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. Many factors could affect future financial results including, without limitation: the impact of adverse changes in the economy and real estate markets; increases in non-performing assets which may reduce the level of earning assets and 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; acquisition and growth strategies; market risk; changes or adverse developments in political or regulatory conditions; a disruption in, or abnormal functioning of, credit and other markets, including the lack of or reduced access to markets for mortgages and other asset-backed securities and for commercial paper and other short-term borrowings; changes in the levels of, or methodology for determining, FDIC deposit insurance premiums and assessments; the effect of competition and interest rates on net interest margin and net interest income; investment strategy and other income growth; investment securities gains and losses; declines in the value of securities which may result in charges to earnings; changes in rates of deposit and loan growth or a decline in loans originated; relative balances of rate-sensitive assets to rate-sensitive liabilities; salaries and employee benefits and other expenses; amortization of intangible assets; goodwill impairment; capital and liquidity strategies; and other financial and business matters for future periods. 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" and similar expressions which are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks and uncertainties, some of which are beyond the Corporation's control and ability to predict, that could cause actual results to differ materially from those expressed in the forward-looking statements. 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.

RESULTS OF OPERATIONS
Overview and Summary Financial Results
The Corporation generates the majority of its revenue through net interest income, or the difference between interest earned on loans and investments and interest paid on deposits and borrowings. Growth in net interest income is dependent upon balance sheet growth and/or 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 sales of assets, such as loans, investments or properties. Offsetting these revenue sources are provisions for credit losses, operating expenses and income taxes.

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

                                              As of or for the           As of or for the
                                             Three months ended          Nine months ended
                                                September 30               September 30
                                             2012          2011         2012          2011
Income before income taxes (in thousands) $  54,842     $ 52,765     $ 159,757     $ 148,464
Net income (in thousands)                 $  41,582     $ 39,324     $ 119,605     $ 109,494
Diluted net income per share              $    0.21     $   0.20     $    0.60     $    0.55
Return on average assets                       1.02 %       0.97 %        0.98 %        0.91 %
Return on average equity                       8.03 %       7.89 %        7.83 %        7.55 %
Net interest margin (1)                        3.74 %       3.93 %        3.79 %        3.93 %
Non-performing assets to total assets          1.49 %       2.14 %        1.49 %        2.14 %
Net charge-offs to average loans               0.84 %       1.04 %        1.11 %        1.25 %

(1) Presented on an FTE basis, using a 35% Federal tax rate and statutory interest expense disallowances. See also the "Net Interest Income" section of Management's Discussion.

The Corporation's income before income taxes for the third quarter of 2012 increased $2.1 million, or 3.9%, compared to the third quarter of 2011. Income before income taxes for the first nine months of 2012 increased $11.3 million, or 7.6%, from the same period in 2011.
Improving asset quality and declining net interest income continued to be key drivers of financial performance for the Corporation. Results for the first nine months of 2012 were also impacted by mortgage banking activities and higher non-interest expenses. The following is a brief overview of each of these areas. Asset Quality - Economic conditions improved throughout most of the Corporation's markets during the first nine months of 2012. For the three and nine months ended September 30, 2012, the Corporation's provision for credit losses decreased $8.0 million, or 25.8%, and $28.5 million, or 27.1%, respectively, in comparison to the same periods in 2011. In comparison to September 30, 2011, non-performing loans decreased $97.8 million, or 31.5%, due in large part to the sale of $34.7 million of non-accrual residential mortgages in December 2011 and $44.1 million of non-accrual commercial mortgages, commercial and construction loans in June 2012. Also contributing to the decline was a slower pace of non-accrual loan additions, which were approximately $131 million for the first nine months of 2012, compared to approximately $212 million for the same period in 2011. Overall loan delinquency also improved in comparison to September 30, 2011, decreasing to 2.58% from 3.60%.
Net Interest Income and Net Interest Margin - Net interest income decreased $5.6 million, or 4.0%, and $9.6 million, or 2.3%, respectively, for the three and nine months ended September 30, 2012 in comparison to the same periods in 2011. These decreases were driven by decreases in the net interest margin of 19 basis points, or 4.8%, and 14 basis points, or 3.6%, respectively, for the three and nine months ended September 30, 2012 in comparison to the same periods in 2011. The decrease in the net interest margin resulted from the continuing low interest rate environment, in which yields on earning assets declined more significantly than the cost of funds, a trend which the Corporation expects will continue throughout the remainder of 2012.
Mortgage Banking Operations - During the three and nine months ended September 30, 2012, mortgage banking income increased $2.7 million, or 33.4%, and $12.3 million, or 63.4%, respectively, in comparison to the same periods in 2011. Gains on sales of mortgage loans for the three and nine months ended September 30, 2012 increased $5.9 million, or 85.8%, and $16.9 million, or 102.8%, respectively. The increases in gains on sales of mortgage loans were due to both increases in pricing spreads and increases in new loan commitments. During the three and nine months ended September 30, 2012, new commitments increased $152.0 million, or 28.7%, and $742.6 million, or 61.3%, respectively, in comparison to the same periods in 2011. This increase was largely due to an increase in refinance activity in the persistent low interest rate environment.
Mortgage servicing income for the three and nine months ended September 30, 2012 decreased $3.2 million and $4.6 million, respectively, in comparison to the same periods in 2011. Mortgage servicing rights (MSRs) amortization increased $1.4 million and $3.3 million during three and nine months ended September 30, 2012, respectively, in comparison to the same periods in 2011, due to prepayments of serviced loans. In addition, during the three months ended September 30, 2012, the Corporation recorded a $2.1 million impairment charge on its MSRs as a result of an increase in forecasted mortgage prepayments.

Estimated losses on residential mortgage loans previously originated and sold by the Corporation, recorded as a component of operating risk loss on the consolidated statements of income, were $360,000 and $3.6 million, respectively, for the three and nine months ended September 30, 2012. In comparison, during the three and nine months ended September 30, 2011, the Corporation recorded charges of $260,000 and credits of $1.1 million, respectively. During the nine months ended September 30, 2012, the Corporation recorded $3.0 million of charges due to exposure in one specific investor program with the Federal Home Loan Bank (FHLB). Under this program, the Corporation provided a "credit enhancement" for residential mortgage loans sold, whereby it was responsible for credit losses above defined levels, up to specified amounts. See Note J, "Commitments and Contingencies," in the Notes to Consolidated Financial Statements for additional details.
Non-Interest Expenses - During the three and nine months ended September 30, 2012, total non-interest expenses increased $4.2 million, or 3.9%, and $25.3 million, or 8.2%, respectively. These increases were due primarily to higher salaries and benefits costs, operating risk loss and consulting expenses. For more details, see the "Non-Interest Expense" sections of Management's Discussion.
Quarter Ended September 30, 2012 compared to the Quarter Ended September 30, 2011
Net Interest Income
FTE net interest income decreased $5.4 million, or 3.7%, from $145.5 million in the third quarter of 2011 to $140.1 million in the third quarter of 2012. This decrease was primarily due to a 19 basis point, or 4.8%, decrease in the net interest margin, from 3.93% for the third quarter of 2011 to 3.74% for the third quarter of 2012. This decrease was due to the net effect of a 38 basis point, or 7.9%, decrease in yields on interest-earning assets, partially offset a 22 basis point, or 19.6%, decrease in funding costs.

The following table provides a comparative average balance sheet and net interest income analysis for the third quarter of 2012 as compared to the same period in 2011. 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. All dollar amounts are in thousands.

                                                          Three months ended September 30
                                                 2012                                         2011
                                 Average                         Yield/       Average                         Yield/
ASSETS                           Balance        Interest (1)      Rate        Balance        Interest (1)      Rate
Interest-earning assets:
Loans, net of unearned income
(2)                           $ 11,920,193     $     143,211      4.78 %   $ 11,887,544     $     151,816      5.07 %
Taxable investment securities
(3)                              2,392,043            16,658      2.78        2,142,670            20,166      3.76
Tax-exempt investment
securities (3)                     286,225             3,936      5.50          325,420             4,456      5.48
Equity securities (3)              109,884               820      2.98          124,893               777      2.48
Total investment securities      2,788,152            21,414      3.07        2,592,983            25,399      3.92
Loans held for sale                 61,001               578      3.79           37,626               425      4.52
Other interest-earning assets      147,432                35      0.09          218,135                91      0.17
Total interest-earning assets   14,916,778           165,238      4.42 %     14,736,288           177,731      4.80 %
Noninterest-earning assets:
Cash and due from banks            221,946                                      276,063
Premises and equipment             222,544                                      206,059
Other assets                     1,088,807                                    1,107,107
Less: Allowance for loan
losses                            (239,931 )                                   (274,436 )
Total Assets                  $ 16,210,144                                 $ 16,051,081
LIABILITIES AND EQUITY
Interest-bearing liabilities:
Demand deposits               $  2,608,202     $       1,071      0.16 %   $  2,424,646     $       1,262      0.21 %
Savings deposits                 3,364,109             1,431      0.17        3,329,489             2,564      0.30
Time deposits                    3,657,616            11,346      1.23        4,224,001            15,858      1.49
Total interest-bearing
deposits                         9,629,927            13,848      0.57        9,978,136            19,684      0.78
Short-term borrowings              588,568               220      0.15          443,337               151      0.14
FHLB advances and long-term
debt                               908,767            11,111      4.88        1,025,546            12,408      4.84
Total interest-bearing
liabilities                     11,127,262            25,179      0.90 %     11,447,019            32,243      1.12 %
Noninterest-bearing
liabilities:
Demand deposits                  2,836,166                                    2,466,877
Other                              185,441                                      159,430
Total Liabilities               14,148,869                                   14,073,326
Shareholders' equity             2,061,275                                    1,977,755
Total Liabilities and
Shareholders' Equity          $ 16,210,144                                 $ 16,051,081
Net interest income/net
interest margin (FTE)                                140,059      3.74 %                          145,488      3.93 %
Tax equivalent adjustment                             (4,178 )                                     (3,995 )
Net interest income                            $     135,881                                $     141,493

(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.

The following table summarizes the changes in FTE interest income and interest expense due to changes in average balances (volume) and changes in rates:

                                             2012 vs. 2011
                                        Increase (decrease) due
                                              to change in
                                   Volume        Rate           Net
                                             (in thousands)
Interest income on:
Loans, net of unearned income    $    400     $  (9,005 )   $  (8,605 )
Taxable investment securities       2,185        (5,693 )      (3,508 )
Tax-exempt investment securities     (536 )          16          (520 )
Equity securities                    (101 )         144            43
Loans held for sale                   231           (78 )         153
Other interest-earning assets         (22 )         (34 )         (56 )
Total interest income            $  2,157     $ (14,650 )   $ (12,493 )
Interest expense on:
Demand deposits                  $    105     $    (296 )   $    (191 )
Savings deposits                       24        (1,157 )      (1,133 )
Time deposits                      (1,965 )      (2,547 )      (4,512 )
Short-term borrowings                  53            16            69
FHLB advances and long-term debt   (1,388 )          91        (1,297 )
Total interest expense           $ (3,171 )   $  (3,893 )   $  (7,064 )

Note: Changes which are 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.
As summarized above, a 38 basis point, or 7.9%, decrease in yields on average interest-earnings assets resulted in a $14.7 million decrease in FTE interest income, partially offset by a $2.2 million increase in FTE interest income as a result of a $180.5 million, or 1.2%, increase in average interest-earning assets.
The increase in average interest-earning assets was primarily due to a $195.2 million, or 7.5%, increase in average investments. During the first quarter of 2012, the Corporation pre-purchased mortgage-backed securities and collateralized mortgage obligation cash flows in anticipation of a continued low interest rate environment.
The average yield on investment securities decreased 85 basis points, or 21.7%, from 3.92% in 2011 to 3.07% in 2012, as the reinvestment of cash flows and purchases of mortgage-backed securities and collateralized mortgage obligations were at yields that were lower than the overall portfolio yield. An increase in net premium amortization of $2.4 million due to higher prepayments on mortgage-backed securities and collateralized mortgage obligations contributed 31 basis points to the decrease in average investment yields and 7 basis points to the decrease in net interest margin.
Average loans, by type, are summarized in the following table:

                                                Three months ended
                                                   September 30                 Increase (decrease)
                                               2012             2011               $              %
                                                             (dollars in thousands)
Real estate - commercial mortgage         $  4,603,388     $  4,461,646     $    141,742          3.2 %
Commercial - industrial, financial and
agricultural                                 3,529,733        3,691,516         (161,783 )       (4.4 )
Real estate - home equity                    1,597,230        1,628,822          (31,592 )       (1.9 )
Real estate - residential mortgage           1,200,752        1,037,968          162,784         15.7
Real estate - construction                     605,910          668,464          (62,554 )       (9.4 )
Consumer                                       304,235          329,619          (25,384 )       (7.7 )
Leasing and other                               78,945           69,509            9,436         13.6
Total                                     $ 11,920,193     $ 11,887,544     $     32,649          0.3 %

Geographically, the $141.7 million, or 3.2%, increase in commercial mortgages was due to increases in the Corporation's Pennsylvania ($111.9 million, or 4.7%), Maryland ($20.9 million, or 5.3%), Virginia ($17.1 million, or 5.2%) and Delaware ($17.0 million, or 12.8%) markets, offset by a decline in the New Jersey ($25.1 million, or 2.0%) market.
Commercial loan demand has remained somewhat weak, largely a result of small business customers remaining tentative about spending due to uncertain economic conditions. Geographically, the $161.8 million, or 4.4%, decrease in commercial loans was in the Corporation's Virginia ($66.9 million, or 28.1%), New Jersey ($51.3 million, or 9.3%) and Maryland ($40.7 million, or 12.1%) markets. The $162.8 million, or 15.7%, increase in residential mortgages was due to a $177.1 million increase in fixed rate mortgages and a $7.6 million increase in adjustable rate mortgages, partially offset by a $21.9 million decline in nonaccrual mortgages. The increase in residential mortgages was largely due to the Corporation's retention in portfolio of all 10 year mortgages and up to approximately $15 million per month of 15 year fixed rate mortgages and certain adjustable rate mortgages during the third quarter of 2012.
Geographically, the $62.6 million, or 9.4%, decline in construction loans occurred in the Corporation's Maryland ($36.0 million, or 32.2%), New Jersey ($32.6 million, or 29.1%) , and Virginia ($11.7 million, or 8.7%) markets, partially offset by an increase in the Pennsylvania ($21.8 million, or 7.5%) market, which is the result of several owner-occupied construction projects originated during the first half of 2012.
The average yield on loans decreased 29 basis points, or 5.7%, from 5.07% in 2011 to 4.78% in 2012. The decrease in average yields on loans was attributable to increased refinancing activity, repayments of higher-yielding loans and new loan production at significantly lower rates, due in part, to competitive pressures in obtaining high quality credits.
Interest expense decreased $7.1 million, or 21.9%, to $25.2 million in the third quarter of 2012 from $32.2 million in the third quarter of 2011. Interest expense decreased $3.9 million due to a 22 basis point, or 19.6%, decrease in the average cost of total interest-bearing liabilities. Interest expense decreased an additional $3.2 million as a result of a $319.8 million, or 2.8%, decline in average interest-bearing liabilities.
Average deposits, by type, are summarized in the following table:

                                Three months ended
                                   September 30              Increase (decrease)
                               2012            2011              $             %
                                            (dollars in thousands)
Noninterest-bearing demand $  2,836,166    $  2,466,877    $    369,289      15.0 %
Interest-bearing demand       2,608,202       2,424,646         183,556       7.6
Savings                       3,364,109       3,329,489          34,620       1.0
Total demand and savings      8,808,477       8,221,012         587,465       7.1
Time deposits                 3,657,616       4,224,001        (566,385 )   (13.4 )
Total deposits             $ 12,466,093    $ 12,445,013    $     21,080       0.2 %

Total demand and savings accounts increased $587.5 million, or 7.1%. The increase in demand and savings account balances was due to a $338.9 million, or 12.9%, increase in business account balances, partially due to an increase in new customers, a $222.8 million, or 5.7%, increase in personal account balances and a $30.6 million, or 1.9%, increase in municipal account balances. The increase in interest-bearing demand and savings personal account balances was primarily due to customers' migration away from certificates of deposit.

The decrease in time deposits was almost entirely due to customer certificates of deposit, which decreased $563.6 million, or 13.4%, with the remaining $2.8 million decrease realized in brokered certificates of deposit. The decrease in customer certificates of deposit was in accounts with original maturity terms of less than two years ($524.6 million, or 21.9%) and jumbo certificates of deposit ($67.4 million, or 31.0%), partially offset by increases in longer-term certificates of deposit with original maturity terms of greater than two years. The average cost of interest-bearing deposits decreased 21 basis points, or 26.9%, from 0.78% in 2011 to 0.57% in 2012 due to a reduction in rates paid on interest-bearing demand and savings deposits and the repricing of time deposits to lower rates. Since October 1, 2011, excluding early redemptions, approximately $3.1 billion of time deposits matured at a weighted average rate of 0.92%, while approximately $2.8 billion of time deposits were issued at a weighted average rate of 0.45%.

The following table summarizes changes in average short-term borrowings and long-term debt, by type:

                                         Three months ended
                                            September 30             Increase (decrease)
                                         2012           2011             $            %
                                                     (dollars in thousands)
Short-term borrowings:
Customer repurchase agreements       $   210,830    $   206,824    $     4,006       1.9  %
Customer short-term promissory notes     127,479        170,790        (43,311 )   (25.4 )
Total short-term customer funding        338,309        377,614        (39,305 )   (10.4 )
Federal funds purchased and other        250,259         65,723        184,536     280.8
Total short-term borrowings              588,568        443,337        145,231      32.8
Long-term debt:
FHLB advances                            539,283        641,726       (102,443 )   (16.0 )
Other long-term debt                     369,484        383,820        (14,336 )    (3.7 )
Total long-term debt                     908,767      1,025,546       (116,779 )   (11.4 )
Total                                $ 1,497,335    $ 1,468,883    $    28,452       1.9  %

The $39.3 million, or 10.4%, decrease in short-term customer funding was primarily due to customers transferring funds from the non-deposit cash management program into deposit products due to the low interest rate environment. The $184.5 million increase in Federal funds purchased and other short-term borrowings was primarily a result of replacing FHLB borrowings and long-term debt and partially to replace funding related to decreases in certificates of deposit. The $102.4 million, or 16.0%, decrease in FHLB advances was due to maturities, which were not replaced with new advances. The $14.3 million, or 3.7%, decrease in other long-term debt was due to the call of certain junior subordinated deferrable interest debentures during the first half of 2012 and the fourth quarter of 2011.

Provision for Credit Losses and Allowance for Credit Losses The following table presents the activity in the allowance for credit losses:

                                                              Three months ended
                                                                 September 30
                                                             2012             2011
                                                            (dollars in thousands)
Loans, net of unearned income, outstanding at end of
period                                                  $ 11,933,001     $ 11,895,655
Daily average balance of loans, net of unearned income  $ 11,920,193     $ 11,887,544

Balance of allowance for credit losses at beginning of
period                                                  $    237,316     $    268,633
Loans charged off:
. . .