10-K

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 ended December 31, 2005, 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)	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

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

Common Stock, $2.50 Par Value

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

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

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. o

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 filed þ Accelerated filer o Non-accelerated filer o

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

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, 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 was 165,675,000.

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

TABLE OF CONTENTS

Description	Page
PART I
Item 1. Business		3
Item 1A. Risk Factors		9
Item 1B. Unresolved Staff Comments		9
Item 2. Properties		9
Item 3. Legal Proceedings		10
Item 4. Submission of Matters to a Vote of Security Holders		10
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		11
Item 6. Selected Financial Data		11
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
Item 7A. Quantitative and Qualitative Disclosures About Market Risk		35
Item 8. Financial Statements and Supplementary Data:
Consolidated Balance Sheets		42
Consolidated Statements of Income		43
Consolidated Statements of Shareholders’ Equity and Comprehensive Income		44
Consolidated Statements of Cash Flows		45
Notes to Consolidated Financial Statements		46
Management Report On Internal Control Over Financial Reporting		77
Reports of Independent Registered Public Accounting Firm		78
Quarterly Consolidated Results of Operations (unaudited)		80
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		81
Item 9A. Controls and Procedures		81
Item 9B. Other Information		81
PART III
Item 10. Directors and Executive Officers of the Registrant		82
Item 11. Executive Compensation		82
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		82
Item 13. Certain Relationships and Related Transactions		82
Item 14. Principal Accountant Fees and Services		82
PART IV
Item 15. Exhibits and Financial Statement Schedules		83
Signatures		85
Exhibit Index	88

2

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 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 non-bank entities.

The common stock of Fulton Financial Corporation is listed for quotation on the National Market System of the National Association of Securities Dealers Automated Quotation System under the symbol FULT. The Corporation’s Internet address is www.fult.com. Electronic copies of the Corporation’s 2005 Annual Report on Form 10-K are available free of charge by visiting the “Investor Information” section of www.fult.com. Electronic copies of quarterly reports on Form 10-Q and current reports on Form 8-K are also available at this 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 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 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, which maintains its own mortgage lending operation). 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 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 loans generally tied to an index such as the Prime Rate or LIBOR (London Interbank Offered 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.

Through its financial services subsidiaries, the Corporation offers investment management, trust, brokerage, insurance and investment advisory services in the market areas serviced by the subsidiary banks.

The Corporation’s subsidiary banks deliver their products and services through traditional branch banking, with a network of full service branch offices. Electronic delivery channels include a network of automated teller machines, telephone banking and online banking through the Internet. The variety of available delivery channels allows customers to access their account information and perform certain transactions such as transferring funds and paying bills at virtually any hour of the day.

3

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

	Main Office	Total		Total
Subsidiary	Location	Assets		Deposits		Branches (1)
		(in millions)
Fulton Bank	Lancaster, PA	$	4,150	$	2,821		73
Lebanon Valley Farmers Bank	Lebanon, PA		751		598		13
Swineford National Bank	Hummels Wharf, PA		262		199		7
Lafayette Ambassador Bank	Easton, PA		1,249		979		23
FNB Bank, N.A.	Danville, PA		289		207		8
Hagerstown Trust	Hagerstown, MD		482		389		12
Delaware National Bank	Georgetown, DE		385		256		12
The Bank	Woodbury, NJ		1,194		960		27
The Peoples Bank of Elkton	Elkton, MD		117		97		2
Skylands Community Bank	Hackettstown, NJ		515		412		11
Premier Bank	Doylestown, PA		534		337		6
Resource Bank	Virginia Beach, VA		1,331		805		6
First Washington State Bank	Windsor, NJ		586		401		16
Somerset Valley Bank	Somerville, NJ		565		450		13
Fulton Financial Advisors, N.A. and Fulton Insurance Services Group, Inc (2)	Lancaster, PA		—		—	—
							229

(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.

Non-Bank Subsidiaries

The Corporation owns 100% of the common stock of twelve non-bank subsidiaries: (i) Fulton Reinsurance Company, which engages in the business of reinsuring credit life and accident and health insurance directly related to extensions of credit by the banking subsidiaries of the Corporation; (ii) Fulton Financial Realty Company, which holds title to or leases certain properties upon which Corporation branch offices and other facilities are located; (iii) Central Pennsylvania Financial Corp., which owns certain limited partnership interests in partnerships invested in low and moderate income housing projects; (iv) FFC Management, Inc., which owns certain investment securities and other passive investments; (v) Virginia Financial Services, which engages in business consulting activities; (vi) FFC Penn Square, Inc. which owns $44.0 million of trust preferred securities issued by a subsidiary of the Corporation’s largest bank subsidiary; (vii) PBI Capital Trust, a Delaware business trust whose sole asset is $10.3 million of junior subordinated deferrable interest debentures from the Corporation; (viii) Premier Capital Trust II, a Delaware business trust whose sole asset is $15.5 million of junior subordinated deferrable interest debentures from the Corporation; (ix) Resource Capital Trust II, a Delaware business trust whose sole asset is $5.2 million of junior subordinated deferrable interest debentures from the Corporation; (x) Resource Capital Trust III, a Delaware business trust whose sole asset is $3.1 million of junior subordinated deferrable interest debentures from the Corporation; (xi) 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 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.

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 also increased in recent years as a result of the passage of 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

4

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 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 42 counties across five states. In nine of these counties, the Corporation ranks in the top three in deposit market share (based on deposits as of June 30, 2005). 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
					Institutions				(6/30/05)
		Population		Banking	Banks/		Credit
County	State	(2005 Est.)		Subsidiary	Thrifts		Unions		Rank		%
Lancaster	PA		489,000	Fulton Bank		18		12		1		19.0	%
Dauphin	PA		254,000	Fulton Bank		17		11		7		4.7	%
Cumberland	PA		223,000	Fulton Bank		20		7		13		1.6	%
York	PA		402,000	Fulton Bank		18		18		4		9.1	%
Chester	PA		468,000	Fulton Bank		36		5		16		1.1	%
Delaware	PA		556,000	Fulton Bank		36		16		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	%

5

					No. of Financial				Deposit Market Share
					Institutions				(6/30/05)
		Population		Banking	Banks/		Credit
County	State	(2005 Est.)		Subsidiary	Thrifts		Unions		Rank		%
Union	PA		43,000	Swineford National Bank		7		1		6		5.0	%
Northumberland	PA		93,000	Swineford National Bank FNB Bank, N.A.		17		3		14 9		1.9 4.5	% %
Montour	PA		18,000	FNB Bank, N.A.		4		3		1		28.1	%
Columbia	PA		65,000	FNB Bank, N.A.		8		—		6		4.6	%
Lycoming	PA		118,000	FNB Bank, N.A.		13		10		17		0.6	%
Northampton	PA		284,000	Lafayette Ambassador Bank		15		13		2		16.4	%
Lehigh	PA		325,000	Lafayette Ambassador Bank		20		13		7		4.1	%
Washington	MD		140,000	Hagerstown Trust		10		3		2		21.1	%
Frederick	MD		221,000	Hagerstown Trust		16		2		17		0.1	%
Cecil	MD		96,000	Peoples Bank of Elkton		8		3		5		10.1	%
Sussex	DE		174,000	Delaware National Bank		16		4		7		1.0	%
New Castle	DE		522,000	Delaware National Bank		33		25		22		0.1	%
Camden	NJ		517,000	The Bank		22		11		17		0.8	%
Gloucester	NJ		273,000	The Bank		23		4		2		12.7	%
Salem	NJ		65,000	The Bank		8		4		1		29.6	%
Atlantic	NJ		269,000	The Bank		17		6		18		0.4	%
Warren	NJ		112,000	Skylands Community Bank		12		3		3		10.1	%
Sussex	NJ		154,000	Skylands Community Bank		12		1		11		0.7	%
Morris	NJ		490,000	Skylands Community Bank		34		9		15		1.4	%
Hunterdon	NJ		131,000	Skylands Community Bank Somerset Valley Bank		17		3		14 18		0.6 0.2	% %
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	%
Middlesex	NJ		794,000	Somerset Valley Bank		44		25		48		0.1	%
Somerset	NJ		318,000	Somerset Valley Bank		25		10		8		4.5	%

6

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 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	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.	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
Fulton Financial Advisors, 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. 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

7

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.

USA Patriot Act – Anti-terrorism legislation enacted under the USA Patriot Act of 2001 (“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. 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.

8

Item 1A. Risk Factors

The information appearing under the heading “Forward-Looking Statements and Risk Factors “ in Item 7, “Management’s Discussion and Analysis and Results of Operation” and within Exhibit 99.1, “Risk Factors” are incorporated herein by reference.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The following table summarizes the Corporation’s branch properties, by subsidiary bank. Remote service facilities (mainly stand-alone automated teller machines) are excluded.

							Total
Bank	Owned		Leased		Term (1)		Branches
Fulton Bank		23		50		2025		73
Lebanon Valley Farmers Bank		10		3		2020		13
Swineford National Bank		5		2		2009		7
Lafayette Ambassador Bank		9		14		2017		23
FNB Bank, N.A.		6		2		2009		8
Hagerstown Trust		6		6		2025		12
Delaware National Bank		10		2		2009		12
The Bank		22		5		2025		27
The Peoples Bank of Elkton		1		1		2016		2
Premier Bank		2		4		2020		6
Skylands Community Bank		4		7		2015		11
Resource Bank		2		4		2012		6
Somerset Valley Bank		1		12		2035		13
First Washington State Bank		7		9		2012		16
Total		108		121				229

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

9

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)
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.	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

(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.
(4)	Lease expires in 2009.
(5)	Lease expires in 2016.
(6)	Lease expires in 2017.

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.

10

PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

The information appearing under the heading “Common Stock” in Item 7A, “Quantitative and Qualitative Disclosures about Market Risk” is incorporated herein by reference.

Item 6. Selected Financial Data

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

	For the Year
	2005			2004			2003			2002			2001
SUMMARY OF INCOME
Interest income	$	625,797		$	493,643		$	435,531		$	469,288		$	518,680
Interest expense		213,219			135,994			131,094			158,219			227,962
Net interest income		412,578			357,649			304,437			311,069			290,718
Provision for loan losses		3,120			4,717			9,705			11,900			14,585
Other income		144,268			138,864			134,370			114,012			102,057
Other expenses		316,291			277,515			233,651			226,046			220,292
Income before income taxes		237,435			214,281			195,451			187,135			157,898
Income taxes		71,361			64,673			59,084			56,181			46,136
Net income	$	166,074		$	149,608		$	136,367		$	130,954		$	111,762
PER-SHARE DATA (1)
Net income (basic)	$	1.06		$	1.00		$	0.97		$	0.93		$	0.79
Net income (diluted)		1.05			0.99			0.96			0.92			0.78
Cash dividends		0.567			0.518			0.475			0.425			0.385
RATIOS
Return on average assets		1.41	%		1.45	%		1.55	%		1.66	%		1.49	%
Return on average equity		13.24			13.98			15.23			15.61			14.33
Return on average tangible equity (2)		20.28			18.58			17.33			17.25			15.97
Net interest margin		3.93			3.83			3.82			4.35			4.27
Efficiency ratio		55.50			55.90			54.00			52.70			55.50
Average equity to average assets		10.70			10.30			10.20			10.60			10.40
Dividend payout ratio		54.00			52.30			49.50			46.20			49.40
PERIOD-END BALANCES
Total assets	$	12,401,555		$	11,160,148		$	9,768,669		$	8,388,915		$	7,771,598
Loans, net of unearned income		8,424,728			7,533,915			6,140,200			5,295,459			5,373,020
Deposits		8,804,839			7,895,524			6,751,783			6,245,528			5,986,804
Federal Home Loan Bank advances and long-term debt		860,345			684,236			568,730			535,555			456,802
Shareholders’ equity		1,282,971			1,244,087			948,317			864,879			812,341
AVERAGE BALANCES
Total assets	$	11,779,096		$	10,344,768		$	8,803,285		$	7,901,398		$	7,520,763
Loans, net of unearned income		7,981,604			6,857,386			5,564,806			5,381,950			5,341,497
Deposits		8,364,435			7,285,134			6,505,371			6,052,667			5,771,089
Federal Home Loan Bank advances and long-term debt		837,305			637,654			566,437			476,415			500,162
Shareholders’ equity		1,254,476			1,069,904			895,616			839,111			779,706

(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.

11

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

FORWARD-LOOKING STATEMENTS AND RISK FACTORS

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 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 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.

• 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, 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 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 or investments. Offsetting these revenue sources are provisions for credit losses on loans, operating expenses and income taxes.

12

The Corporation’s net income for 2005 increased $16.5 million, or 11.0%, from $149.6 million in 2004 to $166.1 million in 2005. Diluted net income per share increased $0.06, or 6.1%, from $0.99 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 increase in earnings was driven by a $54.9 million, or 15.4%, increase in net interest income due to both internal and external growth and a year-over-year increase in net interest margin. Also contributing to the increase in earnings was a $16.5 million, or 13.6%, increase in other income (excluding securities gains), primarily as a result of acquisitions. These items were offset by a $38.8 million, or 14.0%, increase in other expenses, also primarily due to recent acquisitions, and an $11.1 million, or 62.6%, reduction in investment securities gains.

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

Interest Rates — Changes in the interest rate environment generally impact both the Corporation’s net interest income and its non-interest income. The interest rate environment reflects both the level of short-term rates and the slope of the U. S. Treasury yield curve, which plots the yields on treasury issues over various maturity periods. During the past year, the yield curve has flattened, with short-term rates increasing at a faster pace than longer-term rates.

Floating rate loans, short-term borrowings and savings and time deposit rates are generally influenced by short-term rates. During 2005, the Federal Reserve Board (FRB) raised the Federal funds rate eight times, for a total increase of 200 basis points since December 31, 2004, with the overnight borrowing, or Federal funds, rate ending the year at 4.25%. The Corporation’s prime lending rate had a corresponding increase, from 5.25% to 7.25%. The increase in short-term rates benefited the Corporation during the first half of 2005 as floating rate loans quickly adjusted to higher rates, while increases in deposit rates — which are more discretionary — were less pronounced. Throughout the remainder of the year, competitive pressures resulted in increases in deposit rates. While the net interest margin for the year increased over the prior year, during 2005 it was flat, which is shown in the following table:

	2005			2004
1st Quarter		3.95	%		3.79	%
2nd Quarter		3.92			3.73
3rd Quarter		3.92			3.88
4th Quarter		3.92			3.92
Year to Date		3.93			3.83

With respect to longer-term rates, the 10-year treasury yield, which is a common benchmark for evaluating residential mortgage rates, increased to 4.39% at December 31, 2005 as compared to 4.24% at December 31, 2004. Mortgage rates have been historically low over the past several years, generating strong refinance activity and significant gains for the Corporation as fixed-rate residential mortgages are generally sold in the secondary market. With only a minimal increase in long-term rates from the prior year, origination volumes and the resulting gains on sales of these loans remained strong, continuing to contribute to the Corporation’s non-interest income. If rates continue to rise and the yield curve steepens, residential mortgage volume could decrease, resulting in a negative impact on non-interest income, as gains on sale would decline. The “Market Risk” section of Management’s Discussion summarizes the expected impact of rate changes on net interest income.

13

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 net charge-offs to average loans decreased from 0.06% in 2004 to 0.04% in 2005. Non-performing assets to total assets increased to 0.38% at December 31, 2005, from 0.30% at December 31, 2004, 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. 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.

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. 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.

14

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. The ability to manage net interest income over a variety of 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 maintaining or growing 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 compared to 2004 and 2003. 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
(dollars in thousands)	2005									2004									2003
	Average						Yield/			Average						Yield/			Average						Yield/
	Balance			Interest			Rate (1)			Balance			Interest			Rate (1)			Balance			Interest			Rate (1)
ASSETS
Interest-earning assets:
Loans and leases (2)	$	7,981,604		$	520,595			6.52	%	$	6,857,386		$	398,190			5.82	%	$	5,564,806		$	343,883			6.18	%
Taxable inv. securities (3)		1,994,740			75,150			3.76			2,161,195			76,792			3.55			2,170,889			77,450			3.57
Tax-exempt inv. securities (3)		368,845			17,971			4.87			264,578			14,353			5.43			266,426			15,650			5.87
Equity securities (3)		132,564			5,333			4.02			133,870			4,974			3.72			129,584			5,051			3.90
Total investment securities		2,496,149			98,454			3.94			2,559,643			96,119			3.74			2,566,889			98,151			3.80
Loans held for sale		241,996			14,940			6.17			135,758			8,407			6.19			49,271			2,953			5.99
Other interest-earning assets		48,357			1,586			3.27			6,067			103			1.70			22,708			241			1.06
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
Non-interest-earning assets:
Cash and due from banks		346,535									316,170									279,980
Premises and equipment		158,526									128,902									123,172
Other assets (3)		598,709									425,825									271,758
Less: Allowance for loan losses		(92,780	)								(84,983	)								(75,309	)
Total Assets	$	11,779,096								$	10,344,768								$	8,803,285
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	%
Savings deposits		2,055,503			27,116			1.32			1,846,503			11,928			0.65			1,655,325			10,770			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
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
Short-term borrowings		1,186,464			34,414			2.87			1,238,073			15,182			1.23			738,527			7,373			1.00
Long-term debt		837,305			38,031			4.54			637,654			31,033			4.87			566,437			29,523			5.21
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
Non-interest-bearing liabilities:
Demand deposits		1,589,265									1,380,264									1,195,479
Other		136,416									114,003									97,334
Total Liabilities		10,524,620									9,274,864									7,907,669
Shareholders’ equity		1,254,476									1,069,904									895,616
Total Liabs. and Equity	$	11,779,096								$	10,344,768								$	8,803,285
Net interest income/net interest margin (FTE)					422,356			3.93	%					366,825			3.83	%					314,134			3.82	%
Tax equivalent adjustment					(9,778	)								(9,176	)								(9,697	)
Net interest income				$	412,578								$	357,649								$	304,437

(1)	Presented on a fully tax equivalent (FTE) basis using a 35% Federal tax rate.
(2)	Includes non-performing loans.
(3)	Balances include amortized historical cost for available for sale securities. The related unrealized holding gains (losses) are included in other assets.

15

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
	Increase (decrease) due									Increase (decrease) due
	To change in									To change in
	Volume			Rate			Net			Volume			Rate			Net
	(in thousands)
Interest income on:
Loans and leases	$	70,346		$	52,059		$	122,405		$	77,526		$	(23,219	)	$	54,307
Taxable investment securities		(5,995	)		4,353			(1,642	)		(345	)		(313	)		(658	)
Tax-exempt investment securities		5,224			(1,606	)		3,618			(111	)		(1,186	)		(1,297	)
Equity securities		(49	)		408			359			164			(241	)		(77	)
Loans held for sale		6,559			(26	)		6,533			5,353			101			5,454
Short-term investments		1,310			173			1,483			(235	)		97			(138	)
Total interest-earning assets	$	77,395		$	55,361		$	132,756		$	82,352		$	(24,761	)	$	57,591
Interest expense on:
Demand deposits	$	1,076		$	7,093		$	8,169		$	1,088		$	102		$	1,190
Savings deposits		1,488			13,700			15,188			1,236			(78	)		1,158
Time deposits		13,677			13,961			27,638			5,796			(12,563	)		(6,767	)
Short-term borrowings		(648	)		19,880			19,232			5,839			1,970			7,809
Long-term debt		9,346			(2,348	)		6,998			3,551			(2,041	)		1,510
Total interest-bearing liabilities	$	24,939		$	52,286		$	77,225		$	17,510		$	(12,610	)	$	4,900

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.

2005 vs. 2004

Net interest income (FTE) increased $55.5 million, or 15.1%, from $366.8 million in 2004 to $422.4 million in 2005, due to both average balance growth and a higher net interest margin for 2005 in comparison to 2004.

Average interest-earning assets grew 12.7%, from $9.6 billion in 2004 to $10.8 billion in 2005. Acquisitions contributed approximately $1.1 million to this increase in average balances. Interest income (FTE) increased $132.8 million, or 26.4%, partially as a result of the increase in average earning assets, which contributed $77.4 million of the increase, with the remaining growth in interest income (FTE) due to an increase in rates on interest-earning assets.

16

The increase in average interest-earning assets was due to loan growth, both internal and through acquisitions, as investment balances remained relatively flat. Average loans increased by $1.1 billion, or 16.4%, to $8.0 billion in 2005. The following table presents the growth in average loans, by type:

					Increase (decrease)
	2005		2004		$			%
	(dollars in thousands)
Commercial — industrial and financial	$	2,022,615	$	1,769,801	$	252,814			14.3	%
Commercial — agricultural		324,637		330,269		(5,632	)		(1.7	)
Real estate — commercial mortgage		2,621,730		2,205,025		416,705			18.9
Real estate — residential mortgage and home equity		1,713,442		1,498,047		215,395			14.4
Real estate — construction		732,847		487,954		244,893			50.2
Consumer		499,220		495,544		3,676			0.7
Leasing and other		67,113		70,746		(3,633	)		(5.1	)
Total	$	7,981,604	$	6,857,386	$	1,124,218			16.4	%

Acquisitions contributed approximately $694.5 million to the increase in average balances. The following table presents the average balance impact of acquisitions, by type:

	2005		2004		Increase
	(in thousands)
Commercial — industrial and financial	$	214,840	$	84,080	$	130,760
Commercial — agricultural		1,297		520		777
Real estate — commercial mortgage		381,411		133,705		247,706
Real estate — residential mortgage and home equity		163,959		63,411		100,548
Real estate — construction		418,283		213,340		204,943
Consumer		7,027		1,725		5,302
Leasing and other		8,480		4,001		4,479
Total	$	1,195,297	$	500,782	$	694,515

The following table presents the growth in average loans, by type, excluding the average balances contributed by acquisitions:

					Increase (decrease)
	2005		2004		$			%
	(dollars in thousands)
Commercial — industrial and financial	$	1,807,775	$	1,685,721	$	122,054			7.2	%
Commercial — agricultural		323,340		329,749		(6,409	)		(1.9	)
Real estate — commercial mortgage		2,240,319		2,071,320		168,999			8.2
Real estate — residential mortgage and home equity		1,549,483		1,434,636		114,847			8.0
Real estate — construction		314,564		274,614		39,950			14.5
Consumer		492,193		493,819		(1,626	)		(0.3	)
Leasing and other		58,633		66,745		(8,112	)		(12.2	)
Total	$	6,786,307	$	6,356,604	$	429,703			6.8	%

Excluding the impact of acquisitions, loan growth continued to be 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 due mainly to increased

17

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

The average yield on loans during 2005 of 6.52% represents a 70 basis point, or 12.0%, increase in comparison to 2004. This increase reflects the impact of a significant portfolio of floating 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 20 basis points from 3.74% 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	%

18

Interest expense increased $77.2 million, or 56.8%, to $213.2 million in 2005 from $136.0 million in 2004. The increase in interest expense was primarily due to a 67 basis point, or 38.3%, increase in the cost of total interest-bearing liabilities in 2005 in comparison to 2004. Competitive pricing pressures have resulted in increased deposit rates in response to the FRB’s rate increases throughout 2005. 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 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%, to $837.3 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 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

19

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.

20

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

	Year Ended December 31
	2005			2004			2003			2002			2001
	(dollars in thousands)
Loans outstanding at end of year	$	8,424,728		$	7,533,915		$	6,140,200		$	5,295,459		$	5,373,020
Daily average balance of loans and leases	$	8,022,782		$	6,884,694		$	5,527,092		$	5,366,772		$	5,341,497
Balance of allowance for loan losses at beginning of year	$	89,627		$	77,700		$	71,920		$	71,872		$	65,640
Loans charged-off:
Commercial, financial and agricultural		4,095			3,482			6,604			7,203			6,296
Real estate – mortgage		467			1,466			1,476			2,204			767
Consumer		3,436			3,476			4,497			5,587			6,683
Leasing and other		206			453			651			676			529
Total loans charged-off		8,204			8,877			13,228			15,670			14,275
Recoveries of loans previously charged-off:
Commercial, financial and agricultural		2,705			2,042			1,210			842			703
Real estate – mortgage		1,245			906			711			669			364
Consumer		1,169			1,496			1,811			2,251			2,683
Leasing and other		77			76			97			56			87
Total recoveries		5,196			4,520			3,829			3,818			3,837
Net loans charged-off		3,008			4,357			9,399			11,852			10,438
Provision for loan losses		3,120			4,717			9,705			11,900			14,585
Allowance purchased		3,108			11,567			5,474			—			2,085
Balance at end of year	$	92,847		$	89,627		$	77,700		$	71,920		$	71,872
Selected Asset Quality Ratios:
Net charge-offs to average loans		0.04	%		0.06	%		0.17	%		0.22	%		0.20	%
Allowance for loan losses to loans outstanding at end of year		1.10	%		1.19	%		1.27	%		1.36	%		1.34	%
Non-performing assets (1) to total assets		0.38	%		0.30	%		0.33	%		0.47	%		0.44	%
Non-accrual loans to total loans		0.43	%		0.30	%		0.37	%		0.45	%		0.42	%

(1) Includes accruing loans past due 90 days or more.

21

The following table presents the aggregate amount of non-accrual and past due loans and other real estate owned (3):

	December 31
	2005		2004		2003		2002		2001
	(in thousands)
Non-accrual loans (1) (2)	$	36,560	$	22,574	$	22,422	$	24,090	$	22,794
Accruing loans past due 90 days or more		9,012		8,318		9,609		14,095		9,368
Other real estate		2,072		2,209		585		938		1,817
Totals	$	47,644	$	33,101	$	32,616	$	39,123	$	33,979

(1)	As of December 31, 2005, the additional 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 million. The amount of interest income on non-accrual loans that was included in 2005 income was approximately $2.2 million.
(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, 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 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 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 million of impaired loans.

The following table summarizes the allocation of the allowance for loan losses by loan type:

	December 31
	2005					2004					2003					2002					2001
	(dollars in thousands)
			% of					% of					% of					% of					% of
			Loans in					Loans in					Loans in					Loans in					Loans in
			Each					Each					Each					Each					Each
	Allowance		Category			Allowance		Category			Allowance		Category			Allowance		Category			Allowance		Category
Comm’l, financial & agriculture	$	52,379		28.2	%	$	43,207		30.1	%	$	34,247		31.7	%	$	33,130		31.6	%	$	22,531		27.8	%
Real estate – Mortgage		17,602		64.7			19,784		62.5			14,471		59.0			13,099		56.8			19,018		58.9
Consumer, leasing & other		7,935		7.1			16,289		7.4			16,279		9.3			14,178		11.6			10,855		13.3
Unallocated		14,931		—			10,347		—			12,703		—			11,513		—			19,468		—
Totals	$	92,847		100.0	%	$	89,627		100.0	%	$	77,700		100.0	%	$	71,920		100.0	%	$	71,872		100.0	%

The provision for loan losses decreased $1.6 million from $4.7 million in 2004 to $3.1 million in 2005, after decreasing $5.0 million in 2004. These decreases resulted from the continued improvement in the Corporation’s asset quality, as reflected in lower net charge-offs. Net charge-offs as a percentage of average loans were 0.04% in 2005, a two basis point decrease from 0.06% in 2004, which was an 11 basis point decrease from 2003. Total net charge-offs of $3.0 million in 2005 and $4.4 million in 2004 approximated the amounts recorded for the provision for loan losses in those years. 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, after decreasing three basis points in 2004. While the non-performing assets ratio increased eight basis points in comparison to 2004, the level of non-performing assets was still relatively low in absolute terms.

The provision for loan losses is determined by the allowance allocation process, whereby an estimated “need” is allocated to impaired loans as defined in Statement of Financial Accounting Standards No. 114, “Accounting by Creditors for Impairment of a Loan”, or to pools of loans under

22

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% at December 31, 2005. 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 million at December 31, 2005 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 vs. 2004

Other Income

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

					Increase (decrease)
	2005		2004		$			%
	(dollars in thousands)
Investment management and trust services	$	35,669	$	34,817	$	852			2.4	%
Service charges on deposit accounts		40,198		39,451		747			1.9
Other service charges and fees		24,200		20,494		3,706			18.1
Gain on sale of loans		25,468		19,262		6,206			32.2
Gain on sale of deposits		2,200		—		2,200			N/A
Investment securities gains		6,625		17,712		(11,087	)		(62.6	)
Other		9,908		7,128		2,780			39.0
Total	$	144,268	$	138,864	$	5,404			3.9	%

The following table presents the amounts included in the above totals which were contributed by acquisitions:

	2005			2004		Increase (decrease)
	(in thousands)
Investment management and trust services	$	1,446		$	490	$	956
Service charges on deposit accounts		1,410			186		1,224
Other service charges and fees		877			151		726
Gain on sale of loans		17,422			11,108		6,314
Investment securities losses		(269	)		—		(269	)
Other		4,076			2,529		1,547
Total	$	24,962		$	14,464	$	10,498

As shown in the preceding table, recent acquisitions did not make a significant contribution to other income, except mortgage banking income, which is a significant line of business for Resource Bank.

23

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

					Increase (decrease)
	2005		2004		$			%
	(dollars in thousands)
Investment management and trust services	$	34,223	$	34,327	$	(104	)		(0.3	)%
Service charges on deposit accounts		38,788		39,265		(477	)		(1.2	)
Other service charges and fees		23,323		20,343		2,980			14.6
Gain on sale of loans		8,046		8,154		(108	)		(1.3	)
Gain on sale of deposits		2,200		—		2,200			N/A
Investment securities gains		6,894		17,712		(10,818	)		(61.1	)
Other		5,832		4,599		1,233			26.8
Total	$	119,306	$	124,400	$	(5,094	)		(4.1	)%

The discussion that follows, unless otherwise noted, addresses changes in other income, excluding acquisitions.

In 2005, total other income decreased $5.1 million, or 4.1%. Excluding investment securities gains, other income increased $5.7 million, or 5.4%.

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 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.

24

Other Expenses

The following table presents the components of 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 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	%

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

25

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 a 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.

26

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 $6.7 million, or 10.3%, in 2005 and $5.6 million, or 9.5%, in 2004. The Corporation’s effective tax rate (income taxes divided by income before income taxes) remained fairly stable at 30.1%, 30.2% and 30.2% in 2005, 2004 and 2003, 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 were $4.9 million, $4.5 million 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.

27

FINANCIAL CONDITION

Total assets increased $1.2 billion, or 11.1%, to $12.4 billion at December 31, 2005, from $11.2 billion at December 31, 2004. Excluding the SVB acquisition in July 2005, total assets increased $650.5 million, or 5.8%. During 2005, increases in deposits and proceeds from short and long-term borrowings were used to fund loan growth. Total loans, net of the allowance for loan losses, increased $887.6 million, or 11.9% ($585.9 million, or 7.9%, excluding the acquisition of SVB). Total deposits increased $909.3 million, or 11.5%, to $8.8 billion at December 31, 2005 ($435.8 million, or 5.5%, 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).

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

	2005						2004		Increase (decrease) (3)
	Fulton				Fulton
	Financial		SVB Financial		Financial		Fulton
	Corporation		Services, Inc.		Corporation		Financial
	(As Reported)		(1)		(2)		Corporation		$			%
	(dollars in thousands)
Assets:
Cash and due from banks	$	368,043	$	20,035	$	348,008	$	278,065	$	69,943			25.2	%
Other earning assets		275,310		61,046		214,264		246,192		(31,928	)		(13.0	)
Investment securities		2,562,145		124,916		2,437,229		2,449,859		(12,630	)		(0.5	)
Loans, net allowance		8,331,881		301,660		8,030,221		7,444,288		585,933			7.9
Premises and equipment		170,254		9,345		160,909		146,911		13,998			9.5
Goodwill and intangible assets		448,422		63,273		385,149		389,322		(4,173	)		(1.1	)
Other assets		245,500		10,608		234,892		205,511		29,381			14.3
Total Assets	$	12,401,555	$	590,883	$	11,810,672	$	11,160,148	$	650,524			5.8	%
Liabilities and Shareholders’ Equity:
Deposits	$	8,804,839	$	473,490	$	8,331,349	$	7,895,524	$	435,825			5.5	%
Short-term borrowings		1,298,962		—		1,298,962		1,194,524		104,438			8.7
Long-term debt		860,345		24,710		835,635		684,236		151,399			22.1
Other liabilities		154,438		2,290		152,148		141,777		10,371			7.3
Total Liabilities		11,118,584		500,490		10,618,094		9,916,061	$	702,033			7.1
Shareholders’ equity		1,282,971		90,393		1,192,578		1,244,087		(51,509	)		(4.1	)
Total Liabilities and Shareholders’ Equity	$	12,401,555	$	590,883	$	11,810,672	$	11,160,148	$	650,524			5.8	%

(1)	Balances recorded for the July 1, 2005 acquisition of SVB Financial Services, Inc.
(2)	Excluding balances recorded for SVB Financial Services, Inc.
(3)	Fulton Financial Corporation, excluding balances recorded for SVB Financial Services, Inc. as compared to 2004.

28

Loans

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

	December 31
	2005			2004			2003			2002			2001
	(in thousands)
Commercial – industrial and financial	$	2,044,010		$	1,946,962		$	1,594,451		$	1,489,990		$	1,341,280
Commercial – agricultural		331,659			326,176			354,517			189,110			154,100
Real-estate – commercial mortgage		2,831,405			2,461,016			1,992,650			1,527,143			1,428,066
Real-estate – residential mortgage and home equity		1,774,260			1,651,321			1,324,612			1,244,783			1,468,799
Real-estate – construction		851,451			595,567			307,108			248,565			267,627
Consumer		519,094			486,877			496,793			521,431			626,985
Leasing and other		79,738			72,795			77,646			84,063			98,823
		8,431,617			7,540,714			6,147,777			5,305,085			5,385,680
Unearned income		(6,889	)		(6,799	)		(7,577	)		(9,626	)		(12,660	)
Totals	$	8,424,728		$	7,533,915		$	6,140,200		$	5,295,459		$	5,373,020

Total loans, net of unearned income, increased $890.9 million, or 11.8%, in 2005 ($586.0 million, or 7.8%, excluding the acquisition of SVB). The internal growth of $586.0 million included increases in total commercial loans ($31.5 million, or 1.4%), commercial mortgage loans ($196.1 million, or 8.0%), construction loans ($255.9 million, or 43.0%), and residential mortgage and home equity loans ($94.0 million, or 5.7%).

In 2004, total loans, net of unearned income, increased $1.4 billion, or 22.7% ($521.7 million, or 8.5%, excluding the 2004 acquisitions of Resource and First Washington). The internal growth of $521.7 million included increases in total commercial loans ($148.5 million, or 7.6%), commercial mortgage loans ($183.7 million, or 9.2%), construction loans ($11.5 million, or 3.8%), and residential mortgages and home equity loans ($235.0 million, or 17.7%), offset partially by decreases in consumer loans ($50.0 million, or 10.0%) and leasing and other loans ($4.9 million, or 6.2%). In both 2005 and 2004, the Corporation experienced strong overall loan growth as a result of favorable economic conditions and interest rates.

Investment Securities

The following table presents the carrying amount of investment securities held to maturity (HTM) and available for sale (AFS) as of the dates shown:

	December 31
	2005						2004						2003
	HTM		AFS		Total		HTM		AFS		Total		HTM		AFS		Total
	(in thousands)
Equity securities	$	—	$	135,532	$	135,532	$	—	$	170,065	$	170,065	$	—	$	212,352	$	212,352
U.S. Government securities		—		35,118		35,118		—		68,449		68,449		—		76,422		76,422
U.S. Government sponsored agency securities		7,512		205,182		212,694		6,903		60,476		67,379		7,728		6,017		13,745
State and municipal		5,877		438,987		444,864		10,658		332,455		343,113		4,462		298,030		302,492
Corporate debt securities		—		65,834		65,834		650		71,127		71,777		640		28,656		29,296
Mortgage-backed securities		4,869		1,663,234		1,668,103		6,790		1,722,286		1,729,076		10,163		2,282,680		2,292,843
Totals	$	18,258	$	2,543,887	$	2,562,145	$	25,001	$	2,424,858	$	2,449,859	$	22,993	$	2,904,157	$	2,927,150

Total investment securities increased $112.3 million, or 4.6% (decreased $12.6 million, or 0.5%, excluding the acquisition of SVB), to a balance of $2.6 billion at December 31, 2005. In 2004, investment securities decreased $477.3 million, or 16.3%, to reach a balance of $2.4 billion. The decrease in 2004 resulted from maturities and prepayments that were not reinvested due to rising short-term interest rates.

29

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

At December 31, 2005, equity securities consisted of Federal Home Loan Bank (FHLB) and other government agency stock ($57.3 million), stocks of other financial institutions ($71.0 million) and mutual funds ($7.2 million). The bank stock portfolio has historically been a source of capital appreciation and realized gains ($5.8 million in 2005, $14.8 million in 2004 and $17.3 million in 2003). 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 million, or 32.4% ($69.9 million, or 25.2%, excluding the acquisition of SVB), in 2005, following a $22.9 million, or 7.6%, decrease in 2004. 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 million, or 9.6%, from $316.2 million in 2004 to $346.5 million in 2005, following a $36.2 million, or 12.9%, increase in 2004. The increase in both years resulted from acquisitions and growth in the Corporation’s branch network.

Premises and equipment increased $23.3 million, or 15.9%, in 2005 to $170.3 million, which included $9.3 million as a result of the acquisition of SVB. The remaining increase reflects additions primarily for the construction of various new branch and office facilities.

Goodwill and intangible assets increased $59.1 million, or 15.2%, 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. Other assets increased $40.0 million, or 19.5%, in 2005 to $245.5 million, including $10.6 million as a result of the acquisition of SVB. The 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, an increase in accrued interest receivable related to increases in loans and interest rates, and the additional funding of the defined benefit pension plan in 2005, offset by a decrease in LIH Investments due to amortization of existing investments.

Deposits and Borrowings

Deposits increased $909.3 million, or 11.5%, to $8.8 billion at December 31, 2005 ($435.8 million, or 5.5%, excluding the acquisition of SVB). This compares to an increase of $1.1 billion, or 16.9%, in 2004 ($118.9 million, or 1.8%, excluding the 2004 acquisitions of Resource and First Washington). As in the prior year, the trend during the first half of 2005 was strong growth in core demand and savings accounts, offset by declines in time deposits. In the second half of 2005, consumers began increasing investments in time deposits due to rising long-term rates, resulting 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

30

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

Short-term borrowings, which consist mainly of Federal funds purchased and customer cash management accounts, increased $104.4 million, or 8.7%, in 2005 after decreasing $202.2 million, or 14.5%, in 2004 ($329.9 million, or 23.6%, excluding the 2004 acquisitions of Resource and First Washington). The increase in 2005 was due to 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. Long-term debt increased $176.1 million, or 25.7% ($151.4 million, or 22.1%, excluding the acquisition of SVB), 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.

Other Liabilities

Other liabilities increased $12.7 million, or 8.9% ($10.4 million, or 7.3%, excluding the acquisition of SVB), following a $38.6 million, or 37.5%, increase in 2004. The increase in 2005 was primarily attributable to an increase in dividends payable to shareholders ($3.0 million), an increase in the fair value 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) and an increase in dividends payable to shareholders ($2.5 million).

Shareholders’ Equity

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

The Corporation periodically implements stock 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, the Board of Directors approved a stock repurchase plan for 7.3 million shares, which was extended through June 30, 2004. During 2004, 1.6 million shares were 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 (ASR). On December 21, 2004, the Board of Directors extended the stock repurchase plan through June 30, 2005 and increased the total number of shares that could 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. 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 in effect at December 31, 2005, which was implemented in the second quarter of 2005, the Corporation settled its position with the investment bank at the termination of the ASR by paying cash in an amount representing the difference between the initial prices paid and the actual price of the shares repurchased. The Corporation completed the ASR in February of 2006, and paid the investment bank a total of $3.4 million for this difference.

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, 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.

31

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 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 fixed and determinable at December 31, 2005:

	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

(a)	Includes demand deposits and savings accounts, which can be withdrawn by customers at any time.
(b)	See additional information regarding time deposits in Note H, “Deposits”, in the Notes to Consolidated Financial Statements.
(c)	See additional information regarding borrowings in Note I, “Short-Term Borrowings and Long-Term Debt”, in the Notes to Consolidated Financial Statements.
(d)	See additional information regarding operating leases in Note N, “Leases”, in the Notes to Consolidated Financial Statements.
(e)	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 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 (in thousands):

Commercial mortgage, construction and land development	$	829,769
Home equity		494,872
Credit card		382,415
Commercial and other		2,028,997
Total commitments to extend credit	$	3,736,053
Standby letters of credit	$	599,191
Commercial letters of credit		23,037
Total letters of credit	$	622,228

32

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). 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.

- For loans identified as impaired, 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

33

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^st 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 2005, 2004 and 2003.

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, 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 not likely to be recovered, a valuation allowance must be recognized. The Corporation has determined that a valuation allowance is not required for deferred tax assets as of December 31, 2005, except in the case of deferred tax benefits related to state income tax net operating losses. 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.

Recent Accounting Pronouncements

Note A, “Summary of Significant Accounting Policies”, in the Notes to Consolidated Financial Statements discusses the expected impact of recently issued accounting standards adopted by the Corporation.

34

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 million and a fair value of $71.0 million at December 31, 2005. Gross unrealized gains in this portfolio were approximately $2.0 million at December 31, 2005.

Although the carrying value of the financial institutions stocks accounted only for 0.6% 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 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 39 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 $65,000 in 2005, $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 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.

The Corporation’s sources and uses of cash were discussed in general terms in the “Overview” section of Management’s Discussion. The consolidated statements of cash flows provide additional information. The Corporation generated $146.5 million in cash from operating activities during 2005, mainly due to net income. Investing activities resulted in a net cash outflow of $588.5 million, compared to a net cash inflow of

35

$184.9 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. Financing activities resulted in 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 of increasing rates, as well as short-term borrowings and long-term debt. In 2004, funds provided by maturing investments were used to reduce short-term borrowings.

Liquidity must also be managed at the Fulton Financial Corporation parent company level. For safety and soundness reasons, banking regulations limit the amount of cash that can be transferred from subsidiary banks to the Parent Company in the form of loans and dividends. Generally, these limitations are based on the subsidiary banks’ regulatory capital levels and their net income. Prior to 2004, the Parent Company had been able to meet its cash needs through normal, allowable dividends and loans. However, as a result of increased acquisition activity 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.

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.

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, 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 $3.2 billion, or 25.5% of total assets. This compares to $3.0 billion, or 26.5% of total assets, at December 31, 2004.

36

The following tables present the maturities of investment securities at December 31, 2005 and the weighted average yields of such securities (calculated based on historical cost):

HELD TO MATURITY (at amortized cost)

	MATURING
						After One But					After Five But
	Within One Year					Within Five Years					Within Ten Years					After Ten Years
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
	(dollars in thousands)
U.S. Government sponsored agency securities	$	—		—		$	7,512		3.98	%	$	—		—		$	—		—
State and municipal (1)		4,540		3.95			991		5.13			346		5.42			—		—
Totals	$	4,540		3.95	%	$	8,503		4.11	%	$	346		5.42	%	$	—		—
Mortgage-backed securities (2)	$	4,869		6.16	%

AVAILABLE FOR SALE (at estimated fair value)

	MATURING
						After One But					After Five But
	Within One Year					Within Five Years					Within Ten Years					After Ten Years
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
	(dollars in thousands)
U.S. Government securities	$	35,118		3.66	%	$	—		—		$	—		—		$	—		—
U.S. Government sponsored agency securities		24,732		3.65			174,404		4.82			6,046		5.11			—		—
State and municipal (1)		47,341		4.99			190,300		4.57			176,450		5.18			24,896		6.98
Other securities		100		7.51			2,029		4.51			2,329		7.70			61,376		7.54
Totals	$	107,291		4.25	%	$	366,733		4.69	%	$	184,825		5.20	%	$	86,272		7.38	%
Mortgage-backed securities (2)	$	1,663,234		3.84	%

(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 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.

The Corporation’s investment portfolio consists mainly of mortgage-backed securities which have stated maturities that may differ from actual maturities due to borrowers’ ability to prepay obligations. Cash flows from such investments are dependent upon the performance of the underlying mortgage loans, and are generally influenced by the level of interest rates. As rates increase, cash flows generally decrease as prepayments on the underlying mortgage loans decrease. As rates decrease, cash flows generally increase as prepayments increase. The Corporation invests primarily in five and seven-year balloon mortgage-backed securities to limit interest rate risk and promote liquidity.

37

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:

			One
	One Year		Through		More Than
	or Less		Five Years		Five Years		Total
	(in thousands)
Commercial, financial and agricultural:
Floating rate	$	491,639	$	667,365	$	645,234	$	1,804,238
Fixed rate		224,145		274,652		72,634		571,431
Total	$	715,784	$	942,017	$	717,868	$	2,375,669
Real-estate – mortgage:
Floating rate	$	516,839	$	1,375,377	$	1,189,013	$	3,081,229
Fixed rate		305,984		887,971		330,481		1,524,436
Total	$	822,823	$	2,263,348	$	1,519,494	$	4,605,665
Real-estate – construction:
Floating rate	$	489,646	$	140,433	$	77,081	$	707,160
Fixed rate		66,163		31,601		46,527		144,291
Total	$	555,809	$	172,034	$	123,608	$	851,451

From a funding standpoint, the Corporation has been able to rely over the years on a stable base of “core” deposits. Even though the Corporation has experienced notable changes in the composition and interest sensitivity of this deposit base, it has been able to rely on this base to provide needed liquidity. In addition, the Corporation issues certificates of deposits in various denominations, including jumbo time deposits, and repurchase agreements as potential sources of liquidity.

Contractual maturities of time deposits of $100,000 or more outstanding at December 31, 2005 are as follows (in thousands):

Three months or less	$	179,168
Over three through six months		153,169
Over six through twelve months		188,586
Over twelve months		228,672
Total	$	749,595

Each of the Corporation’s subsidiary banks is a member of the FHLB and has access to FHLB overnight and term credit facilities. At December 31, 2005, the Corporation had $717.0 million in term advances from the FHLB with an additional $1.5 billion of borrowing capacity (including both short-term funding on its lines of credit and long-term borrowings). This availability, along with Federal funds lines at various correspondent banks, provides the Corporation with additional liquidity.

38

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
	2006			2007			2008			2009			2010			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
Average rate		6.20	%		6.05	%		6.01	%		6.19	%		6.33	%		6.03	%		6.12	%
Floating rate loans (6)		1,524,818			769,190			588,158			504,913			412,056			1,908,322			5,707,457			5,676,553
Average rate		7.41	%		7.10	%		7.11	%		7.15	%		6.77	%		6.65	%		7.01	%
Fixed rate investments (2)		530,372			367,649			393,745			327,122			503,492			299,766			2,422,146			2,362,579
Average rate		3.82	%		3.94	%		3.71	%		3.71	%		3.83	%		4.80	%		3.93	%
Floating rate investments (2)		—			314			2,319			157			588			61,170			64,548			64,318
Average rate		—			4.09	%		4.54	%		4.27	%		5.36	%		4.40	%		4.41	%
Other interest-earning assets		275,310			—			—			—			—			—			275,310			275,310
Average rate		7.05	%		—			—			—			—			—			7.05	%
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
Average rate		6.46	%		6.07	%		5.83	%		5.90	%		5.36	%		6.29	%		6.11	%
Fixed rate deposits (3)	$	1,916,176		$	735,858		$	218,553		$	89,483		$	109,975		$	274,563		$	3,344,608		$	3,321,800
Average rate		3.31	%		3.92	%		3.68	%		3.95	%		4.44	%		4.26	%		3.60	%
Floating rate deposits (4)		1,846,132			290,231			240,226			240,226			233,311			2,615,166			5,465,292			5,465,292
Average rate		2.02	%		0.89	%		0.70	%		0.70	%		0.66	%		0.52	%		1.07	%
Fixed rate borrowings (5)		623,843			110,408			226,243			43,307			89,330			123,198			1,216,329			1,227,413
Average rate		3.14	%		4.37	%		4.98	%		4.77	%		5.92	%		5.23	%		4.07	%
Floating rate borrowings		939,096			—			—			—			—			1,224			940,320			940,320
Average rate		4.37	%		—			—			—			—			7.66	%		4.37	%
Total	$	5,325,247		$	1,136,497		$	685,022		$	373,016		$	432,616		$	3,014,151		$	10,966,549		$	10,954,825
Average rate		3.03	%		3.19	%		3.06	%		1.95	%		2.71	%		1.06	%		2.46	%

Assumptions:
(1)	Amounts are based on contractual payments and maturities, adjusted for expected prepayments.
(2)	Amounts are based on contractual maturities; adjusted for expected prepayments on mortgage-backed securities 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 based on history of deposit flows.
(5)	Amounts are based on contractual maturities of Federal Home Loan Bank advances, adjusted for possible calls.
(6)	Floating rate loans include adjustable rate commercial mortgages.

The preceding table and discussion addressed the liquidity implications of interest rate risk and focused on expected cash flows from financial instruments. Expected maturities, however, do not necessarily reflect the net interest income impact of interest rate changes. Certain financial instruments, such as adjustable rate loans, have repricing periods that differ from expected cash flows. Fair market value adjustments related to acquisitions are not included in the preceding table.

In addition to the interest rate sensitive instruments included in the preceding table, the Corporation also had interest rate swaps with a notional amount of $280 million as of December 31, 2005. These swaps 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 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 combination of the interest rate swaps and the issuance of the certificates of deposit generates long-term floating rate funding for the Corporation. As of December 31, 2005, the Corporation’s weighted average receive and pay rates were 4.19% and 4.34%, respectively.

39

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 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 was negative 1.18%. The cumulative six-month ratio of rate sensitive assets to rate sensitive liabilities (RSA/RSL) as of December 31, 2005 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	)%

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
	in net interest
Rate Shock	income	% Change
+300 bp	+ $11.0 million		+2.6	%
+200 bp	+ $7.5 million		+1.8	%
+100 bp	+ $3.9 million		+0.9	%
-100 bp	- $10.6 million		-2.6	%
-200 bp	- $21.6 million		-5.2	%
-300 bp	- $39.1 million		-9.4	%

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

40

in interest rates. The following table summarizes the expected impact of 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	%

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

41

Item 8. Financial Statements and Supplementary Data

CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per-share data)

	December 31
	2005			2004
Assets
Cash and due from banks	$	368,043		$	278,065
Interest-bearing deposits with other banks		31,404			4,688
Federal funds sold		528			32,000
Loans held for sale		243,378			209,504
Investment securities:
Held to maturity (estimated fair value of $18,317 in 2005 and $25,413 in 2004)		18,258			25,001
Available for sale		2,543,887			2,424,858
Loans, net of unearned income		8,424,728			7,533,915
Less: Allowance for loan losses		(92,847	)		(89,627	)
Net Loans		8,331,881			7,444,288
Premises and equipment		170,254			146,911
Accrued interest receivable		53,261			40,633
Goodwill		418,735			364,019
Intangible assets		29,687			25,303
Other assets		192,239			164,878
Total Assets	$	12,401,555		$	11,160,148
Liabilities
Deposits:
Noninterest-bearing	$	1,672,637		$	1,507,799
Interest-bearing		7,132,202			6,387,725
Total Deposits		8,804,839			7,895,524
Short-term borrowings:
Federal funds purchased		939,096			676,922
Other short-term borrowings		359,866			517,602
Total Short-Term Borrowings		1,298,962			1,194,524
Accrued interest payable		38,604			27,279
Other liabilities		115,834			114,498
Federal Home Loan Bank advances and long-term debt		860,345			684,236
Total Liabilities		11,118,584			9,916,061
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
Additional paid-in capital		996,708			1,018,403
Retained earnings		138,529			60,924
Accumulated other comprehensive loss		(42,285	)		(10,133	)
Treasury stock (15.3 million shares in 2005 and 10.7 million shares in 2004), at cost		(240,808	)		(160,711	)
Total Shareholders’ Equity		1,282,971			1,244,087
Total Liabilities and Shareholders’ Equity	$	12,401,555		$	11,160,148

See Notes to Consolidated Financial Statements

42

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

	Year Ended December 31
	2005		2004		2003
Interest Income
Loans, including fees	$	517,443	$	394,765	$	340,375
Investment securities:
Taxable		75,150		76,792		77,450
Tax-exempt		12,114		9,553		10,436
Dividends		4,564		4,023		4,076
Loans held for sale		14,940		8,407		2,953
Other interest income		1,586		103		241
Total Interest Income		625,797		493,643		435,531
Interest Expense
Deposits		140,774		89,779		94,198
Short-term borrowings		34,414		15,182		7,373
Long-term debt		38,031		31,033		29,523
Total Interest Expense		213,219		135,994		131,094
Net Interest Income		412,578		357,649		304,437
Provision for Loan Losses		3,120		4,717		9,705
Net Interest Income After Provision for Loan Losses		409,458		352,932		294,732
Other Income
Investment management and trust services		35,669		34,817		33,898
Service charges on deposit accounts		40,198		39,451		38,500
Other service charges and fees		24,200		20,494		18,860
Gain on sale of mortgage loans		25,468		19,262		18,965
Investment securities gains		6,625		17,712		19,853
Other		12,108		7,128		4,294
Total Other Income		144,268		138,864		134,370
Other Expenses
Salaries and employee benefits		181,889		166,026		138,094
Net occupancy expense		29,275		23,813		19,896
Equipment expense		11,938		10,769		10,505
Data processing		12,395		11,430		11,532
Advertising		8,823		6,943		6,039
Intangible amortization		5,311		4,726		2,059
Other		66,660		53,808		45,526
Total Other Expenses		316,291		277,515		233,651
Income Before Income Taxes		237,435		214,281		195,451
Income Taxes		71,361		64,673		59,084
Net Income	$	166,074	$	149,608	$	136,367
Per-Share Data:
Net Income (Basic)	$	1.06	$	1.00	$	0.97
Net Income (Diluted)		1.05		0.99		0.96
Cash Dividends		0.567		0.518		0.475

See Notes to Consolidated Financial Statements

43

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

	Number of					Additional						Accumulated Other
	Shares			Common		Paid-in			Retained			Comprehensive			Treasury
	Outstanding			Stock		Capital			Earnings			Income (Loss)			Stock			Total
	(dollars in thousands)
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	)
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
Comprehensive Income:
Net Income										149,608									149,608
Unrealized loss on securities (net of $5.6 million tax effect)													(10,329	)					(10,329	)
Less — reclassification adjustment for gains included in net income (net of $6.2 million tax expense)													(11,513	)					(11,513	)
Minimum pension liability adjustment (net of $300,000 tax effect)													(558	)					(558	)
Total comprehensive income																			127,208
Stock dividend - 5%					15,278		100,247			(115,615	)								(90	)
Stock issued, including related tax benefits		1,310,000					(9,141	)								19,027			9,886
Stock-based compensation awards							3,900												3,900
Stock issued for acquisition of Resource Bankshares Corporation		11,287,000			21,498		164,365												185,863
Stock issued for acquisition of First Washington FinancialCorp		7,174,000			14,348		110,877												125,225
Acquisition of treasury stock		(4,706,000	)													(78,966	)		(78,966	)
Cash dividends — $0.518 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
Comprehensive Income:
Net Income										166,074									166,074
Unrealized loss on securities (net of $14.1 million tax effect)													(26,219	)					(26,219	)
Unrealized loss on derivative financial instruments (net of $1.2 million tax effect)													(2,185	)					(2,185	)
Less — reclassification adjustment for gains included in net income (net of $2.3 million tax expense)													(4,306	)					(4,306	)
Minimum pension liability adjustment (net of $300,000 tax effect)													558						558
Total comprehensive income																			133,922
5-for-4 stock split paid in the form of a 25 % stock dividend					84,046		(84,114	)											(68	)
Stock issued, including related tax benefits		1,120,000			1,809		4,179									5,071			11,059
Stock-based compensation awards							1,041												1,041
Stock issued for acquisition of SVB Financial Services, Inc.		3,747,000			9,368		57,199												66,567
Acquisition of treasury stock		(5,000,000	)													(85,168	)		(85,168	)
Cash dividends — $0.567 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

See Notes to Consolidated Financial Statements

44

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

	Year Ended December 31
	2005			2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	166,074		$	149,608		$	136,367
Adjustments to reconcile net income to net cash provided by
Operating Activities:
Provision for loan losses		3,120			4,717			9,705
Depreciation and amortization of premises and equipment		14,338			12,409			12,379
Net amortization of investment security premiums		5,158			9,906			19,243
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	)
Amortization of intangible assets		5,311			4,726			2,059
Stock-based compensation expense		1,041			3,900			2,092
(Increase) decrease in accrued interest receivable		(10,501	)		22			11,333
(Increase) decrease in other assets		(1,530	)		6,895			(14,595	)
Increase (decrease) in accrued interest payable		11,008			(759	)		(6,136	)
(Decrease) increase in other liabilities		(8,019	)		3,089			(7,370	)
Total adjustments		(19,583	)		27,282			50,513
Net cash provided by operating activities		146,491			176,890			186,880
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale		143,806			235,332			521,520
Proceeds from maturities of securities held to maturity		10,846			8,870			18,146
Proceeds from maturities of securities available for sale		666,060			816,834			1,543,992
Purchase of securities held to maturity		(4,403	)		(11,402	)		(8,514	)
Purchase of securities available for sale		(861,897	)		(269,776	)		(2,445,592	)
Decrease (increase) in short-term investments		78,265			(9,188	)		19,248
Net increase in loans		(589,053	)		(577,403	)		(485,332	)
Net cash (paid for) received from acquisitions		(3,791	)		7,810			17,222
Net purchase of premises and equipment		(28,336	)		(16,161	)		(4,730	)
Net cash (used in) provided by investing activities		(588,503	)		184,916			(824,040	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand and savings deposits		35,153			293,331			347,665
Net increase (decrease) in time deposits		400,672			(174,453	)		(295,760	)
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
Dividends paid		(85,495	)		(74,802	)		(64,628	)
Net proceeds from issuance of common stock		10,991			7,537			5,087
Acquisition of treasury stock		(85,168	)		(78,966	)		(59,699	)
Net cash provided by (used in) financing activities		531,990			(384,707	)		623,269
Net Increase (Decrease) in Cash and Due From Banks		89,978			(22,901	)		(13,891	)
Cash and Due From Banks at Beginning of Year		278,065			300,966			314,857
Cash and Due From Banks at End of Year	$	368,043		$	278,065		$	300,966
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest	$	202,211		$	136,753		$	137,230
Income taxes		60,539			54,457			48,924

See Notes to Consolidated Financial Statements

45

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 as well as its financial services 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 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 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

46

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. 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, the resulting reduction in the net investment in the lease is recognized as a loss in the period.

47

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 years for furniture and equipment. Leasehold improvements are amortized over the shorter of 15 years or the noncancelable 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 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.

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 income housing partnerships. 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.

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 requires public companies to recognize compensation expense related to stock-based compensation awards in their income statements.

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
			(in thousands)
Weighted average shares outstanding (basic)		156,413		149,294		140,335
Impact of common stock equivalents		1,930		1,614		1,176
Weighted average shares outstanding (diluted)		158,343		150,908		141,511

48

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 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 results in a residual amount in excess of the net fair values, 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 in the period in which the impairment is determined. The Corporation performed its annual tests of goodwill impairment on October 31 of each year. Based on the results of these tests the Corporation concluded that there was no impairment and no write-downs were recorded. If certain events occur which might indicate goodwill has been impaired, the goodwill is 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 in low and moderate-income housing partnerships (LIH investments).

The provisions of FIN 46 related to Subsidiary Trusts, as interpreted by the Securities and Exchange Commission, 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 remain in long-term debt (See Note I, “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 and 2004, the Corporation’s LIH Investments totaled $44.2 million and $52.0 million, respectively. The net income tax benefit associated with these investments was $4.9 million, $4.5 million, and $4.0 million in 2005, 2004 and 2003, respectively. None of the Corporation’s LIH Investments met the consolidation criteria of FIN 46 as of December 31, 2005 or 2004.

Accounting for Certain Loans or Debt Securities Acquired in a Transfer: In December 2003, the Accounting Standards Executive Committee issued Statement of Position 03-3 (SOP 03-3), “Accounting for Certain Loans or Debt Securities Acquired in a Transfer”. SOP 03-3 addresses accounting for differences between contractual cash flows 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.

49

SOP 03-3 became effective for the Corporation on January 1, 2005 and was applicable to the July 2005 acquisition 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 on the consolidated financial statements.

Other-Than-Temporary Impairment: In 2004, the Emerging Issues Task Force (EITF) released EITF Issue 03-01, “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments” (EITF 03-01), which provides guidance for evaluating whether an investment is other-than-temporarily impaired and requires certain disclosures with respect to these investments.

In June 2005, the FASB voted to nullify certain provisions of EITF 03-1 which addressed the evaluation of an impairment to determine whether it was other-than-temporary. In general, these provisions required companies to declare their ability and intent to hold other-than-temporarily impaired investments until they recovered their losses. If a company were unable to make this declaration, write-downs of investment securities through losses charged to the income statement would be required. The effective date of these provisions was originally delayed in September 2004, due to industry concerns about the potential impact of this proposed accounting.

Adoption of the surviving provisions of EITF 03-1 did not have a material impact on the Corporation’s financial condition or results of operations. The Corporation continues to apply the provisions of existing authoritative literature in evaluating its investments for other-than-temporary impairment.

Loan Products That May Give Rise to a Concentration of Credit Risk: In December 2005, 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 on the Corporation’s consolidated financial statements.

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

All share and per-share data have been restated to reflect the impact of the 5-for-4 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.

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 2005 and 2004 was approximately $106.9 million and $100.8 million, respectively.

50

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)
2005 Held to Maturity
U.S. Government sponsored agency securities	$	7,512	$	—	$	(103	)	$	7,409
State and municipal securities		5,877		19		—			5,896
Mortgage-backed securities		4,869		143		—			5,012
	$	18,258	$	162	$	(103	)	$	18,317
2005 Available for Sale
Equity securities	$	137,462	$	2,029	$	(3,959	)	$	135,532
U.S. Government securities		35,124		—		(6	)		35,118
U.S. Government sponsored agency securities		206,340		92		(1,250	)		205,182
State and municipal securities		444,034		1,044		(6,091	)		438,987
Corporate debt securities		64,478		1,860		(504	)		65,834
Mortgage-backed securities		1,718,237		928		(55,931	)		1,663,234
	$	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

51

The amortized cost and estimated fair value of debt securities at December 31, 2005, by contractual maturity, are shown in the following table. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Held to Maturity				Available for Sale
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
	(in thousands)
Due in one year or less	$	4,540	$	4,540	$	107,387	$	107,291
Due from one year to five years		8,503		8,419		371,204		366,733
Due from five years to ten years		346		346		186,879		184,825
Due after ten years		—		—		84,506		86,272
		13,389		13,305		749,976		745,121
Mortgage-backed securities		4,869		5,012		1,718,237		1,663,234
	$	18,258	$	18,317	$	2,468,213	$	2,408,355

Gross gains totaling $5.9 million, $14.8 million and $17.5 million were realized on the sale of equity securities during 2005, 2004 and 2003, respectively. Gross losses, including losses recognized for other-than-temporary impairment as discussed below, totaling $68,000, $149,000 and $3.5 million were realized during 2005, 2004 and 2003, respectively. Gross gains totaling $1.6 million, $3.1 million and $5.9 million were realized on the sale of available for sale debt securities during 2005, 2004 and 2003, respectively. Gross losses totaling $811,000 were realized on the sale of available for sale debt securities during 2005.

Securities carried at $1.3 billion and $1.2 billion at December 31, 2005 and 2004, respectively, were pledged as collateral to secure public and trust deposits and customer and brokered repurchase agreements.

The following table presents the gross unrealized losses and estimated fair values of investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2005:

	Less Than 12 months					12 Months or Longer					Total
	Estimated		Unrealized			Estimated		Unrealized			Estimated		Unrealized
	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
	(in thousands)
U.S. Government securities	$	32,659	$	(6	)	$	—	$	—		$	32,659	$	(6	)
U.S. Government sponsored agency securities		172,338		(1,250	)		7,409		(103	)		179,747		(1,353	)
State and municipal securities		275,519		(4,012	)		61,469		(2,079	)		336,988		(6,091	)
Corporate debt securities		17,083		(335	)		7,480		(169	)		24,563		(504	)
Mortgage-backed securities		376,984		(6,681	)		1,148,968		(49,250	)		1,525,952		(55,931	)
Total debt securities		874,583		(12,284	)		1,225,326		(51,601	)		2,099,909		(63,885	)
Equity securities		39,753		(3,281	)		7,544		(678	)		47,297		(3,959	)
Total	$	914,336	$	(15,565	)	$	1,232,870	$	(52,279	)	$	2,147,206	$	(67,844	)

Mortgage-backed securities primarily consist of five and seven-year balloon pools issued by the Federal Home Loan Mortgage Corporation (FHLMC) and the Federal National Mortgage Association (FNMA) as well as sequential collateralized mortgage obligations also issued by FHLMC and FNMA. The majority of the securities shown in the above table were purchased during 2003 and 2004 when mortgage rates were at historical lows. Unrealized losses on these securities at December 31, 2005 resulted from the substantial increase in market rates over the past 18 months. Because FHLMC and FNMA guarantee the timely payment of principal, the credit risk for these securities is minimal and, as such, no impairment write-offs were considered to be necessary. For similar reasons, the Corporation does not consider unrealized losses associated with U.S. government sponsored equity securities or state and municipal securities as an indication of impairment.

The Corporation evaluates whether unrealized losses on equity investments indicate other than temporary impairment. Based upon this evaluation, losses of $65,000, $137,000 and $3.3 million were recognized in 2005, 2004 and 2003, respectively.

52

NOTE D – LOANS AND ALLOWANCE FOR LOAN LOSSES

Gross loans are summarized as follows as of December 31:

	2005			2004
	(in thousands)
Commercial — industrial and financial	$	2,044,010		$	1,946,962
Commercial — agricultural		331,659			326,176
Real-estate — commercial mortgage		2,831,405			2,461,016
Real-estate — residential mortgage and home equity		1,774,260			1,651,321
Real-estate — construction		851,451			595,567
Consumer		519,094			486,877
Leasing and other		79,738			72,795
		8,431,617			7,540,714
Unearned income		(6,889	)		(6,799	)
	$	8,424,728		$	7,533,915

Changes in the allowance for loan losses were as follows for the years ended December 31:

	2005			2004			2003
	(in thousands)
Balance at beginning of year	$	89,627		$	77,700		$	71,920
Loans charged off		(8,204	)		(8,877	)		(13,228	)
Recoveries of loans previously charged off		5,196			4,520			3,829
Net loans charged off		(3,008	)		(4,357	)		(9,399	)
Provision for loan losses		3,120			4,717			9,705
Allowance purchased		3,108			11,567			5,474
Balance at end of year	$	92,847		$	89,627		$	77,700

The following table presents non-performing assets as of December 31:

	2005		2004
	(in thousands)
Non-accrual loans	$	36,560	$	22,574
Accruing loans greater than 90 days past due		9,012		8,318
Other real estate owned		2,072		2,209
	$	47,644	$	33,101

Interest of approximately $3.0 million, $1.5 million and $1.8 million was not recognized as interest income due to the non-accrual status of loans during 2005, 2004 and 2003, respectively.

The recorded investment in loans that were considered to be impaired as defined by Statement 114 was $145.5 million and $130.6 million at December 31, 2005 and 2004, respectively. At December 31, 2005 and 2004, $13.2 million and $6.6 million of impaired loans were included in non-accrual loans, respectively. At December 31, 2005 and 2004, impaired loans had related allowances for loan losses of $49.5 million and $41.6 million, respectively. There were no impaired loans in 2005 and 2004 that did not have a related allowance for loan losses. The average recorded investment in impaired loans during the years ended December 31, 2005, 2004 and 2003 was approximately $128.1 million, $108.0 million, and $78.4 million, respectively.

53

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 and $3.9 million on impaired loans in 2005, 2004 and 2003, 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 million and $209.8 million at December 31, 2005 and 2004, respectively. During 2005, additions totaled $74.5 million and repayments totaled $18.4 million. Somerset Valley Bank added $1.3 million to related party loans.

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

NOTE E – PREMISES AND EQUIPMENT

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

	2005			2004
	(in thousands)
Land	$	26,693		$	25,253
Buildings and improvements		180,153			149,700
Furniture and equipment		119,179			105,406
Construction in progress		5,483			10,967
		331,508			291,326
Less: Accumulated depreciation and amortization		(161,254	)		(144,415	)
	$	170,254		$	146,911

NOTE F – GOODWILL AND INTANGIBLE ASSETS

The following table summarizes the changes in goodwill:

	2005		2004		2003
	(in thousands)
Balance at beginning of year	$	364,019	$	127,202	$	61,048
Goodwill additions		54,716		236,817		66,154
Balance at end of year	$	418,735	$	364,019	$	127,202

See Note Q, “Mergers and Acquisitions” for information regarding goodwill acquired in 2005 and 2004.

54

The following table summarizes intangible assets at December 31:

	2005							2004
			Accumulated							Accumulated
	Gross		Amortization			Net		Gross		Amortization			Net
	(in thousands)
Amortizing:
Core deposit	$	35,824	$	(11,448	)	$	24,376	$	27,678	$	(7,418	)	$	20,260
Non-compete		475		(135	)		340		475		(40	)		435
Unidentifiable		8,875		(5,184	)		3,691		7,706		(3,998	)		3,708
Total amortizing		45,174		(16,767	)		28,407		35,859		(11,456	)		24,403
Non-amortizing-Trade name		1,280		—			1,280		900		—			900
	$	46,454	$	(16,767	)	$	29,687	$	36,759	$	(11,456	)	$	25,303

Core deposit intangible assets are amortized using an accelerated method over the estimated remaining life of the acquired core deposits. As of December 31, 2005, these assets had a weighted average remaining life of approximately eight years. Unidentifiable intangible assets related to branch acquisitions are amortized on a straight-line basis over ten years. Non-compete intangible assets are being amortized on a straight-line basis over five years, which is the term of the underlying contracts. Amortization expense related to intangible assets totaled $5.3 million, $4.7 million and $2.1 million in 2005, 2004 and 2003, respectively.

Amortization expense for the next five years is expected to be as follows (in thousands):

Year
2006	$	5,692
2007		5,115
2008		4,276
2009		3,790
2010		3,215

NOTE G – MORTGAGE SERVICING RIGHTS

The following table summarizes the changes in mortgage servicing rights (MSR’s), which are included in other assets in the consolidated balance sheets:

	2005			2004			2003
	(in thousands)
Balance at beginning of year	$	8,157		$	8,396		$	6,233
Originations of mortgage servicing rights		1,548			2,138			4,992
Amortization expense		(2,190	)		(2,377	)		(2,829	)
Balance at end of year	$	7,515		$	8,157		$	8,396

MSR’s represent the economic value to be derived by the Corporation based upon its existing contractual rights to service mortgage loans that have been sold. Accordingly, to the extent mortgage loan prepayments occur the value of MSR’s can be impacted.

The Corporation estimates the fair value of its MSR’s by discounting the estimated cash flows of servicing revenue, net of costs, over the expected life of the underlying loans at a discount rate commensurate with the risk associated with these assets. Expected life is based on industry prepayment projections for mortgage-backed securities with rates and terms comparable to the loans underlying the MSR’s. The estimated fair value of MSR’s was approximately $8.8 million and $8.5 million at December 31, 2005 and 2004, respectively.

55

Estimated MSR amortization expense for the next five years, based on balances at December 31, 2005 and the expected remaining lives of the underlying loans follows (in thousands):

Year
2006	$	1,779
2007		1,594
2008		1,381
2009		1,139
2010		864

NOTE H – DEPOSITS

Deposits consisted of the following as of December 31:

	2005		2004
	(in thousands)
Noninterest-bearing demand	$	1,672,637	$	1,507,799
Interest-bearing demand		1,637,007		1,501,476
Savings and money market accounts		2,125,475		1,917,203
Time deposits		3,369,720		2,969,046
	$	8,804,839	$	7,895,524

Included in time deposits were certificates of deposit equal to or greater than $100,000 of $749.6 million and $536.0 million at December 31, 2005 and 2004, respectively. The scheduled maturities of time deposits as of December 31, 2005 were as follows (in thousands):

Year
2006	$	1,894,744
2007		742,115
2008		227,303
2009		94,241
2010		116,806
Thereafter		294,511
	$	3,369,720

56

NOTE I – SHORT-TERM BORROWINGS AND LONG-TERM DEBT

Short-term borrowings at December 31, 2005, 2004, and 2003 and the related maximum amounts outstanding at the end of any month in each of the three years then ended are presented below. The securities underlying the repurchase agreements remain in available for sale investment securities.

	December 31						Maximum Outstanding
	2005		2004		2003		2005		2004		2003
	(in thousands)
Federal funds purchased	$	939,096	$	676,922	$	933,000	$	939,096	$	849,200	$	933,000
Securities sold under agreements to repurchase		352,937		500,206		408,697		573,991		708,830		429,819
FHLB overnight repurchase agreements		2,000		—		50,000		2,000		—		50,000
Revolving line of credit		—		11,930		—		33,180		26,000		—
Other		4,929		5,466		5,014		13,219		5,807		6,387
	$	1,298,962	$	1,194,524	$	1,396,711

In 2004, the Corporation entered into a $50.0 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) plus 0.27%. 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	%

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

	2005		2004
	(in thousands)
Federal Home Loan Bank advances	$	717,037	$	645,461
Junior subordinated deferrable interest debentures		40,724		34,022
Subordinated debt		100,000		—
Other long-term debt, including unamortized issuance costs		2,584		4,753
	$	860,345	$	684,236

Excluded from the preceding table is the Parent Company’s revolving line of credit with its subsidiary banks ($61.4 million and $70.5 million outstanding at December 31, 2005 and 2004, respectively). This line of credit is secured by equity securities and insurance investments and bears interest at the prime rate. Although the line of credit and related interest have been eliminated in consolidation, this borrowing arrangement is senior to the subordinated debt and the junior subordinated deferrable interest debentures.

In March 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 October and April of each year.

57

The Parent Company owns all of the common stock of six 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
	Fixed/	December 31,
Debentures Issued to	Variable	2005			Amount		Maturity	Callable
Premier Capital Trust	Fixed		8.57	%	$	10,310	8/15/2028	8/15/2008
PBI Capital Trust II	Variable		7.79	%		15,464	11/7/2032	11/7/2007
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
Bald Eagle Statutory Trust I	Variable		7.82	%		4,124	7/31/2031	7/31/2006
Bald Eagle Statutory Trust II	Variable		7.97	%		2,578	6/26/2032	6/26/2007
					$	40,724

In January 2006, the Corporation purchased all of the common stock of a new Subsidiary Trust, Fulton Capital Trust I, which was formed for the purpose of issuing $150.0 million of trust preferred securities at a fixed rate of 6.29% and an effective rate of approximately 6.50% as a result of issuance costs. 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.

Federal Home Loan Bank advances mature through March 2027 and carry a weighted average interest rate of 4.38%. As of December 31, 2005, the Corporation had an additional borrowing capacity of approximately $1.5 billion with the Federal Home Loan Bank. Advances from the Federal Home Loan Bank are secured by Federal Home Loan Bank stock, qualifying residential mortgages, investments and other assets.

The following table summarizes the scheduled maturities of Federal Home Loan Bank advances and long-term debt as of December 31, 2005 (in thousands):

Year
2006	$	33,734
2007		72,367
2008		216,915
2009		48,470
2010		79,768
Thereafter		409,091
	$	860,345

NOTE J – REGULATORY MATTERS

Dividend and Loan Limitations

The dividends that may be paid by subsidiary banks to the Parent Company are subject to certain legal and regulatory limitations. Under such limitations, the total amount available for payment of dividends by subsidiary banks was approximately $240 million at December 31, 2005.

Under current Federal Reserve regulations, the subsidiary banks are limited in the amount they may loan to their affiliates, including the Parent Company. Loans to a single affiliate may not exceed 10%, and the aggregate of loans to all affiliates may not exceed 20% of each bank subsidiary’s regulatory capital. At December 31, 2005, the maximum amount available for transfer from the subsidiary banks to the Parent Company in the form of loans and dividends was approximately $320 million.

58

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, that all of its bank subsidiaries meet the capital adequacy requirements to which they are subject.

As of December 31, 2005 and 2004, 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. 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 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
	Actual					Adequacy Purposes					Well-Capitalized
As of December 31, 2005	Amount		Ratio			Amount		Ratio			Amount		Ratio
						(dollars in thousands)
Total Capital (to Risk-Weighted Assets):
Corporation	$	1,102,891		12.1	%	$	730,115		8.0	%	$	912,644		10.0	%
Fulton Bank		409,653		11.1			295,353		8.0			369,191		10.0
Lafayette Ambassador Bank		102,007		11.6			70,539		8.0			88,173		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
Tier I Capital (to Risk-Weighted Assets):
Corporation	$	910,044		10.0	%	$	365,057		4.0	%	$	547,586		6.0	%
Fulton Bank		323,466		8.8			147,676		4.0			221,515		6.0
Lafayette Ambassador Bank		85,331		9.7			35,269		4.0			52,904		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
Tier I Capital (to Average Assets):
Corporation	$	910,044		7.7	%	$	355,090		3.0	%	$	591,817		5.0	%
Fulton Bank		323,466		7.1			137,077		3.0			228,462		5.0
Lafayette Ambassador Bank		85,331		7.0			36,492		3.0			60,821		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

59

						For Capital
	Actual					Adequacy Purposes					Well-Capitalized
As of December 31, 2004	Amount		Ratio			Amount		Ratio			Amount		Ratio
						(dollars in thousands)
Total Capital (to Risk-Weighted Assets):
Corporation	$	981,000		11.8	%	$	667,522		8.0	%	$	834,402		10.0	%
Fulton Bank		401,961		11.2			286,697		8.0			358,372		10.0
Lafayette Ambassador Bank		95,631		11.4			67,124		8.0			83,905		10.0
The Bank		89,891		11.1			64,969		8.0			81,211		10.0
Resource Bank		83,274		11.1			60,241		8.0			75,302		10.0
Tier I Capital (to Risk-Weighted Assets):
Corporation	$	888,526		10.6	%	$	333,761		4.0	%	$	500,641		6.0	%
Fulton Bank		366,633		10.2			143,349		4.0			215,023		6.0
Lafayette Ambassador Bank		86,456		10.3			33,562		4.0			50,343		6.0
The Bank		81,252		10.0			32,485		4.0			48,727		6.0
Resource Bank		75,503		10.0			30,121		4.0			45,181		6.0
Tier I Capital (to Average Assets):
Corporation	$	888,526		8.8	%	$	304,392		3.0	%	$	507,319		5.0	%
Fulton Bank		366,633		8.4			130,290		3.0			217,150		5.0
Lafayette Ambassador Bank		86,456		7.4			35,166		3.0			58,609		5.0
The Bank		81,252		7.7			31,762		3.0			52,937		5.0
Resource Bank		75,503		7.7			29,304		3.0			48,839		5.0

NOTE K – INCOME TAXES

The components of the provision for income taxes are as follows:

	Year ended December 31
	2005		2004		2003
	(in thousands)
Current tax expense:
Federal	$	69,611	$	63,440	$	53,342
State		760		417		1,277
		70,371		63,857		54,619
Deferred tax expense		990		816		4,465
	$	71,361	$	64,673	$	59,084

The differences between the effective income tax rate and the Federal statutory income tax rate are as follows:

	Year ended December 31
	2005			2004			2003
Statutory tax rate		35.0	%		35.0	%		35.0	%
Effect of tax-exempt income		(2.8	)		(2.9	)		(3.3	)
Effect of low income housing investments		(2.1	)		(2.1	)		(2.1	)
State income taxes, net of Federal benefit		0.2			0.1			0.4
Other		(0.2	)		0.1			0.2
Effective income tax rate		30.1	%		30.2	%		30.2	%

60

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
	(in thousands)
Deferred tax assets:
Allowance for loan losses	$	32,496	$	31,370
Unrealized holding losses on securities available for sale		21,592		5,155
Deferred compensation		7,234		6,072
LIH Investments		3,318		2,724
Post-retirement benefits		3,225		3,403
Other accrued expenses		2,412		1,549
Stock-based compensation		1,867		1,797
Other than temporary impairment of investments		1,400		1,022
Derivative financial instruments		1,177		—
Other		153		1,541
Total gross deferred tax assets		74,874		54,633
Deferred tax liabilities:
Direct leasing		9,357		10,038
Intangible assets and acquisition premiums/discounts		8,679		5,014
Mortgage servicing rights		2,653		2,855
Premises and equipment		747		2,003
Other		5,601		2,522
Total gross deferred tax liabilities		27,037		22,432
Net deferred tax asset	$	47,837	$	32,201

The Corporation has net operating losses (NOL’s) for income taxes in certain states that are eligible for carryforward credit against future taxable income for a specific number of years. The Corporation does not anticipate generating taxable income in these states during the carryforward years and, as such, deferred tax assets have not been recognized for these NOL’s.

As of December 31, 2005 and 2004, the Corporation had not established any valuation allowance against net Federal deferred tax assets since these tax benefits are realizable either through carryback availability against prior years’ taxable income or the reversal of existing deferred tax liabilities. Based on the Corporation’s historical and projected net income, a valuation allowance is not considered necessary.

NOTE L – EMPLOYEE BENEFIT PLANS

Substantially all eligible employees of the Corporation are covered by one of the following plans or combination of plans:

Profit Sharing Plan – A noncontributory defined contribution plan where employer contributions are based on a formula providing for an amount not to exceed 15% of each eligible employee’s annual salary (10% for employees hired subsequent to January 1, 1996). Participants are 100% vested in balances after five years of eligible service. In addition, the profit sharing plan includes a 401(k) feature which allows employees to defer a portion of their pre-tax salary on an annual basis, with no employer match. Contributions under this feature are 100% vested.

Defined Benefit Pension Plans and 401(k) Plans – Contributions to the Corporation’s defined benefit pension plan (Pension Plan) are actuarially determined and funded annually. Pension Plan assets are invested in money markets, fixed income securities, including corporate bonds, U.S. Treasury securities and common trust funds, and equity securities, including common stocks and common stock mutual funds. The Pension Plan has been closed to new participants, but existing participants continue to accrue benefits according to the terms of the plan.

61

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

62

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	%

63

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

	2005			2004			2003
	(in thousands)
Service cost	$	406		$	364		$	281
Interest cost		524			474			446
Expected return on plan assets		(5	)		(2	)		(2	)
Net amortization and deferral		(226	)		(230	)		(287	)
Net post-retirement benefit cost	$	699		$	606		$	438

The following table summarizes the changes in the accumulated post-retirement benefit obligation and fair value of plan assets for the years ended December 31:

	2005			2004
	(in thousands)
Accumulated post-retirement benefit obligation, beginning	$	8,929		$	7,815
Service cost		406			364
Interest cost		524			474
Benefit payments		(359	)		(268	)
Change due to change in experience		419			296
Change due to change in assumptions		930			248
Accumulated post-retirement benefit obligation, ending	$	10,849		$	8,929
Fair value of plan assets, beginning	$	150		$	165
Employer contributions		350			251
Actual return on assets		5			2
Benefit payments		(359	)		(268	)
Fair value of plan assets, ending	$	146		$	150

64

The funded status of the plan and the amounts included in other liabilities as of December 31 follows:

	2005			2004
	(in thousands)
Accumulated post-retirement benefit obligation	$	(10,849	)	$	(8,929	)
Fair value of plan assets		146			150
Funded status		(10,703	)		(8,779	)
Unrecognized prior service cost		(453	)		(679	)
Unrecognized net loss (gain)		1,311			(39	)
Post-retirement benefit liability recognized in the consolidated balance sheets	$	(9,845	)	$	(9,497	)

For measuring the post-retirement benefit obligation, the annual increase in the per capita cost of health care benefits was assumed to be 9.0% in year one, declining to an ultimate rate of 4.5% by year nine. This health care cost trend rate has a significant impact on the amounts reported. Assuming a 1.0% increase in the health care cost trend rate above the assumed annual increase, the accumulated post-retirement benefit obligation would increase by approximately $1.4 million and the current period expense would increase by approximately $141,000. Conversely, a 1% decrease in the health care cost trend rate would decrease the accumulated post-retirement benefit obligation by approximately $1.2 million and the current period expense by approximately $115,000.

The discount rate used in determining the accumulated post-retirement benefit obligation, which is determined using published long-term AA corporate bond rates as of the measurement date, rounded to the nearest 0.25%, was 5.50% at December 31, 2005 and 5.75% at December 31, 2004. The expected long-term rate of return on plan assets was 3.00% at December 31, 2005 and 2004.

NOTE M – STOCK-BASED COMPENSATION PLANS AND SHAREHOLDERS’ EQUITY

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. During the third quarter of 2005, the Corporation adopted Statement 123R using “modified retrospective application”, electing to restate all prior periods including all per-share amounts. The principal accounts impacted by the restatement were salaries and employee benefits expense, additional paid-in capital, retained earnings, other assets and taxes. The Corporation’s equity awards consist of stock options and restricted stock granted under its Stock Option and Compensation Plans (Option Plans) and shares purchased by employees under its Employee Stock Purchase Plan (ESPP).

65

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
	(in thousands)
Compensation expense	$	1,041		$	3,900		$	2,092
Tax benefit		(321	)		(591	)		(279	)
Net income effect	$	720		$	3,309		$	1,813

The tax benefit shown in the preceding table is less than the benefit that would be calculated using the Corporation’s 35% statutory Federal tax rate. Under Statement 123R, tax benefits are recognized upon grant only for options that ordinarily will result in a tax deduction when exercised (non-qualified stock options). The Corporation granted 440,000, 607,000 and 260,000 non-qualified stock options in 2005, 2004 and 2003, respectively. Compensation expense and tax benefits for restricted stock awards for the year ended December 31, 2005, included in the preceding table, were $270,000 and $94,000, respectively.

Under the Option Plans, stock options are granted to key employees for terms of up to ten years at option prices equal to the fair market value of the Corporation’s stock on the date of grant. Options are typically granted annually on July 1^st and, prior to the July 1, 2005 grant, had been 100% vested immediately upon grant. For the July 1, 2005 grant, a three-year cliff-vesting feature was added and, as a result, compensation expense associated with this grant will be recognized over the three-year vesting period. This change in vesting resulted in a significant decrease in stock-based compensation expense in 2005 as compared to 2004. On July 1, 2005, 15,000 shares of restricted stock with a five-year cliff-vesting period were granted to one employee. Certain events as defined in the Option Plans result in the acceleration of the vesting of both the stock options and restricted stock. As of December 31, 2005, the Option Plans had 14.9 million shares reserved for future grants through 2013.

66

The following table provides information about options outstanding for the year ended December 31, 2005:

						Weighted
				Weighted		Average	Aggregate
				Average		Remaining	Intrinsic
	Stock			Exercise		Contractual	Value
	Options			Price		Term	(in millions)
Outstanding at December 31, 2004		6,591,053		$	10.74
Granted		1,092,500			17.98
Exercised		(1,051,719	)		7.50
Assumed from SVB Financial		166,218			13.08
Forfeited		(20,364	)		16.53
Outstanding at December 31, 2005		6,777,688		$	12.45	6.2 years		$	34.9
Exercisable at December 31, 2005		5,677,828		$	11.42	5.5 years		$	35.1

The following table provides information about nonvested options and restricted stock for the year ended December 31, 2005:

	Stock Options					Restricted Stock
				Weighted				Weighted
				Average				Average
				Grant Date				Grant Date
	Options			Fair Value		Shares		Fair Value
Nonvested at December 31, 2004		—		$	—		—	$	—
Granted		1,092,500			2.52		15,000		17.98
Vested		—			—		—		—
Forfeited		(7,800	)		2.52		—		—
Nonvested at December 31, 2005		1,084,700		$	2.52		15,000	$	17.98

As of December 31, 2005, there was $2.1 million of total unrecognized compensation cost related to nonvested stock options that will be recognized as compensation expense over a weighted average period of 2.5 years.

The following table presents information about options exercised:

	2005		2004		2003
	(dollars in thousands)
Number of options exercised		1,051,719		1,388,773		532,181
Total intrinsic value of options exercised	$	10,675	$	13,577	$	4,503
Cash received from options exercised	$	6,774	$	6,341	$	2,216
Tax deduction realized from options exercised	$	7,049	$	6,936	$	1,960

Upon exercise, the Corporation issues shares from its authorized, but unissued, common stock to satisfy the options.

67

The fair value of option awards under the Option Plans is estimated on the date of grant using the Black-Scholes valuation methodology, which is dependent upon certain assumptions, as summarized in the following table.

	2005			2004			2003
Risk-free interest rate		3.76	%		4.22	%		3.55	%
Volatility of Corporation’s stock		16.17			18.12			22.75
Expected dividend yield		3.23			3.22			3.22
Expected life of options	6 Years			7 Years			8 Years

The expected life of the options was estimated based on historical employee behavior and represents the period of time that options granted are expected to be outstanding. Volatility of the Corporation’s stock was based on historical volatility for the period commensurate with the expected life of the options. The risk-free interest rate is the U.S. Treasury rate commensurate with the expected life of the options on the date of the grant.

Based on the assumptions used in the model, the Corporation calculated an estimated fair value per option of $2.52, $2.78 and $3.07 for options granted in 2005, 2004 and 2003, respectively. Approximately 1.1 million, 1.3 million and 601,000 options were granted in 2005, 2004 and 2003, respectively. The fair value of restricted stock awards is equal to the fair market value of the Corporation’s stock on the date of grant.

Under the ESPP, eligible employees can purchase stock of the Corporation at 85% of the fair market value of the stock on the date of purchase. The ESPP is considered to be a compensatory plan under Statement 123R and, as such, compensation expense is recognized for the 15% discount on shares purchased. The following table summarizes activity under the ESPP for the indicated periods.

	2005		2004		2003
ESPP shares purchased		130,946		105,392		108,380
Average purchase price per share (85% of market value)	$	14.82	$	14.55	$	12.82
Compensation expense recognized (in thousands)	$	341	$	271	$	245

Shareholder Rights

On June 20, 1989, the Board of Directors of the Corporation declared a dividend of one common share purchase right (Original Rights) for each outstanding share of common stock, par value $2.50 per share, of the Corporation. The dividend was paid to the shareholders of record as of the close of business on July 6, 1989. On April 27, 1999, the Board of Directors approved an amendment to the Original Rights and the rights agreement. The significant terms of the amendment included extending the expiration date from June 20, 1999 to April 27, 2009 and resetting the purchase price to $90.00 per share. As of December 31, 2005, the purchase price had adjusted to $43.08 per share as a result of stock dividends.

The Rights are not exercisable or transferable apart from the common stock prior to distribution. Distribution of the Rights will occur ten business days following (1) a public announcement that a person or group of persons (Acquiring Person) has acquired or obtained the right to acquire beneficial ownership of 20% or more of the outstanding shares of common stock (the Stock Acquisition Date) or (2) the commencement of a tender offer or exchange offer that would result in a person or group beneficially owning 25% or more of such outstanding shares of common stock. The Rights are redeemable in full, but not in part, by the Corporation at any time until ten business days following the Stock Acquisition Date, at a price of $0.01 per Right.

Treasury Stock

The Corporation periodically repurchases shares of its common stock under repurchase plans approved by the Board of Directors. These repurchases have historically been through open market transactions and have complied with all regulatory restrictions on the timing and amount of such repurchases. Shares repurchased have been added to treasury stock and are accounted for at cost. These shares are periodically reissued for various corporate needs.

In 2005, the Corporation purchased 4.3 million shares of its common stock from an investment bank at a total cost of $73.6 million under an “Accelerated Share Repurchase” program (ASR), which allowed the shares to be purchased immediately rather than over time. The investment bank, in turn, repurchased shares on the open market over a period that was determined by the average daily trading volume of the Corporation’s shares, among other factors. The Corporation completed the ASR in February of 2006 and settled

68

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 million shares in 2005, 4.7 million shares in 2004 and 4.0 million shares in 2003.

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 $12.1 million in 2005, $9.4 million in 2004 and $6.4 million in 2003. Future minimum payments as of December 31, 2005 under noncancelable operating leases are as follows (in thousands):

Year
2006	$	10,437
2007		9,593
2008		7,763
2009		6,222
2010		5,107
Thereafter		33,186
	$	72,308

NOTE O – COMMITMENTS AND CONTINGENCIES

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.

69

The following table presents the Corporation’s commitments to extend credit and letters of credit:

	2005		2004
	(in thousands)
Commercial mortgage, construction and land development	$	829,769	$	689,818
Home equity		494,872		412,790
Credit card		382,415		384,504
Commercial and other		2,028,997		1,851,159
Total commitments to extend credit	$	3,736,053	$	3,338,271
Standby letters of credit	$	599,191	$	533,094
Commercial letters of credit		23,037		24,312
Total letters of credit	$	622,228	$	557,406

From time to time, the Corporation and its subsidiary banks may be defendants in legal proceedings relating to the conduct of their banking business. Most of such legal proceedings are a normal part of the banking business, and in management’s opinion, the financial position and results of operations and cash flows of the Corporation would not be affected materially by the outcome of such legal proceedings.

During the first quarter of 2006, a legal settlement was reached in a lawsuit against Resource Bank, a wholly owned subsidiary of Fulton Financial. The suit alleged Resource Bank violated the Telephone Consumer Protection Act (TCPA), prior to being acquired by Fulton Financial in April 2004. The settlement resulted in a $2.2 million charge to other expense for the year ended December 31, 2005. The settlement is subject to court approval.

70

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 and 2004, 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
	Book		Estimated				Estimated
	Value		Fair Value		Book Value		Fair Value
	(in thousands)
FINANCIAL ASSETS
Cash and due from banks	$	368,043	$	368,043	$	278,065	$	278,065
Interest-bearing deposits with other banks		31,404		31,404		4,688		4,688
Federal funds sold		528		528		32,000		32,000
Loans held for sale		243,378		243,378		209,504		209,504
Securities held to maturity (1)		18,258		18,317		25,001		25,413
Securities available for sale (1)		2,543,887		2,543,887		2,424,858		2,424,858
Net loans		8,424,728		8,322,514		7,533,915		7,619,104
Accrued interest receivable		53,261		53,261		40,633		40,633
FINANCIAL LIABILITIES
Demand and savings deposits	$	5,435,119	$	5,435,119	$	4,926,478	$	4,926,478
Time deposits		3,369,720		3,346,911		2,969,046		2,974,551
Short-term borrowings		1,298,962		1,298,962		1,194,524		1,194,524
Accrued interest payable		38,604		38,604		27,279		27,279
Other financial liabilities		41,643		41,643		29,640		29,640
Federal Home Loan Bank advances and long-term debt		860,345		871,429		684,236		710,215

(1) See Note C, “Investment Securities”, for detail by security type.

For short-term financial instruments, defined as those with remaining maturities of 90 days or less, the carrying amount was considered to be a reasonable estimate of fair value. The following instruments are predominantly short-term:

Assets	Liabilities
Cash and due from banks	Demand and savings deposits
Interest bearing deposits	Short-term borrowings
Federal funds sold	Accrued interest payable
Accrued interest receivable	Other financial liabilities
Loans held for sale

For those components of the above-listed financial instruments with remaining maturities greater than 90 days, fair values were determined by discounting contractual cash flows using rates which could be earned for assets with similar remaining maturities and, in the case of liabilities, rates at which the liabilities with similar remaining maturities could be issued as of the balance sheet date.

As indicated in Note A, “Summary of Significant Accounting Policies”, securities available for sale are carried at their estimated fair values. The estimated fair values of securities held to maturity as of December 31, 2005 and 2004 were generally based on quoted market prices, broker quotes or dealer quotes.

71

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.

72

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.

73

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 19 full-service community banking offices and five retirement community offices in 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 common stock, based upon a fixed exchange ratio of 2.325 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 million, including $150.1 million in stock issued and stock options assumed, $150.4 million of Columbia 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, Columbia was merged into the Corporation and The Columbia Bank became a wholly owned subsidiary. The acquisition is being accounted for using 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.

74

NOTE R — CONDENSED FINANCIAL INFORMATION — PARENT COMPANY ONLY

CONDENSED BALANCE SHEETS
(in thousands)

	December 31
	2005		2004
ASSETS
Cash, securities, and other assets	$	8,852	$	6,740
Receivable from subsidiaries		10		777
Investment in:
Bank subsidiaries		1,203,927		1,183,856
Non-bank subsidiaries		355,343		250,901
Total Assets	$	1,568,132	$	1,442,274
LIABILITIES AND EQUITY
Line of credit with bank subsidiaries	$	61,388	$	70,500
Revolving line of credit		—		11,930
Long-term debt		140,121		34,955
Payable to non-bank subsidiaries		43,674		48,117
Other liabilities		39,978		32,685
Total Liabilities		285,161		198,187
Shareholders’ equity		1,282,971		1,244,087
Total Liabilities and Shareholders’ Equity	$	1,568,132	$	1,442,274

CONDENSED STATEMENTS OF INCOME

	Year ended December 31
	2005			2004			2003
	(in thousands)
Income:
Dividends from bank subsidiaries	$	223,900		$	62,131		$	149,596
Other		45,336			40,227			38,206
		269,236			102,358			187,802
Expenses		66,824			58,563			50,272
Income before income taxes and equity in undistributed net income of subsidiaries		202,412			43,795			137,530
Income tax benefit		(8,445	)		(6,420	)		(4,177	)
		210,857			50,215			141,707
Equity in undistributed net income (loss) of:
Bank subsidiaries		(53,640	)		84,525			(20,879	)
Non-bank subsidiaries		8,857			14,868			15,539
Net Income	$	166,074		$	149,608		$	136,367

75

CONDENSED STATEMENTS OF CASH FLOWS

	Year Ended December 31
	2005			2004			2003
	(in thousands)
Cash Flows From Operating Activities:
Net Income	$	166,074		$	149,608		$	136,367
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
Stock-based compensation		1,041			3,900			2,092
(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 liabilities and payable to non-bank subsidiaries		(2,653	)		36,859			(4,098	)
Total adjustments		41,790			(71,638	)		4,589
Net cash provided by operating activities		207,864			77,970			140,956
Cash Flows From Investing Activities:
Investment in bank subsidiaries		(3,700	)		(6,000	)		(3,500	)
Investment in non-bank subsidiaries		(100,000	)		—			—
Net cash paid for acquisitions		(21,724	)		(5,283	)		(1,544	)
Net cash used in investing activities		(125,424	)		(11,283	)		(5,044	)
Cash Flows From Financing Activities:
Net (decrease) increase in borrowings		(21,042	)		79,552			(16,678	)
Dividends paid		(85,495	)		(74,802	)		(64,628	)
Net proceeds from issuance of common stock		10,991			7,537			5,087
Increase in long-term debt		98,342			—			—
Acquisition of treasury stock		(85,168	)		(78,966	)		(59,699	)
Net cash used in financing activities		(82,372	)		(66,679	)		(135,918	)
Net Increase (Decrease) in Cash and Cash Equivalents		68			8			(6	)
Cash and Cash Equivalents at Beginning of Year		8			—			6
Cash and Cash Equivalents at End of Year	$	76		$	8		$	—
Cash paid during the year for:
Interest	$	2,758		$	2,889		$	2,469
Income taxes		60,539			54,457			48,924

76

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 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, 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, 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 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.
	Chairman, Chief Executive Officer and President
/s/	Charles J. Nugent
	Charles J. Nugent
	Senior Executive Vice President and
	Chief Financial Officer

77

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, based on criteria established in Internal 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.

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.

In our opinion, management’s assessment that Fulton Financial Corporation maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on criteria established in Internal 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, based on criteria established in Internal 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 and 2004, 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, and our report dated March 9, 2006 expressed, an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

Harrisburg, Pennsylvania
March 9, 2006

78

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 and 2004, 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. 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 and 2004, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2005, 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, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 9, 2006 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

/s/ KPMG LLP

Harrisburg, Pennsylvania
March 9, 2006

79

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

80

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, 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.

81

PART III

Item 10. Directors and Executive Officers of the Registrant

Incorporated by reference herein is the information appearing under the heading “Information about Nominees and Continuing Directors” within the Corporation’s 2006 Proxy Statement.

The Corporation has adopted a code of ethics (Code of Conduct) that applies to all directors, officers and employees, including the Chief Executive Officer, the Chief Financial Officer and the Corporate Controller. A copy of the Code of Conduct may be obtained free of charge by writing to the Corporate Secretary at Fulton Financial Corporation, P.O. Box 4887, Lancaster, Pennsylvania 17604-4887.

Item 11. Executive Compensation

Incorporated by reference herein is the information appearing under the heading “Information Concerning Executive Officers” within the Corporation’s 2006 Proxy Statement and under the heading “Compensation of Directors” within the Corporation’s 2006 Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Incorporated by reference herein is the information appearing under the heading “Voting of Shares and Principal Holders Thereof” within the Corporation’s 2006 Proxy Statement and under the heading “Information about Nominees and Continuing Directors” within the Corporation’s 2006 Proxy Statement.

Item 13. Certain Relationships and Related Transactions

Incorporated by reference herein is the information appearing under the heading “Transactions with Directors and Executive Officers” within the Corporation’s 2006 Proxy Statement, the information appearing under the heading “Voting of Shares and Principal Holders Thereof” within the Corporation’s 2006 Proxy Statement and the information appearing in “Note D — Loans and Allowance for Loan Losses”, of the Notes to Consolidated Financial Statements in Item 8, “Financial Statements and Supplementary Data”.

Item 14. Principal Accountant Fees and Services

Incorporated by reference herein is the information appearing under the heading “Relationship With Independent Public Accountants” within the Corporation’s 2006 Proxy Statement.

82

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) The following documents are filed as part of this report:

1. 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 and 2004.
(ii)	Consolidated Statements of Income — Years ended December 31, 2005, 2004 and 2003.
(iii)	Consolidated Statements of Shareholders’ Equity and Comprehensive Income — Years ended December 31, 2005, 2004 and 2003.
(iv)	Consolidated Statements of Cash Flows — Years ended December 31, 2005, 2004 and 2003.
(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 of the Fulton Financial Corporation Form S-4 Registration Statement filed on April 13, 2005.
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 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	A Registration Rights Agreement between Fulton Financial Corporation and Sandler O’Neill & Partners, L.P. as representative of the “Initial Purchasers” of $100 million of subordinated notes issued by Fulton

83

	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.
10.6	Severance 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 – Filed herewith.
10.7	Severance 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 – Filed herewith.
10.8	Severance 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 – Filed herewith.
10.9	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	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.
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

(b) Exhibits – The exhibits required to be filed as part of this report are submitted as a separate section of this report.

(c) Financial Statement Schedules – None required.

84

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	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	Director	March 16, 2006
	Jeffrey G. Albertson, Esq.
/s/	Donald M. Bowman, Jr.	Director	March 16, 2006
	Donald M. Bowman, Jr.
/s/	Beth Ann L. Chivinski	Executive Vice President and Controller	March 16, 2006
	Beth Ann L. Chivinski	(Principal Accounting Officer)
/s/	Craig A. Dally	Director	March 16, 2006
	Craig A. Dally, Esq.
/s/	Clark S. Frame	Director	March 16, 2006
	Clark S. Frame
/s/	Patrick J. Freer	Director	March 16, 2006
	Patrick J. Freer

85

Signature		Capacity	Date
/s/	Eugene H. Gardner	Director	March 16, 2006
	Eugene H. Gardner
/s/	George W. Hodges	Director	March 16, 2006
	George W. Hodges
/s/	Carolyn R. Holleran	Director	March 16, 2006
	Carolyn R. Holleran
/s/	Clyde W. Horst	Director	March 16, 2006
	Clyde W. Horst
/s/	Thomas W. Hunt	Director	March 16, 2006
	Thomas W. Hunt
/s/	Willem Kooyker	Director	March 16, 2006
	Willem Kooyker
/s/	Donald W. Lesher, Jr.	Director	March 16, 2006
	Donald W. Lesher, Jr.
/s/	Charles J. Nugent	Senior Executive Vice President and	March 16, 2006
	Charles J. Nugent	Chief Financial Officer
		(Principal Financial Officer)
/s/	Joseph J. Mowad	Director	March 16, 2006
	Joseph J. Mowad, M.D.
/s/	Abraham S. Opatut	Director	March 16, 2006
	Abraham S. Opatut

86

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
	R. Scott Smith, Jr.	Executive Officer

87

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 of the Fulton Financial Corporation Form S-4 Registration Statement filed on April 13, 2005.
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 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	A Registration Rights Agreement between Fulton Financial Corporation and Sandler O’Neill & Partners, L.P. 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.
10.6	Severance 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 – Filed herewith.
10.7	Severance 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 – Filed herewith.
10.8	Severance 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 – Filed herewith.
10.9	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	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.
21	Subsidiaries of the Registrant.

88

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

89

EX-10.6

                                                                    EXHIBIT 10.6

                               SEVERANCE AGREEMENT

     MADE as of this 17th day of October, 2000 by and between Fulton Financial
Corporation, a Pennsylvania corporation with offices at One Penn Square,
Lancaster, Pennsylvania 17602 (together with its subsidiaries and affiliates,
collectively, the "Company") and Craig H. Hill, an adult individual who resides
at 1145 Oakmont Drive, Lancaster, Pennsylvania 17601 ("Key Employee").

                                   BACKGROUND

     Key Employee is considered to be an employee who has made, and is expected
to continue to make a valuable contribution to the financial performance of the
Company.

     While the Company remains firmly committed to its policy of remaining a
strong, independent regional bank holding company, it recognizes that it might
nevertheless be acquired as a result of an unsolicited takeover attempt or in a
negotiated transaction. It is possible that if the Company would be acquired,
the acquiror would terminate Key Employee in order to realize certain cost
savings and that any severance benefits payable to Key Employee might be
inadequate to compensate Key Employee for loss of employment.

     The Board of Directors of the Company has carefully considered this problem
and has determined that it should be addressed. Specifically, the Board of
Directors has concluded that basic financial protection should be provided to
Key Employee in the form of certain limited severance benefits payable in the
event that Key Employee is discharged or is compelled to resign following, and
for reasons relating to a change in control of the Company.

     The purpose of this Agreement is to define these severance benefits and to
specify the conditions under which they are to be paid. This Agreement is not
intended to affect the terms of Key Employee's employment in the absence of a
change in control of the Company. Accordingly, although this Agreement will take
effect upon execution as a binding legal obligation of the Company, it will
become operative only upon a change in control of the Company, as that concept
is defined below.

                                   WITNESSETH:

     NOW, THEREFORE, in consideration of Key Employee's continuing service to
the Company and of the mutual covenants and undertakings hereinafter set forth,
the parties hereto, intending to be legally bound, hereby agree as follows:

1.   UNDERTAKING OF THE COMPANY

     The Company shall provide to Key Employee the severance benefits specified
in Paragraph 6 below in the event that any time within twelve (12) months
following a Change in Control of the Company:



     (a)  Key Employee is discharged by the Company, other than for Cause
          pursuant to Paragraph 3 below or for Disability pursuant to Paragraph
          4 below; or

     (b)  Key Employee resigns from the Company for Good Reason pursuant to
          Paragraph 5 below.

2.   CHANGE IN CONTROL

     (a)  For purposes of this Agreement, a "Change in Control" of the Company
          shall mean a change in control of Fulton Financial Corporation of the
          kind that would be required to be reported in response to Item 1 of
          Securities and Exchange Commission Form 8-K promulgated under the
          Securities Exchange Act of 1934 and as in effect on the date hereof.

     (b)  Without limitation of the foregoing, a Change in Control of the
          Company shall be deemed to have occurred upon the occurrence of any of
          the following events:

               (1)  Any person or group of persons acting in concert, shall have
                    acquired, directly or indirectly, beneficial ownership of 20
                    percent or more of the outstanding shares of the voting
                    stock of Fulton Financial Corporation;

               (2)  The composition of the Board of Directors of Fulton
                    Financial Corporation shall have changed such that during
                    any period of two consecutive years during the term of this
                    Agreement, the persons who at the beginning of such period
                    were members of the Board of Directors, unless the
                    nomination or election of each director who was not a
                    director at the beginning of such period was approved in
                    advance by directors representing not less than two-thirds
                    of the directors then in office who were directors at the
                    beginning of the period; or

               (3)  Fulton Financial Corporation shall be merged or consolidated
                    with or its assets purchased by another corporation and as a
                    result of such merger, consolidation or sale of assets, less
                    than a majority of the outstanding voting stock of the
                    surviving, resulting or purchasing corporation is owned,
                    immediately after the transaction, by the holders of the
                    voting stock of Fulton Financial Corporation outstanding
                    immediately before the transaction.

     (c)  For purposes of Paragraph 2(b)(1) above, a person shall be deemed to
          be the beneficial owner of any shares which he or any of his
          affiliates or associates (i) owns, directly or indirectly, (ii) has
          the right to acquire, or (iii) has the right to vote or direct the
          voting thereof pursuant to any agreement, arrangement or
          understanding.

3.   DISCHARGE FOR CAUSE

     (a)  The Company may at any time following a Change in Control discharge
          Key Employee for Cause, in which event Key Employee shall not be
          entitled to receive the severance benefits specified in Paragraph 6
          below.



     (b)  For purposes of this Agreement, the Company shall have "Cause" to
          discharge Key Employee only under the following circumstances:

          (i)  Key Employee shall have committed an act of dishonesty
               constituting a felony and resulting or intending to result
               directly or indirectly in gain or personal enrichment at the
               expense of the Company; or

          (ii) Key Employee shall have deliberately and intentionally refused
               (for reasons other than incapacity due to accident or physical or
               mental illness) to perform duties to the Company for a period of
               15 consecutive days following the receipt by Key Employee of
               written notice from the Company setting forth in detail the facts
               upon which the Company relies in concluding that Key Employee has
               deliberately and intentionally refused to perform such duties.

4.   DISCHARGE FOR DISABILITY

     (a)  Subject to the provisions of the Americans with Disabilities Act and
          other applicable law, the Company may at any time following a Change
          in Control discharge Key Employee for Disability as provided in this
          Paragraph 4, in which event Key Employee shall not be entitled to
          receive the severance benefits specified in Paragraph 6 below.

     (b)  For purposes of this Agreement, the Company may discharge Key Employee
          for "Disability" only under the following circumstances:

          (i)  Key Employee shall have been unable, for reasons of incapacity
               due to accident or physical or mental illness, for a period of
               six consecutive months to perform duties to the Company.

          (ii) The Company, following the expiration of such period of six
               consecutive months, shall have to give Key Employee 30 days
               written notice of its intention to discharge Key Employee for
               disability and Key Employee shall not within that 30 day period
               have returned to the performance of duties to the Company on a
               full-time basis; and

          (iii) The Company shall provide or cause to be provided to Key
               Employee short-term and long-term disability benefits and fringe
               benefits not less generous than the following: (A) Key Employee
               shall receive each month for six months following the date of
               discharge for Disability Key Employee's full month salary (as in
               effect immediately before discharge for Disability); (B) Key
               Employee shall receive each month thereafter 60 percent of Key
               Employee's monthly salary (as in effect immediately before
               discharge for Disability) until the death of Key Employee or
               until December 31 of the calendar year in which Key Employee
               attains age 65, whichever shall first occur; and (c) Key Employee
               shall receive those fringe benefits customarily provided by the
               Company to disabled former employees, which benefits may include,
               but shall not be limited to, life, medical, health, accident and
               disability insurance and a survivor's income benefit.



     (c)  In the event that Key Employee shall at any time cease to be disabled
          following discharge for Disability, the Company shall do one of the
          following:

          (i)  Reappoint Key Employee to Key Employee position with the Company,
               with full salary and benefits, as they existed immediately before
               discharge for Disability, in which case this Agreement shall
               remain in full force and effect as though Key Employee had never
               been so discharged; or

          (ii) Treat Key Employee as though Key Employee has been discharged for
               reasons other than Cause or Disability, in which case Key
               Employee shall be entitled to receive the severance benefits
               specified in Paragraph 6 below.

     (d)  In the event that Key Employee shall disagree with a determination on
          the part of the Company that Key Employee is disabled or in the event
          that the Company shall disagree with a determination on the part of
          Key Employee that Key Employee is no longer disabled, the matter shall
          be submitted to an impartial and reputable medical doctor to be
          selected by mutual agreement of the parties. In the event that Key
          Employee and the Company are unable to agree, the matter shall be
          submitted to an impartial and reputable medical doctor to be selected,
          upon petition by either party, by the court.

5.   RESIGNATION FOR GOOD REASON

     (a)  Key Employee may at any time following a Change in Control resign from
          the Company for Good Reason, in which event Key Employee shall be
          entitled to receive the severance benefits specified in Paragraph 6
          below.

     (b)  For purposes of this Agreement, Key Employee shall have "Good Reason"
          to resign if the Company, without Key Employee's prior written
          consent, shall have changed in any significant respect the authority,
          duties, compensation, benefits or other terms or conditions of Key
          Employee's employment (including requiring Key Employee to perform a
          substantial portion of duties at a location outside a twenty-five mile
          radius of the location where the Key Employee worked immediately
          before the Change in Control of the Company) in a manner which is
          adverse to Key Employee. It shall not be deemed to be a significant
          change in authority or duties if Key Employee is assigned a different
          title, position or reporting authority after the Change in Control of
          the Company so long as Key Employee continues to perform duties which,
          in aggregate, are similar to some or all of the duties performed by
          Key Employee immediately before the Change in Control of the Company.

6.   SEVERANCE BENEFITS

     The severance benefits to be provided to Key Employee by the Company under
this Agreement are as follows:

     (a)  Salary Continuation: The Company shall pay to Key Employee each month
          during the Severance Benefit Period an amount equal to one-twelfth of
          Key Employee's base annual salary. Key Employee's base annual salary
          shall be deemed to be an amount equal to the aggregate salary paid to
          Key Employee by or on behalf of the Company during the most



          recent taxable year ending before the Change of Control shall occur.
          The payment to be made in respect of each month shall be made on or
          before the 15th day of the next following month. In the event that the
          Severance Benefit Period begins or ends on other than, respectively,
          the first or last day of a calendar month, the payment to be made in
          respect of that month shall be prorated accordingly. It is understood
          that the Company shall withhold from each monthly payment such amounts
          as may be required under any applicable federal, state or local income
          tax law.

     (b)  Fringe Benefits: The Company shall at its expense provide to Key
          Employee throughout Severance Benefit Period life, medical, health,
          accident and disability insurance and a survivor's income benefit in
          form, substance and amount which is, in each case, substantially
          equivalent to that provided to Key Employee immediately before the
          Change in Control or immediately before the commencement of the
          Severance Benefit Period, whichever Key Employee shall, in each case,
          select.

7.   SEVERANCE BENEFIT PERIOD

     The "Severance Benefit Period" shall commence upon the effective date of
Key Employee's discharge (for reasons other than Cause or Disability) or
resignation (for Good Reason) and shall terminate upon the first to occur of the
following events:

     (a)  The expiration of twelve (12) months following the effective date of
          Key Employee's discharge or resignation;

     (b)  The expiration of the calendar year in which Key Employee attains age
          65;

     (c)  Key Employee's death; or

     (d)  The election of Key Employee to terminate the Severance Benefit Period
          pursuant to Paragraph 8(b) below.

8.   COVENANT NOT TO COMPETE

     (a)  Key Employee agrees that Key Employee will not without the prior
          written consent of the Company at any time during the Severance
          Benefit Period become an officer, director, or employee of or
          consultant to any bank, bank holding company or other financial
          services institution with an office located within a twenty-five mile
          radius of the office of the Company where Key Employee worked
          immediately before the Change in Control of the Company.

     (b)  Key Employee may elect at any time to terminate the Severance Benefit
          Period by delivering written notice to the Company in which event the
          covenant not to compete set forth in Paragraph 8(a) above shall expire
          and have no further force or effect.

     (c)  In the event of any breach by Key Employee of the covenant not to
          compete set forth in Paragraph 8(a) above, the parties agree that the
          exclusive remedy of the Company shall be to obtain an injunction,
          order for specific performance, or other form of equitable relief from
          a court of competent jurisdiction and that the Company shall not under
          any



          circumstances be entitled to recover monetary damages from Key
          Employee by reason of any such breach.

9.   MITIGATION AND SETOFF

     (a)  Key Employee shall not be required to mitigate the amount of any
          payment or benefit provided for in Paragraph 6 above by seeking
          employment or otherwise and the Company shall not be entitled to
          setoff against the amount of any payment or benefit provided for in
          Paragraph 6 above any amounts earned by Key Employee in other
          employment during the Severance Benefit Period.

     (b)  The Company hereby waives any and all rights to set off in respect to
          any claim, debt, obligation or other liability of any kind whatsoever,
          against any payment or benefit provided for in Paragraph 6 above.

10.  ATTORNEYS' FEES AND RELATED EXPENSES

     All attorneys' fees and related expenses incurred by Key Employee in
connection with or relating to enforcement by Key Employee of rights under this
Agreement shall be paid for in full by the Company.

11.  SUCCESSORS AND PARTIES IN INTEREST

     (a)  This Agreement shall be binding upon and shall inure to the benefit of
          the Company and its successors and assigns, including, without
          limitation, any corporation which acquires, directly or indirectly, by
          purchase, merger, consolidation or otherwise, all or substantially all
          of the business or assets of the Company. Without limitation of the
          foregoing, the Company shall require any such successor, expressly
          assume and agree to perform this Agreement in the same manner and to
          the same extent that it is required to be performed by the Company.

     (b)  This Agreement is binding upon and shall inure to the benefit of Key
          Employee and the heirs and personal representatives of Key Employee.

12.  RIGHTS UNDER OTHER PLANS

     This Agreement is not intended to reduce, restrict or eliminate any benefit
to which Key Employee may otherwise be entitled at the time of discharge or
resignation under any employee benefit plan of the Company then in effect.

13.  TERMINATION

     This Agreement may not be terminated except by mutual consent of the
parties, as evidenced by a written instrument duly executed by the Company and
by Key Employee.

14.  NOTICES



     All notices and other communications required to be given hereunder shall
be in writing and shall be deemed to have been given or made when hand delivered
or when mailed, certified mail, return receipt requested, to the Company or to
Key Employee, as the case may be, at their respective addresses set forth above.

15.  SEVERABILITY

     In the event that any provision of this Agreement shall be held to be
invalid or unenforceable by any court of competent jurisdiction, such provision
shall be deemed severable from the remainder of the Agreement and such holding
shall not invalidate or render unenforceable any other provision of this
Agreement.

16.  GOVERNING LAW, JURISDICTION AND VENUE

     This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Pennsylvania. In the event that either party shall
institute any suit or other legal proceeding, whether in law or in equity,
arising from or relating to this Agreement, the courts of the Commonwealth of
Pennsylvania shall have exclusive jurisdiction and venue shall lie exclusively
in the Court of Common Pleas of Lancaster County.

17.  ENTIRE AGREEMENT

     This Agreement constitutes the entire agreement between the Company and Key
Employee concerning the subject matter hereof and supersedes all prior written
or oral agreements or understandings between them. No term or provision of this
Agreement may be changed, waived, amended or terminated, except by written
instrument duly executed by the Company and by Key Employee.

     IN WITNESS WHEREOF, this Agreement is executed as of the day and year first
above written.

ATTEST:                                 FULTON FINANCIAL CORPORATION


By:                                     By:
    ---------------------------------       ------------------------------------
Title: Secretary                        Title: President and Chief Executive
                                               Officer

(CORPORATE SEAL)


WITNESS:


- -------------------------------------   ----------------------------------------
                                        Craig H. Hill



                        AMENDMENT OF SEVERANCE AGREEMENT

     THIS AMENDMENT, dated as of July 22, 2002 is made by and between Fulton
Financial Corporation, a Pennsylvania corporation with offices at One Penn
Square, Lancaster, Pennsylvania 17602 (together with its subsidiaries and
affiliates, collectively, the "Company") and CRAIG H. HILL, an adult individual
who resides at 1145 Oakmont Drive, Lancaster, PA 17601 ("Key Employee").

     WHEREAS, Company and Key Employee entered into a severance agreement dated
October 17, 2000 which provided to the Key Employee certain limited severance
benefits payable in the event the Key Employee is discharged or is compelled to
resign following, and for reasons relating to a change in control of the Company
("Severance Agreement").

     WHEREAS, the Company in reviewing the form of the severance agreement in
connection with providing such agreement to other key employees recently
discovered that certain language is missing in Paragraph 2 (b)(2) of the
Severance Agreement provided to the Key Employee.

     WHEREAS, it is the intention of the Company and the Key Employee to correct
this error and amend the Severance Agreement by replacing the current paragraph
2 (b)(2) in its entirety with a new paragraph 2 (b)(2).

     NOW, THEREFORE, in consideration of Key Employee's continuing service to
the Company and other good and valuable consideration, the parties hereto,
intending to be legally bound, hereby agree as follows:

     The existing paragraph 2(b) (2) of the Severance Agreement by and between
the Company and the Key Employee is hereby replaced in its entirety by the
following paragraph 2(b)(2):

          The composition of the Board of Directors of Fulton Financial
          Corporation shall have changed such that during any period of two
          consecutive years during the term of this Agreement, the persons who
          at the beginning of such period were members of the Board of Directors
          cease for any reason to constitute a majority of the Board of
          Directors, unless the nomination or election of each director who was
          not a director at the beginning of such period was approved in advance
          by directors representing not less than two-thirds of the directors
          then in office who were directors at the beginning of the period; or

     Except as otherwise expressly modified by this Amendment, the Severance
Agreement remains in full force and effect, without modification.

     IN WITNESS WHEREOF, this Amendment is executed as of the day and year first
above written.



ATTEST:                                 FULTON FINANCIAL CORPORATION


By:                                     By:
    ---------------------------------       ------------------------------------
Title: Secretary                        Title: President and Chief Operating
                                               Officer

(CORPORATE SEAL)


WITNESS:


- ------------------------------------    ----------------------------------------

EX-10.7

                                                                    EXHIBIT 10.7

                               SEVERANCE AGREEMENT

     MADE as of this 17th day of October, 2000 by and between Fulton Financial
Corporation, a Pennsylvania corporation with offices at One Penn Square,
Lancaster, Pennsylvania 17602 (together with its subsidiaries and affiliates,
collectively, the "Company") and James E. Shreiner, an adult individual who
resides at 1228 Hunsicker Road, Lancaster, Pennsylvania 17601 ("Key Employee").

                                   BACKGROUND

     Key Employee is considered to be an employee who has made, and is expected
to continue to make a valuable contribution to the financial performance of the
Company.

     While the Company remains firmly committed to its policy of remaining a
strong, independent regional bank holding company, it recognizes that it might
nevertheless be acquired as a result of an unsolicited takeover attempt or in a
negotiated transaction. It is possible that if the Company would be acquired,
the acquiror would terminate Key Employee in order to realize certain cost
savings and that any severance benefits payable to Key Employee might be
inadequate to compensate Key Employee for loss of employment.

     The Board of Directors of the Company has carefully considered this problem
and has determined that it should be addressed. Specifically, the Board of
Directors has concluded that basic financial protection should be provided to
Key Employee in the form of certain limited severance benefits payable in the
event that Key Employee is discharged or is compelled to resign following, and
for reasons relating to a change in control of the Company.

     The purpose of this Agreement is to define these severance benefits and to
specify the conditions under which they are to be paid. This Agreement is not
intended to affect the terms of Key Employee's employment in the absence of a
change in control of the Company. Accordingly, although this Agreement will take
effect upon execution as a binding legal obligation of the Company, it will
become operative only upon a change in control of the Company, as that concept
is defined below.

                                   WITNESSETH:

     NOW, THEREFORE, in consideration of Key Employee's continuing service to
the Company and of the mutual covenants and undertakings hereinafter set forth,
the parties hereto, intending to be legally bound, hereby agree as follows:



1.   UNDERTAKING OF THE COMPANY

     The Company shall provide to Key Employee the severance benefits specified
in Paragraph 6 below in the event that any time within eighteen (18) months
following a Change in Control of the Company:

     (a)  Key Employee is discharged by the Company, other than for Cause
          pursuant to Paragraph 3 below or for Disability pursuant to Paragraph
          4 below; or

     (b)  Key Employee resigns from the Company for Good Reason pursuant to
          Paragraph 5 below.

2.   CHANGE IN CONTROL

     (a)  For purposes of this Agreement, a "Change in Control" of the Company
          shall mean a change in control of Fulton Financial Corporation of the
          kind that would be required to be reported in response to Item 1 of
          Securities and Exchange Commission Form 8-K promulgated under the
          Securities Exchange Act of 1934 and as in effect on the date hereof.

     (b)  Without limitation of the foregoing, a Change in Control of the
          Company shall be deemed to have occurred upon the occurrence of any of
          the following events:

               (1)  Any person or group of persons acting in concert, shall have
                    acquired, directly or indirectly, beneficial ownership of 20
                    percent or more of the outstanding shares of the voting
                    stock of Fulton Financial Corporation;

               (2)  The composition of the Board of Directors of Fulton
                    Financial Corporation shall have changed such that during
                    any period of two consecutive years during the term of this
                    Agreement, the persons who at the beginning of such period
                    were members of the Board of Directors, unless the
                    nomination or election of each director who was not a
                    director at the beginning of such period was approved in
                    advance by directors representing not less than two-thirds
                    of the directors then in office who were directors at the
                    beginning of the period; or

               (3)  Fulton Financial Corporation shall be merged or consolidated
                    with or its assets purchased by another corporation and as a
                    result of such merger, consolidation or sale of assets, less
                    than a majority of the outstanding voting stock of the
                    surviving, resulting or purchasing corporation is owned,
                    immediately after the transaction, by the holders of the
                    voting stock of Fulton Financial Corporation outstanding
                    immediately before the transaction.

     (c)  For purposes of Paragraph 2(b)(1) above, a person shall be deemed to
          be the beneficial owner of any shares which he or any of his
          affiliates or associates (i) owns, directly or indirectly, (ii) has
          the right to acquire, or (iii) has the right to vote or direct the
          voting thereof pursuant to any agreement, arrangement or
          understanding.



3.   DISCHARGE FOR CAUSE

     (a)  The Company may at any time following a Change in Control discharge
          Key Employee for Cause, in which event Key Employee shall not be
          entitled to receive the severance benefits specified in Paragraph 6
          below.

     (b)  For purposes of this Agreement, the Company shall have "Cause" to
          discharge Key Employee only under the following circumstances:

          (i)  Key Employee shall have committed an act of dishonesty
               constituting a felony and resulting or intending to result
               directly or indirectly in gain or personal enrichment at the
               expense of the Company; or

          (ii) Key Employee shall have deliberately and intentionally refused
               (for reasons other than incapacity due to accident or physical or
               mental illness) to perform duties to the Company for a period of
               15 consecutive days following the receipt by Key Employee of
               written notice from the Company setting forth in detail the facts
               upon which the Company relies in concluding that Key Employee has
               deliberately and intentionally refused to perform such duties.

4.   DISCHARGE FOR DISABILITY

     (a)  Subject to the provisions of the Americans with Disabilities Act and
          other applicable law, the Company may at any time following a Change
          in Control discharge Key Employee for Disability as provided in this
          Paragraph 4, in which event Key Employee shall not be entitled to
          receive the severance benefits specified in Paragraph 6 below.

     (b)  For purposes of this Agreement, the Company may discharge Key Employee
          for "Disability" only under the following circumstances:

          (i)  Key Employee shall have been unable, for reasons of incapacity
               due to accident or physical or mental illness, for a period of
               six consecutive months to perform duties to the Company.

          (ii) The Company, following the expiration of such period of six
               consecutive months, shall have to give Key Employee 30 days
               written notice of its intention to discharge Key Employee for
               disability and Key Employee shall not within that 30 day period
               have returned to the performance of duties to the Company on a
               full-time basis; and

          (iii) The Company shall provide or cause to be provided to Key
               Employee short-term and long-term disability benefits and fringe
               benefits not less generous than the following: (A) Key Employee
               shall receive each month for six months following the date of
               discharge for Disability Key Employee's full month salary (as in
               effect immediately before discharge for Disability); (B) Key
               Employee shall receive each month thereafter 60 percent of Key
               Employee's monthly salary (as in effect immediately before
               discharge for Disability) until the death of Key Employee or
               until December 31 of the calendar year in which Key Employee
               attains age 65, whichever shall first occur; and (c) Key Employee
               shall receive those fringe benefits customarily provided by the
               Company to disabled former employees, which benefits may include,
               but shall



               not be limited to, life, medical, health, accident and disability
               insurance and a survivor's income benefit.

     (c)  In the event that Key Employee shall at any time cease to be disabled
          following discharge for Disability, the Company shall do one of the
          following:

          (i)  Reappoint Key Employee to Key Employee position with the Company,
               with full salary and benefits, as they existed immediately before
               discharge for Disability, in which case this Agreement shall
               remain in full force and effect as though Key Employee had never
               been so discharged; or

          (ii) Treat Key Employee as though Key Employee has been discharged for
               reasons other than Cause or Disability, in which case Key
               Employee shall be entitled to receive the severance benefits
               specified in Paragraph 6 below.

     (d)  In the event that Key Employee shall disagree with a determination on
          the part of the Company that Key Employee is disabled or in the event
          that the Company shall disagree with a determination on the part of
          Key Employee that Key Employee is no longer disabled, the matter shall
          be submitted to an impartial and reputable medical doctor to be
          selected by mutual agreement of the parties. In the event that Key
          Employee and the Company are unable to agree, the matter shall be
          submitted to an impartial and reputable medical doctor to be selected,
          upon petition by either party, by the court.

5.   RESIGNATION FOR GOOD REASON

     (a)  Key Employee may at any time following a Change in Control resign from
          the Company for Good Reason, in which event Key Employee shall be
          entitled to receive the severance benefits specified in Paragraph 6
          below.

     (b)  For purposes of this Agreement, Key Employee shall have "Good Reason"
          to resign if the Company, without Key Employee's prior written
          consent, shall have changed in any significant respect the authority,
          duties, compensation, benefits or other terms or conditions of Key
          Employee's employment (including requiring Key Employee to perform a
          substantial portion of duties at a location outside a twenty-five mile
          radius of the location where the Key Employee worked immediately
          before the Change in Control of the Company) in a manner which is
          adverse to Key Employee. It shall not be deemed to be a significant
          change in authority or duties if Key Employee is assigned a different
          title, position or reporting authority after the Change in Control of
          the Company so long as Key Employee continues to perform duties which,
          in aggregate, are similar to some or all of the duties performed by
          Key Employee immediately before the Change in Control of the Company.

6.   SEVERANCE BENEFITS

     The severance benefits to be provided to Key Employee by the Company under
this Agreement are as follows:

     (a)  Salary Continuation: The Company shall pay to Key Employee each month
          during the Severance Benefit Period an amount equal to one-twelfth of
          Key Employee's base annual



          salary. Key Employee's base annual salary shall be deemed to be an
          amount equal to the aggregate salary paid to Key Employee by or on
          behalf of the Company during the most recent taxable year ending
          before the Change of Control shall occur. The payment to be made in
          respect of each month shall be made on or before the 15th day of the
          next following month. In the event that the Severance Benefit Period
          begins or ends on other than, respectively, the first or last day of a
          calendar month, the payment to be made in respect of that month shall
          be prorated accordingly. It is understood that the Company shall
          withhold from each monthly payment such amounts as may be required
          under any applicable federal, state or local income tax law.

     (b)  Fringe Benefits: The Company shall at its expense provide to Key
          Employee throughout Severance Benefit Period life, medical, health,
          accident and disability insurance and a survivor's income benefit in
          form, substance and amount which is, in each case, substantially
          equivalent to that provided to Key Employee immediately before the
          Change in Control or immediately before the commencement of the
          Severance Benefit Period, whichever Key Employee shall, in each case,
          select.

7.   SEVERANCE BENEFIT PERIOD

     The "Severance Benefit Period" shall commence upon the effective date of
Key Employee's discharge (for reasons other than Cause or Disability) or
resignation (for Good Reason) and shall terminate upon the first to occur of the
following events:

     (a)  The expiration of eighteen (18) months following the effective date of
          Key Employee's discharge or resignation;

     (b)  The expiration of the calendar year in which Key Employee attains age
          65;

     (c)  Key Employee's death; or

     (d)  The election of Key Employee to terminate the Severance Benefit Period
          pursuant to Paragraph 8(b) below.

8.   COVENANT NOT TO COMPETE

     (a)  Key Employee agrees that Key Employee will not without the prior
          written consent of the Company at any time during the Severance
          Benefit Period become an officer, director, or employee of or
          consultant to any bank, bank holding company or other financial
          services institution with an office located within a twenty-five mile
          radius of the office of the Company where Key Employee worked
          immediately before the Change in Control of the Company.

     (b)  Key Employee may elect at any time to terminate the Severance Benefit
          Period by delivering written notice to the Company in which event the
          covenant not to compete set forth in Paragraph 8(a) above shall expire
          and have no further force or effect.

     (c)  In the event of any breach by Key Employee of the covenant not to
          compete set forth in Paragraph 8(a) above, the parties agree that the
          exclusive remedy of the Company shall be to obtain an injunction,
          order for specific performance, or other form of equitable



          relief from a court of competent jurisdiction and that the Company
          shall not under any circumstances be entitled to recover monetary
          damages from Key Employee by reason of any such breach.

9.   MITIGATION AND SETOFF

     (a)  Key Employee shall not be required to mitigate the amount of any
          payment or benefit provided for in Paragraph 6 above by seeking
          employment or otherwise and the Company shall not be entitled to
          setoff against the amount of any payment or benefit provided for in
          Paragraph 6 above any amounts earned by Key Employee in other
          employment during the Severance Benefit Period.

     (b)  The Company hereby waives any and all rights to set off in respect to
          any claim, debt, obligation or other liability of any kind whatsoever,
          against any payment or benefit provided for in Paragraph 6 above.

10.  ATTORNEYS' FEES AND RELATED EXPENSES

     All attorneys' fees and related expenses incurred by Key Employee in
connection with or relating to enforcement by Key Employee of rights under this
Agreement shall be paid for in full by the Company.

11.  SUCCESSORS AND PARTIES IN INTEREST

     (a)  This Agreement shall be binding upon and shall inure to the benefit of
          the Company and its successors and assigns, including, without
          limitation, any corporation which acquires, directly or indirectly, by
          purchase, merger, consolidation or otherwise, all or substantially all
          of the business or assets of the Company. Without limitation of the
          foregoing, the Company shall require any such successor, expressly
          assume and agree to perform this Agreement in the same manner and to
          the same extent that it is required to be performed by the Company.

     (b)  This Agreement is binding upon and shall inure to the benefit of Key
          Employee and the heirs and personal representatives of Key Employee.

12.  RIGHTS UNDER OTHER PLANS

     This Agreement is not intended to reduce, restrict or eliminate any benefit
to which Key Employee may otherwise be entitled at the time of discharge or
resignation under any employee benefit plan of the Company then in effect.

13.  TERMINATION

     This Agreement may not be terminated except by mutual consent of the
parties, as evidenced by a written instrument duly executed by the Company and
by Key Employee.



14.  NOTICES

     All notices and other communications required to be given hereunder shall
be in writing and shall be deemed to have been given or made when hand delivered
or when mailed, certified mail, return receipt requested, to the Company or to
Key Employee, as the case may be, at their respective addresses set forth above.

15.  SEVERABILITY

     In the event that any provision of this Agreement shall be held to be
invalid or unenforceable by any court of competent jurisdiction, such provision
shall be deemed severable from the remainder of the Agreement and such holding
shall not invalidate or render unenforceable any other provision of this
Agreement.

16.  GOVERNING LAW, JURISDICTION AND VENUE

     This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Pennsylvania. In the event that either party shall
institute any suit or other legal proceeding, whether in law or in equity,
arising from or relating to this Agreement, the courts of the Commonwealth of
Pennsylvania shall have exclusive jurisdiction and venue shall lie exclusively
in the Court of Common Pleas of Lancaster County.

17.  ENTIRE AGREEMENT

     This Agreement constitutes the entire agreement between the Company and Key
Employee concerning the subject matter hereof and supersedes all prior written
or oral agreements or understandings between them. No term or provision of this
Agreement may be changed, waived, amended or terminated, except by written
instrument duly executed by the Company and by Key Employee.

     IN WITNESS WHEREOF, this Agreement is executed as of the day and year first
above written.

ATTEST:                                 FULTON FINANCIAL CORPORATION


By:                                     By:
    --------------------------------        ------------------------------------
Title: Secretary                        Title: President and
                                               Chief Executive Officer

(CORPORATE SEAL)


WITNESS:


- ------------------------------------    ----------------------------------------
                                        James E. Shreiner



                        AMENDMENT OF SEVERANCE AGREEMENT

     THIS AMENDMENT, dated as of July 22, 2002 is made by and between Fulton
Financial Corporation, a Pennsylvania corporation with offices at One Penn
Square, Lancaster, Pennsylvania 17602 (together with its subsidiaries and
affiliates, collectively, the "Company") and JAMES E. SHREINER, an adult
individual who resides at 1228 Hunsicker Road, Lancaster, PA 17601 ("Key
Employee").

     WHEREAS, Company and Key Employee entered into a severance agreement dated
October 17, 2000 which provided to the Key Employee certain limited severance
benefits payable in the event the Key Employee is discharged or is compelled to
resign following, and for reasons relating to a change in control of the Company
("Severance Agreement").

     WHEREAS, the Company in reviewing the form of the severance agreement in
connection with providing such agreement to other key employees recently
discovered that certain language is missing in Paragraph 2 (b)(2) of the
Severance Agreement provided to the Key Employee.

     WHEREAS, it is the intention of the Company and the Key Employee to correct
this error and amend the Severance Agreement by replacing the current paragraph
2 (b)(2) in its entirety with a new paragraph 2 (b)(2).

     NOW, THEREFORE, in consideration of Key Employee's continuing service to
the Company and other good and valuable consideration, the parties hereto,
intending to be legally bound, hereby agree as follows:

     The existing paragraph 2(b) (2) of the Severance Agreement by and between
the Company and the Key Employee is hereby replaced in its entirety by the
following paragraph 2(b)(2):

          The composition of the Board of Directors of Fulton Financial
          Corporation shall have changed such that during any period of two
          consecutive years during the term of this Agreement, the persons who
          at the beginning of such period were members of the Board of Directors
          cease for any reason to constitute a majority of the Board of
          Directors, unless the nomination or election of each director who was
          not a director at the beginning of such period was approved in advance
          by directors representing not less than two-thirds of the directors
          then in office who were directors at the beginning of the period; or

     Except as otherwise expressly modified by this Amendment, the Severance
Agreement remains in full force and effect, without modification.



     IN WITNESS WHEREOF, this Amendment is executed as of the day and year first
above written.

ATTEST:                                 FULTON FINANCIAL CORPORATION


By:                                     By:
    ---------------------------------       ------------------------------------
Title: Secretary                        Title: President and Chief
                                               Operating Officer

(CORPORATE SEAL)


WITNESS:


- -------------------------------------   ----------------------------------------

EX-10.8

                                                                    EXHIBIT 10.8

                               SEVERANCE AGREEMENT

     MADE as of this 17th day of October, 2000 by and between Fulton Financial
Corporation, a Pennsylvania corporation with offices at One Penn Square,
Lancaster, Pennsylvania 17602 (together with its subsidiaries and affiliates,
collectively, the "Company") and E. Philip Wenger, an adult individual who
resides at 6 Whitetail Way, Pequea, Pennsylvania 17565 ("Key Employee").

                                   BACKGROUND

     Key Employee is considered to be an employee who has made, and is expected
to continue to make a valuable contribution to the financial performance of the
Company.

     While the Company remains firmly committed to its policy of remaining a
strong, independent regional bank holding company, it recognizes that it might
nevertheless be acquired as a result of an unsolicited takeover attempt or in a
negotiated transaction. It is possible that if the Company would be acquired,
the acquiror would terminate Key Employee in order to realize certain cost
savings and that any severance benefits payable to Key Employee might be
inadequate to compensate Key Employee for loss of employment.

     The Board of Directors of the Company has carefully considered this problem
and has determined that it should be addressed. Specifically, the Board of
Directors has concluded that basic financial protection should be provided to
Key Employee in the form of certain limited severance benefits payable in the
event that Key Employee is discharged or is compelled to resign following, and
for reasons relating to a change in control of the Company.

     The purpose of this Agreement is to define these severance benefits and to
specify the conditions under which they are to be paid. This Agreement is not
intended to affect the terms of Key Employee's employment in the absence of a
change in control of the Company. Accordingly, although this Agreement will take
effect upon execution as a binding legal obligation of the Company, it will
become operative only upon a change in control of the Company, as that concept
is defined below.

                                   WITNESSETH:

     NOW, THEREFORE, in consideration of Key Employee's continuing service to
the Company and of the mutual covenants and undertakings hereinafter set forth,
the parties hereto, intending to be legally bound, hereby agree as follows:



1.   UNDERTAKING OF THE COMPANY

     The Company shall provide to Key Employee the severance benefits specified
in Paragraph 6 below in the event that any time within eighteen (18) months
following a Change in Control of the Company:

     (a)  Key Employee is discharged by the Company, other than for Cause
          pursuant to Paragraph 3 below or for Disability pursuant to Paragraph
          4 below; or

     (b)  Key Employee resigns from the Company for Good Reason pursuant to
          Paragraph 5 below.

2.   CHANGE IN CONTROL

     (a)  For purposes of this Agreement, a "Change in Control" of the Company
          shall mean a change in control of Fulton Financial Corporation of the
          kind that would be required to be reported in response to Item 1 of
          Securities and Exchange Commission Form 8-K promulgated under the
          Securities Exchange Act of 1934 and as in effect on the date hereof.

     (b)  Without limitation of the foregoing, a Change in Control of the
          Company shall be deemed to have occurred upon the occurrence of any of
          the following events:

               (1)  Any person or group of persons acting in concert, shall have
                    acquired, directly or indirectly, beneficial ownership of 20
                    percent or more of the outstanding shares of the voting
                    stock of Fulton Financial Corporation;

               (2)  The composition of the Board of Directors of Fulton
                    Financial Corporation shall have changed such that during
                    any period of two consecutive years during the term of this
                    Agreement, the persons who at the beginning of such period
                    were members of the Board of Directors, unless the
                    nomination or election of each director who was not a
                    director at the beginning of such period was approved in
                    advance by directors representing not less than two-thirds
                    of the directors then in office who were directors at the
                    beginning of the period; or

               (3)  Fulton Financial Corporation shall be merged or consolidated
                    with or its assets purchased by another corporation and as a
                    result of such merger, consolidation or sale of assets, less
                    than a majority of the outstanding voting stock of the
                    surviving, resulting or purchasing corporation is owned,
                    immediately after the transaction, by the holders of the
                    voting stock of Fulton Financial Corporation outstanding
                    immediately before the transaction.

     (c)  For purposes of Paragraph 2(b)(1) above, a person shall be deemed to
          be the beneficial owner of any shares which he or any of his
          affiliates or associates (i) owns, directly or indirectly, (ii) has
          the right to acquire, or (iii) has the right to vote or direct the
          voting thereof pursuant to any agreement, arrangement or
          understanding.



3.   DISCHARGE FOR CAUSE

     (a)  The Company may at any time following a Change in Control discharge
          Key Employee for Cause, in which event Key Employee shall not be
          entitled to receive the severance benefits specified in Paragraph 6
          below.

     (b)  For purposes of this Agreement, the Company shall have "Cause" to
          discharge Key Employee only under the following circumstances:

          (i)  Key Employee shall have committed an act of dishonesty
               constituting a felony and resulting or intending to result
               directly or indirectly in gain or personal enrichment at the
               expense of the Company; or

          (ii) Key Employee shall have deliberately and intentionally refused
               (for reasons other than incapacity due to accident or physical or
               mental illness) to perform duties to the Company for a period of
               15 consecutive days following the receipt by Key Employee of
               written notice from the Company setting forth in detail the facts
               upon which the Company relies in concluding that Key Employee has
               deliberately and intentionally refused to perform such duties.

4.   DISCHARGE FOR DISABILITY

     (a)  Subject to the provisions of the Americans with Disabilities Act and
          other applicable law, the Company may at any time following a Change
          in Control discharge Key Employee for Disability as provided in this
          Paragraph 4, in which event Key Employee shall not be entitled to
          receive the severance benefits specified in Paragraph 6 below.

     (b)  For purposes of this Agreement, the Company may discharge Key Employee
          for "Disability" only under the following circumstances:

          (i)  Key Employee shall have been unable, for reasons of incapacity
               due to accident or physical or mental illness, for a period of
               six consecutive months to perform duties to the Company.

          (ii) The Company, following the expiration of such period of six
               consecutive months, shall have to give Key Employee 30 days
               written notice of its intention to discharge Key Employee for
               disability and Key Employee shall not within that 30 day period
               have returned to the performance of duties to the Company on a
               full-time basis; and

          (iii) The Company shall provide or cause to be provided to Key
               Employee short-term and long-term disability benefits and fringe
               benefits not less generous than the following: (A) Key Employee
               shall receive each month for six months following the date of
               discharge for Disability Key Employee's full month salary (as in
               effect immediately before discharge for Disability); (B) Key
               Employee shall receive each month thereafter 60 percent of Key
               Employee's monthly salary (as in effect immediately before
               discharge for Disability) until the death of Key Employee or
               until December 31 of the calendar year in which Key Employee
               attains age 65, whichever shall first occur; and (c) Key Employee
               shall receive those fringe benefits customarily provided by the
               Company to disabled former employees, which benefits may include,
               but shall



               not be limited to, life, medical, health, accident and disability
               insurance and a survivor's income benefit.

     (c)  In the event that Key Employee shall at any time cease to be disabled
          following discharge for Disability, the Company shall do one of the
          following:

          (i)  Reappoint Key Employee to Key Employee position with the Company,
               with full salary and benefits, as they existed immediately before
               discharge for Disability, in which case this Agreement shall
               remain in full force and effect as though Key Employee had never
               been so discharged; or

          (ii) Treat Key Employee as though Key Employee has been discharged for
               reasons other than Cause or Disability, in which case Key
               Employee shall be entitled to receive the severance benefits
               specified in Paragraph 6 below.

     (d)  In the event that Key Employee shall disagree with a determination on
          the part of the Company that Key Employee is disabled or in the event
          that the Company shall disagree with a determination on the part of
          Key Employee that Key Employee is no longer disabled, the matter shall
          be submitted to an impartial and reputable medical doctor to be
          selected by mutual agreement of the parties. In the event that Key
          Employee and the Company are unable to agree, the matter shall be
          submitted to an impartial and reputable medical doctor to be selected,
          upon petition by either party, by the court.

5.   RESIGNATION FOR GOOD REASON

     (a)  Key Employee may at any time following a Change in Control resign from
          the Company for Good Reason, in which event Key Employee shall be
          entitled to receive the severance benefits specified in Paragraph 6
          below.

     (b)  For purposes of this Agreement, Key Employee shall have "Good Reason"
          to resign if the Company, without Key Employee's prior written
          consent, shall have changed in any significant respect the authority,
          duties, compensation, benefits or other terms or conditions of Key
          Employee's employment (including requiring Key Employee to perform a
          substantial portion of duties at a location outside a twenty-five mile
          radius of the location where the Key Employee worked immediately
          before the Change in Control of the Company) in a manner which is
          adverse to Key Employee. It shall not be deemed to be a significant
          change in authority or duties if Key Employee is assigned a different
          title, position or reporting authority after the Change in Control of
          the Company so long as Key Employee continues to perform duties which,
          in aggregate, are similar to some or all of the duties performed by
          Key Employee immediately before the Change in Control of the Company.

6.   SEVERANCE BENEFITS

     The severance benefits to be provided to Key Employee by the Company under
this Agreement are as follows:

     (a)  Salary Continuation: The Company shall pay to Key Employee each month
          during the Severance Benefit Period an amount equal to one-twelfth of
          Key Employee's base annual



          salary. Key Employee's base annual salary shall be deemed to be an
          amount equal to the aggregate salary paid to Key Employee by or on
          behalf of the Company during the most recent taxable year ending
          before the Change of Control shall occur. The payment to be made in
          respect of each month shall be made on or before the 15th day of the
          next following month. In the event that the Severance Benefit Period
          begins or ends on other than, respectively, the first or last day of a
          calendar month, the payment to be made in respect of that month shall
          be prorated accordingly. It is understood that the Company shall
          withhold from each monthly payment such amounts as may be required
          under any applicable federal, state or local income tax law.

     (b)  Fringe Benefits: The Company shall at its expense provide to Key
          Employee throughout Severance Benefit Period life, medical, health,
          accident and disability insurance and a survivor's income benefit in
          form, substance and amount which is, in each case, substantially
          equivalent to that provided to Key Employee immediately before the
          Change in Control or immediately before the commencement of the
          Severance Benefit Period, whichever Key Employee shall, in each case,
          select.

7.   SEVERANCE BENEFIT PERIOD

     The "Severance Benefit Period" shall commence upon the effective date of
Key Employee's discharge (for reasons other than Cause or Disability) or
resignation (for Good Reason) and shall terminate upon the first to occur of the
following events:

     (a)  The expiration of eighteen (18) months following the effective date of
          Key Employee's discharge or resignation;

     (b)  The expiration of the calendar year in which Key Employee attains age
          65;

     (c)  Key Employee's death; or

     (d)  The election of Key Employee to terminate the Severance Benefit Period
          pursuant to Paragraph 8(b) below.

8.   COVENANT NOT TO COMPETE

     (a)  Key Employee agrees that Key Employee will not without the prior
          written consent of the Company at any time during the Severance
          Benefit Period become an officer, director, or employee of or
          consultant to any bank, bank holding company or other financial
          services institution with an office located within a twenty-five mile
          radius of the office of the Company where Key Employee worked
          immediately before the Change in Control of the Company.

     (b)  Key Employee may elect at any time to terminate the Severance Benefit
          Period by delivering written notice to the Company in which event the
          covenant not to compete set forth in Paragraph 8(a) above shall expire
          and have no further force or effect.

     (c)  In the event of any breach by Key Employee of the covenant not to
          compete set forth in Paragraph 8(a) above, the parties agree that the
          exclusive remedy of the Company shall be to obtain an injunction,
          order for specific performance, or other form of equitable



          relief from a court of competent jurisdiction and that the Company
          shall not under any circumstances be entitled to recover monetary
          damages from Key Employee by reason of any such breach.

9.   MITIGATION AND SETOFF

     (a)  Key Employee shall not be required to mitigate the amount of any
          payment or benefit provided for in Paragraph 6 above by seeking
          employment or otherwise and the Company shall not be entitled to
          setoff against the amount of any payment or benefit provided for in
          Paragraph 6 above any amounts earned by Key Employee in other
          employment during the Severance Benefit Period.

     (b)  The Company hereby waives any and all rights to set off in respect to
          any claim, debt, obligation or other liability of any kind whatsoever,
          against any payment or benefit provided for in Paragraph 6 above.

10.  ATTORNEYS' FEES AND RELATED EXPENSES

     All attorneys' fees and related expenses incurred by Key Employee in
connection with or relating to enforcement by Key Employee of rights under this
Agreement shall be paid for in full by the Company.

11.  SUCCESSORS AND PARTIES IN INTEREST

     (a)  This Agreement shall be binding upon and shall inure to the benefit of
          the Company and its successors and assigns, including, without
          limitation, any corporation which acquires, directly or indirectly, by
          purchase, merger, consolidation or otherwise, all or substantially all
          of the business or assets of the Company. Without limitation of the
          foregoing, the Company shall require any such successor, expressly
          assume and agree to perform this Agreement in the same manner and to
          the same extent that it is required to be performed by the Company.

     (b)  This Agreement is binding upon and shall inure to the benefit of Key
          Employee and the heirs and personal representatives of Key Employee.

12.  RIGHTS UNDER OTHER PLANS

     This Agreement is not intended to reduce, restrict or eliminate any benefit
to which Key Employee may otherwise be entitled at the time of discharge or
resignation under any employee benefit plan of the Company then in effect.

13.  TERMINATION

     This Agreement may not be terminated except by mutual consent of the
parties, as evidenced by a written instrument duly executed by the Company and
by Key Employee.



14.  NOTICES

     All notices and other communications required to be given hereunder shall
be in writing and shall be deemed to have been given or made when hand delivered
or when mailed, certified mail, return receipt requested, to the Company or to
Key Employee, as the case may be, at their respective addresses set forth above.

15.  SEVERABILITY

     In the event that any provision of this Agreement shall be held to be
invalid or unenforceable by any court of competent jurisdiction, such provision
shall be deemed severable from the remainder of the Agreement and such holding
shall not invalidate or render unenforceable any other provision of this
Agreement.

16.  GOVERNING LAW, JURISDICTION AND VENUE

     This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Pennsylvania. In the event that either party shall
institute any suit or other legal proceeding, whether in law or in equity,
arising from or relating to this Agreement, the courts of the Commonwealth of
Pennsylvania shall have exclusive jurisdiction and venue shall lie exclusively
in the Court of Common Pleas of Lancaster County.

17.  ENTIRE AGREEMENT

     This Agreement constitutes the entire agreement between the Company and Key
Employee concerning the subject matter hereof and supersedes all prior written
or oral agreements or understandings between them. No term or provision of this
Agreement may be changed, waived, amended or terminated, except by written
instrument duly executed by the Company and by Key Employee.

     IN WITNESS WHEREOF, this Agreement is executed as of the day and year first
above written.

ATTEST:                                 FULTON FINANCIAL CORPORATION


By:                                     By:
    ---------------------------------       ------------------------------------
Title: Secretary                        Title: President and
                                               Chief Executive Officer

(CORPORATE SEAL)


WITNESS:


- -------------------------------------   ----------------------------------------
                                        E. Philip Wenger



                        AMENDMENT OF SEVERANCE AGREEMENT

     THIS AMENDMENT, dated as of July 23, 2002 is made by and between Fulton
Financial Corporation, a Pennsylvania corporation with offices at One Penn
Square, Lancaster, Pennsylvania 17602 (together with its subsidiaries and
affiliates, collectively, the "Company") and E. PHILIP WENGER, an adult
individual who resides at 6 Whitetail Way, Pequea, PA 17565 ("Key Employee").

     WHEREAS, Company and Key Employee entered into a severance agreement dated
October 17, 2000 which provided to the Key Employee certain limited severance
benefits payable in the event the Key Employee is discharged or is compelled to
resign following, and for reasons relating to a change in control of the Company
("Severance Agreement").

     WHEREAS, the Company in reviewing the form of the severance agreement in
connection with providing such agreement to other key employees recently
discovered that certain language is missing in Paragraph 2 (b)(2) of the
Severance Agreement provided to the Key Employee.

     WHEREAS, it is the intention of the Company and the Key Employee to correct
this error and amend the Severance Agreement by replacing the current paragraph
2 (b)(2) in its entirety with a new paragraph 2 (b)(2).

     NOW, THEREFORE, in consideration of Key Employee's continuing service to
the Company and other good and valuable consideration, the parties hereto,
intending to be legally bound, hereby agree as follows:

     The existing paragraph 2(b) (2) of the Severance Agreement by and between
the Company and the Key Employee is hereby replaced in its entirety by the
following paragraph 2(b)(2):

          The composition of the Board of Directors of Fulton Financial
          Corporation shall have changed such that during any period of two
          consecutive years during the term of this Agreement, the persons who
          at the beginning of such period were members of the Board of Directors
          cease for any reason to constitute a majority of the Board of
          Directors, unless the nomination or election of each director who was
          not a director at the beginning of such period was approved in advance
          by directors representing not less than two-thirds of the directors
          then in office who were directors at the beginning of the period; or

     Except as otherwise expressly modified by this Amendment, the Severance
Agreement remains in full force and effect, without modification.

     IN WITNESS WHEREOF, this Amendment is executed as of the day and year first
above written.



ATTEST:                                 FULTON FINANCIAL CORPORATION


By:                                     By:
    ---------------------------------       ------------------------------------
Title: Secretary                        Title: President and Chief Operating
                                               Officer

(CORPORATE SEAL)


WITNESS:


- -------------------------------------   ----------------------------------------

EX-21

                                                                               .
                                                                               .
                                                                               .


                   EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT

The following are the subsidiaries of Fulton Financial Corporation:



                                        STATE OF INCORPORATION            NAME UNDER WHICH
          SUBSIDIARY                        OR ORGANIZATION             BUSINESS IS CONDUCTED
- ------------------------------         ------------------------        -----------------------
                                                                 
Fulton Bank                            Pennsylvania                    Fulton Bank
One Penn Square
P.O. Box 4887
Lancaster, Pennsylvania 17604

Lebanon Valley Farmers Bank            Pennsylvania                    Lebanon Valley Farmers Bank
555 Willow Street
P. O. Box 1285
Lebanon, Pennsylvania 17042

Swineford National Bank                Pennsylvania                    Swineford National Bank
227 East Main Street
Middleburg, Pennsylvania 17842

Lafayette Ambassador Bank              Pennsylvania                    Lafayette Ambassador Bank
360 Northampton Street
Easton, Pennsylvania 18042

Fulton Financial Realty Company        Pennsylvania                    Fulton Financial Realty Company
One Penn Square
P.O. Box 4887
Lancaster, Pennsylvania 17604

Fulton Reinsurance Company, LTD        Turks & Caicos Islands          Fulton Reinsurance Company, LTD
One Beatrice Butterfield Building
Butterfield Square, Providenciales
Turks & Caicos Islands, BWI

FNB Bank, N.A.                         Pennsylvania                    FNB Bank, N.A.
354 Mill Street
P.O. Box 279
Danville, Pennsylvania 17821

Hagerstown Trust Company               Maryland                        Hagerstown Trust
83 West Washington Street
Hagerstown, Maryland 21740

Central Pennsylvania Financial Corp.   Pennsylvania                    Central Pennsylvania Financial Corp.
100 W. Independence Street
Shamokin, PA 17872

Delaware National Bank                 Delaware                        Delaware National Bank
Route 113 North
P. O. Box 520
Georgetown, DE 19947

The Bank                               New Jersey                      The Bank
100 Park Avenue
P.O. Box 832
Woodbury, NJ 08096






             EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT (CONTINUED)



                                        STATE OF INCORPORATION             NAME UNDER WHICH
          SUBSIDIARY                       OR ORGANIZATION              BUSINESS IS CONDUCTED
- ------------------------------         ------------------------        -----------------------
                                                                 
FFC Management, Inc.                   Delaware                        FFC Management, Inc.
P.O. Box 609
Georgetown, DE 19947

The Peoples Bank of Elkton             Maryland                        The Peoples Bank of Elkton
130 North Street
P.O. Box 220
Elkton, MD 21922

Skylands Community Bank                New Jersey                      Skylands Community Bank
176 Mountain Avenue
Hackettstown, NJ 07840

Fulton Financial Advisors,
   National Association                Pennsylvania                    Fulton Financial Advisors, N.A.
One Penn Square
P.O. Box 7989
Lancaster, Pennsylvania 17604

Fulton Insurance Services Group, Inc.  Pennsylvania                    Fulton Insurance Services Group, Inc.
One Penn Square
P.O. Box 7989
Lancaster, Pennsylvania 17604

FFC Penn Square, Inc.                  Delaware                        FFC Penn Square, Inc.
P.O. Box 609
Georgetown, DE 19947

Premier Bank                           Pennsylvania                    Premier Bank
379 North Main Street
Doylestown, PA 18901

PBI Capital Trust                      Delaware                        PBI Capital Trust
919 Market Street, Suite 700
Wilmington, DE 19801

Premier Capital Trust II               Delaware                        Premier Capital Trust II
919 Market Street, Suite 700
Wilmington, DE 19801

Resource Bank                          Virginia                        Resource Bank
3720 Virginia Beach Blvd.
Virginia Beach, VA 23452

Resource Capital Trust II              Virginia                        Resource Capital Trust II
3720 Virginia Beach Blvd.
Virginia Beach, VA 23452






             EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT (CONTINUED)



                                        STATE OF INCORPORATION             NAME UNDER WHICH
          SUBSIDIARY                       OR ORGANIZATION              BUSINESS IS CONDUCTED
- ------------------------------         ------------------------        -----------------------
                                                                 
Resource Capital Trust III             Virginia                        Resource Capital Trust III
3720 Virginia Beach Blvd.
Virginia Beach, VA 23452

Virginia Financial Services, LLC       Virginia                        Virginia Financial Services, LLC
One Commercial Place #2000
Norfolk, VA

First Washington State Bank            New Jersey                      First Washington State Bank
Route 130 and Main Street
Windsor, NJ 08561

Somerset Valley Bank                   New Jersey                      Somerset Valley Bank
70 East Main Street
Somerville, NJ 08776

SVB Bald Eagle Statutory Trust I       Connecticut                     Somerset Valley Bank
70 East Main Street
Somerville, NJ 08776

SVB Bald Eagle Statutory Trust II      Connecticut                     Somerset Valley Bank
70 East Main Street
Somerville, NJ 08776

EX-23

      EXHIBIT 23 - CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Fulton Financial Corporation:

We consent to the incorporation by reference in the registration statement (No.
333-05481, No. 333-44788, No. 333-81377, No. 333-64744, No. 333-76600, No.
333-76596, No. 333-76594, No. 333-107625, No. 333-114206, No. 333-116625, No.
333-121896, No. 333-126281 and No. 333-131706) on Forms S-8 and on registration
statement (No. 33-37835, No. 333-61268, No. 333-123532 and No. 333-130708) on
Forms S-3 of Fulton Financial Corporation of our reports dated March 9, 2006,
with respect to the consolidated balance sheets of Fulton Financial Corporation
as of December 31, 2005 and 2004, 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, management's
assessment of the effectiveness of internal control over financial reporting as
of December 31, 2005 and the effectiveness of internal control over financial
reporting as of December 31, 2005, which reports appear in the December 31, 2005
annual report on Form 10-K of Fulton Financial Corporation.

/s/ KPMG LLP

Harrisburg, Pennsylvania
March 16, 2006

EX-31.1

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

I, R. Scott Smith, Jr. certify that:

1.    I have reviewed this annual report on Form 10-K of Fulton Financial
      Corporation;

2.    Based on my knowledge, this report does not contain any untrue statement
      of a material fact or omit to state a material fact necessary to make the
      statements made, in light of the circumstances under which such statements
      were made, not misleading with respect to the period covered by this
      report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this report, fairly present in all material
      respects the financial condition, results of operations and cash flows of
      the registrant as of, and for, the periods presented in this report;

4.    The registrant's other certifying officer and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
      control over financial reporting (as defined in Exchange Act Rules
      13a-15(f) and 15d-15(f) for the registrant and have:

      a.    Designed such disclosure controls and procedures, or caused such
            disclosure controls and procedures to be designed under our
            supervision, to ensure that material information relating to the
            registrant, including its consolidated subsidiaries, is made known
            to us by others within those entities, particularly during the
            period in which this report is being prepared;

      b.    Designed such internal control over financial reporting, or caused
            such internal control over financial reporting to be designed under
            our supervision, 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.

      c.    Evaluated the effectiveness of the registrant's disclosure controls
            and procedures and presented in this report our conclusions about
            the effectiveness of the disclosure controls and procedures, as of
            the end of the period covered by this report based on such
            evaluation; and

      d.    Disclosed in this report any change in the registrant's internal
            control over financial reporting that occurred during the
            registrant's most recent fiscal quarter (the registrant's fourth
            fiscal quarter in the case of an annual report) that has materially
            affected, or is reasonably likely to materially affect, the
            registrant's internal control over financial reporting; and;

5.    The registrant's other certifying officer and I have disclosed, based on
      our most recent evaluation of internal control over financial reporting,
      to the registrant's auditors and the audit committee of the registrant's
      board of directors (or persons performing the equivalent functions):

      a.    All significant deficiencies and material weaknesses in the design
            or operation of internal control over financial reporting which are
            reasonably likely to adversely affect the registrant's ability to
            record, process, summarize and report financial information; and

      b.    Any fraud, whether or not material, that involves management or
            other employees who have a significant role in the registrant's
            internal control over financial reporting.

Date: March 16, 2006                   /s/ R. Scott Smith, Jr.
                                       ---------------------------------
                                           R. Scott Smith, Jr.
                                           Chairman, Chief Executive Officer
                                           and President

EX-31.2

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

I, Charles J. Nugent, certify that:

1.    I have reviewed this annual report on Form 10-K of Fulton Financial
      Corporation;

2.    Based on my knowledge, this report does not contain any untrue statement
      of a material fact or omit to state a material fact necessary to make the
      statements made, in light of the circumstances under which such statements
      were made, not misleading with respect to the period covered by this
      report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this report, fairly present in all material
      respects the financial condition, results of operations and cash flows of
      the registrant as of, and for, the periods presented in this report;

4.    The registrant's other certifying officer and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
      control over financial reporting (as defined in Exchange Act Rules
      13a-15(f) and 15d-15(f) for the registrant and have:

      a.    Designed such disclosure controls and procedures, or caused such
            disclosure controls and procedures to be designed under our
            supervision, to ensure that material information relating to the
            registrant, including its consolidated subsidiaries, is made known
            to us by others within those entities, particularly during the
            period in which this report is being prepared;

      b.    Designed such internal control over financial reporting, or caused
            such internal control over financial reporting to be designed under
            our supervision, 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.

      c.    Evaluated the effectiveness of the registrant's disclosure controls
            and procedures and presented in this report our conclusions about
            the effectiveness of the disclosure controls and procedures, as of
            the end of the period covered by this report based on such
            evaluation; and

      d.    Disclosed in this report any change in the registrant's internal
            control over financial reporting that occurred during the
            registrant's most recent fiscal quarter (the registrant's fourth
            fiscal quarter in the case of an annual report) that has materially
            affected, or is reasonably likely to materially affect, the
            registrant's internal control over financial reporting; and;

5.    The registrant's other certifying officer and I have disclosed, based on
      our most recent evaluation of internal control over financial reporting,
      to the registrant's auditors and the audit committee of the registrant's
      board of directors (or persons performing the equivalent functions):

      a.    All significant deficiencies and material weaknesses in the design
            or operation of internal control over financial reporting which are
            reasonably likely to adversely affect the registrant's ability to
            record, process, summarize and report financial information; and

      b.    Any fraud, whether or not material, that involves management or
            other employees who have a significant role in the registrant's
            internal control over financial reporting.

Date: March 16, 2006                   /s/  Charles J. Nugent
                                       ----------------------------------------
                                            Charles J. Nugent
                                            Senior Executive Vice President
                                            and Chief Financial Officer

EX-32.1

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

I, R. Scott Smith, Jr., Chief Executive Officer of Fulton Financial Corporation,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, certify that:

The Form 10-K of Fulton Financial Corporation, containing the consolidated
financial statements for the year ended December 31, 2003, fully complies with
the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of
1934. The information contained in the Form 10-K fairly presents, in all
material respects, the financial condition and results of operations of Fulton
Financial Corporation for the year ended December 31, 2005.

Dated: March 16, 2006

      /s/ R. Scott Smith, Jr.
      ---------------------------------------------------
          R. Scott Smith, Jr.
          Chairman, Chief Executive Officer and President

EX-32.2

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

I, Charles J. Nugent, Chief Financial Officer of Fulton Financial Corporation,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, certify that:

The Form 10-K of Fulton Financial Corporation, containing the consolidated
financial statements for the year ended December 31, 2003, fully complies with
the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of
1934. The information contained in the Form 10-K fairly presents, in all
material respects, the financial condition and results of operations of Fulton
Financial Corporation for the year ended December 31, 2005.

Dated: March 16, 2006

        /s/ Charles J. Nugent
        ----------------------------------------
            Charles J. Nugent
            Senior Executive Vice President and
            Chief Financial Officer

EX-99.1

EXHIBIT 99.1 - Risk Factors


An investment in Fulton Financial Corporation (Fulton) 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.


                    RISK FACTORS RELATED TO FULTON'S BUSINESS

CHANGES IN INTEREST RATES MAY HAVE AN ADVERSE EFFECT ON FULTON'S PROFITABILITY.

Fulton and its subsidiary banks are affected by fiscal and monetary policies of
the federal government, including those of the Federal Reserve Board, which
regulates the national money supply in order to manage recessionary and
inflationary pressures. Among the techniques available to the Federal Reserve
Board 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 Fulton's net income,
accounting for approximately 75% of total revenues in 2005, excluding investment
security gains. The narrowing of interest rate spreads, the difference between
interest rates earned on loans and investments and interest rates paid on
deposits and borrowings, would adversely affect Fulton's earnings and financial
condition. Among other things, regional and local economic conditions as well as
fiscal and monetary policies of the federal government, including those of the
Federal Reserve Board, may affect prevailing interest rates. Fulton cannot
predict or control changes in interest rates.

The absolute difference between short-term interest rates and intermediate-term
interest rates can also affect Fulton's net interest income. When
intermediate-term interest rates exceed short-term interest rates, generally, an
increase in the interest rate differential will increase the net interest income
earned by Fulton on a portion of its earning assets. Conversely, a reduction in
the interest rate differential will generally cause a reduction in net interest
income earned by Fulton on a portion of its earning assets.

CHANGES IN ECONOMIC CONDITIONS AND THE COMPOSITION OF FULTON'S LOAN PORTFOLIOS
COULD LEAD TO HIGHER LOAN CHARGE-OFFS OR AN INCREASE IN FULTON'S ALLOWANCE FOR
LOAN LOSSES AND MAY REDUCE FULTON'S INCOME.

Changes in national and regional economic conditions could impact the loan
portfolios of Fulton'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 Fulton
serves. Weakness in the market areas served by Fulton's subsidiary banks could
depress its earnings and consequently its financial condition because:

      o     customers may not want or need Fulton's products or services;

      o     borrowers may not be able to repay their loans;

      o     the value of the collateral securing Fulton's loans to borrowers may
            decline; and

      o     the quality of Fulton's loan portfolio may decline.

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

In addition, the amount of Fulton'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. Recently, the amount of Fulton's commercial
loans (including agricultural loans) and commercial mortgages have 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 Fulton believes that its allowance for



loan losses as of December 31, 2005 is sufficient to cover losses inherent in
the loan portfolio on that date, Fulton cannot assure you that it will not 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 Fulton's subsidiary banks
rely more heavily on loans secured by real estate than the banking industry in
general, a decrease in real estate values could cause higher loan losses on
non-performing loans and require higher loan loss provisions.

FLUCTUATIONS IN THE VALUE OF FULTON'S EQUITY PORTFOLIO, OR ASSETS UNDER
MANAGEMENT BY FULTON'S TRUST AND INVESTMENT MANAGEMENT SERVICES, COULD HAVE A
MATERIAL IMPACT ON FULTON'S RESULTS OF OPERATIONS.

Fulton's equity portfolio consists primarily of common stock of publicly traded
financial institutions. The unrealized gains on the equity portfolio represent a
potential source of revenue for Fulton. The value of the securities in Fulton'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, due to the
concentration in stocks of financial institutions in Fulton'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, this revenue could be
reduced or lost in its entirety. In addition to Fulton's equity portfolio,
Fulton's investment management and trust services could be impacted by
fluctuations in the securities market. A portion of Fulton's trust revenue is
based on the value of the underlying investment portfolios. If the value of
those investment portfolios decreases, whether due to factors influencing U.S.
securities markets in general, or otherwise, Fulton's revenue could be
negatively impacted. In addition, Fulton's ability to sell its brokerage
services is dependent, in part, upon consumers' level of confidence in the
outlook for rising securities prices.

IF FULTON IS UNABLE TO ACQUIRE ADDITIONAL BANKS ON FAVORABLE TERMS OR IF IT
FAILS TO SUCCESSFULLY INTEGRATE OR IMPROVE THE OPERATIONS OF ACQUIRED BANKS,
FULTON MAY BE UNABLE TO EXECUTE ITS GROWTH STRATEGIES.

Fulton has historically supplemented its internal growth with strategic
acquisitions of banks, branches and other financial services companies. There
can be no assurance that Fulton will be able to effect future acquisitions on
favorable terms or that it will be able to assimilate acquired institutions
successfully. In addition, with acquisitions, Fulton may not be able to achieve
anticipated cost savings or operating results. Acquired institutions also may
have unknown or contingent liabilities or deficiencies in internal controls that
could result in material liabilities or negatively impact Fulton'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 FULTON HAS RECORDED IN CONNECTION WITH ITS ACQUISITIONS
BECOMES IMPAIRED, IT COULD HAVE A NEGATIVE IMPACT ON FULTON'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, 2005, Fulton had approximately $419 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 to be
charged to the results of operations in the period in which the impairment is
determined. Based on tests of goodwill impairment conducted to date, Fulton 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 FULTON FACES IS INCREASING AND MAY REDUCE FULTON'S CUSTOMER BASE
AND NEGATIVELY IMPACT FULTON'S RESULTS OF OPERATIONS.

There is significant competition among commercial banks in the market areas
served by Fulton's subsidiary banks. In addition, as a result of the
deregulation of the financial industry, Fulton'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 Fulton is with respect to
the products and services they provide. Some of Fulton's competitors, including
certain super-regional and national bank holding companies that have made
acquisitions in its market area, have greater resources than Fulton has, and as
such, may have higher lending limits and may offer other services not offered by
Fulton.

Fulton 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 Fulton pays on deposits and charges
on loans, thereby potentially adversely affecting Fulton's profitability.
Fulton's profitability depends upon its continued ability to successfully
compete in the market areas it serves while achieving its investment objectives.

THE SUPERVISION AND REGULATION TO WHICH FULTON IS SUBJECT CAN BE A COMPETITIVE
DISADVANTAGE.

Fulton 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, Fulton and its subsidiaries are
subject to various regulations and examinations by various regulatory
authorities. In general, statutes establish the corporate governance and
eligible business activities for Fulton, certain acquisition and merger
restrictions, limitations on inter-company transactions such as loans and
dividends, and capital adequacy requirements, requirements for anti-money
laundering programs and other compliance matters, among other regulations.
Fulton 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 Fulton's ability to engage
in new activities and to consummate additional acquisitions. In addition, Fulton
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. Fulton 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 Fulton'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 Fulton's expense, requires management's attention and can be a
disadvantage from a competitive standpoint with respect to non-regulated
competitors.