Edgar Filing: FULTON FINANCIAL CORP

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Accelerated filer

Non-accelerated filer

Smaller reporting company

FULT 6.30.2013 10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20459

FORM 10-Q

(Mark One)



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

For the quarterly period ended June 30, 2013, 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 check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

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

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

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

Common Stock, $2.50 Par Value – 193,815,000 shares outstanding as of July 31, 2013.

FULTON FINANCIAL CORPORATION

FORM 10-Q FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2013

INDEX



Description		Page

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited):

(a)	Consolidated Balance Sheets - June 30, 2013 and December 31, 2012	3

(b)	Consolidated Statements of Income - Three and six months ended June 30, 2013 and 2012	4

(c)	Consolidated Statements of Comprehensive Income - Three and six months ended June 30, 2013 and 2012	5

(d)	Consolidated Statements of Shareholders’ Equity - Six months ended June 30, 2013 and 2012	6

(e)	Consolidated Statements of Cash Flows - Six months ended June 30, 2013 and 2012	7

(f)	Notes to Consolidated Financial Statements	8

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		36

Item 3. Quantitative and Qualitative Disclosures about Market Risk		64

Item 4. Controls and Procedures		69

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		70

Item 1A. Risk Factors		70

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		70

Item 3. Defaults Upon Senior Securities		70

Item 4. Mine Safety Disclosures		70

Item 5. Other Information		70

Item 6. Exhibits		70

Signatures		71

Exhibit Index		72

Item 1. Financial Statements

FULTON FINANCIAL CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except per-share data)



	June 30, 2013			December 31, 2012
	(unaudited)
ASSETS
Cash and due from banks	$	219,944		$	256,300
Interest-bearing deposits with other banks	130,065			173,257
Loans held for sale	60,909			67,899
Investment securities:
Held to maturity (estimated fair value of $246 in 2013 and $319 in 2012)	227			292
Available for sale	2,915,652			2,793,725
Loans, net of unearned income	12,645,418			12,146,971
Less: Allowance for loan losses	(216,431		)	(223,903		)
Net Loans	12,428,987			11,923,068
Premises and equipment	224,418			227,723
Accrued interest receivable	45,713			45,786
Goodwill	530,614			530,656
Intangible assets	3,838			4,907
Other assets	462,043			509,484
Total Assets	$	17,022,410		$	16,533,097
LIABILITIES
Deposits:
Noninterest-bearing	$	3,168,781		$	3,009,966
Interest-bearing	9,089,028			9,474,197
Total Deposits	12,257,809			12,484,163
Short-term borrowings:
Federal funds purchased	780,459			592,470
Other short-term borrowings	839,859			275,929
Total Short-Term Borrowings	1,620,318			868,399
Accrued interest payable	17,708			19,330
Other liabilities	208,676			185,296
Federal Home Loan Bank advances and long-term debt	889,167			894,253
Total Liabilities	14,993,678			14,451,441
SHAREHOLDERS’ EQUITY
Common stock, $2.50 par value, 600 million shares authorized, 217.5 million shares issued in 2013 and 216.8 million shares issued in 2012	543,637			542,093
Additional paid-in capital	1,429,019			1,426,267
Retained earnings	412,609			363,937
Accumulated other comprehensive income (loss)	(32,466		)	5,675
Treasury stock, at cost, 23.8 million shares in 2013 and 17.6 million shares in 2012	(324,067		)	(256,316		)
Total Shareholders’ Equity	2,028,732			2,081,656
Total Liabilities and Shareholders’ Equity	$	17,022,410		$	16,533,097

See Notes to Consolidated Financial Statements

FULTON FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per-share data)



	Three months ended June 30						Six months ended June 30
	2013			2012			2013			2012
INTEREST INCOME
Loans, including fees	$	135,032		$	141,541		$	269,162		$	285,887
Investment securities:
Taxable	14,516			18,624			27,913			37,285
Tax-exempt	2,345			2,596			4,824			5,297
Dividends	766			641			1,565			1,340
Loans held for sale	384			538			879			969
Other interest income	35			45			57			98
Total Interest Income	153,078			163,985			304,400			330,876
INTEREST EXPENSE
Deposits	9,498			14,743			19,899			30,993
Short-term borrowings	700			411			1,209			692
Long-term debt	10,815			11,301			21,583			22,966
Total Interest Expense	21,013			26,455			42,691			54,651
Net Interest Income	132,065			137,530			261,709			276,225
Provision for credit losses	13,500			25,500			28,500			53,500
Net Interest Income After Provision for Credit Losses	118,565			112,030			233,209			222,725
NON-INTEREST INCOME
Service charges on deposit accounts	14,651			15,367			28,762			30,209
Mortgage banking income	10,997			11,143			19,170			21,193
Investment management and trust services	10,601			9,822			20,697			19,199
Other service charges and fees	9,508			11,507			18,018			22,062
Other	3,694			3,931			7,590			9,494
Investment securities gains, net:
Net gains on sales of investment securities	2,892			1,595			5,365			2,846
Other-than-temporary impairment losses	(27		)	(57		)	(27		)	(57		)
Investment securities gains, net	2,865			1,538			5,338			2,789
Total Non-Interest Income	52,316			53,308			99,575			104,946
NON-INTEREST EXPENSE
Salaries and employee benefits	63,490			60,091			124,702			120,451
Net occupancy expense	11,447			11,205			23,291			22,140
Other outside services	5,315			5,101			8,175			8,014
Data processing	4,509			3,759			8,412			7,447
Equipment expense	3,893			3,185			7,801			6,554
Professional fees	3,395			2,984			6,442			5,566
Software	3,094			2,272			5,842			4,447
FDIC insurance expense	3,001			3,002			5,848			6,023
Other real estate owned and repossession expense	1,941			3,165			4,795			6,460
Marketing	1,922			2,583			3,794			5,055
Operating risk loss	1,860			2,055			3,626			5,423
Intangible amortization	535			761			1,069			1,562
Other	12,728			11,924			24,269			23,614
Total Non-Interest Expense	117,130			112,087			228,066			222,756
Income Before Income Taxes	53,751			53,251			104,718			104,915
Income taxes	13,169			13,360			24,909			26,892
Net Income	$	40,582		$	39,891		$	79,809		$	78,023

PER SHARE:
Net Income (Basic)	$	0.21		$	0.20		$	0.41		$	0.39
Net Income (Diluted)	0.21			0.20			0.41			0.39
Cash Dividends	0.08			0.07			0.16			0.14
See Notes to Consolidated Financial Statements

FULTON FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)



	Three months ended June 30						Six months ended June 30
	2013			2012			2013			2012

Net Income	$	40,582		$	39,891		$	79,809		$	78,023
Other Comprehensive Income (Loss), net of tax:
Unrealized loss on securities	(36,958		)	(10,704		)	(36,833		)	(6,120		)
Reclassification adjustment for securities gains included in net income	(1,862		)	(999		)	(3,470		)	(1,812		)
Non-credit related unrealized gain (loss) on other-than-temporarily impaired debt securities	355			(172		)	1,438			(37		)
Unrealized gain on derivative financial instruments	34			34			68			68
Amortization of net unrecognized pension and postretirement items	328			214			656			428
Other Comprehensive Loss	(38,103		)	(11,627		)	(38,141		)	(7,473		)
Total Comprehensive Income	$	2,479		$	28,264		$	41,668		$	70,550

See Notes to Consolidated Financial Statements

FULTON FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

SIX MONTHS ENDED JUNE 30, 2013 AND 2012

(in thousands, except per-share data)



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

Balance at December 31, 2012	199,225		$	542,093	$	1,426,267		$	363,937		$	5,675		$	(256,316	)	$	2,081,656
Net income								79,809									79,809
Other comprehensive loss											(38,141		)				(38,141		)
Stock issued, including related tax benefits	854		1,544		(455		)							3,586			4,675
Stock-based compensation awards					3,207												3,207
Acquisition of treasury stock	(6,421	)												(71,337		)	(71,337		)
Common stock cash dividends - $0.16 per share								(31,137		)							(31,137		)
Balance at June 30, 2013	193,658		$	543,637	$	1,429,019		$	412,609		$	(32,466	)	$	(324,067	)	$	2,028,732

Balance at December 31, 2011	200,164		$	540,386	$	1,423,727		$	264,059		$	7,955		$	(243,588	)	$	1,992,539
Net income								78,023									78,023
Other comprehensive loss											(7,473		)				(7,473		)
Stock issued, including related tax benefits	716		1,201		(1,740		)							3,696			3,157
Stock-based compensation awards					3,050												3,050
Common stock cash dividends - $0.14 per share								(28,112		)							(28,112		)
Balance at June 30, 2012	200,880		$	541,587	$	1,425,037		$	313,970		$	482		$	(239,892	)	$	2,041,184

See Notes to Consolidated Financial Statements

FULTON FINANCIAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)



	Six months ended June 30
	2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	79,809		$	78,023
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	28,500			53,500
Depreciation and amortization of premises and equipment	12,577			10,845
Net amortization of investment securities premiums	6,099			5,251
Investment securities gains, net	(5,338		)	(2,789		)
Net decrease (increase) in loans held for sale	6,990			(24,397		)
Amortization of intangible assets	1,069			1,562
Stock-based compensation	3,207			3,050
Excess tax benefits from stock-based compensation	(148		)	(14		)
Decrease in accrued interest receivable	73			2,815
Decrease in other assets	21,968			3,486
Decrease in accrued interest payable	(1,622		)	(1,961		)
(Decrease) increase in other liabilities	(10,782		)	2,550
Total adjustments	62,593			53,898
Net cash provided by operating activities	142,402			131,921
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale	176,266			210,804
Proceeds from maturities of securities held to maturity	65			121
Proceeds from maturities of securities available for sale	381,807			371,176
Purchase of securities held to maturity	—			(14		)
Purchase of securities available for sale	(674,228		)	(602,642		)
Decrease in short-term investments	43,192			56,868
Net increase in loans	(534,760		)	(88,253		)
Net purchases of premises and equipment	(9,272		)	(20,654		)
Net cash used in investing activities	(616,930		)	(72,594		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand and savings deposits	55,058			(10,218		)
Net decrease in time deposits	(281,412		)	(279,305		)
Increase in short-term borrowings	751,919			334,648
Repayments of long-term debt	(5,086		)	(131,340		)
Net proceeds from issuance of common stock	4,527			3,143
Excess tax benefits from stock-based compensation	148			14
Dividends paid	(15,645		)	(26,056		)
Acquisition of treasury stock	(71,337		)	—
Net cash provided by (used in) financing activities	438,172			(109,114		)
Net Decrease in Cash and Due From Banks	(36,356		)	(49,787		)
Cash and Due From Banks at Beginning of Period	256,300			292,598
Cash and Due From Banks at End of Period	$	219,944		$	242,811
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest	$	44,313		$	56,612
Income taxes	24,336			22,646
See Notes to Consolidated Financial Statements

FULTON FINANCIAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE A – Basis of Presentation

The accompanying unaudited consolidated financial statements of Fulton Financial Corporation (the Corporation) have been prepared in conformity with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities as of the date of the financial statements as well as revenues and expenses during the period. Actual results could differ from those estimates. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. The Corporation evaluates subsequent events through the filing date of this Form 10-Q with the Securities and Exchange Commission (SEC).

NOTE B – Net Income Per Share

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

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

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



	Three months ended June 30		Six months ended June 30
	2013	2012	2013	2012
	(in thousands)
Weighted average shares outstanding (basic)	193,273	199,671	194,777	199,581
Effect of dilutive securities	1,073	1,135	996	994
Weighted average shares outstanding (diluted)	194,346	200,806	195,773	200,575

For the three and six months ended June 30, 2013, 4.3 million and 4.0 million shares issuable under stock options, respectively, were excluded from the diluted net income per share computation as their effect would have been anti-dilutive. For the three and six months ended June 30, 2012, 5.2 million shares issuable under stock options were excluded from the diluted net income per share computation as their effect would have been anti-dilutive.

NOTE C – Accumulated Other Comprehensive Income (Loss)

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



	Before-Tax Amount			Tax Effect			Net of Tax Amount
	(in thousands)
Three months ended June 30, 2013
Unrealized loss on securities	$	(56,858	)	$	19,900		$	(36,958	)
Reclassification adjustment for securities gains included in net income (1)	(2,865		)	1,003			(1,862		)
Non-credit related unrealized gains (losses) on other-than-temporarily impaired debt securities	546			(191		)	355
Unrealized gain on derivative financial instruments	51			(17		)	34
Amortization of net unrecognized pension and postretirement items (2)	504			(176		)	328
Total Other Comprehensive Income (Loss)	$	(58,622	)	$	20,519		$	(38,103	)
Three months ended June 30, 2012
Unrealized loss on securities	$	(16,467	)	$	5,763		$	(10,704	)
Reclassification adjustment for securities gains included in net income (1)	(1,538		)	539			(999		)
Non-credit related unrealized gains (losses) on other-than-temporarily impaired debt securities	(265		)	93			(172		)
Unrealized gain on derivative financial instruments	52			(18		)	34
Amortization of net unrecognized pension and postretirement items (2)	330			(116		)	214
Total Other Comprehensive Income (Loss)	$	(17,888	)	$	6,261		$	(11,627	)

Six months ended June 30, 2013
Unrealized loss on securities	$	(56,666	)	$	19,833		$	(36,833	)
Reclassification adjustment for securities gains included in net income (1)	(5,338		)	1,868			(3,470		)
Non-credit related unrealized gains (losses) on other-than-temporarily impaired debt securities	2,212			(774		)	1,438
Unrealized gain on derivative financial instruments	105			(37		)	68
Amortization of net unrecognized pension and postretirement items (2)	1,009			(353		)	656
Total Other Comprehensive Income (Loss)	$	(58,678	)	$	20,537		$	(38,141	)
Six months ended June 30, 2012
Unrealized loss on securities	$	(9,415	)	$	3,295		$	(6,120	)
Reclassification adjustment for securities gains included in net income (1)	(2,789		)	977			(1,812		)
Non-credit related unrealized gains (losses) on other-than-temporarily impaired debt securities	(57		)	20			(37		)
Unrealized gain on derivative financial instruments	104			(36		)	68
Amortization of net unrecognized pension and postretirement items (2)	659			(231		)	428
Total Other Comprehensive Income (Loss)	$	(11,498	)	$	4,025		$	(7,473	)


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


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

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 June 30, 2013
Balance at March 31, 2013	$	24,878		$	1,696		$	(2,784	)	$	(18,153	)	$	5,637
Other comprehensive income (loss) before reclassifications	(36,958		)	355			—			—			(36,603		)
Amounts reclassified from accumulated other comprehensive loss	(861		)	(1,001		)	34			328			(1,500		)
Balance at June 30, 2013	$	(12,941	)	$	1,050		$	(2,750	)	$	(17,825	)	$	(32,466	)
Three months ended June 30, 2012
Balance at March 31, 2012	$	30,825		$	(876	)	$	(2,920	)	$	(14,920	)	$	12,109
Other comprehensive income (loss) before reclassifications	(10,704		)	(172		)	—			—			(10,876		)
Amounts reclassified from accumulated other comprehensive loss	(999		)	—			34			214			(751		)
Balance at June 30, 2012	$	19,122		$	(1,048	)	$	(2,886	)	$	(14,706	)	$	482

Six months ended June 30, 2013
Balance at December 31, 2012	$	26,361		$	613		$	(2,818	)	$	(18,481	)	$	5,675
Other comprehensive income (loss) before reclassifications	(36,833		)	1,438			—			—			(35,395		)
Amounts reclassified from accumulated other comprehensive loss	(2,469		)	(1,001		)	68			656			(2,746		)
Balance at June 30, 2013	$	(12,941	)	$	1,050		$	(2,750	)	$	(17,825	)	$	(32,466	)
Six months ended June 30, 2012
Balance at December 31, 2011	$	27,054		$	(1,011	)	$	(2,954	)	$	(15,134	)	$	7,955
Other comprehensive income (loss) before reclassifications	(6,120		)	—			—			—			(6,120		)
Amounts reclassified from accumulated other comprehensive loss	(1,812		)	(37		)	68			428			(1,353		)
Balance at June 30, 2012	$	19,122		$	(1,048	)	$	(2,886	)	$	(14,706	)	$	482

NOTE D – Investment Securities

The following table presents the amortized cost and estimated fair values of investment securities:



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Held to Maturity at June 30, 2013	(in thousands)
Mortgage-backed securities	$	227	$	19	$	—		$	246

Available for Sale at June 30, 2013
Equity securities	$	136,364	$	6,903	$	(148	)	$	143,119
U.S. Government securities	2,251		—		—			2,251
U.S. Government sponsored agency securities	809		11		(1		)	819
State and municipal securities	290,351		8,140		(2,758		)	295,733
Corporate debt securities	108,315		5,424		(6,262		)	107,477
Collateralized mortgage obligations	1,253,484		10,186		(23,108		)	1,240,562
Mortgage-backed securities	970,273		14,519		(11,693		)	973,099
Auction rate securities	172,092		15		(19,515		)	152,592
	$	2,933,939	$	45,198	$	(63,485	)	$	2,915,652



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Held to Maturity at December 31, 2012	(in thousands)
Mortgage-backed securities	$	292	$	27	$	—		$	319

Available for Sale at December 31, 2012
Equity securities	$	118,465	$	5,016	$	(918	)	$	122,563
U.S. Government securities	325		—		—			325
U.S. Government sponsored agency securities	2,376		21		—			2,397
State and municipal securities	301,842		13,763		(86		)	315,519
Corporate debt securities	112,162		7,858		(7,178		)	112,842
Collateralized mortgage obligations	1,195,234		16,008		(123		)	1,211,119
Mortgage-backed securities	847,790		31,831		—			879,621
Auction rate securities	174,026		—		(24,687		)	149,339
	$	2,752,220	$	74,497	$	(32,992	)	$	2,793,725

Securities carried at $1.7 billion as of June 30, 2013 and $1.8 billion as of December 31, 2012 were pledged as collateral to secure public and trust deposits and customer repurchase agreements.

Available for sale equity securities include restricted investment securities issued by the Federal Home Loan Bank (FHLB) and the Federal Reserve Bank ($95.3 million at June 30, 2013 and $71.7 million at December 31, 2012), common stocks of financial institutions ($40.9 million at June 30, 2013 and $44.2 million at December 31, 2012) and other equity investments ($6.9 million at June 30, 2013 and $6.7 million at December 31, 2012).

As of June 30, 2013, the financial institutions stock portfolio had a cost basis of $34.3 million and a fair value of $40.9 million, including an investment in a single financial institution with a cost basis of $20.0 million and a fair value of $23.2 million. The fair value of this investment accounted for approximately 57% of the fair value of the Corporation's investments in the common stocks of publicly traded financial institutions. No other investment within the financial institutions stock portfolio exceeded 5% of the portfolio's fair value.

The amortized cost and estimated fair values of debt securities as of June 30, 2013, by contractual maturity, are shown in the following table. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.



	Held to Maturity				Available for Sale
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
	(in thousands)
Due in one year or less	$	—	$	—	$	44,411	$	44,491
Due from one year to five years	—		—		66,739		70,642
Due from five years to ten years	—		—		190,392		194,234
Due after ten years	—		—		272,276		249,505
	—		—		573,818		558,872
Collateralized mortgage obligations	—		—		1,253,484		1,240,562
Mortgage-backed securities	227		246		970,273		973,099
	$	227	$	246	$	2,797,575	$	2,772,533

The following table presents information related to the gains and losses on the sales of equity and debt securities, and losses recognized for the other-than-temporary impairment of investments:



	Gross Realized Gains		Gross Realized Losses			Other-than- temporary Impairment Losses			Net Gains
Three months ended June 30, 2013			(in thousands)
Equity securities	$	1,083	$	(28	)	$	(27	)	$	1,028
Debt securities	1,837		—			—			1,837
Total	$	2,920	$	(28	)	$	(27	)	$	2,865
Three months ended June 30, 2012
Equity securities	$	1,517	$	—		$	(57	)	$	1,460
Debt securities	78		—			—			78
Total	$	1,595	$	—		$	(57	)	$	1,538

Six months ended June 30, 2013
Equity securities	$	2,222	$	(28	)	$	(27	)	$	2,167
Debt securities	3,171		—			—			3,171
Total	$	5,393	$	(28	)	$	(27	)	$	5,338
Six months ended June 30, 2012
Equity securities	$	2,603	$	—		$	(57	)	$	2,546
Debt securities	243		—			—			243
Total	$	2,846	$	—		$	(57	)	$	2,789

The other-than-temporary impairment charges for equity securities during the three and six months ended June 30, 2013 and 2012 were for investments in stocks of financial institutions and were due to the severity and duration of the declines in the fair values of certain bank stock stocks, in conjunction with management's assessment of the near-term prospects of each specific issuer.

The following table presents a summary of the cumulative credit related other-than-temporary impairment charges, recognized as components of earnings, for debt securities still held by the Corporation at June 30, 2013 and 2012:



	Three Months ended June 30						Six Months ended June 30
	2013			2012			2013			2012
	(in thousands)
Balance of cumulative credit losses on debt securities, beginning of period	$	(23,079	)	$	(22,692	)	$	(23,079	)	$	(22,781	)
Reductions for securities sold during the period	2,468			—			2,468			—
Reductions for increases in cash flows expected to be collected that are recognized over the remaining life of the security	4			—			4			89
Balance of cumulative credit losses on debt securities, end of period	$	(20,607	)	$	(22,692	)	$	(20,607	)	$	(22,692	)

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 June 30, 2013:



	Less than 12 months					12 months or longer					Total
	Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses
	(in thousands)
U.S. Government sponsored agency securities	$	—	$	—		$	69	$	(1	)	$	69	$	(1	)
State and municipal securities	53,135		(2,758		)	—		—			53,135		(2,758		)
Corporate debt securities	6,877		(115		)	44,348		(6,147		)	51,225		(6,262		)
Collateralized mortgage obligations	805,728		(23,108		)	—		—			805,728		(23,108		)
Mortgage-backed securities	635,582		(11,693		)	—		—			635,582		(11,693		)
Auction rate securities	87		(2		)	151,934		(19,513		)	152,021		(19,515		)
Total debt securities	1,501,409		(37,676		)	196,351		(25,661		)	1,697,760		(63,337		)
Equity securities	332		(17		)	848		(131		)	1,180		(148		)
	$	1,501,741	$	(37,693	)	$	197,199	$	(25,792	)	$	1,698,940	$	(63,485	)

The Corporation’s collateralized mortgage obligations and mortgage-backed securities have contractual terms that generally do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. Because the decline in market value of these securities is attributable to changes in interest rates and not credit quality, and because the Corporation does not have the intent to sell and does not believe it will more likely than not be required to sell any of these securities prior to a recovery of their fair value to amortized cost, the Corporation does not consider these investments to be other-than-temporarily impaired as of June 30, 2013.

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

As of June 30, 2013, approximately $146 million, or 95%, of the ARCs were rated above investment grade, with approximately $8 million, or 5%, AAA rated and $100 million, or 66%, AA rated. Approximately $7 million, or 5%, of ARCs were either not rated or rated below investment grade by at least one ratings agency. Of this amount, approximately $5 million, or 70%, of the student loans underlying these ARCs have principal payments which are guaranteed by the federal government. In total, approximately $150 million, or 98%, of the student loans underlying the ARCs have principal payments which are guaranteed by the federal government. As of June 30, 2013, all ARCs were current and making scheduled interest payments. Based on management’s evaluations, ARCs with a fair value of $152.6 million were not subject to any other-than-temporary impairment charges as of June 30, 2013. The Corporation does not have the intent to sell and does not believe it will more likely than not be required to sell any of these securities prior to a recovery of their fair value to amortized cost, which may be at maturity.

For its investments in equity securities, particularly its investments in stocks of financial institutions, management evaluates the near-term prospects of the issuers in relation to the severity and duration of the impairment. Based on that evaluation and the Corporation’s ability and intent to hold those investments for a reasonable period of time sufficient for a recovery of fair value,

the Corporation does not consider those investments with unrealized holding losses as of June 30, 2013 to be other-than-temporarily impaired.

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:



	June 30, 2013				December 31, 2012
	Amortized cost		Estimated fair value		Amortized cost		Estimated fair value
	(in thousands)
Single-issuer trust preferred securities	$	54,699	$	49,222	$	56,834	$	51,656
Subordinated debt	47,344		50,365		47,286		51,747
Pooled trust preferred securities	3,773		5,391		5,530		6,927
Corporate debt securities issued by financial institutions	105,816		104,978		109,650		110,330
Other corporate debt securities	2,499		2,499		2,512		2,512
Available for sale corporate debt securities	$	108,315	$	107,477	$	112,162	$	112,842

The Corporation’s investments in single-issuer trust preferred securities had an unrealized loss of $5.5 million at June 30, 2013. The Corporation did not record any other-than-temporary impairment charges for single-issuer trust preferred securities during the three months ended June 30, 2013 or 2012. The Corporation held seven single-issuer trust preferred securities that were rated below investment grade by at least one ratings agency, with an amortized cost of $20.8 million and an estimated fair value of $19.5 million at June 30, 2013. The majority of the single-issuer trust preferred securities rated below investment grade were rated BB or Ba. Single-issuer trust preferred securities with an amortized cost of $4.7 million and an estimated fair value of $3.7 million at June 30, 2013 were not rated by any ratings agency.

As of June 30, 2013, the Corporation held eight pooled trust preferred securities with an amortized cost of $3.8 million and an estimated fair value of $5.4 million that were rated below investment grade by at least one ratings agency, with ratings ranging from C to Ca. The class of securities held by the Corporation was below the most senior tranche, with the Corporation’s interests being subordinate to other investors in the pool. The Corporation determines the fair value of pooled trust preferred securities based on quotes provided by third-party brokers.

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

Based on management’s evaluations, corporate debt securities with a fair value of $107.5 million were not subject to any additional other-than-temporary impairment charges as of June 30, 2013. 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 E – Loans and Allowance for Credit Losses

Loans, Net of Unearned Income

Loans, net of unearned income are summarized as follows:



	June 30, 2013			December 31, 2012
	(in thousands)
Real-estate - commercial mortgage	$	4,856,916		$	4,664,426
Commercial - industrial, financial and agricultural	3,712,974			3,612,065
Real-estate - home equity	1,760,268			1,632,390
Real-estate - residential mortgage	1,313,345			1,257,432
Real-estate - construction	610,280			584,118
Consumer	300,233			309,864
Leasing and other	83,855			75,521
Overdrafts	15,224			18,393
Loans, gross of unearned income	12,653,095			12,154,209
Unearned income	(7,677		)	(7,238		)
Loans, net of unearned income	$	12,645,418		$	12,146,971

Allowance for Credit Losses

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

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

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

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



	June 30, 2013		December 31, 2012
	(in thousands)
Allowance for loan losses	$	216,431	$	223,903
Reserve for unfunded lending commitments	1,195		1,536
Allowance for credit losses	$	217,626	$	225,439

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



	Three months ended June 30						Six months ended June 30
	2013			2012			2013			2012
	(in thousands)
Balance at beginning of period	$	221,527		$	258,137		$	225,439		$	258,177
Loans charged off	(21,383		)	(50,540		)	(43,489		)	(80,799		)
Recoveries of loans previously charged off	3,982			4,219			7,176			6,438
Net loans charged off	(17,401		)	(46,321		)	(36,313		)	(74,361		)
Provision for credit losses	13,500			25,500			28,500			53,500
Balance at end of period	$	217,626		$	237,316		$	217,626		$	237,316

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



	Real Estate - Commercial Mortgage			Commercial - Industrial, Financial and Agricultural			Real Estate - Home Equity			Real Estate - Residential Mortgage			Real Estate - Construction			Consumer			Leasing and other and overdrafts			Unallocated		Total
	(in thousands)
Three months ended June 30, 2013
Balance at March 31, 2013	$	63,985		$	56,672		$	23,701		$	33,484		$	16,004		$	2,286		$	2,787		$	21,122	$	220,041
Loans charged off	(5,193		)	(5,960		)	(1,966		)	(4,465		)	(2,597		)	(433		)	(769		)	—		(21,383		)
Recoveries of loans previously charged off	1,505			756			192			116			744			406			263			—		3,982
Net loans charged off	(3,688		)	(5,204		)	(1,774		)	(4,349		)	(1,853		)	(27		)	(506		)	—		(17,401		)
Provision for loan losses (1)	(1,601		)	6,089			3,809			3,549			320			238			644			743		13,791
Balance at June 30, 2013	$	58,696		$	57,557		$	25,736		$	32,684		$	14,471		$	2,497		$	2,925		$	21,865	$	216,431
Three months ended June 30, 2012
Balance at March 31, 2012	$	81,652		$	79,756		$	13,083		$	24,851		$	31,186		$	1,643		$	3,274		$	21,051	$	256,496
Loans charged off	(23,699		)	(13,017		)	(2,789		)	(1,492		)	(8,442		)	(471		)	(630		)	—		(50,540		)
Recoveries of loans previously charged off	1,153			717			278			71			1,539			281			180			—		4,219
Net loans charged off	(22,546		)	(12,300		)	(2,511		)	(1,421		)	(6,903		)	(190		)	(450		)	—		(46,321		)
Provision for loan losses (1)	10,763			4,475			3,872			3,281			1,276			363			419			1,113		25,562
Balance at June 30, 2012	$	69,869		$	71,931		$	14,444		$	26,711		$	25,559		$	1,816		$	3,243		$	22,164	$	235,737
Six months ended June 30, 2013
Balance at December 31, 2012	$	62,928		$	60,205		$	22,776		$	34,536		$	17,287		$	2,367		$	2,752		$	21,052	$	223,903
Loans charged off	(9,326		)	(15,462		)	(4,370		)	(7,515