UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K


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

For the fiscal year endedDecember 31, ~~2005~~2006, or


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

~~For the transition period from~~to

Commission File Number: 0-10587

FULTON FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)


PENNSYLVANIA		23-2195389

(State or other jurisdiction of		~~(I.R.S. Employer~~
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)

Securities registered pursuant to Section 12(b) of the Act: ~~None~~


Title of each class		Name of exchange on which registered

Common Stock, $2.50 par value		The NASDAQ Stock Market, LLC

Securities registered pursuant to Section 12(g) of the Act:

~~Common Stock, $2.50 Par Value~~ None

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yesþ Noo

Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yeso Noþ

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. Yesþ Noo

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.oþ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check One):

Large accelerated filedþ Accelerated filero Non-accelerated filero

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yeso Noþ

The aggregate market value of the voting Common Stock held by non-affiliates of the registrant, based on the average bid and asked prices on June 30, ~~2005,~~2006, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $2.6 billion. The number of shares of the registrant’s Common Stock outstanding on February 28, ~~2005~~2007 was ~~165,675,000.~~172,991,000.

Portions of the Definitive Proxy Statement of the Registrant for the Annual Meeting of Shareholders to be held on May ~~2, 2006~~7, 2007 are incorporated by reference in Part III.

PART I

Item 1. Business

General

Fulton Financial Corporation (the Corporation) was incorporated under the laws of Pennsylvania on February 8, 1982 and became a bank holding company through the acquisition of all of the outstanding stock of Fulton Bank on June 30, 1982. In 2000, the Corporation became a financial holding company as defined in the ~~Gramm-Leach-Bailey~~Gramm-Leach-Bliley Act (GLB Act), which allowed the Corporation to expand its financial services activities under its holding company structure (See “Competition” and “Regulation and Supervision”). The Corporation directly owns 100% of the common stock of fourteen community banks, two financial services companies and ~~twelve~~fifteen non-bank entities. As of December 31, 2006, the Corporation had approximately 4,400 employees.

The common stock of Fulton Financial Corporation is listed for quotation on the ~~National~~Global Select Market ~~System~~ of ~~the National Association of Securities Dealers Automated Quotation System~~The NASDAQ Stock Market under the symbol FULT. The Corporation’s ~~Internet~~internet address iswww.fult.com. Electronic copies of the Corporation’s ~~2005~~2006 Annual Report on Form 10-K are available free of charge by visiting the “Investor Information” section ofwww.fult.com. Electronic copies of quarterly reports on Form 10-Q and current reports on Form 8-K are also available at this ~~Internet~~internet address. These reports are posted as soon as reasonably practicable after they are electronically filed with the Securities and Exchange Commission (SEC).

Bank and Financial Services Subsidiaries

The Corporation’s ~~fourteen~~14 subsidiary banks are located primarily in suburban or semi-rural geographical markets throughout a five state region (Pennsylvania, Maryland, New Jersey, Delaware and Virginia). Pursuant to its “super-community” banking strategy, the Corporation operates the banks autonomously to maximize the advantage of community banking and service to its customers. Where appropriate, operations are centralized through common platforms and back-office functions; however, decision-making generally remains with the local bank management. The Corporation is committed to a decentralized operating philosophy; however in some markets, merging one bank into another creates operating and marketing efficiencies by leveraging existing brand awareness over a larger geographic area. During 2006, the Corporation merged its Premier Bank subsidiary into its Fulton Bank subsidiary. Additionally, in February 2007 the Corporation merged its First Washington State Bank subsidiary into The Bank. The Corporation has announced plans for two additional affiliate mergers that will take place during 2007.

The subsidiary banks are located in areas that are home to a wide range of manufacturing, distribution, health care and other service companies. The Corporation and its banks are not dependent upon one or a few customers or any one industry and the loss of any single customer or a few customers would not have a material adverse impact on any of the subsidiary banks.

Each of the subsidiary banks offers a full range of consumer and commercial banking services in its local market area. Personal banking services include various checking and savings products, certificates of deposit and individual retirement accounts. The subsidiary banks offer a variety of consumer lending products to creditworthy customers in their market areas. Secured loan products include home equity loans and lines of credit, which are underwritten based on loan-to-value limits specified in the lending policy. Subsidiary banks also offer a variety of fixed and variable-rate products, including construction loans and jumbo loans. Residential mortgages are offered through Fulton Mortgage Company, which operates as a division of each subsidiary bank (except for Resource Bank and The Columbia Bank, which ~~maintains its~~maintain their own mortgage lending ~~operation)~~operations). Residential mortgages are generally underwritten based on secondary market standards. Consumer loan products also include automobile loans, automobile and equipment leases, credit cards, personal lines of credit and checking account overdraft protection.

Commercial banking services are provided to small and medium sized businesses (generally with sales of less than $100 million) in the subsidiary banks’ market areas. Loans to one borrower are generally limited to ~~$30~~$33 million in total commitments, which is below the Corporation’s regulatory lending limit. Commercial lending options include commercial, financial, and agricultural and real estate loans. Both floating and fixed rate loans are provided, with floating rate loans generally tied to an index such as the Prime Rate or LIBOR (London Interbank ~~Offered~~Offering Rate). The Corporation’s commercial lending policy encourages relationship banking and provides strict guidelines related to customer creditworthiness and collateral requirements. In addition, construction lending, equipment leasing, credit cards, letters of credit, cash management services and traditional deposit products are offered to commercial customers.

The following table provides certain information for the Corporation’s banking and financial services subsidiaries as of December 31, ~~2005.~~2006.


	Main Office	Total		Total				Main Office	Total		Total
Subsidiary	Location	Assets		Deposits		Branches (1)		Location	Assets		Deposits		Branches (1)
		(in millions)							(in millions)
Fulton Bank	Lancaster, PA	$	4,150	$	2,821		73	Lancaster, PA	$	5,003	$	3,341		83
Lebanon Valley Farmers Bank	Lebanon, PA		751		598		13	Lebanon, PA		786		602		12
Swineford National Bank	Hummels Wharf, PA		262		199		7	Hummels Wharf, PA		266		202		7
Lafayette Ambassador Bank	Easton, PA		1,249		979		23	Easton, PA		1,328		990		24
FNB Bank, N.A.	Danville, PA		289		207		8
FNB Bank, N.A								Danville, PA		304		219		8
Hagerstown Trust	Hagerstown, MD		482		389		12	Hagerstown, MD		518		407		12
Delaware National Bank	Georgetown, DE		385		256		12	Georgetown, DE		411		271		12
The Bank	Woodbury, NJ		1,194		960		27	Woodbury, NJ		1,318		1,058		31
The Peoples Bank of Elkton	Elkton, MD		117		97		2	Elkton, MD		111		96		2
Skylands Community Bank	Hackettstown, NJ		515		412		11	Hackettstown, NJ		609		467		12
Premier Bank	Doylestown, PA		534		337		6
Resource Bank	Virginia Beach, VA		1,331		805		6	Virginia Beach, VA		1,448		832		7
First Washington State Bank	Windsor, NJ		586		401		16	Windsor, NJ		589		428		16
Somerset Valley Bank	Somerville, NJ		565		450		13	Somerville, NJ		575		403		13
The Columbia Bank								Columbia, MD		1,678		1,035		25
Fulton Financial Advisors, N.A. and Fulton Insurance Services Group, Inc (2)	Lancaster, PA		—		—	—		Lancaster, PA		—		—		—

							229							264

whose sole asset is $3.1 million of junior subordinated deferrable interest debentures from the Corporation; ~~(xi)~~(iv) Bald Eagle Statutory Trust I, a Connecticut business trust whose sole asset is $4.1 million of junior subordinated deferrable interest debentures from the Corporation; ~~(xii) and~~(v) Bald Eagle Statutory Trust II, a Connecticut business trust whose sole asset is $2.6 million of junior subordinated deferrable interest debentures from the Corporation; (vi) Columbia Capital Trust I, a Delaware business trust whose sole asset is $6.2 million of junior subordinated deferrable interest debentures from the Corporation; (vii) Columbia Capital Trust II, a Delaware business trust whose sole asset is $4.1 million of junior subordinated deferrable interest debentures from the Corporation; (viii) Columbia Capital Trust III, a Delaware business trust whose sole asset is $6.2 million of junior subordinated deferrable interest debentures from the Corporation; and (ix) Fulton Capital Trust I, a Pennsylvania business trust whose sole asset is $154.6 million of junior subordinated deferrable interest debentures from the Corporation.

Competition

The banking and financial services industries are highly competitive. Within its geographical region, the Corporation’s subsidiaries face direct competition from other commercial banks, varying in size from local community banks to larger regional and national banks, credit unions and non-bank entities. With the growth in electronic commerce and distribution channels, the banks also face competition from banks not physically located in the Corporation’s geographical markets.

The competition in the industry ~~has~~is also ~~increased in recent years as a result of the passage of~~highly competitive due to the GLB Act. Under the GLB Act, banks, insurance companies or securities firms may affiliate under a financial holding company structure, allowing expansion into non-banking financial services

activities that were previously restricted. These include a full range of banking, securities and insurance activities, including securities and insurance underwriting, issuing and selling annuities and merchant banking activities. While the Corporation does not currently engage in all of these activities, the ability to do so without separate approval from the Federal Reserve Board (FRB) enhances the ability of the Corporation – and financial holding companies in general – to compete more effectively in all areas of financial services.

As a result of the GLB Act, there is ~~more~~a great deal of competition for customers that were traditionally served by the banking industry. While the GLB Act increased competition, it also provided opportunities for the Corporation to expand its financial services offerings, such as insurance products through Fulton Insurance Services Group, Inc. The Corporation also competes through the variety of products that it offers and the quality of service that it provides to its customers. However, there is no guarantee that these efforts will insulate the Corporation from competitive pressure, which could impact its pricing decisions for loans, deposits and other services and could ultimately impact financial results.

Market Share

Although there are many ways to assess the size and strength of banks, deposit market share continues to be an important industry statistic. This publicly available information is compiled, as of June 30^th of each year, by the Federal Deposit Insurance Corporation (FDIC). The Corporation’s banks maintain branch offices in 4248 counties across five states. In ~~nine~~ten of these counties, the Corporation ranks in the top three in deposit market share (based on deposits as of June 30, ~~2005)~~2006). The following table summarizes information about the counties in which the Corporation has branch offices and its market position in each county.


					No. of Financial				Deposit Market Share									No. of Financial				Deposit Market
					Institutions				(6/30/05)									Institutions				Share (6/30/06)
		Population		Banking	Banks/		Credit								Population		Banking	Banks/		Credit
County	State	(2005 Est.)		Subsidiary	Thrifts		Unions		Rank		%			State	(2006 Est.)		Subsidiary	Thrifts		Unions		Rank		%
Lancaster	PA		489,000	Fulton Bank		18		12		1		19.0	%	PA		493,000	Fulton Bank		21		12		1		19.2	%
Centre														PA		142,000	Fulton Bank		15		4		19		0.06	%
Dauphin	PA		254,000	Fulton Bank		17		11		7		4.7	%	PA		254,000	Fulton Bank		17		10		7		4.6	%
Cumberland	PA		223,000	Fulton Bank		20		7		13		1.6	%	PA		224,000	Fulton Bank		19		6		14		0.7	%
York	PA		402,000	Fulton Bank		18		18		4		9.1	%	PA		410,000	Fulton Bank		17		23		4		9.8	%
Chester	PA		468,000	Fulton Bank		36		5		16		1.1	%	PA		477,000	Fulton Bank		41		5		16		1.2	%
Delaware	PA		556,000	Fulton Bank		36		16		41		0.1	%	PA		556,000	Fulton Bank		39		15		41		0.1	%
Montgomery	PA		780,000	Fulton Bank Premier Bank		40		30		48 35		0.1 0.2	% %
Berks	PA		391,000	Fulton Bank Lebanon Valley Farmers Bank		21		16		9 22		3.2 0.4	% %
Lebanon	PA		124,000	Lebanon Valley Farmers Bank		9		2		1		30.3	%
Schuylkill	PA		147,000	Lebanon Valley Farmers Bank		17		6		9		4.0	%
Bucks	PA		620,000	Premier Bank		33		12		14		2.5	%
Snyder	PA		38,000	Swineford National Bank		8		—		1		31.3	%


					No. of Financial				Deposit Market Share									No. of Financial				Deposit Market
					Institutions				(6/30/05)									Institutions				Share (6/30/06)
		Population		Banking	Banks/		Credit								Population		Banking	Banks/		Credit				��
County	State	(2005 Est.)		Subsidiary	Thrifts		Unions		Rank		%			State	(2006 Est.)		Subsidiary	Thrifts		Unions		Rank		%
Montgomery														PA		781,000	Fulton Bank		44		28		37		0.2	%
Berks														PA		398,000	Fulton Bank		21		13		9		3.1	%
Bucks														PA		624,000	Fulton Bank		33		11		14		2.3	%
																	Lebanon Valley Farmers Bank						22		0.4	%
Lebanon														PA		126,000	Lebanon Valley Farmers Bank		9		2		1		29.0	%
Schuylkill														PA		147,000	Lebanon Valley Farmers Bank		18		6		9		3.5	%
Snyder														PA		38,000	Swineford National Bank		8		—		1		30.0	%

Union	PA		43,000	Swineford National Bank		7		1		6		5.0	%	PA		43,000	Swineford National Bank		7		1		5		5.0	%
Northumberland	PA		93,000	Swineford National Bank FNB Bank, N.A.		17		3		14 9		1.9 4.5	% %	PA		92,000	Swineford National Bank		17		3		14		1.8	%
																	FNB Bank, N.A.						9		4.7	%
Montour	PA		18,000	FNB Bank, N.A.		4		3		1		28.1	%	PA		18,000	FNB Bank, N.A.		5		3		1		27.8	%
Columbia	PA		65,000	FNB Bank, N.A.		8		—		6		4.6	%	PA		65,000	FNB Bank, N.A.		7		—		6		4.6	%
Lycoming	PA		118,000	FNB Bank, N.A.		13		10		17		0.6	%	PA		118,000	FNB Bank, N.A.		11		10		16		0.6	%
Northampton	PA		284,000	Lafayette Ambassador Bank		15		13		2		16.4	%	PA		289,000	Lafayette Ambassador Bank		18		12		2		16.6	%
Lehigh	PA		325,000	Lafayette Ambassador Bank		20		13		7		4.1	%	PA		332,000	Lafayette Ambassador Bank		20		14		8		0.6	%
Washington	MD		140,000	Hagerstown Trust		10		3		2		21.1	%	MD		143,000	Hagerstown Trust		10		3		2		20.4	%
Frederick	MD		221,000	Hagerstown Trust		16		2		17		0.1	%	MD		225,000	The Columbia Bank		15		3		17		0.1	%
Montgomery														MD		935,000	The Columbia Bank		34		20		30		0.3	%
Howard														MD		272,000	The Columbia Bank		21		23		2		13.9	%
Prince Georges														MD		855,000	The Columbia Bank		21		22		13		1.6	%
Baltimore														MD		790,000	The Columbia Bank		44		16		25		0.9	%
Baltimore City														MD		632,000	The Columbia Bank		39		21		24		0.3	%
Cecil	MD		96,000	Peoples Bank of Elkton		8		3		5		10.1	%	MD		99,000	Peoples Bank of Elkton		7		3		5		10.0	%
Sussex	DE		174,000	Delaware National Bank		16		4		7		1.0	%	DE		178,000	Delaware National Bank		17		4		7		1.1	%
New Castle	DE		522,000	Delaware National Bank		33		25		22		0.1	%	DE		526,000	Delaware National Bank		30		24		29		0.1	%
Camden	NJ		517,000	The Bank		22		11		17		0.8	%	NJ		520,000	The Bank		22		9		15		1.1	%
Gloucester	NJ		273,000	The Bank		23		4		2		12.7	%	NJ		278,000	The Bank		22		4		2		13.1	%
Salem	NJ		65,000	The Bank		8		4		1		29.6	%	NJ		66,000	The Bank		8		4		1		31.8	%
Atlantic	NJ		269,000	The Bank		17		6		18		0.4	%	NJ		275,000	The Bank		17		6		17		0.7	%
Warren	NJ		112,000	Skylands Community Bank		12		3		3		10.1	%	NJ		112,000	Skylands Community Bank		12		3		3		10.1	%
Sussex	NJ		154,000	Skylands Community Bank		12		1		11		0.7	%	NJ		155,000	Skylands Community Bank		13		1		11		0.7	%
Morris	NJ		490,000	Skylands Community Bank		34		9		15		1.4	%	NJ		495,000	Skylands Community Bank		40		14		16		1.3	%
Hunterdon	NJ		131,000	Skylands Community Bank Somerset Valley Bank		17		3		14 18		0.6 0.2	% %	NJ		132,000	Skylands Community Bank		17		3		15		0.7	%
Mercer	NJ		367,000	First Washington State Bank		25		21		13		1.9	%
Monmouth	NJ		640,000	First Washington State Bank		30		9		24		0.8	%
Ocean	NJ		561,000	First Washington State Bank		23		5		17		1.0	%
Chesapeake	VA		213,000	Resource Bank		14		4		9		2.3	%
Fairfax	VA		1,022,000	Resource Bank		33		14		21		0.3	%
Newport News	VA		182,000	Resource Bank		10		6		12		1.0	%
Richmond City	VA		194,000	Resource Bank		13		19		16		0.1	%
Virginia Beach	VA		439,000	Resource Bank		14		9		5		8.4	%
																	Somerset Valley Bank						20		0.4	%
Middlesex	NJ		794,000	Somerset Valley Bank		44		25		48		0.1	%	NJ		797,000	Somerset Valley Bank		46		24		47		0.1	%
Somerset	NJ		318,000	Somerset Valley Bank		25		10		8		4.5	%	NJ		323,000	Somerset Valley Bank		26		10		8		3.9	%
Mercer														NJ		371,000	First Washington State Bank		27		29		12		1.7	%


					No. of Financial				Deposit Market
					Institutions				Share (6/30/06)
		Population		Banking	Banks/		Credit
County	State	(2006 Est.)		Subsidiary	Thrifts		Unions		Rank		%
Monmouth	NJ		643,000	First Washington State Bank		28		9		23		0.9	%
Ocean	NJ		566,000	First Washington State Bank		23		5		16		1.0	%
Chesapeake	VA		217,000	Resource Bank		15		6		11		1.7	%
Fairfax	VA		1,018,000	Resource Bank		35		13		21		0.4	%
Newport News	VA		183,000	Resource Bank		12		7		14		0.8	%
Richmond City	VA		191,000	Resource Bank		15		18		15		0.2	%
Virginia Beach	VA		441,000	Resource Bank		17		8		4		8.8	%

Supervision and Regulation

The Corporation operates in an industry that is subject to various laws and regulations that are enforced by a number of Federal and state agencies. Changes in these laws and regulations, including interpretation and enforcement activities, could impact the cost of operating in the financial services industry, limit or expand permissible activities or affect competition among banks and other financial institutions. The Corporation cannot predict the changes in laws and regulations that might occur, however, it is likely that the current high level of enforcement and compliance-related activities of Federal and state authorities will continue ~~and~~or potentially increase.

The following discussion summarizes the current regulatory environment for financial holding companies and banks, including a summary of the more significant laws and regulations.

Regulators —– The Corporation is a registered financial holding company and its subsidiary banks are depository institutions whose deposits are insured by the FDIC. The Corporation and its subsidiaries are subject to various regulations and examinations by regulatory authorities. The following table summarizes the charter types and primary regulators for each of the Corporation’s subsidiary banks.


		Primary
~~Subsidiary~~Entity	Charter	Regulator(s)
Fulton Bank	PA	PA/FDIC
Lebanon Valley Farmers Bank	PA	PA/FRB
Swineford National Bank	National	OCC (1)
Lafayette Ambassador Bank	PA	PA/FRB
FNB Bank, ~~N.A.~~N.A	National	OCC
Hagerstown Trust	MD	MD/FDIC
Delaware National Bank	National	OCC
The Bank	NJ	NJ/FDIC
Peoples Bank of Elkton	MD	MD/FDIC
~~Premier Bank~~	PA	~~PA/FRB~~
Skylands Community Bank	NJ	NJ/FDIC
Resource Bank	VA	VA/FRB
First Washington State Bank	NJ	NJ/FDIC
Somerset Valley Bank	NJ	NJ/FDIC
The Columbia Bank	MD	MD/FDIC
Fulton Financial Advisors, ~~N.A.~~N.A	National (2)	OCC
Fulton Financial (Parent Company)	N/A	FRB


(1)		Office of the Comptroller of the Currency.

(2)		Fulton Financial Advisors, N.A. is chartered as an uninsured national trust bank.

Federal statutes that apply to the Corporation and its subsidiaries include the GLB Act, the Bank Holding Company Act (BHCA), the Federal Reserve Act and the Federal Deposit Insurance Act. In general, these statutes establish the ~~corporate governance and~~ eligible business activities of the Corporation, certain acquisition and merger restrictions, limitations on inter-company transactions such as loans and dividends, and capital adequacy requirements, among other regulations.

The Corporation is subject to regulation and examination by the FRB, and is required to file periodic reports and to provide additional information that the FRB may require. In addition, the FRB must approve certain proposed changes in organizational structure or other business activities before they occur. The BHCA imposes certain restrictions upon the Corporation regarding the acquisition of substantially all of the assets of or direct or indirect ownership or control of any bank of which it is not already the majority owner. ~~In addition, the FRB must approve certain proposed changes in organizational structure or other business activities before they occur.~~

Capital Requirements – There are a number of restrictions on financial and bank holding companies and FDIC-insured depository subsidiaries that are designed to minimize potential loss to depositors and the FDIC insurance funds. If an FDIC-insured depository subsidiary is “undercapitalized”, the bank holding company is required to ensure (subject to certain limits) the subsidiary’s compliance with the terms of any capital restoration plan filed with its appropriate banking agency. Also, a bank holding company is required to serve as a source of financial strength to its depository institution subsidiaries and to commit resources to support such institutions in circumstances where it might not do so absent such policy. Under the BHCA, the FRB has the authority to require a bank holding company to terminate any activity or to relinquish

control of a non-bank subsidiary upon the FRB’s determination that such activity or control constitutes a serious risk to the financial soundness and stability of a depository institution subsidiary of the bank holding company.

Bank holding companies are required to comply with the FRB’s risk-based capital guidelines that require a minimum ratio of total capital to risk-weighted assets of 8%. At least half of the total capital is required to be Tier 1 capital. In addition to the risk-based capital guidelines, the FRB has adopted a minimum leverage capital ratio under which a bank holding company must maintain a level of Tier 1 capital to average total consolidated assets of at least 3% in the case of a bank holding company which has the highest regulatory examination rating and is not contemplating significant growth or expansion. All other bank holding companies are expected to maintain a leverage capital ratio of at least 1% to 2% above the stated minimum.

Dividends and Loans from Subsidiary Banks – There are also various restrictions on the extent to which the Corporation and its non-bank subsidiaries can receive loans from its banking subsidiaries. In general, these restrictions require that such loans be secured by designated amounts of specified collateral and are limited, as to any one of the Corporation or its non-bank subsidiaries, to 10% of the lending bank’s regulatory capital (20% in the aggregate to all such entities).

The Corporation is also limited in the amount of dividends that it may receive from its subsidiary banks. Dividend limitations vary, depending on the subsidiary bank’s charter and whether or not it is a member of the Federal Reserve System. Generally, subsidiaries are prohibited from paying dividends when doing so would cause them to fall below the regulatory minimum capital levels. Additionally, limits exist on paying dividends in excess of net income for specified periods. See “Note J – Regulatory Matters” in the Notes to Consolidated Financial Statements for additional information regarding regulatory capital and dividend and loan limitations.

Federal Deposit Insurance – Substantially all of the deposits of the Corporation’s subsidiary banks are insured up to the applicable limits by the Bank Insurance Fund of the FDIC, generally up to $100,000 per insured depositor and up to $250,000 for retirement accounts. The subsidiary banks pay deposit insurance premiums to the FDIC based on an assessment rate established by the FDIC for Bank Insurance Fund member institutions. The FDIC has established a risk-based assessment system under which institutions are classified and pay premiums according to their perceived risk to the federal deposit insurance funds. The FDIC is not required to charge deposit insurance premiums when the ratio of deposit insurance reserves to insured deposits is maintained above specified levels. During the past several years, the ratio has been above the minimum level and, accordingly, the Corporation has not been required to pay premiums. However, in 2006 legislation was passed reforming the bank deposit insurance system. The reform act allowed the FDIC to raise the minimum reserve ratio and allowed eligible insured institutions an initial one-time credit to be used against premiums due. As a result, beginning in 2007 the Corporation will be assessed insurance premiums, which may be partly offset by the one-time credit.

USA Patriot Act – Anti-terrorism legislation enacted under the USA Patriot Act of 2001 ~~(“Patriot Act”)~~(Patriot Act) expanded the scope of anti-money laundering laws and regulations and imposed significant new compliance obligations for financial institutions, including the

Corporation’s subsidiary banks. These regulations include obligations to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing.

Failure to comply with the Patriot Act’s requirements could have serious legal, financial and reputational consequences for the institution. The Corporation has adopted appropriate policies, procedures and controls to address compliance with the Patriot Act and will continue to revise and update its policies, procedures and controls to reflect changes required, as necessary.

Sarbanes-Oxley Act of 2002–The Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley), which was signed into law in July 2002, impacts all companies with securities registered under the Securities Exchange Act of 1934, including the Corporation. Sarbanes-Oxley created new requirements in the areas of corporate governance and financial disclosure including, among other things, (i) increased responsibility for Chief Executive Officers and Chief Financial Officers with respect to the content of filings with the SEC; (ii) enhanced requirements for audit committees, including independence and disclosure of expertise; (iii) enhanced requirements for auditor independence and the types of non-audit services that auditors can provide; (iv) accelerated filing requirements for SEC reports; (v) disclosure of a code of ethics (vi) increased disclosure and reporting obligations for companies, their directors and their executive officers; and (vii) new and increased civil and criminal penalties for violations of securities laws. Many of the provisions became effective immediately, while others became effective as a result of rulemaking procedures delegated by Sarbanes-Oxley to the SEC.

Section 404 of Sarbanes Oxley became effective for the year ended December 31, 2004. This section required management to issue a report on the effectiveness of its internal controls over financial reporting. In addition, the Corporation’s independent registered public accountants were required to issue an opinion on management’s assessment and an opinion on the effectiveness of the Corporation’s internal control over financial reporting as of December 31, ~~2005.~~2004. These reports can be found in Item 8, “Financial Statements and Supplementary Information”. Certifications of the Chief Executive Officer and the Chief Financial Officer as required by Sarbanes-Oxley and the resulting SEC rules can be found in the “Signatures” and “Exhibits” sections.

Monetary and Fiscal Policy – The Corporation and its subsidiary banks are affected by fiscal and monetary policies of the Federal government, including those of the FRB, which regulates the national money supply in order to manage recessionary and inflationary pressures. Among the techniques available to the FRB are engaging in open market transactions of U.S. Government securities, changing the discount rate and changing reserve requirements against bank deposits. These techniques are used in varying combinations to influence the overall growth of bank loans, investments and deposits. Their use may also affect interest rates charged on loans and paid on deposits. The effect of monetary policies on the earnings of the Corporation cannot be predicted.

Item 1A. Risk Factors

An investment in the Corporation’s common stock involves certain risks, including, among others, the risks described below. In addition to the other information contained in this report, you should carefully consider the following risk factors.

Changes in interest rates may have an adverse effect on the Corporation’s profitability.

The ~~information appearing~~Corporation is affected by fiscal and monetary policies of the federal government, including those of the Federal Reserve Board (FRB), which regulates the national money supply in order to manage recessionary and inflationary pressures. Among the techniques available to the FRB are engaging in open market transactions of U.S. Government securities, changing the discount rate and changing reserve requirements against bank deposits. The use of these techniques may also affect interest rates charged on loans and paid on deposits.

Net interest income is the most significant component of the Corporation’s net income, accounting for approximately 78% of total revenues in 2006. The narrowing of interest rate spreads, the difference between interest rates earned on loans and investments and interest rates paid on deposits and borrowings, could adversely affect the Corporation’s net income and financial condition. Based on the current interest rate environment and the price sensitivity of customers, loan demand could continue to outpace the growth of core demand and savings accounts, resulting in compression of net interest margin. Furthermore, the U. S. Treasury yield curve, which is a plot of the yields on treasury securities over various maturity terms was relatively flat, and at times, downward sloping, with minimal differences between long and short-term rates during 2006, resulting in a negative impact to the Corporation’s net interest income and net interest margin. Finally, regional and local economic conditions as well as fiscal and monetary policies of the federal government, including those of the FRB, may affect prevailing interest rates. The Corporation cannot predict or control changes in interest rates.

Changes in economic conditions and the composition of the Corporation’s loan portfolio could lead to higher loan charge-offs or an increase in the Corporation’s provision for loan losses and may reduce the Corporation’s net income.

Changes in national and regional economic conditions could impact the loan portfolios of the Corporation’s subsidiary banks. For example, an increase in unemployment, a decrease in real estate values or increases in interest rates, as well as other factors, could weaken the economies of the communities the Corporation serves. Weakness in the market areas served by the Corporation’s subsidiary banks could depress its earnings and consequently its financial condition because:

	•		customers may not want or need the Corporation’s products or services;

	•		borrowers may not be able to repay their loans;

	•		the value of the collateral securing the Corporation’s loans to borrowers may decline; and

	•		the quality of the Corporation’s loan portfolio may decline.

Any of the latter three scenarios could require the Corporation to charge-off a higher percentage of its loans and/or increase its provision for loan losses, which would reduce its net income.

In addition, the amount of the Corporation’s provision for loan losses and the percentage of loans it is required to charge-off may be impacted by the overall risk composition of the loan portfolio. In recent years, the amount of the Corporation’s commercial loans (including agricultural loans) and commercial mortgages has increased, comprising a greater percentage of its overall loan portfolio. These loans are inherently more risky than certain other types of loans, such as residential mortgage loans. While the Corporation believes that its allowance for loan losses as of December 31, 2006 is sufficient to cover losses inherent in the loan portfolio on that date, the Corporation may be required to increase its loan loss provision or charge-off a higher percentage of loans due to changes in the risk characteristics of the loan portfolio, thereby reducing its net income. To the extent any of the Corporation’s subsidiary banks rely more heavily on loans secured by real estate, a decrease in real estate values could cause higher loan losses and require higher loan loss provisions.

Fluctuations in the value of the Corporation’s equity portfolio, or assets under management by the ~~heading “Forward-Looking Statements~~Corporation’s investment management and ~~Risk Factors “~~trust services, could have an impact on the Corporation’s results of operations.

At December 31, 2006, the Corporation’s investments consisted of $72.3 million of FHLB and other government agency stock, $72.3 million of stocks of other financial institutions and $13.5 million of mutual funds. The Corporation’s equity portfolio consists primarily of common stocks of publicly traded financial institutions. The Corporation realized net gains on sales of financial institutions stocks of $7.0 million in ~~Item 7, “Management’s Discussion~~2006, $5.8 million in 2005 and ~~Analysis~~$14.8 million in 2004. The value of the securities in the Corporation’s equity portfolio may be affected by a number of factors, including factors that impact the performance of the U.S. securities market in general and, ~~Results~~due to the concentration in stocks of ~~Operation”~~financial institutions in the Corporation’s equity portfolio, specific risks associated with that sector. If the value of one or more equity securities in the portfolio were to decline significantly, the unrealized gains in the portfolio could be reduced or lost in their entirety. In addition to the Corporation’s equity portfolio, the Corporation’s investment management and ~~within Exhibit 99.1, “Risk Factors”~~trust services income could be impacted by fluctuations in the securities market. A portion of the Corporation’s trust revenue is based on the value of the underlying investment portfolios. If the values of those investment portfolios decrease, whether due to factors influencing U.S. securities markets in general, or otherwise, the Corporation’s revenue could be negatively impacted. In addition, the Corporation’s ability to sell its brokerage services is dependent, in part, upon consumers’ level of confidence in the outlook for rising securities prices.

If the Corporation is unable to acquire additional banks on favorable terms or if it fails to successfully integrate or improve the operations of acquired banks, the Corporation may be unable to execute its growth strategies.

The Corporation has historically supplemented its internal growth with strategic acquisitions of banks, branches and other financial services companies. There can be no assurance that the Corporation will be able to complete future acquisitions on favorable terms or that it will be able to assimilate acquired institutions successfully. In addition, the Corporation may not be able to achieve anticipated cost savings or operating results associated with acquisitions. Acquired institutions also may have unknown or contingent liabilities or deficiencies in internal controls that could result in material liabilities or negatively impact the Corporation’s ability to complete the internal control procedures required under federal securities laws, rules and regulations or by certain laws, rules and regulations applicable to the banking industry.

If the goodwill that the Corporation has recorded in connection with its acquisitions becomes impaired, it could have a negative impact on the Corporation’s profitability.

Applicable accounting standards require that the purchase method of accounting be used for all business combinations. Under purchase accounting, if the purchase price of an acquired company exceeds the fair value of the company’s net assets, the excess is carried on the acquirer’s balance sheet as goodwill. At December 31, 2006, the Corporation had approximately $626.0 million of goodwill on its balance sheet. Companies must evaluate goodwill for impairment at least annually. Write-downs of the amount of any impairment, if necessary, are ~~incorporated herein~~to be charged to the results of operations in the period in which the impairment occurs. Based on tests of goodwill impairment conducted to date, the Corporation has concluded that there has been no impairment, and no write-downs have been recorded. However, there can be no assurance that the future evaluations of goodwill will not result in findings of impairment and write-downs.

The competition the Corporation faces is increasing and may reduce the Corporation’s customer base and negatively impact the Corporation’s results of operations.

There is significant competition among commercial banks in the market areas served by ~~reference.~~the Corporation’s subsidiary banks. In addition, as a result of the deregulation of the financial industry, the Corporation’s subsidiary banks also compete with other providers of financial services such as savings and loan associations, credit unions, consumer finance companies, securities firms, insurance companies, commercial finance and leasing companies, the mutual funds industry, full service brokerage firms and discount brokerage firms, some of which are subject to less extensive regulations than the Corporation is with respect to the products and services they provide. Some of the Corporation’s competitors, including certain super-regional and national bank holding companies that have made acquisitions in its market area, have greater resources than the Corporation has, and as such, may have higher lending limits and may offer other services not offered by the Corporation.

The Corporation also experiences competition from a variety of institutions outside its market areas. Some of these institutions conduct business primarily over the internet and may thus be able to realize certain cost savings and offer products and services at more favorable rates and with greater convenience to the customer.

Competition may adversely affect the rates the Corporation pays on deposits and charges on loans, thereby potentially adversely affecting the Corporation’s profitability. The Corporation’s profitability depends upon its continued ability to successfully compete in the market areas it serves while achieving its objectives.

The supervision and regulation to which the Corporation is subject can be a competitive disadvantage.

The Corporation is a registered financial holding company, and its subsidiary banks are depository institutions whose deposits are insured by the Federal Deposit Insurance Corporation (FDIC). As a result, the Corporation and its subsidiaries are subject to regulations and examinations by various regulatory authorities. In general, statutes establish the eligible business activities for the Corporation, certain acquisition and merger restrictions, limitations on inter-company transactions such as loans and dividends, capital adequacy requirements, requirements for anti-money laundering programs and other compliance matters, among other regulations. The Corporation is extensively regulated under federal and state banking laws and regulations that are intended primarily for the protection of depositors, federal deposit insurance funds and the banking system as a whole. Compliance with these statutes and regulations is important to the Corporation’s ability to engage in new activities and to consummate additional acquisitions. In addition, the Corporation is subject to changes in federal and state tax laws as well as changes in banking and credit regulations, accounting principles and governmental economic and monetary policies. The Corporation cannot predict whether any of these changes may adversely and materially affect it. Federal and state banking regulators also possess broad powers to take supervisory actions, as they deem appropriate. These supervisory actions may result in higher capital requirements, higher insurance premiums and limitations on the Corporation’s activities that could have a material adverse effect on its business and profitability. While these statutes are generally designed to minimize potential loss to depositors and the FDIC insurance funds, they do not eliminate risk, and compliance with such statutes increases the Corporation’s expense, requires management’s attention and can be a disadvantage from a competitive standpoint with respect to non-regulated competitors.

Item 1B. Unresolved Staff Comments

None.

The following table summarizes the Corporation’s other significant properties (administrative headquarters locations generally include a branch; these are also reflected in the preceding table):


			Owned/
Bank	Property	Location	Leased
Fulton Financial Corp.	Operations Center	East Petersburg, PA	Owned
Fulton Bank/Fulton Financial Corp.	Admin. Headquarters	Lancaster, PA		(1	)
Fulton Bank	Operations Center	Mantua, NJ	Owned
Fulton Bank, Drovers Division	Admin. Headquarters	York, PA	Leased (2)
Fulton Bank, Great Valley Division	Admin. Headquarters	Reading, PA	Leased (5)
Fulton Bank, Premier Division	Admin. Headquarters	Doylestown, PA	Owned
Lebanon Valley Farmers Bank	Admin. Headquarters	Lebanon, PA	Owned
Swineford National Bank	Admin. Headquarters	Hummels Wharf, PA	Owned
Lafayette Ambassador Bank	Admin. Headquarters	Easton, PA	Owned
Lafayette Ambassador Bank	Operations Center	Bethlehem, PA	Owned
Lafayette Ambassador Bank	Corp Service Center	Bethlehem, PA	Leased (6)
FNB Bank, ~~N.A.~~N.A	Admin. Headquarters	Danville, PA	Owned
Hagerstown Trust	Admin. Headquarters	Hagerstown, MD	Owned
Delaware National Bank	Admin. Headquarters	Georgetown, DE	Leased (3)
The Bank	Admin. Headquarters	Woodbury, NJ	Owned
Peoples Bank of Elkton	Admin. Headquarters	Elkton, MD	Owned
~~Premier Bank~~	~~Admin. Headquarters~~	~~Doylestown, PA~~	~~Owned~~
Skylands Community Bank	Admin. Headquarters	Hackettstown, NJ	Leased (4)
Resource Bank	Admin. Headquarters	Herndon, VA	Owned
Somerset Valley Bank	Admin. Headquarters	Somerville, PA	Owned
First Washington State Bank	Admin. Headquarters	Windsor, NJ	Owned
The Columbia Bank	Admin. Headquarters	Columbia, MD	Leased (7)


(1)		Includes approximately 100,000 square feet which is owned by an independent third party who financed the construction through a loan from Fulton Bank. The Corporation is leasing this space from the third party in an arrangement accounted for as a capital lease. The lease term expires in 2027. The remainder of the Administrative Headquarters location is owned by the Corporation.

(2)		Lease expires in 2013.

(3)		Lease expires in ~~2006.~~2011.

(4)		Lease expires in 2009.

(5)		Lease expires in 2016.

(6)		Lease expires in 2017.

(7)		Lease expires in 2013.

Item 3. Legal Proceedings

There are no legal proceedings pending against Fulton Financial Corporation or any of its subsidiaries which are expected to have a material impact upon the financial position and/or the operating results of the Corporation.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders of Fulton Financial Corporation during the fourth quarter of ~~2005.~~2006.

1013

PART II


Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Common Stock

As of December 31, 2006, the Corporation had 173.6 million shares of $2.50 par value common stock outstanding held by 51,000 holders of record. The common stock of the Corporation is traded on The NASDAQ Stock Market ~~for Registrant’s Common Equity and Related Stockholder Matters~~under the symbol FULT.

The following table presents the quarterly high and low prices of the Corporation’s common stock and per-share cash dividends declared for each of the quarterly periods in 2006 and 2005. Per-share amounts have been retroactively adjusted to reflect the effect of stock dividends and splits.


	Price Range				Per-Share
	High		Low		Dividend
2006
First Quarter	$	17.35	$	16.07	$	0.138
Second Quarter		16.47		15.36		0.1475
Third Quarter		16.99		15.55		0.1475
Fourth Quarter		16.88		15.65		0.1475

2005
First Quarter	$	17.92	$	16.00	$	0.126
Second Quarter		17.14		15.68		0.138
Third Quarter		18.00		15.43		0.138
Fourth Quarter		16.90		14.87		0.138

Securities Authorized for Issuance under Equity Compensation Plans

The following table provides information ~~appearing~~about options outstanding under the ~~heading “Common Stock”~~Corporation’s 1996 Incentive Stock Option Plan and 2004 Stock Option and Compensation Plan as of December 31, 2006:

Number of securities

remaining available for

future issuance under

Number of securities to

Weighted-average

equity compensation

be issued upon exercise

exercise price of

plans (excluding

of outstanding options,

outstanding options,

securities reflected in

Plan Category

warrants and rights

first column)

Equity compensation plans approved by security holders

7,996,776

12.65

14,864,642

Equity compensation plans not approved by security holders

—

Total

7,996,776

12.65

14,864,642


	*Period Ending December 31*
Index	2001		2002		2003		2004		2005		2006

Fulton Financial Corporation	$	100.00	$	104.42	$	140.24	$	161.58	$	157.56	$	162.67
NASDAQ Composite	$	100.00	$	68.76	$	103.67	$	113.16	$	115.57	$	127.58
Fulton Financial Peer Group	$	100.00	$	100.53	$	130.70	$	151.98	$	151.50	$	165.31

Issuer Purchases of Equity Securities

Total number of

shares purchased

Maximum number of

Total

as part of a

shares that may yet

number of

Average price

publicly

paid per

announced plan

purchased under the

Period

purchased

or program

plan or program

(10/01/06 - 10/31/06)

—

1,043,490

(11/01/06 - 11/30/06)

—

1,043,490

(12/01/06 - 12/31/06)

5,000

15.99

5,000

1,038,490

On March 21, 2006 a stock repurchase plan was approved by the Board of Directors to repurchase up to 2.1 million shares through December 31, 2006. On December 19, 2006 the Board of Directors extended the stock repurchase plan through June 30, 2007. As of December 31, 2006, 1.1 million shares were repurchased under this plan. No stock repurchases were made outside the plans and ~~Qualitative Disclosures about Market Risk” is incorporated herein by reference.~~all were made under the guidelines of Rule 10b-18 and in compliance with Regulation M.

Item 6. Selected Financial Data

5-YEAR CONSOLIDATED SUMMARY OF FINANCIAL RESULTS
(dollars in thousands, except per-share ~~data)~~data and ratios)


	For the Year															For the Year
	2005			2004			2003			2002			2001			2006			2005			2004			2003			2002
SUMMARY OF INCOME
Interest income	$	625,797		$	493,643		$	435,531		$	469,288		$	518,680		$	864,507		$	625,768		$	493,643		$	435,531		$	469,288
Interest expense		213,219			135,994			131,094			158,219			227,962			378,944			213,220			135,994			131,094			158,219

Net interest income		412,578			357,649			304,437			311,069			290,718			485,563			412,548			357,649			301,437			311,069
Provision for loan losses		3,120			4,717			9,705			11,900			14,585			3,498			3,120			4,717			9,705			11,900
Other income		144,268			138,864			134,370			114,012			102,057			149,875			144,298			138,864			134,370			114,012
Other expenses		316,291			277,515			233,651			226,046			220,292			365,991			316,291			277,515			233,651			226,046

Income before income taxes		237,435			214,281			195,451			187,135			157,898			265,949			237,435			214,281			195,451			187,135
Income taxes		71,361			64,673			59,084			56,181			46,136			80,422			71,361			64,673			59,084			56,181

Net income	$	166,074		$	149,608		$	136,367		$	130,954		$	111,762		$	185,527		$	166,074		$	149,608		$	136,367		$	130,954


PER-SHARE DATA (1)
Net income (basic)	$	1.06		$	1.00		$	0.97		$	0.93		$	0.79		$	1.07		$	1.01		$	0.95		$	0.93		$	0.88
Net income (diluted)		1.05			0.99			0.96			0.92			0.78			1.06			1.00			0.94			0.92			0.88
Cash dividends		0.567			0.518			0.475			0.425			0.385			0.581			0.540			0.493			0.452			0.405

RATIOS
Return on average assets		1.41	%		1.45	%		1.55	%		1.66	%		1.49	%		1.30	%		1.41	%		1.45	%		1.55	%		1.66	%
Return on average equity		13.24			13.98			15.23			15.61			14.33			12.84			13.24			13.98			15.23			15.61
Return on average tangible equity (2)		20.28			18.58			17.33			17.25			15.97			23.87			20.28			18.58			17.33			17.25
Net interest margin		3.93			3.83			3.82			4.35			4.27			3.82			3.93			3.83			4.35			4.27
Efficiency ratio		55.50			55.90			54.00			52.70			55.50			56.00			55.50			56.90			54.00			53.10
Average equity to average assets		10.70			10.30			10.20			10.60			10.40			10.10			10.60			10.30			10.20			10.60
Dividend payout ratio		54.00			52.30			49.50			46.20			49.40			54.80			54.00			52.50			49.20			46.00

PERIOD-END BALANCES
Total assets	$	12,401,555		$	11,160,148		$	9,768,669		$	8,388,915		$	7,771,598		$	14,918,964		$	12,401,555		$	11,160,148		$	9,768,669		$	8,388,915
Investment securities																	2,878,238			2,562,145			2,449,859			2,927,150			2,407,344
Loans, net of unearned income		8,424,728			7,533,915			6,140,200			5,295,459			5,373,020			10,374,323			8,424,728			7,533,915			6,140,200			5,295,459
Deposits		8,804,839			7,895,524			6,751,783			6,245,528			5,986,804			10,232,469			8,804,839			7,895,524			6,751,783			6,245,528
Federal Home Loan Bank advances and long-term debt		860,345			684,236			568,730			535,555			456,802			1,304,148			860,345			684,236			568,730			535,555
Shareholders’ equity		1,282,971			1,244,087			948,317			864,879			812,341			1,516,310			1,282,971			1,244,087			948,317			864,879

AVERAGE BALANCES
Total assets	$	11,779,096		$	10,344,768		$	8,803,285		$	7,901,398		$	7,520,763		$	14,297,681		$	11,781,618		$	10,347,290		$	8,805,807		$	7,903,920
Investment securities																	2,869,862			2,498,671			2,562,165			2,569,421			1,949,635
Loans, net of unearned income		7,981,604			6,857,386			5,564,806			5,381,950			5,341,497			9,892,082			7,981,604			6,857,386			5,564,806			5,381,950
Deposits		8,364,435			7,285,134			6,505,371			6,052,667			5,771,089			9,955,247			8,364,435			7,285,134			6,505,371			6,052,667
Federal Home Loan Bank advances and long-term debt		837,305			637,654			566,437			476,415			500,162			1,069,868			839,827			640,176			568,959			478,937
Shareholders’ equity		1,254,476			1,069,904			895,616			839,111			779,706			1,444,793			1,254,476			1,069,904			895,616			839,111

The Corporation has made, and may continue to make, certain forward-looking statements with respect to acquisition and growth strategies, market risk, the effect of competition and interest rates on net interest margin and net interest income, investment strategy and income growth, investment securities gains, other-than-temporary impairment of investment securities, deposit and loan growth, asset quality, balances of risk-sensitive assets to risk-sensitive liabilities, employee benefits and other expenses, amortization of intangible assets, goodwill impairment, capital and liquidity strategies and other financial and business matters for future periods. The Corporation cautions that these forward-looking statements are subject to various assumptions, risks and uncertainties. Because of the possibility that the underlying assumptions may change, actual results could differ materially from these forward-looking statements.

~~In addition to the factors identified herein, the following risk factors could cause actual results to differ materially from such forward-looking statements:~~

~~Changes in interest rates may have an adverse effect on the Corporation’s profitability.~~

Changes in economic conditions and the composition of the Corporation’s loan portfolios could lead to higher loan charge-offs or an increase in Fulton’s allowance for loan losses and may reduce the Corporation’s income.

Fluctuations in the value of the Corporation’s equity portfolio, or assets under management by the Corporation’s trust and investment management services, could have a material impact on the Corporation’s results of operations.

~~If the goodwill that the Corporation has recorded in connection with its acquisitions becomes impaired, it could have a negative impact on the Corporation’s profitability.~~

~~The competition the Corporation faces is increasing and may reduce the Corporation’s customer base and negatively impact the Corporation’s results of operations.~~

~~The supervision and regulation by various regulatory authorities to which the Corporation is subject can be a competitive disadvantage.~~

The Corporation’s forward-looking statements are relevant only as of the date on which such statements are made. By making any forward-looking statements, the Corporation assumes no duty to update them to reflect new, changing or unanticipated events or circumstances.

OVERVIEW

As a financial institution with a focus on traditional banking activities, the Corporation generates the majority of its revenue through net interest income, or the difference between interest ~~income~~ earned on loans and investments and interest paid on deposits and borrowings. Growth in net interest income is dependent upon balance sheet growth ~~and~~and/or maintaining or increasing the net interest margin, which is net interest income (fully taxable-equivalent) 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 ~~investments.~~properties. Offsetting these revenue sources are provisions for credit losses on loans, operating expenses and income taxes.

The Corporation’s net income for 2006 increased $19.5 million, or 11.7%, from $166.1 million in 2005 to $185.5 million in 2006. Diluted net income per share increased $0.06, or 6.0%, from $1.00 per share in 2005 to $1.06 per share in 2006. In 2006, the Corporation realized a return on average assets of 1.30% and a return on average tangible equity of 23.87%, compared to 1.41% and 20.28%, respectively, in 2005. Net income for 2005 increased $16.5 million, or 11.0%, from $149.6 million in ~~2004 to $166.1 million in 2005.~~2004. Diluted net income per share for 2005 increased $0.06, or ~~6.1%~~6.4%, from ~~$0.99~~$0.94 per share in ~~2004 to $1.05 per share in 2005. In 2005, the Corporation realized a return on average assets of 1.41% and a return on average tangible equity of 20.28%, compared to 1.45% and 18.58%, respectively, in~~ 2004. ~~Net income for 2004 increased $13.2 million, or 9.7%, from $136.4 million in 2003. Diluted net income per share increased $0.03, or 3.1%, from $0.96 per share in 2003.~~

In 2005, the Corporation adopted Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” (Statement 123R), using modified retrospective application. Statement 123R requires that the fair value of equity awards to employees be recognized as compensation expense over the period during which an employee is required to provide service in exchange for such award and, under the modified retrospective application, prior period results are restated. As a result, all financial information in this report has been restated to reflect the impact of adoption. For the year ended December 31, 2004, net income and diluted net income per share were reduced by $3.3 million and $0.02, respectively. For the year ended December 31, 2003, net income and diluted net income per share were reduced by $1.8 million and $0.02, respectively. See Note M, “Stock-Based Compensation Plans and Shareholders’ Equity”, in the Notes to Consolidated Financial Statements for information on the impact of adopting Statement 123R and its effect on prior periods.

The ~~2005~~2006 increase in ~~earnings~~net income was driven by a ~~$54.9~~$72.6 million, or ~~15.4%~~17.7%, increase in net interest income after the provision for loan losses, primarily due to ~~both internal and~~ external growth ~~and a year-over-year increase in net interest margin.~~through acquisitions, which contributed $60.4 million to the increase. Also contributing to the increase ~~in earnings~~ was a ~~$16.5~~$4.8 million, or ~~13.6%~~3.5%, increase in other income (excluding securities gains), primarily as a result of acquisitions. These items were offset by a ~~$38.8~~$49.7 million, or ~~14.0%~~15.7%, increase in other expenses, also primarily due to ~~recent~~ acquisitions, and ~~an $11.1~~a $9.1 million ~~or 62.6%, reduction~~increase in ~~investment securities gains.~~income tax expense.

In 2006, the Corporation experienced a decline in net interest margin of 11 basis points. Significant increases in loans and investments, due to both external and internal growth, were funded by higher cost certificates of deposits and short-term borrowings, as opposed to lower cost core demand and savings accounts. If loan demand continues to outpace the growth of core demand and savings accounts based upon the continuation of the current interest rate environment and price sensitivity of customers, then further compression of the net interest margin may occur.

The following summarizes some of the more significant factors that influenced the Corporation’s ~~2005~~2006 results.

Interest Rates —–Changes in the interest rate environment ~~generally~~can impact both the Corporation’s net interest income and its non-interest income. The ~~interest~~term “interest rate ~~environment reflects~~environment” generally refers to both the level of ~~short-term~~interest rates and the ~~slope~~shape of the U. S. Treasury yield curve, which ~~plots~~is a plot of the yields on treasury ~~issues~~securities over various maturity ~~periods. During~~terms. Typically, the ~~past year,~~shape of the yield curve ~~has flattened,~~is upward sloping, with longer-term rates exceeding short-term rates. However, during 2006, the yield curve was relatively flat, and at times, downward sloping, with minimal differences between long and short-term rates, ~~increasing at~~resulting in a ~~faster pace than longer-term rates.~~negative impact to the Corporation’s net interest income and net interest margin.

Floating rate loans, short-term borrowings and savings and time deposit rates are generally influenced by short-term rates. During ~~2005,~~2006, the ~~Federal Reserve Board (FRB)~~FRB raised the Federal funds rate ~~eight~~four times, for a total increase of ~~200~~100 basis points since December 31, ~~2004,~~2005, with the overnight borrowing, or Federal funds, rate ending the year at ~~4.25%~~5.25%. The Corporation’s prime lending rate had a corresponding increase, from ~~5.25%~~7.25% to ~~7.25%. The~~8.25%, resulting in an increase in the rates on floating rate loans as well as the rates on new fixed-rate loans. More significantly, the increase in short-term rates ~~benefited the Corporation during the first half of 2005 as floating rate loans quickly adjusted~~also resulted in increased funding costs, with short-term borrowings immediately repricing to higher rates ~~while increases in~~and deposit rates, ~~— which are~~although more discretionary, ~~— were less pronounced. Throughout the remainder~~increasing due to competitive pressures. Additionally, as rates increased, customers shifted funds from lower rate core demand and savings accounts to fixed rate certificates of ~~the year, competitive pressures resulted~~deposit in ~~increases in deposit~~order to

With respect to longer-term rates, the 10-year treasury yield, which is a common benchmark for evaluating residential mortgage rates, increased to 4.71% at December 31, 2006 as compared to 4.39% at December 31, ~~2005 as compared to 4.24% at December 31, 2004. Mortgage~~2005. Higher mortgage rates ~~have been historically low over the past several years, generating strong~~resulted in slower refinance activity and ~~significant~~origination volumes and, therefore, lower net gains for the Corporation ~~as fixed-rate~~on fixed rate residential mortgages, which are generally sold in the secondary market. ~~With only a minimal~~While absolute longer-term rates increased, the 32 basis point increase in ~~long-term~~the 10-year treasury yield was significantly less than the 100 basis point increase in short-term rates, ~~from the prior year, origination volumes~~resulting in a flattened and, ~~the resulting gains on sales of these loans remained strong, continuing to contribute to the Corporation’s non-interest income.~~at times, downward sloping, yield curve during 2006. If rates continue to rise and the yield curve steepens, residential mortgage volume could decrease even further, resulting in a greater negative impact on non-interest income, as gains on ~~sale~~sales would decline. The “Market Risk” section of Management’s Discussion summarizes the expected impact of rate changes on net interest income.

~~Earning Assets~~- The Corporation’s interest-earning assets increased from 2004 to 2005 as a result of acquisitions, as well as internal loan growth. This growth also contributed to the increase in net interest income.

From 2004 to 2005, the Corporation experienced a shift in its composition of interest-earning assets from investments (23.2% of total average interest-earning assets in 2005, compared to 26.8% in 2004) to loans (74.1% in 2005, compared to 71.7% in 2004). This change resulted from strong loan demand being partially funded with the proceeds from maturing investment securities. The movement to higher-yielding loans has had a positive effect on the Corporation’s net interest income and net interest margin.

Asset Quality —– Asset quality refers to the underlying credit characteristics of borrowers and the likelihood that defaults on contractual loan payments will result in charge-offs of account balances. Asset quality is generally a function of economic conditions, but can be managed through conservative underwriting and sound collection policies and procedures.

The Corporation has been able to maintain strong asset quality through different economic cycles, attributable to its credit culture and underwriting policies. This trend continued in ~~2005 as~~2006 with net charge-offs to average loans ~~decreased~~decreasing from ~~0.06% in 2004 to~~ 0.04% in ~~2005.~~2005 to 0.02% in 2006. Non-performing assets to total assets slightly increased to 0.39% at December 31, 2006, from 0.38% at December 31, ~~2005, from 0.30% at December 31, 2004,~~2005; however, this level is still relatively low in absolute terms. While overall asset quality has remained strong, deterioration in quality of one or several significant accounts could have a detrimental impact ~~and result in losses that may not be foreseeable based~~ on ~~current information.~~the ability of some to pay according to the terms of their loans. In addition, rising interest rates could increase the total payments of borrowers and could have a negative impact on their ability to pay according to the terms of their loans. Finally, decreases in the values of underlying collateral as a result of market or economic conditions could negatively affect asset quality.

Equity Markets —– As disclosed in the “Market Risk” section of Management’s Discussion, equity valuations can have an impact on the Corporation’s financial performance. In particular, bank stocks account for a significant portion of the Corporation’s equity investment portfolio. Historically, gains on sales of these equities have been a recurring component of the Corporation’s ~~earnings, although realized gains have decreased in recent quarters.~~earnings. Declines in bank stock portfolio values could have a detrimental impact on the Corporation’s ability to recognize gains in the future.

~~Acquisitions~~ —In July 2005, the Corporation acquired SVB Financial Services, Inc. (SVB) of Somerville, New Jersey, a $530 million bank holding company whose primary subsidiary was Somerset Valley Bank. In December 2004, the Corporation acquired First Washington FinancialCorp (First Washington), of Windsor, New Jersey, a $490 million bank holding company whose primary subsidiary was First Washington State Bank. In April 2004, the Corporation acquired Resource Bankshares Corporation (Resource); an $890 million financial holding company located in Virginia Beach, Virginia whose primary subsidiary was Resource Bank. This was the Corporation’s first acquisition in Virginia, allowing it to enter a new geographic market. Period-to-period comparisons in the “Results of Operations” section of Management’s Discussion are impacted by these acquisitions when 2005 results are compared to 2004. Results for 2004 in comparison to 2003 were impacted by the acquisitions of First Washington, Resource and Premier Bancorp, Inc. in August 2003. The discussion and tables within the “Results of Operations” section of Management’s Discussion highlight the contributions of these acquisitions in addition to internal changes.

On February 1, 2006, the Corporation completed its acquisition of Columbia Bancorp (Columbia), of Columbia, Maryland. Columbia was a $1.3 billion bank holding company whose primary subsidiary was The Columbia Bank, which operates 19 full-service community-banking offices and five retirement community offices in Howard, Montgomery, Prince George’s and Baltimore Counties and Baltimore City. For additional information on the terms of these acquisitions, see Note Q, “Mergers and Acquisitions”, in the Notes to Consolidated Financial Statements.

Acquisitions have long been a supplement to the Corporation’s internal growth, providing the opportunity for the Corporation’s existing products and services to be sold in new markets. The Corporation’s acquisition strategy focuses on high growth areas with strong market demographics and targets organizations that have a comparable corporate culture, strong performance and good asset quality, among other factors. Under its “supercommunity” banking philosophy, acquired organizations generally retain their status as separate legal entities, unless consolidation with an existing affiliate bank is practical. Back office functions are generally consolidated to maximize efficiencies.

Merger and acquisition activity in the financial services industry has been very competitive in recent years, as evidenced by the prices paid for certain acquisitions. While the Corporation has been an active acquirer, management is committed to basing its pricing on rational economic models. Management will continue to focus on generating growth in the most cost-effective manner.

1420

RESULTS OF OPERATIONS

Net Interest Income

Net interest income is the most significant component of the Corporation’s net ~~income, accounting for approximately 75% of total 2005 revenues, excluding investment securities gains.~~income. The ability to manage net interest income over ~~a variety of~~changing interest rate and economic environments is important to the success of a financial institution. Growth in net interest income is generally dependent upon balance sheet growth ~~and~~and/or maintaining or ~~growing~~increasing the net interest margin. The “Market Risk” section of Management’s Discussion provides additional information on the policies and procedures used by the Corporation to manage net interest income. The following table provides a comparative average balance sheet and net interest income analysis for ~~2005~~2006 compared to ~~2004~~2005 and ~~2003.~~2004. Interest income and yields are presented on a fully taxable-equivalent (FTE) basis, using a 35% Federal tax rate. The discussion following this table is based on these tax-equivalent amounts.


	Year Ended December 31																												Year Ended December 31
(dollars in thousands)	2005									2004									2003										2006									2005									2004
	Average						Yield/			Average						Yield/			Average						Yield/				Average						Yield/			Average						Yield/			Average						Yield/
	Balance			Interest			Rate (1)			Balance			Interest			Rate (1)			Balance			Interest			Rate (1)				Balance			Interest			Rate			Balance			Interest			Rate			Balance			Interest			Rate
ASSETS
Interest-earning assets:
Loans and leases ~~(2)~~(1)	$	7,981,604		$	520,595			6.52	%	$	6,857,386		$	398,190			5.82	%	$	5,564,806		$	343,883			6.18	%		$	9,892,082		$	731,057			7.39	%	$	7,981,604		$	520,565			6.52	%	$	6,857,386		$	398,190			5.82	%
Taxable inv. securities ~~(3)~~(2)		1,994,740			75,150			3.76			2,161,195			76,792			3.55			2,170,889			77,450			3.57				2,268,209			97,652			4.31			1,996,240			74,921			3.75			2,162,695			76,792			3.54
Tax-exempt inv. securities ~~(3)~~(2)		368,845			17,971			4.87			264,578			14,353			5.43			266,426			15,650			5.87				447,000			21,770			4.87			368,845			17,971			4.87			264,578			14,353			5.43
Equity securities ~~(3)~~(2)		132,564			5,333			4.02			133,870			4,974			3.72			129,584			5,051			3.90				154,653			7,341			4.75			133,586			5,562			4.16			134,892			4,974			3.92

Total investment securities		2,496,149			98,454			3.94			2,559,643			96,119			3.74			2,566,889			98,151			3.80				2,869,862			126,763			4.42			2,498,671			98,454			3.94			2,562,165			96,119			3.76
Loans held for sale		241,996			14,940			6.17			135,758			8,407			6.19			49,271			2,953			5.99				215,255			15,564			7.23			241,996			14,940			6.17			135,758			8,407			6.19
Other interest-earning assets		48,357			1,586			3.27			6,067			103			1.70			22,708			241			1.06				53,211			2,530			4.73			48,357			1,586			3.27			6,067			103			1.70

Total interest-earning assets		10,768,106			635,575			5.90			9,558,854			502,819			5.26			8,203,684			445,228			5.43				13,030,410			875,914			6.73			10,770,628			635,545			5.90			9,561,376			502,819			5.26
Non-interest-earning assets:
Noninterest-earning assets:
Cash and due from banks		346,535									316,170									279,980										335,935									346,535									316,170
Premises and equipment		158,526									128,902									123,172										185,084									158,526									128,902
Other assets ~~(3)~~(2)		598,709									425,825									271,758										852,186									598,709									425,825
Less: Allowance for loan losses		(92,780	)								(84,983	)								(75,309	)									(105,934	)								(92,780	)								(84,983	)

Total Assets	$	11,779,096								$	10,344,768								$	8,803,285									$	14,297,681								$	11,781,618								$	10,347,290


LIABILITIES AND SHAREHOLDERS’ EQUITY																												LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing liabilities:
Demand deposits	$	1,547,766		$	15,370			0.99	%	$	1,364,953		$	7,201			0.53	%	$	1,158,333		$	6,011			0.52	%		$	1,673,407		$	25,112			1.50	%	$	1,547,766		$	15,370			0.99	%	$	1,364,953		$	7,201			0.53	%
Savings deposits		2,055,503			27,116			1.32			1,846,503			11,928			0.65			1,655,325			10,770			0.65				2,340,402			51,394			2.19			2,055,503			27,116			1.32			1,846,503			11,928			0.65
Time deposits		3,171,901			98,288			3.10			2,693,414			70,650			2.62			2,496,234			77,417			3.10				4,134,190			170,435			4.12			3,171,901			98,288			3.10			2,693,414			70,650			2.62

Total interest-bearing deposits		6,775,170			140,774			2.08			5,904,870			89,779			1.52			5,309,892			94,198			1.77				8,147,999			246,941			3.03			6,775,170			140,774			2.08			5,904,870			89,779			1.52
Short-term borrowings		1,186,464			34,414			2.87			1,238,073			15,182			1.23			738,527			7,373			1.00				1,653,974			78,043			4.67			1,186,464			34,414			2.87			1,238,073			15,182			1.23
Long-term debt		837,305			38,031			4.54			637,654			31,033			4.87			566,437			29,523			5.21				1,069,868			53,960			5.04			839,827			38,031			4.53			640,176			31,033			4.85

Total interest-bearing liabilities		8,798,939			213,219			2.42			7,780,597			135,994			1.75			6,614,856			131,094			1.98				10,871,841			378,944			3.48			8,801,461			213,219			2.42			7,783,119			135,994			1.75
Non-interest-bearing liabilities:
Noninterest-bearing liabilities:
Demand deposits		1,589,265									1,380,264									1,195,479										1,807,248									1,589,265									1,380,264
Other		136,416									114,003									97,334										173,799									136,416									114,003

Total Liabilities		10,524,620									9,274,864									7,907,669										12,852,888									10,527,142									9,277,386
Shareholders’ equity		1,254,476									1,069,904									895,616										1,444,793									1,254,476									1,069,904

Total Liabs. and Equity	$	11,779,096								$	10,344,768								$	8,803,285									$	14,297,681								$	11,781,618								$	10,347,290

Net interest income/net interest margin (FTE)					422,356			3.93	%					366,825			3.83	%					314,134			3.82	%						496,970			3.82	%					422,326			3.93	%					366,825			3.83	%

Tax equivalent adjustment					(9,778	)								(9,176	)								(9,697	)									(11,407	)								(9,778	)								(9,176	)

Net interest income				$	412,578								$	357,649								$	304,437									$	485,563								$	412,548								$	357,649

The following table sets forth a summary of changes in FTE interest income and expense resulting from changes in average balances (volumes) and changes in rates:


	2005 vs. 2004									2004 vs. 2003									2006 vs. 2005								2005 vs. 2004
	Increase (decrease) due									Increase (decrease) due									Increase (decrease) due								Increase (decrease) due
	To change in									To change in									to change in								to change in
	Volume			Rate			Net			Volume			Rate			Net			Volume			Rate			Net		Volume			Rate			Net
	(in thousands)																		(in thousands)
Interest income on:
Loans and leases	$	70,346		$	52,059		$	122,405		$	77,526		$	(23,219	)	$	54,307		$	135,262		$	75,230		$	210,492	$	69,877		$	52,457		$	122,334
Taxable investment securities		(5,995	)		4,353			(1,642	)		(345	)		(313	)		(658	)		10,929			11,802			22,731		(6,194	)		4,638			(1,556	)
Tax-exempt investment securities		5,224			(1,606	)		3,618			(111	)		(1,186	)		(1,297	)		3,805			(6	)		3,799		5,192			(1,700	)		3,492
Equity securities		(49	)		408			359			164			(241	)		(77	)		942			837			1,779		(51	)		326			275
Loans held for sale		6,559			(26	)		6,533			5,353			101			5,454			(1,762	)		2,386			624		6,532			1			6,533
Short-term investments		1,310			173			1,483			(235	)		97			(138	)		173			771			944		1,305			178			1,483


Total interest-earning assets	$	77,395		$	55,361		$	132,756		$	82,352		$	(24,761	)	$	57,591		$	149,349		$	91,020		$	240,369	$	76,661		$	55,900		$	132,561


Interest expense on:
Demand deposits	$	1,076		$	7,093		$	8,169		$	1,088		$	102		$	1,190		$	1,335		$	8,407		$	9,742	$	1,076		$	7,093		$	8,169
Savings deposits		1,488			13,700			15,188			1,236			(78	)		1,158			4,229			20,049			24,278		1,488			13,700			15,188
Time deposits		13,677			13,961			27,638			5,796			(12,563	)		(6,767	)		34,536			37,611			72,147		13,676			13,962			27,638
Short-term borrowings		(648	)		19,880			19,232			5,839			1,970			7,809			16,848			26,781			43,629		(645	)		19,877			19,232
Long-term debt		9,346			(2,348	)		6,998			3,551			(2,041	)		1,510			11,254			4,675			15,929		9,152			(2,154	)		6,998


Total interest-bearing liabilities	$	24,939		$	52,286		$	77,225		$	17,510		$	(12,610	)	$	4,900		$	68,202		$	97,523		$	165,725	$	24,747		$	52,478		$	77,225

The average yield on loans during 2006 of 7.39% represented an 87 basis point, or 13.3%, increase in comparison to 2005. This increase reflected the impact of a significant portfolio of floating rate loans, which repriced as interest rates rose, as they did in 2006, and the addition of higher yielding new loans.

Average investments increased $371.2 million, or 14.9%, in comparison to 2005. Excluding the impact of acquisitions, the investment balances increased $86.0 million, or 3.5%. During the second half of 2006, the Corporation pre-purchased approximately $250.0 million of investment securities, based on expected cash inflows from maturities of investments over the subsequent six-month period. These were funded by a combination of short and longer-term borrowings, a portion of which have been repaid with maturities of investments, while the remaining portion will be repaid during 2007.

The average yield on investment securities improved 48 basis points to 4.42% in 2006 from 3.94% in 2005. The increase was due to the maturity of lower yielding investments, with reinvestment at higher rates. Also contributing to the increase was a reduction in premium amortization, which is accounted for as a reduction of interest income, from $6.9 million in 2005 to $4.8 million in 2006, due to both a reduction in premiums on purchases of mortgage-backed securities in 2006 and due to decreased prepayments on mortgage-backed securities as interest rates rose.

The increase in interest income (FTE) was offset by an increase in interest expense of $165.7 million, or 77.7%, to $378.9 million in 2006 from $213.2 million in 2005. The increase in interest expense was primarily due to a 106 basis point, or 43.8%, increase in the cost of total interest-bearing liabilities in 2006 in comparison to 2005. The remaining increase in interest expense was due to a $2.1 billion, or 23.5%, increase in total interest-bearing liabilities, partially due to acquisitions and partially due to internal growth.

The increase in interest expense was primarily due to the increase in interest rates, and partially due to the increase in interest-bearing deposits. The following table presents average deposits, by type:


					Increase
	2006		2005		$		%
	(dollars in thousands)
Noninterest-bearing demand	$	1,807,248	$	1,589,265	$	217,983		13.7	%
Interest-bearing demand		1,673,407		1,547,766		125,641		8.1
Savings/money market		2,340,402		2,055,503		284,899		13.9
Time deposits		4,134,190		3,171,901		962,289		30.3

Total	$	9,955,247	$	8,364,435	$	1,590,812		19.0	%

Acquisitions accounted for approximately $1.1 billion of the increase in average balances. The following table presents the average balance impact of acquisitions, by type:


	2006		2005		Increase
	(in thousands)
Noninterest-bearing demand	$	289,332	$	33,042	$	256,290
Interest-bearing demand		160,938		53,461		107,477
Savings/money market		277,736		76,251		201,485
Time deposits		628,881		74,907		553,974

Total	$	1,356,887	$	237,661	$	1,119,226

The following table presents the growth in average deposits, by type, excluding the contribution of acquisitions:


					Increase (decrease)
	2006		2005		$			%
	(dollars in thousands)
Noninterest-bearing demand	$	1,517,916	$	1,556,223	$	(38,307	)		(2.5	)%
Interest-bearing demand		1,512,469		1,494,305		18,164			1.2
Savings/money market		2,062,666		1,979,252		83,414			4.2
Time deposits		3,505,309		3,096,994		408,315			13.2

Total	$	8,598,360	$	8,126,774	$	471,586			5.8	%

Excluding the impact of acquisitions, the Corporation experienced significant growth in certificates of deposit as a result of the FRB’s rate increases over the past year, making them an attractive investment alternative for customers. The change in the composition of deposits contributed to the 95 basis point, or 45.7%, increase in the average cost of interest-bearing deposits in comparison to 2005.

Average borrowings increased $697.6 million, or 34.4%, during 2006. Excluding the impact of acquisitions, average short-term borrowings increased $242.9 million, or 20.5%, to $1.4 billion. The increase in short-term borrowings was mainly due to an increase in Federal funds purchased to fund loan growth, offset slightly by lower borrowings outstanding under customer repurchase agreements. Average long-term debt increased $230.0 million, or 27.4%, to $1.1 billion, with acquisitions contributing $29.3 million. The additional increase in long-term debt was primarily due to the issuance of $154.6 million of junior subordinated deferrable interest debentures in January 2006, the impact of $100.0 million of subordinated debt issued and outstanding since March 2005 and additional Federal Home Loan Bank (FHLB) advances.

2005 vs. 2004

Net interest income (FTE) increased $55.5 million, or 15.1%, from $367.0 million in 2004 to $422.3 million in 2005, due to both average balance sheet growth and a higher net interest margin for 2005 in comparison to 2004.

Average interest-earning assets grew 12.6%, from $9.6 billion in 2004 to $10.8 billion in 2005. Acquisitions contributed approximately $1.1 million to this increase. Interest income increased $132.7 million, or 26.4%, partially as a result of the increase in average earning assets, which contributed $76.7 million of the increase, with the remaining growth in interest income due to an increase in rates on interest-earning assets.

Average loans increased by $1.1 billion, or 16.4%, to $8.0 billion in 2005. Acquisitions contributed approximately $694.5 million to this increase in average balances. Loan growth was strong in the commercial and commercial mortgage categories, which together increased $284.6 million, or 7.0%, over 2004. Construction loans grew $40.0 million, or 14.5%, in comparison to 2004 mainly due ~~mainly~~ to increased

activity in the Pennsylvania and New Jersey markets. Residential mortgage and home equity loans showed strong growth of approximately $114.8 million due to promotional efforts and customers using home equity loans as a cost-effective refinance alternative.

The average yield on loans during 2005 ofwas 6.52% ~~represents~~, a 70 basis point, or 12.0%, increase ~~in comparison to~~from 2004. This increase reflects the impact of a significant portfolio of ~~floating~~adjustable rate loans, which repriced as interest rates increased throughout the year.

Average investments decreased $63.5 million, or 2.5%, in comparison to 2004. Excluding the impact of acquisitions, the investment balances would have decreased $390.7 million, or 15.8%. During 2004, proceeds from investment maturities were used to fund loan growth, however during 2005, the Corporation’s purchases of new investment securities exceeded proceeds from sales and maturities.

The average yield on investment securities improved 2018 basis points from ~~3.74%~~3.76% in 2004 to 3.94% in 2005. This improvement was due partially to premium amortization decreasing, which is accounted for as a reduction of interest income, from $10.5 million in 2004 to $6.9 million in 2005 as prepayments on mortgage-backed securities decreased. The remaining increase was due to the maturity of lower yielding investments, with reinvestment at higher rates.

~~The following table presents the growth in average deposits, by type:~~

Increase
2005 2004 $ %
(dollars in thousands)
Non-interest-bearing demand $ 1,589,265 $ 1,380,264 $ 209,001 15.1 %
Interest-bearing demand 1,547,766 1,364,953 182,813 13.4
Savings/money market 2,055,503 1,846,503 209,000 11.3
Time deposits 3,171,901 2,693,414 478,487 17.8

Total
$ 8,364,435 $ 7,285,134 $ 1,079,301 14.8 %

~~Acquisitions accounted for approximately $956.0 million of the increase in average balances. The following table presents the average balance impact of acquisitions, by type:~~

2005 2004 Increase
(in thousands)
Non-interest-bearing demand $ 153,483 $ 29,985 $ 123,498
Interest-bearing demand 147,493 46,077 101,416
Savings/money market 285,104 34,282 250,822
Time deposits 795,538 315,256 480,282

Total
$ 1,381,618 $ 425,600 $ 956,018

~~The following table presents the growth in average deposits, by type, excluding the contribution of acquisitions:~~

Increase (decrease)
2005 2004 $ %
(dollars in thousands)
Non-interest-bearing demand $ 1,435,782 $ 1,350,279 $ 85,503 6.3 %
Interest-bearing demand 1,400,273 1,318,876 81,397 6.2
Savings/money market 1,770,399 1,812,221 (41,822 ) (2.3 )
Time deposits 2,376,363 2,378,158 (1,795 ) (0.1 )

Total
$ 6,982,817 $ 6,859,534 $ 123,283 1.8 %

The remaining increase in interest expense was due to a $1.0 billion, or 13.1%, increase in total interest-bearing liabilities, ~~partially due to~~resulting from both acquisitions and ~~partially due to~~ internal growth.

Average borrowings increased slightly during 2005, with the $51.6 million decrease in average short-term borrowings more than offset by a $199.7 million increase in long-term debt. Excluding the impact of acquisitions, average short-term borrowings decreased $147.4 million, or 13.4%, mainly due to a decrease in Federal funds purchased. In addition, customer cash management accounts, which are included in short-term borrowings, decreased $20.6 million, or 5.1%, to an average of $385.7 million in 2005. Average long-term debt increased $199.7 million, or ~~31.3%~~31.2%, to ~~$837.3~~$839.8 million, with acquisitions contributing $51.7 million to the long-term debt increase. The additional increase in long-term borrowings was due to the Corporation’s issuance of $100.0 million ten-year subordinated notes in March 2005 and an increase in ~~Federal Home Loan Bank~~FHLB advances as longer-term rates were locked in anticipation of continued rate increases.

~~2004 vs. 2003~~

Net interest income (FTE) increased $52.7 million, or 16.8%, from $314.1 million in 2003 to $366.8 million in 2004, primarily as a result of earning asset growth, as the Corporation’s net interest margin of 3.83% was only one basis point higher than the 2003 net interest margin of 3.82%.

Average earning assets grew 16.5%, from $8.2 billion in 2003 to $9.6 billion in 2004. Acquisitions contributed approximately $900.0 million to this increase in average balances. Interest income increased $57.6 million, or 12.9%, mainly as a result of the 16.5% increase in average earning assets, which resulted in an $82.4 million increase in interest income. This increase was partially offset by the $24.8 million decrease in interest income that resulted from the decline in average yields earned.

Average loans increased by $1.3 billion, or 23.2%, to $6.9 billion in 2004. Acquisitions contributed approximately $675.6 million to this increase in average balances. Loan growth was strong in the commercial and commercial mortgage categories. The growth experienced in the commercial — agricultural category resulted from an agricultural loan portfolio purchased in December 2003. The reduction in mortgage loan balances was due to customer refinance activity that occurred during 2003. The Corporation generally sells newly originated fixed rate mortgages in the secondary market to promote liquidity and manage interest rate risk. Home equity loans increased significantly due to promotional efforts and customers using home equity loans as a cost-effective refinance alternative. Consumer loans decreased, reflecting customers’ repayment of these loans with tax-advantaged residential mortgage or home equity loans. In addition, the indirect finance market remained extremely competitive with the participation of vehicle manufacturers.

The average yield on loans during 2004 was 5.82%, a 36 basis point, or 5.8%, decline from 2003. Much of the loan growth during the year was in the floating rate categories that tend to carry lower interest rates than fixed-rate products.

Average investments decreased slightly during 2004, however, without the impact of acquisitions, the investment balances would have decreased $165.9 million, or 6.6%. The Corporation’s investment balances had increased over the last few years due to both significant deposit growth and the use of limited strategies to manage the Corporation’s gap position and to take advantage of low short-term borrowing rates. During 2004, the Corporation did not reinvest a significant portion of investment maturities in order to minimize interest rate risk in expectation of a rising rate environment and to help fund loan growth.

The average yield on investment securities declined slightly from 3.80% in 2003 to 3.74% in 2004. Premium amortization, which is accounted for as a reduction of interest income, was $20.0 million in 2003 compared to $10.5 million in 2004. The benefit from the lower premium amortization was offset by the reduction in stated yields experienced throughout 2004.

Interest expense increased $4.9 million, or 3.7%, to $136.0 million in 2004 from $131.1 million in 2003, mainly as a result of a $1.2 billion increase in average interest-bearing liabilities, which included approximately $800 million added by acquisitions. The increase in average interest-bearing liabilities resulted in an increase in interest expense of $17.5 million during 2004. This increase was partially offset by a $12.6 million

decrease due to the 23 basis point decrease in the cost of total interest-bearing liabilities. The cost of interest-bearing deposits declined 25 basis points, or 14.1%, from 1.77% in 2003 to 1.52% in 2004. This reduction was due to both the impact of declining short-term interest rates in the first half of 2003 and the continuing shifts in the composition of deposits from higher-rate time deposits to lower-rate demand and savings deposits. Customers continued to exhibit an unwillingness to invest in certificates of deposit at the rates available, instead keeping their funds in demand and savings products. Acquisitions accounted for approximately $595.4 million of the increase in average deposit balances.

Average borrowings increased significantly during 2004, with average short-term borrowings increasing $499.5 million, or 67.6%, to $1.2 billion, and average long-term debt increasing $71.2 million, or 12.6%, to $637.7 million. Acquisitions added $174.6 million to the short-term borrowings increase and $83.6 million to the long-term debt increase. The additional increase in short-term borrowings resulted primarily from certain limited strategies employed during 2003 to manage the Corporation’s gap position and to take advantage of low short-term borrowing rates. In addition, customer cash management accounts, which are included in short-term borrowings, grew $54.9 million, or 15.6%, to an average of $406.2 million in 2004.

Provision and Allowance for Loan Losses

The Corporation accounts for the credit risk associated with lending activities through its allowance and provision for loan losses. The provision is the expense recognized in the income statement to adjust the allowance to its proper balance, as determined through the application of the Corporation’s allowance methodology procedures. These procedures include the evaluation of the risk characteristics of the portfolio and documentation in accordance with the Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin No. 102, “Selected Loan Loss Allowance Methodology and Documentation Issues” (SAB 102). See the “Critical Accounting Policies” section of Management’s Discussion for a discussion of the Corporation’s allowance for loan loss evaluation methodology.

2026

A summary of the Corporation’s loan loss experience follows:


	Year Ended December 31															Year Ended December 31
	2005			2004			2003			2002			2001			2006			2005			2004			2003			2002
	(dollars in thousands)															(dollars in thousands)
Loans outstanding at end of year	$	8,424,728		$	7,533,915		$	6,140,200		$	5,295,459		$	5,373,020		$	10,374,323		$	8,424,728		$	7,533,915		$	6,140,200		$	5,295,459

Daily average balance of loans and leases	$	8,022,782		$	6,884,694		$	5,527,092		$	5,366,772		$	5,341,497		$	9,892,082		$	7,981,604		$	6,857,386		$	5,564,806		$	5,381,950

Balance of allowance for loan losses at beginning of year	$	89,627		$	77,700		$	71,920		$	71,872		$	65,640		$	92,847		$	89,627		$	77,700		$	71,920		$	71,872
Loans charged-off:
Commercial, financial and agricultural		4,095			3,482			6,604			7,203			6,296
Loans charged off:
Commercial – financial and agricultural																	3,013			4,095			3,482			6,604			7,203
Real estate – mortgage		467			1,466			1,476			2,204			767			429			467			1,466			1,476			2,204
Consumer		3,436			3,476			4,497			5,587			6,683			3,138			3,436			3,476			4,497			5,587
Leasing and other		206			453			651			676			529			389			206			453			651			676

Total loans charged-off		8,204			8,877			13,228			15,670			14,275
Total loans charged off																	6,969			8,204			8,877			13,228			15,670

Recoveries of loans previously charged-off:
Commercial, financial and agricultural		2,705			2,042			1,210			842			703
Recoveries of loans previously charged off:
Commercial – financial and agricultural																	2,863			2,705			2,042			1,210			842
Real estate – mortgage		1,245			906			711			669			364			268			1,245			906			711			669
Consumer		1,169			1,496			1,811			2,251			2,683			1,289			1,169			1,496			1,811			2,251
Leasing and other		77			76			97			56			87			97			77			76			97			56

Total recoveries		5,196			4,520			3,829			3,818			3,837			4,517			5,196			4,520			3,829			3,818

Net loans charged-off		3,008			4,357			9,399			11,852			10,438	��
Net loans charged off																	2,452			3,008			4,357			9,399			11,852
Provision for loan losses		3,120			4,717			9,705			11,900			14,585			3,498			3,120			4,717			9,705			11,900
Allowance purchased		3,108			11,567			5,474			—			2,085			12,991			3,108			11,567			5,474			—

Balance at end of year	$	92,847		$	89,627		$	77,700		$	71,920		$	71,872		$	106,884		$	92,847		$	89,627		$	77,700		$	71,920


Selected Asset Quality Ratios:
Net charge-offs to average loans		0.04	%		0.06	%		0.17	%		0.22	%		0.20	%		0.02	%		0.04	%		0.06	%		0.17	%		0.22	%
Allowance for loan losses to loans outstanding at end of year		1.10	%		1.19	%		1.27	%		1.36	%		1.34	%		1.03	%		1.10	%		1.19	%		1.27	%		1.36	%
Non-performing assets (1) to total assets		0.38	%		0.30	%		0.33	%		0.47	%		0.44	%		0.39	%		0.38	%		0.30	%		0.33	%		0.47	%
Non-accrual loans to total loans		0.43	%		0.30	%		0.37	%		0.45	%		0.42	%		0.32	%		0.43	%		0.30	%		0.37	%		0.45	%

The provision for loan losses ~~decreased $1.6 million~~increased $378,000 from ~~$4.7 million in 2004 to~~ $3.1 million in 2005 to $3.5 million in 2006, after decreasing ~~$5.0~~$1.6 million in ~~2004. These decreases resulted from the continued improvement in the Corporation’s asset quality, as reflected in lower net charge-offs.~~2005. Net charge-offs as a percentage of average loans were ~~0.04%~~0.02% in ~~2005,~~2006, a two basis point decrease from ~~0.06%~~0.04% in ~~2004,~~2005, which was ~~an 11~~a two basis point decrease from ~~2003.~~2004. Total net charge-offs ofwere $2.5 million in 2006 and $3.0 million in ~~2005 and $4.4 million in 2004 approximated the amounts recorded for the provision for loan losses in those years.~~2005. Non-performing assets as a percentage of total assets increased slightly from ~~0.30% at December 31, 2004 to~~ 0.38% at December 31, 2005 to 0.39% at December 31, 2006, after ~~decreasing three~~increasing nine basis points in ~~2004.~~2005. While the non-performing assets ratio increased ~~eight basis points~~slightly in comparison to ~~2004,~~2005, the level of non-performing assets was still relatively low in absolute terms. The 2006 increase was due primarily to the impact of a $10.0 million loan, which the Corporation placed on non-accrual in October 2006. This loan was for a community reinvestment act project that had

Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies”. The allocation is based on risk factors, collateral levels, economic conditions and other relevant factors, as appropriate. The Corporation also maintains an unallocated allowance, which was approximately ~~16%~~10% at December 31, ~~2005.~~2006. The unallocated allowance is used to cover any factors or conditions that might exist at the balance sheet date, but are not specifically identifiable. Management believes such an unallocated allowance is reasonable and appropriate as the estimates used in the allocation process are inherently imprecise. See additional disclosures in Note A, “Summary of Significant Accounting Policies”, in the Notes to Consolidated Financial Statements and “Critical Accounting Policies”, in Management’s Discussion. Management believes that the allowance balance of ~~$92.8~~$106.9 million at December 31, ~~2005~~2006 is sufficient to cover losses inherent in the loan portfolio on that date and is appropriate based on applicable accounting standards.

Other Income and Expenses

~~2005~~2006 vs. ~~2004~~2005

Other Income

The following table presents the components of other income for the past two years:


					Increase (decrease)										Increase (decrease)
	2005		2004		$			%			2006		2005		$			%
	(dollars in thousands)										(dollars in thousands)
Investment management and trust services	$	35,669	$	34,817	$	852			2.4	%	$	37,441	$	35,669	$	1,772			5.0	%
Service charges on deposit accounts		40,198		39,451		747			1.9			43,773		40,198		3,575			8.9
Other service charges and fees		24,200		20,494		3,706			18.1			26,792		24,229		2,563			10.6
Gain on sale of loans		25,468		19,262		6,206			32.2
Gains on sales of loans												21,086		25,032		(3,946	)		(15.8	)
Gain on sale of deposits		2,200		—		2,200			N/A			—		2,200		(2,200	)		N/A
Other												13,344		10,345		2,999			29.0

Total, excluding investment securities gains												142,436		137,673		4,763			3.5
Investment securities gains		6,625		17,712		(11,087	)		(62.6	)		7,439		6,625		814			12.3
Other		9,908		7,128		2,780			39.0

Total	$	144,268	$	138,864	$	5,404			3.9	%	$	149,875	$	144,298	$	5,577			3.9	%

The following table presents the components of other expenses for each of the past two years, excluding the amounts contributed by acquisitions:


					Increase (decrease)
	2006		2005		$			%
	(dollars in thousands)
Salaries and employee benefits	$	186,270	$	178,406	$	7,864			4.4	%
Net occupancy expense		30,331		28,246		2,085			7.4
Equipment expense		12,130		11,610		520			4.5
Data processing		10,668		12,018		(1,350	)		(11.2	)
Advertising		9,163		8,650		513			5.9
Telecommunications		6,959		6,926		33			0.5
Intangible amortization		4,424		4,600		(176	)		(3.8	)
Supplies		5,673		5,604		69			1.2
Postage		4,669		4,668		1			—
Professional fees		4,654		5,311		(657	)		(12.4	)
Other		41,321		43,218		(1,897	)		(4.4	)

Total	$	316,262	$	309,257	$	7,005			2.3	%

The discussion that follows addresses changes in other expenses, excluding acquisitions.

Salaries and employee benefits increased $7.9 million, or 4.4%, in 2006, with the salary expense component increasing $6.8 million, or 4.7%. The increase was driven primarily by normal salary increases for existing employees and, to a lesser extent, due to an increase in the number of full-time employees. Also contributing to the increase in salaries was a $646,000 increase in stock-based compensation expense and $1.3 million of bonuses accrued under a new corporate management incentive compensation plan, offset by a $630,000 decrease in bonuses accrued under pre-existing incentive compensation plans. Employee benefits increased $1.0 million, or 3.0%, due primarily to increased healthcare costs of $1.4 million, or 9.2%. Also contributing to the increase was a $626,000, or 8.0%, increase in profit sharing expenses. These increases were offset by decreased costs related to the Corporation’s defined benefit pension plan of $1.3 million, or 36.1%, as a result of a $10.7 million contribution to the plan in 2005.

Net occupancy expense increased $2.1 million, or 7.4%, due to the expansion of the branch network, higher maintenance and utility costs, increased rent expense and depreciation of real property. Equipment expense increased $520,000, or 4.5%, in 2006, due to increased depreciation expense for equipment, higher rent expense related to office equipment and additions from the expansion of the branch network. A total of 12 and 8 new branch offices were opened in 2006 and 2005, respectively.

Data processing expense decreased $1.4 million, or 11.2%, due to savings realized from the consolidation of back office systems of two of the Corporation’s recently acquired affiliate banks. Advertising expense increased $513,000, or 5.9%, primarily related to increased discretionary promotional campaigns during 2006. Professional fees decreased $657,000, or 12.4%, primarily related to legal fee recoveries in 2006 related to recoveries of non-accrual loans.

Other expense decreased $1.9 million, or 4.4%, in 2006 mainly due to a decrease of $1.0 million in losses recorded in connection with the settlement of a previously disclosed lawsuit. In addition, in 2005, the Corporation recorded a $600,000 expense for a loss incurred in an affiliate bank’s mortgage operations. Finally, the Corporation realized certain state tax recoveries in 2006.

2005 vs. 2004

Other Income

In 2005, total other income ~~decreased $5.1~~increased $5.4 million, or ~~4.1%.~~3.9%, including $10.5 million contributed by the acquisitions of SVB, First Washington and Resource. Excluding acquisitions and investment securities gains, other income increased $5.7 million, or 5.4%. The discussion that follows, unless noted, addresses changes in other income, excluding acquisitions.

Investment management and trust services decreased slightly by $104,000, or 0.3%. The 2005 decrease was due to brokerage revenue decreasing $242,000, or 2.0%, offset by trust commission income increasing $138,000, or 0.6%.

Total service charges on deposit accounts decreased $477,000, or 1.2%. The decrease was due to the Corporation reducing service charges on deposit accounts in an effort to remain competitive and the impact of rising interest rates on commercial deposit account service charge credits. This decrease was offset by increases in overdraft and cash management fees. Overdraft fees increased $778,000, or 4.7%, and cash management fees increased $229,000, or 3.0%. During 2005, the rising interest rate environment began to make cash management services more attractive for business customers.

Other service charges and fees increased $3.0 million, or 14.6%. The increase was driven by growth in letter of credit fees ($553,000, or 15.6%, increase), merchant fees ($2.2 million, or 44.4%, increase) and debit card fees ($712,000, or 12.6%, increase). The growth in merchant fees ~~resulted from a one-time fee adjustment and~~was primarily due to continued penetration in new markets. Debit card fees increased due to increased volume.

Gains on sales of loans decreased only $108,000, or 1.3%, as overall volumes remained strong despite a slight increase in longer-term mortgage rates. Other income increased $1.2 million, or 26.8%, due to growth in net servicing income on mortgage loans and gains on sales of other real estate owned.

The gain on sale of deposits resulted from the Corporation selling three branches and related deposits in two separate transactions during the second quarter of 2005. Virtually the entire $2.2 million gain resulted from the premiums received on the $36.7 million of deposits sold.

Including the impact of acquisitions, investment securities gains decreased $11.1 million, or 62.6%, in 2005. Investment securities gains included realized gains on the sale of equity securities of $5.8 million in 2005, down from $14.8 million in 2004, reflecting the general decline in the equity markets and bank stocks in particular, and $843,000 and $3.1 million in 2005 and 2004, respectively, on the sale of debt securities, which were generally sold to take advantage of the interest rate environment.

Other Expenses

~~The following table presents the components of~~Total other expenses ~~for each of the past two years:~~

Increase
2005 2004 $ %
(dollars in thousands)
Salaries and employee benefits $ 181,889 $ 166,026 $ 15,863 9.6 %
Net occupancy expense 29,275 23,813 5,462 22.9
Equipment expense 11,938 10,769 1,169 10.9
Data processing 12,395 11,430 965 8.4
Advertising 8,823 6,943 1,880 27.1
Intangible amortization 5,311 4,726 585 12.4
Other 66,660 53,808 12,852 23.9

Total
$ 316,291 $ 277,515 $ 38,776 14.0 %

~~The following table presents the amounts included~~increased $38.8 million, or 14.0%, in ~~the above totals which were contributed by acquisitions:~~

2005 2004 Increase
(in thousands)
Salaries and employee benefits $ 28,215 $ 13,371 $ 14,844
Net occupancy expense 5,620 1,986 3,634
Equipment expense 2,662 1,097 1,565
Data processing 2,005 716 1,289
Advertising 1,357 633 724
Intangible amortization 1,751 381 1,370
Other 15,964 5,331 10,633

Total
$ 57,574 $ 23,515 $ 34,059

~~The following table presents the components of other expenses for each of the past two years, excluding the amounts contributed by acquisitions:~~

Increase (decrease)
2005 2004 $ %
(dollars in thousands)
Salaries and employee benefits $ 153,674 $ 152,655 $ 1,019 0.7 %
Net occupancy expense 23,655 21,827 1,828 8.4
Equipment expense 9,276 9,672 (396 ) (4.1 )
Data processing 10,390 10,714 (324 ) (3.0 )
Advertising 7,466 6,310 1,156 18.3
Intangible amortization 3,560 4,345 (785 ) (18.1 )
Other 50,696 48,477 2,219 4.6

Total
$ 258,717 $ 254,000 $ 4,717 1.9 %

2005, including $34.1 million due to acquisitions. The discussion that follows addresses changes in other expenses, excluding acquisitions.

Salaries and employee benefits increased $1.0 million, or 0.7%, in 2005, with the salary expense component increasing $856,000, or 0.7%. The increase was driven by normal salary increases for existing employees and a slight increase in the number of full-time employees, offset by a
decrease in stock-based compensation expense from $3.9 million in 2004 to $1.0 million in 2005. The decrease in stock-based compensation expense was primarily due to a change in vesting for stock options from 100% vesting for the 2004 grant to a three-year vesting period for the 2005 grant. ~~See additional discussion in Note M, “Stock-Based Compensation Plans and Shareholders’ Equity”, in the Notes to Consolidated Financial Statements.~~ Employee benefits increased $163,000, or 0.6%, due primarily to increased retirement plan expenses, offset by lower

healthcare expenses as the Corporation changed to a lower cost healthcare provider in 2005. ~~See additional discussion of certain retirement plans in Note L, “Employee Benefit Plans”, in the Notes to Consolidated Financial Statements.~~

Net occupancy expense increased $1.8 million, or 8.4%. The increase resulted from the expansion of the branch network and the addition of new office space for certain affiliates. Equipment expense decreased $396,000, or 4.1%, in 2005, due to lower depreciation expense for equipment as items became fully depreciated, offset partially by increases due to additions for branch network and office expansions.

Data processing expense decreased $324,000, or 3.0%, reflecting the Corporation’s success over the past few years in renegotiating key processing contracts with certain vendors, most notably an automated teller service provider, in 2005. Advertising expense increased $1.2 million, or 18.3%, mainly due to growth in retail promotional campaigns.

Intangible amortization decreased $785,000, or 18.1%. Intangible amortization consists of the amortization of unidentifiable intangible assets related to branch and loan acquisitions, core deposit intangible assets and other identified intangible assets. The decrease in 2005 was related to lower amortization related to core deposit intangible assets, which are amortized on an accelerated basis over the estimated life of the acquired core deposits.

Other expense increased $2.2 million, or 4.6%, in 2005 mainly due to a $2.2 million legal reserve recorded during the fourth quarter of 2005 related to athe settlement of a lawsuit, which ~~is subject to court approval. The suit~~ alleged that Resource Bank violated the Telephone Consumer Protection Act (TCPA), prior to being acquired by Fulton Financial in April 2004. ~~For further details, see Note O, “Commitments and Contingencies”, in the Notes to Consolidated Financial Statements.~~

~~2004 vs. 2003~~

~~Other Income~~

Total other income increased $4.5 million, or 3.3%, from $134.4 million in 2003 to $138.9 million in 2004. Excluding investment securities gains, other income increased $6.6 million, or 5.8%, in 2004. The acquisition of Resource contributed $14.4 million to total other income in 2004. Premier did not have a significant impact on other income growth in 2004. The discussion that follows, unless otherwise noted, addresses changes in other income, excluding acquisitions.

~~Investment management and trust services income grew $68,000, or 0.2%, in 2004. Brokerage revenue increased $484,000, or 4.1%, while trust commission income decreased $416,000, or 1.9%.~~

Total service charges on deposit accounts increased $566,000, or 1.5%, in 2004. Overdraft fees increased $979,000, or 6.4%, and cash management fees increased only $39,000, or 0.5%, due to the low interest rate environment making cash management services less attractive for smaller business customers.

Other service charges and fees increased $1.4 million, or 7.2%, in 2004. The increase was driven by growth in letter of credit fees, merchant fees and debit card fees. Letter of credit fees increased $104,000, or 3.1%, and merchant fees increased $370,000, or 8.2%, all as a result of an increased focus on growing these business lines. Debit card fees increased $494,000, or 9.7%, due to an increase in transaction volume.

Gains on sales of loans decreased $10.8 million, or 57.0%. The decrease was due to the increase in interest rates from their historic lows and the resulting reduction in the level of mortgage refinancing activity. Other income increased $254,000, or 6.0%, in 2004.

Including the impact of acquisitions, investment securities gains decreased $2.1 million, or 10.8%. Investment securities gains included realized gains on the sale of equity securities of $14.8 million, reflecting the general improvement in the equity markets and bank stocks in particular, and $3.1 million on the sale of debt securities, which were generally sold to take advantage of the interest rate environment. These gains were offset by write-downs of $137,000 in 2004 for specific equity securities deemed to exhibit other than temporary impairment in value.

~~Other Expenses~~

~~Total other expenses increased $43.9 million, or 18.8%, in 2004, including $30.0 million due to acquisitions. The discussion that follows addresses changes in other expenses, excluding acquisitions.~~

Salaries and employee benefits increased $11.5 million, or 8.5%. The salary expense component increased $6.4 million, or 5.7%, driven by normal salary increases for existing employees, as total average full-time equivalent employees remained relatively consistent at approximately 2,900. Employee benefits increased $5.1 million, or 21.7%, driven mainly by increases in healthcare costs and retirement plan expenses.

Net occupancy expense increased $1.4 million, or 7.0%, to $20.9 million. The increase resulted from the expansion of the branch network and the addition of new office space for certain affiliates. Equipment expense decreased $1.0 million, or 9.9%, mainly in depreciation, as certain equipment became fully depreciated.

Data processing expense decreased $651,000, or 5.8%, due to the successful renegotiation of key processing contracts with certain vendors. Advertising expense decreased $76,000, or 1.3%, due to efforts to control these discretionary expenses.

Intangible amortization increased $1.7 million, or 116.4%. The increase in 2004 primarily resulted from the amortization of intangible assets related to the acquisition of an agriculture loan portfolio in December 2003.

Other expense increased $916,000, or 2.1%, as a result of compliance costs associated with the provisions of the Sarbanes-Oxley Act of 2002. These costs were realized in external audit fees, which increased from $363,000 in 2003 to $1.6 million in 2004, as well as an additional $400,000 in consulting expense during 2004. These cost increases were offset by reductions in operating risk loss, other real estate expenses and legal fees.

Income Taxes

Income taxes increased $9.1 million, or 12.7%, in 2006 and $6.7 million, or 10.3%, in ~~2005 and $5.6 million, or 9.5%, in 2004.~~2005. The Corporation’s effective tax rate (income taxes divided by income before income taxes) remained fairly stable at ~~30.1%~~30.2%, ~~30.2%~~30.1% and 30.2% in 2006, 2005 ~~2004~~ and ~~2003,~~2004, respectively. In general, the variances from the 35% Federal statutory rate consisted of tax-exempt interest income and investments in low and moderate income housing partnerships (LIH Investments), which generate Federal tax credits. Net credits associated with LIH investments were $3.9 million, $4.9 million and $4.5 million in 2006, 2005 and ~~$4.0 million in 2005,~~ 2004, ~~and 2003,~~ respectively.

For additional information regarding income taxes, see Note K, “Income Taxes”, in the Notes to Consolidated Financial Statements.

2734

FINANCIAL CONDITION

Total assets increased ~~$1.2~~$2.5 billion, or ~~11.1%~~20.3%, to $14.9 billion at December 31, 2006, from $12.4 billion at December 31, ~~2005, from $11.2 billion at December 31, 2004.~~2005. Excluding the ~~SVB~~Columbia acquisition in ~~July 2005,~~February 2006, total assets increased ~~$650.5~~$969.0 million, or ~~5.8%~~7.8%. Total loans, net of the allowance for loan losses, increased $1.9 billion, or 23.2% ($882.9 million, or 10.6%, excluding the acquisition of Columbia). During ~~2005,~~2006, increases in deposits and proceeds from short and long-term borrowings were used to fund loan ~~growth.~~growth, and to a lessor extent, investment security purchases. Total ~~loans, net of the allowance for loan losses,~~deposits increased ~~$887.6~~$1.4 billion, or 16.2%, to $10.2 billion at December 31, 2006 ($458.7 million, or ~~11.9% ($585.9 million, or 7.9%~~5.2%, excluding the acquisition of ~~SVB). Total deposits~~Columbia), and total borrowings increased ~~$909.3~~$825.7 million, or ~~11.5%, to $8.8 billion at December 31, 2005~~38.2% ($~~435.8~~561.5 million, or ~~5.5%~~26.0%, excluding the acquisition of ~~SVB), and total borrowings increased $280.5 million, or 14.9% ($255.8 million, or 13.6%, excluding the acquisition of SVB)~~Columbia).

The table below presents a condensed ending balance sheet for the Corporation, adjusted for the balances recorded for the ~~2005~~2006 acquisition of ~~SVB,~~Columbia, in comparison to ~~2004~~2005 ending balances.


		2005						2004		Increase (decrease) (3)							2006						2005		Increase (decrease) (3)
		Fulton				Fulton											Fulton				Fulton
		Financial		SVB Financial		Financial		Fulton									Financial		Columbia		Financial		Fulton
		Corporation		Services, Inc.		Corporation		Financial									Corporation		Bancorp		Corporation		Financial
		(As Reported)		(1)		(2)		Corporation		$			%				(As Reported)		(1)		(2)		Corporation		$			%
		(dollars in thousands)															(dollars in thousands)
Assets:

Cash and due from banks		$	368,043	$	20,035	$	348,008	$	278,065	$	69,943			25.2	%		$	355,018	$	46,407	$	308,611	$	368,043	$	(59,432	)		(16.1	)%
Other earning assets			275,310		61,046		214,264		246,192		(31,928	)		(13.0	)			267,230		16,854		250,376		275,310		(24,934	)		(9.1	)
Investment securities			2,562,145		124,916		2,437,229		2,449,859		(12,630	)		(0.5	)			2,878,238		186,034		2,692,204		2,562,145		130,059			5.1
Loans, net allowance			8,331,881		301,660		8,030,221		7,444,288		585,933			7.9				10,267,439		1,052,684		9,214,755		8,331,881		882,874			10.6
Premises and equipment			170,254		9,345		160,909		146,911		13,998			9.5				191,401		7,775		183,626		170,254		13,372			7.9
Goodwill and intangible assets			448,422		63,273		385,149		389,322		(4,173	)		(1.1	)			663,775		218,060		445,715		448,422		(2,707	)		(0.6	)
Other assets			245,500		10,608		234,892		205,511		29,381			14.3				295,863		20,586		275,277		245,500		29,777			12.1


Total Assets		$	12,401,555	$	590,883	$	11,810,672	$	11,160,148	$	650,524			5.8	%		$	14,918,964	$	1,548,400	$	13,370,564	$	12,401,555	$	969,009			7.8	%


Liabilities and Shareholders’ Equity:	Liabilities and Shareholders’ Equity:															Liabilities and Shareholders’ Equity:

Deposits		$	8,804,839	$	473,490	$	8,331,349	$	7,895,524	$	435,825			5.5	%		$	10,232,469	$	968,936	$	9,263,533	$	8,804,839	$	458,694			5.2	%
Short-term borrowings			1,298,962		—		1,298,962		1,194,524		104,438			8.7				1,680,840		184,083		1,496,757		1,298,962		197,795			15.2
Long-term debt			860,345		24,710		835,635		684,236		151,399			22.1				1,304,148		80,136		1,224,012		860,345		363,667			42.3
Other liabilities			154,438		2,290		152,148		141,777		10,371			7.3				185,197		9,495		175,702		154,438		21,264			13.8


Total Liabilities			11,118,584		500,490		10,618,094		9,916,061	$	702,033			7.1				13,402,654		1,242,650		12,160,004		11,118,584	$	1,041,420			9.4


Shareholders’ equity			1,282,971		90,393		1,192,578		1,244,087		(51,509	)		(4.1	)			1,516,310		305,750		1,210,560		1,282,971		(72,411	)		(5.6	)


Total Liabilities and Shareholders’ Equity		$	12,401,555	$	590,883	$	11,810,672	$	11,160,148	$	650,524			5.8	%		$	14,918,964	$	1,548,400	$	13,370,564	$	12,401,555	$	969,009			7.8	%

Loans

The following table presents loans outstanding, by type, as of the dates shown:


	December 31															December 31
	2005			2004			2003			2002			2001			2006			2005			2004			2003			2002
	(in thousands)															(in thousands)
Commercial – industrial and financial	$	2,044,010		$	1,946,962		$	1,594,451		$	1,489,990		$	1,341,280		$	2,603,224		$	2,044,010		$	1,946,962		$	1,594,451		$	1,489,990
Commercial – agricultural		331,659			326,176			354,517			189,110			154,100			361,962			331,659			326,176			354,517			189,110
Real-estate – commercial mortgage		2,831,405			2,461,016			1,992,650			1,527,143			1,428,066			3,213,809			2,831,405			2,461,016			1,992,650			1,527,143
Real-estate – residential mortgage and home equity		1,774,260			1,651,321			1,324,612			1,244,783			1,468,799			2,152,275			1,773,256			1,650,139			1,322,977			1,239,603
Real-estate – construction		851,451			595,567			307,108			248,565			267,627			1,428,809			851,451			595,567			307,108			248,565
Consumer		519,094			486,877			496,793			521,431			626,985			523,066			520,098			488,059			498,428			526,611
Leasing and other		79,738			72,795			77,646			84,063			98,823			100,711			79,738			72,795			77,646			84,063

		8,431,617			7,540,714			6,147,777			5,305,085			5,385,680			10,383,856			8,431,617			7,540,714			6,147,777			5,305,085
Unearned income		(6,889	)		(6,799	)		(7,577	)		(9,626	)		(12,660	)		(9,533	)		(6,889	)		(6,799	)		(7,577	)		(9,626	)

Totals	$	8,424,728		$	7,533,915		$	6,140,200		$	5,295,459		$	5,373,020
Total																$	10,374,323		$	8,424,728		$	7,533,915		$	6,140,200		$	5,295,459

Total investment securities increased $316.1 million, or 12.3% ($202.3 million, or 7.9%, excluding the acquisition of Columbia), to a balance of $2.9 billion at December 31, 2006.

The Corporation classified ~~99.3%~~99.6% of its investment portfolio as available for sale at December 31, ~~2005~~2006 and, as such, these investments were recorded at their estimated fair values. ~~As short-term interest rates increased throughout the year, the~~The net unrealized loss on non-equity available for sale investment securities ~~increased $38.8~~decreased $18.9 million ~~from~~to a net unrealized loss of ~~$21.1~~$41.0 million at December 31, ~~2004 to~~2006 from a net unrealized loss of $59.9 million at December 31, ~~2005.~~2005, generally due to changes in interest rates.

At December 31, ~~2005,~~2006, equity securities consisted of ~~Federal Home Loan Bank (FHLB)~~FHLB and other government agency stock ($~~57.3~~72.3 million), stocks of other financial institutions ($~~71.0~~79.8 million) and mutual funds ($~~7.2~~13.5 million). The ~~bank~~financial institutions stock portfolio has historically been a source of capital appreciation and realized gains ($~~5.8~~7.0 million in 2006, $5.8 million in 2005 and $14.8 million in ~~2004 and $17.3 million in 2003)~~2004). Management periodically sells bank stocks when, in its opinion, valuations and market conditions warrant such sales.

Other Assets

Cash and due from banks ~~increased $90.0~~decreased $13.0 million, or ~~32.4%~~3.5% ($~~69.9~~59.4 million, or ~~25.2%~~16.1%, excluding the acquisition of ~~SVB), in 2005, following a $22.9 million, or 7.6%, decrease in 2004.~~Columbia). Because of the daily fluctuations that result in the normal course of business, cash is more appropriately analyzed in terms of average balances. On an average balance basis, cash and due from banks ~~increased $30.4~~decreased $10.6 million, or ~~9.6%~~3.1%, from ~~$316.2 million in 2004 to~~ $346.5 million in 2005 ~~following a $36.2~~to $335.9 million ~~or 12.9%, increase~~ in ~~2004.~~2006. The ~~increase in both years~~decrease resulted from ~~acquisitions and growth~~a reduction in the ~~Corporation’s branch network.~~level of cash reserves required to be held against deposit liabilities as transaction account balances decreased.

Premises and equipment increased ~~$23.3~~$21.1 million, or ~~15.9%~~12.4%, ~~in 2005~~ to ~~$170.3~~$191.4 million, which included ~~$9.3~~$7.8 million as a result of the acquisition of ~~SVB.~~Columbia. The remaining increase reflects additions primarily for the construction of ~~various~~ new branch facilities, offset by the sales of branch and office ~~facilities.~~facilities during 2006.

Goodwill and intangible assets increased ~~$59.1~~$215.4 million, or ~~15.2%~~48.0%, ~~in 2005~~ primarily due to the acquisition of ~~SVB, following a $244.5 million, or 168.9%, increase in 2004, also as a result of acquisitions.~~Columbia. Other assets increased ~~$40.0~~$50.4 million, or ~~19.5%~~20.5%, ~~in 2005~~ to ~~$245.5~~$295.9 million, ~~including $10.6~~which included $20.6 million as a result of the acquisition of ~~SVB.~~Columbia. The remaining net increase ~~in other assets~~ was due primarily to an increase in ~~the net deferred tax asset due to increases in unrealized losses on investment securities,~~accrued interest receivable, as both loan balances and interest rates increased, and an increase in ~~accrued interest receivable related to~~the cash surrender value of the Corporation’s life insurance plans. These increases were offset by a decrease in ~~loans and interest rates, and the additional funding of~~ the defined benefit pension plan asset as a result of recognizing the underfunded status of the plan, as required by Financial Accounting Standards Board (FASB) Statement No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (Statement 158). See also Note L, “Employee Benefit Plans”, in ~~2005, offset by a decrease in LIH Investments due~~the Notes to ~~amortization of existing investments.~~Consolidated Financial Statements for additional information related to the Corporation’s pension plan.

Deposits and Borrowings

Deposits increased ~~$909.3 million,~~$1.4 billion, or ~~11.5%~~16.2%, to ~~$8.8~~$10.2 billion at December 31, ~~2005~~2006 ($~~435.8~~458.7 million, or ~~5.5%~~5.2%, excluding the acquisition of ~~SVB)~~Columbia). ~~This compares to an increase~~During 2006, total demand deposits increased $205.6 million, or 6.2% (decreased $128.5 million, or 3.9%, excluding the acquisition of Columbia), savings deposits increased $161.7 million, or 7.6% (decreased $9.1 million, or 0.4%, excluding the acquisition of Columbia), and time deposits increased $1.1 billion, or ~~16.9%, in 2004~~31.5% ($~~118.9~~596.2 million, or ~~1.8%~~17.7%, excluding the ~~2004 acquisitions~~acquisition of ~~Resource and First Washington)~~Columbia). ~~As in the prior year, the trend during the first half of 2005 was strong growth in~~During 2006, consumers shifted from core demand and savings accounts ~~offset by declines in time deposits. In the second half of 2005, consumers began increasing investments in~~to higher yielding time deposits due to ~~rising long-term rates, resulting~~increases in ~~an overall increase in time deposits for 2005. If longer-term rates continue to increase in the future, a shift in deposit funds to higher cost time deposits could occur.~~

During 2005, total demand deposits increased $300.4 million, or 10.0% ($147.5 million, or 4.9%, excluding the acquisition of SVB), savings deposits increased $208.3 million, or 10.9% ($36.5 million, or 1.9%, excluding the acquisition of SVB), and time deposits increased $400.7 million, or 13.5% ($251.9 million, or 8.5%, excluding the acquisition of SVB).

During 2004, demand deposits increased $457.1 million, or 17.9% ($234.6 million, or 10.8%, excluding the 2004 acquisitions of Resource and First Washington), savings deposits increased $165.7 million, or 9.5% ($58.7 million, or 3.8%, excluding the 2004 acquisitions of Resource and First Washington), and time deposits increased $520.9 million, or 21.3% (decrease of $174.5 million, or 7.2%, excluding the 2004 acquisitions of Resource and First Washington). The trend in 2004 was strong growth in core demand and savings accounts due to consumers favoring banks over

~~the equity markets. In addition, the relatively low~~available interest ~~rate environment resulted in consumers favoring demand and savings products over time deposits, as incremental long-term rates were not attractive.~~rates.

Short-term borrowings, which consist mainly of Federal funds purchased and customer cash management accounts, increased ~~$104.4~~$381.9 million, or ~~8.7%, in 2005 after decreasing $202.2~~29.4% ($197.8 million, or ~~14.5%, in 2004 ($329.9 million, or 23.6%~~15.2%, excluding the ~~2004 acquisitions~~acquisition of ~~Resource and First Washington)~~Columbia). The increase in ~~2005~~2006 was due to increases in customer cash management accounts, in the form of short-term promissory notes and purchases of Federal funds as loan growth outpaced deposit ~~increases, offset by decreases in customer cash management accounts. In 2004, the decrease was due to strategies to reduce overnight Federal funds purchased in a rising rate environment.~~increases. Long-term debt increased ~~$176.1~~$443.8 million, or ~~25.7%~~51.6% ($~~151.4~~363.7 million, or ~~22.1%~~42.3%, excluding the acquisition of ~~SVB)~~Columbia), primarily ~~due to the Corporation’s issuance of $100.0 million of ten-year subordinated notes in March 2005, and partially~~ due to an increase in ~~Federal Home Loan Bank advances.~~FHLB advances to fund loan growth and investment purchases, as well as the Corporation’s issuance of $154.6 million of junior subordinated deferrable interest debentures in January 2006.

Other Liabilities

Other liabilities increased ~~$12.7~~$30.8 million, or ~~8.9%~~19.9% ($~~10.4~~21.3 million, or ~~7.3%~~13.7%, excluding the acquisition of ~~SVB), following a $38.6 million, or 37.5%, increase in 2004.~~Columbia). The increase ~~in 2005~~ was primarily attributable to an increase in ~~dividends~~accrued interest payable related to ~~shareholders ($3.0 million), an~~the increase in available rates and time deposit balances, the ~~fair value~~recognition of ~~derivative financial instruments ($5.9 million), and~~ the additional legal accrual for the TCPA lawsuit ($2.2 million). The increase in 2004 was primarily attributable to additional equity commitments for low-income housing projects ($9.2 million increase), an increase in accrued retirement benefits ($2.4 million)Corporation’s underfunded defined benefit pension plan liability, as required by Statement 158, and an increase in dividends payable to ~~shareholders ($2.5 million).~~shareholders.

Shareholders’ Equity

Total shareholders’ equity increased ~~$38.9~~$233.3 million, or ~~3.1%~~18.2%, to ~~$1.3~~$1.5 billion, or ~~10.3%~~10.2% of ending total assets, as of December 31, ~~2005.~~2006. This growth was due primarily to ~~2005~~2006 net income of ~~$166.1~~$185.5 million ~~offset by dividends to shareholders~~and $154.2 million of ~~$88.5 million. In addition, equity increased $66.6 million for~~ stock issued for the ~~SVB~~Columbia acquisition, ~~decreased $85.2~~offset by $100.9 million ~~for treasury stock purchases, and decreased $30.5 million as a result~~ of ~~increased unrealized losses on investment securities.~~dividends paid to shareholders.

The Corporation periodically ~~implements~~repurchases shares of its common stock under repurchase plans for various corporate purposes. In addition to evaluating the financial benefits of implementing repurchase plans, management also considers liquidity needs, the current market price per share and regulatory limitations. In 2002,approved by the Board of ~~Directors approved a stock repurchase plan for 7.3 million shares, which was extended~~Directors. These repurchases have historically been through ~~June 30, 2004. During 2004, 1.6 million shares were~~open market transactions and have complied with all regulatory restrictions on the timing and amount of such repurchases. Shares may also be repurchased ~~under this plan. On June 15, 2004, the Board of Directors approved a stock repurchase plan for 5.0 million shares~~ through ~~December 31, 2004. During 2004, 3.1 million shares were repurchased under this plan, including 1.3 million shares acquired under~~ an “Accelerated Share Repurchase” ~~program~~Program (ASR)~~. On December 21, 2004, the Board of Directors extended the stock repurchase plan through June 30, 2005 and increased the total number of~~, which allows shares ~~that could~~to be ~~repurchased to 5.0 million. No shares were~~ purchased ~~under this extended plan in 2004. During 2005, 4.3 million shares were repurchased under this plan through an ASR.~~

~~Under an ASR, the Corporation repurchases shares~~ immediately from an investment ~~bank rather than over time.~~bank. The investment bank, in turn, repurchases shares on the open market over a period that is determined by the average daily trading volume of the Corporation’s shares, among other factors. ~~For the ASR~~Shares repurchased have been added to treasury stock and are accounted for at cost. These shares are periodically reissued for various corporate needs.

Total treasury stock purchases were approximately 1.1 million shares in ~~effect at~~2006, 5.3 million shares in 2005 and 4.9 million shares in 2004. Included in these amounts are shares purchased under ASR’s, totaling 4.5 million in 2005 and 1.3 million in 2004. As of December 31, ~~2005, which was implemented in the second quarter of 2005,~~2006, the Corporation ~~settled its position with the investment bank at the termination of the ASR by paying cash~~had a stock repurchase plan in ~~an amount representing the difference between the initial prices paid and the actual price of the~~place for 2.1 million shares ~~repurchased. The Corporation completed the ASR in February of~~through June 30, 2007. Through December 31, 2006, ~~and paid the investment bank a total of $3.4~~1.1 million ~~for~~shares had been repurchased under this ~~difference.~~plan.

The Corporation and its subsidiary banks are subject to regulatory capital requirements administered by various banking regulators. Failure to meet minimum capital requirements can initiate certain actions by regulators that could have a material effect on the Corporation’s financial statements. The regulations require that banks maintain minimum amounts and ratios of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and Tier I capital to average assets (as defined). As of December 31, ~~2005,~~2006, the Corporation and each of its bank subsidiaries met the minimum capital requirements. In addition, the Corporation and each of its bank subsidiaries’ capital ratios exceeded the amounts required to be considered “well-capitalized” as defined in the regulations. See also Note J, “Regulatory Matters”, in the Notes to Consolidated Financial ~~Statements.~~Statements .

3138

Contractual Obligations and Off-Balance Sheet Arrangements

The Corporation has various financial obligations that require future cash payments. These obligations include the payment of liabilities recorded on the Corporation’s consolidated balance sheet as well as contractual obligations for purchased services or for operating leases. The following table summarizes significant contractual obligations to third parties, by type, that ~~are~~were fixed and determinable at December 31, ~~2005:~~2006:

Payments Due In
One Year One to Three to Over Five
or Less Three Years Five Years Years Total
(in thousands)
Deposits with no stated maturity (a) $ 5,435,119 $ — $ — $ — $ 5,435,119
Time deposits (b) 1,894,744 969,418 211,047 294,511 3,369,720
Short-term borrowings (c) 1,298,962 — — — 1,298,962
Long-term debt (c) 33,734 289,282 128,238 409,091 860,345
Operating leases (d) 10,437 17,356 11,329 33,186 72,308
Purchase obligations (e) 13,719 25,736 14,349 — 53,804


	Payments Due In
	One Year		One to		Three to		Over Five
	or Less		Three Years		Five Years		Years		Total
	(in thousands)

Deposits with no stated maturity (1)	$	5,802,422	$	—	$	—	$	—	$	5,802,422
Time deposits (2)		3,414,830		603,802		191,573		219,842		4,430,047
Short-term borrowings (3)		1,680,840		—		—		—		1,680,840
Long-term debt (3)		190,305		243,732		89,711		780,400		1,304,148
Operating leases (4)		11,813		17,741		13,325		44,000		86,879
Purchase obligations (5)		15,511		23,239		6,676		—		45,426


~~(a)~~(1)		Includes demand deposits and savings accounts, which can be withdrawn by customers at any time.

~~(b)~~(2)		See additional information regarding time deposits in Note H, “Deposits”, in the Notes to Consolidated Financial Statements.

~~(c)~~(3)		See additional information regarding borrowings in Note I, “Short-Term Borrowings and Long-Term Debt”, in the Notes to Consolidated Financial Statements.

~~(d)~~(4)		See additional information regarding operating leases in Note N, “Leases”, in the Notes to Consolidated Financial Statements.

~~(e)~~(5)		Includes significant information technology, telecommunication and data processing outsourcing contracts. Variable obligations, such as those based on transaction volumes, are not included.

In addition to the contractual obligations listed in the preceding table, the Corporation is a party to financial instruments with ~~off-balance-sheet~~off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit, which involve, to varying degrees, elements of credit and interest rate risk that are not recognized in the consolidated balance sheets. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Standby letters of credit are conditional commitments issued to guarantee the financial or performance obligation of a customer to a third party. Commitments and standby letters of credit do not necessarily represent future cash needs as they may expire without being drawn.

The following table presents the Corporation’s commitments to extend credit and letters of credit as of December 31, ~~2005~~2006 (in thousands):


Commercial mortgage, construction and land development	$	829,769	$	571,499
Home equity		494,872		674,089
Credit card		382,415		367,406
Commercial and other		2,028,997		2,702,516

Total commitments to extend credit	$	3,736,053	$	4,315,510


Standby letters of credit	$	599,191	$	739,056
Commercial letters of credit		23,037		34,193

Total letters of credit	$	622,228	$	773,249

CRITICAL ACCOUNTING POLICIES

The following is a summary of those accounting policies that the Corporation considers to be most important to the portrayal of its financial condition and results of operations, as they require management’s most difficult judgments as a result of the need to make estimates about the effects of matters that are inherently uncertain.

Allowance and Provision for Loan Losses – The Corporation accounts for the credit risk associated with its lending activities through the allowance and provision for loan losses. The allowance is an estimate of the losses inherent in the loan portfolio as of the balance sheet date. The provision is the periodic charge to earnings, which is necessary to adjust the allowance to its proper balance. On a quarterly basis, the Corporation assesses the adequacy of its allowance through a methodology that consists of the following:

Identifying loans for individual review under ~~Financial Accounting Standards Board’s~~ Statement ~~of Financial Accounting Standards No. 114, “Accounting by Creditors for Impairment of a Loan” (Statement 114).~~114. In general, these consist of large balance commercial loans and commercial mortgages that are rated less than “satisfactory” based upon the Corporation’s internal credit-rating process.


	-		Assessing whether the loans identified for review under Statement 114 are “impaired”. That is, whether it is probable that all amounts will not be collected according to the contractual terms of the loan ~~agreement.~~agreement, generally representing loans that management has placed on non-accrual status.


	-		For loans ~~identified as impaired,~~reviewed under Statement 114, calculating the estimated fair value, using observable market prices, discounted cash flows or the value of the underlying collateral.


	-		Classifying all non-impaired large balance loans based on credit risk ratings and allocating an allowance for loan losses based on appropriate factors, including recent loss history for similar loans.


	-		Identifying all smaller balance homogeneous loans for evaluation collectively under the provisions of Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies” (Statement 5). In general, these loans include residential mortgages, consumer loans, installment loans, smaller balance commercial loans and mortgages and lease receivables.


	-		Statement 5 loans are segmented into groups with similar characteristics and an allowance for loan losses is allocated to each segment based on recent loss history and other relevant information.


	-		Reviewing the results to determine the appropriate balance of the allowance for loan losses. This review gives additional consideration to factors such as the mix of loans in the portfolio, the balance of the allowance relative to total loans and non-performing assets, trends in the overall risk profile of the portfolio, trends in delinquencies and non-accrual loans and local and national economic conditions.


	-		An unallocated allowance is maintained to recognize the inherent imprecision in estimating and measuring loss exposure.

	-		Documenting the results of its review in accordance with SAB 102.

The allowance review methodology is based on information known at the time of the review. Changes in factors underlying the assessment could have a material impact on the amount of the allowance that is necessary and the amount of provision to be charged against earnings. Such changes could impact future results.

Accounting for Business Combinations – The Corporation accounts for all business acquisitions using the purchase method of accounting as required by Statement of Financial Accounting Standards No. 141, “Business Combinations” (Statement 141). Purchase accounting requires the purchase price to be allocated to the estimated fair values of the assets acquired and liabilities assumed. It also requires assessing the existence of and, if necessary, assigning a value to certain intangible assets. The remaining excess purchase price over the fair value of net assets acquired is recorded as goodwill.

The purchase price is established as the value of securities issued for the acquisition, cash consideration paid and certain acquisition-related expenses. The fair values of assets acquired and liabilities assumed are typically established through appraisals, observable market values or discounted cash flows. Management has engaged independent third-party valuation experts to assist in valuing certain assets, particularly intangibles. Other assets and liabilities are generally valued using the Corporation’s internal asset/liability modeling system. The assumptions used and the final valuations, whether prepared internally or by a third party, are reviewed by management. Due to the complexity of purchase

accounting, final determinations of values can be time consuming and, occasionally,

amounts included in the Corporation’s consolidated balance sheets and consolidated statements of income are based on preliminary estimates of value.

Goodwill and Intangible Assets – Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (Statement 142) addresses the accounting for goodwill and intangible assets subsequent to acquisition. Intangible assets are amortized over their estimated lives. Some intangible assets have indefinite lives and are, therefore, not amortized. All intangible assets must be evaluated for impairment if certain events occur. Any impairment write-downs are recognized as expense in the consolidated income statement.

Goodwill is not amortized to expense, but is evaluated at least annually for impairment. The Corporation completes its annual goodwill impairment test as of October 31^st31st of each year. The Corporation tests for impairment by first allocating its goodwill and other assets and liabilities, as necessary, to defined reporting units. A fair value is then determined for each reporting unit. If the fair values of the reporting units exceed their book values, no write-down of the recorded goodwill is necessary. If the fair values are less than the book values, an additional valuation procedure is necessary to assess the proper carrying value of the goodwill. The Corporation determined that no impairment write-offs were necessary during 2006, 2005 ~~2004~~ and ~~2003.~~2004.

Business unit valuation is inherently subjective, with a number of factors based on assumptions and management judgments. Among these are future growth rates for the reporting units, selection of comparable market transactions, discount rates and earnings capitalization rates. Changes in assumptions and results due to economic conditions, industry factors and reporting unit performance and cash flow projections could result in different assessments of the fair values of reporting units and could result in impairment charges in the future.

If an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount, an impairment test between annual tests is necessary. Such events may include adverse changes in legal factors or in the business climate, adverse actions by a regulator, unauthorized competition, the loss of key employees, or similar events. The Corporation has not performed an interim goodwill impairment test during the past three years as no such events have occurred. However, such an interim test could be necessary in the future.

Income Taxes – The provision for income taxes is based upon income before income taxes, adjusted for the effect of certain tax-exempt income and non-deductible expenses. In addition, certain items of income and expense are reported in different periods for financial reporting and tax return purposes. The tax effects of these temporary differences are recognized currently in the deferred income tax provision or benefit. Deferred tax assets or liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the applicable enacted marginal tax rate.

The Corporation must also evaluate the likelihood that deferred tax assets will be recovered from future taxable income. If any such assets are more likely than not ~~likely~~ to not be recovered, a valuation allowance must be recognized. The Corporation ~~has determined that~~recorded a valuation allowance ~~is not required for deferred tax assets~~of $11.1 million as of December 31, ~~2005, except in the case of deferred tax benefits related to~~2006 for certain state ~~income tax~~ net operating ~~losses.~~losses that are not expected to be recovered. The assessment of the carrying value of deferred tax assets is based on certain assumptions, changes in which could have a material impact on the Corporation’s financial statements.

See also Note K, “Income Taxes”, in the Notes to Consolidated Financial ~~Statements.~~Statements .

Recent Accounting Pronouncements

In February 2006, the FASB issued Statement of Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Financial Instruments – an amendment of FASB Statements No. 133 and 140” (Statement 155). Statement 155 amends the guidance in FASB Statements No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” Statement 155 allows financial instruments that have embedded derivatives to be accounted for as a whole, thereby eliminating the need to bifurcate the derivative from its host, if the holder elects to account for the whole instrument on a fair value basis. Statement 155 is effective for all financial instruments acquired, issued, or subject to a remeasurement date after the beginning of a company’s first fiscal year that begins after September 15, 2006, or January 1, 2007 for the Corporation. The adoption of Statement 155 did not have an impact on the Corporation’s consolidated financial statements.

In March 2006, the FASB issued Statement of Financial Accounting Standards No. 156, “Accounting for Servicing of Financial Assets — an amendment of FASB Statement No. 140” (Statement 156). Statement 156 requires recognition of a servicing asset or liability at fair value each time an obligation is undertaken to service a financial asset by entering into a servicing contract. Statement 156 also provides guidance on subsequent measurement methods for each class of separately recognized servicing assets and liabilities and specifies financial statement presentation and disclosure requirements. This statement is effective for fiscal years beginning after September 15, 2006, or January 1, 2007 for the Corporation. The Corporation had elected to continue amortizing mortgage servicing rights over the estimated lives of the underlying loans. As a result, the adoption of this standard did not impact the Corporation’s consolidated financial statements.

In April 2006, the FASB issued Staff Position FIN 46(R)-6, “Determining the Variability to Be Considered in Applying FASB Interpretation No. 46(R)” (Staff Position FIN 46(R)-6). This staff position addresses how an entity should determine the variability to be considered in applying FASB Interpretation No. FIN 46(R) (FIN 46). The variability that is to be considered in applying FIN 46 affects the determination of (a) whether the entity is a variable interest entity (VIE), (b) which interests are “variable interests” in the entity and (c) which party, if any, is the primary beneficiary of the VIE. The requirements prescribed by this staff position are to be applied prospectively for all new arrangements at the commencement of the first reporting period that begins after June 15, 2006, or July 1, 2006 for the Corporation. The new requirements need not be applied to entities that have previously been analyzed under FIN 46 unless a reconsideration event occurs. The staff position had no impact the Corporation’s consolidated financial statements.

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48). The interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. Specifically, the interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of an income tax position taken or expected to be taken in a tax return. This interpretation is effective for fiscal years beginning after December 15, 2006, or January 1, 2007 for the Corporation. The Corporation is evaluating the impact of FIN 48 on all tax positions and does not believe there is any material impact of adopting FIN 48 upon any recognized tax positions as of December 31, 2006. See Note ~~A, “Summary of Significant Accounting Policies”~~K, “Income Taxes”, in the Notes to Consolidated Financial ~~Statements discusses~~Statements.

In September 2006, the ~~expected~~FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurement” (Statement 157). Statement 157 defines fair value, establishes a framework for measuring fair value in U.S. generally accepted accounting principles, and expands disclosure requirements for fair value measurements. Statement 157 does not require any new fair value measurements and is effective for financial statements issued for fiscal years beginning after November 15, 2007, or January 1, 2008 for the Corporation. The Corporation is currently evaluating the impact of ~~recently~~Statement 157 on the consolidated financial statements.

In September 2006, the FASB issued Statement 158, which requires employers to recognize the overfunded or underfunded status of defined benefit pension and post-retirement plans as an asset or liability in its balance sheet and to recognize changes in that funded status in the year in which changes occur through other comprehensive income, in addition to expanded disclosure requirements. The standard requires employers to measure defined benefit plan assets and obligations as of the date of the employer’s fiscal year-end balance sheet, for fiscal years ending after December 15, 2008, or December 31, 2008 for the Corporation. All other requirements of the standard are effective for employers with defined benefit pension or post-retirement plans that issue publicly traded equity securities, for fiscal years ending after December 15, 2006, or December 31, 2006 for the Corporation. As of December 31, 2006, the Corporation adopted Statement 158 on a prospective basis, resulting in a reclassification of the Corporation’s Pension Plan and Post-retirement Plan liabilities. For details related to the Corporation’s adoption of Statement 158, see Note L, “Employee Benefit Plans”, in the Notes to Consolidated Financial Statements.

In September 2006, the FASB ratified Emerging Issues Task Force (EITF) 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements” (EITF 06-4). EITF 06-4 addresses accounting ~~standards adopted~~for endorsement split-dollar life insurance arrangements that provide a benefit to an employee that extends to post-retirement periods. EITF 06-4 requires that the post-retirement benefit aspects of an endorsement-type split-dollar life insurance arrangement be recognized as a liability by the employer and that the obligation is not settled upon entering into an insurance arrangement. EITF 06-4 is effective for fiscal years beginning after December 15, 2007, or January 1, 2008 for the Corporation. The Corporation is currently evaluating the impact of EITF 06-4 on the consolidated financial statements.

Item 7A. 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, foreign currency risk and commodity price risk. Due to the nature of its operations, only equity market price risk and interest rate risk are significant to the Corporation.

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. The Corporation’s equity investments consist of common stocks of publicly traded financial institutions, U.S. Government sponsored agency stocks and money market mutual funds. The equity investments most susceptible to equity market price risk are the financial institutions stocks, which had a cost basis of approximately ~~$72.6~~$79.7 million and a fair value of ~~$71.0~~$79.6 million at December 31, ~~2005.~~2006. Gross unrealized gains in this portfolio were approximately ~~$2.0~~$2.9 million at December 31, ~~2005.~~2006.

Although the carrying value of the financial institutions stocks accounted for only ~~for 0.6%~~0.5% of the Corporation’s total assets, any unrealized gains in the portfolio represent a potential source of revenue. The Corporation has a history of realizing gains from this portfolio and, if values were to decline ~~more~~ significantly, ~~than the current year,~~ this revenue could be materially be impacted.

Management continuously monitors the fair value of its equity investments and evaluates current market conditions and operating results of the companies. Periodic sale and purchase decisions are made based on this monitoring process. None of the Corporation’s equity securities are classified as trading. Future cash flows from these investments are not provided in the table on page 3948 as such investments do not have maturity dates.

The Corporation has evaluated, based on existing accounting guidance, whether any unrealized losses on individual equity investments constituted “other-than-temporary” impairment, which would require a write-down through a charge to earnings. Based on the results of such evaluations, the Corporation recorded write-downs of $122,000 in 2006, $65,000 in 2005 and $137,000 in 2004 ~~and $3.3 million in 2003~~ for specific equity securities which were deemed to exhibit other-than-temporary impairment in value. Through December 31, 2005, gains of approximately $2.5 million had been realized on the sale of investments previously written down and, as of December 31, 2005, the impaired securities still held in the portfolio had recovered approximately $286,000 of the original write-down amount. Additional impairment charges may be necessary depending upon the performance of the equity markets in general and the performance of the individual investments held by the Corporation. See also Note C, “Investment Securities”, in the Notes to Consolidated Financial Statements.

In addition to the risk of changes in the value of its equity portfolio, the Corporation’s investment management and trust services revenue could also be impacted by fluctuations in the securities markets. A portion of the Corporation’s trust revenue is based on the value of the underlying investment portfolios. If securities markets contract, the Corporation’s revenue could be negatively impacted. In addition, the ability of the Corporation to sell its brokerage services is dependent, in part, upon consumers’ level of confidence in the outlook for rising securities prices.

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), consisting of key financial and senior management personnel, meets on a ~~weekly~~bi-weekly basis. The ALCO is responsible for reviewing the interest rate sensitivity position of the Corporation, approving asset and liability management policies, and overseeing the formulation and implementation of strategies regarding balance sheet positions and earnings. The primary goal of asset/liability management is to address the liquidity and net interest income risks noted above.

From a liquidity standpoint, the Corporation must maintain a sufficient level of liquid assets to meet the ongoing cash flow requirements of customers, who, as depositors, may want to withdraw funds or who, as borrowers, need credit availability. Liquidity sources are found on both sides of the balance sheet. Liquidity is provided on a continuous basis through scheduled and unscheduled principal reductions and interest payments on outstanding loans and investments. Liquidity is also provided through the availability of deposits and borrowings.

~~$184.9~~ $588.5 million in 2004. In 2005, reinvestments in the investment securities portfolio and the net increase in the loan portfolio exceeded proceeds from maturities and sales of investment securities. In 2004, funds provided by investment maturities and sales of investment securities were greater than the reinvestments in investment securities and the net increase in the loan portfolio.2005. Financing activities resulted in net cash proceeds of $911.8 million in 2006, compared to net cash proceeds of $532.0 million in 2005 ~~compared to a net cash usage of $384.7 million in 2004~~ as net funds were provided by increases in ~~deposits, primarily~~ time deposits ~~as a result~~and borrowings, outpacing repayments of ~~increasing rates, as well as short-term borrowings~~long-term debt and ~~long-term debt. In 2004, funds provided by maturing investments were used to reduce short-term borrowings.~~shareholder dividends.

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. ~~Prior to 2004, the~~The Parent Company ~~had been able to meet~~meets its cash needs through ~~normal, allowable~~ dividends and ~~loans. However, as a result of increased acquisition activity~~loans from subsidiary banks, and ~~stock repurchase plans, the Parent Company’s cash needs increased, requiring additional sources of funds.~~

In 2005, the Corporation issued $100.0 million of ten-year subordinated notes, which mature April 1, 2015 and carry a fixed rate of 5.35%. Interest is paid semi-annually, commencing in October 2005. In 2004, the Parent Company entered into a revolving line of credit agreement with an unaffiliated bank. Under the terms of the agreement, the Parent Company can borrow up to $50.0 million with interest calculated at the one-month London Interbank Offering Rate (LIBOR) plus 0.27%. The credit agreement requires the Corporation to maintain certain financial ratios related to capital strength and earnings. As of December 31, 2005 there were no borrowings outstanding under the agreement. The Corporation was in compliance with all required covenants under the credit agreement as of December 31, 2005.through external borrowings.

In January 2006, the Corporation purchased all of the common stock of a new Delaware business trust, Fulton Capital Trust I, which was formed for the purpose of issuing $150.0 million of trust preferred securities at an effective rate of approximately 6.50%. In connection with this transaction the Parent Company issued $154.6 million of junior subordinated deferrable interest debentures to the trust. These debentures carry the same rate and mature on February 1, 2036. In 2005, the Corporation issued $100.0 million of ten-year subordinated notes, which mature April 1, 2015 and carry a fixed rate of 5.35%. Interest is paid semi-annually.

In 2004, the Parent Company entered into a revolving line of credit agreement with an unaffiliated bank. Under the terms of the agreement, the Parent Company can borrow up to $100.0 million with interest calculated at the one-month London Interbank Offering Rate (LIBOR) plus 0.35%. The credit agreement requires the Corporation to maintain certain financial ratios related to capital strength and earnings. As of December 31, 2006, there was $36.3 million borrowed against this line. The Corporation was in compliance with all required covenants under the credit agreement as of December 31, 2006.

These borrowings, most notably the revolving line of credit agreement, supplement the liquidity available from subsidiaries through dividends and provide some flexibility in Parent Company cash management. Management continues to monitor the liquidity and capital needs of the Parent Company and will implement appropriate strategies, as necessary, to remain well-capitalized and to meet its cash needs.

In addition to its normal recurring and operating cash needs, the Parent Company also paid cash for a portion of the Columbia Bancorp acquisition, which was completed on February 1, 2006. Based on the terms of the merger agreement, the Parent Company paid approximately $150 million in cash to consummate the acquisition. For further details, see Note Q, “Mergers and Acquisitions”, in the Notes to Consolidated Financial Statements.

At December 31, ~~2005,~~2006, liquid assets (defined as cash and due from banks, short-term investments, Federal funds sold, mortgages available for sale, securities available for sale, and non-mortgage-backed securities held to maturity due in one year or less) totaled $3.5 billion, or 23.2% of total assets. This compares to $3.2 billion, or 25.5% of total ~~assets. This compares to $3.0 billion, or 26.5% of total~~ assets, at December 31, ~~2004.~~2005.

3645

The following table presents the approximate contractual maturity and interest rate sensitivity of certain loan types, excluding consumer loans and leases, subject to changes in interest rates as of December 31, ~~2005:~~2006:


			One								One
	One Year		Through		More Than				One Year		Through		More Than
	or Less		Five Years		Five Years		Total		or Less		Five Years		Five Years		Total
	(in thousands)										(in thousands)
Commercial, financial and agricultural:
Floating rate	$	491,639	$	667,365	$	645,234	$	1,804,238	$	1,456,715	$	475,713	$	225,704	$	2,158,132
Fixed rate		224,145		274,652		72,634		571,431		309,313		407,876		89,865		807,054

Total	$	715,784	$	942,017	$	717,868	$	2,375,669	$	1,766,028	$	883,589	$	315,569	$	2,965,186


Real-estate – mortgage:
Floating rate	$	516,839	$	1,375,377	$	1,189,013	$	3,081,229	$	620,216	$	1,594,790	$	1,377,582	$	3,592,588
Fixed rate		305,984		887,971		330,481		1,524,436		370,450		976,975		426,071		1,773,496

Total	$	822,823	$	2,263,348	$	1,519,494	$	4,605,665	$	990,666	$	2,571,765	$	1,803,653	$	5,366,084


Real-estate – construction:
Floating rate	$	489,646	$	140,433	$	77,081	$	707,160	$	1,029,168	$	152,214	$	47,538	$	1,228,920
Fixed rate		66,163		31,601		46,527		144,291		85,380		39,078		75,431		199,889

Total	$	555,809	$	172,034	$	123,608	$	851,451	$	1,114,548	$	191,292	$	122,969	$	1,428,809

The following table provides information about the Corporation’s interest rate sensitive financial instruments. The table presents expected cash flows and weighted average rates for each significant interest rate sensitive financial instrument, by expected maturity period (dollars in thousands).


	Expected Maturity Period																					Estimated		Expected Maturity Period																					Estimated
	2006			2007			2008			2009			2010			Beyond			Total			Fair Value		2007			2008			2009			2010			2011			Beyond			Total			Fair Value
Fixed rate loans (1)	$	756,382		$	546,456		$	429,512		$	310,072		$	201,492		$	454,056		$	2,697,970		$	2,626,660	$	924,799		$	605,999		$	511,552		$	358,602		$	248,512		$	596,918		$	3,246,382		$	3,135,763
Average rate		6.20	%		6.05	%		6.01	%		6.19	%		6.33	%		6.03	%		6.12	%				6.64	%		6.35	%		6.47	%		6.60	%		6.65	%	��	6.33	%		6.50	%
Floating rate loans (6)		1,524,818			769,190			588,158			504,913			412,056			1,908,322			5,707,457			5,676,553
Floating rate loans (7) (8)																									3,136,621			780,789			616,523			502,517			416,318			1,655,019			7,107,787			7,045,241
Average rate		7.41	%		7.10	%		7.11	%		7.15	%		6.77	%		6.65	%		7.01	%				8.27	%		7.74	%		7.74	%		7.77	%		7.27	%		6.72	%		7.71	%

Fixed rate investments (2)		530,372			367,649			393,745			327,122			503,492			299,766			2,422,146			2,362,579		485,813			465,730			414,713			618,332			263,061			419,856			2,667,505			2,626,069
Average rate		3.82	%		3.94	%		3.71	%		3.71	%		3.83	%		4.80	%		3.93	%				4.27	%		3.97	%		4.17	%		4.02	%		4.52	%		5.10	%		4.30	%
Floating rate investments (2)		—			314			2,319			157			588			61,170			64,548			64,318		70			1,592			101			500			—			91,727			93,990			94,320
Average rate		—			4.09	%		4.54	%		4.27	%		5.36	%		4.40	%		4.41	%				5.12	%		4.99	%		5.72	%		6.25	%		—			5.57	%		5.56	%

Other interest-earning assets		275,310			—			—			—			—			—			275,310			275,310

Average rate		7.05	%		—			—			—			—			—			7.05	%				6.92	%		—			—			—			—			—			6.92	%


Total	$	3,086,882		$	1,683,609		$	1,413,734		$	1,142,264		$	1,117,628		$	2,723,314		$	11,167,431		$	11,005,420	$	4,814,533		$	1,854,110		$	1,542,889		$	1,479,951		$	927,891		$	2,763,520		$	13,382,894		$	13,168,623
*Average rate*		6.46	%		6.07	%		5.83	%		5.90	%		5.36	%		6.29	%		6.11	%				7.48	%		6.34	%		6.36	%		5.92	%		6.32	%		6.35	%		6.70	%


Fixed rate deposits (3)	$	1,916,176		$	735,858		$	218,553		$	89,483		$	109,975		$	274,563		$	3,344,608		$	3,321,800	$	3,422,714		$	457,792		$	137,390		$	99,857		$	82,354		$	194,524		$	4,394,631		$	4,377,688
Average rate		3.31	%		3.92	%		3.68	%		3.95	%		4.44	%		4.26	%		3.60	%				4.50	%		4.22	%		4.14	%		4.45	%		4.75	%		4.53	%		4.46	%
Floating rate deposits (4)		1,846,132			290,231			240,226			240,226			233,311			2,615,166			5,465,292			5,465,292		1,737,694			273,033			273,033			260,297			253,787			3,039,959			5,837,803			5,837,803
Average rate		2.02	%		0.89	%		0.70	%		0.70	%		0.66	%		0.52	%		1.07	%				3.01	%		1.02	%		1.02	%		0.90	%		0.84	%		0.69	%		1.43	%

Fixed rate borrowings (5)		623,843			110,408			226,243			43,307			89,330			123,198			1,216,329			1,227,413		284,564			196,989			59,565			89,565			536			261,435			892,654			909,647
Average rate		3.14	%		4.37	%		4.98	%		4.77	%		5.92	%		5.23	%		4.07	%				5.10	%		5.17	%		4.95	%		5.92	%		4.75	%		5.87	%		5.41	%
Floating rate borrowings		939,096			—			—			—			—			1,224			940,320			940,320
Floating rate borrowings (6)																									1,861,951			228,000			—			—			—			1,565			2,091,516			2,091,516
Average rate		4.37	%		—			—			—			—			7.66	%		4.37	%				5.03	%		4.73	%		—			—			—			8.44	%		5.00	%

Total	$	5,325,247		$	1,136,497		$	685,022		$	373,016		$	432,616		$	3,014,151		$	10,966,549		$	10,954,825	$	7,306,923		$	1,155,814		$	469,988		$	449,719		$	336,677		$	3,497,483		$	13,216,604		$	13,216,654
*Average rate*		3.03	%		3.19	%		3.06	%		1.95	%		2.71	%		1.06	%		2.46	%				4.30	%		3.73	%		2.43	%		2.69	%		1.80	%		1.30	%		3.27	%

The Corporation entered into a forward-starting interest rate swap with a notional amount of $150 million in October 2005 in anticipation of the January 2006 issuance of trust preferred securities. This was accounted for as a cash flow hedge as it hedges the variability of interest payments attributable to changes in interest rates on the forecasted issuance of fixed-rate debt. The total amount paid in January 2006 as settlement of the forward-starting interest rate swap was $5.5 million.

The Corporation uses three complementary methods to measure and manage interest rate risk. They are static gap analysis, simulation of earnings, and estimates of economic value of equity.

Static gap provides a measurement of repricing risk in the Corporation’s balance sheet as of a point in time. This measurement is accomplished through stratification of the Corporation’s assets and liabilities into repricing periods. The sum of assets and liabilities in each of these periods are compared for mismatches within that maturity segment. Core deposits having non-contractual maturities are placed into repricing periods based upon historical balance performance. Repricing for mortgage loans, ~~and for~~ mortgage-backed securities and collateralized mortgage obligations includes the effect of expected cash flows. Estimated prepayment effects are applied to these balances based upon industry projections for prepayment speeds. The Corporation’s policy limits the cumulative six-month gap to plus or minus 15% of total earning assets. The cumulative six-month gap as of December 31, ~~2005~~2006 was negative ~~1.18%~~4.1%. The cumulative six-month ratio of rate sensitive assets to rate sensitive liabilities ~~(RSA/RSL)~~ as of December 31, ~~2005~~2006 was ~~0.97. The following is a summary of the interest sensitivity gaps for six and twelve month intervals as of December 31, 2005:~~

Twelve
Six Months Months
Cumulative RSA/RSL 0.97 0.95

Cumulative GAP (% of earning assets) (1.18 )% (2.69 )%
0.91.

Simulation of net interest income is performed for the next twelve-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 earnings 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 to 10% of the base case net interest income for every 100 basis point “shock” in interest rates. A “shock” is an immediate upward or downward movement of short-term interest rates with changes across the yield curve based upon industry projections. The following table summarizes the expected impact of interest rate shocks on net interest income:


	Annual change
Rate Shock	in net interest
~~Rate Shock~~	income		% Change
+300 bp	+ ~~$11.0~~$7.5 million	+~~2.6~~	%1.6%
+200 bp	+ ~~$7.5~~$5.1 million	+~~1.8~~	%1.1%
+100 bp	+ ~~$3.9~~$2.7 million	+~~0.9~~	%0.6%
-100 bp	- ~~$10.6~~$4.4 million	~~-2.6~~	%-0.9%
-200 bp	- ~~$21.6~~$11.8 million	~~-5.2~~	%-2.4%
-300 bp	- ~~$39.1~~$21.2 million	~~-9.4~~	%-4.4%

Economic value of equity estimates the discounted present value of asset cash flows and liability cash flows. Discount rates are based upon market prices for like assets and liabilities. Upward and downward shocks of interest rates 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. A policy limit of 10% of economic equity may be at risk for every 100 basis point “shock” ~~movement~~

in interest rates. ~~The following table summarizes~~As of December 31, 2006, the ~~expected impact of~~Corporation was within policy limits for every basis point “shock” movement in interest ~~rate shocks on economic value of equity:~~


	~~Change in~~
	~~economic value~~
~~Rate Shock~~	~~of equity~~	~~% Change~~
~~+300 bp~~	~~+ $18.5 million~~		~~+1.1~~	%
~~+200 bp~~	~~+ $14.5 million~~		~~+0.9~~	%
~~+100 bp~~	~~+ $7.7 million~~		~~+0.5~~	%
~~-100 bp~~	~~- $29.3 million~~		~~-1.8~~	%
~~-200 bp~~	~~- $88.5 million~~		~~-5.5~~	%
~~-300 bp~~	~~- $174.4 million~~		~~-10.8~~	%

rates.

As with any modeling system, the results of the static gap and simulation of net interest income and economic value of equity are a function of the assumptions and projections built into the model. The actual behavior of the financial instruments could differ from these assumptions and projections.

~~Common Stock~~

As of December 31, 2005, the Corporation had 157.0 million shares of $2.50 par value common stock outstanding held by 51,000 holders of record. The common stock of the Corporation is traded on the national market system of the National Association of Securities Dealers Automated Quotation System (NASDAQ) under the symbol FULT.

The following table presents the quarterly high and low prices of the Corporation’s common stock and per-share cash dividends declared for each of the quarterly periods in 2005 and 2004. Per-share amounts have been retroactively adjusted to reflect the effect of stock dividends and splits.

Price Range Per-Share
High Low Dividend
2005

First Quarter
$ 18.82 $ 16.80 $ 0.132
Second Quarter
18.00 16.46 0.145
Third Quarter
18.90 16.20 0.145
Fourth Quarter
17.75 15.61 0.145

2004
First Quarter $ 17.36 $ 15.89 $ 0.122
Second Quarter 17.31 15.31 0.132
Third Quarter 17.52 16.00 0.132
Fourth Quarter 18.88 16.84 0.132

4149

Item 8. Financial Statements and Supplementary Data

CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per-share data)


	December 31						December 31
	2005			2004			2006			2005
Assets
Cash and due from banks	$	368,043		$	278,065		$	355,018		$	368,043
Interest-bearing deposits with other banks		31,404			4,688			27,529			31,404
Federal funds sold		528			32,000			659			528
Loans held for sale		243,378			209,504			239,042			243,378
Investment securities:
Held to maturity (estimated fair value of $18,317 in 2005 and $25,413 in 2004)		18,258			25,001
Held to maturity (estimated fair value of $12,534 in 2006 and $18,317 in 2005)								12,524			18,258
Available for sale		2,543,887			2,424,858			2,865,714			2,543,887

Loans, net of unearned income		8,424,728			7,533,915			10,374,323			8,424,728
Less: Allowance for loan losses		(92,847	)		(89,627	)		(106,884	)		(92,847	)

Net Loans		8,331,881			7,444,288			10,267,439			8,331,881


Premises and equipment		170,254			146,911			191,401			170,254
Accrued interest receivable		53,261			40,633			71,825			53,261
Goodwill		418,735			364,019			626,042			418,735
Intangible assets		29,687			25,303			37,733			29,687
Other assets		192,239			164,878			224,038			192,239


Total Assets	$	12,401,555		$	11,160,148		$	14,918,964		$	12,401,555


Liabilities
Deposits:
Noninterest-bearing	$	1,672,637		$	1,507,799		$	1,831,419		$	1,672,637
Interest-bearing		7,132,202			6,387,725			8,401,050			7,132,202

Total Deposits		8,804,839			7,895,524			10,232,469			8,804,839


Short-term borrowings:
Federal funds purchased		939,096			676,922			1,022,351			939,096
Other short-term borrowings		359,866			517,602			658,489			359,866

Total Short-Term Borrowings		1,298,962			1,194,524			1,680,840			1,298,962


Accrued interest payable		38,604			27,279			61,392			38,604
Other liabilities		115,834			114,498			123,805			115,834
Federal Home Loan Bank advances and long-term debt		860,345			684,236			1,304,148			860,345

Total Liabilities		11,118,584			9,916,061			13,402,654			11,118,584


Shareholders’ Equity
Common stock, $2.50 par value, 600 million shares authorized, 172.3 million shares issued in 2005 and 167.8 million shares issued in 2004		430,827			335,604
Common stock, $2.50 par value, 600 million shares authorized, 190.8 million shares issued in 2006 and 181.0 million shares issued in 2005								476,987			430,827
Additional paid-in capital		996,708			1,018,403			1,246,823			996,708
Retained earnings		138,529			60,924			92,592			138,529
Accumulated other comprehensive loss		(42,285	)		(10,133	)		(39,091	)		(42,285	)
Treasury stock (15.3 million shares in 2005 and 10.7 million shares in 2004), at cost		(240,808	)		(160,711	)
Treasury stock (17.1 million shares in 2006 and 16.1 million shares in 2005), at cost								(261,001	)		(240,808	)

Total Shareholders’ Equity		1,282,971			1,244,087			1,516,310			1,282,971


Total Liabilities and Shareholders’ Equity	$	12,401,555		$	11,160,148		$	14,918,964		$	12,401,555

~~CONSOLIDATED STATEMENTS OF INCOME~~
~~(dollars in thousands, except per-share data)~~


CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per-share data)


	Year Ended December 31						Year Ended December 31
	2005		2004		2003		2006		2005		2004
Interest Income
Loans, including fees	$	517,443	$	394,765	$	340,375	$	727,297	$	517,413	$	394,765
Investment securities:
Taxable		75,150		76,792		77,450		97,652		74,921		76,792
Tax-exempt		12,114		9,553		10,436		14,896		12,114		9,553
Dividends		4,564		4,023		4,076		6,568		4,793		4,023
Loans held for sale		14,940		8,407		2,953		15,564		14,940		8,407
Other interest income		1,586		103		241		2,530		1,586		103

Total Interest Income		625,797		493,643		435,531		864,507		625,767		493,643

Interest Expense
Deposits		140,774		89,779		94,198		246,941		140,774		89,779
Short-term borrowings		34,414		15,182		7,373		78,043		34,414		15,182
Long-term debt		38,031		31,033		29,523		53,960		38,031		31,033

Total Interest Expense		213,219		135,994		131,094		378,944		213,219		135,994


Net Interest Income		412,578		357,649		304,437		485,563		412,548		357,649
Provision for Loan Losses		3,120		4,717		9,705		3,498		3,120		4,717

Net Interest Income After Provision for Loan Losses		409,458		352,932		294,732		482,065		409,428		352,932


Other Income
Investment management and trust services		35,669		34,817		33,898		37,441		35,669		34,817
Service charges on deposit accounts		40,198		39,451		38,500		43,773		40,198		39,451
Other service charges and fees		24,200		20,494		18,860		26,792		24,229		20,494
Gain on sale of mortgage loans		25,468		19,262		18,965
Gains on sales of loans								21,086		25,032		19,262
Investment securities gains		6,625		17,712		19,853		7,439		6,625		17,712
Other		12,108		7,128		4,294		13,344		12,545		7,128

Total Other Income		144,268		138,864		134,370		149,875		144,298		138,864

Other Expenses
Salaries and employee benefits		181,889		166,026		138,094		213,913		181,889		166,026
Net occupancy expense		29,275		23,813		19,896		36,493		29,275		23,813
Equipment expense		11,938		10,769		10,505		14,251		11,938		10,769
Data processing		12,395		11,430		11,532		12,228		12,395		11,430
Advertising		8,823		6,943		6,039		10,638		8,823		6,943
Intangible amortization		5,311		4,726		2,059		7,907		5,311		4,726
Other		66,660		53,808		45,526		70,561		66,660		53,808

Total Other Expenses		316,291		277,515		233,651		365,991		316,291		277,515


Income Before Income Taxes		237,435		214,281		195,451		265,949		237,435		214,281
Income Taxes		71,361		64,673		59,084		80,422		71,361		64,673


Net Income	$	166,074	$	149,608	$	136,367	$	185,527	$	166,074	$	149,608


Per-Share Data:
Net Income (Basic)	$	1.06	$	1.00	$	0.97	$	1.07	$	1.01	$	0.95
Net Income (Diluted)		1.05		0.99		0.96		1.06		1.00		0.94
Cash Dividends		0.567		0.518		0.475		0.581		0.540		0.493

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME


	Number of					Additional						Accumulated Other																				Accumulated
	Shares			Common		Paid-in			Retained			Comprehensive			Treasury						Number of					Additional						Other
	Outstanding			Stock		Capital			Earnings			Income (Loss)			Stock			Total			Shares			Common		Paid-in			Retained			Comprehensive			Treasury
	(dollars in thousands)																				Outstanding			Stock		Capital			Earnings			Income (Loss)			Stock			Total
Balance at January 1, 2003		139,338,000		$	259,943	$	493,538		$	127,128		$	34,801		$	(50,531	)	$	864,879
Comprehensive Income:
Net Income										136,367									136,367
Unrealized loss on securities (net of $5.2 million tax effect)													(9,630	)					(9,630	)
Less — reclassification adjustment for gains included in net income (net of $6.9 million tax expense)													(12,904	)					(12,904	)
																					(dollars in thousands)
Total comprehensive income																			113,833

Stock dividend - 5%					12,998		79,491			(92,526	)								(37	)
Stock issued, including related tax benefits		707,000					(3,605	)								9,458			5,853
Stock-based compensation awards							2,092												2,092
Stock issued for acquisition of Premier Bancorp, Inc		6,058,000			11,539		76,639												88,178
Acquisition of treasury stock		(4,018,000	)													(59,699	)		(59,699	)
Cash dividends — $0.475 per share										(66,782	)								(66,782	)


Balance at December 31, 2003		142,085,000		$	284,480	$	648,155		$	104,187		$	12,267		$	(100,772	)	$	948,317
Balance at January 1, 2004																						149,189,000		$	284,480	$	648,155		$	104,187		$	12,267		$	(100,772	)	$	948,317
Comprehensive Income:
Net Income										149,608									149,608											149,608									149,608
Unrealized loss on securities (net of $5.6 million tax effect)													(10,329	)					(10,329	)													(10,329	)					(10,329	)
Less — reclassification adjustment for gains included in net income (net of $6.2 million tax expense)													(11,513	)					(11,513	)													(11,513	)					(11,513	)
Minimum pension liability adjustment (net of $300,000 tax effect)													(558	)					(558	)													(558	)					(558	)

Total comprehensive income																			127,208																				127,208

Stock dividend - 5%					15,278		100,247			(115,615	)								(90	)					15,278		100,247			(115,615	)								(90	)
Stock issued, including related tax benefits		1,310,000					(9,141	)								19,027			9,886			1,376,000					(9,141	)								19,027			9,886
Stock-based compensation awards							3,900												3,900								3,900												3,900
Stock issued for acquisition of Resource Bankshares Corporation		11,287,000			21,498		164,365												185,863			11,851,000			21,498		164,365												185,863
Stock issued for acquisition of First Washington FinancialCorp		7,174,000			14,348		110,877												125,225
Stock issued for acquisition of First Washington FinancialCorp.																						7,533,000			14,348		110,877												125,225
Acquisition of treasury stock		(4,706,000	)													(78,966	)		(78,966	)		(4,941,000	)													(78,966	)		(78,966	)
Cash dividends — $0.518 per share										(77,256	)								(77,256	)
Cash dividends — $0.493 per share																														(77,256	)								(77,256	)


Balance at December 31, 2004		157,150,000		$	335,604	$	1,018,403		$	60,924		$	(10,133)		$	(160,711	)	$	1,244,087			165,008,000		$	335,604	$	1,018,403		$	60,924		$	(10,133	)	$	(160,711	)	$	1,244,087
Comprehensive Income:
Net Income										166,074									166,074											166,074									166,074
Unrealized loss on securities (net of $14.1 million tax effect)													(26,219	)					(26,219	)													(26,219	)					(26,219	)
Unrealized loss on derivative financial instruments (net of $1.2 million tax effect)													(2,185	)					(2,185	)													(2,185	)					(2,185	)
Less — reclassification adjustment for gains included in net income (net of $2.3 million tax expense)													(4,306	)					(4,306	)													(4,306	)					(4,306	)
Minimum pension liability adjustment (net of $300,000 tax effect)													558						558														558						558

Total comprehensive income																			133,922																				133,922

5-for-4 stock split paid in the form of a 25 % stock dividend					84,046		(84,114	)											(68	)					84,046		(84,114	)											(68	)
Stock issued, including related tax benefits		1,120,000			1,809		4,179									5,071			11,059			1,176,000			1,809		4,179									5,071			11,059
Stock-based compensation awards							1,041												1,041								1,041												1,041
Stock issued for acquisition of SVB Financial Services, Inc.		3,747,000			9,368		57,199												66,567			3,934,000			9,368		57,199												66,567
Acquisition of treasury stock		(5,000,000	)													(85,168	)		(85,168	)		(5,250,000	)													(85,168	)		(85,168	)
Cash dividends — $0.567 per share										(88,469	)								(88,469	)
Cash dividends — $0.540 per share																														(88,469	)								(88,469	)


Balance at December 31, 2005		157,017,000		$	430,827	$	996,708		$	138,529		$	(42,285	)	$	(240,808	)	$	1,282,971			164,868,000		$	430,827	$	996,708		$	138,529		$	(42,285	)	$	(240,808	)	$	1,282,971
Comprehensive Income:
Net Income																														185,527									185,527
Unrealized gain on securities (net of $9.8 million tax effect)																																	18,132						18,132
Unrealized loss on derivative financial instrument (net of $702,000 tax effect)																																	(1,304	)					(1,304	)
Less — reclassification adjustment for gains included in net income (net of $2.6 million tax expense)																																	(4,835	)					(4,835	)

Total comprehensive income																																							197,520

Adjustment to initially apply Statement 158 (net of $3.1 million tax effect)																																	(8,799	)					(8,799	)
Stock dividend - 5%																									22,648		107,952			(130,600	)								—
Stock issued, including related tax benefits																						1,222,000			2,989		6,868												9,857
Stock-based compensation awards																											1,687												1,687
Stock issued for acquisition of Columbia Bancorp																						8,619,000			20,523		133,608												154,131
Acquisition of treasury stock																						(1,061,000	)													(16,770	)		(16,770	)
Accelerated share repurchase settlement																																				(3,423	)		(3,423	)
Cash dividends — $0.581 per share																														(100,864	)								(100,864	)


Balance at December 31, 2006																						173,648,000		$	476,987	$	1,246,823		$	92,592		$	(39,091	)	$	(261,001	)	$	1,516,310

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)


	Year Ended December 31									Year Ended December 31
	2005			2004			2003			2006			2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	166,074		$	149,608		$	136,367		$	185,527		$	166,074		$	149,608

Adjustments to reconcile net income to net cash provided by
Operating Activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		3,120			4,717			9,705			3,498			3,120			4,717
Depreciation and amortization of premises and equipment		14,338			12,409			12,379			16,905			14,338			12,409
Net amortization of investment security premiums		5,158			9,906			19,243			3,608			5,158			9,906
Deferred income tax expense		990			816			4,465
Gain on sale of investment securities		(6,625	)		(17,712	)		(19,853	)
Gain on sale of loans		(25,468	)		(19,262	)		(18,965	)
Proceeds from sales of loans held for sale		2,307,004			1,475,000			871,447
Originations of loans held for sale		(2,315,410	)		(1,456,465	)		(815,291	)
Deferred income tax (benefit) expense											(5,779	)		990			816
Investment securities gains											(7,439	)		(6,625	)		(17,712	)
Gains on sales of loans											(21,086	)		(25,468	)		(19,262	)
Proceeds from sales of mortgage loans held for sale											1,948,276			2,300,098			1,475,000
Originations of mortgage loans held for sale											(1,922,854	)		(2,315,410	)		(1,456,465	)
Amortization of intangible assets		5,311			4,726			2,059			7,907			5,311			4,726
Stock-based compensation expense		1,041			3,900			2,092
Stock-based compensation											1,687			1,041			3,900
Excess tax benefits from stock-based compensation											(783	)		(269	)		(177	)
(Increase) decrease in accrued interest receivable		(10,501	)		22			11,333			(11,908	)		(10,501	)		22
(Increase) decrease in other assets		(1,530	)		6,895			(14,595	)		(12,613	)		5,376			4,636
Increase (decrease) in accrued interest payable		11,008			(759	)		(6,136	)		21,741			11,008			(759	)
(Decrease) increase in other liabilities		(8,019	)		3,089			(7,370	)		(7,384	)		(7,756	)		3,266

Total adjustments		(19,583	)		27,282			50,513			13,776			(19,583	)		25,023

Net cash provided by operating activities		146,491			176,890			186,880			199,303			146,491			174,631


CASH FLOWS FROM INVESTING ACTIVITIES:
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale		143,806			235,332			521,520			147,194			143,806			235,332
Proceeds from maturities of securities held to maturity		10,846			8,870			18,146			5,923			10,846			8,870
Proceeds from maturities of securities available for sale		666,060			816,834			1,543,992			598,111			666,060			816,834
Purchase of securities held to maturity		(4,403	)		(11,402	)		(8,514	)		(698	)		(4,403	)		(11,402	)
Purchase of securities available for sale		(861,897	)		(269,776	)		(2,445,592	)		(868,876	)		(861,897	)		(269,776	)
Decrease (increase) in short-term investments		78,265			(9,188	)		19,248			20,598			78,265			(9,188	)
Net increase in loans		(589,053	)		(577,403	)		(485,332	)		(886,372	)		(589,053	)		(577,403	)
Net cash (paid for) received from acquisitions		(3,791	)		7,810			17,222			(109,729	)		(3,791	)		7,810
Net purchase of premises and equipment		(28,336	)		(16,161	)		(4,730	)		(30,277	)		(28,336	)		(16,161	)

Net cash (used in) provided by investing activities		(588,503	)		184,916			(824,040	)		(1,124,126	)		(588,503	)		184,916


CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand and savings deposits		35,153			293,331			347,665
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in demand and savings deposits											(137,546	)		35,153			293,331
Net increase (decrease) in time deposits		400,672			(174,453	)		(295,760	)		596,240			400,672			(174,453	)
Addition to long-term debt		319,606			45,000			90,000
Repayment of long-term debt		(168,207	)		(63,509	)		(157,360	)
Decrease (increase) in short-term borrowings		104,438			(338,845	)		757,964
Additions to long-term debt											550,166			319,606			45,000
Repayments of long-term debt											(186,499	)		(168,207	)		(63,509	)
Increase (decrease) in short-term borrowings											197,795			104,438			(338,845	)
Dividends paid		(85,495	)		(74,802	)		(64,628	)		(98,022	)		(85,495	)		(74,802	)
Net proceeds from issuance of common stock		10,991			7,537			5,087			9,074			10,722			9,619
Excess tax benefits from stock-based compensation											783			269			177
Acquisition of treasury stock		(85,168	)		(78,966	)		(59,699	)		(20,193	)		(85,168	)		(78,966	)

Net cash provided by (used in) financing activities		531,990			(384,707	)		623,269			911,798			531,990			(382,448	)


Net Increase (Decrease) in Cash and Due From Banks		89,978			(22,901	)		(13,891	)
Net (Decrease) Increase in Cash and Due From Banks											(13,025	)		89,978			(22,901	)
Cash and Due From Banks at Beginning of Year		278,065			300,966			314,857			368,043			278,065			300,966

Cash and Due From Banks at End of Year	$	368,043		$	278,065		$	300,966		$	355,018		$	368,043		$	278,065


Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Supplemental Disclosures of Cash Flow Information
Cash paid during period for:
Interest	$	202,211		$	136,753		$	137,230		$	357,203		$	202,211		$	136,753
Income taxes		60,539			54,457			48,924			77,327			60,539			54,457

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A —– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business:Fulton Financial Corporation (Parent Company) is a multi-bank financial holding company which provides a full range of banking and financial services to businesses and consumers through its wholly owned banking subsidiaries: Fulton Bank, Lebanon Valley Farmers Bank, Swineford National Bank, Lafayette Ambassador Bank, FNB Bank N.A., Hagerstown Trust, Delaware National Bank, The Bank, The Peoples Bank of Elkton, Skylands Community Bank, ~~Premier Bank,~~ Resource Bank, First Washington State Bank, ~~and~~ Somerset Valley Bank and The Columbia Bank as well as its financial services ~~subsidiaries:~~subsidiaries, Fulton Financial Advisors, N.A., and Fulton Insurance Services Group, Inc. In addition, the Parent Company owns the following ~~other~~ non-bank subsidiaries: Fulton Financial Realty Company, Fulton Reinsurance Company, LTD, Central Pennsylvania Financial Corp., FFC Management, Inc. and FFC Penn Square, Inc. Collectively, the Parent Company and its subsidiaries are referred to as the Corporation.

The Corporation’s primary sources of revenue are interest income on loans and investment securities and fee income on its products and services. Its expenses consist of interest expense on deposits and borrowed funds, provision for loan losses, other operating expenses and income taxes. The Corporation’s primary competition is other financial services providers operating in its region. Competitors also include financial services providers located outside the Corporation’s geographical market as a result of the growth in electronic delivery systems. The Corporation is subject to the regulations of certain Federal and state agencies and undergoes periodic examinations by such regulatory authorities.

The Corporation offers, through its banking subsidiaries, a full range of retail and commercial banking services throughout central and eastern Pennsylvania, Maryland, Delaware, New Jersey and Virginia. Industry diversity is the key to the economic well being of these markets and the Corporation is not dependent upon any single customer or industry.

Basis of Financial Statement Presentation:The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (U.S. GAAP) and include the accounts of the Parent Company and all wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The preparation of financial statements in accordance with ~~accounting principles generally accepted in the United States~~U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent 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.

Investments:Debt securities are classified as held to maturity at the time of purchase when the Corporation has both the intent and ability to hold these investments until they mature. Such debt securities are carried at cost, adjusted for amortization of premiums and accretion of discounts using the effective yield method. The Corporation does not engage in trading activities, however, since the investment portfolio serves as a source of liquidity, most debt securities and all marketable equity securities are classified as available for sale. Securities available for sale are carried at estimated fair value with the related unrealized holding gains and losses reported in shareholders’ equity as a component of other comprehensive income, net of tax. Realized security gains and losses are computed using the specific identification method and are recorded on a trade date basis. Securities are evaluated periodically to determine whether a decline in their value is other than temporary. Declines in value that are determined to be other than temporary are recorded as realized losses.

Loans and Revenue Recognition:Loan and lease financing receivables are stated at their principal amount outstanding, except for loans held for sale which are carried at the lower of aggregate cost or market value. Interest income on loans is accrued as earned. Unearned income on lease financing receivables is recognized on a basis which approximates the effective yield method. Premiums and discounts on purchased loans are amortized as an adjustment to interest income using the effective yield method.

Accrual of interest income is generally discontinued when a loan becomes 90 days past due as to principal or interest, except for adequately collateralized ~~residential~~ mortgage loans. When interest accruals are discontinued, unpaid interest credited to income is reversed. Non-accrual loans are restored to accrual status when all delinquent principal and interest become current or the loan is considered secured and in the process of collection.

~~Derivative Financial Instruments:~~As of December 31, 2005, interest rate swaps with a notional amount of $280 million were used to hedge certain long-term fixed rate certificates of deposit. The terms of the certificates of deposit and the interest rate swaps mirror each other and were committed to simultaneously. Under the terms of the swap agreements, the Corporation is the fixed rate receiver and the floating rate payer (generally tied to the three month London Interbank Offering Rate, or LIBOR, a common index used for setting rates between financial institutions). The interest rate swaps are classified as fair value hedges and both the interest rate swaps and the certificates of deposit are recorded at fair value. Changes in the fair values during the period are recorded in interest expense. For interest rate swaps accounted for as a fair value hedge, ineffectiveness is the difference between the changes in the fair value of the

interest rate swap and the hedged item, in this case certificates of deposit. The Corporation’s analysis of hedge effectiveness indicated they were 97.1% effective as of December 31, 2005. As a result, a $110,000 charge to expense was recorded for the year ended December 31, 2005, compared to a $14,000 favorable adjustment to income for the year ended December 31, 2004.

The Corporation entered into a forward-starting interest rate swap with a notional amount of $150 million in October 2005 in anticipation of the issuance of $150 million of trust preferred securities in January 2006. This was accounted for as a cash flow hedge as it hedges the variability of interest payments attributable to changes in interest rates on the forecasted issuance of fixed-rate debt. The Corporation’s analysis indicated the hedge was effective as of December 31, 2005. Therefore, during the year ended December 31, 2005, the Corporation recorded a $2.2 million other comprehensive loss (net of $1.2 million tax effect) to recognize the fair value change of this derivative. The Corporation settled this derivative in January 2006 for a total of $5.5 million. The total amount recorded to other comprehensive loss will be amortized to interest expense over the life of the related securities using the effective interest method. The total amount of net losses in accumulated other comprehensive income that will be reclassified into earnings in 2006 is expected to be approximately $170,000.

Loan Origination Fees and Costs:Loan origination fees and the related direct origination costs are offset and the net amount is deferred and amortized over the life of the loan using the effective interest method as an adjustment to interest income. For mortgage loans sold, the net amount is included in gain or loss upon the sale of the related mortgage loan.

Allowance for Loan Losses:The allowance for loan losses is increased by charges to expense and decreased by charge-offs, net of recoveries. Management’s periodic evaluation of the adequacy of the allowance for loan losses is based on the Corporation’s past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrowers’ ability to repay, the estimated fair value of the underlying collateral, and current economic conditions. Management believes that the allowance for loan losses is adequate, however, future changes to the allowance may be necessary based on changes in any of these factors.

The allowance for loan losses consists of two components – specific allowances allocated to individually impaired loans, as defined by the Financial Accounting Standards Board’s (FASB) Statement of Financial Accounting Standards No. 114, “Accounting by Creditors for Impairment of a Loan” (Statement 114), and allowances calculated for pools of loans under Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies” (Statement 5).

Commercial loans and commercial mortgages are reviewed for impairment under Statement 114 if they are both greater than $100,000 and are rated less than “satisfactory” based upon the Corporation’s internal credit-rating process. A satisfactory loan does not present more than a normal credit risk based on the strength of the borrower’s management, financial condition and trends, and the type and sufficiency of underlying collateral. It is expected that the borrower will be able to satisfy the terms of the loan agreement.

A loan is considered to be impaired when, based on current information and events, it is probable that the Corporation will be unable to collect all amounts due according to the contractual terms of the loan agreement. Generally, these are loans that management has placed on non-accrual status. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, or at the loan’s observable market price or fair value of the collateral if the loan is collateral dependent. An allowance is allocated to an impaired loan if the carrying value exceeds the calculated estimated fair value.

All loans not reviewed for impairment are evaluated under Statement 5. In addition to commercial loans and mortgages not meeting the impairment evaluation criteria discussed above, these include residential mortgages, consumer loans, installment loans and lease receivables. These loans are segmented into groups with similar characteristics and an allowance for loan losses is allocated to each segment based on quantitative factors such as recent loss history and qualitative factors such as economic conditions and trends.

Loans and lease financing receivables deemed to be a loss are written off through a charge against the allowance for loan losses. Consumer loans are generally charged off when they become 120 days past due if they are not adequately secured by real estate. All other loans are evaluated for possible charge-off when ~~they reach 90 days past due. Such loans or portions thereof are charged-off when~~ it is probable that the balance will not be collected, based on the ability of the borrower to pay and the value of the underlying collateral. Recoveries of loans previously charged off are recorded as an increase to the allowance for loan losses. Past due status is determined based on contractual due dates for loan payments.

Lease financing receivables include both open and closed end leases for the purchase of vehicles and equipment. Residual values are set at the inception of the lease and are reviewed periodically for impairment. If the impairment is considered to be ~~other-than-temporary,~~other than temporary, the resulting reduction in the net investment in the lease is recognized as a loss in the period.

Premises and Equipment:Premises and equipment are stated at cost, less accumulated depreciation and amortization. The provision for depreciation and amortization is generally computed using the straight-line method over the estimated useful lives of the related assets, which are a maximum of 50 years for buildings and improvements, ~~and eight~~8 years for furniture and 5 years for equipment. Leasehold improvements are amortized over the shorter of 15 years or the ~~noncancelable~~non-cancelable lease term. Interest costs incurred during the construction of major bank premises are capitalized.

Other Real Estate Owned:Assets acquired in settlement of mortgage loan indebtedness are recorded as other real estate owned and are included in other assets initially at the lower of the estimated fair value of the asset less estimated selling costs or the carrying amount of the loan. Costs to maintain the assets and subsequent gains and losses on sales are included in other income and other expense.

Mortgage Servicing Rights:The estimated fair value of mortgage servicing rights (MSR’s) related to loans sold and serviced by the Corporation is recorded as an asset upon the sale of such loans. MSR’s are amortized as a reduction to servicing income over the estimated lives of the underlying loans. In addition, MSR’s are evaluated quarterly for impairment ~~based on prepayment experience~~ and, if necessary, additional amortization is recorded.

156 also provides guidance on subsequent measurement methods for each class of separately recognized servicing assets and liabilities and specifies financial statement presentation and disclosure requirements. This statement is effective for fiscal years beginning after September 15, 2006, or January 1, 2007 for the Corporation. The Corporation has elected to continue amortizing MSR’s over the estimated lives of the underlying loans. As a result, the adoption of this standard did not impact the Corporation’s consolidated financial statements.

Derivative Financial Instruments:As of December 31, 2006, interest rate swaps with a notional amount of $290.0 million were used to hedge certain long-term fixed rate certificates of deposit. The terms of the certificates of deposit and the interest rate swaps are similar and were committed to simultaneously. Under the terms of the swap agreements, the Corporation is the fixed rate receiver and the floating rate payer (generally tied to the three month London Interbank Offering Rate, or LIBOR, a common index used for setting rates between financial institutions). The interest rate swaps are classified as fair value hedges and both the interest rate swaps and the certificates of deposit are recorded at fair value, with changes in the fair values during the period recorded to other income or expense. For interest rate swaps accounted for as fair value hedges, ineffectiveness is the difference between the changes in the fair value of the interest rate swaps and the hedged items, in this case the certificates of deposit. The Corporation’s analysis of effectiveness indicated the hedges were highly effective as of December 31, 2006. For the year ended December 31, 2006, a net gain of $217,000 was recorded in other expense, representing the net impact of the changes in fair values of the interest rate swaps and the certificates of deposit, compared to a net loss of $110,000 recorded for the year ended December 31, 2005.

The Corporation entered into a forward-starting interest rate swap with a notional amount of $150.0 million in October 2005 in anticipation of the issuance of $150.0 million of trust preferred securities in January 2006. This was accounted for as a cash flow hedge as it hedges the variability of interest payments attributable to changes in interest rates on the forecasted issuance of fixed-rate debt. As of December 31, 2005, $2.2 million had been recorded as an other comprehensive loss, representing the estimated fair value of the swap on that date, net of a $1.2 million tax effect. The Corporation settled this derivative in January 2006 for a total payment of $5.5 million to the counterparty that resulted in an additional $1.4 million charge to other comprehensive loss, net of a $751,000 tax effect. The total amount recorded to other comprehensive loss, $3.6 million, is being amortized to interest expense over the life of the related securities using the effective interest method. The total amount of net losses in accumulated other comprehensive loss that will be reclassified to interest expense in 2007 is expected to be approximately $185,000.

In February 2006, the FASB issued Statement of Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Financial Instruments – an amendment of FASB Statements No. 133 and 140” (Statement 155). Statement 155 amends the guidance in FASB Statements No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” Statement 155 allows financial instruments that have embedded derivatives to be accounted for as a whole, thereby eliminating the need to bifurcate the derivative from its host, if the holder elects to account for the whole instrument on a fair value basis. Statement 155 is effective for all financial instruments acquired, issued, or subject to a remeasurement date after the beginning of a company’s first fiscal year that begins after September 15, 2006, or January 1, 2007 for the Corporation. Adoption of Statement 155 did not have an impact on the Corporation’s consolidated financial statements.

Income Taxes:The provision for income taxes is based upon income before income taxes, adjusted primarily for the effect of tax-exempt income and net credits received from investments in low and moderate income housing ~~partnerships.~~partnerships (LIH investments). Certain items of income and expense are reported in different periods for financial reporting and tax return purposes. The tax effects of these temporary differences are recognized currently in the deferred income tax provision or benefit. Deferred tax assets or liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the applicable enacted marginal tax rate. Deferred income tax expenses or benefits are based on the changes in the deferred tax asset or liability from period to period.

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48). The interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. Specifically, the interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation is effective for fiscal years beginning after December 15, 2006, or January 1, 2007 for the Corporation. The Corporation is evaluating the impact of FIN 48 in all tax positions and does not believe there is any material impact of adopting FIN 48 on the Corporation’s consolidated financial statements.

Stock-Based Compensation:The Corporation accounts for its stock-based compensation awards in accordance with Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” (Statement 123R)~~. Statement 123R~~, which requires public companies to recognize compensation expense related to stock-based compensation awards in their income statements. Compensation expense is equal to the

fair value of the stock-based compensation awards, net of estimated forfeitures, and is recognized over the vesting period of such awards.

Net Income Per Share:The Corporation’s 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. ~~Excluded from the calculation were anti-dilutive options totaling 1.1 million in 2005.~~

A reconciliation of the weighted average shares outstanding used to calculate basic net income per share and diluted net income per share follows. There were no adjustments to net income to arrive at diluted net income per share.


	2005		2004		2003		2006		2005		2004
			(in thousands)				(in thousands)
Weighted average shares outstanding (basic)		156,413		149,294		140,335		172,830		164,234		156,759
Impact of common stock equivalents		1,930		1,614		1,176		2,042		2,026		1,694

Weighted average shares outstanding (diluted)		158,343		150,908		141,511		174,872		166,260		158,453


Stock options excluded from the diluted shares computation as their effect would have been anti-dilutive								2,179		1,197		—

Disclosures about Segments of an Enterprise and Related Information: The Corporation does not have any operating segments which require disclosure of additional information. While the Corporation owns ~~fourteen~~several separate banks, each engages in similar activities, provides similar products and services, and operates in the same general geographical area. The Corporation’s non-banking activities are immaterial and, therefore, separate information has not been disclosed.

Financial Guarantees: Financial guarantees, which consist primarily of standby and commercial letters of credit, are accounted for by recognizing a liability equal to the fair value of the guarantees and crediting the liability to income over the term of the guarantee. Fair value is estimated using the fees currently charged to enter into similar agreements with similar terms.

Business Combinations and Intangible Assets: The Corporation accounts for its acquisitions using the purchase accounting method as required by Statement of Financial Accounting Standards No. 141, “Business Combinations”. Purchase accounting requires the total purchase price to be allocated to the estimated fair values of assets and liabilities acquired, including certain intangible assets that must be recognized. Typically, this allocation results in ~~a residual amount in excess~~the purchase price exceeding the fair value of ~~the~~ net ~~fair values,~~assets acquired, which is recorded as goodwill.

As required by Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (Statement 142), goodwill is not amortized to expense, but is tested for impairment at least annually. Write-downs of the balance, if necessary as a result of the impairment test, are to be charged to ~~the results of operations~~expense in the period in which ~~the impairment~~goodwill is ~~determined.~~determined to be impaired. The Corporation ~~performed~~performs its annual ~~tests~~test of goodwill impairment onas of October 3131st of each year. Based on the results of these tests the Corporation concluded that there was no impairment and no write-downs were ~~recorded.~~recorded in 2006, 2005 or 2004. If certain events occur which might indicate goodwill has been impaired between annual tests, the goodwill ismust be tested when such events occur.

As required by Statement of Financial Accounting Standards No. 147, “Acquisitions of Certain Financial Institutions” ~~(Statement 147)~~ the excess purchase price recorded in qualifying branch acquisitions are treated in the same manner as Statement 142 goodwill.

Variable Interest Entities: FASB Interpretation No. 46, “Consolidation of Variable Interest Entities – An Interpretation of ARB No. 51” (FIN 46), provides guidance on when to consolidate certain Variable Interest Entities (VIE’s) in the financial statements of the Corporation. VIE’s are entities in which equity investors do not have a controlling financial interest or do not have sufficient equity at risk for the entity to finance activities without additional financial support from other parties. Under FIN 46, a company must consolidate a VIE if the company has a variable interest that will absorb a majority of the VIE’s losses, if they occur, and/or receive a majority of the VIE’s residual returns, if they occur. For the Corporation, FIN 46 affects ~~corporation-obligated mandatorily redeemable capital~~ securities issued by subsidiary trusts (Subsidiary Trusts) and its ~~investments~~LIH investments.

As required by Staff Position FIN 46(R)-6, “Determining the Variability to Be Considered in ~~low~~Applying FASB Interpretation No. 46(R)” (Staff Position FIN 46(R)-6), the Corporation has addressed how an entity should determine the variability to be considered in applying FIN 46, including, the determination of (a) whether the entity is a VIE, (b) which interests are “variable interests” in the entity and ~~moderate-income housing partnerships (LIH investments).~~(c) which party, if any, is the primary beneficiary of the VIE. The staff position had no impact the Corporation’s consolidated financial statements.

The provisions of FIN 46 related to Subsidiary Trusts, as interpreted by the Securities and Exchange Commission (SEC), disallow consolidation of Subsidiary Trusts in the financial statements of the Corporation. As a result, securities that were issued by the trusts (Trust Preferred Securities) are not included in the Corporation’s consolidated balance sheets. The junior subordinated debentures issued by the Parent Company to the Subsidiary Trusts, which have the same total balance and rate as the combined equity securities and trust preferred securities issued by the Subsidiary Trusts, remain in long-term debt (See Note I, ~~“Short Term~~“Short-Term Borrowings and Long-Term Debt”). The adoption of FIN 46 with respect to Subsidiary Trusts had no impact on net income or net income per share as the terms of the junior subordinated debentures mirror the terms of the Trust Preferred Securities.

Current regulatory capital rules allow Trust Preferred Securities to be included as a component of regulatory capital. This treatment has continued despite the adoption of FIN 46. If banking regulators make a determination that Trust Preferred Securities can no longer be considered in regulatory capital, the securities become callable and the Corporation may redeem them.

LIH Investments are amortized under the effective interest method over the life of the Federal income tax credits generated as a result of such investments, generally ten years. At December 31, ~~2005~~2006 and ~~2004,~~2005, the Corporation’s LIH Investments, included in other assets in the consolidated balance sheets, totaled ~~$44.2~~$41.3 million and ~~$52.0~~$44.2 million, respectively. The net income tax benefit associated with these investments was $3.9 million, $4.9 million, and $4.5 million in 2006, 2005 and ~~$4.0 million in 2005,~~ 2004, ~~and 2003,~~ respectively. None of the Corporation’s LIH Investments met the consolidation criteria of FIN 46 or Staff Position FIN 46(R)-6 as of December 31, ~~2005~~2006 or ~~2004.~~2005.

~~Accounting for Certain Loans or Debt Securities Acquired in a Transfer~~Fair Value Measurements: In ~~December 2003,~~September 2006, the ~~Accounting Standards Executive Committee~~FASB issued Statement of ~~Position 03-3 (SOP 03-3), “Accounting~~Financial Accounting Standards No. 157, “Fair Value Measurement” (Statement 157). Statement 157 defines fair value, establishes a framework for ~~Certain Loans or Debt Securities Acquired~~measuring fair value in ~~a Transfer”. SOP 03-3 addresses accounting~~U.S. GAAP, and expands disclosure requirements for ~~differences between contractual cash flows~~fair value measurements. Statement 157 does not require any new fair value measurements and cash flows expected to be collected from an investor’s initial investment in loans or debt securities acquired in a transfer, including business combinations, if those differences are attributable, at least in part, to credit quality.

~~SOP 03-3 became~~is effective for ~~the Corporation on~~financial statements issued for fiscal years beginning after November 15, 2007, or January 1, ~~2005 and was applicable to~~2008 for the ~~July 2005 acquisition~~Corporation. The Corporation is currently evaluating the impact of ~~SVB Financial Services, Inc. Few of the loans acquired in this transaction met the scope of SOP 03-3 and, as such, there was no material impact~~Statement 157 on the consolidated financial statements.

~~Other-Than-Temporary Impairment~~Endorsement Split-Dollar Life Insurance Arrangements: In ~~2004,~~September 2006, the FASB ratified Emerging Issues Task Force (EITF) ~~released~~issue 06-4, “Accounting for Deferred Compensation and Post-retirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements ” (EITF 06-4). EITF ~~Issue 03-01,~~06-4 addresses accounting for endorsement split-dollar life insurance arrangements that provide a benefit to an employee that extends to post-retirement periods. EITF 06-4 would require that the post-retirement benefit aspects of an endorsement-type split-dollar life insurance arrangement be recognized as a liability by the employer and that the obligation is not settled upon entering into an insurance arrangement. EITF 06-4 is effective for fiscal years beginning after December 15, 2007, or January 1, 2008 for the Corporation. The Corporation is currently evaluating the impact of EITF 06-4 on the consolidated financial statements.

Fair Value Option for Financial Assets and Liabilities: In February 2007, the FASB issued Statement No. 159, “The ~~Meaning~~Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of ~~Other-Than-Temporary Impairment~~FASB Statement No. 115” (Statement 159). Statement 159 permits entities to choose to measure many financial instruments and ~~its Application~~certain other items at fair value and amends Statement 115 to, ~~Certain Investments” (EITF 03-01), which provides guidance for evaluating whether an investment is other-than-temporarily impaired and requires~~among other things, require certain disclosures ~~with respect~~for amounts for which the fair value option is applied. Additionally, this standard provides that an entity may reclassify held-to-maturity and available-for-sale securities to ~~these investments.~~

~~In June 2005,~~ the ~~FASB voted to nullify certain provisions of EITF 03-1 which addressed~~trading account when the ~~evaluation of an impairment to determine whether it was other-than-temporary. In general, these provisions required companies to declare their ability and~~fair value option is elected for such securities, without calling into question the intent to hold ~~other-than-temporarily impaired investments until they recovered their losses. If a company were unable~~other securities to ~~make this declaration, write-downs of investment securities through losses charged to~~maturity in the ~~income statement would be required. The~~future. This standard is effective ~~date of these provisions was originally delayed in September 2004, due to industry concerns about the potential impact of this proposed accounting.~~

~~Adoption~~as of the ~~surviving provisions~~beginning of ~~EITF 03-1 did not have~~an entity’s first fiscal year that begins after November 15, 2007, or January 1, 2008 for the Corporation. Early adoption is permitted as of the beginning of a ~~material impact~~fiscal year that begins on or before November 15, 2007, provided the ~~Corporation’s financial condition or results of operations. The Corporation continues~~entity also elects to apply the provisions of ~~existing authoritative literature in evaluating~~Statement 157. The Corporation has not completed its ~~investments for other-than-temporary impairment.~~

~~Loan Products That May Give Rise to a Concentration~~assessment of ~~Credit Risk:~~~~In December 2005,~~SFAS 159 and the FASB issued Staff Position No. SOP 94-6-1, “Terms of Loan Products That May Give Rise to a Concentration of Credit Risk” (SOP 94-6-1), which requires separate fair value disclosures for loan products that increase an entity’s exposure to credit risk. Loan products that result in an increased exposure risk include, but are not limited to, products with characteristics such as: borrowers subject to significant payment increases, loans with terms that permit negative amortization, or loans with high loan-to-value ratios. SOP 94-6-1 became effective for the Corporation on December 31, 2005, and did not have a material impact, if any, on the ~~Corporation’s~~ consolidated financial statements.

Reclassifications and Restatements:Certain amounts in the ~~2004~~2005 and ~~2003~~2004 consolidated financial statements and notes have been reclassified to conform to the ~~2005~~2006 presentation.

The Corporation paid a 5% stock dividend in June 2006. All share and per-share ~~data have~~information has been restated to reflect the impact of ~~the 5-for-4~~this stock split paid in the form of a 25% stock dividend in June 2005. As a result of adopting Statement 123R in 2005 using the “modified retrospective application”, prior period financial information has been restated. See Note M, “Stock-Based Compensation Plans and Shareholders’ Equity” for more information.dividend.

NOTE B – RESTRICTIONS ON CASH AND DUE FROM BANKS

The Corporation’s subsidiary banks are required to maintain reserves, in the form of cash and balances with the Federal Reserve Bank, against their deposit liabilities. The ~~average~~ amount of such reserves ~~during~~as of December 31, 2006 and 2005 ~~and 2004~~ was ~~approximately $106.9~~$13.7 million and ~~$100.8~~$97.4 million, respectively.

5058

NOTE C – INVESTMENT SECURITIES

The following tables present the amortized cost and estimated fair values of investment securities as of December 31:


												Gross		Gross			Estimated
										Amortized		Unrealized		Unrealized			Fair
										Cost		Gains		Losses			Value
										(in thousands)
2006 Held to Maturity

U.S. Government sponsored agency securities										$	7,648	$	—	$	(68	)	$	7,580
State and municipal securities											1,262		11		—			1,273
Corporate debt securities											75		—		—			75
Mortgage-backed securities											3,539		68		(1	)		3,606


										$	12,524	$	79	$	(69	)	$	12,534


2006 Available for Sale

Equity securities										$	165,931	$	2,960	$	(3,255	)	$	165,636
U.S. Government securities											17,062		5		(1	)		17,066
U.S. Government sponsored agency securities											289,816		129		(1,480	)		288,465
State and municipal securities											493,525		1,599		(6,845	)		488,279
Corporate debt securities											69,575		1,449		(387	)		70,637
Collateralized mortgage obligations											494,484		1,609		(3,569	)		492,524
Mortgage-backed securities											1,376,651		2,265		(35,809	)		1,343,107
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair		$	2,907,044	$	10,016	$	(51,346	)	$	2,865,714
	Cost		Gains		Losses			Value
	(in thousands)
2005 Held to Maturity

U.S. Government sponsored agency securities	$	7,512	$	—	$	(103	)	$	7,409	$	7,512	$	—	$	(103	)	$	7,409
State and municipal securities		5,877		19		—			5,896		5,877		19		—			5,896
Mortgage-backed securities		4,869		143		—			5,012		4,869		143		—			5,012

	$	18,258	$	162	$	(103	)	$	18,317	$	18,258	$	162	$	(103	)	$	18,317


2005 Available for Sale

Equity securities	$	137,462	$	2,029	$	(3,959	)	$	135,532	$	137,462	$	2,029	$	(3,959	)	$	135,532
U.S. Government securities		35,124		—		(6	)		35,118		35,124		—		(6	)		35,118
U.S. Government sponsored agency securities		206,340		92		(1,250	)		205,182		213,748		163		(1,261	)		212,650
State and municipal securities		444,034		1,044		(6,091	)		438,987		444,034		1,044		(6,091	)		438,987
Corporate debt securities		64,478		1,860		(504	)		65,834		64,478		1,860		(504	)		65,834
Collateralized mortgage obligations											265,033		301		(2,831	)		262,503
Mortgage-backed securities		1,718,237		928		(55,931	)		1,663,234		1,445,796		556		(53,089	)		1,393,263

	$	2,605,675	$	5,953	$	(67,741	)	$	2,543,887	$	2,605,675	$	5,953	$	(67,741	)	$	2,543,887


2004 Held to Maturity

U.S. Government sponsored agency securities	$	6,903	$	78	$	(55	)	$	6,926
State and municipal securities		10,658		65		—			10,723
Corporate debt securities		650		1		—			651
Mortgage-backed securities		6,790		323		—			7,113

	$	25,001	$	467	$	(55	)	$	25,413


2004 Available for Sale

Equity securities	$	163,249	$	7,822	$	(1,006	)	$	170,065
U.S. Government securities		68,497		—		(48	)		68,449
U.S. Government sponsored agency securities		60,332		144		—			60,476
State and municipal securities		328,726		4,350		(621	)		332,455
Corporate debt securities		68,215		3,053		(141	)		71,127
Mortgage-backed securities		1,750,080		1,427		(29,221	)		1,722,286

	$	2,439,099	$	16,796	$	(31,037	)	$	2,424,858

The Corporation applies all payments received on non-accruing impaired loans to principal until such time as the principal is paid off, after which time any additional payments received are recognized as interest income. ~~Payments received on accruing impaired loans are applied to principal and interest according to the original terms of the loan.~~ The Corporation recognized interest income of approximately ~~$7.7 million, $5.6 million~~$636,000, $462,000 and ~~$3.9 million~~$55,000 on impaired loans in 2006, 2005 ~~2004~~ and ~~2003,~~2004, respectively.

The Corporation has extended credit to the officers and directors of the Corporation and to their associates. Related-party loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and do not involve more than the normal risk of collectibility. The aggregate dollar amount of these loans, including unadvanced commitments, was ~~$267.2~~$273.8 million and ~~$209.8~~$267.2 million at December 31, ~~2005~~2006 and ~~2004,~~2005, respectively. During ~~2005,~~2006, additions totaled ~~$74.5~~$65.3 million and repayments totaled ~~$18.4~~$90.0 million. ~~Somerset Valley~~The Columbia Bank added ~~$1.3~~$16.4 million to related party loans.

The total portfolio of mortgage loans serviced by the Corporation for unrelated third parties was ~~$1.2 billion~~$981.4 million and $1.1 billion at December 31, ~~2005~~2006 and ~~2004,~~2005, respectively.

NOTE E – PREMISES AND EQUIPMENT

The following is a summary of premises and equipment as of December 31:


	2005			2004			2006			2005
	(in thousands)						(in thousands)
Land	$	26,693		$	25,253		$	30,610		$	26,693
Buildings and improvements		180,153			149,700			203,551			180,153
Furniture and equipment		119,179			105,406			136,576			119,179
Construction in progress		5,483			10,967			8,034			5,483

		331,508			291,326			378,771			331,508
Less: Accumulated depreciation and amortization		(161,254	)		(144,415	)		(187,370	)		(161,254	)

	$	170,254		$	146,911		$	191,401		$	170,254

The following table presents information related to securities sold under agreements to repurchase:

~~In 2004, the~~


	December 31
	2006			2005			2004
	(dollars in thousands)
Amount outstanding at December 31	$	339,207		$	352,937		$	500,206
Weighted average interest rate at year end		3.57	%		2.61	%		1.03	%
Average amount outstanding during the year	$	356,561		$	436,244		$	531,196
Weighted average interest rate during the year		3.40	%		2.12	%		0.97	%

The Corporation ~~entered into~~has a ~~$50.0~~$100.0 million revolving line of credit agreement with an unaffiliated bank that provides for interest to be paid on outstanding balances at the one-month ~~London Interbank Offering Rate (LIBOR)~~LIBOR plus ~~0.27%~~0.35%. ~~There was no balance outstanding on the line at December 31, 2005.~~ The credit agreement requires the Corporation to maintain certain financial ratios related to capital strength and earnings. The Corporation was in compliance with all required covenants under the credit agreement as of December 31, ~~2005.~~

~~The following table presents information related to securities sold under agreements to repurchase:~~

December 31
2005 2004 2003
(dollars in thousands)
Amount outstanding at December 31 $ 352,937 $ 500,206 $ 408,697
Weighted average interest rate at year end 2.61 % 1.03 % 0.72 %
Average amount outstanding during the year $ 435,922 $ 531,196 $ 351,302
Weighted average interest rate during the year 2.12 % 0.97 % 0.83 %
2006.

Federal Home Loan Bank advances and long-term debt included the following as of December 31:


	2005		2004		2006			2005
	(in thousands)				(in thousands)
Federal Home Loan Bank advances	$	717,037	$	645,461	$	998,521		$	717,037
Junior subordinated deferrable interest debentures		40,724		34,022		206,705			40,724
Subordinated debt		100,000		—		100,000			100,000
Other long-term debt, including unamortized issuance costs		2,584		4,753
Other long-term debt						1,999			3,880
Unamortized issuance costs						(3,077	)		(1,296	)

	$	860,345	$	684,236	$	1,304,148		$	860,345

~~The~~In addition to Fulton Capital Trust I, the Parent Company owns all of the common stock of ~~six~~eight Subsidiary Trusts, which have issued Trust Preferred Securities in conjunction with the Parent Company issuing junior subordinated deferrable interest debentures to the trusts. The terms of the junior subordinated deferrable interest debentures are the same as the terms of the Trust Preferred Securities. The Parent Company’s obligations under the debentures constitute a full and unconditional guarantee by the Parent Company of the obligations of the trusts. The Trust Preferred Securities are redeemable on specified dates, or earlier if the deduction of interest for Federal income taxes is prohibited, the Trust Preferred Securities no longer qualify as Tier I regulatory capital, or if certain other contingencies arise. The Trust Preferred Securities must be redeemed upon maturity. The following table details the terms of the debentures (dollars in thousands):


		Rate at								Rate at
	Fixed/	December 31,							Fixed/	December 31,							Callable
Debentures Issued to	Variable	2005			Amount		Maturity	Callable	Variable	2006			Amount		Maturity	Callable	Rate
Premier Capital Trust	Fixed		8.57	%	$	10,310	8/15/2028	8/15/2008	Fixed		8.57	%	$	10,310	8/15/2028	8/15/2008		104.3	%
PBI Capital Trust II	Variable		7.79	%		15,464	11/7/2032	11/7/2007	Variable		8.86	%		15,464	11/7/2032	11/7/2007		100.0
Resource Capital Trust II	Variable		8.42	%		5,155	12/8/2031	12/8/2006
Resource Capital Trust III	Variable		7.79	%		3,093	11/7/2032	11/7/2007	Variable		8.86	%		3,093	11/7/2032	11/7/2007		100.0
Bald Eagle Statutory Trust I	Variable		7.82	%		4,124	7/31/2031	7/31/2006	Variable		8.81	%		4,124	7/31/2031	7/31/2006		107.5
Bald Eagle Statutory Trust II	Variable		7.97	%		2,578	6/26/2032	6/26/2007	Variable		8.92	%		2,578	6/26/2032	6/26/2007		100.0
Columbia Capital Trust I									Variable		8.01	%		6,186	6/30/2039	6/30/2009		100.0
Columbia Capital Trust II									Variable		7.25	%		4,124	3/15/2035	3/15/2010		100.0
Columbia Capital Trust III									Variable		7.13	%		6,186	6/15/2035	6/15/2010		100.0
Fulton Capital Trust I									Fixed		6.29	%		154,640	12/31/2036	NA		NA

					$	40,724							$	206,705

Regulatory Capital Requirements

The Corporation’s subsidiary banks are subject to various regulatory capital requirements administered by banking regulators. Failure to meet minimum capital requirements can initiate certain mandatory – and possibly additional discretionary – actions by regulators that, if undertaken, could have a direct material effect on the Corporation’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the subsidiary banks must meet specific capital guidelines that involve quantitative measures of the subsidiary banks’ assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The subsidiary banks’ capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the subsidiary banks to maintain minimum amounts and ratios of total and Tier I capital to risk-weighted assets, and of Tier I capital to average assets (as defined in the regulations). Management believes, as of December 31, ~~2005,~~2006, that all of its bank subsidiaries meet the capital adequacy requirements to which they are subject.

As of December 31, ~~2005~~2006, the Corporation’s five significant subsidiaries, Fulton Bank, The Columbia Bank, Lafayette Ambassador Bank, The Bank and ~~2004,~~Resource Bank were well-capitalized under the regulatory framework for prompt corrective action based on their capital ratio calculations. As of December 31, 2005, the Corporation’s four significant subsidiaries, Fulton Bank, Lafayette Ambassador Bank, The Bank and Resource Bank were ~~well capitalized under the regulatory framework for prompt corrective action based on their capital ratio calculations.~~also well-capitalized. To be categorized as well-capitalized, these banks must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the following table. There are no conditions or events since December 31, ~~2005~~2006 that management believes have changed the institutions’ categories.

The following tables present the total risk-based, Tier I risk-based and Tier I leverage requirements for the Corporation and its significant subsidiaries with total assets in excess of $1.0 billion.


						For Capital															For Capital
	Actual					Adequacy Purposes					Well-Capitalized					Actual					Adequacy Purposes					Well-Capitalized
As of December 31, 2005	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2006																Amount		Ratio			Amount		Ratio			Amount		Ratio
						(dollars in thousands)															(dollars in thousands)
Total Capital (to Risk-Weighted Assets):
Corporation	$	1,102,891		12.1	%	$	730,115		8.0	%	$	912,644		10.0	%	$	1,287,443		11.7	%	$	880,074		8.0	%	$	1,100,093		10.0	%
Fulton Bank		409,653		11.1			295,353		8.0			369,191		10.0			496,555		11.2			356,238		8.0			445,297		10.0
The Columbia Bank																	147,565		11.9			99,272		8.0			124,090		10.0
The Bank																	119,237		11.4			83,679		8.0			104,599		10.0
Lafayette Ambassador Bank		102,007		11.6			70,539		8.0			88,173		10.0			107,102		10.7			80,069		8.0			100,086		10.0
The Bank		101,532		11.0			73,965		8.0			92,456		10.0
Resource Bank		105,343		11.9			70,786		8.0			88,482		10.0			107,459		11.2			76,921		8.0			96,151		10.0

Tier I Capital (to Risk-Weighted Assets):
Corporation	$	910,044		10.0	%	$	365,057		4.0	%	$	547,586		6.0	%	$	1,083,953		9.9	%	$	440,037		4.0	%	$	660,056		6.0	%
Fulton Bank		323,466		8.8			147,676		4.0			221,515		6.0			401,584		9.0			178,119		4.0			267,178		6.0
The Columbia Bank																	134,167		10.8			49,636		4.0			74,454		6.0
The Bank																	96,821		9.3			41,840		4.0			62,759		6.0
Lafayette Ambassador Bank		85,331		9.7			35,269		4.0			52,904		6.0			90,332		9.0			40,035		4.0			60,052		6.0
The Bank		80,820		8.7			36,983		4.0			55,474		6.0
Resource Bank		86,825		9.8			35,393		4.0			53,089		6.0			89,215		9.3			38,460		4.0			57,691		6.0

Tier I Capital (to Average Assets):
Corporation	$	910,044		7.7	%	$	355,090		3.0	%	$	591,817		5.0	%	$	1,083,953		7.7	%	$	425,125		3.0	%	$	708,541		5.0	%
Fulton Bank		323,466		7.1			137,077		3.0			228,462		5.0			401,584		7.1			168,974		3.0			281,624		5.0
The Columbia Bank																	134,167		9.2			43,573		3.0			72,622		5.0
The Bank																	96,821		7.5			38,821		3.0			64,701		5.0
Lafayette Ambassador Bank		85,331		7.0			36,492		3.0			60,821		5.0			90,332		7.0			38,942		3.0			64,904		5.0
The Bank		80,820		7.0			34,606		3.0			57,676		5.0
Resource Bank		86,825		7.9			33,116		3.0			55,194		5.0			89,215		7.0			38,209		3.0			63,681		5.0


						For Capital															For Capital
	Actual					Adequacy Purposes					Well-Capitalized					Actual					Adequacy Purposes					Well-Capitalized
As of December 31, 2004	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2005																Amount		Ratio			Amount		Ratio			Amount		Ratio
						(dollars in thousands)										(dollars in thousands)
Total Capital (to Risk-Weighted Assets):
Corporation	$	981,000		11.8	%	$	667,522		8.0	%	$	834,402		10.0	%	$	1,102,891		12.1	%	$	730,115		8.0	%	$	912,644		10.0	%
Fulton Bank		401,961		11.2			286,697		8.0			358,372		10.0			409,653		11.1			295,353		8.0			369,191		10.0
Lafayette Ambassador Bank		95,631		11.4			67,124		8.0			83,905		10.0			102,007		11.6			70,539		8.0			88,173		10.0
The Bank		89,891		11.1			64,969		8.0			81,211		10.0			101,532		11.0			73,965		8.0			92,456		10.0
Resource Bank		83,274		11.1			60,241		8.0			75,302		10.0			105,343		11.9			70,786		8.0			88,482		10.0

Tier I Capital (to Risk-Weighted Assets):
Corporation	$	888,526		10.6	%	$	333,761		4.0	%	$	500,641		6.0	%	$	910,044		10.0	%	$	365,057		4.0	%	$	547,586		6.0	%
Fulton Bank		366,633		10.2			143,349		4.0			215,023		6.0			323,466		8.8			147,676		4.0			221,515		6.0
Lafayette Ambassador Bank		86,456		10.3			33,562		4.0			50,343		6.0			85,331		9.7			35,269		4.0			52,904		6.0
The Bank		81,252		10.0			32,485		4.0			48,727		6.0			80,820		8.7			36,983		4.0			55,474		6.0
Resource Bank		75,503		10.0		��	30,121		4.0			45,181		6.0			86,825		9.8			35,393		4.0			53,089		6.0

Tier I Capital (to Average Assets):
Corporation	$	888,526		8.8	%	$	304,392		3.0	%	$	507,319		5.0	%	$	910,044		7.7	%	$	355,090		3.0	%	$	591,817		5.0	%
Fulton Bank		366,633		8.4			130,290		3.0			217,150		5.0			323,466		7.1			137,077		3.0			228,462		5.0
Lafayette Ambassador Bank		86,456		7.4			35,166		3.0			58,609		5.0			85,331		7.0			36,492		3.0			60,821		5.0
The Bank		81,252		7.7			31,762		3.0			52,937		5.0			80,820		7.0			34,606		3.0			57,676		5.0
Resource Bank		75,503		7.7			29,304		3.0			48,839		5.0			86,825		7.9			33,116		3.0			55,194		5.0

The net deferred tax asset recorded by the Corporation is included in other assets and consists of the following tax effects of temporary differences at December 31:


	2005		2004		2006			2005
	(in thousands)				(in thousands)
Deferred tax assets:
Allowance for loan losses	$	32,496	$	31,370	$	37,409		$	32,496
Unrealized holding losses on securities available for sale		21,592		5,155		14,432			21,592
Loss and credit carryforwards						11,111			9,217
Deferred compensation		7,234		6,072		8,954			7,234
Post-retirement and defined benefit plans						5,370			621
LIH Investments		3,318		2,724		3,644			3,318
Post-retirement benefits		3,225		3,403
Other accrued expenses		2,412		1,549		2,594			2,412
Stock-based compensation		1,867		1,797		1,930			1,867
Derivative financial instruments						1,868			1,177
Premises and equipment						1,059			—
Other than temporary impairment of investments		1,400		1,022		568			1,400
Derivative financial instruments		1,177		—
Other		153		1,541		175			129

Total gross deferred tax assets		74,874		54,633		89,114			81,463


Deferred tax liabilities:
Intangible assets						10,368			6,847
Direct leasing		9,357		10,038		5,007			9,357
Intangible assets and acquisition premiums/discounts		8,679		5,014
Mortgage servicing rights		2,653		2,855		2,315			2,653
Acquisition premiums/discounts						983			1,832
Premises and equipment		747		2,003		—			747
Other		5,601		2,522		2,700			2,997

Total gross deferred tax liabilities		27,037		22,432		21,373			24,433


Net deferred tax asset before valuation allowance						67,741			57,030
Valuation allowance						(11,087	)		(9,193	)

Net deferred tax asset	$	47,837	$	32,201	$	56,654		$	47,837

The ~~Corporation has~~valuation allowance relates to state net operating ~~losses (NOL’s)~~loss carryforwards for which realizability is uncertain. At December 31, 2006 and 2005, the Corporation had state net operating loss carryforwards of approximately $195.0 million and $160.0 million, which are available to offset future state taxable income, ~~taxes in certain states~~and expire at various dates through 2026. In assessing the realizability of deferred assets, management considers whether it is more likely than not that ~~are eligible for carryforward credit against~~some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income ~~for a specific number~~during periods in which those temporary differences become deductible. Management considers the scheduled reversal of ~~years. The Corporation does not anticipate generating~~deferred tax liabilities, projected future taxable income and tax planning strategies in ~~these states during~~making this assessment. Based on the ~~carryforward years~~level of historical taxable income and ~~as such,~~projections for future taxable income over the periods in which the deferred tax assets ~~have~~are deductible, management believes it is more likely than not ~~been recognized for these NOL’s.~~

Employees covered under the Pension Plan are also eligible to participate in the Fulton Financial Affiliates 401(k) Savings Plan, which allows employees to defer a portion of their pre-tax salary on an annual basis. At its discretion, the Corporation may also make a matching contribution up to 3%. Participants are 100% vested in the Corporation’s matching contributions after three years of eligible service.

~~The following summarizes the Corporation’s expense under the above plans for the years ended December 31:~~

2005 2004 2003
(in thousands)
Profit Sharing Plan $ 7,801 $ 8,251 $ 6,606
Pension Plan 3,468 3,072 3,025
401(k) Plan 1,376 967 596

$ 12,645 $ 12,290 $ 10,227

~~The net periodic pension cost for the Corporation’s Pension Plan, as determined by consulting actuaries, consisted of the following components for the years ended December 31:~~

2005 2004 2003
(in thousands)
Service cost $ 2,486 $ 2,307 $ 2,178
Interest cost 3,370 3,102 2,952
Expected return on assets (3,273 ) (3,001 ) (2,631 )
Net amortization and deferral 885 664 526

Net periodic pension cost $ 3,468 $ 3,072 $ 3,025

~~The measurement date for the Pension Plan is September 30. The following table summarizes the changes in the projected benefit obligation and fair value of plan assets for the indicated periods:~~

Plan Year Ended
September 30
2005 2004
(in thousands)
Projected benefit obligation, beginning $ 59,265 $ 52,282

Service cost 2,486 2,307
Interest cost 3,370 3,102
Benefit payments (1,673 ) (1,270 )
Actuarial loss 959 2,552
Experience (gain) loss (767 ) 292

Projected benefit obligation, ending $ 63,640 $ 59,265

Fair value of plan assets, beginning $ 41,468 $ 37,980

Employer contributions 10,652 2,622
Actual return on assets 3,010 2,136
Benefit payments (1,673 ) (1,270 )

Fair value of plan assets, ending $ 53,457 $ 41,468

~~The funded status of the Pension Plan and the amounts included in the consolidated balance sheets as of December 31 follows:~~

2005 2004
(in thousands)
Projected benefit obligation $ (63,640 ) $ (59,265 )
Fair value of plan assets 53,457 41,468

Funded status (10,183 ) (17,797 )

Unrecognized net transition asset (38 ) (51 )
Unrecognized prior service cost 72 82
Unrecognized net loss 15,254 15,687
Intangible asset — (82 )
Accumulated other comprehensive loss — (858 )

Pension asset (liability) recognized in the consolidated balance sheets $ 5,105 $ (3,019 )

Accumulated benefit obligation $ 50,434 $ 44,487

Accumulated other comprehensive income was reduced by $858,000 ($558,000, net of tax) as of December 31, 2004 to increase the pension liability to an amount equal to the difference between the accumulated benefit obligation and the fair value of plan assets. This adjustment was reversed in 2005 as a result of the Corporation making a $10.7 million contribution to the plan in September 2005.

~~The following rates were used to calculate net periodic pension cost and the present value of benefit obligations:~~

2005 2004 2003
Discount rate-projected benefit obligation 5.50 % 5.75 % 6.00 %
Rate of increase in compensation level 4.00 4.50 4.50
Expected long-term rate of return on plan assets 8.00 8.00 8.00

The 5.50% discount rate used to calculate the present value of benefit obligations is determined using published long-term AA corporate bond rates as of the measurement date, rounded to the nearest 0.25%. The 8.0% long-term rate of return on plan assets used to calculate the net periodic pension cost is based on historical returns. Total returns for 2005, 2004 and 2003 approximated this rate. The expected long-term return is considered to be appropriate based on the asset mix and the historical returns realized.

~~The following table summarizes the weighted average asset allocations as of September 30:~~

2005 2004
Cash and equivalents 17.0 % 6.0 %
Equity securities 44.0 50.0
Fixed income securities 39.0 44.0

Total 100.0 % 100.0 %

Equity securities consist mainly of equity common trust and mutual funds. Fixed income securities consist mainly of fixed income common trust funds. Defined benefit plan assets are invested with a balanced growth objective, with target asset allocations between 40 and 70 percent for equity securities and 30 to 60 percent for fixed income securities. The Corporation expects to contribute $4.1 million to the pension plan in 2006. Estimated future benefit payments are as follows (in thousands):

Year
2006 $ 1,458
2007 1,495
2008 1,597
2009 1,761
2010 1,992
2011 – 2015 14,587

$ 22,890

Post-retirement Benefits

– The Corporation currently provides medical benefits and a death benefit to certain retired full-time employees who were employees of the Corporation prior to January 1, 1998. Certain full-time employees may become eligible for these discretionary benefits if they reach retirement age while working for the Corporation. Benefits are based on a graduated scale for years of service after attaining the age of 40.

The following summarizes the Corporation’s expense under the Profit Sharing, Pension and 401(k) plans for the years ended December 31:


	2006		2005		2004
	(in thousands)
Profit Sharing Plan	$	8,427	$	7,801	$	8,251
Pension Plan		2,467		3,468		3,072
401(k) Plan		1,892		1,376		967

	$	12,786	$	12,645	$	12,290

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Pension and Other Postretirement Plans” (Statement 158). Statement 158 requires employers to recognize the overfunded or underfunded status of defined benefit pension plans and post-retirement benefits as an asset or liability in its balance sheet and to recognize changes in that funded status in the year in which changes occur through other comprehensive income, in addition to expanded disclosure requirements. The standard requires employers to measure defined benefit plan assets and obligations as of the date of the employer’s fiscal year-end balance sheet, for fiscal years after December 15, 2008, or December 31, 2008 for the Corporation. All other requirements of the standard were effective as of December 31, 2006 for the Corporation. The Corporation adopted Statement 158 on a prospective basis, resulting in a reclassification of the Corporation’s Pension Plan and Post-retirement Benefits liabilities as of December 31, 2006.

The following table summarizes the impact of Statement 158 on the Corporation’s consolidated balance sheets as of December 31, 2006:


				Statement 158 Adjustments
				Increase/(Decrease)
										After
	Before						Post-			Application of
	Application of			Pension			retirement			Statement 158
	Statement 158			Plan			Benefits			(As Reported)
	(in thousands)
Other assets	$	226,337		$	(2,040	)	$	(259	)	$	224,038
Total assets		14,921,263			(2,040	)		(259	)		14,918,964

Other liabilities		117,306			7,239			(738	)		123,805
Total liabilities		13,396,155			7,239			(738	)		13,402,654

Accumulated other comprehensive loss, net of tax		(30,292	)		(9,279	)		480			(39,091	)
Total shareholders’ equity		1,525,109			(9,279	)		480			1,516,310

Pension Plan

The net periodic pension cost for the Corporation’s Pension Plan, as determined by consulting actuaries, consisted of the following components for the years ended December 31:


	2006			2005			2004
	(in thousands)
Service cost	$	2,431		$	2,486		$	2,307
Interest cost		3,457			3,370			3,102
Expected return on assets		(4,227	)		(3,273	)		(3,001	)
Net amortization and deferral		806			885			664

Net periodic pension cost	$	2,467		$	3,468		$	3,072

The measurement date for the Pension Plan is September 30. The following table summarizes the changes in the projected benefit obligation and fair value of plan assets for the indicated periods:


	Plan Year Ended
	September 30
	2006			2005
	(in thousands)
Projected benefit obligation, beginning	$	63,640		$	59,265

Service cost		2,431			2,486
Interest cost		3,457			3,370
Benefit payments		(2,935	)		(1,673	)
Actuarial (gain) loss		(1,039	)		959
Experience gain		(360	)		(767	)


Projected benefit obligation, ending	$	65,194		$	63,640


Fair value of plan assets, beginning	$	53,457		$	41,468

Employer contributions		4,051			10,652
Actual return on assets		3,033			3,010
Benefit payments		(2,935	)		(1,673	)


Fair value of plan assets, ending	$	57,606		$	53,457

The funded status of the Pension Plan and the amounts included in the consolidated balance sheets as of December 31 follows:


	2006			2005
	(in thousands)
Projected benefit obligation	$	(65,194	)	$	(63,640	)
Fair value of plan assets		57,606			53,457

Funded status		(7,588	)		(10,183	)

Unrecognized net transition asset (1)		(26	)		(38	)
Unrecognized prior service cost (1)		61			72
Unrecognized net loss (1)		14,242			15,254

Funded status, less unrecognized pension costs	$	6,689		$	5,105

Pension (liability) asset recognized in the consolidated balance sheets	$	(7,588	)	$	5,105


Accumulated benefit obligation	$	50,827		$	50,434


(1)		As required by Statement 158, these amounts were recognized though a charge to other comprehensive loss, net of tax, as of December 31, 2006.

The total amount of unrecognized net loss, net transition asset and prior service cost that will be amortized as components of net periodic pension cost in 2007 is expected to be $702,000, $13,000 and $9,000, respectively.

The following rates were used to calculate net periodic pension cost and the present value of benefit obligations:


	2006			2005			2004
Discount rate-projected benefit obligation		5.75	%		5.50	%		5.75	%
Rate of increase in compensation level		4.50			4.00			4.50
Expected long-term rate of return on plan assets		8.00			8.00			8.00

The 5.75% discount rate used to calculate the present value of benefit obligations is determined using published long-term AA corporate bond rates as of the measurement date, rounded to the nearest 0.25%. The 8.0% long-term rate of return on plan assets used to calculate the net periodic pension cost is based on historical returns. The expected long-term return is considered to be appropriate based on the asset mix and the historical returns realized.

The following table summarizes the weighted average asset allocations as of September 30:


��	2006			2005
Cash and equivalents		9.0	%		17.0	%
Equity securities		51.0			44.0
Fixed income securities		40.0			39.0

Total		100.0	%		100.0	%

Equity securities consist mainly of equity common trust and mutual funds. Fixed income securities consist mainly of fixed income common trust funds. Pension Plan assets are invested with a balanced growth objective, with target asset allocations between 40 and 70 percent for equity securities and 30 to 60 percent for fixed income securities. The Corporation expects to contribute $2.0 million to the Pension Plan in 2007. Estimated future benefit payments are as follows (in thousands):


Year
2007	$	1,555
2008		1,639
2009		1,779
2010		1,984
2011		2,148
2012 – 2016		16,126

	$	25,231

Post-retirement Benefits

The components of the expense for post-retirement benefits other than pensions are as follows:


	2005			2004			2003			2006			2005			2004
	(in thousands)									(in thousands)
Service cost	$	406		$	364		$	281		$	367		$	406		$	364
Interest cost		524			474			446			498			524			474
Expected return on plan assets		(5	)		(2	)		(2	)		(4	)		(5	)		(2	)
Net amortization and deferral		(226	)		(230	)		(287	)		(226	)		(226	)		(230	)

Net post-retirement benefit cost	$	699		$	606		$	438		$	635		$	699		$	606

~~The following table summarizes the impact of modified retrospective application on the previously reported results for the periods shown:~~

2004 2003
(in thousands, except per-share data)
Income before income taxes, originally reported $ 218,181 $ 197,543
Stock-based compensation expense under the fair value method (1) (3,900 ) (2,092 )

Income before income taxes, restated $ 214,281 $ 195,451

Net income, originally reported $ 152,917 $ 138,180
Stock-based compensation expense under the fair value method, net of tax (1) (3,309 ) (1,813 )

Net income, restated $ 149,608 $ 136,367

Net income per share (basic), originally reported (2) $ 1.02 $ 0.98
Net income per share (basic), restated 1.00 0.97

Net income per share (diluted), originally reported (2) $ 1.01 $ 0.98
Net income per share (diluted), restated 0.99 0.96


~~(1)~~		~~Stock-based compensation expense, originally reported, was $0.~~

~~(2)~~		~~Originally reported amounts have been restated for the impact of the 5-for-4 stock split paid in June 2005.~~

As a result of the retrospective adoption of Statement 123R, as of January 1, 2003 retained earnings decreased $11.4 million, additional paid-in capital increased $12.5 million and deferred tax assets increased $1.1 million. These changes reflect a combination of compensation expense for prior stock option grants to employees and related tax benefits.

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


	2005			2004			2003			2006			2005			2004
	(in thousands)									(in thousands)
Compensation expense	$	1,041		$	3,900		$	2,092		$	1,687		$	1,041		$	3,900
Tax benefit		(321	)		(591	)		(279	)		(274	)		(321	)		(591	)

Net income effect	$	720		$	3,309		$	1,813		$	1,413		$	720		$	3,309

~~its position with the investment bank by paying $3.4 million, representing the difference between the initial prices paid and the actual price of the shares repurchased.~~

Total treasury stock purchases ~~including both open market purchases and ASR’s,~~ were approximately ~~5.0~~1.1 million shares in 2006, 5.3 million shares in 2005 ~~4.7~~and 4.9 million shares in ~~2004~~2004. Included in these amounts are shares purchased under ASR’s, totaling 4.5 million in 2005 and ~~4.0~~1.3 million in 2004. As of December 31, 2006, the Corporation has a stock repurchase plan in place for 2.1 million shares ~~in 2003.~~through June 30, 2007. Through December 31, 2006, 1.1 million shares had been repurchased under this plan.

NOTE N – LEASES

Certain branch offices and equipment are leased under agreements that expire at varying dates through 2035. Most leases contain renewal provisions at the Corporation’s option. Total rental expense was approximately $16.9 million in 2006, $12.1 million in 2005 and $9.4 million in ~~2004 and $6.4 million in 2003.~~2004. Future minimum payments as of December 31, ~~2005~~2006 under ~~noncancelable~~non-cancelable operating leases with initial terms exceeding one year are as follows (in thousands):


Year
2006	$	10,437
2007		9,593	$	11,813
2008		7,763		9,774
2009		6,222		7,967
2010		5,107		7,056
2011				6,269
Thereafter		33,186		44,000

	$	72,308	$	86,879

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. These financial instruments include commitments to extend credit and standby letters of credit, which involve, to varying degrees, elements of credit and interest rate risk that are not recognized in the consolidated balance sheets.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since a portion of the commitments is expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Corporation evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained upon extension of credit is based on management’s credit evaluation of the customer. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment and income producing commercial properties.

Standby letters of credit are conditional commitments issued to guarantee the financial or performance obligation of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Corporation underwrites these obligations using the same criteria as its commercial lending underwriting. The Corporation’s maximum exposure to loss for standby letters of credit is equal to the contractual (or notional) amount of the instruments.

NOTE P – FAIR VALUE OF FINANCIAL INSTRUMENTS

The following are the estimated fair values of the Corporation’s financial instruments as of December 31, ~~2005~~2006 and ~~2004,~~2005, followed by a general description of the methods and assumptions used to estimate such fair values. These fair values are significantly affected by assumptions used, principally the timing of future cash flows and the discount rate. 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. Further, certain financial instruments and all non-financial instruments are excluded. Accordingly, the aggregate fair value amounts presented do not necessarily represent management’s estimation of the underlying value of the Corporation.


	2005				2004				2006				2005
	Book		Estimated				Estimated		Book		Estimated				Estimated
	Value		Fair Value		Book Value		Fair Value		Value		Fair Value		Book Value		Fair Value
	(in thousands)										(in thousands)
FINANCIAL ASSETS

Cash and due from banks	$	368,043	$	368,043	$	278,065	$	278,065	$	355,018	$	355,018	$	368,043	$	368,043
Interest-bearing deposits with other banks		31,404		31,404		4,688		4,688		27,529		27,529		31,404		31,404
Federal funds sold		528		528		32,000		32,000		659		659		528		528
Loans held for sale		243,378		243,378		209,504		209,504		239,042		242,411		243,378		245,946
Securities held to maturity (1)		18,258		18,317		25,001		25,413		12,524		12,534		18,258		18,317
Securities available for sale (1)		2,543,887		2,543,887		2,424,858		2,424,858		2,865,714		2,865,714		2,543,887		2,543,887
Net loans		8,424,728		8,322,514		7,533,915		7,619,104		10,374,323		10,201,158		8,424,728		8,322,514
Accrued interest receivable		53,261		53,261		40,633		40,633		71,825		71,825		53,261		53,261

FINANCIAL LIABILITIES

Demand and savings deposits	$	5,435,119	$	5,435,119	$	4,926,478	$	4,926,478	$	5,802,422	$	5,802,422	$	5,435,119	$	5,435,119
Time deposits		3,369,720		3,346,911		2,969,046		2,974,551		4,430,047		4,413,104		3,369,720		3,346,911
Short-term borrowings		1,298,962		1,298,962		1,194,524		1,194,524		1,680,840		1,680,840		1,298,962		1,298,962
Accrued interest payable		38,604		38,604		27,279		27,279		61,392		61,392		38,604		38,604
Other financial liabilities		41,643		41,643		29,640		29,640		57,375		57,375		45,676		45,676
Federal Home Loan Bank advances and long-term debt		860,345		871,429		684,236		710,215		1,304,148		1,321,141		860,345		871,429

For short-term loans and variable rate loans that reprice within 90 days, the carrying value was considered to be a reasonable estimate of fair value. For other types of loans, fair value was estimated by discounting future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. In addition, for loans secured by real estate, appraisal values for the collateral were considered in the fair value determination.

The fair value of long-term debt was estimated by discounting the remaining contractual cash flows using a rate at which the Corporation could issue debt with a similar remaining maturity as of the balance sheet date. The fair value of commitments to extend credit and standby letters of credit is estimated to equal their carrying amounts.

NOTE Q – MERGERS AND ACQUISITIONS

Completed Acquisitions

On July 1, 2005, the Corporation completed its acquisition of SVB Financial Services, Inc. (SVB). SVB was a $530 million bank holding company whose primary subsidiary was Somerset Valley Bank (Somerset Valley), which operates thirteen community-banking offices in Somerset, Hunterdon and Middlesex Counties in New Jersey.

Under the terms of the merger agreement, each of the approximately 4.1 million shares of SVB’s common stock was acquired by the Corporation based on a “cash election merger” structure. Each SVB shareholder elected to receive 100% of the merger consideration in stock, 100% in cash, or a combination of stock and cash.

As a result of the SVB shareholder elections, approximately 3.2 million of the SVB shares outstanding on the acquisition date were converted into shares of Corporation common stock, based on a fixed exchange ratio of 1.1899 shares of Corporation stock for each share of SVB stock. The remaining 983,000 shares of SVB stock were purchased for $21.00 per share. In addition, each of the options to acquire SVB’s stock was converted into options to purchase the Corporation’s stock or was settled in cash, based on the election of each option holder and the terms of the merger agreement. The total purchase price was $90.4 million, including $66.6 million in stock issued and stock options assumed, $22.4 million of SVB stock purchased and options settled for cash and $1.4 million for other direct acquisition costs. The purchase price for shares issued was determined based on the value of the Corporation’s stock on the date when the number of shares was fixed and determinable.

As a result of the acquisition, SVB was merged into the Corporation and Somerset Valley became a wholly owned subsidiary. The acquisition was accounted for using purchase accounting, which required the Corporation to allocate the total purchase price of the acquisition to the assets acquired and liabilities assumed, based on their respective fair values at the acquisition date, with any remaining purchase price being recorded as goodwill. Resulting goodwill balances are then subject to an impairment test on at least an annual basis. The results of Somerset Valley’s operations are included in the Corporation’s financial statements prospectively from the July 1, 2005 acquisition date.

~~The following is a summary of the purchase price allocation based on estimated fair values on the acquisition date (in thousands):~~

Cash and due from banks $ 20,035
Other earning assets 61,046
Investment securities available for sale 124,916
Loans, net of allowance 301,660
Premises and equipment 9,345
Core deposit intangible asset 8,476
Trade name intangible asset 380
Goodwill 54,417
Other assets 10,608
Total assets acquired 590,883

Deposits 473,490
Long-term debt 24,710
Other liabilities 2,290

Total liabilities assumed 500,490
Net assets acquired $ 90,393

On December 31, 2004, the Corporation completed its acquisition of First Washington FinancialCorp (First Washington), of Windsor, New Jersey. First Washington was a $490 million bank holding company whose primary subsidiary was First Washington State Bank, which operates sixteen community-banking offices in Mercer, Monmouth, and Ocean Counties in New Jersey.

The total purchase price was $126.0 million including $125.2 million in stock issued and options assumed and $729,000 in First Washington stock purchased for cash and other direct acquisition costs. The Corporation issued 1.69 shares of its stock for each of the 4.3 million shares of First Washington outstanding on the acquisition date. The purchase price was determined based on the value of the Corporation’s stock on the date when the final terms of the acquisition were agreed to and announced.

On April 1, 2004, the Corporation completed its acquisition of Resource Bankshares Corporation (Resource), an $890 million financial holding company, and its primary subsidiary, Resource Bank. Resource Bank is located in Virginia Beach, Virginia, and operates six community-banking offices in Newport News, Chesapeake, Herndon, Virginia Beach and Richmond, Virginia and fourteen loan production and residential mortgage offices in Virginia, North Carolina, Maryland and Florida.

The total purchase price was $195.7 million, including $185.9 million in stock issued and options assumed, and $9.8 million in Resource stock purchased for cash and other direct acquisition costs. The Corporation issued 1.925 shares of its stock for each of the 5.9 million shares of Resource outstanding on the acquisition date. The purchase price was determined based on the value of the Corporation’s stock on the date when the final terms of the acquisition were agreed to and announced.

The following table summarizes unaudited pro-forma information assuming the acquisitions of SVB, First Washington and Resource had occurred on January 1, 2004. This pro-forma information includes certain adjustments, including amortization related to fair value adjustments recorded in purchase accounting (in thousands, except per-share information):

2005 2004
Net interest income $ 420,644 $ 397,007
Other income 145,128 149,029
Net income 167,178 155,523

Per Share:
Net income (basic) $ 1.06 $ 0.97
Net income (diluted) 1.04 0.95

~~Subsequent Event — Acquisition~~

On February 1, 2006, the Corporation completed its acquisition of Columbia Bancorp (Columbia), of Columbia, Maryland. Columbia was a $1.3 billion bank holding company whose primary subsidiary was The Columbia Bank, which operates 1920 full-service ~~community banking~~community-banking offices and five retirement community offices in Frederick, Howard, Montgomery, Prince George’s and Baltimore Counties and Baltimore City.

Under the terms of the merger agreement, each of the approximately 6.9 million shares of Columbia’s common stock was acquired by the Corporation based on a “cash election merger” structure. Each Columbia shareholder elected to receive 100% of the merger consideration in stock, 100% in cash, or a combination of stock and cash.

As a result of Columbia shareholder elections, approximately 3.5 million of the Columbia shares outstanding on the acquisition date were converted into shares of the ~~Corporation~~Corporation’s common stock, based upon a fixed exchange ratio of ~~2.325~~2.441 shares of Corporation stock for each share of Columbia stock. The remaining 3.4 million shares of Columbia stock were purchased for $42.48 per share. In addition, each of the options to acquire Columbia’s stock was converted into options to purchase the Corporation’s stock or was settled in cash, based on the election of each option holder and the terms of the merger agreement. The total purchase price was approximately ~~$302~~$305.8 million, including ~~$150.1~~$154.2 million in stock issued and stock options assumed, ~~$150.4~~$149.4 million of Columbia stock purchased and options settled for cash and $2.2 million for other direct acquisition costs. The purchase price for shares issued was determined based on the value of the Corporation’s stock on the date when the number of shares to be issued was fixed and determinable.

As a result of the acquisition, Columbia was merged into the Corporation and The Columbia Bank became a wholly owned subsidiary. The acquisition was accounted for using purchase accounting, which requires the allocation of the total purchase price to the assets acquired and liabilities assumed, based on their respective fair values at the acquisition date, with any remaining purchase price being recorded as goodwill. Resulting goodwill balances are then subject to an impairment review on at least an annual basis. The results of Columbia’s operations are included in the Corporation’s financial statements prospectively from the February 1, 2006 acquisition date.

The following is a summary of the purchase price allocation based on estimated fair values on the acquisition date (in thousands):


Cash and due from banks	$	46,407
Other earning assets		16,854
Investment securities available for sale (1)		186,034
Loans, net of allowance		1,052,684
Premises and equipment		7,775
Core deposit intangible asset		14,689
Trade name intangible asset		964
Goodwill		202,407
Other assets		20,586

Total assets acquired		1,548,400


Deposits		968,936
Short-term borrowings		184,083
Long-term debt		80,136
Other liabilities		9,495

Total liabilities assumed		1,242,650

Net assets acquired	$	305,750


(1)		Amount includes $72.3 million of investment securities which were sold prior to the date of acquisition, but settled after the date of acquisition.

The total purchase price was $90.4 million, including $66.6 million in stock issued and stock options assumed, $22.4 million of SVB stock purchased and options settled for cash and $1.4 million for other direct acquisition costs. The purchase price for shares issued was determined based on the value of the Corporation’s stock on the date when the number of shares to be issued was fixed and determinable.

~~As a result~~The following table summarizes unaudited pro-forma information assuming the acquisitions of ~~the acquisition,~~ Columbia ~~was merged into the Corporation~~ and ~~The Columbia Bank became a wholly owned subsidiary. The acquisition is being accounted for using~~SVB had occurred on January 1, 2005. This pro-forma information includes certain adjustments, including amortization related to fair value adjustments recorded in purchase accounting which requires the Corporation to allocate the total purchase price of the acquisition to the assets acquired and liabilities assumed, based on their respective fair values at the acquisition date, with any remaining acquisition cost being recorded as goodwill. Resulting goodwill balances are then subject to an impairment review on at least an annual basis. The carrying value of Columbia’s net assets as of February 1, 2006 was approximately $98.4 million. The Corporation is in the process of determining the fair value of the net assets acquired and expects to have a preliminary purchase price allocation completed by the end of the first quarter of 2006. The results of Columbia’s operations will be included in the Corporation’s financial statements prospectively from the date of the acquisition.(in thousands, except per-share information):


	2006		2005
Net interest income	$	491,061	$	479,398
Other income		149,142		150,962
Net income		186,319		183,744

Per Share:
Net income (basic)	$	1.07	$	1.05
Net income (diluted)		1.06		1.04

7480

CONDENSED STATEMENTS OF CASH FLOWS


	Year Ended December 31									Year Ended December 31
	2005			2004			2003			2006			2005			2004
	(in thousands)									(in thousands)
Cash Flows From Operating Activities:
Net Income	$	166,074		$	149,608		$	136,367		$	185,527		$	166,074		$	149,608

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Stock-based compensation		1,041			3,900			2,092			1,687			1,041			3,900
(Increase) decrease in other assets		(1,381	)		(13,004	)		1,255
Equity in undistributed net loss (income) of subsidiaries		44,783			(99,393	)		5,340
Decrease (increase) in other assets											4,408			(1,381	)		(13,004	)
Equity in undistributed net (income) loss of subsidiaries											(25,999	)		44,783			(99,393	)
(Decrease) increase in other liabilities and payable to non-bank subsidiaries		(2,653	)		36,859			(4,098	)		(2,278	)		(2,653	)		36,859

Total adjustments		41,790			(71,638	)		4,589			(22,182	)		41,790			(71,638	)

Net cash provided by operating activities		207,864			77,970			140,956			163,345			207,864			77,970

Cash Flows From Investing Activities:
Investment in bank subsidiaries		(3,700	)		(6,000	)		(3,500	)		(96,222	)		(3,700	)		(6,000	)
Investment in non-bank subsidiaries		(100,000	)		—			—			(4,640	)		(100,000	)		—
Net cash paid for acquisitions		(21,724	)		(5,283	)		(1,544	)		(151,549	)		(21,724	)		(5,283	)

Net cash used in investing activities		(125,424	)		(11,283	)		(5,044	)		(252,411	)		(125,424	)		(11,283	)

Cash Flows From Financing Activities:
Net (decrease) increase in borrowings		(21,042	)		79,552			(16,678	)
Net increase (decrease) in short-term borrowings											49,930			(21,042	)		79,552
Dividends paid		(85,495	)		(74,802	)		(64,628	)		(98,022	)		(85,495	)		(74,802	)
Net proceeds from issuance of common stock		10,991			7,537			5,087			9,857			10,991			7,537
Increase in long-term debt		98,342			—			—
Repayment of long-term debt											(5,121	)		(264	)		—
Addition to long-term debt											152,563			98,606			—
Acquisition of treasury stock		(85,168	)		(78,966	)		(59,699	)		(20,193	)		(85,168	)		(78,966	)

Net cash used in financing activities		(82,372	)		(66,679	)		(135,918	)
Net cash provided by (used in) financing activities											89,014			(82,372	)		(66,679	)


Net Increase (Decrease) in Cash and Cash Equivalents		68			8			(6	)
Net (Decrease) Increase in Cash and Cash Equivalents											(52	)		68			8
Cash and Cash Equivalents at Beginning of Year		8			—			6			76			8			—

Cash and Cash Equivalents at End of Year	$	76		$	8		$	—		$	24		$	76		$	8


Cash paid during the year for:
Interest	$	2,758		$	2,889		$	2,469		$	3,023		$	2,758		$	2,889
Income taxes		60,539			54,457			48,924			77,327			60,539			54,457

Management Report on Internal Control Over Financial Reporting

The management of Fulton Financial Corporation is responsible for establishing and maintaining adequate internal control over financial reporting. Fulton Financial Corporation’s internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, ~~2005,~~2006, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control —– Integrated Framework. Based on this assessment, management concluded that, as of December 31, ~~2005,~~2006, the company’s internal control over financial reporting is effective based on those criteria.

Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, ~~2005~~2006 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which is included herein.


/s/		R. Scott Smith, Jr. R. Scott Smith, Jr.

		~~R. Scott Smith, Jr.~~
		Chairman, Chief Executive Officer and President

/s/ Charles J. Nugent
~~/s/~~		Charles J. Nugent

		~~Charles J. Nugent~~
		Senior Executive Vice President and
		Chief Financial Officer

7783

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Fulton Financial Corporation:

We have audited management’s assessment, included in the accompanying Management Report on Internal Control Over Financial Reporting ~~appearing on page 77,~~ that Fulton Financial Corporation maintained effective internal control over financial reporting as of December 31, ~~2005,~~2006, based on criteria established in Internal ~~Control—~~Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Fulton Financial Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

In our opinion, management’s assessment that Fulton Financial Corporation maintained effective internal control over financial reporting as of December 31, ~~2005,~~2006, is fairly stated, in all material respects, based on criteria established in Internal ~~Control—~~Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, Fulton Financial Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, ~~2005,~~2006, based on criteria established in Internal ~~Control—~~Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Fulton Financial Corporation and subsidiaries as of December 31, ~~2005~~2006 and ~~2004,~~2005, and the related consolidated statements of income, shareholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, ~~2005,~~2006, and our report dated March ~~9, 2006~~1, 2007 expressed, an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

~~Harrisburg,~~Philadelphia, Pennsylvania
March ~~9, 2006~~1, 2007

7884

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Fulton Financial Corporation:

We have audited the accompanying consolidated balance sheets of Fulton Financial Corporation and subsidiaries as of December 31, ~~2005~~2006 and ~~2004,~~2005, and the related consolidated statements of income, shareholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, ~~2005.~~2006. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Fulton Financial Corporation and subsidiaries as of December 31, ~~2005~~2006 and ~~2004,~~2005, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, ~~2005,~~2006, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Fulton Financial Corporation and subsidiaries’ internal control over financial reporting as of December 31, ~~2005,~~2006, based on criteria established in Internal ~~Control—~~Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March ~~9, 2006~~1, 2007 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

/s/ KPMG LLP

~~Harrisburg,~~Philadelphia, Pennsylvania
March ~~9, 2006~~1, 2007

7985

QUARTERLY CONSOLIDATED RESULTS OF OPERATIONS (UNAUDITED)

(in thousands, except per-share data)


	Three Months Ended
	March 31		June 30		Sept. 30		Dec. 31
FOR THE YEAR 2006
Interest income	$	192,652	$	213,206	$	229,101	$	229,548
Interest expense		77,609		90,354		103,177		107,804

Net interest income		115,043		122,852		125,924		121,744
Provision for loan losses		1,000		875		555		1,068
Other income		36,607		36,001		36,912		40,355
Other expenses		88,016		90,793		92,425		94,757

Income before income taxes		62,634		67,185		69,856		66,274
Income taxes		18,755		20,484		21,514		19,669

Net income	$	43,879	$	46,701	$	48,342	$	46,605

Per-share data:
Net income (basic)	$	0.26	$	0.27	$	0.28	$	0.27
Net income (diluted)		0.25		0.27		0.28		0.27
Cash dividends		0.138		0.1475		0.1475		0.1475

FOR THE YEAR 2005
Interest income	$	140,810	$	148,609	$	164,070	$	172,279
Interest expense		42,562		48,686		57,585		64,387

Net interest income		98,248		99,923		106,485		107,892
Provision for loan losses		800		725		815		780
Other income		35,853		38,317		36,163		33,965
Other expenses		73,828		78,189		81,537		82,737

Income before income taxes		59,473		59,326		60,296		58,340
Income taxes		18,037		17,722		18,168		17,434

Net income	$	41,436	$	41,604	$	42,128	$	40,906

Per-share data:
Net income (basic)	$	0.25	$	0.26	$	0.26	$	0.25
Net income (diluted)		0.25		0.25		0.25		0.25
Cash dividends		0.126		0.138		0.138		0.138

~~QUARTERLY CONSOLIDATED RESULTS OF OPERATIONS (UNAUDITED)~~
~~(in thousands, except per-share data)~~

Three Months Ended
March 31 June 30 Sept. 30 Dec. 31

FOR THE YEAR 2005

Interest income $ 140,810 $ 148,611 $ 164,113 $ 172,263
Interest expense 42,562 48,686 57,617 64,354

Net interest income 98,248 99,925 106,496 107,909
Provision for loan losses 800 725 815 780
Other income 35,853 38,315 36,152 33,948
Other expenses 73,828 78,189 81,537 82,737

Income before income taxes 59,473 59,326 60,296 58,340
Income taxes 18,037 17,722 18,168 17,434

Net income $ 41,436 $ 41,604 $ 42,128 $ 40,906

Per-share data:
Net income (basic) $ 0.26 $ 0.27 $ 0.27 $ 0.26
Net income (diluted) 0.26 0.27 0.27 0.26
Cash dividends 0.132 0.145 0.145 0.145

FOR THE YEAR 2004

Interest income $ 113,936 $ 122,024 $ 126,947 $ 130,736
Interest expense 30,969 33,318 34,446 37,261

Net interest income 82,967 88,706 92,501 93,475
Provision for loan losses 1,740 800 1,125 1,052
Other income 32,038 36,663 34,993 35,170
Other expenses 62,344 70,598 74,036 70,537

Income before income taxes 50,921 53,971 52,333 57,056
Income taxes 15,147 16,167 16,324 17,035

Net income $ 35,774 $ 37,804 $ 36,009 $ 40,021

Per-share data:
Net income (basic) $ 0.25 $ 0.25 $ 0.24 $ 0.27
Net income (diluted) 0.25 0.24 0.23 0.26
Cash dividends 0.122 0.132 0.132 0.132

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not Applicable.

Item 9A. Controls and Procedures

Disclosure 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 its disclosure controls and procedures, as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon the evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer concluded that as of December 31, ~~2005,~~2006, 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 the Corporation’s 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.

The “Management Report on Internal Control over Financial Reporting” and the “Report of Independent Registered Public Accounting Firm” may be found in Item 8 “Financial Statements and Supplementary Data” of this document.

Changes in Internal Controls

There was no change in the Corporation’s “internal control over financial reporting” (as such term is defined in Rule 13a-15(f) under the Exchange Act) that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

Item 9B. Other Information

Not Applicable.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)

The following documents are filed as part of this report:

Financial Statements — The following consolidated financial statements of Fulton Financial Corporation and subsidiaries are incorporated herein by reference in response to Item 8 above:

	(i)		Consolidated Balance Sheets — December 31, ~~2005~~2006 and ~~2004.~~2005.

	(ii)		Consolidated Statements of Income — Years ended December 31, 2006, 2005 ~~2004~~ and ~~2003.~~2004.

	(iii)		Consolidated Statements of Shareholders’ Equity and Comprehensive Income — Years ended December 31, 2006, 2005 ~~2004~~ and ~~2003.~~2004.

	(iv)		Consolidated Statements of Cash Flows — Years ended December 31, 2006, 2005 ~~2004~~ and ~~2003.~~2004.

	(v)		Notes to Consolidated Financial Statements

	(vi)		Report of Independent Registered Public Accounting Firm

	2.		Financial Statement Schedules — All financial statement schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and have therefore been omitted.

	3.		Exhibits — The following is a list of the Exhibits required by Item 601 of Regulation S-K and filed as part of this report:

	3.1		Articles of Incorporation, as amended and restated, of Fulton Financial Corporation as amended —– Incorporated by reference to Exhibit 3.1 of the Fulton Financial Corporation Form S-4 Registration Statement filed on October 7, 2005.

	3.2		Bylaws of Fulton Financial Corporation as amended – Incorporated by reference to Exhibit ~~3.2~~3.1 of the Fulton Financial Corporation Current Report on Form ~~S-4 Registration Statement filed on April 13, 2005.~~8-K dated September 22, 2006.

	4.1		Rights Amendment dated June 20, 1989, as amended and restated on April 27, 1999, between Fulton Financial Corporation and Fulton Bank —– Incorporated by reference ~~from~~to Exhibit 1 of the Fulton Financial Corporation Current Report on Form 8-K dated April 27, 1999.

	~~10.1~~		Severance Agreements entered into between Fulton Financial Corporation and: R. Scott Smith, Jr., as of May 17, 1988; Richard J. Ashby, Jr., as of May 17, 1988; and Charles J. Nugent, as of November 19, 1992 — Incorporated by reference from Exhibit 10(a) of the Fulton Financial Corporation Quarterly Report on Form 10-Q for the quarter ended March 31, 1999.

	~~10.2~~		~~2004 Stock Option and Compensation Plan adopted October 21, 2003 - Incorporated by reference from Exhibit C of Fulton Financial Corporation’s 2004 Proxy Statement.~~

	~~10.3~~		~~Fulton Financial Corporation Profit Sharing Plan, incorporated by reference from Exhibit~~ 4.2 ~~of the Fulton Financial Corporation Form S-8 Registration Statement filed on January 11, 2002.~~

	~~10.4~~		An Indenture entered into on March 28, 2005 between Fulton Financial Corporation and Wilmington Trust Company as trustee, relating to the issuance by Fulton of $100 million aggregate principal amount of 5.35% subordinated notes due April 1, 2015 – Incorporated by reference to Item 1 of the Fulton Financial Corporation Current Report on Form 8-K dated March 31, 2005.

	~~10.5~~10.1		~~A Registration Rights~~Employment Agreement entered into between Fulton Financial Corporation and R. Scott Smith, Jr. dated June 1, 2006 – Filed herewith.

	10.2		Employment Agreement entered into between Fulton Financial Corporation and Richard J. Ashby, Jr. dated June 1, 2006 – Filed herewith.

	10.3		Deferred Compensation Agreement between Fulton Financial Corporation and ~~Sandler O’Neill & Partners, L.P.~~Richard J. Ashby, Jr., as ~~representative~~ of ~~the “Initial Purchasers” of $100 million of subordinated notes issued by Fulton~~

	10.6		Employment Agreement ~~as of July 22, 2002~~entered into between Fulton Financial Corporation and James E. Shreiner dated June 1, 2006 – Filed herewith.

	10.7		~~Severance~~Employment Agreement entered into between Fulton Financial Corporation and ~~James~~ E. ~~Shreiner, as of October 17, 2002, and an Amendment of Severance Agreement, as of July 22, 2002~~Philip Wenger dated June 1, 2006 – Filed herewith.

	10.8		~~Severance~~Form of Employment Agreement ~~entered into between~~to Senior Management – Incorporated by reference to Exhibit 10.1 of the Fulton Financial Corporation ~~and E. Philip Wenger, as~~Quarterly Report on Form 10-Q for the quarter ended June 30, 2006.

	10.9		Form of ~~October 17, 2002, and an Amendment of Severance~~Death Benefit Only Agreement ~~as of July 23, 2002~~to Senior Management – Filed herewith.

	~~10.9~~10.10		2004 Stock Option and Compensation Plan adopted October 21, 2003 – Incorporated by reference to Exhibit C of Fulton Financial Corporation’s 2004 Proxy Statement filed on March 18, 2004.

	10.11		Fulton Financial Corporation Profit Sharing Plan – Incorporated by reference to Exhibit 4.2 of the Fulton Financial Corporation Form S-8 Registration Statement filed on January 11, 2002.

	10.12		Form of stock option agreement and form of Restricted Stock Agreement between Fulton Financial Corporation and Officers of the Corporation as of July 1, 2005 – Incorporated by reference to Exhibits 10.1 and 10.2 of the Fulton Financial Corporation Current Report on Form 8-K dated June 27, 2005.

	~~10.10~~10.13		Form of Amendment to Stock Option Agreement for John M. Bond – Incorporated by reference to Exhibit 10.1 of the Fulton Financial Corporation Current Report on Form 8-K dated December 22, 2006.

	10.14		Agreement between Fulton Financial Corporation and Fiserv Solutions, Inc. dated as of January 1, 2005. Portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934. See also Fulton Financial Corporation Current Report on Form 8-K dated June 24, 2005.

	10.15		Revolving Credit Agreement, dated July 12, 2004, by and between Fulton Financial Corporation, as Borrower, and SunTrust Bank, as Lender – Incorporated by reference to Exhibit 4.1 of the Fulton Financial Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, 2006.

	10.16		First Amendment to Revolving Credit Agreement, dated August 31, 2005, by and between Fulton Financial Corporation, as Borrower, and SunTrust Bank, as Lender – Incorporated by reference to Exhibit 4.2 of the Fulton Financial Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, 2006.

	10.17		Second Amendment to Revolving Credit Agreement, dated June 30, 2006, by and between Fulton Financial Corporation, as Borrower, and SunTrust Bank, as Lender – Incorporated by reference to Exhibit 4.3 of the Fulton Financial Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, 2006.

	21		Subsidiaries of the Registrant.

	23		Consent of Independent Registered Public Accounting Firm.

	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.

	~~99.1~~		~~Risk factors~~

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.


	FULTON FINANCIAL CORPORATION (Registrant)
Dated:March ~~16, 2006~~1, 2007	By:	/s/ R. Scott Smith, Jr.
		R. Scott Smith, Jr.,
		Chairman, Chief Executive Officer and President

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been executed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.


Signature	Capacity	Date

/s/	Jeffrey G. Albertson, Esq.	Director	March ~~16, 2006~~1, 2007

	Jeffrey G. Albertson, Esq.

/s/	~~Donald~~ John M. ~~Bowman,~~Bond, Jr.	Director	March ~~16, 2006~~1, 2007
John M. Bond, Jr.

/s/ Donald M. Bowman, Jr.	Director	March 1, 2007
Donald M. Bowman, Jr.

/s/	Beth Ann L. Chivinski Beth Ann L. Chivinski	Executive Vice President and Controller (Principal Accounting Officer)	March ~~16, 2006~~1, 2007

	~~Beth Ann L. Chivinski~~	~~(Principal Accounting Officer)~~


/s/	Craig A. Dally, Esq.	Director	March ~~16, 2006~~1, 2007

	Craig A. Dally, Esq.

/s/	~~Clark S. Frame~~ Patrick J. Freer	Director	March ~~16, 2006~~1, 2007

	~~Clark S. Frame~~

~~/s/~~	~~Patrick J. Freer~~	~~Director~~	~~March 16, 2006~~

	Patrick J. Freer

8592

EXHIBIT INDEX

Exhibits Required Pursuant to Item 601 of Regulation S-K


3.1		Articles of Incorporation, as amended and restated, of Fulton Financial Corporation as amended —– Incorporated by reference to Exhibit 3.1 of the Fulton Financial Corporation Form S-4 Registration Statement filed on October 7, 2005.


3.2		Bylaws of Fulton Financial Corporation as amended – Incorporated by reference to Exhibit ~~3.2~~3.1 of the Fulton Financial Corporation Current Report on Form ~~S-4 Registration Statement filed on April 13, 2005.~~8-K dated September 22, 2006.


4.1		Rights Amendment dated June 20, 1989, as amended and restated on April 27, 1999, between Fulton Financial Corporation and Fulton Bank —– Incorporated by reference ~~from~~to Exhibit 1 of the Fulton Financial Corporation Current Report on Form 8-K dated April 27, 1999.

~~10.1~~		Severance Agreements entered into between Fulton Financial Corporation and: R. Scott Smith, Jr., as of May 17, 1988; Richard J. Ashby, Jr., as of May 17, 1988; and Charles J. Nugent, as of November 19, 1992 — Incorporated by reference from Exhibit 10(a) of the Fulton Financial Corporation Quarterly Report on Form 10-Q for the quarter ended March 31, 1999.

~~10.2~~		~~2004 Stock Option and Compensation Plan adopted October 21, 2003 — Incorporated by reference from Exhibit C of Fulton Financial Corporation’s 2004 Proxy Statement.~~

~~10.3~~		~~Fulton Financial Corporation Profit Sharing Plan, incorporated by reference from Exhibit~~ 4.2 ~~of the Fulton Financial Corporation Form S-8 Registration Statement filed on January 11, 2002.~~

~~10.4~~		An Indenture entered into on March 28, 2005 between Fulton Financial Corporation and Wilmington Trust Company as trustee, relating to the issuance by Fulton of $100 million aggregate principal amount of 5.35% subordinated notes due April 1, 2015 – Incorporated by reference to Item 1 of the Fulton Financial Corporation Current Report on Form 8-K dated March 31, 2005.

	10.1		Employment Agreement entered into between Fulton Financial Corporation and R. Scott Smith, Jr. dated June 1, 2006 – Filed herewith.

~~10.5~~	10.2		~~A Registration Rights~~Employment Agreement entered into between Fulton Financial Corporation and Richard J. Ashby, Jr. dated June 1, 2006 – Filed herewith.

	10.3		Deferred Compensation Agreement between Fulton Financial Corporation and ~~Sandler O’Neill & Partners, L.P.~~Richard J. Ashby, Jr., as ~~representative~~ of the “Initial Purchasers” of $100 million of subordinated notes issued by Fulton Financial Corporation on March 28, 2005 - Incorporated by reference to Item 1 of the Fulton Financial Corporation Current Report on Form 8-K dated March 31, 2005.April 7, 1992 – Filed herewith.


~~10.6~~10.4		~~Severance~~Employment Agreement entered into between Fulton Financial Corporation and Craig H. Hill ~~as of October 17, 2002, and an Amendment of Severance Agreement, as of July 22, 2002~~dated June 1, 2006 – Filed herewith.

	10.5		Employment Agreement entered into between Fulton Financial Corporation and Charles J. Nugent dated June 1, 2006 – Filed herewith.

~~10.7~~	10.6		~~Severance~~Employment Agreement entered into between Fulton Financial Corporation and James E. Shreiner ~~as of October 17, 2002, and an Amendment of Severance Agreement, as of July 22, 2002~~dated June 1, 2006 – Filed herewith.


~~10.8~~10.7		~~Severance~~Employment Agreement entered into between Fulton Financial Corporation and E. Philip Wenger ~~as of October 17, 2002, and an Amendment of Severance Agreement, as of July 23, 2002~~dated June 1, 2006 – Filed herewith.

	10.8		Form of Employment Agreement to Senior Management – Incorporated by reference to Exhibit 10.1 of the Fulton Financial Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, 2006.

	10.9		Form of Death Benefit Only Agreement to Senior Management – Filed herewith.

	10.10		2004 Stock Option and Compensation Plan adopted October 21, 2003 – Incorporated by reference to Exhibit C of Fulton Financial Corporation’s 2004 Proxy Statement filed on March 18, 2004.

	10.11		Fulton Financial Corporation Profit Sharing Plan – Incorporated by reference to Exhibit 4.2 of the Fulton Financial Corporation Form S-8 Registration Statement filed on January 11, 2002.

	10.12		Form of stock option agreement and form of Restricted Stock Agreement between Fulton Financial Corporation and Officers of the Corporation as of July 1, 2005 – Incorporated by reference to Exhibits 10.1 and 10.2 of the Fulton Financial Corporation Current Report on Form 8-K dated June 27, 2005.

	10.13	Form of Amendment to Stock Option Agreement for John M. Bond – Incorporated by reference to Exhibit 10.1 of the Fulton Financial Corporation Current Report on Form 8-K dated December 22, 2006.

~~10.10~~	10.14	Agreement between Fulton Financial Corporation and Fiserv Solutions, Inc. dated as of January 1, 2005. Portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934. See also Fulton Financial Corporation Current Report on Form 8-K dated June 24, 2005.

	10.15	Revolving Credit Agreement, dated July 12, 2004, by and between Fulton Financial Corporation, as Borrower, and SunTrust Bank, as Lender – Incorporated by reference to Exhibit 4.1 of the Fulton Financial Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, 2006.

	10.16	First Amendment to Revolving Credit Agreement, dated August 31, 2005, by and between Fulton Financial Corporation, as Borrower, and SunTrust Bank, as Lender – Incorporated by reference to Exhibit 4.2 of the Fulton Financial Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, 2006.

	10.17	Second Amendment to Revolving Credit Agreement, dated June 30, 2006, by and between Fulton Financial Corporation, as Borrower, and SunTrust Bank, as Lender – Incorporated by reference to Exhibit 4.3 of the Fulton Financial Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, 2006.

	21	Subsidiaries of the Registrant.


					Increase (decrease)										Increase
	2005		2004		$			%			2006		2005		$		%
	(dollars in thousands)										(dollars in thousands)
Commercial — industrial and financial	$	2,022,615	$	1,769,801	$	252,814			14.3	%	$	2,478,893	$	2,022,615	$	456,278		22.6	%
Commercial — agricultural		324,637		330,269		(5,632	)		(1.7	)		335,596		324,637		10,959		3.4
Real estate — commercial mortgage		2,621,730		2,205,025		416,705			18.9			3,073,830		2,621,730		452,100		17.2
Real estate — residential mortgage and home equity		1,713,442		1,498,047		215,395			14.4			2,058,034		1,710,736		347,298		20.3
Real estate — construction		732,847		487,954		244,893			50.2			1,345,191		732,847		612,344		83.6
Consumer		499,220		495,544		3,676			0.7			522,761		501,926		20,835		4.2
Leasing and other		67,113		70,746		(3,633	)		(5.1	)		77,777		67,113		10,664		15.9

Total	$	7,981,604	$	6,857,386	$	1,124,218			16.4	%	$	9,892,082	$	7,981,604	$	1,910,478		23.9	%


	2005		2004		Increase		2006		2005		Increase
	(in thousands)						(in thousands)
Commercial — industrial and financial	$	214,840	$	84,080	$	130,760	$	337,062	$	32,576	$	304,486
Commercial — agricultural		1,297		520		777
Real estate — commercial mortgage		381,411		133,705		247,706		261,493		73,743		187,750
Real estate — residential mortgage and home equity		163,959		63,411		100,548		263,370		28,509		234,861
Real estate — construction		418,283		213,340		204,943		435,092		17,700		417,392
Consumer		7,027		1,725		5,302		4,992		864		4,128
Leasing and other		8,480		4,001		4,479		3,725		119		3,606

Total	$	1,195,297	$	500,782	$	694,515	$	1,305,734	$	153,511	$	1,152,223


					Increase (decrease)										Increase
	2005		2004		$			%			2006		2005		$		%
	(dollars in thousands)										(dollars in thousands)
Commercial — industrial and financial	$	1,807,775	$	1,685,721	$	122,054			7.2	%	$	2,141,831	$	1,990,039	$	151,792		7.6	%
Commercial — agricultural		323,340		329,749		(6,409	)		(1.9	)		335,596		324,637		10,959		3.4
Real estate — commercial mortgage		2,240,319		2,071,320		168,999			8.2			2,812,337		2,547,987		264,350		10.4
Real estate — residential mortgage and home equity		1,549,483		1,434,636		114,847			8.0			1,794,664		1,682,227		112,437		6.7
Real estate — construction		314,564		274,614		39,950			14.5			910,099		715,147		194,952		27.3
Consumer		492,193		493,819		(1,626	)		(0.3	)		517,769		501,062		16,707		3.3
Leasing and other		58,633		66,745		(8,112	)		(12.2	)		74,052		66,994		7,058		10.5

Total	$	6,786,307	$	6,356,604	$	429,703			6.8	%	$	8,586,348	$	7,828,093	$	758,255		9.7	%


	December 31										December 31
	2005		2004		2003		2002		2001		2006		2005		2004		2003		2002
	(in thousands)										(in thousands)
Non-accrual loans (1) (2)	$	36,560	$	22,574	$	22,422	$	24,090	$	22,794
Non-accrual loans (2) (3)											$	33,113	$	36,560	$	22,574	$	22,422	$	24,090
Accruing loans past due 90 days or more		9,012		8,318		9,609		14,095		9,368		20,632		9,012		8,318		9,609		14,095
Other real estate		2,072		2,209		585		938		1,817		4,103		2,072		2,209		585		938

Totals	$	47,644	$	33,101	$	32,616	$	39,123	$	33,979
Total											$	57,848	$	47,644	$	33,101	$	32,616	$	39,123


	Description	Page
PART I

Item 1.	Business		3
Item 1A.	Risk Factors		9
Item 1B.	Unresolved Staff Comments		911
Item 2.	Properties		912
Item 3.	Legal Proceedings		1013
Item 4.	Submission of Matters to a Vote of Security Holders		1013

PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		1114
Item 6.	Selected Financial Data		1117
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		1217
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		3544
Item 8.	Financial Statements and Supplementary Data:
	Consolidated Balance Sheets		4250
	Consolidated Statements of Income		4351
	Consolidated Statements of Shareholders’ Equity and Comprehensive Income		4452
	Consolidated Statements of Cash Flows		4553
	Notes to Consolidated Financial Statements		4654
	Management Report On Internal Control Over Financial Reporting		7783
	Reports of Independent Registered Public Accounting Firm		7884
	Quarterly Consolidated Results of Operations (unaudited)		8086
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		8187
Item 9A.	Controls and Procedures		8187
Item 9B.	Other Information		8187

PART III

Item 10.	Directors, ~~and~~ Executive Officers ~~of the Registrant~~and Corporate Governance		8288
Item 11.	Executive Compensation		8288
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		8288
Item 13.	Certain Relationships and Related Transactions, and Director Independence		8288
Item 14.	Principal ~~Accountant~~Accounting Fees and Services		8288

PART IV

Item 15.	Exhibits and Financial Statement Schedules		8389

	Signatures		8592
	Exhibit Index	88	94
Employment Agreement
Employment Agreement
Deferred Compensation Agreement
Employment Agreement
Employment Agreement
Employment Agreement
Employment Agreement
Death Benefit only Agreement
Subsidiaries of the Registrant
Consent of Independent Registered Public Accounting Firm
Certification of Chief Executive Officer
Certification of Chief Executive Officer
Certification of Chief Executive Officer
Certification of Chief Financial Officer


(1)		See additional information in “Item 2. Properties”.

(2)		Dearden, Maguire, Weaver and Barrett LLC, an investment management and advisory company, is a wholly owned subsidiary of Fulton Financial Advisors, N.A.


~~(1)~~		~~Latest lease term expiration date, excluding renewal options.~~


(1)		Adjusted for stock dividends and stock splits.

(2)		Net income, as adjusted for intangible amortization (net of tax), divided by average shareholders’ equity, net of goodwill and intangible assets.


(1)		~~Presented on a fully tax equivalent (FTE) basis using a 35% Federal tax rate.~~

~~(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.


~~Note:~~		~~Changes which are partly attributable to rate and volume are allocated based on the proportion of the direct changes attributable to rate and volume.~~


(1)		~~As of December 31, 2005,~~In 2006, the ~~additional~~total interest income that would have been recorded ~~during 2005~~ if non-accrual loans had been current in accordance with their original terms was approximately ~~$3.0~~$2.6 million. The amount of interest income on non-accrual loans that was included in ~~2005~~2006 income was approximately ~~$2.2 million.~~$800,000.

(2)		Accrual of interest is generally discontinued when a loan becomes 90 days past due as to principal and interest. When interest accruals are discontinued, interest credited to income is reversed. Non-accrual loans are restored to accrual status when all delinquent principal and interest becomes current or the loan is considered secured and in the process of collection. Certain loans, primarily ~~residential mortgages,~~adequately collateralized mortgage loans, that are determined to be sufficiently collateralized may continue to accrue interest after reaching 90 days past due.

(3)		Excluded from the amounts presented at December 31, ~~2005 are $132.3~~2006 were $212.4 million in loans where possible credit problems of borrowers have caused management to have ~~serious~~ doubts as to the ability of such borrowers to comply with the present loan repayment terms. These loans ~~are considered to be impaired~~were reviewed for impairment under Statement 114, but continue to pay according to their contractual terms and are therefore not included in non-performing loans. Non-accrual loans include ~~$13.2~~$18.5 million of impaired loans.


(1)		Balances recorded for the ~~July~~February 1, ~~2005~~2006 acquisition of ~~SVB Financial Services, Inc.~~Columbia Bancorp.

(2)		Excluding balances recorded for ~~SVB Financial Services, Inc.~~Columbia Bancorp.

(3)		Fulton Financial Corporation, excluding balances recorded for ~~SVB Financial Services, Inc.~~Columbia Bancorp, as compared to ~~2004.~~2005.


	MATURING																			MATURING
						After One But					After Five But														After One But					After Five But
	Within One Year					Within Five Years					Within Ten Years					After Ten Years				Within One Year					Within Five Years					Within Ten Years					After Ten Years
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield		Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
	(dollars in thousands)																			(dollars in thousands)
U.S. Government sponsored agency securities	$	—		—		$	7,512		3.98	%	$	—		—		$	—		—	$	—		—		$	7,648		4.03	%	$	—		—		$	—		—
State and municipal (1)		4,540		3.95			991		5.13			346		5.42			—		—		142		3.56			941		5.93			179		5.59			—		—
Other securities																					50		—			25		2.00			—		—			—		—

Totals	$	4,540		3.95	%	$	8,503		4.11	%	$	346		5.42	%	$	—		—
Total																				$	192		2.63	%	$	8,614		4.23	%	$	179		5.59	%	$	—		—


Mortgage-backed securities (2)	$	4,869		6.16	%															$	3,539		6.44	%


(1)		Weighted average yields on tax-exempt securities have been computed on a fully tax-equivalent basis assuming a tax rate of 35 percent.

(2)		Maturities for mortgage-backed securities and collateralized mortgage obligations are dependent upon the interest rate environment and prepayments on the underlying loans. For the purpose of this table, the entire balance and weighted average rate is shown in one period.

(3)		Includes Small Business Administration securities, whose maturities are dependent upon prepayments on the underlying loans. For the purpose of this table, amounts are based upon contractual maturities.


Three months or less	$	179,168	$	369,560
Over three through six months		153,169		291,073
Over six through twelve months		188,586		394,241
Over twelve months		228,672		161,242

Total	$	749,595	$	1,216,116


*~~Assumptions~~*:

(1)		Amounts are based on contractual payments and maturities, adjusted for ~~expected~~estimated prepayments.

(2)		Amounts are based on contractual maturities; adjusted for ~~expected~~estimated prepayments on mortgage-backed securities, collateralized mortgage obligations and expected call on agency and municipal securities.

(3)		Amounts are based on contractual maturities of time deposits.

(4)		~~Money market, Super NOW, NOW and savings accounts are allocated~~Estimated based on history of deposit flows.

(5)		Amounts are based on contractual maturities of ~~Federal Home Loan Bank advances,~~debt instruments, adjusted for possible calls.

(6)		Amounts include Federal funds purchased, short-term promissory notes, floating FHLB advances and securities sold under agreements to repurchase, which mature in less than 90 days, in addition to junior subordinated deferrable interest debentures.

(7)		Floating rate loans include adjustable rate ~~commercial~~ mortgages.

(8)		Line of credit amounts are based on historical cash flows, with an average life of approximately 5 years.


				Twelve
	Six Months			Months
Cumulative RSA/RSL		0.97			0.95

Cumulative GAP (% of earning assets)		(1.18	)%		(2.69	)%


	Held to Maturity				Available for Sale				Held to Maturity				Available for Sale
	Amortized		Estimated		Amortized		Estimated		Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value		Cost		Fair Value		Cost		Fair Value
	(in thousands)										(in thousands)
Due in one year or less	$	4,540	$	4,540	$	107,387	$	107,291	$	192	$	192	$	80,242	$	80,036
Due from one year to five years		8,503		8,419		371,204		366,733		8,614		8,556		529,333		522,535
Due from five years to ten years		346		346		186,879		184,825		179		179		90,153		89,508
Due after ten years		—		—		84,506		86,272		—		—		170,250		172,368

		13,389		13,305		749,976		745,121		8,985		8,927		869,978		864,447
Collateralized mortgage obligations										—		—		494,484		492,524
Mortgage-backed securities		4,869		5,012		1,718,237		1,663,234		3,539		3,607		1,376,651		1,343,107

	$	18,258	$	18,317	$	2,468,213	$	2,408,355	$	12,524	$	12,534	$	2,741,113	$	2,700,078


	Less Than 12 months					12 Months or Longer					Total					Less Than 12 months					12 Months or Longer					Total
	Estimated		Unrealized			Estimated		Unrealized			Estimated		Unrealized			Estimated		Unrealized			Estimated		Unrealized			Estimated		Unrealized
	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses			Fair Value		Losses			FairValue		Losses			Fair Value		Losses
	(in thousands)																				(in thousands)
U.S. Government securities	$	32,659	$	(6	)	$	—	$	—		$	32,659	$	(6	)	$	5,948	$	(1	)	$	—	$	—		$	5,948	$	(1	)
U.S. Government sponsored agency securities		172,338		(1,250	)		7,409		(103	)		179,747		(1,353	)		121,546		(361	)		130,767		(1,187	)		252,313		(1,548	)
State and municipal securities		275,519		(4,012	)		61,469		(2,079	)		336,988		(6,091	)		60,640		(500	)		294,956		(6,345	)		355,596		(6,845	)
Corporate debt securities		17,083		(335	)		7,480		(169	)		24,563		(504	)		8,112		(145	)		13,180		(242	)		21,292		(387	)
Collateralized mortgage obligations																	175,527		(1,045	)		120,192		(2,524	)		295,719		(3,569	)
Mortgage-backed securities		376,984		(6,681	)		1,148,968		(49,250	)		1,525,952		(55,931	)		99,432		(2,075	)		1,034,860		(33,735	)		1,134,292		(35,810	)

Total debt securities		874,583		(12,284	)		1,225,326		(51,601	)		2,099,909		(63,885	)		471,205		(4,127	)		1,593,955		(44,033	)		2,065,160		(48,160	)
Equity securities		39,753		(3,281	)		7,544		(678	)		47,297		(3,959	)		22,325		(1,638	)		16,623		(1,617	)		38,948		(3,255	)

Total	$	914,336	$	(15,565	)	$	1,232,870	$	(52,279	)	$	2,147,206	$	(67,844	)
																$	493,530	$	(5,765	)	$	1,610,578	$	(45,650	)	$	2,104,108	$	(51,415	)


Year
2006	$	5,692
2007		5,115	$	7,463
2008		4,276		6,222
2009		3,790		5,489
2010		3,215		4,692
2011				3,514


Year
2006	$	1,894,744
2007		742,115	$	3,414,830
2008		227,303		461,853
2009		94,241		141,949
2010		116,806		104,901
2011				86,672
Thereafter		294,511		219,842

	$	3,369,720	$	4,430,047


	December 31						Maximum Outstanding						December 31						Maximum Outstanding
	2005		2004		2003		2005		2004		2003		2006		2005		2004		2006		2005		2004
	(in thousands)																(in thousands)
Federal funds purchased	$	939,096	$	676,922	$	933,000	$	939,096	$	849,200	$	933,000	$	1,022,351	$	939,096	$	676,922	$	1,236,941	$	939,096	$	849,200
Securities sold under agreements to repurchase		352,937		500,206		408,697		573,991		708,830		429,819		339,207		352,937		500,206		498,541		573,991		708,830
Short-term promissory notes														279,076		—		—		282,035		—		—
FHLB overnight repurchase agreements		2,000		—		50,000		2,000		—		50,000		—		2,000		—		2,000		2,000		—
Revolving line of credit		—		11,930		—		33,180		26,000		—		36,318		—		11,930		55,600		33,180		26,000
Other		4,929		5,466		5,014		13,219		5,807		6,387		3,888		4,929		5,466		5,435		13,219		5,807

	$	1,298,962	$	1,194,524	$	1,396,711							$	1,680,840	$	1,298,962	$	1,194,524


Year
2006	$	33,734
2007		72,367	$	190,305
2008		216,915		184,594
2009		48,470		59,138
2010		79,768		89,116
2011				595
Thereafter		409,091		780,400

	$	860,345	$	1,304,148


Year
2006	$	1,458
2007		1,495
2008		1,597
2009		1,761
2010		1,992
2011 – 2015		14,587

	$	22,890


	2004			2003
	(in thousands, except per-share data)
Income before income taxes, originally reported	$	218,181		$	197,543
Stock-based compensation expense under the fair value method (1)		(3,900	)		(2,092	)

Income before income taxes, restated	$	214,281		$	195,451


Net income, originally reported	$	152,917		$	138,180
Stock-based compensation expense under the fair value method, net of tax (1)		(3,309	)		(1,813	)

Net income, restated	$	149,608		$	136,367


Net income per share (basic), originally reported (2)	$	1.02		$	0.98
Net income per share (basic), restated		1.00			0.97

Net income per share (diluted), originally reported (2)	$	1.01		$	0.98
Net income per share (diluted), restated		0.99			0.96


						Weighted									Weighted
				Weighted		Average	Aggregate								Average		Aggregate
				Average		Remaining	Intrinsic						Weighted		Remaining		Intrinsic
	Stock			Exercise		Contractual	Value			Stock			Average		Contractual		Value
	Options			Price		Term	(in millions)				Options			Exercise Price		Term		(in millions)
Outstanding at December 31, 2004		6,591,053		$	10.74
Outstanding at December 31, 2005											7,111,591		$	11.86
Granted		1,092,500			17.98						837,250			15.89
Exercised		(1,051,719	)		7.50						(1,146,683	)		7.15
Assumed from SVB Financial		166,218			13.08
Assumed from Columbia Bancorp											1,263,197			10.16
Forfeited		(20,364	)		16.53						(68,579	)		15.79

Outstanding at December 31, 2005		6,777,688		$	12.45	6.2 years		$	34.9
Outstanding at December 31, 2006											7,996,776		$	12.65	6.0 years		$	32.4


Exercisable at December 31, 2005		5,677,828		$	11.42	5.5 years		$	35.1
Exercisable at December 31, 2006											5,887,243		$	11.22	4.9 years		$	32.3


	Stock Options					Restricted Stock				Stock Options					Restricted Stock
				Weighted				Weighted					Weighted					Weighted
				Average				Average					Average					Average
				Grant Date				Grant Date					Grant Date					Grant Date
	Options			Fair Value		Shares		Fair Value		Options			Fair Value		Shares			Fair Value
Nonvested at December 31, 2004		—		$	—		—	$	—
Nonvested at December 31, 2005											1,147,175		$	2.40		15,750		$	17.12
Granted		1,092,500			2.52		15,000		17.98		837,250			2.39		—			—
Assumed from Columbia Bancorp											195,278			2.65		—			—
Vested		—			—		—		—		(8,653	)		2.41		(15,750	)		17.12
Forfeited		(7,800	)		2.52		—		—		(61,517	)		2.44		—			—

Nonvested at December 31, 2005		1,084,700		$	2.52		15,000	$	17.98
Nonvested at December 31, 2006											2,109,533		$	2.41		—		$	—


(1)		See Note C, “Investment Securities”, for detail by security type.


Assets		Liabilities
Cash and due from banks		Demand and savings deposits
Interest bearing deposits		Short-term borrowings
Federal funds sold		Accrued interest payable
Accrued interest receivable		Other financial liabilities
Loans held for sale

			~~Financial Corporation on March 28, 2005 — Incorporated by reference to Item 1 of the Fulton Financial Corporation Current Report on Form 8-K dated March 31, 2005.~~April 7, 1992 – Filed herewith.

	~~10.6~~10.4		~~Severance~~Employment Agreement entered into between Fulton Financial Corporation and Craig H. Hill ~~as of October 17, 2002,~~dated June 1, 2006 – Filed herewith.

	10.5		Employment Agreement entered into between Fulton Financial Corporation and ~~an Amendment of Severance~~Charles J. Nugent dated June 1, 2006 – Filed herewith.


~~Signature~~		~~Capacity~~	~~Date~~

~~/s/~~	~~Mary Ann Russell~~	~~Director~~	~~March 16, 2006~~

	~~Mary Ann Russell~~

~~/s/~~	~~John O. Shirk~~	~~Director~~	~~March 16, 2006~~

	John O. Shirk, Esq.

/s/	R. Scott Smith, Jr.	Chairman, President and Chief	March ~~16, 2006~~1, 2007

	R. Scott Smith, Jr.	Executive Officer

/s/ Gary A. Stewart	Director	March 1, 2007
Gary A. Stewart