Income (1) Average
Recorded
Investment Interest
Income (1) Average
Recorded
Investment Interest
Income (1)
(in thousands)
With no related allowance recorded:
Real estate - commercial mortgage $ 21,698
$ 72
$ 25,048
$ 78
$ 22,770
$ 213
$ 23,929
219
Commercial - secured 33,044
46
23,836
32
29,309
128
18,400
68
Real estate - residential mortgage 4,616
27
6,151
33
4,645
79
5,826
96
Construction - commercial residential 8,747
5
5,734
10
6,745
11
6,658
45
Construction - commercial 295
—
—
—
298
—
—
—
68,400
150
60,769
153
63,767
431
54,813
428
With a related allowance recorded:
Real estate - commercial mortgage 25,910
86
29,139
91
27,518
259
32,310
303
Commercial - secured 24,334
33
21,688
29
23,291
96
26,665
100
Commercial - unsecured 818
1
953
1
806
1
903
3
Real estate - home equity 22,837
150
18,283
76
20,957
362
17,589
203
Real estate - residential mortgage 38,329
225
40,913
221
39,584
680
42,399
683
Construction - commercial residential 5,047
4
4,947
8
5,397
11
5,568
37
Construction - commercial 113
—
476
—
186
—
546
—
Construction - other 1,091
—
756
—
1,094
—
579
—
Consumer - direct 19
—
19
—
19
—
17
1
Consumer - indirect 15
—
11
—
17
—
14
—
Leasing, other and overdrafts —
—
—
—
356
—
712
—
118,513
499
117,185
426
119,225
1,409
127,302
1,330
Total $ 186,913
$ 649
$ 177,954
$ 579
$ 182,992
$ 1,840
$ 182,115
1,758



	Three months ended March 31
	2018				2017
	Average Recorded Investment		Interest Income (1)		Average Recorded Investment		Interest Income (1)
	(in thousands)
With no related allowance recorded:
Real estate - commercial mortgage	$	25,353	$	83	$	23,842	$	70
Commercial	40,038		73		25,574		36
Real estate - residential mortgage	4,561		27		4,673		26
Construction	7,971		—		5,046		2
	77,923		183		59,135		134
With a related allowance recorded:
Real estate - commercial mortgage	25,720		84		29,126		85
Commercial	24,181		44		23,044		32
Real estate - home equity	24,752		184		19,079		95
Real estate - residential mortgage	36,761		221		40,839		230
Construction	3,495		—		7,100		3
Consumer	25		—		38		—
Leasing, other and overdrafts	—		—		713		—
	114,934		533		119,939		445
Total	$	192,857	$	716	$	179,074	$	579


(1)	All impaired loans, excluding accruing TDRs, were non-accrual loans. Interest income recognized for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 and 2017 ~~and 2016~~ represents amounts earned on accruing TDRs.

Credit Quality Indicators and Non-performing Assets

The following is a summary of the Corporation's internal risk rating categories:

Pass: These loans do not currently pose undue credit risk and can range from the highest to average quality, depending on the degree of potential risk.

Special Mention: These loans constitute an undue and unwarranted credit risk, but not to a point of justifying a classification of substandard. Loans in this category are currently acceptable, but are nevertheless potentially weak.

Substandard or Lower: These loans are inadequately protected by current sound worth and paying capacity of the borrower. There exists a well-defined weakness or weaknesses that jeopardize the normal repayment of the debt.

~~The following table presents internal credit risk ratings for the indicated loan class segments:~~

Pass Special Mention Substandard or Lower Total
September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016
(dollars in thousands)
Real estate - commercial mortgage $ 6,028,523
$ 5,763,122
$ 118,947
$ 132,484
$ 127,670
$ 122,976
$ 6,275,140
$ 6,018,582
Commercial - secured 3,807,138
3,686,152
98,639
128,873
183,181
118,527
4,088,958
3,933,552
Commercial - unsecured 127,561
145,922
3,474
4,481
3,082
3,531
134,117
153,934
Total commercial - industrial, financial and agricultural 3,934,699
3,832,074
102,113
133,354
186,263
122,058
4,223,075
4,087,486
Construction - commercial residential 134,786
113,570
6,746
15,447
14,595
13,172
156,127
142,189
Construction - commercial 743,111
635,963
4,418
3,412
3,869
5,115
751,398
644,490
Total construction (excluding Construction - other) 877,897
749,533
11,164
18,859
18,464
18,287
907,525
786,679
$ 10,841,119
$ 10,344,729
$ 232,224
$ 284,697
$ 332,397
$ 263,321
$ 11,405,740
$ 10,892,747
% of Total 95.1 % 95.0 % 2.0 % 2.6 % 2.9 % 2.4 % 100.0 % 100.0 %

The risk rating process allows management to identify credits that potentially carry more risk in a timely manner and to allocate resources to managing troubled accounts. The Corporation believes that internal risk ratings are the most relevant credit quality indicator for the class segments presented above. The migration of loans through the various internal risk rating categories is a significant component of the allowance for credit loss methodology, which bases the probability of default on this migration. Assigning risk ratings involves judgment. The Corporation's loan review officers provide an independent assessment of risk rating accuracy. Ratings may be changed based on the ongoing monitoring procedures performed by loan officers or credit administration staff, or if specific loan review activities identify a deterioration or an improvement in the loan.

The following table presents internal credit risk ratings for the indicated loan class segments:



	Pass						Special Mention						Substandard or Lower						Total
	March 31, 2018			December 31, 2017			March 31, 2018			December 31, 2017			March 31, 2018			December 31, 2017			March 31, 2018			December 31, 2017
	(dollars in thousands)
Real estate - commercial mortgage	$	6,027,210		$	6,066,396		$	144,809		$	147,604		$	160,489		$	150,804		$	6,332,508		$	6,364,804
Commercial - secured	3,873,737			3,831,485			100,242			121,842			180,234			179,113			4,154,213			4,132,440
Commercial - unsecured	139,139			159,620			3,378			5,478			2,342			2,759			144,859			167,857
Total commercial - industrial, financial and agricultural	4,012,876			3,991,105			103,620			127,320			182,576			181,872			4,299,072			4,300,297
Construction - commercial residential	141,587			143,759			4,613			5,259			12,282			14,084			158,482			163,102
Construction - commercial	744,274			761,218			834			846			3,688			3,752			748,796			765,816
Total construction (excluding Construction - other)	885,861			904,977			5,447			6,105			15,970			17,836			907,278			928,918
	$	10,925,947		$	10,962,478		$	253,876		$	281,029		$	359,035		$	350,512		$	11,538,858		$	11,594,019
% of Total	94.7		%	94.6		%	2.2		%	2.4		%	3.1		%	3.0		%	100.0		%	100.0		%

The Corporation does not assign internal risk ratings to smaller balance, homogeneous loans, such as home equity, residential mortgage, construction loans to individuals secured by residential real estate, consumer and lease receivables. For these loans, the most relevant credit quality indicator is delinquency status. The migration of loans through the various delinquency status categories is a significant component of the allowance for credit losses methodology for those loans, which bases the probability of default on this migration.

The following table presents a summary of performing, delinquent and non-performing loans for the indicated loan class segments:


	Performing						Delinquent (1)						Non-performing (2)						Total						Performing						Delinquent (1)						Non-performing (2)						Total
	September 30, 2017			December 31, 2016			September 30, 2017			December 31, 2016			September 30, 2017			December 31, 2016			September 30, 2017			December 31, 2016			March 31, 2018			December 31, 2017			March 31, 2018			December 31, 2017			March 31, 2018			December 31, 2017			March 31, 2018			December 31, 2017
	(dollars in thousands)																								(dollars in thousands)
Real estate - home equity	$	1,542,289		$	1,602,687		$	12,955		$	9,274		$	12,229		$	13,154		$	1,567,473		$	1,625,115		$	1,493,485		$	1,535,557		$	8,731		$	12,655		$	12,025		$	11,507		$	1,514,241		$	1,559,719
Real estate - residential mortgage	1,845,495			1,557,995			20,769			20,344			21,643			23,655			1,887,907			1,601,994			1,938,817			1,914,888			17,539			18,852			20,168			20,971			1,976,524			1,954,711
Construction - other	64,110			55,874			382			—			1,091			1,096			65,583			56,970			68,363			77,403			—			203			490			411			68,853			78,017
Consumer - direct	55,490			93,572			158			1,752			63			1,563			55,711			96,887			55,681			54,828			323			315			54			70			56,058			55,213
Consumer - indirect	243,723			190,656			2,834			3,599			180			328			246,737			194,583			267,584			254,663			2,931			3,681			193			226			270,708			258,570
Total consumer	299,213			284,228			2,992			5,351			243			1,891			302,448			291,470			323,265			309,491			3,254			3,996			247			296			326,766			313,783
Leasing	256,784			229,591			884			1,068			80			317			257,748			230,976			270,027			267,111			843			855			172			32			271,042			267,998
	$	4,007,891		$	3,730,375		$	37,982		$	36,037		$	35,286		$	40,113		$	4,081,159		$	3,806,525		$	4,093,957		$	4,104,450		$	30,367		$	36,561		$	33,102		$	33,217		$	4,157,426		$	4,174,228
% of Total	98.2		%	98.0		%	0.9		%	0.9		%	0.9		%	1.1		%	100.0		%	100.0		%	98.5		%	98.3		%	0.7		%	0.9		%	0.8		%	0.8		%	100.0		%	100.0		%


(1)	Includes all accruing loans 30 days to 89 days past due.


(2)	Includes all accruing loans 90 days or more past due and all non-accrual loans.

The following table presents non-performing assets:


	September 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
	(in thousands)				(in thousands)
Non-accrual loans	$	123,345	$	120,133	$	122,966	$	124,749
Loans 90 days or more past due and still accruing	13,124		11,505		11,676		10,010
Total non-performing loans	136,469		131,638		134,642		134,759
Other real estate owned (OREO)	10,542		12,815		10,744		9,823
Total non-performing assets	$	147,011	$	144,453	$	145,386	$	144,582

The following tables present past due status and non-accrual loans by portfolio segment and class segment:


	September 30, 2017																March 31, 2018
	30-59 Days Past Due		60-89 Days Past Due		≥ 90 Days Past Due and Accruing		Non- accrual		Total ≥ 90 Days		Total Past Due		Current		Total		30-59 Days Past Due		60-89 Days Past Due		≥ 90 Days Past Due and Accruing		Non- accrual		Total ≥ 90 Days		Total Past Due		Current		Total
	(in thousands)																(in thousands)
Real estate - commercial mortgage	$	10,276	$	2,297	$	2,884	$	31,766	$	34,650	$	47,223	$	6,227,917	$	6,275,140	$	11,606	$	1,091	$	1,001	$	35,183	$	36,184	$	48,881	$	6,283,627	$	6,332,508
Commercial - secured	8,382		2,378		1,503		51,787		53,290		64,050		4,024,908		4,088,958		4,048		3,607		1,935		52,336		54,271		61,926		4,092,287		4,154,213
Commercial - unsecured	114		34		—		919		919		1,067		133,050		134,117		814		159		10		634		644		1,617		143,242		144,859
Total commercial - industrial, financial and agricultural	8,496		2,412		1,503		52,706		54,209		65,117		4,157,958		4,223,075		4,862		3,766		1,945		52,970		54,915		63,543		4,235,529		4,299,072
Real estate - home equity	11,192		1,763		3,096		9,133		12,229		25,184		1,542,289		1,567,473		6,401		2,330		3,280		8,745		12,025		20,756		1,493,485		1,514,241
Real estate - residential mortgage	15,106		5,663		5,258		16,385		21,643		42,412		1,845,495		1,887,907		12,725		4,814		4,833		15,335		20,168		37,707		1,938,817		1,976,524
Construction - commercial residential	400		18		60		12,164		12,224		12,642		143,485		156,127		—		—		—		10,422		10,422		10,422		148,060		158,482
Construction - commercial	366		—		—		100		100		466		750,932		751,398		—		—		—		19		19		19		748,777		748,796
Construction - other	382		—		—		1,091		1,091		1,473		64,110		65,583		—		—		198		292		490		490		68,363		68,853
Total real estate - construction	1,148		18		60		13,355		13,415		14,581		958,527		973,108		—		—		198		10,733		10,931		10,931		965,200		976,131
Consumer - direct	118		40		63		—		63		221		55,490		55,711		211		112		54		—		54		377		55,681		56,058
Consumer - indirect	2,393		441		180		—		180		3,014		243,723		246,737		2,253		678		193		—		193		3,124		267,584		270,708
Total consumer	2,511		481		243		—		243		3,235		299,213		302,448		2,464		790		247		—		247		3,501		323,265		326,766
Leasing, other and overdrafts	764		120		80		—		80		964		256,784		257,748		662		181		172		—		172		1,015		270,027		271,042
Total	$	49,493	$	12,754	$	13,124	$	123,345	$	136,469	$	198,716	$	15,288,183	$	15,486,899	$	38,720	$	12,972	$	11,676	$	122,966	$	134,642	$	186,334	$	15,509,950	$	15,696,284


	December 31, 2016																December 31, 2017
	30-59 Days Past Due		60-89 Days Past Due		≥ 90 Days Past Due and Accruing		Non- accrual		Total ≥ 90 Days		Total Past Due		Current		Total		30-59 Days Past Due		60-89 Days Past Due		≥ 90 Days Past Due and Accruing		Non- accrual		Total ≥ 90 Days		Total Past Due		Current		Total
	(in thousands)																(in thousands)
Real estate - commercial mortgage	$	6,254	$	1,622	$	383	$	38,936	$	39,319	$	47,195	$	5,971,387	$	6,018,582	$	9,456	$	4,223	$	625	$	34,822	$	35,447	$	49,126	$	6,315,678	$	6,364,804
Commercial - secured	6,660		2,616		959		41,589		42,548		51,824		3,881,728		3,933,552		4,778		5,254		1,360		52,255		53,615		63,647		4,068,793		4,132,440
Commercial - unsecured	898		35		152		760		912		1,845		152,089		153,934		305		10		45		649		694		1,009		166,848		167,857
Total commercial - industrial, financial and agricultural	7,558		2,651		1,111		42,349		43,460		53,669		4,033,817		4,087,486		5,083		5,264		1,405		52,904		54,309		64,656		4,235,641		4,300,297
Real estate - home equity	6,596		2,678		2,543		10,611		13,154		22,428		1,602,687		1,625,115		9,640		3,015		2,372		9,135		11,507		24,162		1,535,557		1,559,719
Real estate - residential mortgage	15,600		4,744		5,224		18,431		23,655		43,999		1,557,995		1,601,994		11,961		6,891		5,280		15,691		20,971		39,823		1,914,888		1,954,711
Construction - commercial residential	233		51		36		8,275		8,311		8,595		133,594		142,189		—		439		—		11,767		11,767		12,206		150,896		163,102
Construction - commercial	743		—		—		435		435		1,178		643,312		644,490		483		—		—		19		19		502		765,314		765,816
Construction - other	—		—		—		1,096		1,096		1,096		55,874		56,970		203		—		—		411		411		614		77,403		78,017
Total real estate - construction	976		51		36		9,806		9,842		10,869		832,780		843,649		686		439		—		12,197		12,197		13,322		993,613		1,006,935
Consumer - direct	1,211		541		1,563		—		1,563		3,315		93,572		96,887		260		55		70		—		70		385		54,828		55,213
Consumer - indirect	3,200		399		328		—		328		3,927		190,656		194,583		3,055		626		226		—		226		3,907		254,663		258,570
Total consumer	4,411		940		1,891		—		1,891		7,242		284,228		291,470		3,315		681		296		—		296		4,292		309,491		313,783
Leasing, other and overdrafts	543		525		317		—		317		1,385		229,591		230,976		568		287		32		—		32		887		267,111		267,998
Total	$	41,938	$	13,211	$	11,505	$	120,133	$	131,638	$	186,787	$	14,512,485	$	14,699,272	$	40,709	$	20,800	$	10,010	$	124,749	$	134,759	$	196,268	$	15,571,979	$	15,768,247

The following table presents TDRs, by class segment:


	September 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
	(in thousands)				(in thousands)
Real-estate - residential mortgage	$	26,193	$	27,617	$	25,602	$	26,016
Real-estate - commercial mortgage	14,439		15,957		18,181		13,959
Real estate - home equity	14,789		8,594		16,067		15,558
Commercial	7,512		6,627		11,740		10,820
Construction	169		726
Consumer	33		39		24		26
Total accruing TDRs	63,135		59,560		71,614		66,379
Non-accrual TDRs ⁽¹⁾	28,742		27,850		24,897		29,051
Total TDRs	$	91,877	$	87,410	$	96,511	$	95,430


(1)	Included in non-accrual loans in the preceding table detailing non-performing assets.

~~As of September 30, 2017 and December 31, 2016, there were $3.8 million and $3.6 million of commitments, respectively, to lend additional funds to borrowers whose loans were modified under TDRs.~~

The following table presents TDRs, by class segment and type of concession for loans that were modified during the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018 and ~~2016:~~2017:


		Three months ended September 30						Nine months ended September 30							Three months ended March 31
		2017			2016			2017			2016				2018			2017
		Number of Loans	Post-Modification Recorded Investment		Number of Loans	Post-Modification Recorded Investment		Number of Loans	Post-Modification Recorded Investment		Number of Loans	Post-Modification Recorded Investment			Number of Loans	Post-Modification Recorded Investment		Number of Loans	Post-Modification Recorded Investment
		(dollars in thousands)													(dollars in thousands)
Real estate – residential mortgage:	Real estate – residential mortgage:													Real estate – residential mortgage:
	Extend maturity with rate concession	2	$	468	—	$	—	2	$	468	—	$	—	Extend maturity without rate concession	—	—		2	337
	Extend maturity without rate concession	2	151		—	—		4	488		2	$	315	Bankruptcy	1	5		1	178
	Bankruptcy	—	—		2	350		2	335		3	723
Real estate - commercial mortgage:	Real estate - commercial mortgage:													Real estate - commercial mortgage:
	Extend maturity without rate concession	2	1,247		—	—		6	2,228		—	$	—
	Bankruptcy	—	—		—	—		1	12		—	$	—	Extend maturity without rate concession	—	—		1	318
Real estate - home equity:	Real estate - home equity:													Real estate - home equity:
	Extend maturity without rate concession	14	1,315		24	1,063		47	3,874		63	$	3,058	Extend maturity without rate concession	17	1,276		16	1,284
	Bankruptcy	6	127		11	563		23	1,643		33	$	2,279	Bankruptcy	2	108		7	453
Commercial:	Commercial:													Commercial:
	Extend maturity without rate concession	1	160		4	1,826		9	5,853		10	3,802		Extend maturity without rate concession	9	9,359		4	3,126
	Bankruptcy	—	—		—	—		1	490		—	—
Commercial – unsecured:
	Extend maturity without rate concession	—	—		—	—		1	33		2	103
Construction - commercial residential:
	Extend maturity without rate concession	—	—		—	—		1	1,204		—	—
Consumer - direct:
	Bankruptcy	—	—		—	—		—	—		1	2
Consumer - indirect:
	Bankruptcy	—	—		1	21		—	—		1	21

Total	Total	27	$	3,468	42	$	3,823	97	$	16,628	115	$	10,303	Total	29	$	10,748	31	$	5,696

The following table presents TDRs, by class segment, as of ~~September 30,~~March 31, 2018 and 2017, ~~and 2016,~~ that were modified in the previous 12 months and had a post-modification payment default during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 and ~~2016.~~2017. The Corporation defines a payment default as a single missed payment.


	2017			2016			2018			2017
	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment		Number of Loans	Recorded Investment		Number of Loans	Recorded Investment
	(dollars in thousands)						(dollars in thousands)
Real estate - residential mortgage	5	$	1,321	7	$	1,395	5	$	332	8	$	2,006
Real estate - commercial mortgage	3	653		2	129		1	180		2	430
Real estate - home equity	27	1,598		29	1,902		18	1,000		14	639
Commercial	2	264		6	2,593		6	526		6	3,654
Commercial - unsecured	—	—		1	26
Construction - commercial residential	1	1,198		—	—
Construction - other	1	411		—	—
Construction							2	1,484		—	—
Total	39	$	5,445	45	$	6,045	32	$	3,522	30	$	6,729

NOTE 6 – Mortgage Servicing Rights

The following table summarizes the changes in mortgage servicing rights ("MSRs"), which are included in other assets on the consolidated balance sheets:


	Three months ended September 30						Nine months ended September 30						Three months ended March 31
	2017			2016			2017			2016			2018			2017
	(in thousands)												(in thousands)
Amortized cost:
Balance at beginning of period	$	38,180		$	39,874		$	38,822		$	40,944		$	37,663		$	38,822
Originations of mortgage servicing rights	1,333			1,499			3,719			3,927			1,483			1,183
Amortization	(1,639		)	(2,064		)	(4,667		)	(5,562		)	(1,398		)	(1,462		)
Balance at end of period	$	37,874		$	39,309		$	37,874		$	39,309		$	37,748		$	38,543

Valuation allowance:
Balance at beginning of period	$	—		$	(1,721	)	$	(1,291	)	$	—
(Additions) reductions to valuation allowance	—			(1,280		)	1,291			(3,001		)
Balance at end of period	$	—		$	(3,001	)	$	—		$	(3,001	)
Valuation Allowance - Balance at beginning and end of period													$	—		$	(1,291	)

Net MSRs at end of period	$	37,874		$	36,308		$	37,874		$	36,308		$	37,748		$	37,252

MSRs represent the economic value of existing contractual rights to service mortgage loans that have been sold. Accordingly, actual and expected prepayments of the underlying mortgage loans can impact the value of MSRs. The Corporation accounts for MSRs at the lower of amortized cost or fair value.

The fair value of MSRs is estimated by discounting the estimated cash flows from servicing income, net of expense, over the expected life of the underlying loans at a discount rate commensurate with the risk associated with these assets. Expected life is based on the contractual terms of the loans, as adjusted for prepayment projections. Based on its fair value analysis, the Corporation determined a valuation allowance was not necessary as of March 31, 2018. For the three months ended March 31, 2017, the Corporation determined that no adjustment to the valuation allowance ~~was necessary for the three months ended September 30, 2017, while a reduction~~ of $1.3 million was required for the nine months ended September 30, 2017. Additions to the valuation allowance of $1.3 million and $3.0 million were necessary for the three and nine months ended September 30, 2016, respectively.necessary. Additions and reductions to the valuation allowance are recorded as decreases and increases, respectively, to "mortgage banking income" on the consolidated statements of income.

NOTE 7 – Stock-Based Compensation

The Corporation grants equity awards to employees, consisting of stock options, restricted stock, RSUs and PSUs under its Amended and Restated Equity and Cash Incentive Compensation Plan ("Employee Equity Plan"). In addition, employees may purchase stock under the Corporation’s Employee Stock Purchase Plan. The fair value of equity awards granted to employees is recognized as compensation expense over the period during which employees are required to provide service in exchange for such awards. Compensation expense for PSUs is also recognized over the period during which employees are required to provide service in exchange for such awards, however, compensation expense may vary based on the expectations for actual performance relative to defined performance measures.

The Corporation also grants equity awards to non-employee members of its board of directors under the 2011 Directors’ Equity Participation Plan ("Directors’ Plan"). Under the Directors’ Plan, the Corporation can grant equity awards to non-employee holding company and subsidiary bank directors in the form of stock options, restricted stock or common stock.

Equity awards issued under the Employee Equity Plan are generally granted annually and become fully vested over or after a three-year vesting period. The vesting period for non-performance-based awards represents the period during which employees are required to provide service in exchange for such awards. Equity awards under the Directors' Plan generally vest immediately upon grant. Certain events, as defined in the Employee Equity Plan and the Directors' Plan, result in the acceleration of the vesting of equity awards.

~~The following table presents compensation expense and the related tax benefits for equity awards recognized in the consolidated statements of income:~~

Three months ended September 30 Nine months ended September 30
2017 2016 2017 2016
(in thousands)
Stock-based compensation expense $ 1,570
$ 1,552
$ 3,339
$ 4,808
Tax benefit (628 ) (536 ) (3,312 ) (1,611 )
Stock-based compensation expense, net of tax benefit $ 942
$ 1,016
$ 27
$ 3,197

~~Stock option fair values are estimated through the use of the Black-Scholes valuation methodology as of the date of grant. Stock options carry terms of up to~~ ~~ten~~ ~~years.~~ Fair values for ~~restricted stock,~~ RSUs and a majority of PSUs are based on the trading price of the Corporation’s stock on the date of grant and earn ~~dividends or~~ dividend equivalents during the vesting period, which are forfeitable if the awards do not vest. The fair value of certain PSUs are estimated through the use of the Monte Carlo valuation methodology as of the date of grant.

As of ~~September 30, 2017~~,March 31, 2018, the Employee Equity Plan had 11.1 million shares reserved for future grants through 2023,, and the Directors’ Plan had approximately 360,000 shares reserved for future grants through 2021.

The following table presents compensation expense and the related tax benefits for equity awards recognized in the consolidated statements of income:



	Three months ended March 31
	2018			2017
	(in thousands)
Compensation expense	$	1,510		$	734
Tax benefit	(461		)	(744		)
Stock-based compensation expense, net of tax benefit	$	1,049		$	(10	)

For the quarter ended March 31, 2017, the tax benefit exceeded the stock-based compensation expense as a result of excess tax benefits related to stock option exercises during the quarter, which were recorded as a reduction to income tax expense as required under ASU 2016-09.

NOTE 8 – Employee Benefit Plans

The net periodic ~~benefit~~pension cost for the Corporation’s Defined Benefit Pension Plan ("Pension Plan") consisted of the following components:


	Three months ended September 30						Nine months ended September 30						Three months ended March 31
	2017			2016			2017			2016			2018			2017
	(in thousands)												(in thousands)
Service cost ⁽¹⁾	$	—		$	172		$	—		$	516
Interest cost	830			880			2,490			2,640			$	831		$	830
Expected return on plan assets	(451		)	(580		)	(1,353		)	(1,739		)	(451		)	(451		)
Net amortization and deferral	663			605			1,989			1,815			664			663
Net periodic benefit cost	$	1,042		$	1,077		$	3,126		$	3,232
Net periodic pension cost													$	1,044		$	1,042


~~(1)~~	~~The Pension Plan was curtailed effective January 1, 2008. Service cost was related to administrative costs associated with the plan and was not due to the accrual of additional participant benefits.~~

The components of the net ~~periodic~~ benefit offor the Corporation’s Postretirement Benefits Plan ("Postretirement Plan") consisted of the ~~following components:~~following:


	Three months ended September 30						Nine months ended September 30						Three months ended March 31
	2017			2016			2017			2016			2018			2017
	(in thousands)												(in thousands)
Interest cost	$	17		$	21		$	51		$	64		$	17		$	17
Expected return on plan assets	—			—			—			(1		)
Net accretion and deferral	(141		)	(138		)	(423		)	(413		)	(141		)	(141		)
Net periodic benefit	$	(124	)	$	(117	)	$	(372	)	$	(350	)	$	(124	)	$	(124	)

The Corporation recognizes the funded status of its Pension Plan and Postretirement Plan on the consolidated balance sheets and recognizes the change in that funded status through other comprehensive income.

NOTE 9 – Derivative Financial Instruments

The Corporation manages its exposure to certain interest rate and foreign currency risks through the use of derivatives. None of the Corporation's outstanding derivative contracts are designated as hedges, and none are entered into for speculative purposes. Derivative instruments are carried at fair value, with changes in fair ~~values~~value recognized in earnings as components of non-interest income ~~and~~or non-interest expense on the consolidated statements of income.

Derivative contracts create counterparty credit risk with both the Corporation's customers and with institutional ~~derivative~~ counterparties. The Corporation manages counterparty credit risk through its credit approval processes, monitoring procedures and obtaining adequate collateral, when the Corporation determines it is appropriate to do so and in accordance with counterparty contracts.

Mortgage Banking Derivatives

In connection with its mortgage banking activities, the Corporation enters into commitments to originate certain fixed-rate residential mortgage loans for customers, also referred to as interest rate locks. In addition, the Corporation enters into forward commitments for the future sales or purchases of mortgage-backed securities to or from third-party counterparties to hedge the effect of changes in interest rates on the values of both the interest rate locks and mortgage loans held for sale. Forward sales commitments may also be in the form of commitments to sell individual mortgage loans at a fixed price at a future date. The amount necessary to settle each interest rate lock is based on the price that secondary market investors would pay for loans with similar characteristics, including interest rate and term, as of the date fair value is measured. Gross derivative assets and liabilities are recorded in other assets and other liabilities, respectively, on the consolidated balance sheets, and changes in fair values during the period are recorded in mortgage banking income on the consolidated statements of income.

Interest Rate Swaps

The Corporation enters into interest rate swaps with certain qualifying commercial loan customers to meet their interest rate risk management needs. The Corporation simultaneously enters into interest rate swaps with dealer counterparties, with identical notional amounts and terms. The net result of these interest rate swaps is that the customer pays a fixed rate of interest and the Corporation receives a floating rate. These interest rate swaps are derivative financial instruments and the gross fair values are recorded in other assets and other liabilities on the consolidated balance sheets, with changes in fair values during the period recorded in other non-interest expense on the consolidated statements of income. Fulton Bank, N.A. ("Fulton Bank"), the Corporation's largest banking subsidiary, exceeded $10 billion in total assets as of December 31, 2016 and ~~was~~is required to clear all eligible interest rate swap contracts with a central counterparty, effective January 1, 2017. As a result, Fulton Bank ~~became~~is subject to the regulations of the Commodity Futures Trading Commission ("CFTC").

Foreign Exchange Contracts

The Corporation enters into foreign exchange contracts to accommodate the needs of its customers. Foreign exchange contracts are commitments to buy or sell foreign currency on a ~~future~~specific date at a contractual price. The Corporation ~~offsets~~limits its foreign exchange ~~contract~~ exposure with customers by entering into contracts with ~~third-party correspondent financial institutions~~institutional counterparties to mitigate its ~~exposure to fluctuations in~~ foreign ~~currency~~ exchange ~~rates.~~risk. The Corporation also holds certain amounts of foreign currency with international correspondent ~~banks.~~banks ("Foreign Currency Nostro Accounts"). The ~~Corporation's policy~~Corporation limits the total overnight net foreign currency open positions, which ~~includes~~is defined as an aggregate of all outstanding contracts and ~~foreign account~~Foreign Currency Nostro Account balances, to $500,000. Gross fair values are recorded in other assets and other liabilities on the consolidated balance sheets, with changes in fair values during the period recorded ~~within~~in other service charges and fees on the consolidated statements of income.

The following table presents a summary of the notional amounts and fair values of derivative financial instruments:


	September 30, 2017					December 31, 2016					March 31, 2018					December 31, 2017
	Notional Amount		Asset (Liability) Fair Value			Notional Amount		Asset (Liability) Fair Value			Notional Amount		Asset (Liability) Fair Value			Notional Amount		Asset (Liability) Fair Value
	(in thousands)										(in thousands)
Interest Rate Locks with Customers
Positive fair values	$	141,250	$	1,283		$	87,119	$	863		$	142,131	$	1,210		$	129,469	$	1,059
Negative fair values	5,530		(16		)	18,239		(227		)	10,572		(81		)	8,957		(59		)
Net interest rate locks with customers			1,267					636					1,129					1,000
Forward Commitments
Positive fair values	27,562		48			70,031		2,223			112,544		47			3,856		34
Negative fair values	77,000		(207		)	19,964		(112		)	—		—			100,808		(213		)
Net forward commitments			(159		)			2,111					47					(179		)
Interest Rate Swaps with Customers
Positive fair values	1,329,394		34,028			876,744		24,397			464,300		7,581			1,316,548		24,505
Negative fair values	578,120		(13,682		)	583,060		(16,998		)	1,654,770		(44,696		)	716,634		(18,978		)
Net interest rate swaps with customers			20,346					7,399					(37,115		)			5,527
Interest Rate Swaps with Dealer Counterparties
Positive fair values	578,120		13,682			583,060		16,998
Negative fair values ⁽¹⁾	1,329,394		(27,663		)	876,744		(24,397		)
Positive fair values ^{(1) (3)}											1,654,770		39,466			716,634		18,941
Negative fair values ^{(2) (3)}											464,300		(6,475		)	1,316,548		(19,764		)
Net interest rate swaps with dealer counterparties			(13,981		)			(7,399		)			32,991					(823		)
Foreign Exchange Contracts with Customers
Positive fair values	5,912		332			11,674		504			9,914		228			4,852		276
Negative fair values	5,473		(226		)	4,659		(221		)	3,330		(64		)	5,914		(119		)
Net foreign exchange contracts with customers			106					283					164					157
Foreign Exchange Contracts with Correspondent Banks
Positive fair values	8,978		293			7,040		241			13,953		182			7,960		184
Negative fair values	4,420		(280		)	12,869		(447		)	8,682		(165		)	6,048		(255		)
Net foreign exchange contracts with correspondent banks			13					(206		)			17					(71		)
Net derivative fair value asset			$	7,592				$	2,824				$	(2,767	)			$	5,611

(1) Includes centrally cleared interest rate swaps with a notional amount of ~~$324.3~~$371.1 million and a fair value of $0 as of ~~September 30,~~March 31, 2018 and a notional amount of $24.4 million and a fair value of $0 as of December 31, 2017. ~~Collateral is~~

(2) Includes centrally cleared interest rate swaps with a notional amount of $83.3 million and a fair value of $0 as of March 31, 2018 and a notional amount of $377.1 million and a fair value of $0 as of December 31, 2017.

(3) The variation margin posted ~~daily through a clearing agent for changes in~~as collateral on centrally cleared interest rate swaps, which represents the fair ~~value.~~value of such swaps, is legally characterized as settlements of the outstanding derivative contracts instead of cash collateral. Accordingly, the fair values of centrally cleared interest rate swaps were offset by variation margins of $4.3 million at March 31, 2018, increasing the fair value of such swaps to $0, and $4.6 million at December 31, 2017, reducing the fair value of such swaps to $0.

The following table presents a summary of the fair value (losses) gains ~~(losses)~~ on derivative financial instruments:


	Three months ended September 30						Nine months ended September 30						Three months ended March 31
	2017			2016			2017			2016			2018			2017
	(in thousands)												(in thousands)
Interest rate locks with customers	$	(59	)	$	178		$	631		$	1,922		$	129		$	845
Forward commitments	(48		)	970			(2,270		)	(1,042		)	226			(2,379		)
Interest rate swaps with customers	(47		)	(1,948		)	12,947			48,052			(42,642		)	(815		)
Interest rate swaps with dealer counterparties(1)	1,248			1,948			(6,582		)	(48,052		)	33,814			3,001
Foreign exchange contracts with customers	140			47			(177		)	502			7			8
Foreign exchange contracts with correspondent banks	(111		)	(266		)	219			(613		)	88			(37		)
Net fair value gains on derivative financial instruments	$	1,123		$	929		$	4,768		$	769		$	(8,378	)	$	623

(1) Not included is $8.9 million of gains representing the change in the variation margin for the three months ended March 31, 2018 and $2.2 million of losses representing the change in the variation margin for the three months ended March 31, 2017.

Fair Value Option

~~U.S. GAAP permits entities to measure many financial instruments and certain other items at fair value and requires certain disclosures for amounts for which the fair value option is applied.~~ The Corporation has elected to measure mortgage loans held

for sale at fair ~~value to more accurately reflect the financial results of its mortgage banking activities in its consolidated financial statements.~~value. Derivative financial instruments related to ~~these~~mortgage banking activities are also recorded at fair value, as noted above. The Corporation determines fair value for its mortgage loans held for sale based on the price that secondary market investors would pay for loans with similar characteristics, including interest rate and term, as of the date fair value is measured. Changes in fair values during the period are recorded as components of mortgage banking income on the consolidated statements of income. ~~Interest income earned on mortgage loans held for sale is classified in interest income on the consolidated statements of income.~~

The following table presents a summary of the Corporation’s mortgage loans held for sale:


	September 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
	(in thousands)				(in thousands)
Cost(1)	$	22,615	$	28,708	$	23,186	$	31,069
Fair value	23,049		28,697		23,450		31,530

(1) Cost basis of mortgage loans held for sale represents the unpaid principal balance.

~~During~~For the three months ended ~~September 30, 2017 and 2016, the Corporation recorded~~March 31, 2018, losses related to changes in fair values of mortgage loans held for sale ~~of $120,000~~were $197,000 and, ~~$360,000, respectively. During~~for the ~~nine~~three months ended ~~September 30,~~March 31, 2017, ~~and 2016, the Corporation recorded~~ gains ~~related to changes in fair values of mortgage loans held for sale of $445,000 and $504,000, respectively.~~were $539,000.

Balance Sheet Offsetting

~~Certain~~Although certain financial assets and liabilities may be eligible for offset on the consolidated balance sheets because they are subject to master netting arrangements or similar ~~agreements. The~~agreements, the Corporation elects to not offset ~~certain~~such qualifying assets and ~~liabilities subject to such arrangements on the consolidated financial statements.~~liabilities.

The Corporation is a party to interest rate swap transactions with financial institution counterparties and customers, disclosed in detail above. Under these agreements, the Corporation has the right to net-settle multiple contracts with the same counterparty in the event of default on, or termination of, any one contract. Cash collateral is posted by the party with a net liability position in accordance with contract thresholds and can be used to settle the fair value of the interest rate swap agreements in the event of default. ~~Collateral is posted~~A daily settlement occurs through a clearing agent for changes in the fair value of centrally cleared ~~derivatives with negative fair values.~~derivatives. As a result, the total fair values of interest rate swap derivative assets and derivative liabilities recognized on the consolidated balance sheet are not equal and offsetting.

The Corporation is also a party to foreign currency exchange contracts with financial institution counterparties, under which the Corporation has the right to net-settle multiple contracts with the same counterparty in the event of default on, or termination of, any one contract. As with interest rate swap contracts, collateral is posted by the party with a net liability position in accordance with contract thresholds and can be used to settle the fair value of the foreign currency exchange contracts in the event of default.

The Corporation also enters into agreements with customers in which it sells securities subject to an obligation to repurchase the same or similar securities, referred to as repurchase agreements. Under these agreements, the Corporation may transfer legal control over the assets but still maintain effective control through agreements that both entitle and obligate the Corporation to

repurchase the assets. Therefore, repurchase agreements are reported as secured borrowings, classified in short-term borrowings on the consolidated balance sheets, while the securities underlying the repurchase agreements remain classified with investment securities on the consolidated balance sheets. The Corporation has no intention of setting off these amounts. Therefore, these repurchase agreements are not eligible for offset.

The following table presents the Corporation's financial instruments that are eligible for offset, and the effects of offsetting, on the consolidated balance sheets:


	Gross Amounts		Gross Amounts Not Offset								Gross Amounts		Gross Amounts Not Offset
	Recognized		on the Consolidated								Recognized		on the Consolidated
	on the		Balance Sheets								on the		Balance Sheets
	Consolidated		Financial			Cash			Net		Consolidated		Financial			Cash			Net
	Balance Sheets		Instruments⁽¹⁾			Collateral ⁽²⁾			Amount		Balance Sheets		Instruments⁽¹⁾			Collateral ⁽²⁾			Amount
	(in thousands)										(in thousands)
September 30, 2017
March 31, 2018
Interest rate swap derivative assets	$	47,710	$	(14,163	)	$	—		$	33,547	$	47,047	$	(7,339	)	$	(34,170	)	$	5,538
Foreign exchange derivative assets with correspondent banks	293		(280		)	—			13		182		(165		)	—			17
Total	$	48,003	$	(14,443	)	$	—		$	33,560	$	47,229	$	(7,504	)	$	(34,170	)	$	5,555

Interest rate swap derivative liabilities	$	41,345	$	(14,163	)	$	(15,520	)	$	11,662	$	51,171	$	(7,339	)	$	(8,806	)	$	35,026
Foreign exchange derivative liabilities with correspondent banks	280		(280		)	—			—		165		(165		)	—			—
Total	$	41,625	$	(14,443	)	$	(15,520	)	$	11,662	$	51,336	$	(7,504	)	$	(8,806	)	$	35,026

December 31, 2016
December 31, 2017
Interest rate swap derivative assets	$	41,395	$	(15,117	)	$	—		$	26,278	$	43,446	$	(16,844	)	$	—		$	26,602
Foreign exchange derivative assets with correspondent banks	241		(241		)	—			—		184		(184		)	—			—
Total	$	41,636	$	(15,358	)	$	—		$	26,278	$	43,630	$	(17,028	)	$	—		$	26,602

Interest rate swap derivative liabilities	$	41,395	$	(15,117	)	$	(4,010	)	$	22,268	$	38,742	$	(16,844	)	$	(6,588	)	$	15,310
Foreign exchange derivative liabilities with correspondent banks	447		(241		)	(206		)	—		255		(184		)	—			71
Total	$	41,842	$	(15,358	)	$	(4,216	)	$	22,268	$	38,997	$	(17,028	)	$	(6,588	)	$	15,381


(1)	For ~~derivative~~interest rate swap assets, amounts represent any derivative liability fair values that could be offset in the event of counterparty or customer default. For ~~derivative~~interest rate swap liabilities, amounts represent any derivative asset fair values that could be offset in the event of counterparty or customer default.

(2)

Amounts represent cash collateral received from the counterparty or ~~(posted~~posted by the ~~Corporation).~~Corporation on interest rate swap transactions and foreign exchange contracts with financial institution counterparties. Interest rate swaps with customers are collateralized by the same collateral securing the underlying loans to those borrowers. Cash and securities collateral amounts are included in the table only to the extent of the net derivative fair values.

NOTE 10 – Commitments and Contingencies

Commitments

The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers.

Those financial instruments include commitments to extend credit and letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized on the Corporation’s consolidated balance sheets. Exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and letters of credit is represented by the outstanding amount of those instruments.

The outstanding amounts of commitments to extend credit and letters of credit were as follows:


	September 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
	(in thousands)				(in thousands)
Commitments to extend credit	$	6,418,318	$	6,075,567	$	6,418,380	$	6,205,029
Standby letters of credit	331,096		356,359		318,827		326,973
Commercial letters of credit	41,819		38,901		43,709		41,801

The Corporation records a reserve for unfunded lending commitments, which represents management’s estimate of losses associated with unused commitments to extend credit and letters of credit. See Note 5, "Loans and Allowance for Credit Losses," for additional details.

Residential Lending

Residential mortgages originated and sold by the Corporation consist primarily of conforming, prime loans sold to government sponsored agencies, such as the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac"). ~~The Corporation also sells certain~~Certain prime loans ~~it originates~~may also be sold to non-government sponsored agency investors.

The Corporation provides customary representations and warranties to government sponsored entities and investors that specify, among other things, that the loans have been underwritten to the standards established by the government sponsored entity or investor. The Corporation may be required to repurchase a loan, or reimburse the government sponsored entity or investor for a credit loss incurred on a loan, if it is determined that the representations and warranties have not been met. Such repurchases or reimbursements generally result from an underwriting or documentation deficiency. As of both ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016, total~~2017, outstanding repurchase requests totaled approximately $543,000.

From 2000 to 2011, the Corporation sold loans to the Federal Home Loan Bank of Pittsburgh under its Mortgage Partnership Finance Program ("MPF Program"). The Corporation provided a "credit enhancement" for residential mortgage loans sold under the MPF Program whereby it would assume credit losses in excess of a defined "First Loss Account," or "FLA" balance, up to specified amounts. The FLA is funded by the Federal Home Loan Bank of Pittsburgh based on a percentage of the outstanding principal balance of loans sold. As of ~~September 30, 2017,~~March 31, 2018, the unpaid principal balance of loans sold under the MPF Program was approximately ~~$89~~$80 million. As of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, the reserve for estimated credit losses related to loans sold under the MPF Program was ~~$1.3~~$1.1 million and ~~$1.7~~$1.2 million, respectively. Required reserves are calculated based on delinquency status and estimated loss rates established through the Corporation's existing allowance for credit losses methodology for residential mortgage loans.

As of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, the total reserve for losses on residential mortgage loans sold was $2.1 ~~million and $2.5~~ million, respectively, including both reserves for credit losses under the MPF Program and reserves for representation and warranty exposures. Management believes that the reserves recorded as of ~~September 30, 2017~~March 31, 2018 are adequate. However, declines in collateral values, the identification of additional loans to be repurchased, or a deterioration in the credit quality of loans sold under the MPF Program could necessitate additional reserves, established through charges to earnings, in the future.

In 2017, the Corporation began selling certain non-prime loans to Fannie Mae, under programs designed to extend credit to borrowers who do not meet the underwriting criteria for conforming, prime loans. Under this program, loans sold must be repurchased by the Corporation if they become delinquent, as defined in the agreement, within three years of the date the loan is funded. In the first quarter of 2018, approximately $44.9 million of loans were sold under this program, and the total unpaid principal balance of loans sold under this program was $58.4 million at March 31, 2018. Based on the credit characteristics of this portfolio, no reserve for estimated credit losses for these loans has been recognized in the consolidated balance sheet at March 31, 2018.

Legal Proceedings

The Corporation ~~and its subsidiaries are~~is involved in various pending and threatened claims and other legal proceedings in the ordinary course of business activities of the Corporation. The Corporation ~~periodically~~ evaluates the possible impact of ~~pending litigation~~these matters, ~~based on, among other factors,~~taking into consideration the ~~advice~~most recent information available. A loss reserve is established for those matters for which the Corporation believes a loss is both probable and reasonably estimable. Once established, the reserve is adjusted as appropriate to reflect any subsequent developments. Actual losses may be more or less than the amount estimated by the Corporation. For matters where a loss is not probable, or the amount of ~~counsel, available insurance coverage and recorded liabilities and reserves for probable legal liabilities and costs.~~ the loss cannot be estimated by the Corporation, no loss reserve is established.

In addition, from time to time, the Corporation is the subject of investigations or other forms of regulatory or governmental inquiry covering a range of possible issues and, in some cases, these may be part of similar reviews of the specified activities of other industry participants. These inquiries could lead to administrative, civil or criminal proceedings, and could possibly result in fines, penalties, restitution or the need to alter the Corporation’s business practices, and cause the Corporation to incur additional costs. The Corporation’s practice is to cooperate fully with regulatory and governmental investigations.

As of the date of this report, the Corporation believes that any liabilities, individually or in the aggregate, which may result from the final outcomes of pending proceedings will not have a material adverse effect on the financial condition of the Corporation. However, legal proceedings are often unpredictable, and it is possible that the ultimate resolution of any such matters, if unfavorable,

may be material to the Corporation’s results of operations for any particular period, depending, in part, upon the size of the loss or liability imposed and the operating results for the applicable period.

BSA/AML Enforcement Orders

The Corporation and ~~each~~three of its bank subsidiaries are subject to regulatory enforcement orders issued during 2014 and 2015 by their respective federal and state bank regulatory agencies relating to identified deficiencies in the Corporation’s centralized Bank Secrecy Act and anti-money laundering compliance program (the "BSA/AML Compliance Program"), which was designed to comply with the requirements of the Bank Secrecy Act, the USA Patriot Act of 2001 and related anti-money laundering regulations (collectively, the "BSA/AML Requirements"). The regulatory enforcement orders, which are in the form of consent orders or orders to cease and desist issued upon consent ("Consent Orders"), generally require, among other things, that the Corporation and ~~its~~the affected bank subsidiaries undertake a number of required actions to strengthen and enhance the BSA/AML Compliance Program, and, in some cases, conduct retrospective reviews of past account activity and transactions, as well as certain reports filed in accordance with the BSA/AML Requirements, to determine whether suspicious activity and certain transactions in currency were properly identified and reported in accordance with the BSA/AML Requirements. The Corporation and ~~its~~the affected bank subsidiaries have

implemented numerous enhancements to the BSA/AML Compliance Program, completed the retrospective reviews required under the Consent Orders, and continue to strengthen and refine the BSA/AML Compliance Program to achieve a sustainable program in accordance with the BSA/AML Requirements. In addition to requiring strengthening and enhancement of the BSA/AML Compliance Program, while the Consent Orders remain in effect, the Corporation isand the affected bank subsidiaries are subject to certain restrictions on expansion ~~activities of the Corporation and its bank subsidiaries.~~activities. Further, any failure to comply with the requirements of any of the Consent Orders involving the Corporation or ~~its~~the affected bank subsidiaries could result in further enforcement actions, the imposition of material restrictions on the activities of the Corporation or its bank subsidiaries, or the assessment of fines or penalties.

OnAs previously disclosed, on October 27, 2017, the Office of the Comptroller of the Currency (the "OCC") terminated the Consent Orders that it issued on July 14, 2014 to three of the Corporation's bank subsidiaries, Fulton Bank, N.A., FNB Bank, N.A. and Swineford National Bank, relating to deficiencies in the BSA/AML Compliance Programs at those bank subsidiaries.

Fair Lending Investigation

During the second quarter of 2015, Fulton Bank, N.A., the Corporation’s largest bank subsidiary, received a letter from the U.S. Department of Justice (the "Department") indicating that the Department had initiated an investigation regarding potential violations of fair lending laws (specifically, the Equal Credit Opportunity Act and the Fair Housing Act) by Fulton Bank, N.A. in certain geographies. Fulton Bank, N.A. has been and is cooperating with the Department and responding to the Department’s requests for information. During the third quarter of 2016, the Department informed the Corporation, Fulton Bank, N.A., and three of the Corporation’s other bank subsidiaries, Fulton Bank of New Jersey, The Columbia Bank and Lafayette Ambassador Bank, that the Department was expanding its investigation of potential lending discrimination on the basis of race and national origin to encompass additional geographies that were not included in the initial letter from the Department. In addition to requesting information concerning the lending activities of these bank subsidiaries, the Department also requested information concerning the Corporation and the residential mortgage lending activities conducted under the Fulton Mortgage Company brand, the trade name used by all of the Corporation’s bank subsidiaries for residential mortgage lending. The investigation relates to lending activities during the period January 1, 2009 to the present. The Corporation and the identified bank subsidiaries are cooperating with the Department and responding to the Department’s requests for information. The Corporation and its bank subsidiaries are not able at this time to determine the terms on which this investigation will be resolved or the timing of such resolution, or to reliably estimate the amounts of any settlement, fines or other penalties or the cost of any other remedial actions, if enforcement action is taken. In addition, should the investigation result in an enforcement action against the Corporation or its bank subsidiaries, or a settlement with the Department, the ability of the Corporation and its bank subsidiaries to engage in certain expansion or other activities may be restricted.

~~Agostino, et al. Litigation~~

Fulton Bank, N.A. (the "Bank"), the Corporation’s largest bank subsidiary, and two unrelated, third-party defendants, Ameriprise Financial Services, Inc. (“Ameriprise”) and Riverview Bank (“Riverview”), have been named as defendants in a lawsuit brought on behalf of a group of 67 plaintiffs filed on March 31, 2016, in the Court of Common Pleas for Dauphin County, Pennsylvania (Agostino, et al. v. Ameriprise Financial Services, Inc., et al., No. 2016-CV-2048-CV). The plaintiffs in this action, who are individuals, trustees of certain irrevocable trusts, or the executors of the estates of deceased individuals, were clients of Jeffrey M. Mottern, a now-deceased attorney, who is alleged to have operated a fraud scheme over a period of years through the sale of fictitious high-yield investments or by otherwise misappropriating funds entrusted to Mr. Mottern. Mr. Mottern is alleged to have used the proceeds of these activities to engage in speculative securities trading through defendant Ameriprise, which caused significant losses, and for Mr. Mottern’s personal expenses. The allegations against the Bank relate to a commercial checking account at the Bank maintained by Mr. Mottern in connection with Mr. Mottern’s law practice. The lawsuit alleges that the Bank is liable to the plaintiffs for failing to properly monitor Mr. Mottern’s checking account and detect Mr. Mottern’s fraudulent activity, and specifically alleges that the Bank aided and abetted Mr. Mottern’s: (1) fraud; (2) breach of fiduciary duty; (3) violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Law; and (4) conversion. Similar claims have been asserted against Ameriprise and Riverview, which allegedly maintained a personal brokerage account and a trust account for client or other third-party funds, respectively, for Mr. Mottern. The lawsuit seeks damages from the defendants, including the Bank, alleged to be in excess of $11.3 million, treble damages and attorneys’ fees with respect to alleged violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Law, punitive damages, plus interest and costs. On April 29, 2016, the Bank filed a Notice of Removal to remove this lawsuit to the United States District Court for the Middle District of Pennsylvania. On May 31, 2016, the plaintiffs filed a motion to remand the lawsuit to the Court of Common Pleas for Dauphin County, Pennsylvania. On October 24, 2016, the District Court granted the plaintiffs' motion and the lawsuit was remanded back to the Court of Common Pleas for Dauphin County. All defendants subsequently filed preliminary objections to the Complaint, including objections that, if granted, would result in dismissal of the case. On May 26, 2017, the Court of Common Pleas for Dauphin County denied all substantive preliminary objections filed by the Bank. On June 23, 2017, the Bank filed its Combined Motion for Partial Reconsideration of the Court’s May 26, 2017 Order and Application for Amendment of the Order to Set Forth Expressly the

Statement in Pa.C.S. s. 702(b) (the “Motion”). The Bank also filed its Answer and New Matter (the “Answer”) on June 23, 2017. The plaintiffs subsequently responded to the Motion and the Answer.

In October 2017, the Bank and the plaintiffs agreed to settle the lawsuit. The plaintiffs' Steering Committee, which represents the interests of the 67 plaintiffs, approved the specific terms of the settlement on October 26,2017 and recommended that each plaintiff execute the settlement agreement. The settlement involves the Bank making an aggregate payment to the plaintiffs' attorney on their behalf, in exchange for the plaintiffs' agreement to dismiss the claims against the Bank and any related matters with prejudice. The material terms of the settlement will become effective upon the dismissal of the claims against the Bank by the court, which the plaintiffs have agreed to pursue. The Corporation’s insurance carrier has informed the Corporation that it will reimburse the Corporation for the full amount of the Bank's agreed upon settlement payment, and, as a result, any further financial impact to the Corporation is expected to be immaterial.

NOTE 11 – Fair Value Measurements

FASB ASC Topic 820 establishes a fair value hierarchy for the inputs to valuation techniques used to measure assets and liabilities at fair value using the following three categories (from highest to lowest priority):

Level 1 – Inputs that represent quoted prices for identical instruments in active markets.

Level 2 – Inputs that represent quoted prices for similar instruments in active markets, or quoted prices for identical instruments in non-active markets. Also includes valuation techniques whose inputs are derived principally from observable market data other than quoted prices, such as interest rates or other market-corroborated means.

Level 3 – Inputs that are largely unobservable, as little or no market data exists for the instrument being valued.

The Corporation has categorized all assets and liabilities measured at fair value on both a recurring and nonrecurring basis into the above three levels.

The following tables present summaries of the Corporation’s assets and liabilities measured at fair value on a recurring basis and reported on the consolidated balance sheets:


	September 30, 2017								March 31, 2018
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(in thousands)								(in thousands)
Mortgage loans held for sale	$	—	$	23,049	$	—	$	23,049	$	—	$	23,450	$	—	$	23,450
Available for sale investment securities:
Equity securities	13,059		—		—		13,059
U.S. Government sponsored agency securities	—		6,015		—		6,015		—		20,962		—		20,962
State and municipal securities	—		413,913		—		413,913		—		406,099		—		406,099
Corporate debt securities	—		89,755		3,222		92,977		—		97,995		3,960		101,955
Collateralized mortgage obligations	—		593,678		—		593,678		—		679,700		—		679,700
Residential mortgage-backed securities	—		1,182,086		—		1,182,086		—		1,054,166		—		1,054,166
Commercial mortgage-backed securities	—		161,632		—		161,632		—		226,892		—		226,892
Auction rate securities	—		—		98,156		98,156		—		—		103,049		103,049
Total available for sale investment securities	13,059		2,447,079		101,378		2,561,516		—		2,485,814		107,009		2,592,823
Other assets	18,742		49,041		—		67,783		19,505		48,304		—		67,809
Total assets	$	31,801	$	2,519,169	$	101,378	$	2,652,348	$	19,505	$	2,557,568	$	107,009	$	2,684,082
Other liabilities	$	18,607	$	41,569	$	—	$	60,176	$	19,307	$	51,251	$	—	$	70,558


	December 31, 2016								December 31, 2017
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(in thousands)								(in thousands)
Mortgage loans held for sale	$	—	$	28,697	$	—	$	28,697	$	—	$	31,530	$	—	$	31,530
Available for sale investment securities:
Equity securities	24,526		—		—		24,526		918		—		—		918
U.S. Government sponsored agency securities	—		134		—		134		—		5,938		—		5,938
State and municipal securities	—		391,641		—		391,641		—		408,949		—		408,949
Corporate debt securities	—		106,537		2,872		109,409		—		93,552		3,757		97,309
Collateralized mortgage obligations	—		593,860		—		593,860		—		602,623		—		602,623
Residential mortgage-backed securities	—		1,317,838		—		1,317,838		—		1,120,796		—		1,120,796
Commercial mortgage-backed securities	—		24,563		—		24,563		—		212,755		—		212,755
Auction rate securities	—		—		97,256		97,256		—		—		98,668		98,668
Total available for sale investment securities	24,526		2,434,573		100,128		2,559,227		918		2,444,613		102,425		2,547,956
Other assets	17,111		44,481		—		61,592		19,451		44,539		—		63,990
Total assets	$	41,637	$	2,507,751	$	100,128	$	2,649,516	$	20,369	$	2,520,682	$	102,425	$	2,643,476
Other liabilities	$	17,032	$	41,734	$	—	$	58,766	$	19,357	$	39,014	$	—	$	58,371

The valuation techniques used to measure fair value for the items in the preceding tables are as follows:

Mortgage loans held for sale – This category consists of mortgage loans held for sale that the Corporation has elected to measure at fair value. Fair values as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016~~2017 were measured based on the price that secondary market investors were offering for loans with similar characteristics. See Note 9, "Derivative Financial Instruments" for details related to the Corporation’s election to measure assets and liabilities at fair value.

Available for sale investment securities – Included in this asset category are both equity and debt securities. Level 2 available for sale debt securities are valued by a third-party pricing service commonly used in the banking industry. The pricing service uses pricing models that vary based on asset class and incorporate available market information, including quoted prices of investment securities with similar characteristics. Because many fixed income securities do not trade on a daily basis, pricing models use available information, as applicable, through processes such as benchmark yield curves, benchmarking of like securities, sector groupings, and matrix pricing.

Standard market inputs include: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data, including market research publications. For certain security types, additional inputs may be used, or some of the standard market inputs may not be applicable.

Management tests the values provided by the pricing service by obtaining securities prices from an alternative third-party source and comparing the results. This test is ~~done~~performed for at least 80% of the securities valued by the pricing service. Generally, differences by security in excess of 5% are researched to reconcile the difference.

Equity securities – As of March 31, 2018, the Corporation did not hold any equity securities. Equity securities ~~consist~~held as of December 31, 2017 consisted of common stocks of financial institutions ~~($12.1 million at September 30, 2017 and $23.5 million at December 31, 2016)~~ and other equity ~~investments ($1.0 million at September 30, 2017 and December 31, 2016).~~investments. These Level 1 investments ~~are~~were measured at fair value based on quoted prices for identical securities in active markets.

U.S. Government sponsored agency securities/State and municipal securities/Collateralized mortgage obligations/Residential mortgage-backed securities/Commercial mortgage-backed securities – These debt securities are classified as Level 2 investments. Fair values are determined by a third-party pricing service, as detailed above.

Corporate debt securities – This category consists of subordinated debt and senior debt issued by financial institutions ($~~50.3~~66.6 million at ~~September 30, 2017~~March 31, 2018 and ~~$65.2~~$61.9 million at December 31, ~~2016)~~2017), single-issuer trust preferred securities issued by financial institutions ($~~38.3~~30.5 million at ~~September 30, 2017~~March 31, 2018 and ~~$39.8~~$30.7 million at December 31, ~~2016)~~2017), pooled trust preferred securities issued by financial institutions ($~~422,000~~865,000 at ~~both September 30, 2017~~March 31, 2018 and $707,000 at December 31, ~~2016)~~2017) and other corporate debt issued by non-financial institutions ($4.0 million at both ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016)~~2017).

Level 2 investments include the Corporation’s holdings of subordinated debt and senior debt, other corporate debt issued by non-financial institutions and ~~$35.5~~$27.4 million and ~~$37.3~~$27.7 million of single-issuer trust preferred securities held at ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, respectively. The fair values for these corporate debt securities are determined by a third-party pricing service, as detailed above.

Level 3 investments include the Corporation’s investments in pooled trust preferred securities ($~~422,000~~865,000 at ~~both September 30, 2017~~March 31, 2018 and $707,000 at December 31, ~~2016)~~2017) and certain single-issuer trust preferred securities ($~~2.8~~3.1 million at ~~September 30, 2017~~both March 31, 2018 and ~~$2.5 million~~ at December 31, ~~2016)~~2017). The fair values of these securities were determined based on quotes provided by third-party brokers who determined fair values based predominantly on internal valuation models which were not indicative prices or binding offers. The Corporation’s third-party pricing service cannot derive fair values for these securities primarily due to inactive markets for similar investments. Level 3 values are tested by management primarily through trend analysis, by comparing current values to those reported at the end of the preceding calendar quarter, and determining if they are reasonable based on price and spread movements for this asset class.

Auction rate securities – Due to their illiquidity, ARCs are classified as Level 3 investments and are valued through the use of an expected cash flows model prepared by a third-party valuation expert. The assumptions used in preparing the expected cash flows model include estimates for coupon rates, time to maturity and market rates of return. The most significant unobservable input to the expected cash flows model is an assumed return to market liquidity sometime in the next five years. If the assumed return to market liquidity was lengthened beyond the next five years, this would result in a decrease in the fair value of these ARCs. The Corporation believes that the trusts underlying the ARCs will self-liquidate as student loans are repaid. Level 3 fair valuesare tested by management through the performance of a trend analysis of the market price and discount rate.

Changes in the price and discount rates are compared to changes in market data, including bond ratings, parity ratios, balances and delinquency levels.

Other assets – Included in this category are the following:

Level 1 assets include mutual funds that are held in trust for employee deferred compensation plans ($~~18.1~~19.1 million at ~~September 30, 2017~~March 31, 2018 and ~~$16.4~~$19.0 million at December 31, ~~2016)~~2017) and the fair value of foreign currency exchange contracts ($~~625,000~~428,000 at ~~September 30, 2017~~March 31, 2018 and ~~$745,000~~$460,000 at December 31, ~~2016)~~2017). The mutual funds and foreign exchange prices used to measure these items at fair value are based on quoted prices for identical instruments in active markets.

Level 2 assets include the fair value of mortgage banking derivatives in the form of interest rate locks and forward commitments with secondary market investors ($~~1.3~~1.2 million at ~~September 30, 2017~~March 31, 2018 and ~~$3.1~~$1.1 million at December 31, ~~2016)~~2017) and the fair value of interest rate swaps ($~~47.7~~47.0 million at ~~September 30, 2017~~March 31, 2018 and ~~$41.4~~$43.4 million at December 31, ~~2016)~~2017). The fair values of the Corporation’s interest rate locks, forward commitments and interest rate swaps represent the amounts that would be required to settle the derivative financial instruments at the balance sheet date. See Note 9, "Derivative Financial Instruments," for additional information.

Other liabilities – Included in this category are the following:

Level 1 liabilities include employee deferred compensation liabilities which represent amounts due to employees under deferred compensation plans ($~~18.1~~19.1 million at ~~September 30, 2017~~March 31, 2018 and ~~$16.4~~$19.0 million at December 31, ~~2016)~~2017) and the fair value of foreign currency exchange contracts ($~~506,000~~229,000 at ~~September 30, 2017~~March 31, 2018 and ~~$668,000~~$374,000 at December 31, ~~2016)~~2017). The fair value of these liabilities are determined in the same manner as the related assets, as described under the heading "Other assets" above.

Level 2 liabilities include the fair value of mortgage banking derivatives in the form of interest rate locks and forward commitments with secondary market investors ($~~223,000~~81,000 at ~~September 30, 2017~~March 31, 2018 and ~~$339,000~~$272,000 at December 31, ~~2016)~~2017) and the fair value of interest rate swaps ($~~41.3~~51.2 million at ~~September 30, 2017~~March 31, 2018 and ~~$41.4~~$37.8 million at December 31, ~~2016)~~2017). The fair values of these liabilities are determined in the same manner as the related assets, as described under the heading "Other assets" above.

The following table presents the changes in the Corporation’s available for sale investment securities measured at fair value on a recurring basis using unobservable inputs (Level 3):


	Three months ended September 30, 2017								Three months ended March 31, 2018
	Pooled Trust Preferred Securities		Single-issuer Trust Preferred Securities			ARCs			Pooled Trust Preferred Securities		Single-issuer Trust Preferred Securities		ARCs
	(in thousands)								(in thousands)
Balance at June 30, 2017	$	422	$	2,775		$	97,923
Balance at December 31, 2017									$	707	$	3,050	$	98,668
Unrealized adjustment to fair value ⁽¹⁾	—		(28		)	233			158		42		4,381
Discount accretion ⁽²⁾	—		3			—			—		3		—
Balance at September 30, 2017	$	422	$	2,750		$	98,156

	Three months ended September 30, 2016
Balance at June 30, 2016	$	706	$	2,425		$	97,886
Unrealized adjustment to fair value ⁽¹⁾	—		7			(318		)
Discount accretion ⁽²⁾	—		3			158
Balance at September 30, 2016	$	706	$	2,435		$	97,726

	Nine months ended September 30, 2017
Balance at March 31, 2018									$	865	$	3,095	$	103,049
	Pooled Trust Preferred Securities		Single-issuer Trust Preferred Securities			ARCs
	(in thousands)								Three months ended March 31, 2017
Balance at December 31, 2016	$	422	$	2,450		$	97,256		$	422	$	2,450	$	97,256
Unrealized adjustment to fair value ⁽¹⁾	—		291			705			—		297		86
Discount accretion ⁽²⁾	—		9			195			—		3		97
Balance at September 30, 2017	$	422	$	2,750		$	98,156

	Nine months ended September 30, 2016
Balance at December 31, 2015	$	706	$	2,630		$	98,059
Unrealized adjustment to fair value ⁽¹⁾	—		(204		)	(668		)
Discount accretion ⁽²⁾	—		9			335
Balance at September 30, 2016	$	706	$	2,435		$	97,726

Balance at March 31, 2017									$	422	$	2,750	$	97,439


(1)	Pooled trust preferred securities, single-issuer trust preferred securities and ARCs are classified as available for sale investment securities; as such, the unrealized adjustment to fair value was recorded as an unrealized holding gain (loss) and included as a component of "available for sale investment securities" on the consolidated balance sheets.


(2)	Included as a component of "net interest income" on the consolidated statements of income.

Certain assets are not measured at fair value on an ongoing basis, but are subject to fair value measurement in certain circumstances, such as upon their acquisition or when there is evidence of impairment. The following table presents the Corporation’s Level 3 financial assets measured at fair value on a nonrecurring basis and reported on the Corporation’s consolidated balance sheets:


	September 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
	(in thousands)				(in thousands)
Net loans	$	140,779	$	132,576	$	154,305	$	149,608
OREO	10,542		12,815		10,744		9,823
MSRs	37,874		37,532		37,748		37,663
Total assets	$	189,195	$	182,923	$	202,797	$	197,094

The valuation techniques used to measure fair value for the items in the table above are as follows:

Net loans – This category consists of loans that were ~~measured~~collectively evaluated for impairment ~~under FASB ASC Section 310-10-35~~ and have been classified as Level 3 assets. The amount shown is the balance of impaired loans, net of the related allowance for loan losses. See Note 5, "Loans and Allowance for Credit Losses," for additional details.

OREO – This category includes OREO, ~~($10.5 million at September 30, 2017 and $12.8 million at December 31, 2016)~~ classified as Level 3 assets. Fair values for OREO were based on estimated selling prices less estimated selling costs for similar assets in active markets.

MSRs – This category includes MSRs, ~~($37.9 million at September 30, 2017 and $37.5 million at December 31, 2016),~~ classified as Level 3 assets. MSRs are initially recorded at fair value upon the sale of residential mortgage loans to secondary market investors. MSRs are amortized as a reduction to servicing income over the estimated lives of the underlying loans. MSRs are stratified and evaluated for impairment by comparing each stratum's carrying amount to its estimated fair value. Fair values are determined at the end of each quarter through a discounted cash flows valuation performed by a third-party valuation expert. Significant inputs to the valuation included expected net servicing income, the discount rate and the expected life of the underlying loans. Expected life is based on the contractual terms of the loans, as adjusted for prepayment projections. The weighted average annual constant prepayment rate and the weighted average discount rate used in the ~~September 30, 2017~~March 31, 2018 valuation were ~~12.4%~~9.7% and 9.5%, respectively. Management tests the reasonableness of the significant inputs to the third-party valuation in comparison to market data.

As required by FASB ASC Section 825-10-50, the following table details the book values and estimated fair values of the Corporation’s financial instruments as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016.~~2017. In addition, a general description of the methods and assumptions used to estimate such fair values is also provided.


	September 30, 2017				December 31, 2016				March 31, 2018
	Book Value		Estimated Fair Value		Book Value		Estimated Fair Value		Amortized Cost		Level 1		Level 2		Level 3		Estimated Fair Value
	(in thousands)								(in thousands)
FINANCIAL ASSETS
Cash and due from banks	$	99,803	$	99,803	$	118,763	$	118,763	$	100,151	$	100,151	$	—	$	—	$	100,151
Interest-bearing deposits with other banks	582,845		582,845		233,763		233,763		210,906		210,906		—		—		210,906
Federal Reserve Bank and Federal Home Loan Bank stock	62,951		62,951		57,489		57,489		56,900		—		56,900		—		56,900
Loans held for sale ⁽¹⁾	23,049		23,049		28,697		28,697		23,450		—		23,450		—		23,450
Available for sale investment securities ⁽¹⁾	2,561,516		2,561,516		2,559,227		2,559,227		2,592,823		—		2,485,814		107,009		2,592,823
Net Loans ⁽¹⁾	15,314,654		15,086,654		14,530,593		14,387,454		15,533,067		—		—		14,933,445		14,933,445
Accrued interest receivable	50,082		50,082		46,294		46,294		53,060		53,060		—		—		53,060
Other financial assets ⁽¹⁾	219,434		219,434		206,132		206,132		216,952		120,156		48,304		48,492		216,952
FINANCIAL LIABILITIES
Demand and savings deposits	$	13,274,319	$	13,274,319	$	12,259,622	$	12,259,622	$	12,763,521	$	12,763,521	$	—	$	—	$	12,763,521
Brokered Deposits	109,936		109,936		—		—
Brokered deposits									64,195		64,195		—		—		64,195
Time deposits	2,757,525		2,759,913		2,753,242		2,769,757		2,649,387		—		2,647,498		—		2,647,498
Short-term borrowings	298,751		298,751		541,317		541,317		937,852		937,852		—		—		937,852
Accrued interest payable	10,568		10,568		9,632		9,632		9,681		9,681		—		—		9,681
Other financial liabilities ⁽¹⁾	234,160		234,160		216,080		216,080		209,483		158,232		51,251		—		209,483
Federal Home Loan Bank advances and other long-term debt	1,038,159		1,035,053		929,403		928,167
Federal Home Loan Bank advances and long-term debt									938,499		—		914,763		—		914,763

									December 31, 2017
									Book Value		Level 1		Level 2		Level 3		Estimated Fair Value
									(in thousands)
FINANCIAL ASSETS
Cash and due from banks									$	108,291	$	108,291	$	—	$	—	$	108,291
Interest-bearing deposits with other banks									293,805		293,805		—		—		293,805
Federal Reserve Bank and Federal Home Loan Bank stock									60,761		—		60,761		—		60,761
Loans held for sale									31,530		—		31,530		—		31,530
Available for sale investment securities									2,547,956		918		2,444,613		102,425		2,547,956
Net Loans									15,598,337		—		—		15,380,974		15,380,974
Accrued interest receivable									52,910		52,910		—		—		52,910
Other financial assets									215,464		123,439		44,539		47,486		215,464
FINANCIAL LIABILITIES
Demand and savings deposits									$	13,042,147	$	13,042,147	$	—	$	—	$	13,042,147
Brokered deposits									90,473		90,473		—		—		90,473
Time deposits									2,664,912		—		2,664,912		—		2,664,912
Short-term borrowings									617,524		617,524		—		—		617,524
Accrued interest payable									9,317		9,317		—		—		9,317
Other financial liabilities									227,569		188,555		39,014		—		227,569
Federal Home Loan Bank advances and long-term debt									1,038,346		—		1,038,346		—		1,038,346


~~(1)~~	These financial instruments, or certain financial instruments in these categories, are measured at fair value on the Corporation’s consolidated balance sheets. Descriptions of the fair value determinations for these financial instruments are disclosed above.

Fair values of financial instruments are significantly affected by the assumptions used, principally the timing of future cash flows and discount rates. Because assumptions are inherently subjective in nature, the estimated fair values cannot be substantiated by comparison to independent market quotes and, in many cases, the estimated fair values could not necessarily be realized in an

immediate sale or settlement of the instrument. The aggregate fair value amounts presented do not necessarily represent management’s estimate of the underlying value of the Corporation.

For short-term financial instruments, defined as those with remaining maturities of 90 days or less, and excluding those recorded at fair value on the Corporation’s consolidated balance sheets, book value was considered to be a reasonable estimate of fair value.

The following instruments are predominantly short-term:



Assets		Liabilities
Cash and due from banks		Demand and savings deposits
Interest-bearing deposits with other banks		Short-term borrowings
Accrued interest receivable		Accrued interest payable

Federal Reserve Bank and Federal Home Loan Bank ("FHLB") stock represent restricted investments and are carried at cost on the consolidated balance sheets.

As of March 31, 2018, Fair values for loans and time deposits were estimated by discounting future cash flows using the current rates, as adjusted for liquidity considerations, at which similar loans would be made to borrowers and similar deposits would be issued to customers for the same remaining maturities. Fair values of loans also include estimated credit losses that would be assumed in a market transaction. Fair values estimated in this manner are considered to represent estimated exit prices, required by ASU 2016-01, as of March 31, 2018. As of December 31, 2017, loan fair values do not fully incorporate an exit price approach to fair ~~value, as defined in FASB ASC Topic 820.~~

value.

The fair values of FHLB advances and long-term debt were estimated by discounting the remaining contractual cash flows using a rate at which the Corporation could issue debt with similar remaining maturities as of the balance sheet date. These borrowings would be categorized in Level 2 liabilities under FASB ASC Topic 820.

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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations ("Management’s Discussion") relates to Fulton Financial Corporation (the "Corporation"), a financial holding company registered under the Bank Holding Company Act ~~of 1956~~ and incorporated under the laws of the Commonwealth of Pennsylvania in 1982, and its wholly owned subsidiaries. Management’s Discussion should be read in conjunction with the consolidated financial statements and ~~notes~~other financial information presented in this report.

FORWARD-LOOKING STATEMENTS

The Corporation has made, and may continue to make, certain forward-looking statements with respect to its financial condition, ~~and~~ results of ~~operations.~~operations and business. Do not unduly rely on forward-looking statements. Forward-looking statements can be identified by the use of words such as "may," "should," "will," "could," "estimates," "predicts," "potential," "continue," "anticipates," "believes," "plans," "expects," "future," ~~"intends"~~"intends," "projects," the negative of these terms and ~~similar expressions which are intended to identify forward-looking statements.~~

other comparable terminology. These forward-looking statements ~~are not guarantees~~may include projections of, or guidance on, the Corporation's future financial performance, expected levels of future ~~performance~~expenses, anticipated growth strategies, descriptions of new business initiatives and anticipated trends in the Corporation's business or financial results.

Forward-looking statements are neither historical facts, nor assurance of future performance. Instead, they are based on current beliefs, expectations and assumptions regarding the future of the Corporation's business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements related to the future, they are subject to inherent uncertainties, risks and ~~uncertainties, some~~changes in circumstances that are difficult to predict and many of which are ~~beyond~~outside of the Corporation's control, and ~~ability to predict, that could cause~~ actual results toand financial condition may differ materially from those ~~expressed~~indicated in the forward-looking statements. Therefore, you should not unduly rely on any of these forward-looking statements. Any forward-looking statement is based only on information currently available and speaks only as of the date when made. The Corporation undertakes no obligation, other than as required by law, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Many factors could affect future financial results including, without limitation:

the impact of adverse conditions in the economy and capital markets on the performance of the Corporation’s loan portfolio and demand for the Corporation’s products and services;

increases in non-performing assets, which may require the Corporation to increase the allowance for credit losses, charge off loans and incur elevated collection and carrying costs related to such non-performing assets;

investment securities gains and losses, including other-than-temporary declines in the value of securities which may result in charges to earnings;

the effects of market interest rates, and the relative balances of interest rate-sensitive assets to interest rate-sensitive liabilities, on net interest margin and net interest income;

the effects of changes in interest rates on demand for the Corporation’s products and services;

the effects of changes in interest rates or disruptions in liquidity markets on the Corporation’s sources of funding;

the ~~Corporation’s ability~~effects of the extensive level of regulation and supervision to ~~manage liquidity, both at~~which the ~~holding company level~~Corporation and at its bank ~~subsidiaries;~~

~~the impact of increased regulatory scrutiny of the banking industry;~~subsidiaries are subject;

the effects of the increasing amounts of time and expense associated with regulatory compliance and risk management;

the potential for negative consequences from regulatory violations, investigations and examinations including potential supervisory actions and the assessment of fines and penalties;

the additional time, expense and investment required to comply with, and the restrictions on potential growth and investment activities resulting from, the existing enforcement orders applicable to the Corporation and three of its bank subsidiaries by federal and state bank regulatory agencies requiring improvement in compliance functions and other remedial actions, or any future enforcement orders;

the ~~Corporation’s ability to manage the uncertainty associated with the delay in implementing many~~continuing impact of the ~~regulations mandated by~~Dodd-Frank Act on the ~~Dodd-Frank Act;~~Corporation's business and results of operations;

the effects of, and uncertainty surrounding, ~~potential~~new legislation, changes in ~~legislation,~~ regulation and government policy, ~~as a~~and changes in leadership at the federal banking agencies, which could result ~~of the recent change~~ in ~~federal administration;~~significant changes in banking and financial services regulation;

the effects of actions by the federal government, including those of the Federal Reserve Board and other government agencies, that impact money supply and market interest rates;

the effects of changes in U.S. federal, state or local tax laws;

the effects of negative publicity on the Corporation’s reputation;

the effects of adverse outcomes in litigation and governmental or administrative proceedings;

the potential to incur losses in connection with repurchase and indemnification payments related to sold loans;

the Corporation's ability to obtain regulatory approvals to consolidate its bank subsidiaries and achieve intended reductions in the time, expense and resources associated with regulatory compliance from such consolidations;

the Corporation’s ability to successfully transform its business model;

the Corporation’s ability to achieve its growth plans;

the effects of competition on deposit rates and growth, loan rates and growth and net interest margin;

the Corporation’s ability to manage the level of non-interest expenses, including salaries and employee benefits expenses, operating risk losses and goodwill impairment;

the effects of changes in accounting policies, standards, and interpretations on the presentation of the Corporation's ~~consolidated balance sheets~~financial condition and ~~consolidated statements~~results of ~~income;~~

operations;

the impact of operational risks, including the risk of human error, inadequate or failed internal processes and systems, computer and telecommunications systems failures, faulty or incomplete data and an inadequate risk management framework;

the impact of failures of third parties upon which the Corporation relies to perform in accordance with contractual arrangements;

the failure or circumvention of the Corporation’s system of internal controls;

the loss of, or failure to safeguard, confidential or proprietary information;

the Corporation’s failure to identify and to address cyber-security risks, including data breaches ~~or cyberattacks;~~and cyber-attacks;

the Corporation’s ability to keep pace with technological changes;

the Corporation’s ability to attract and retain talented personnel;

capital and liquidity strategies, including the Corporation’s ability to comply with applicable capital and liquidity requirements, and the Corporation’s ability to generate capital internally or raise capital on favorable terms;

the Corporation’s reliance on its subsidiaries for substantially all of its revenues and its ability to pay dividends or other distributions; and

the effects of any downgrade in the Corporation’s credit ratings on its borrowing costs or access to capital markets.

RESULTS OF OPERATIONS

Overview

~~Fulton Financial~~The Corporation is a financial holding company comprised of six wholly owned bank subsidiaries which provide a full range of retail and commercial financial services through locations in Pennsylvania, Delaware, Maryland, New Jersey and ~~Virginia and eight wholly owned non-bank subsidiaries.~~Virginia. The Corporation generates the majority of its revenue through net interest income, or the difference between interest earned on loans, investments and other interest-earning assets, and interest paid on deposits and borrowings. Growth in net interest income is dependent upon balance sheet growth and maintaining or increasing the net interest margin, which is net interest income (fully taxable-equivalent, or "FTE") as a percentage of average interest-earning assets. The Corporation also generates revenue through fees earned on the various services and products offered to its customers and through gains on sales of assets, such as loans, investments, or properties. Offsetting these revenue sources are provisions for credit losses on loans, non-interest expenses and income taxes.

The following table presents a summary of the Corporation’s earnings and selected performance ratios:


	As of or for the Three months ended September 30						As of or for the Nine months ended September 30						As of or for the three months ended March 31
	2017			2016			2017			2016			2018			2017
Net income (in thousands)	$	48,905		$	41,468		$	137,752		$	119,475		$	49,480		$	43,380
Diluted net income per share	$	0.28		$	0.24		$	0.78		$	0.69		$	0.28		$	0.25
Return on average assets	0.98		%	0.89		%	0.95		%	0.87		%	1.01		%	0.92		%
Return on average equity	8.76		%	7.78		%	8.45		%	7.64		%	9.02		%	8.22		%
Return on average tangible equity ⁽¹⁾	11.52		%	10.38		%	11.18		%	10.24		%	11.85		%	10.93		%
Net interest margin ⁽²⁾	3.27		%	3.14		%	3.27		%	3.19		%	3.35		%	3.26		%
Efficiency ratio ⁽¹⁾	64.3		%	65.2		%	64.6		%	67.0		%	67.5		%	64.2		%
Non-performing assets to total assets	0.73		%	0.80		%	0.73		%	0.80		%	0.73		%	0.75		%
Annualized net charge-offs to average loans	0.14		%	0.11		%	0.12		%	0.14		%	0.10		%	0.09		%


(1)	Ratio represents a financial measure derived by methods other than U.S. Generally Accepted Accounting Principles ("U.S. GAAP"). See reconciliation of this non-U.S. GAAP financial measure to the most comparable U.S. GAAP measure under the heading, "Supplemental Reporting of Non-U.S.GAAP Based Financial Measures" at the end of this "Overview" section.


(2)	Presented on an FTE basis, using a 21% and a 35% federal tax rate and statutory interest expense ~~disallowances.~~disallowances in 2018 and 2017, respectively. See also the “Net Interest Income” section of Management’s Discussion.

~~Net income for the three and nine months ended September 30, 2017 increased $7.4 million, or 17.9%, and $18.3 million, or 15.3%, respectively, compared to the same periods in 2016.~~

The following is a summary of financial highlights for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018. Unless noted otherwise, all comparisons are to the three month period ended March 31, 2017:

~~FTE~~ Net Income and Net Income Per Share Growth - Net income was $49.5 million for the three months ended March 31, 2018, an increase of $6.1 million, or 14.1%, compared to the same period in 2017. Diluted net income per share for the first quarter of 2018 increased $0.03, or 12.0%, to $0.28 per diluted share compared to the first quarter of 2017. The increase was primarily driven by growth in the balance sheet and an increase in the net interest margin.

Net Interest Income Growth - Net interest income for the first quarter of 2018 was $151.3 million, an increase of $13.7 million, or 10.0%, compared to the same period of 2017. The increase was the result of growth in interest-earning assets, primarily loans, and the impact of a 9 basis point increase in net interest margin, reflecting the impact of increases in the federal funds rate in 2017.

Net Interest Margin - For the three ~~and nine~~ months ended September 30, 2017, FTE net interest income increased $16.9 million, or 12.5%, and $39.6 million, or 9.8%, in comparison to the same periods in 2016. These increases were driven by growth in interest-earning assets and improvements inMarch 31, 2018, the net interest margin ~~resulting from increases~~increase was driven by a 19 basis point increase in yields on interest-earning assets, ~~exceeding increases~~partially offset by a 13 basis point increase in ~~costs~~the cost of interest-bearing liabilities. The ~~growth in interest-earning assets accounted for approximately 70% and 87%~~enactment of the ~~FTE net~~Tax Cuts and Jobs Act ("Tax Act"), in December 2017 resulted in a 6 basis point decrease in average yields on interest ~~income growth for the three~~earning assets and ~~nine months ended September 30, 2017, respectively, while the increase in~~ net interest margin ~~accounted for~~as a result of the ~~remaining 30%~~impact of the Tax Act on calculated FTE yields on tax exempt loans and ~~13%~~investment securities.

Loan Growth - Average loans were $803.5 million, or 5.4%, higher at March 31, 2018 compared to March 31, 2017. The most notable increases were in commercial and residential mortgages and construction loans. The loan growth occurred throughout all of the Corporation's geographic markets.

Deposit Growth - Average deposits grew $534.0 million, or 3.6%, during the first quarter ended March 31, 2018 compared to the same period in 2017. The increase resulted from growth in ~~these periods, respectively.~~demand and savings accounts, partially offset by a decrease in time and noninterest-bearing demand deposits.

Asset Quality - ~~The provision for~~Overall credit ~~losses~~metrics and key asset quality ratios improved for the three months ended ~~September 30, 2017 was $5.1 million ,~~March 31, 2018 compared to ~~a $4.1 million provision for~~ the ~~same period in 2016. For the nine~~three months ended September 30, 2017, the provision for credit losses was $16.6 million, compared to an $8.2 million provision for the same period in 2016. The increases in the 2017 periods were largely due to growth in the loan portfolio, as credit metrics were generally stable.

Annualized net charge-offs to average loans outstanding were 0.14% for the third quarter of 2017, compared to 0.11% for the third quarter of 2016. For the first nine months of 2017, annualized net charge-offs to average loans outstanding improved to 0.12%, compared to 0.14% for the same period of 2016.

March 31, 2017. Non-performing assets ~~decreased $3.1 million, or 2.1%, as of September 30, 2017 in comparison to September 30, 2016 and~~ decreased to 0.73% as a percentage of total assets, compared to ~~0.80%~~0.75% as of ~~September 30, 2016.~~March 31, 2017. The total delinquency rate improved to ~~1.28%~~1.19% as of ~~September 30, 2017,~~March 31, 2018, from ~~1.38%~~1.23% as of ~~September 30, 2016.~~March 31, 2017. Annualized net charge-offs to average loans outstanding were 0.10% for the first quarter of 2018, up slightly compared to 0.09% for the first quarter of 2017.

The provision for credit losses for the three months ended March 31, 2018 was $4.0 million, compared to a $4.8 million provision for the same period in 2017. The decrease in the 2018 period was impacted by improved risk characteristics in the loan portfolio.

Non-interest Income - For the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2018, non-interest income, excluding investment securities gains, ~~increased $770,000, or 1.6%, and $7.5 million, or 5.5%, in comparison~~was relatively unchanged compared to the same ~~periods~~period in ~~2016, respectively. The increases were primarily driven by higher~~2017. Increases in investment management and trust services income, merchant and ~~mortgage banking income. Improvements~~cash management fee income during the first quarter of 2018 were partially offset by decreases in ~~mortgage banking income were largely due to changes in the MSR valuation allowance. See further discussion under non-interest income in "Results of Operations."~~commercial loan interest rate swap fees.

Investment securities gains for the three and nine months ended September 30, 2017 were $4.6 million and $7.1 million, respectively, as compared to $2,000 and $1.0 million for the same periods in 2016, respectively.

Non-interest Expense - For the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2018, non-interest expense increased ~~$12.3~~$14.4 million, or ~~10.3%~~11.8%, ~~and $25.2 million, or 7.0%, respectively,~~ in comparison to the same periods of ~~2016.~~2017. The increases were primarily driven by higher salaries and employee benefits, ~~amortization of certain tax credit investments,~~ other outside services, professional fees and ~~net occupancy expenses. Amortization~~FDIC insurance expense.

Income Taxes - Income tax expense of ~~certain new~~$7.1 million for the three months ended March 31, 2018 resulted in an effective tax ~~credit investments~~rate ("ETR"), or income taxes as a percentage of income before income taxes, of 12.5%, as compared to 24.1% for same period of 2017. The ETR for the three months ended March 31, 2018 was ~~classified~~significantly impacted by the reduction in ~~non-interest expense rather than~~the federal statutory income tax ~~expense in 2017. There was no impact on net income~~rate as athe result of the ~~different classifications of the amortization for these new tax credit investments as the increases in non-interest expense were offset by decreases in income tax expense.~~Tax Act.

Supplemental Reporting of Non-U.S. GAAP Based Financial Measures

This Quarterly Report on Form 10-Q contains supplemental financial information, as detailed below, which has been derived by methods other than U.S. GAAP. The Corporation has presented these non-U.S. GAAP financial measures because it believes that these measures provide useful and comparative information to assess trends in the Corporation's results of operations. Presentation of these non-U.S. GAAP financial measures is consistent with how the Corporation evaluates its performance internally, and these non-U.S. GAAP financial measures are frequently used by securities analysts, investors and other interested parties in the evaluation of the Corporation and companies in the Corporation's industry. Management believes that these non-U.S. GAAP financial measures, in addition to U.S. GAAP measures, are also useful to investors to evaluate the Corporation's results. Investors should recognize that the Corporation's presentation of these non-U.S. GAAP financial measures might not be comparable to similarly-titled measures ofat other companies. These non-U.S. GAAP financial measures should not be considered a substitute for U.S. GAAP basis measures, and the Corporation strongly encourages a review of its consolidated financial statements in their entirety. Following are reconciliations of these non-U.S. GAAP financial measures to the most directly comparable U.S. GAAP ~~measure as of and for the three and nine months ended September 30:~~measure:


	As of or for the Three months ended September 30						As of or for the Nine months ended September 30						As of or for the three months ended March 31
	2017			2016			2017			2016			2018			2017
	(dollars in thousands)												(dollars in thousands)
Return on average tangible equity
Return on average shareholders' equity (tangible)													Return on average shareholders' equity (tangible)
Net income - numerator	$	48,905		$	41,468		$	137,752		$	119,475		$	49,480		$	43,380

Average common shareholders' equity	$	2,215,389		$	2,120,596		$	2,179,316		$	2,089,882		$	2,224,615		$	2,140,547
Less: Average goodwill and intangible assets	(531,556		)	(531,556		)	(531,556		)	(531,556		)	(531,556		)	(531,556		)
Average tangible shareholders' equity - denominator	$	1,683,833		$	1,589,040		$	1,647,760		$	1,558,326		$	1,693,059		$	1,608,991

Return on average tangible equity, annualized	11.52		%	10.38		%	11.18		%	10.24		%	11.85		%	10.93		%

Efficiency ratio
Non-interest expense	$	132,157		$	119,848		$	387,127		$	361,898		$	136,661		$	122,275
Less: Amortization of tax credit investments ⁽¹⁾	(3,503		)	—			(7,652		)	—			(1,637		)	(998		)
Numerator	$	128,654		$	119,848		$	379,475		$	361,898		$	135,024		$	121,277

Net interest income (fully taxable equivalent) ⁽²⁾⁽¹⁾	$	152,721		$	135,784		$	443,313		$	403,700		$	154,232		$	143,243
Plus: Total Non-interest income	51,974			48,149			151,018			137,423			45,875			46,673
Less: Investment securities gains, net	(4,597		)	(2		)	(7,139		)	(1,025		)	(19		)	(1,106		)
Denominator	$	200,098		$	183,931		$	587,192		$	540,098		$	200,088		$	188,810

Efficiency ratio	64.3		%	65.2		%	64.6		%	67.0		%	67.5		%	64.2		%

(1)

Amortization expense for tax credit investments that are considered to be qualified affordable housing investments under applicable accounting guidance is included in income taxes. Amortization expense for other tax credit investments that are not considered to be affordable housing investments is included in non-interest expense. If amortization expense for all tax credit investments were recorded in income taxes, the effective tax rate for the quarter ended September 30, 2017 would have been 24.8% vs 20.5%.


~~(2)~~	Presented on an FTE basis, using a 21% and 35% federal tax rate and statutory interest expense ~~disallowances.~~disallowances in 2018 and 2017, respectively. See also the “Net Interest Income” section of Management’s Discussion.

Quarter Ended ~~September 30, 2017~~March 31, 2018 compared to the Quarter Ended ~~September 30, 2016~~March 31, 2017

Net Interest Income

FTE net interest income increased ~~$16.9~~$11.0 million, to ~~$152.7~~$154.2 million, in the ~~third~~first quarter of ~~2017,~~2018, from ~~$135.8~~$143.2 million in the ~~third~~first quarter of ~~2016.~~2017. The increase was due to ~~a $1.3 billion,~~an $849.0 million, or ~~7.8%~~4.8%, increase in interest-earning assets and a 139 basis points or ~~4.1%~~2.8%, increase in the net interest margin, to ~~3.27%~~3.35%, for the ~~third~~first quarter of ~~2017~~2018 compared to ~~3.14%~~3.26% for the ~~third~~first quarter of ~~2016.~~2017. The following table provides a comparative average balance sheet and net interest income analysis for those periods. Interest income and yields are presented on an FTE basis, using a 21% and 35% federal tax rate and statutory interest expense ~~disallowances.~~disallowances for the three months ended March 31, 2018 and 2017, respectively. The enactment of the Tax Act resulted in a 6 basis point decrease in average yields on interest earning assets and net interest margin in the first quarter of 2018, as a result of the impact of the Tax Act on calculated FTE yields on tax exempt loans and investment securities. The discussion following this table is based on these FTE amounts.


	Three months ended September 30																Three months ended March 31
	2017								2016								2018								2017
	Average Balance			Interest (1)			Yield/ Rate		Average Balance			Interest (1)			Yield/ Rate		Average Balance			Interest			Yield/ Rate		Average Balance			Interest			Yield/ Rate
ASSETS	(dollars in thousands)																(dollars in thousands)
Interest-earning assets:
Loans, net of unearned income ⁽²⁾⁽¹⁾	$	15,392,067		$	159,454		4.12	%	$	14,212,250		$	140,434		3.93	%	$	15,661,032		$	162,262		4.19	%	$	14,857,562		$	146,650		4.00	%
Taxable investment securities ⁽³⁾⁽²⁾	2,115,931			11,423			2.16		2,110,084			10,872			2.06		2,198,838			13,193			2.40		2,145,656			11,914			2.22
Tax-exempt investment securities⁽³⁾⁽²⁾	408,594			4,492			4.40		344,231			3,923			4.56		412,830			3,753			3.64		403,856			4,383			4.34
Equity securities ⁽³⁾⁽²⁾	8,709			143			6.52		14,209			196			5.50		509			5			3.93		11,740			176			6.08
Total investment securities	2,533,234			16,058			2.53		2,468,524			14,991			2.43		2,612,177			16,951			2.60		2,561,252			16,473			2.57
Loans held for sale	22,456			243			4.33		22,593			210			3.72		20,015			216			4.31		15,857			187			4.72
Other interest-earning assets	590,676			1,667			1.12		501,666			1,051			0.84		302,783			1,172			1.55		312,295			842			1.08
Total interest-earning assets	18,538,433			177,422			3.80	%	17,205,033			156,686			3.63	%	18,596,007			180,601			3.93	%	17,746,966			164,152			3.74	%
Noninterest-earning assets:
Cash and due from banks	101,643								101,927								105,733								116,529
Premises and equipment	220,129								227,906								230,247								217,875
Other assets	1,186,622								1,219,844								1,113,326								1,149,621
Less: Allowance for loan losses	(174,101		)						(163,074		)						(169,220		)						(170,134		)
Total Assets	$	19,872,726							$	18,591,636							$	19,876,093							$	19,060,857
LIABILITIES AND EQUITY
Interest-bearing liabilities:
Demand deposits	$	3,943,118		$	3,847		0.39	%	$	3,602,448		$	1,706		0.19	%	$	3,958,894		$	4,004		0.41	%	$	3,650,931		$	2,239		0.25	%
Savings and money market deposits	4,603,155			3,962			0.34		4,078,942			2,042			0.20		4,494,445			4,367			0.39		4,194,216			2,211			0.21
Brokered deposits	89,767			277			1.23		—			—			—		74,026			276			1.51		—			—			—
Time deposits	2,744,532			7,937			1.15		2,814,258			7,562			1.07		2,646,779			7,803			1.20		2,739,453			7,351			1.09
Total interest-bearing deposits	11,380,572			16,023			0.56		10,495,648			11,310			0.43		11,174,144			16,450			0.60		10,584,600			11,801			0.45
Short-term borrowings	402,341			578			0.57		426,369			254			0.23		896,839			2,041			0.91		712,497			855			0.48
FHLB advances and other long-term debt	1,038,062			8,100			3.11		965,228			9,338			3.86		987,315			7,878			3.21		990,044			8,252			3.35
Total interest-bearing liabilities	12,820,975			24,701			0.77	%	11,887,245			20,902			0.70	%	13,058,298			26,369			0.82	%	12,287,141			20,908			0.69	%
Noninterest-bearing liabilities:
Demand deposits	4,494,897								4,227,639								4,246,168								4,301,727
Other	341,465								356,156								347,012								331,442
Total Liabilities	17,657,337								16,471,040								17,651,478								16,920,310
Shareholders’ equity	2,215,389								2,120,596								2,224,615								2,140,547
Total Liabilities and Shareholders’ Equity	$	19,872,726							$	18,591,636							$	19,876,093							$	19,060,857
Net interest income/net interest margin (FTE)				152,721			3.27	%				135,784			3.14	%				154,232			3.35	%				143,244			3.26	%
Tax equivalent adjustment				(5,912		)						(5,219		)						(2,914		)						(5,665		)
Net interest income				$	146,809							$	130,565							$	151,318							$	137,579


(1)	~~Includes dividends earned on equity securities.~~


~~(2)~~	Includes non-performing loans.


~~(3)~~(2)	Balances include amortized historical cost for available for sale securities; the related unrealized holding gains (losses) are included in other assets.

The following table summarizes the changes in FTE interest income and interest expense resulting from changes in average balances (volume) and changes in rates for the three months ended ~~September 30, 2017~~March 31, 2018 in comparison to the three months ended ~~September 30, 2016:~~March 31, 2017:


	2017 vs. 2016 Increase (Decrease) due to change in									2018 vs. 2017 Increase (Decrease) due to change in
	Volume			Rate			Net			Volume			Rate			Net
	(in thousands)									(in thousands)
Interest income on:
Loans, net of unearned income	$	12,223		$	6,797		$	19,020		$	8,151		$	7,461		$	15,612
Taxable investment securities	30			521			551			300			979			1,279
Tax-exempt investment securities	714			(145		)	569			93			(723		)	(630		)
Equity securities	(86		)	33			(53		)	(125		)	(46		)	(171		)
Loans held for sale	(1		)	34			33			46			(17		)	29
Other interest-earning assets	212			404			616			(26		)	356			330
Total interest income	$	13,092		$	7,644		$	20,736		$	8,439		$	8,010		$	16,449
Interest expense on:
Demand deposits	$	177		$	1,964		$	2,141		$	206		$	1,559		$	1,765
Savings and money market deposits	293			1,627			1,920			168			1,988			2,156
Brokered deposits	277			—			277			276			—			276
Time deposits	(186		)	561			375			(255		)	707			452
Short-term borrowings	(15		)	339			324			266			920			1,186
FHLB advances and other long-term debt	674			(1,912		)	(1,238		)	(23		)	(351		)	(374		)
Total interest expense	$	1,220		$	2,579		$	3,799		$	638		$	4,823		$	5,461

Note: Changes which are partially attributable to both volume and rate are allocated to the volume and rate components presented above based on the percentage of direct changes that are attributable to each component. The impact of the Tax Act on FTE interest income is included in "Rate" in the table above.

As summarized above, the increase in average interest-earning assets, primarily loans, since the ~~third~~first quarter of ~~2016~~2017 resulted in ~~a $13.1~~an $8.4 million increase in FTE interest income. The 1719 basis points increase in the yield on average interest-earning assets resulted in ~~a $7.6~~an $8.0 million increase in FTE interest income. The yield on the loan portfolio increased 19 basis points, or 4.8%, from the ~~third~~first quarter of ~~2016,~~ 2017,the result of federal funds rate increases that occurred in ~~December 2016, March 2017 and June~~ 2017, which ~~primarily~~ impacted variable rate loans and adjustable rate loans that repriced inat higher rates since the first ~~nine months~~quarter of ~~2017.~~2017, as well as higher rates on new loans originated.

Interest expense increased ~~$3.8~~$5.5 million primarily due to the 2016 and 1418 basis ~~points~~point increases in the ~~rate~~rates on average interest-bearing demand deposits and savings and money market deposits, ~~as a result of the federal funds~~respectively. These rate ~~increases. These basis points~~ increases contributed ~~$2.0~~$1.6 million and ~~$1.6~~$2.0 million to the increase in FTE interest expense, respectively. ~~These increases were partially offset by a 75 basis points decrease~~In addition, an increase in short-term borrowings contributed $266,000 to the ~~rate on average FHLB advances and other long-term debt, which lowered~~increase in FTE interest expense, ~~by $1.2 million.~~while a 43 basis point increase in the average rate contributed $920,000 to the increase in interest expense.

Interest rate increases on both interest-earning assets and interest-bearing liabilities were largely the result of three 25-basis point increases in the federal funds target rate over the past year.

Average loans and average FTE yields, by type, are summarized in the following table:


	Three months ended September 30								Increase (Decrease) in					Three months ended March 31								Increase (Decrease) in
	2017				2016				Balance					2018				2017				Balance
	Balance		Yield		Balance		Yield		$			%		Balance		Yield		Balance		Yield		$			%
	(dollars in thousands)													(dollars in thousands)
Real estate – commercial mortgage	$	6,208,630	4.07	%	$	5,670,888	3.99	%	$	537,742		9.5	%	$	6,305,821	4.16	%	$	6,039,140	3.98	%	$	266,681		4.4	%
Commercial – industrial, financial and agricultural	4,257,075		4.08		4,066,275		3.76		190,800			4.7		4,288,634		4.15		4,205,070		3.89		83,564			2.0
Real estate – residential mortgage	1,841,559		3.83		1,503,209		3.76		338,350			22.5		1,958,505		3.85		1,637,669		3.76		320,836			19.6
Real estate – home equity	1,569,898		4.48		1,640,913		4.08		(71,015		)	(4.3	)	1,538,974		4.65		1,613,249		4.18		(74,275		)	(4.6	)
Real estate – construction	943,029		4.05		837,920		3.76		105,109			12.5		984,242		4.22		840,966		3.97		143,276			17.0
Consumer	318,546		4.94		281,517		5.31		37,029			13.2		315,927		4.67		284,352		5.26		31,575			11.1
Leasing, other and overdrafts	253,330		4.91		211,528		4.74		41,802			19.8
Leasing														260,780		4.53		233,486		4.43		27,294			11.7
Other														8,149		—		3,630		—		4,519			124.5
Total	$	15,392,067	4.12	%	$	14,212,250	3.93	%	$	1,179,817		8.3	%	$	15,661,032	4.19	%	$	14,857,562	4.00	%	$	803,470		5.4	%

N/M - Not meaningful

Average loans increased ~~$1.2 billion,~~$803.5 million, or ~~8.3%~~5.4%, compared to the ~~third~~first quarter of ~~2016.~~2017. The increase was driven largely by growth in the commercial mortgage and residential mortgage portfolios, as well as the construction and commercial loan portfolio. The ~~$537.7~~$266.7 million, or ~~9.5%~~4.4%, increase in commercial mortgages occurred in both owner-occupied and investment property types and was realized across most geographic markets. The ~~$338.4~~$320.8 million, or ~~22.5%~~19.6%, increase in residential mortgages was ~~also~~ experienced across all geographic markets, with the most significant increases occurring in Maryland ~~Virginia~~ and ~~Pennsylvania.~~Virginia. This growth was, in part, related to new product offerings and marketing efforts targeting specific customer segments, including loans to low- to moderate-income and minority borrowers and loans in low- to moderate-income and majority-minority geographies. The ~~$190.8~~$83.6 million, or ~~4.7%~~2.0%, increase in commercial loans was spread across a broad range of industries and primarily concentrated in ~~Pennsylvania.~~Pennsylvania and New Jersey.

Average total interest-bearing liabilities increased ~~$933.7~~$771.2 million, or ~~7.9%~~6.3%, compared to the ~~third~~first quarter of ~~2016.~~2017. Interest expense increased ~~$3.8~~$5.5 million, or ~~18.2%~~26.1%, to ~~$24.7~~$26.4 million in the ~~third~~first quarter of ~~2017.~~2018. Average deposits and average interest rates, by type, are summarized in the following table:


	Three months ended September 30								Increase (Decrease) in Balance					Three months ended March 31								Increase (Decrease) in Balance
	2017				2016				Increase (Decrease) in Balance					2018				2017				Increase (Decrease) in Balance
	Balance		Rate		Balance		Rate		$			%		Balance		Rate		Balance		Rate		$			%
	(dollars in thousands)													(dollars in thousands)
Noninterest-bearing demand	$	4,494,897	—	%	$	4,227,639	—	%	$	267,258		6.3	%	$	4,246,168	—	%	$	4,301,727	—	%	$	(55,559	)	(1.3	)%
Interest-bearing demand	3,943,118		0.39		3,602,448		0.19		340,670			9.5		3,958,894		0.41		3,650,931		0.25		307,963			8.4
Savings and money market accounts	4,603,155		0.34		4,078,942		0.20		524,213			12.9		4,494,445		0.39		4,194,216		0.21		300,229			7.2
Total demand and savings	13,041,170		0.24		11,909,029		0.13		1,132,141			9.5		12,699,507		0.27		12,146,874		0.15		552,633			4.5
Brokered deposits	89,767		1.23		—		—		89,767			N/M		74,026		1.51		—		—		74,026			N/M
Time deposits	2,744,532		1.15		2,814,258		1.07		(69,726		)	(2.5	)	2,646,779		1.20		2,739,453		1.09		(92,674		)	(3.4	)
Total deposits	$	15,875,469	0.40	%	$	14,723,287	0.31	%	$	1,152,182		7.8	%	$	15,420,312	0.43	%	$	14,886,327	0.32	%	$	533,985		3.6	%

N/M - Not meaningful

The ~~$1.1 billion,~~$552.6 million, or ~~9.5%~~4.5%, increase in total demand and savings accounts was primarily due to a ~~$623.2~~$535.3 million, or ~~11.3%~~9.3%, increase in ~~personal account balances, a $276.4 million, or 6.4%, increase in business account balances and a $221.2 million, or 10.7%, increase in municipal~~consumer account balances.

During the third quarter of 2017, the Corporation began accepting deposits under an agreement with a non-bank third party pursuant to which excess cash in the accounts of customers of the third party is swept on a collective basis, as frequently as every business day, by the third party, into omnibus deposit accounts maintained by one of the Corporation’s subsidiary ~~banks.~~banks ("Third-Party Deposit Sweep Arrangement"). Under the agreement with the third party, ~~generally, no more than $250 million of excess~~ cash in accounts of customers of the third party may be swept into the omnibus deposit accounts. The average balance in the omnibus accounts ~~during the third quarter of 2017~~ was ~~$89.8~~$74.0 million and is shown as “brokered deposits” in the above table. This source of funding is considered to be both geographically diverse and relatively stable, with balances in the omnibus deposit accounts bearing interest at a rate based on the federal funds rate.

Time deposits decreased $92.7 million, or 3.4%, as customer preferences continued to shift toward shorter-term non-maturity deposits. The average cost of total deposits increased 911 basis points to ~~0.40%~~0.43% in the ~~third~~first quarter of ~~2017,~~2018, compared to ~~0.31%~~0.32% in the ~~third~~first quarter of ~~2016.~~

2017.

Average borrowings and interest rates, by type, are summarized in the following table:


	Three months ended September 30								Increase (Decrease)					Three months ended March 31								Increase (Decrease)
	2017				2016				in Balance					2018				2017				in Balance
	Balance		Rate		Balance		Rate		$			%		Balance		Rate		Balance		Rate		$			%
	(dollars in thousands)													(dollars in thousands)
Short-term borrowings:
Customer repurchase agreements and short-term promissory notes	$	256,562	0.19	%	$	257,659	0.09	%	$	(1,097	)	(0.4	)%	$	484,017	0.41	%	$	279,388	0.08	%	$	204,629		73.2	%
Federal funds purchased	90,453		1.21		148,546		0.47		(58,093		)	(39.1	)	379,822		1.50		308,220		0.73		71,602			23.2
Short-term FHLB advances ⁽¹⁾	55,326		1.24		20,163		0.41		35,163			174.4
Short-term FHLB advances ⁽¹⁾ and other borrowings														33,000		1.62		124,889		0.77		(91,889		)	(73.6	)
Total short-term borrowings	402,341		0.57		426,368		0.23		(24,027		)	(5.6	)	896,839		0.91		712,497		0.48		184,342			25.9
Long-term debt:
FHLB advances	652,160		2.30		603,285		3.17		48,875			8.1		600,984		2.41		605,835		2.36		(4,851		)	(0.8	)
Other long-term debt	385,902		4.48		361,943		5.01		23,959			6.6		386,331		4.45		384,209		4.92		2,122			0.6
Total long-term debt	1,038,062		3.11		965,228		3.86		72,834			7.5		987,315		3.21		990,044		3.35		(2,729		)	(0.3	)
Total borrowings	$	1,440,403	2.40	%	$	1,391,596	2.75	%	$	48,807		3.5	%
Total														$	1,884,154	2.12	%	$	1,702,541	2.15	%	$	181,613		10.7	%

(1) Represents FHLB advances with an original maturity term of less than one year.

Average total short-term borrowings ~~decreased $24.0~~increased $184.3 million, or ~~5.6%~~25.9%, as a ~~portion~~result of ~~these borrowings were repaid with funds provided by the strong growth~~a $204.6 million, or 73.2%, increase in ~~deposits~~customer repurchase agreements and short-term promissory notes during the ~~third~~first quarter of ~~2017.~~2018 as customers shifted deposit balances to higher-yielding short-term promissory notes.

~~The increase of $48.9 million, or 8.1%, in average long-term FHLB advances provided additional funding to support loan growth.~~ Average long-term debt ~~increased $72.8~~decreased slightly to $987.3 million ~~or 7.5%, due mainly~~during the first quarter of 2018 compared to $990.0 million during the ~~issuance~~same period of ~~$125 million of senior notes in March 2017, partially offset by the repayment of $100.0 million of 10-year subordinated notes, which matured on May 1,~~ 2017. The 75 basis point, or 19.4%, decrease in the average rate on long-term debt was primarily a result of $200 million of FHLB advances that were refinanced in December of 2016, which reduced the weighted average rate on these advances from 4.03% to 2.40%.

Provision for Credit Losses

The provision for credit losses was ~~$5.1~~$4.0 million for the ~~third~~first quarter of ~~2017, an increase~~2018, a decrease of ~~$934,000~~$830,000 from the ~~third~~first quarter of ~~2016,~~ 2017,driven mainly by ~~loan growth and the impact of normal changes~~improved risk characteristics in the ~~risk characteristics of the~~ loan portfolio.

The provision for credit losses is recognized as an expense in the consolidated statements of income and is the amount necessary to adjust the allowance for credit losses to its appropriate balance, as determined through the Corporation's allowance methodology. The Corporation determines the appropriate level of the allowance for credit losses based on many quantitative and qualitative factors, including, but not limited to: the size and composition of the loan portfolio, changes in risk ratings, changes in collateral values, delinquency levels, historical losses and economic conditions. See the "Financial Condition" section of Management's Discussion under the heading "Provision and Allowance for Credit Losses" for details related to the Corporation's provision and allowance for credit losses.

Non-Interest Income

The following table presents the components of non-interest income:


	Three months ended September 30					Increase (Decrease)					Three months ended March 31				Increase (Decrease)
	2017		2016			$			%		2018		2017		$			%
	(dollars in thousands)										(dollars in thousands)
Investment management and trust services											$	12,871	$	11,808	$	1,063		9.0	%
Service charges on deposit accounts:
Overdraft fees	$	5,844	$	5,770		$	74		1.3	%	5,145		5,469		(324		)	(5.9	)
Cash management fees	3,624		3,605			19			0.5	%	4,317		3,537		780			22.1
Other	3,554		3,703			(149		)	(4.0	)%	2,500		3,394		(894		)	(26.3	)
Total service charges on deposit accounts	13,022		13,078			(56		)	(0.4	)%	11,962		12,400		(438		)	(3.5	)
Other service charges and fees:
Merchant fees	4,398		4,220			178			4.2		4,115		3,607		508			14.1
Debit card income	2,830		2,718			112			4.1		2,817		2,665		152			5.7
Commercial loan interest rate swap fees	1,954		4,359			(2,405		)	(55.2	)	1,291		3,058		(1,767		)	(57.8	)
Letter of credit fees	1,056		1,078			(22		)	(2.0	)	992		1,200		(208		)	(17.3	)
Foreign exchange income											533		334		199			59.6
Other	2,013		2,032			(19		)	(0.9	)	1,671		1,573		98			6.2
Total other service charges and fees	12,251		14,407			(2,156		)	(15.0	)	11,419		12,437		(1,018		)	(8.2	)
Investment management and trust services	12,157		11,425			732			6.4
Mortgage banking income:
Gains on sales of mortgage loans	3,560		4,857			(1,297		)	(26.7	)	2,647		3,074		(427		)	(13.9	)
Mortgage servicing income	1,245		(328		)	1,573			N/M		1,546		1,522		24			1.6
Total mortgage banking income	4,805		4,529			276			6.1		4,193		4,596		(403		)	(8.8	)
Other income:
Credit card income	2,829		2,668			161			6.0		2,816		2,648		168			6.3
SBA lending income											357		429		(72		)	(16.8	)
Other income	2,313		2,040			273			13.4		2,238		1,249		989			79.2
Total other income											5,411		4,326		1,085			25.1
Total, excluding investment securities gains, net	47,377		48,147			(770		)	(1.6	)	45,856		45,567		289			0.6
Investment securities gains, net	4,597		2			4,595			N/M		19		1,106		(1,087		)	N/M
Total	$	51,974	$	48,149		$	3,825		7.9	%	$	45,875	$	46,673	$	(798	)	(1.7	)%

N/M - Not meaningful

Excluding investment securities gains, non-interest income ~~decreased $770,000,~~increased $289,000, or ~~1.6%~~0.6%, in the ~~third~~first quarter of ~~2017~~2018 as compared to the same period in 2016. Other service charges and fees decreased $2.2 million, or 15.0%, primarily due to a $2.4 million decrease in commercial loan interest rate swap fees, mainly as a result of lower commercial loan originations during the third quarter of 2017.

Investment management and trust services income increased ~~$732,000,~~$1.1 million, or ~~6.4%~~9.0%, in the ~~third~~first quarter of ~~2017~~2018 as compared to the same period in ~~2016,~~2017, with growth in both trust commissions and brokerage income, due to overall market performance and an increase in new assets under management.

Service charges on deposit accounts decreased $438,000, or 3.5%, in the first quarter of 2018 as compared to the same period in 2017 with decreases in overdraft fees and other service charges being partially offset by an increase in cash management fees. The increase in cash management fees and the decrease in other service charges largely reflects a classification change, effective in the first quarter of 2018, of certain types of deposit service charges.

Other service charges and fees decreased $1.0 million, or 8.2%, primarily due to a $1.8 million decrease in commercial loan interest rate swap fees, resulting from lower new commercial loan originations, partially offset by increases in merchant fees, debit card and foreign exchange income. Both merchant fees and debit card income increases were driven by higher transaction volumes.

The $989,000 increase in other income was mainly due to gains realized in the bank owned life insurance portfolio.

Gains on sales of mortgage loans decreased ~~$1.3 million,~~$427,000, or ~~26.7%~~13.9%, in the ~~third~~first quarter of ~~2017~~2018 compared to the same period in ~~2016, as both volumes and~~2017, driven by a decline in pricing spreads, ~~decreased. Mortgage servicing income increased $1.6 million as the third quarter of 2016 included~~slightly offset by an ~~MSR impairment charge of $1.3 million. Excluding this charge, mortgage servicing income increased $293,000, or 30.8%. For more information, see Note 6, "Mortgage Servicing Rights,"~~increase in ~~the Notes to Consolidated Financial Statements for additional details.~~volumes.

Investment securities gains ~~increased $4.6~~decreased $1.1 million from the ~~third~~first quarter of ~~2016. The increase resulted from~~2017 as the prior year included gains on sales of financial institution common stocks. See Note 4, "Investment Securities," in the Notes to Consolidated Financial Statements for additional details.

Non-Interest Expense

The following table presents the components of non-interest expense:


	Three months ended September 30				Increase				Three months ended March 31				Increase (Decrease)
	2017		2016		$		%		2018		2017		$			%
	(dollars in thousands)								(dollars in thousands)
Salaries and employee benefits	$	72,894	$	70,696	$	2,198	3.1	%	$	75,768	$	69,236	$	6,532		9.4	%
Net occupancy expense	12,180		11,782		398		3.4		13,632		12,663		969			7.7
Data processing and software	10,301		8,727		1,574		18.0		10,473		8,979		1,494			16.6
Other outside services	6,582		5,783		799		13.8		8,124		5,546		2,578			46.5
Amortization of tax credit investments	3,503		—		3,503		N/M
Professional fees	3,388		2,535		853		33.6		4,816		2,737		2,079			76.0
Equipment expense	3,298		3,137		161		5.1		3,534		3,359		175			5.2
FDIC insurance expense	3,007		1,791		1,216		67.9		2,953		2,058		895			43.5
State taxes									2,302		2,087		215			10.3
Marketing	2,089		1,774		315		17.8		2,250		1,986		264			13.3
Amortization of tax credit investments									1,637		998		639			64.0
Other	14,915		13,623		1,292		9.5		11,172		12,626		(1,454		)	(11.5	)
Total	$	132,157	$	119,848	$	12,309	10.3	%	$	136,661	$	122,275	$	14,386		11.8	%

N/M - Not meaningful

The increase in salaries and employee benefits expense was driven entirely by salaries, reflecting annual merit increases and an increase in staffing levels. Average full-time equivalent employees increased ~~2.2%~~1.7%, to ~~3,582~~3,577, in ~~2017,~~2018, as compared to ~~3,504~~3,518 in ~~2016.~~2017. In addition, expenses for certain incentive compensation plans were higher in 2018.

Net occupancy expenses increased $969,000, or 7.7%, primarily due to higher snow removal costs, and additional amortization related to branch renovations.

Data processing and software expense increased ~~$1.6~~$1.5 million, or ~~18.0%~~16.6%, reflecting higher transaction volumes and new processing ~~platforms.~~platforms, as well as benefits realized in 2017 as a result of renegotiated contracts.

Other outside services increased ~~$799,000,~~$2.6 million, or ~~13.8%~~46.5%, largely due to consulting services related to ~~pre-bank consolidation efforts~~various banking and technology ~~initiatives.~~

~~In 2017, amortization~~initiatives, as well as the timing of ~~certain new tax credit investments was classified in non-interest expense, rather than income tax expense, as further discussed under income taxes below.~~engagements.

The ~~$853,000,~~$2.1 million, or ~~33.6%~~76.0%, increase in professional fees was driven by higher legal expenses. The Corporation incurs fees related to various legal matters in the normal course of business. These fees can fluctuate based on the timing and extent of these matters.

FDIC insurance expense increased ~~$1.2 million,~~$895,000, or ~~67.9%~~43.5%, reflecting that the Corporation's largest banking subsidiary ~~exceeding~~recently exceeded $10 billion in assets and ~~becoming~~became subject to ~~the 'large bank'~~higher premium assessments ~~and balance sheet growth. Marketing expense increased $315,000, or 17.8%, compared~~applicable to ~~the third quarter~~banks of ~~2016, due to an increase in the number of marketing promotions.~~

that size.

Other expenses ~~increased $1.3~~decreased $1.5 million, or ~~9.5%~~11.5%, primarily due to ~~higher state taxes resulting from legislated increases in the Pennsylvania bank shares tax rate,~~lower operating risk loss, as provisions for loan repurchase exposures decreased, and ~~certain sales tax liabilities.~~postage expenses declined due to customers electing electronic delivery of statements.

Income Taxes

Income tax expense for the ~~third~~first quarter of ~~2017~~2018 was ~~$12.6~~$7.1 million, a ~~$611,000,~~$6.7 million, or ~~4.6%~~48.7%, decrease from ~~$13.3~~$13.8 million for the ~~third~~first quarter of ~~2016.~~

2017. This decrease was primarily a result of the reduction of the U.S. corporate income tax rate as a result of the passage of the Tax Act, which lowered the U.S. corporate income tax rate from a top rate of 35% to a flat rate of 21%. The Corporation’s ~~effective tax rate~~ETR was ~~20.5% in~~12.5% for the ~~third quarter of 2017,~~three months ended March 31, 2018, as compared to ~~24.2%~~24.1% in the ~~third quarter~~same period of ~~2016.~~2017. The ~~effective tax rate~~ETR is generally lower than the federal statutory rate of ~~35%~~21% due to tax-exempt interest income earned on loans, investments in tax-free municipal securities ~~credits earned from~~and investments in community development ~~investments in partnerships~~projects that generate tax credits under various federal ~~programs and excess~~programs. Absent the impact of the federal statutory tax benefits realized on stock-based compensation. In 2017, amortization of certain new tax credit investments was included in non-interest expense, rather than as a component of income tax expense. If the amortization had been included as a component ofrate reduction, income tax expense and the ~~effective tax rate~~ETR for the ~~third quarter of 2017~~three months ended March 31, 2018 would have been ~~24.8%.~~approximately $12.9 million and 22.8%, respectively.

~~Nine Months Ended September 30, 2017 compared~~The ETR in any quarter may be positively or negatively affected by adjustments that are required to ~~the Nine Months Ended September 30, 2016~~

~~Net Interest Income~~

~~FTE net interest income increased $39.6 million, to $443.3 million,~~be reported in the ~~first nine months~~specific quarter of ~~2017, from $403.7 million in~~resolution. While the ~~same period~~Corporation has made reasonable estimates of ~~2016. The increase was~~the impact of the Tax Act, final results may differ due to, ~~a $1.2 billion, or 7.1%, increase~~among other things, changes in ~~interest-earning assets~~interpretations and ~~an 8 basis points, or 2.5%, increase in net interest margin, to 3.27%, for~~assumptions, additional guidance that may be issued by the ~~first nine months of 2017 compared to 3.19% for~~Internal Revenue Service, and actions taken by the same period in 2016. The following table provides a comparative average balance sheet and net interest income analysis for those periods. Interest income and yields are presented on an FTE basis, using a 35% federal tax rate and statutory interest expense disallowances. The discussion following this table is based on these FTE amounts.

Corporation.

Nine months ended September 30
2017 2016
Average
Balance Interest (1) Yield/
Rate Average
Balance Interest (1) Yield/
Rate
ASSETS (dollars in thousands)
Interest-earning assets:
Loans, net of unearned income ⁽²⁾
$ 15,127,569
$ 458,753
4.05 % $ 14,011,301
$ 416,646
3.97 %
Taxable investment securities ⁽³⁾
2,117,127
34,811
2.19
2,139,378
34,034
2.12
Tax-exempt investment securities ⁽³⁾
405,728
13,268
4.36
306,298
10,631
4.63
Equity securities ⁽³⁾
10,391
467
6.01
14,272
599
5.60
Total investment securities 2,533,246
48,546
2.56
2,459,948
45,264
2.45
Loans held for sale 19,378
631
4.34
18,114
529
3.90
Other interest-earning assets 410,250
3,311
1.08
406,163
2,813
0.92
Total interest-earning assets 18,090,443
511,241
3.78 % 16,895,526
465,252
3.68 %
Noninterest-earning assets:
Cash and due from banks 107,029
100,417

Premises and equipment 218,700
227,237

Other assets 1,170,466
1,182,260

Less: Allowance for loan losses (172,145 ) (164,999 )
Total Assets $ 19,414,493
$ 18,240,441

LIABILITIES AND EQUITY
Interest-bearing liabilities:
Demand deposits $ 3,762,439
$ 8,865
0.32 % $ 3,498,659
$ 4,727
0.18 %
Savings deposits 4,372,453
8,883
0.27
4,000,871
5,732
0.19
Brokered deposits 30,251
277
1.23
—
—
—
Time deposits 2,726,693
22,684
1.11
2,842,011
22,465
1.06
Total interest-bearing deposits 10,891,836
40,709
0.50
10,341,541
32,924
0.43
Short-term borrowings 581,511
2,407
0.55
425,151
739
0.23
FHLB advances and other long-term debt 1,033,159
24,812
3.21
962,997
27,889
3.86
Total interest-bearing liabilities 12,506,506
67,928
0.73 % 11,729,689
61,552
0.70 %
Noninterest-bearing liabilities:
Demand deposits 4,395,421
4,091,555

Other 333,250
329,315

Total Liabilities 17,235,177
16,150,559

Shareholders’ equity 2,179,316
2,089,882

Total Liabilities and Shareholders’ Equity $ 19,414,493
$ 18,240,441

Net interest income/net interest margin (FTE) 443,313
3.27 % 403,700
3.19 %
Tax equivalent adjustment (17,362 ) (15,165 )
Net interest income $ 425,951
$ 388,535


~~(1)~~
~~Includes dividends earned on equity securities.~~


~~(2)~~
~~Includes non-performing loans.~~


~~(3)~~
~~Balances include amortized historical cost for available for sale securities; the related unrealized holding gains (losses) are included in other assets.~~

FINANCIAL CONDITION

The ~~following~~ table summarizes the changes in FTE interest income and interest expense resulting from changes in average balances (volume) and changes in rates for the nine months ended September 30, 2017 in comparison to the same period of 2016:below presents condensed consolidated ending balance sheets.

2017 vs. 2016
Increase (Decrease) due
to change in
Volume Rate Net
(in thousands)
Interest income on:
Loans, net of unearned income $ 33,471
$ 8,636
$ 42,107
Taxable investment securities (355 ) 1,132
777
Tax-exempt investment securities 3,277
(640 ) 2,637
Equity securities (172 ) 40
(132 )
Loans held for sale 39
63
102
Other interest-earning assets 28
470
498
Total interest income $ 36,288
$ 9,701
$ 45,989
Interest expense on:
Demand deposits $ 381
$ 3,757
$ 4,138
Savings and money market deposits 573
2,578
3,151
Brokered deposits 277
—
277
Time deposits (939 ) 1,158
219
Short-term borrowings 349
1,319
1,668
FHLB advances and other long-term debt 1,916
(4,993 ) (3,077 )
Total interest expense $ 2,557
$ 3,819
$ 6,376



					Increase (Decrease)
	March 31, 2018		December 31, 2017		$			%
	(dollars in thousands)
Assets
Cash and due from banks	$	100,151	$	108,291	$	(8,140	)	(7.5	)%
Other interest-earning assets	267,806		354,566		(86,760		)	(24.5	)
Loans held for sale	23,450		31,530		(8,080		)	(25.6	)
Investment securities	2,592,823		2,547,956		44,867			1.8
Loans, net of allowance	15,533,067		15,598,337		(65,270		)	(0.4	)
Premises and equipment	230,313		222,802		7,511			3.4
Goodwill and intangible assets	531,556		531,556		—			—
Other assets	669,775		641,867		27,908			4.3
Total Assets	$	19,948,941	$	20,036,905	$	(87,964	)	(0.4	)%
Liabilities and Shareholders’ Equity
Deposits	$	15,477,103	$	15,797,532	$	(320,429	)	(2.0	)%
Short-term borrowings	937,852		617,524		320,328			51.9
Long-term debt	938,499		1,038,346		(99,847		)	(9.6	)
Other liabilities	359,994		353,646		6,348			1.8
Total Liabilities	17,713,448		17,807,048		(93,600		)	(0.5	)
Total Shareholders’ Equity	2,235,493		2,229,857		5,636			0.3
Total Liabilities and Shareholders’ Equity	$	19,948,941	$	20,036,905	$	(87,964	)	(0.4	)%

~~As summarized above, the increase in average~~Other Interest-earning Assets

Other interest-earning assets ~~primarily loans, in comparison to~~decreased $86.8 million, or 24.5%, during the first ~~nine~~three months of ~~2016, resulted~~2018, driven by a decrease in ~~a $36.3 million increase in FTE interest income. The 10 basis points increase in~~balances on deposit with the yield on average interest-earning assets resulted in a $9.7 million increase in FTE interest income. The yield on the loan portfolio increased 8 basis points, or 2.0%, from the same period of 2016, the result of federal funds rate increases that occurred in December 2016, March 2017 and June 2017,Federal Reserve Bank, which ~~impacted variable rate loans and adjustable rate loans that repriced in the first nine months of 2017.~~

~~Interest expense increased $6.4 million primarily due~~were used to ~~the 14 and 8 basis points increases in the rate on average interest-bearing demand deposits and savings and money market deposits,~~supplement funding needs as a result of the federal funds rate increases. These basis points increases contributed $3.8 million and $2.6 million to the increase in FTE interest expense, respectively. In addition, a 32 basis points increase in short-term borrowings contributed $1.3 million to the increase in FTE interest expense. These increases were partially offset by a 65 basis pointsoverall decrease in ~~the rate on average FHLB advances and other long-term debt, which lowered FTE interest expense by $5.0 million.~~

~~Average loans and average FTE yields, by type, are summarized in the following table:~~

Nine months ended September 30 Increase (Decrease)
2017 2016 in Balance
Balance Yield Balance Yield $ %
(dollars in thousands)
Real estate – commercial mortgage $ 6,137,824
4.02 % $ 5,572,356
4.01 % $ 565,468
10.1 %
Commercial – industrial, financial and agricultural 4,227,918
3.99
4,080,638
3.79
147,280
3.6
Real estate – residential mortgage 1,729,799
3.79
1,428,430
3.77
301,369
21.1
Real estate – home equity 1,590,117
4.33
1,656,969
4.09
(66,852 ) (4.0 )
Real estate – construction 894,146
4.00
817,014
3.80
77,132
9.4
Consumer 301,414
5.07
272,402
5.40
29,012
10.7
Leasing, other and overdrafts 246,351
5.00
183,492
6.01
62,859
34.3
Total $ 15,127,569
4.05 % $ 14,011,301
3.97 % $ 1,116,268
8.0 %

~~Average loans increased $1.1 billion, or 8.0%, compared to the first nine months of 2016.~~The increase was driven largely by growth in the commercial mortgage and residential mortgage portfolios, as well as the commercial loan, construction and leasing portfolios. The $565.5 million, or 10.1%, increase in commercial mortgages occurred in both owner-occupied and investment property types and was realized in all geographic markets, but predominantly in Pennsylvania, Maryland and Delaware.The $301.4 million, or 21.1%, increase in residential mortgages was also experienced across all geographic markets, with the most significant increases occurring in Maryland and Virginia. This growth was in part related to new product offerings and marketing efforts targeting specific customer segments, including loans to low- to moderate-income and minority borrowers and loans in low- to moderate-income and majority-minority geographies. The $147.3 million, or 3.6%, increase in commercial loans was spread across a broad range of industries and concentrated in Pennsylvania.

Average total interest-bearing liabilities for the first nine months of 2017 increased $776.8 million, or 6.6%, compared to the same period of 2016. Interest expense increased $6.4 million, or 10.4%, to $67.9 million in the first nine months of 2017. Average deposits and average interest rates, by type, are summarized in the following table:

Nine months ended September 30 Increase (Decrease) in Balance
2017 2016
Balance Rate Balance Rate $ %
(dollars in thousands)
Noninterest-bearing demand $ 4,395,421
— % $ 4,091,555
— % $ 303,866
7.4 %
Interest-bearing demand 3,762,439
0.32
3,498,659
0.18
263,780
7.5
Savings 4,372,453
0.27
4,000,871
0.19
371,582
9.3
Total demand and savings 12,530,313
0.19
11,591,085
0.12
939,228
8.1
Brokered deposits 30,251
1.23
—
—
30,251
N/M
Time deposits 2,726,693
1.11
2,842,011
1.06
(115,318 ) (4.1 )
Total deposits $ 15,287,257
0.36 % $ 14,433,096
0.30 % $ 854,161
5.9 %

~~N/M - Not meaningful~~

The $939.2 million, or 8.1%, increase in total demand and savings accounts was primarily due to a $527.5 million, or 9.8%, increase in personal account balances, a $286.5 million, or 6.8%, increase in business account balances and an $113.7 million, or 5.8%, increase in municipal account balances.

During the third quarter of 2017, the Corporation began accepting deposits under an agreement with a non-bank third party pursuant to which excess cash in the accounts of customers of the third party is swept on a collective basis, as frequently as every business day, by the third party, into omnibus deposit accounts maintained by one of the Corporation’s subsidiary banks. Under the agreement with the third party, generally, no more than $250 million of excess cash in accounts of customers of the third party may be swept into the omnibus deposit accounts. The average balance in the omnibus accounts during the nine months ended September 30, 2017 was $30.3 million and is shown as “brokered deposits” in the above table. This source of funding is considered to be both geographically diverse and relatively stable, with balances in the omnibus deposit accounts bearing interest at a rate based on the federal funds rate.

~~The average cost of total deposits increased 6 basis points to 0.36% in the first nine months of 2017, compared to 0.30% in the same period in 2016.~~deposits.

~~Average borrowings and interest rates, by type, are summarized in the following table:~~

Nine months ended September 30 Increase
2017 2016 in Balance
Balance Rate Balance Rate $ %
(dollars in thousands)
Short-term borrowings:
Customer repurchase agreements $ 191,740
0.11 % $ 179,892
0.11 % $ 11,848
6.6 %
Customer short-term promissory notes 79,230
0.13
73,859
0.04
5,371
7.3
Total short-term customer funding 270,970
0.12
253,751
0.09
17,219
6.8
Federal funds purchased 212,885
0.92
156,812
0.44
56,073
35.8
Short-term FHLB advances ⁽¹⁾
97,656
0.94
14,588
0.43
83,068
N/M
Total short-term borrowings 581,511
0.55
425,151
0.23
156,360
36.8
Long-term debt:
FHLB advances 636,898
2.31
601,120
3.18
35,778
6.0
Other long-term debt 396,261
4.65
361,877
5.00
34,384
9.5
Total long-term debt 1,033,159
3.21
962,997
3.86
70,162
7.3
Total borrowings $ 1,614,670
2.25 % $ 1,388,148
2.75 % $ 226,522
16.3 %

~~N/M - Not meaningful~~

~~(1) Represents FHLB advances with an original maturity term of less than one year.~~

Average total short-term borrowings increased $156.4 million, or 36.8%, as a result of loan growth out-pacing the increase in deposits. Interest expense on average short-term borrowings increased by $1.7 million, mainly driven by the 32 basis points increase in the rate, contributing $1.3 million to interest expense.

The increase of $35.8 million, or 6.0%, in average long-term FHLB advances provided additional funding to support loan growth. Average long-term debt increased $70.2 million, or 7.3%, primarily as a result of the $125 million of senior notes issued in March 2017, partially offset by the repayment of $100.0 million of 10-year subordinated notes, which matured on May 1, 2017. The 65 basis point, or 16.8%, decrease in the average rate on long-term debt was primarily a result of $200 million of FHLB advances that were refinanced in December of 2016, which reduced the weighted average rate on these advances from 4.03% to 2.40%.

~~Provision for Credit Losses~~

The provision for credit losses was $16.6 million for the first nine months of 2017, an increase of $8.4 million from the same period of 2016, driven mainly by loan growth and the impact of normal changes in the risk characteristics of the loan portfolio.

~~Non-Interest Income~~

~~The following table presents the components of non-interest income:~~

Nine months ended September 30 Increase (Decrease)
2017 2016 $ %
(dollars in thousands)
Service charges on deposit accounts:
Overdraft fees $ 16,961
$ 16,426
$ 535
3.3 %
Cash management fees 10,775
10,651
124
1.2
Other 10,600
11,455
(855 ) (7.5 )
         Total service charges on deposit accounts 38,336
38,532
(196 ) (0.5 )
Other service charges and fees:
Merchant fees 12,536
12,155
381
3.1 %
Commercial loan interest rate swap fees 8,780
8,552
228
2.7
Debit card income 8,379
7,948
431
5.4
Letter of credit fees 3,366
3,385
(19 ) (0.6 )
Other 5,969
6,100
(131 ) (2.1 )
        Total other service charges and fees 39,030
38,140
890
2.3
Investment management and trust services 36,097
33,660
2,437
7.2
Mortgage banking income:
Gains on sales of mortgage loans 10,122
11,967
(1,845 ) (15.4 )
Mortgage servicing income 5,420
489
4,931
N/M
        Total mortgage banking income 15,542
12,456
3,086
24.8
Credit card income 8,143
7,688
455
5.9
Other income 6,731
5,922
809
13.7
        Total, excluding investment securities gains, net 143,879
136,398
7,481
5.5
Investment securities gains, net 7,139
1,025
6,114
N/M
              Total $ 151,018
$ 137,423
$ 13,595
9.9 %

~~N/M - Not meaningful~~

Excluding investment securities gains, non-interest income increased $7.5 million, or 5.5%, for the first nine months of 2017, as compared to the same period in 2016. Other service charges and fees increased $890,000, or 2.3%, mainly due to increases in merchant fees, debit card income and commercial loan interest rate swap fees.

The $534,000, or 3.3%, increase in overdraft fee income during the nine months ended September 30, 2017, in comparison to the same period during 2016, consisted of a $358,000 increase in fees assessed on personal accounts and a $176,000 increase in fees assessed on commercial accounts, due to higher transaction volumes. Other service charges on deposit accounts decreased $854,000, or 7.5%, resulting from changes in customer behavior and the loss of a significant processing customer.

Investment management and trust services income increased $2.4 million, or 7.2%, with growth in both trust and brokerage income, due to overall market performance and an increase in assets under management.

Gains on sales of mortgage loans decreased $1.8 million, or 15.4%, compared to the same period in 2016, as both volumes and pricing spreads decreased. Mortgage servicing income increased $4.9 million compared to the same period in 2016 due to a $1.3 million reduction to the MSRs valuation allowance in 2017, which was originally established in 2016 through impairment charges of $3.0 million. Excluding the impact of the MSR valuation allowance adjustments, mortgage servicing income increased $639,000, or 18.3%. For more information, see Note 6, "Mortgage Servicing Rights," in the Notes to Consolidated Financial Statements for additional details.

Gains on sales of investment securities increased $6.1 million compared to the first nine months of 2016. The increase resulted from sales of financial institution common stocks. See Note 4, "Investment Securities," in the Notes to Consolidated Financial Statements for additional details.

~~Non-Interest Expense~~

~~The following table presents the components of non-interest expense:~~

Nine months ended September 30 Increase (Decrease)
2017 2016 $ %
(dollars in thousands)
Salaries and employee benefits $ 216,626
$ 210,097
$ 6,529
3.1 %
Net occupancy expense 37,159
35,813
1,346
3.8
Data processing and software 28,334
27,477
857
3.1
Other outside services 19,836
17,347
2,489
14.3
Equipment expense 9,691
9,380
311
3.3
Professional fees 9,056
8,221
835
10.2
Amortization of tax credit investments 7,652
—
7,652
100.0
FDIC insurance expense 7,431
7,700
(269 ) (3.5 )
Marketing 6,309
5,314
995
18.7
Other 45,033
40,549
4,484
11.1
Total $ 387,127
$ 361,898
$ 25,229
7.0 %

The $6.5 million, or 3.1%, increase in salaries and employee benefits during the nine months ended September 30, 2017, in comparison to the same period during 2016, primarily resulted from a $7.7 million, or 4.4%, increase in salaries, resulting from annual merit increases and an increase in staffing levels. Average full-time equivalent employees increased 1.9%, to 3,559, in 2017, as compared to 3,492 in 2016.

~~Other outside services increased $2.5 million, or 14.3%, largely due to consulting services related to pre-bank consolidation efforts and technology initiatives.~~

~~As previously mentioned, in 2017 amortization of certain new tax credit investments was classified in non-interest expense, rather than income taxes.~~

Marketing expense increased $995,000, or 18.7%, compared to the first nine months of 2016, due to an increase in the number of marketing promotions. In 2017, many of these promotions were focused on deposit generation.

Other expenses increased $4.5 million, or 11.1%, due to higher state taxes resulting from legislated increases in the Pennsylvania bank shares tax rate, certain sales tax liabilities, and higher operating risk loss expense.

~~Income Taxes~~

Income tax expense for the first nine months of 2017 was $35.5 million, an $888,000, or 2.4%, decrease from $36.4 million in 2016. The Corporation’s effective tax rate was 20.5% in the first nine months of 2017, as compared to 23.4% in the same period of 2016. The effective tax rate is generally lower than the federal statutory rate of 35% due to tax-exempt interest income earned on loans, investments in tax-free municipal securities, credits earned from investments in partnerships that generate tax credits under various federal programs and excess tax benefits realized on stock-based compensation. In 2017, amortization of certain new tax credit investments was recorded in non-interest expense, rather than as a component of income tax expense. If the amortization had been included as a component of income tax expense, the effective tax rate for the first nine months of 2017 would have been 23.9%.

~~FINANCIAL CONDITION~~

~~The table below presents condensed consolidated ending balance sheets.~~

Increase (Decrease)
September 30, 2017 December 31, 2016 $ %
(dollars in thousands)
Assets
Cash and due from banks $ 99,803
$ 118,763
$ (18,960 ) (16.0 )%
Other interest-earning assets 645,796
291,252
354,544
121.7
Loans held for sale 23,049
28,697
(5,648 ) (19.7 )
Investment securities 2,561,516
2,559,227
2,289
0.1
Loans, net of allowance 15,314,654
14,530,593
784,061
5.4
Premises and equipment 221,551
217,806
3,745
1.7
Goodwill and intangible assets 531,556
531,556
—
—
Other assets 664,935
666,353
(1,418 ) (0.2 )
Total Assets $ 20,062,860
$ 18,944,247
$ 1,118,613
5.9 %
Liabilities and Shareholders’ Equity
Deposits $ 16,141,780
$ 15,012,864
$ 1,128,916
7.5 %
Short-term borrowings 298,751
541,317
(242,566 ) (44.8 )
Long-term debt 1,038,159
929,403
108,756
11.7
Other liabilities 358,384
339,548
18,836
5.5
Total Liabilities 17,837,074
16,823,132
1,013,942
6.0
Total Shareholders’ Equity 2,225,786
2,121,115
104,671
4.9
Total Liabilities and Shareholders’ Equity $ 20,062,860
$ 18,944,247
$ 1,118,613
5.9 %

~~Other Interest-earning Assets~~

Other interest-earning assets increased $354.5 million, or 121.7%, during the first nine months of 2017 as a result of higher balances on deposit with the Federal Reserve Bank, due to deposit growth in excess of loan growth during the period driven mainly by an increase in municipal deposits.

Investment Securities

The following table presents the carrying amount of investment securities:


					Increase (Decrease)									Increase (Decrease)
	September 30, 2017		December 31, 2016		$			%		March 31, 2018		December 31, 2017		$			%
	(dollars in thousands)									(dollars in thousands)
U.S. Government sponsored agency securities	$	6,015	$	134	$	5,881		N/M		$	20,962	$	5,938	$	15,024		N/M
State and municipal securities	413,913		391,641		22,272			5.7		406,099		408,949		(2,850		)	(0.7	)%
Corporate debt securities	92,977		109,409		(16,432		)	(15.0	)	101,955		97,309		4,646			4.8
Collateralized mortgage obligations	593,678		593,860		(182		)	—		679,700		602,623		77,077			12.8
Residential mortgage-backed securities	1,182,086		1,317,838		(135,752		)	(10.3	)	1,054,166		1,120,796		(66,630		)	(5.9	)
Commercial mortgage-backed securities	161,632		24,563		137,069			N/M		226,892		212,755		14,137			6.6
Auction rate securities	98,156		97,256		900			0.9		103,049		98,668		4,381			4.4
Total debt securities	2,548,457		2,534,701		13,756			0.5		2,592,823		2,547,038		45,785			1.8
Equity securities	13,059		24,526		(11,467		)	(46.8	)	—		918		(918		)	(100.0	)
Total	$	2,561,516	$	2,559,227	$	2,289		0.1	%	$	2,592,823	$	2,547,956	$	44,867		1.8	%

N/M - Not meaningful

~~Commercial~~U.S. Government sponsored agency securities increased $15.0 million during the first three months of 2018, collateralized mortgage obligations increased $77.1 million, or 12.8%, and commercial mortgage-backed securities increased ~~$137.1~~$14.1 million, ~~while~~or 6.6%. Cash flows from maturities and repayments of residential mortgage-backed securities, which decreased ~~$135.8~~$66.6 million, or ~~10.3%~~5.9%, ~~as residential mortgage backed securities cash flows~~ were reinvested in ~~commercial mortgage-backed securities~~these investment categories to diversify the portfolio into securities with a shorter projected average life.

Loans, net of ~~Unearned Income~~Allowance for Loan Losses

The following table presents ending balances of loans outstanding, net of unearned income:


					Increase (Decrease)											Increase (Decrease)
	September 30, 2017		December 31, 2016		$			%		March 31, 2018			December 31, 2017			$			%
	(dollars in thousands)									(dollars in thousands)
Real estate – commercial mortgage	$	6,275,140	$	6,018,582	$	256,558		4.3	%	$	6,332,508		$	6,364,804		$	(32,296	)	(0.5	)%
Commercial – industrial, financial and agricultural	4,223,075		4,087,486		135,589			3.3		4,299,072			4,300,297			(1,225		)	—
Real estate – residential mortgage	1,887,907		1,601,994		285,913			17.8		1,976,524			1,954,711			21,813			1.1
Real estate – home equity	1,567,473		1,625,115		(57,642		)	(3.5	)	1,514,241			1,559,719			(45,478		)	(2.9	)
Real estate – construction	973,108		843,649		129,459			15.3		976,131			1,006,935			(30,804		)	(3.1	)
Consumer	302,448		291,470		10,978			3.8		326,766			313,783			12,983			4.1
Leasing, other and overdrafts	257,748		230,976		26,772			11.6		271,042			267,998			3,044			1.1
Loans, net of unearned income	$	15,486,899	$	14,699,272	$	787,627		5.4	%	15,696,284			15,768,247			(71,963		)	(0.5	)
Allowance for loan losses										(163,217		)	(169,910		)	6,693			(3.9	)
Loans, net of allowance for loan losses										$	15,533,067		$	15,598,337		$	(65,270	)	(0.4	)%

Loans, net of unearned income, ~~increased $787.6~~decreased $72.0 million, or ~~5.4%~~0.5%, in comparison to December 31, ~~2016.~~2017. In general, ~~this growth resulted from improved business activity and customer sentiment~~loan demand is seasonally lower during the first ~~half~~quarter of ~~2017,~~the year, which was ~~tempered somewhat~~evidenced by declines in both line borrowings and total originations in comparison to the ~~third~~fourth quarter of 2017. ~~Increases~~The lower origination volumes were ~~realized mainly~~seen in ~~Pennsylvania, Maryland and Virginia.~~

~~Residential mortgage~~most loan types. In addition, competition for new loans ~~increased $285.9~~intensified, during the first quarter of 2018 in many of the markets in which the Corporation operates. Real estate - home equity loans decreased $45.5 million, or ~~17.8%~~2.9%, compared to December 31, ~~2016,~~2017 with ~~the growth occurring primarily~~declines experienced in ~~Maryland ($110.1 million, or 37.2%), Virginia ($97.0 million, or 31.4%) and Pennsylvania ($52.4 million, or 7.7%).~~all markets. This continues recent downward trends in this loan type.

Commercial mortgage loans ~~increased $256.6~~decreased $32.3 million, or ~~4.3%~~0.5%, in comparison to December 31, ~~2016,~~2017, with ~~the growth~~declines occurring largely in Pennsylvania ($~~122.2~~23.7 million, or ~~3.9%~~0.7%), Maryland ($~~65.8~~9.5 million, or ~~10.6%~~1.4%) and Virginia ($~~30.0~~8.6 million, or ~~6.0%~~1.6%). partially offset by increases in the New Jersey and Delaware markets.

~~Commercial~~

Construction loans ~~increased $135.6~~decreased $30.8 million, or ~~3.3%~~3.1%, in comparison to December 31, ~~2016,~~2017, with the decrease occurring primarily in Pennsylvania ($47.5 million, or 9.1%) and New Jersey ($9.4 million, or 5.0%), partially offset by growth in Maryland ($13.4 million, or 9.2%), Virginia ($9.2 million, or 13.1%) and Delaware ($3.4 million, or 4.2%).

Residential mortgage loans increased $21.8 million, or 1.1%, compared to December 31, 2017, with the growth occurring ~~primarily~~ in ~~Pennsylvania~~Virginia ($~~140.7~~17.7 million, or ~~4.7%~~4.1%) and Maryland ($14.0 million, or 3.3%) partially offset by declines in the Pennsylvania and New Jersey ~~($15.6 million, or 3.0%). Construction~~markets. The Corporation continues to retain certain types of residential mortgage loans ~~increased $129.5 million, or 15.3%,~~ in comparison to December 31, 2016, with the growth occurring primarily in Maryland ($48.4 million, or 52.0%), New Jersey ($24.9 million, or 16.7%), Pennsylvania ($23.6 million, or 4.8%), and Delaware ($22.6 million, or 42.6%). Leasing, other and overdrafts increased compared to December 31, 2016 as a result of a $28.3 million increaseits portfolio rather than selling in the ~~leasing portfolio.~~secondary market.

Construction loans include loans to commercial borrowers secured by commercial real estate, loans to commercial borrowers secured by residential real estate, and other construction loans, which represent loans to individuals secured by residential real estate. The following table presents outstanding construction loans and their delinquency rates by these class segments:


	September 30, 2017						December 31, 2016						March 31, 2018						December 31, 2017
	Balance		Delinquency Rate (1)		% of Total		Balance		Delinquency Rate (1)		% of Total		Balance		Delinquency Rate (1)		% of Total		Balance		Delinquency Rate (1)		% of Total
	(dollars in thousands)												(dollars in thousands)
Commercial	$	751,398	0.1	%	77.3	%	$	644,490	0.2	%	76.4	%	$	748,796	—	%	76.7	%	$	765,816	0.1	%	76.1	%
Commercial - residential	156,127		8.1		16.0		142,189		6.0		16.9		158,482		6.6		16.2		163,102		7.5		16.2
Other	65,583		2.2		6.7		56,970		1.9		6.7		68,853		0.7		7.1		78,017		0.8		7.7
Total Real estate - construction	$	973,108	1.5	%	100.0	%	$	843,649	1.3	%	100.0	%	$	976,131	1.1	%	100.0	%	$	1,006,935	1.3	%	100.0	%


(1)	Represents all accruing loans 30 days or more past due and non-accrual loans as a percentage of total loans in each class segment.

The Corporation does not have a significant concentration of credit risk with any single borrower, industry or ~~geographical~~geographic location. Approximately ~~$7.2~~$7.3 billion, or ~~46.8%~~46.6%, of the loan portfolio was in commercial mortgage and construction loans as of ~~September 30, 2017.~~March 31, 2018. The Corporation's maximum total lending commitment to an individual borrowing relationship was ~~$50.0~~$50 million as of ~~September 30, 2017.~~March 31, 2018. In addition to its policy of limiting the maximum total lending commitment to any individual borrowing

relationship to ~~$50.0~~$50 million, the Corporation has established lower total lending limits for certain types of lending commitments, and lower total lending limits based on the Corporation's internal risk rating of an individual borrowing relationship at the time the lending commitment is approved. ~~As of September 30, 2017, the Corporation had 143 individual borrowing relationships with total borrowing commitments between $20.0 million and $50.0 million.~~

~~The following table summarizes the industry concentrations within the commercial loan portfolio:~~

September 30,
2017 December 31, 2016
Services 22.1 % 21.8 %
Retail 15.6
15.1
Manufacturing 9.9
9.2
Health care 9.7
10.5
Construction ⁽¹⁾
8.6
9.0
Wholesale 6.8
7.0
Real estate ⁽²⁾
6.4
6.7
Agriculture 4.9
5.0
Arts and entertainment 2.5
2.6
Transportation 2.3
2.3
Financial services 2.1
2.1
Other 9.1
8.7
Total 100.0 % 100.0 %


~~(1)~~	~~Includes commercial loans to borrowers engaged in the construction industry.~~


~~(2)~~	~~Includes commercial loans to borrowers engaged in the business of: renting, leasing or managing real estate for others; selling and/or buying real estate for others; and appraising real estate.~~

Commercial loans and commercial mortgage loans also include shared national credits, which are participations in loans or loan commitments of at least ~~$20.0~~$100 million that are shared by three or more banks. Effective January 1, 2018, the Office of the Comptroller of the Currency ("OCC") increased the threshold for defining a shared national credit to $100 million from $20 million. Below is a summary of ~~the Corporation's~~ outstanding ~~purchased~~ shared national credits:


	September 30, 2017		December 31, 2016		March 31, 2018		December 31, 2017
	(in thousands)				(in thousands)
Commercial - industrial, financial and agricultural	$	161,619	$	155,353	$	60,320	$	156,277
Real estate - commercial mortgage	102,160		81,573		—		110,658
Total	$	263,779	$	236,926	$	60,320	$	266,935

Total shared national credits ~~increased $26.9~~decreased $206.6 million, or ~~11.3%~~77.4%, in comparison to December 31, ~~2016~~2017 as a result of ~~both~~the new ~~relationships and growth in existing relationships.~~threshold. The Corporation's shared national credits are to borrowers located in its ~~geographical~~geographic markets, and are granted subject to the Corporation's standard underwriting policies. None of the shared national credits were past due as of ~~September 30, 2017~~March 31, 2018 or December 31, ~~2016.~~2017.

Provision and Allowance for Credit Losses

The ~~Corporation has historically maintained an unallocated~~following table presents the components of the allowance for credit losses:



	March 31, 2018			December 31, 2017
	(dollars in thousands)
Allowance for loan losses	$	163,217		$	169,910
Reserve for unfunded lending commitments	12,802			6,174
Allowance for credit losses	$	176,019		$	176,084

Allowance for loan losses to loans outstanding	1.04		%	1.08		%
Allowance for credit losses to loans outstanding	1.12		%	1.12		%

Management believes that the allowance for credit losses of $176.0 million as of March 31, 2018 is sufficient to cover incurred losses in the loan and lease portfolio, unfunded lending commitments and letters of credit as of that date and is appropriate based on U.S. GAAP.

The allowance for loan losses ~~for factors and conditions that exist at the balance sheet date, but are not specifically identifiable, and to recognize the inherent imprecision~~decreased $6.7 million, or 3.9%, from December 31, 2017 as a result of improvements in ~~estimating and measuring~~ loss ~~exposure. In 2017, enhancements were made to allow for the impact of these factors and conditions to be quantified~~assumptions used in the allowance allocation ~~process. Accordingly, an unallocated~~methodology, as well as the decrease in loan balances. As a result, the allowance for loan losses to loans outstanding decreased by 4 basis points to 1.04%. The total allowance for credit losses, which includes reserves for all lending-related credit exposures, was basically unchanged in terms of both the total balance and as a percentage of loans outstanding.

As of March 31, 2018, the reserve for unfunded lending commitments was $12.8 million, including $10.7 million allocated for letters of credit associated with a single customer relationship. The reserve for unfunded lending commitments increased $6.6 million, or 107.4%, from December 31, 2017 to March 31, 2018 mainly as a result of additional loss allocations relating to this customer relationship. The exposure to this customer relationship is ~~no longer necessary.~~fully reserved and additional increases in the reserve for unfunded lending commitments for this customer relationship are not expected.

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

Three months ended September 30 Nine months ended September 30
2017 2016 2017 2016
(dollars in thousands)
Average balance of loans, net of unearned income $ 15,392,067
$ 14,212,250
$ 15,127,569
$ 14,011,301

Balance of allowance for credit losses at beginning of period $ 174,998
$ 165,108
$ 171,325
$ 171,412
Loans charged off:
Real estate – commercial mortgage 483
1,350
1,949
3,406
Commercial – industrial, financial and agricultural 2,714
3,144
13,594
13,957
Real estate – residential mortgage 195
802
535
2,210
Real estate – home equity 547
709
1,837
3,295
Real estate – construction 2,744
150
3,765
1,218
Consumer 373
685
1,659
2,261
Leasing, other and overdrafts 739
832
2,578
3,226
Total loans charged off 7,795
7,672
25,917
29,573
Recoveries of loans previously charged off:
Real estate – commercial mortgage 106
296
1,490
2,488
Commercial – industrial, financial and agricultural 665
1,539
6,830
6,789
Real estate – residential mortgage 219
228
600
784
Real estate – home equity 252
241
604
929
Real estate – construction 629
898
1,550
2,844
Consumer 193
222
899
957
Leasing, other and overdrafts 407
168
793
357
Total recoveries 2,471
3,592
12,766
15,148
Net loans charged off 5,324
4,080
13,151
14,425
Provision for credit losses 5,075
4,141
16,575
8,182
Balance of allowance for credit losses at end of period $ 174,749
$ 165,169
$ 174,749
$ 165,169

Net charge-offs to average loans (annualized) 0.14 % 0.11 % 0.12 % 0.14 %

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

September 30,
2017 December 31,
2016
(dollars in thousands)
Allowance for loan losses $ 172,245
$ 168,679
Reserve for unfunded lending commitments 2,504
2,646
Allowance for credit losses $ 174,749
$ 171,325

Allowance for credit losses to loans outstanding 1.13 % 1.17 %



	Three months ended March 31
	2018			2017
	(dollars in thousands)
Average balance of loans, net of unearned income	$	15,661,032		$	14,857,562

Balance of allowance for credit losses at beginning of period	$	176,084		$	171,325
Loans charged off:
Real estate – commercial mortgage	267			1,224
Commercial – industrial, financial and agricultural	4,005			5,527
Real estate – residential mortgage	162			216
Real estate – home equity	408			698
Real estate – construction	158			247
Consumer	892			856
Leasing, other and overdrafts	505			639
Total loans charged off	6,397			9,407
Recoveries of loans previously charged off:
Real estate – commercial mortgage	279			450
Commercial – industrial, financial and agricultural	1,075			4,191
Real estate – residential mortgage	107			230
Real estate – home equity	206			137
Real estate – construction	306			548
Consumer	179			236
Leasing, other and overdrafts	210			137
Total recoveries	2,362			5,929
Net loans charged off	4,035			3,478
Provision for credit losses	3,970			4,800
Balance of allowance for credit losses at end of period	$	176,019		$	172,647

Net charge-offs to average loans (annualized)	0.10		%	0.09		%

The provision for credit losses for the three months ended ~~September 30, 2017~~March 31, 2018 was ~~$5.1~~$4.0 million, ~~an increase~~a decrease of ~~$934,000~~$830,000 in comparison to the ~~same period~~first three months of 2017. The decreases in ~~2016. For the nine months ended September 30, 2017,~~ the provision for credit losses was ~~$16.6 million, an increase of $8.4 million in comparison to the first nine months of 2016. The increases in the provision for credit losses largely reflected growth~~driven primarily by improved risk characteristics in the loan portfolio.

Net charge-offs increased ~~$1.2 million,~~$557,000, to ~~$5.3~~$4.0 million for the ~~third~~first quarter of 2018, compared to $3.5 million for the first quarter of 2017, ~~compared to $4.1 million for the third quarter~~resulting in a one basis point increase in net charge-offs as a percentage of ~~2016.~~average loans. This modest increase resulted from ~~a decrease in~~the net impact of lower gross charge-offs and lower recoveries ofon loans previously charged off. Of the $5.3 million of net charge-offs recorded in the third quarter of 2017, the majority were for loans originated in Pennsylvania ($4.4 million), New Jersey ($638,000) and Maryland ($406,000), partially offset by net recoveries in Virginia and Delaware.

For the first nine months of 2017, net charge-offs decreased $1.3 million, to $13.2 million compared to $14.4 million for the same period of 2016. A $3.7 million decrease in gross charge-offs was partially offset by a $2.4 million decrease in recoveries. Of the $13.2 million of net charge-offs recorded in the first nine months of 2017, the majority were for loans originated in Pennsylvania ($11.9 million), New Jersey ($1.2 million) and Maryland ($349,000), partially offset by net recoveries in Virginia and Delaware.

The following table summarizes non-performing assets as of the indicated dates:


	September 30, 2017			September 30, 2016			December 31, 2016			March 31, 2018			March 31, 2017			December 31, 2017
	(dollars in thousands)									(dollars in thousands)
Non-accrual loans	$	123,345		$	124,017		$	120,133		$	122,966		$	117,264		$	124,749
Loans 90 days or more past due and still accruing	13,124			14,095			11,505			11,676			14,268			10,010
Total non-performing loans	136,469			138,112			131,638			134,642			131,532			134,759
Other real estate owned (OREO)	10,542			11,981			12,815			10,744			11,906			9,823
Total non-performing assets	$	147,011		$	150,093		$	144,453		$	145,386		$	143,438		$	144,582
Non-accrual loans to total loans	0.80		%	0.86		%	0.82		%	0.78		%	0.78		%	0.79		%
Non-performing assets to total assets	0.73		%	0.80		%	0.76		%	0.73		%	0.75		%	0.72		%
Allowance for credit losses to non-performing loans	128.05		%	119.59		%	130.15		%	130.73		%	131.26		%	130.67		%
Allowance for loan losses to non-performing loans										121.22		%	129.30		%	126.08		%

The following table presents loans whose terms have been modified under troubled debt restructurings ("TDRs"), by type, as of the indicated dates:


	September 30, 2017		September 30, 2016		December 31, 2016		March 31, 2018		March 31, 2017		December 31, 2017
	(in thousands)						(in thousands)
Real-estate - residential mortgage	$	26,193	$	26,854	$	27,617	$	25,602	$	27,033	$	26,016
Real-estate - commercial mortgage	14,439		16,085		15,957		18,181		15,237		13,959
Real estate - home equity	14,789		7,668		8,594		16,067		9,601		15,558
Commercial	7,512		7,488		6,627		11,740		7,441		10,820
Construction	169		843		726		—		273		—
Consumer	33		39		39		24		37		26
Total accruing TDRs	63,135		58,977		59,560		71,614		59,622		66,379
Non-accrual TDRs ⁽¹⁾	28,742		27,904		27,850		24,897		27,220		29,051
Total TDRs	$	91,877	$	86,881	$	87,410	$	96,511	$	86,842	$	95,430

(1) Included with non-accrual loans in the preceding table.

TDRs modified during the first ~~nine~~three months of ~~2017~~2018 and still outstanding as of ~~September 30, 2017~~March 31, 2018 totaled ~~$16.6~~$10.7 million. During the first ~~nine~~three months of ~~2017, $5.4~~2018, $3.5 million of TDRs that were modified in the previous 12 months had a payment default, which ~~the Corporation defines~~is defined as a single missed scheduled payment, subsequent to modification.

The following table presents the changes in non-accrual loans for the three ~~and nine~~ months ended ~~September 30, 2017:~~March 31, 2018:


	Commercial - Industrial, Financial and Agricultural			Real Estate - Commercial Mortgage			Real Estate - Construction			Real Estate - Residential Mortgage			Real Estate - Home Equity			Consumer			Leasing			Total			Commercial - Industrial, Financial and Agricultural			Real Estate - Commercial Mortgage			Real Estate - Construction			Real Estate - Residential Mortgage			Real Estate - Home Equity			Consumer			Leasing			Total
	(in thousands)																								(in thousands)
Three months ended September 30, 2017
Balance of non-accrual loans at June 30, 2017	$	48,087		$	32,267		$	15,586		$	16,940		$	9,720		$	—		$	—		$	122,600
Additions	16,107			6,281			1,512			1,399			995			373			325			26,992
Payments	(8,774		)	(5,974		)	(999		)	(891		)	(483		)	—			—			(17,121		)
Charge-offs	(2,714		)	(483		)	(2,744		)	(195		)	(547		)	(373		)	(325		)	(7,381		)
Transfers to OREO	—			(325		)	—			(868		)	(552		)	—			—			(1,745		)
Balance of non-accrual loans at September 30, 2017	$	52,706		$	31,766		$	13,355		$	16,385		$	9,133		$	—		$	—		$	123,345

Nine months ended September 30, 2017
Balance of non-accrual loans at December 31, 2016	$	42,349		$	38,936		$	9,806		$	18,431		$	10,611		$	—		$	—		$	120,133
Three months ended March 31, 2018																									Three months ended March 31, 2018
Balance of non-accrual loans at December 31, 2017																									$	52,904		$	34,822		$	12,197		$	15,691		$	9,135		$	—		$	—		$	124,749
Additions	40,508			14,055			10,259			2,545			3,694			1,659			1,443			74,163			14,059			5,391			117			632			1,288			892			124			22,503
Payments	(16,554		)	(16,955		)	(2,796		)	(2,141		)	(1,141		)	—			—			(39,587		)	(9,531		)	(2,768		)	(1,423		)	(220		)	(353		)	—			—			(14,295		)
Charge-offs	(13,594		)	(1,949		)	(3,765		)	(535		)	(1,837		)	(1,659		)	(1,443		)	(24,782		)	(4,005		)	(267		)	(158		)	(162		)	(408		)	(892		)	(124		)	(6,016		)
Transfers to accrual status	—			(913		)	—			(54		)	(678		)	—			—			(1,645		)	(457		)	(604		)	—			(37		)	(158		)	—			—			(1,256		)
Transfers to OREO	(3		)	(1,408		)	(149		)	(1,861		)	(1,516		)	—			—			(4,937		)	—			(1,391		)	—			(569		)	(759		)	—			—			(2,719		)
Balance of non-accrual loans at September 30, 2017	$	52,706		$	31,766		$	13,355		$	16,385		$	9,133		$	—		$	—		$	123,345
Balance of non-accrual loans at March 31, 2018																									$	52,970		$	35,183		$	10,733		$	15,335		$	8,745		$	—		$	—		$	122,966

Non-accrual loans increased ~~$672,000, or 0.5%, and $3.2~~$5.7 million, or ~~2.7%~~4.9%, in comparison to ~~September 30, 2016~~March 31, 2017 and decreased $1.8 million, or 1.4%, in comparison to December 31, ~~2016, respectively.~~2017.

The following table summarizes non-performing loans, by type, as of the indicated dates:


	September 30, 2017		September 30, 2016		December 31, 2016		March 31, 2018		March 31, 2017		December 31, 2017
	(in thousands)						(in thousands)
Commercial – industrial, financial and agricultural	$	54,209	$	47,330	$	43,460	$	54,915	$	43,826	$	54,309
Real estate – commercial mortgage	34,650		39,631		39,319		36,184		36,713		35,447
Real estate – residential mortgage	21,643		23,451		23,655		20,168		23,597		20,971
Real estate – home equity							12,025		12,232		11,507
Real estate – construction	13,415		11,223		9,842		10,931		13,550		12,197
Real estate – home equity	12,229		14,260		13,154
Consumer	243		2,166		1,891		247		1,176		296
Leasing	80		51		317		172		438		32
Total non-performing loans	$	136,469	$	138,112	$	131,638	$	134,642	$	131,532	$	134,759

Non-performing loans ~~decreased $1.6~~increased $3.1 million, or ~~1.2%, and increased $4.8 million, or 3.7%~~2.4%, in comparison to ~~September 30, 2016~~March 31, 2017 and were largely unchanged from December 31, ~~2016, respectively.~~2017. Non-performing loans toas a percentage of total loans was ~~0.88%~~0.86% at ~~September 30, 2017~~March 31, 2018 in comparison to ~~0.96%~~0.88% at ~~September 30, 2016~~March 31, 2017 and ~~0.90%~~0.85% at December 31, ~~2016.~~

2017.

The following table summarizes the Corporation’s OREO, by property type, as of the indicated dates:


	September 30, 2017		September 30, 2016		December 31, 2016		March 31, 2018		March 31, 2017		December 31, 2017
	(in thousands)						(in thousands)
Residential properties	$	4,223	$	6,279	$	7,655	$	4,613	$	6,112	$	4,562
Commercial properties	3,709		3,050		2,651		4,349		3,134		3,331
Undeveloped land	2,610		2,652		2,509		1,782		2,660		1,930
Total OREO	$	10,542	$	11,981	$	12,815	$	10,744	$	11,906	$	9,823

The ability to identify potential problem loans in a timely manner is important to maintaining an adequate allowance for credit losses. For commercial loans, commercial mortgages and construction loans to commercial borrowers, an internal risk rating process is used to monitor credit quality. The evaluation of credit risk for residential mortgages, home equity loans, construction loans to individuals, consumer loans and lease receivables is based on payment history, through the monitoring of delinquency levels and trends. For a description of the Corporation's risk ratings, see Note 5, "Loans and Allowance for Credit Losses," in the Notes to Consolidated Financial Statements.

Total internally risk-rated loans were ~~$11.4~~$11.5 billion and ~~$10.9~~$11.6 billion as of ~~September 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, respectively. The following table presents internal risk ratings for commercial loans, commercial mortgages and construction loans to commercial borrowers with internal risk ratings of Special Mention (considered ~~criticized~~"criticized" loans) or Substandard or lower (considered ~~classified~~"classified" loans), by class segment. The shift from special mention to substandard or lower from December 31, 2016 to September 30, 2017 was primarily the result of downgrades of three large relationships to substandard during the first nine months of 2017.

Special Mention Increase (Decrease) Substandard or lower Increase (Decrease) Total Criticized and Classified Loans
September 30, 2017 December 31, 2016 $ % September 30, 2017 December 31, 2016 $ % September 30, 2017 December 31, 2016
(dollars in thousands)
Real estate - commercial mortgage $ 118,947
$ 132,484
$ (13,537 ) (10.2 )% $ 127,670
$ 122,976
$ 4,694
3.8 % $ 246,617
$ 255,460
Commercial - secured 98,639
128,873
(30,234 ) (23.5 ) 183,181
118,527
64,654
54.5
281,820
247,400
Commercial -unsecured 3,474
4,481
(1,007 ) (22.5 ) 3,082
3,531
(449 ) (12.7 ) 6,556
8,012
Total Commercial - industrial, financial and agricultural 102,113
133,354
(31,241 ) (23.4 ) 186,263
122,058
64,205
52.6
288,376
255,412
Construction - commercial residential 6,746
15,447
(8,701 ) (56.3 ) 14,595
13,172
1,423
10.8
21,341
28,619
Construction - commercial 4,418
3,412
1,006
29.5
3,869
5,115
(1,246 ) (24.4 ) 8,287
8,527
Total real estate - construction (excluding construction - other) 11,164
18,859
(7,695 ) (40.8 ) 18,464
18,287
177
1.0
29,628
37,146
Total $ 232,224
$ 284,697
$ (52,473 ) (18.4 )% $ 332,397
$ 263,321
$ 69,076
26.2 % $ 564,621
$ 548,018

% of total risk-rated loans 2.0 % 2.6 % 2.9 % 2.4 % 5.0 % 5.0 %



	Special Mention						Decrease					Substandard or lower						Increase (Decrease)					Total Criticized and Classified Loans
	March 31, 2018			December 31, 2017			$			%		March 31, 2018			December 31, 2017			$			%		March 31, 2018			December 31, 2017
	(dollars in thousands)
Real estate - commercial mortgage	$	144,809		$	147,604		$	(2,795	)	(1.9	)%	$	160,489		$	150,804		$	9,685		6.4	%	$	305,298		$	298,408
Commercial - secured	100,242			121,842			(21,600		)	(17.7	)	180,234			179,113			1,121			0.6		280,476			300,955
Commercial -unsecured	3,378			5,478			(2,100		)	(38.3	)	2,342			2,759			(417		)	(15.1	)	5,720			8,237
Total Commercial - industrial, financial and agricultural	103,620			127,320			(23,700		)	(18.6	)	182,576			181,872			704			0.4		286,196			309,192
Construction - commercial residential	4,613			5,259			(646		)	(12.3	)	12,282			14,084			(1,802		)	(12.8	)	16,895			19,343
Construction - commercial	834			846			(12		)	(1.4	)	3,688			3,752			(64		)	(1.7	)	4,522			4,598
Total real estate - construction (excluding construction - other)	5,447			6,105			(658		)	(10.8	)	15,970			17,836			(1,866		)	(10.5	)	21,417			23,941
Total	$	253,876		$	281,029		$	(27,153	)	(9.7	)%	$	359,035		$	350,512		$	8,523		2.4	%	$	612,911		$	631,541

% of total risk-rated loans	2.2		%	2.4		%						3.1		%	3.0		%						5.3		%	5.4		%

The following table summarizes loan delinquency rates, by type, as of the dates indicated:


	September 30, 2017									September 30, 2016									December 31, 2016									March 31, 2018									March 31, 2017									December 31, 2017
	30-89 Days			≥ 90 Days (1)			Total			30-89 Days			≥ 90 Days (1)			Total			30-89 Days			≥ 90 Days (1)			Total			30-89 Days			≥ 90 Days (1)			Total			30-89 Days			≥ 90 Days (1)			Total			30-89 Days			≥ 90 Days (1)			Total
Real estate – commercial mortgage	0.20		%	0.55		%	0.75		%	0.18		%	0.69		%	0.87		%	0.13		%	0.65		%	0.78		%	0.20		%	0.57		%	0.77		%	0.18		%	0.60		%	0.78		%	0.21		%	0.56		%	0.77		%
Commercial – industrial, financial and agricultural	0.26		%	1.28		%	1.54		%	0.31		%	1.17		%	1.48		%	0.25		%	1.06		%	1.31		%	0.20		%	1.28		%	1.48		%	0.19		%	1.06		%	1.25		%	0.24		%	1.26		%	1.50		%
Real estate – construction	0.12		%	1.38		%	1.50		%	0.31		%	1.30		%	1.61		%	0.12		%	1.17		%	1.29		%	—		%	1.12		%	1.12		%	0.46		%	1.53		%	1.99		%	0.11		%	1.21		%	1.32		%
Real estate – residential mortgage	1.10		%	1.15		%	2.25		%	1.15		%	1.52		%	2.67		%	1.27		%	1.48		%	2.75		%	0.89		%	1.02		%	1.91		%	1.03		%	1.41		%	2.44		%	0.96		%	1.08		%	2.04		%
Real estate – home equity	0.83		%	0.78		%	1.61		%	0.64		%	0.87		%	1.51		%	0.57		%	0.81		%	1.38		%	0.58		%	0.79		%	1.37		%	0.46		%	0.76		%	1.22		%	0.81		%	0.74		%	1.55		%
Consumer, leasing and other	0.69		%	0.06		%	0.75		%	1.18		%	0.44		%	1.62		%	1.23		%	0.42		%	1.65		%	0.69		%	0.07		%	0.76		%	0.91		%	0.31		%	1.22		%	0.83		%	0.06		%	0.89		%
Total	0.40		%	0.88		%	1.28		%	0.42		%	0.96		%	1.38		%	0.38		%	0.89		%	1.27		%	0.33		%	0.86		%	1.19		%	0.35		%	0.88		%	1.23		%	0.39		%	0.85		%	1.24		%
Total dollars (in thousands)	$	62,247		$	136,469		$	198,716		$	59,822		$	138,112		$	197,934		$	55,149		$	131,638		$	186,787		$	51,692		$	134,642		$	186,334		$	52,198		$	131,532		$	183,730		$	61,509		$	134,759		$	196,268


(1)	Includes non-accrual loans.

Management believes that the allowance for credit losses of $174.7 million as of September 30, 2017 is sufficient to cover incurred losses in the loan and lease portfolio and unfunded lending commitments as of that date and is appropriate based on U.S. GAAP.

Deposits and Borrowings

The following table presents ending deposits, by type, as of the dates indicated:


					Increase (Decrease)									Decrease
	September 30, 2017		December 31, 2016		$			%		March 31, 2018		December 31, 2017		$			%
	(dollars in thousands)									(dollars in thousands)
Noninterest-bearing demand	$	4,363,915	$	4,376,137	$	(12,222	)	(0.3	)%	$	4,291,821	$	4,437,294	$	(145,473	)	(3.3	)%
Interest-bearing demand	4,119,419		3,703,712		415,707			11.2		3,984,423		4,018,107		(33,684		)	(0.8	)
Savings and money market accounts	4,790,985		4,179,773		611,212			14.6		4,487,277		4,586,746		(99,469		)	(2.2	)
Total demand and savings	13,274,319		12,259,622		1,014,697			8.3		12,763,521		13,042,147		(278,626		)	(2.1	)
Brokered deposits	109,936		—		109,936			N/M		64,195		90,473		(26,278		)	(29.0	)
Time deposits	2,757,525		2,753,242		4,283			0.2		2,649,387		2,664,912		(15,525		)	(0.6	)
Total deposits	$	16,141,780	$	15,012,864	$	1,128,916		7.5	%	$	15,477,103	$	15,797,532	$	(320,429	)	(2.0	)%

~~N/M - Not meaningful~~

The $320.4 million overall decrease in deposits reflected a seasonal decrease in municipal deposits and an increase in short-term promissory notes, which are included in short-term borrowings.

Noninterest-bearing demand deposits decreased $145.5 million, or 3.3%, as a result of a $197.2 million, or 5.9%, decrease in commercial accounts, partially offset by increases of $33.2 million, or 3.6%, and $16.9 million, or 19.2%, in consumer and municipal accounts, respectively.

Interest-bearing demand accounts ~~increased $415.7~~decreased $33.7 million, or ~~11.2%~~0.8%, due to a ~~$401.4~~$126.8 million, or ~~30.8%~~9.5%, seasonal ~~increase~~decrease in municipal account balances ~~and a $25.3 million, or 7.8%, increase in business accounts, which was~~ partially offset by a ~~$10.1~~$24.8 million, or ~~0.5%~~1.2%, ~~decrease~~increase in ~~personal~~consumer accounts and a $1.3 million, or 0.4%, increase in commercial account balances.

The ~~$611.2~~$99.5 million, or ~~14.6%~~2.2%, ~~increase~~decrease in savings and money market account balances was ~~primarily~~ due to a ~~$449.1~~$48.4 million, or ~~16.0%~~6.3%, ~~increase~~decrease in ~~personal~~commercial account balances, a $47.3 million, or 9.0%, seasonal decrease in municipal account balances and ~~an $83.3~~a $3.7 million ~~or 10.5%, increase~~decrease in ~~business~~consumer account ~~balances as a result of certain promotions that occurred during the year. In addition, municipal account balances experienced seasonal increases of $78.8 million, or 13.7%.~~balances.

Brokered deposits ~~totaled $109.9~~decreased $26.3 million, or 29.0%, as ~~of September 30, 2017. As previously noted, during the third quarter of 2017,~~ the Corporation ~~began accepting deposits pursuant to an agreement with a non-bank third party, which are considered to be brokered deposits.~~

reduced funding through the Third-Party Deposit Sweep Arrangement.

The following table presents ending short-term borrowings and long-term debt, by type, as of the dates indicated:


					Increase (Decrease)									Increase (Decrease)
	September 30, 2017		December 31, 2016		$			%		March 31, 2018		December 31, 2017		$			%
	(dollars in thousands)									(dollars in thousands)
Short-term borrowings:
Customer repurchase agreements	$	185,945	$	195,734	$	(9,789	)	(5.0	)%	$	165,186	$	172,017	$	(6,831	)	(4.0	)%
Customer short-term promissory notes	106,994		67,013		39,981			59.7		342,666		225,507		117,159			52.0
Total short-term customer funding	292,939		262,747		30,192			11.5		507,852		397,524		110,328			27.8
Federal funds purchased	5,812		278,570		(272,758		)	(97.9	)	395,000		220,000		175,000			79.5
Short-term FHLB advances ⁽¹⁾										35,000		—		35,000			N/M
Total short-term borrowings	298,751		541,317		(242,566		)	(44.8	)	937,852		617,524		320,328			51.9
Long-term debt:
FHLB advances	652,145		567,240		84,905			15.0		552,080		652,113		(100,033		)	(15.3	)
Other long-term debt	386,014		362,163		23,851			6.6		386,419		386,233		186			N/M
Total long-term debt	1,038,159		929,403		108,756			11.7		938,499		1,038,346		(99,847		)	(9.6	)
Total borrowings	$	1,336,910	$	1,470,720	$	(133,810	)	(9.1	)%	$	1,876,351	$	1,655,870	$	220,481		13.3	%

N/M - Not meaningful

(1) Represents FHLB advances with an original maturity term of less than one year.

Total borrowings ~~decreased $133.8~~increased $220.5 million, or ~~9.1%~~13.3%, primarily due to a ~~$242.6~~$320.3 million, or ~~44.8%, decrease in short-term borrowings, partially offset by an $108.8 million, or 11.7%~~51.9%, increase in ~~long-term debt.~~short-term borrowings. The ~~decrease~~increase in short-term borrowings was ~~mainly~~primarily the result of a shift in customer deposit balances towards short-term promissory notes and increases in short-term FHLB advances and federal funds purchased, as borrowings were ~~reduced with~~used to supplement funding ~~provided~~needs created by the decrease in deposit ~~growth.~~balances. The ~~increase~~decrease of ~~$84.9~~$100.0 million, or ~~15.0%~~15.3%, in long-term FHLB advances ~~provided additional funding to support loan growth. The increase in other long-term debt~~ was ~~primarily~~ the result of ~~the issuance of $125.0 million of senior notes in March 2017, offset by the repayment of the $100.0 million of 10-year subordinated notes,~~a maturity which ~~matured on May 1, 2017.~~was replaced with short-term federal funds purchased.

Shareholders' Equity

Total shareholders’ equity increased ~~$104.7~~$5.6 million ~~or 4.9%,~~ during the first ~~nine~~three months of ~~2017.~~2018. The increase was due primarily to ~~$137.8~~$49.5 million of net income ~~$7.0~~and $2.8 million of stock issued, ~~and~~partially offset by a ~~$14.2~~$27.1 million increase in other comprehensive ~~income, partially offset by $57.7~~loss and $21.0 million of common stock dividends. The increase in other comprehensive loss resulted primarily from unrealized losses on investment securities as interest rates continued to rise during the first quarter of 2018.

In November ~~2016,~~2017, the Corporation's board of directors approved an extension ~~through December 31, 2017,~~ to a share repurchase program pursuant to which the Corporation is authorized to repurchase up to $50.0 million of its outstanding shares of common stock, or approximately 2.3% of its outstanding ~~shares. Repurchased~~ shares, may be added to treasury stock, at cost. As permitted by securities laws and other legal requirements and subject to market conditions and other factors, purchases may be made from time to time in open market or privately negotiated transactions, including without limitation, through ~~accelerated share repurchase transactions. The share repurchase program may be discontinued at any time.~~December 31, 2018. As of ~~September 30, 2017,~~March 31, 2018, 1.5 million shares had been repurchased under this program, ~~for~~all prior to 2017, at a total cost of $18.5 million, or an average of $12.48 per share. Up to an additional $31.5 million of the Corporation's common stock may be repurchased under this program through December 31, ~~2017.~~2018.

Regulatory Capital

The Corporation and its subsidiary banks are subject to regulatory capital requirements administered by various banking regulators. Failure to meet minimum capital requirements could result in certain actions by regulators that could have a material effect on the Corporation’s financial statements. In July 2013, the Federal Reserve Board approved final rules (the "U.S. Basel III Capital Rules") establishing a new comprehensive capital framework for U.S. banking organizations and implementing the Basel Committee on Banking Supervision's December 2010 framework for strengthening international capital standards. The U.S. Basel III Capital Rules substantially ~~revise~~revised the risk-based capital requirements applicable to bank holding companies and depository institutions.

The minimum regulatory capital requirements established by the U.S. Basel III Capital Rules became effective for the Corporation on January 1, 2015, and will be fully phased in on January 1, 2019.

The U.S. Basel III Capital Rules require the Corporation and its bank subsidiaries to:

Meet a minimum Common Equity Tier 1 capital ratio of 4.50% of risk-weighted assets and a Tier 1 capital ratio of 6.00% of risk-weighted assets;

Continue to require a minimum Total capital ratio of 8.00% of risk-weighted assets and a minimum Tier 1 leverage capital ratio of 4.00% of average assets; and

Comply with a revised definition of capital to improve the ability of regulatory capital instruments to absorb losses. Certain non-qualifying capital instruments, including cumulative preferred stock and trust preferred securities ("TruPS"), have been phased out as a component of Tier 1 capital for institutions of the Corporation's size.

When fully phased in on January 1, 2019, the Corporation and its bank subsidiaries will also be required to maintain a "capital conservation buffer" of 2.50% above the minimum risk-based capital requirements, which must be maintained to avoid restrictions on capital distributions and certain discretionary bonus payments.

The U.S. Basel III Capital Rules use a standardized approach for risk weightings that expands the risk-weightings for assets and off-balance sheet exposures from the previous 0%, 20%, 50% and 100% categories to a much larger and more risk-sensitive number of categories, depending on the nature of the assets and off-balance sheet exposures and resulting in higher risk ~~weights~~weightings for a variety of asset categories.

As of September 30, 2017, the Corporation and each of its bank subsidiaries met the minimum requirements of the U.S. Basel III Capital Rules, and each of the Corporation’s bank subsidiaries’ capital ratios exceeded the amounts required to be considered "well capitalized" as defined in the regulations. As of September 30, 2017,March 31, 2018, the Corporation's capital levels ~~also met~~meet the ~~fully-phased in~~fully phased-in minimum capital requirements, including the new capital conservation buffers, as prescribed in the U.S. Basel III Capital Rules.

As of March 31, 2018, each of the Corporation’s subsidiary banks was well capitalized under the regulatory framework for prompt corrective action based on their capital ratio calculations. To be categorized as well capitalized, these banks must maintain minimum total risk-based, Tier I risk-based, Common Equity Tier I risk-based and Tier I leverage ratios as set forth in the following table. There are no conditions or events since March 31, 2018 that management believes have changed the institutions’ categories.

The following table summarizes the Corporation’s capital ratios in comparison to regulatory requirements:


	September 30, 2017		December 31, 2016		Regulatory Minimum for Capital Adequacy		Fully Phased-in, with Capital Conservation Buffers		March 31, 2018		December 31, 2017		Regulatory Minimum for Capital Adequacy		Fully Phased-in, with Capital Conservation Buffers
Total Capital (to Risk-Weighted Assets)	13.1	%	13.2	%	8.0	%	10.5	%	13.2	%	13.0	%	8.0	%	10.5	%
Tier I Capital (to Risk-Weighted Assets)	10.4	%	10.4	%	6.0	%	8.5	%	10.6	%	10.4	%	6.0	%	8.5	%
Common Equity Tier I (to Risk-Weighted Assets)	10.4	%	10.4	%	4.5	%	7.0	%	10.6	%	10.4	%	4.5	%	7.0	%
Tier I Capital (to Average Assets)	9.0	%	9.0	%	4.0	%	4.0	%	9.2	%	8.9	%	4.0	%	4.0	%

The increases in regulatory capital ratios from December 31, 2017 to March 31, 2018 largely reflected increases in regulatory capital, generated by net income less shareholder dividends, outpacing the growth in risk-weighted and total assets.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the exposure to economic loss that arises from changes in the values of certain financial instruments. The types of market risk exposures generally faced by financial institutions include interest rate risk, equity market price risk, debt security market price risk, foreign currency price risk and commodity price risk. Due to the nature of its operations, foreign currency price risk and commodity price risk are not significant to the Corporation.

Interest Rate Risk, Asset/Liability Management and Liquidity

Interest rate risk creates exposure in two primary areas. First, changes in rates have an impact on the Corporation’s liquidity position and could affect its ability to meet obligations and continue to grow. Second, movements in interest rates can create fluctuations in the Corporation’s net interest income and changes in the economic value of its equity.

The Corporation employs various management techniques to minimize its exposure to interest rate risk. An Asset/Liability Management Committee ("ALCO") is responsible for reviewing the interest rate sensitivity and liquidity positions of the Corporation, approving asset and liability management policies, and overseeing the formulation and implementation of strategies regarding balance sheet positions.

The Corporation uses two complementary methods to measure and manage interest rate risk. They are simulation of net interest income and estimates of economic value of equity. Using these measurements in tandem provides a reasonably comprehensive summary of the magnitude of the Corporation's interest rate risk, level of risk as time evolves, and exposure to changes in interest rates.

Simulation of net interest income is performed for the next 12-month period. A variety of interest rate scenarios are used to measure the effects of sudden and gradual movements upward and downward in the yield curve. These results are compared to the results obtained in a flat or unchanged interest rate scenario. Simulation of net interest income is used primarily to measure the Corporation’s short-term earnings exposure to rate movements. The Corporation’s policy limits the potential exposure of net interest income, in a non-parallel instantaneous shock, to 10% of the base case net interest income for a 100 basis point shock in interest rates, 15% for a 200 basis point shock and 20% for a 300 basis point shock. A "shock" is an immediate upward or downward movement of interest rates. The shocks do not take into account changes in customer behavior that could result in changes to mix and/or volumes in the balance sheet, nor do they take into account the potential effects of competition on the pricing of deposits and loans over the forward 12-month period.

Contractual maturities and repricing opportunities of loans are incorporated in the simulation model as are prepayment assumptions, maturity data and call options in the investment portfolio. Assumptions based on past experience are incorporated into the model for non-maturity deposit accounts. The assumptions used are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model's simulated results due to timing, amount and frequency of interest rate changes as well as changes in market conditions and the application and timing of various management strategies.

The following table summarizes the expected impact of abrupt interest rate changes, i.e. a non-parallel instantaneous shock, on net interest income as of ~~September 30, 2017~~March 31, 2018 (due to the current level of interest rates, the 200 and 300 basis point downward shock scenarios are not shown):



Rate Shock⁽¹⁾	Annual change in net interest income	% Change in net interest income
+300 bp	+ ~~$93.9~~$84.5 million	~~15.5%~~13.1%
+200 bp	+ ~~$64.5~~$57.8 million	~~10.6%~~9.0%
+100 bp	+ ~~$32.9~~$29.0 million	~~5.4%~~4.5%
–100 bp	– $49.0 million	– ~~8.1%~~7.62%


(1)	These results include the effect of implicit and explicit interest rate floors that limit further reduction in interest rates.

Economic value of equity estimates the discounted present value of asset and liability cash flows. Discount rates are based upon market prices for like assets and liabilities. Abrupt changes or "shocks" in interest rates, both upward and downward, are used to determine the comparative effect of such interest rate movements relative to the unchanged environment. This measurement tool is used primarily to evaluate the longer-term repricing risks and options in the Corporation’s balance sheet. The Corporation's policy limits the economic value of equity that may be at risk, in a non-parallel instantaneous shock, to 10% of the base case

economic value of equity for a 100 basis point shock in interest rates, 20% for a 200 basis point shock and 30% for a 300 basis

point shock. As of ~~September 30, 2017,~~March 31, 2018, the Corporation was within economic value of equity policy limits for every 100 basis point shock.

Interest Rate Swaps

The Corporation enters into interest rate swaps with certain qualifying commercial loan customers to meet their interest rate risk management needs. The Corporation simultaneously enters into interest rate swaps with dealer counterparties, with identical notional amounts and terms. The net result of these interest rate swaps is that the customer pays a fixed rate of interest and the Corporation receives a floating rate. These interest rate swaps are derivative financial instruments ~~that~~and the gross fair values are recorded ~~at their fair value~~ in other assets and other liabilities on the consolidated balance ~~sheets. Changes~~sheets, with changes in fair value during the period ~~are~~ recorded in other non-interest expense on the consolidated statements of income.

Liquidity

The Corporation must maintain a sufficient level of liquid assets to meet the cash needs of its customers, who, as depositors, may want to withdraw funds or who, as borrowers, need credit availability. Liquidity is provided on a continuous basis through scheduled and unscheduled principal and interest payments on investments and outstanding loans and through the availability of deposits and borrowings. The Corporation also maintains secondary sources that provide liquidity on a secured and unsecured basis to meet short-term and long-term needs.

The Corporation maintains liquidity sources in the form of demand and savings deposits, brokered deposits, time deposits, repurchase agreements and short-term promissory notes. The Corporation can access additional liquidity from these sources, if necessary, by increasing the rates of interest paid on those accounts and borrowings. The positive impact to liquidity resulting from paying higher interest rates could have a detrimental impact on the net interest margin and net income if rates on interest-earning assets do not experience a proportionate increase. Borrowing availability with the FHLB and the Federal Reserve Bank, along with federal funds lines at various correspondent banks, provides the Corporation with additional liquidity.

Each of the Corporation’s subsidiary banks is a member of the FHLB and has access to FHLB overnight and term credit facilities. As of ~~September 30, 2017,~~March 31, 2018, the Corporation had ~~$652.1~~$552.1 million of advances outstanding from the FHLB with an additional borrowing capacity of approximately ~~$3.2~~$3.8 billion under these facilities. Advances from the FHLB are secured by qualifying commercial real estate and residential mortgage loans, investments and other assets.

As of ~~September 30, 2017,~~March 31, 2018, the Corporation had aggregate availability under federal funds lines of ~~$1.1~~$1.0 billion with ~~$5.8~~$400 million borrowed against that amount. A combination of commercial real estate loans, commercial loans and securities are pledged to the Federal Reserve Bank of Philadelphia to provide access to Federal Reserve Bank Discount Window borrowings. As of ~~September 30, 2017,~~March 31, 2018, the Corporation had ~~$908.5~~$490.3 million of collateralized borrowing availability at the Discount Window, and no outstanding borrowings.

Liquidity must also be managed at the ~~Fulton Financial~~ Corporation parent company level. For safety and soundness reasons, banking regulations limit the amount of cash that can be transferred from subsidiary banks to the parent company in the form of loans and dividends. Generally, these limitations are based on the subsidiary banks’ regulatory capital levels and their net income. Management continues to monitor the liquidity and capital needs of the parent company and will implement appropriate strategies, as necessary, to remain ~~adequately~~sufficiently capitalized and to meet its cash needs.

The Corporation’s sources and uses of funds were discussed in general terms in the "Net Interest Income" section of Management’s Discussion and Analysis. The consolidated statements of cash flows provide additional information. The Corporation’s operating activities during the first ~~nine~~three months of ~~2017~~2018 generated ~~$194.4~~$71.8 million of cash, mainly due to net income. Cash ~~used in~~provided by investing activities was ~~$1.2 billion,~~$36.7 million, mainly due to net ~~increases~~decreases in loans and short-term investments. Net cash ~~provided by~~used in financing activities was ~~$945.7~~$116.7 million due mainly to increases in deposits, long-term debt and short-term borrowings.

~~Equity Market Price Risk~~

Equity market price risk is the risk that changes in the values of equity investments could have a material impact on the financial position or results of operations of the Corporation. As of September 30, 2017, equity investments consisted of $12.1 million of common stocks of publicly traded financial institutions and $1.0 million of other equity investments.

The equity investments most susceptible to equity market price risk are the financial institutions stocks, which had a cost basis of approximately $5.8 million and an estimated fair value of $12.1 million at September 30, 2017, including an investment in a single financial institution with a cost basis of $4.2 million and an estimated fair value of $8.8 million. The fair value of this investment

accounted for 73.4% of the fair value of the common stocks of publicly traded financial institutions. No other investment in a single financial institution in the financial institutions stock portfolio exceeded 10% of the portfolio's fair value. In total, net unrealized gains in this portfolio were approximately $6.3 million as of September 30, 2017.

Management continuously monitors the fair value of its equity investments and evaluates current market conditions and operating results of the issuers. Periodic sale and purchase decisions are made based on this monitoring process. None of the Corporation’s equity securities are classified as trading.

In addition to its equity portfolio, investment management and trust services income may be impacted by fluctuations in the equity markets. A portion of this revenue is based on the value of the underlying investment portfolios, many of which include equity investments. If the values of those investment portfolios decrease, whether due to factors influencing U.S. or international securities markets in general or otherwise, the Corporation’s revenue would be negatively impacted. In addition, the Corporation’s ability to sell its brokerage services in the future will be dependent, in part, upon consumers’ level of confidence in financial markets.

Debt Security Market Price Risk

Debt security market price risk is the risk that changes in the values of debt securities, unrelated to interest rate changes, could have a material impact on the financial position or results of operations of the Corporation. The Corporation’s debt security investments consist primarily of U.S. government sponsored agency issued mortgage-backed securities and collateralized mortgage obligations, state and municipal securities, U.S. government debt securities, auction rate securities and corporate debt securities. All of the Corporation's investments in commercial and residential mortgage-backed securities and collateralized mortgage obligations have principal payments that are guaranteed by U.S. government sponsored agencies.

State and Municipal Securities

As of ~~September 30, 2017,~~March 31, 2018, the Corporation owned ~~$413.9~~$406.1 million of municipal securities issued by various states or municipalities. Downward pressure on local tax revenues of issuers could have an adverse impact on the underlying credit quality of issuers. The Corporation evaluates existing and potential holdings primarily based on the creditworthiness of the issuing state or municipality and then, to a lesser extent, on any underlying credit enhancement. State or municipal securities can be supported by the general obligation of the issuing state or municipality, allowing the securities to be repaid by any means available to the issuing municipality. As of ~~September 30, 2017,~~March 31, 2018, approximately 98% of state or municipal securities were supported by the general obligation of corresponding states or municipalities. Approximately ~~60%~~61% of these securities were school district issuances, which are also supported by the states of the issuing municipalities.

Auction Rate Securities

As of ~~September 30, 2017,~~March 31, 2018, the Corporation’s investments in auction rate certificates ("ARCs"), a type of auction rate security, had a cost basis of $107.4 million and a fair value of ~~$98.2~~$103.0 million.

As of ~~September 30, 2017,~~March 31, 2018, the fair values of the ARCs currently in the portfolio were derived using significant unobservable inputs based on an expected cash ~~flows model~~flow models which produced fair values that were materially different from those that would be expected from settlement of these investments in the current market. The expected cash ~~flows model~~flow models produced fair values which assumed a return to market liquidity ~~sometime in~~within the next five years. The Corporation believes that the trusts underlying the ARCs will self-liquidate as student loans are repaid.

The credit quality of the underlying debt associated with the ARCs is also a factor in the determination of their estimated fair value. As of ~~September 30, 2017,~~March 31, 2018, all of the ARCs were rated above investment grade. All of the loans underlying the ARCs have principal payments that are guaranteed by the federal government. At ~~September 30, 2017,~~March 31, 2018, all ARCs were current and making scheduled interest payments.

Corporate Debt Securities

The Corporation holds corporate debt securities in the form of pooled trust preferred securities, single-issuer trust preferred securities, subordinated debt and senior debt issued by financial institutions. As of ~~September 30, 2017,~~March 31, 2018, these securities had an amortized cost of ~~$92.4~~$101.4 million and an estimated fair value of ~~$93.0~~$102.0 million.

See "Note 4 - Investment Securities," in the Notes to Consolidated Financial Statements for further discussion related to the Corporation’s other-than-temporary impairment evaluations for debt securities, and see "Note 11 - Fair Value Measurements," in the Notes to Consolidated Financial Statements for further discussion related to the fair values of debt securities.

Item 4. Controls and Procedures

The Corporation carried out an evaluation, under the supervision and with the participation of the Corporation’s management, including the Corporation’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures pursuant to Rule 13a-15, promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"). Based upon that evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this quarterly report, the Corporation’s disclosure controls and procedures are effective. Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in Corporation reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

There have been no changes in the Corporation’s internal control over financial reporting during the fiscal quarter covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

The information presented in the "Legal Proceedings" section of Note 10 ~~"Commitment~~"Commitments and Contingencies" of the Notes to Consolidated Financial Statements is incorporated herein by reference.

Item 1A. Risk Factors

There have been no material changes to the risk factors previously disclosed in Part I, Item 1A of the Corporation’s Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017.

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

(a) None.

(b) None.

(c) There were no purchases of equity securities by the issuer or any affiliated purchasers during the three months ended ~~September 30, 2017.~~March 31, 2018.

Item 6. Exhibits




3.1			Articles of Incorporation, as amended and restated, of Fulton Financial Corporation– Incorporated by reference to Exhibit 3.1 of the Fulton Financial Corporation Current Report on Form 8-K dated June 24, 2011. (File No. 0-10587)

3.2			Bylaws of Fulton Financial Corporation as amended – Incorporated by reference to Exhibit 3.1 of the Fulton Financial Corporation Current Report on an Amended Form 8-K dated September 23, 2014.

31.1			Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2			Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1			Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2			Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101			Financial statements from the Quarterly Report on Form 10-Q of Fulton Financial Corporation for the period ended ~~September 30, 2017,~~March 31, 2018, filed on ~~November 3, 2017,~~May 8, 2018, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Shareholders' Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements - filed herewith.

FULTON FINANCIAL CORPORATION AND SUBSIDIARIES

SIGNATURES

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



FULTON FINANCIAL CORPORATION

Date:	~~November 3, 2017~~May 8, 2018	/s/ E. Philip Wenger
		E. Philip Wenger
		Chairman and Chief Executive Officer ~~and President~~

Date:	~~November 3, 2017~~May 8, 2018	/s/ ~~Philmer H. Rohrbaugh~~Mark R. McCollom
		~~Philmer H. Rohrbaugh~~Mark R. McCollom
		Senior Executive Vice President and Chief ~~Operating~~Financial Officer
		~~and Chief Financial Officer~~

7265



	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 September 30, 2017
Balance at June 30, 2017	$	(10,157	)	$	273	$	—		$	(14,991	)	$	(24,875	)
Other comprehensive income before reclassifications	3,320			—		—			—			3,320
Amounts reclassified from accumulated other comprehensive income (loss)	(2,988		)	—		—			340			(2,648		)
Balance at September 30, 2017	$	(9,825	)	$	273	$	—		$	(14,651	)	$	(24,203	)
Three months ended September 30, 2016
Balance at June 30, 2016	$	22,701		$	458	$	(7	)	$	(15,463	)	$	7,689
Other comprehensive loss before reclassifications	(3,580		)	—		—			—			(3,580		)
Amounts reclassified from accumulated other comprehensive income (loss)	(1		)	—		4			379			382
Balance at September 30, 2016	$	19,120		$	458	$	(3	)	$	(15,084	)	$	4,491

Nine months ended September 30, 2017
Balance at December 31, 2016	$	(23,047	)	$	273	$	—		$	(15,675	)	$	(38,449	)
Other comprehensive income before reclassifications	17,861			—		—			—			17,861
Amounts reclassified from accumulated other comprehensive income (loss)	(4,639		)	—		—			1,024			(3,615		)
Balance at September 30, 2017	$	(9,825	)	$	273	$	—		$	(14,651	)	$	(24,203	)
Nine months ended September 30, 2016
Balance at December 31, 2015	$	(6,499	)	$	458	$	(15	)	$	(15,961	)	$	(22,017	)
Other comprehensive income before reclassifications	26,285			—		—			—			26,285
Amounts reclassified from accumulated other comprehensive income (loss)	(666		)	—		12			877			223
Balance at September 30, 2016	$	19,120		$	458	$	(3	)	$	(15,084	)	$	4,491



	September 30, 2017		December 31, 2016
Services	22.1	%	21.8	%
Retail	15.6		15.1
Manufacturing	9.9		9.2
Health care	9.7		10.5
Construction ⁽¹⁾	8.6		9.0
Wholesale	6.8		7.0
Real estate ⁽²⁾	6.4		6.7
Agriculture	4.9		5.0
Arts and entertainment	2.5		2.6
Transportation	2.3		2.3
Financial services	2.1		2.1
Other	9.1		8.7
Total	100.0	%	100.0	%

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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