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, 2007, or

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

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)

(Registrant’s telephone number, including area code)

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

Title of each class		Name of exchange on which registered
Common Stock, $2.50 par value		The NASDAQ Stock Market, LLC

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

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, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

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, 2007, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $2.4 billion. The number of shares of the registrant’s Common Stock outstanding on January 31, 2007 was 173,637,000.

Portions of the Definitive Proxy Statement of the Registrant for the Annual Meeting of Shareholders to be held on April 25, 2008 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			12
Item 2.		Properties			12
Item 3.		Legal Proceedings			13
Item 4.		Submission of Matters to a Vote of Security Holders			13
PART II
Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			14
Item 6.		Selected Financial Data			16
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			17
Item 7A.		Quantitative and Qualitative Disclosures About Market Risk			44
Item 8.		Financial Statements and Supplementary Data:
		Consolidated Balance Sheets			51
		Consolidated Statements of Income			52
		Consolidated Statements of Shareholders’ Equity and Comprehensive Income			53
		Consolidated Statements of Cash Flows			54
		Notes to Consolidated Financial Statements			55
		Management Report On Internal Control Over Financial Reporting			88
		Report of Independent Registered Public Accounting Firm			89
		Quarterly Consolidated Results of Operations (unaudited)			90
Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			91
Item 9A.		Controls and Procedures			91
Item 9B.		Other Information			91
PART III
Item 10.		Directors, Executive Officers and Corporate Governance			92
Item 11.		Executive Compensation			92
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			92
Item 13.		Certain Relationships and Related Transactions, and Director Independence			92
Item 14.		Principal Accounting Fees and Services			92
PART IV
Item 15.		Exhibits and Financial Statement Schedules			93
		Signatures			96
		Exhibit Index			98

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-Bliley Act (GLB Act), which allowed the Corporation to expand its financial services activities under its holding company structure (See “Competition” and “Regulation and Supervision”). The Corporation directly owns 100% of the common stock of eleven community banks, two financial services companies and twelve non-bank entities. As of December 31, 2007, the Corporation had approximately 3,680 full-time equivalent employees.

The common stock of Fulton Financial Corporation is listed for quotation on the Global Select Market of The NASDAQ Stock Market under the symbol FULT. The Corporation’s internet address is www.fult.com. Electronic copies of the Corporation’s 2007 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 eleven subsidiary banks are located primarily in suburban or semi-rural geographical markets throughout a five state region (Pennsylvania, Delaware, Maryland, New Jersey and Virginia). Pursuant to its “super-community” banking strategy, the Corporation operates the banks autonomously to maximize the advantage of community banking and service to its customers. Where appropriate, operations are centralized through common platforms and back-office functions; however, decision-making generally remains with the local bank management. The Corporation is committed to a decentralized operating philosophy; however, in some markets, merging one subsidiary bank into another subsidiary bank creates operating and marketing efficiencies by leveraging existing brand awareness over a larger geographic area. In February 2007, the former First Washington State Bank subsidiary consolidated with The Bank. In May 2007, the former Somerset Valley Bank subsidiary consolidated with Skylands Community Bank. In July 2007, the former Lebanon Valley Farmers Bank subsidiary consolidated with Fulton Bank. In addition, during 2007 the Corporation announced the consolidation of Resource Bank with Fulton Bank, which is expected to occur in the first quarter of 2008.

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, whose Resource Mortgage division reports directly to Fulton Mortgage Company, and The Columbia Bank, which maintains its own mortgage lending operation). 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. The maximum total lending commitment to an individual borrower was $33 million at December 31, 2007, which is below the Corporation’s regulatory lending limit. Commercial lending options include commercial, financial, agricultural and real estate loans. Both floating and fixed rate loans are provided, with floating rate loans generally tied to an index such as the Prime Rate or the London Interbank Offering Rate. The Corporation’s commercial lending policy encourages relationship banking and provides strict guidelines related to customer creditworthiness and collateral requirements. In addition, construction

lending, equipment leasing, credit cards, letters of credit, cash management services and traditional deposit products are offered to commercial customers.

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.

The following table provides certain information for the Corporation’s banking and financial services subsidiaries as of December 31, 2007.

		Main Office		Total				Total
Subsidiary		Location		Assets				Deposits				Branches (1)
				(in millions)
Fulton Bank		Lancaster, PA		$	6,274			$	3,934				94
Delaware National Bank		Georgetown, DE			458				253				12
FNB Bank, N.A.		Danville, PA			374				248				10
Fulton Financial Advisors, N.A. and Fulton Insurance Services Group, Inc (2)		Lancaster, PA			—				—				—
Hagerstown Trust Company		Hagerstown, MD			505				406				12
Lafayette Ambassador Bank		Easton, PA			1,389				927				25
Resource Bank		Virginia Beach, VA			1,480				765				7
Skylands Community Bank		Hackettstown, NJ			1,246				866				27
Swineford National Bank		Hummels Wharf, PA			314				208				7
The Bank		Woodbury, NJ			1,971				1,447				50
The Columbia Bank		Columbia, MD			1,783				1,068				26
The Peoples Bank of Elkton		Elkton, MD			124				94				2
													272

Non-Bank Subsidiaries

The Corporation owns 100% of the common stock of six non-bank subsidiaries which are consolidated for financial reporting purposes: (i) Fulton Reinsurance Company, LTD, 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, LLC, which engages in business consulting activities; and (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.

The Corporation owns 100% of the common stock of six non-bank subsidiaries which are not consolidated for financial reporting purposes. The following table provides information for these non-bank subsidiaries, whose sole assets consist of junior subordinated deferrable interest debentures issued by the Corporation, as of December 31, 2007:

Subsidiary		State of Incorporation		Total Assets (in thousands)
Fulton Capital Trust I		Pennsylvania		$154,640
SVB Bald Eagle Statutory Trust I		Connecticut		4,124
Columbia Bancorp Statutory Trust		Delaware		6,186
Columbia Bancorp Statutory Trust II		Delaware		4,124
Columbia Bancorp Statutory Trust III		Delaware		6,186
PBI Capital Trust		Delaware		10,310

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 that do not have a physical presence in the Corporation’s geographical markets.

The competition in the industry is also highly competitive due to the GLB Act. Under the GLB Act, banks, insurance companies or securities firms may affiliate under a financial holding company structure, allowing expansion into non-banking financial services activities that were previously restricted. These include a full range of banking, securities and insurance activities, including securities and insurance underwriting, issuing and selling annuities and merchant banking activities. While the Corporation does not currently engage in all of these activities, the ability to do so without separate approval from the Federal Reserve Board (FRB) enhances the ability of the Corporation — and financial holding companies in general — to compete more effectively in all areas of financial services.

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

Market Share

Although there are many ways to assess the size and strength of banks, deposit market share continues to be an important industry statistic. This publicly available information is compiled, as of June 30^th of each year, by the Federal Deposit Insurance Corporation (FDIC). The Corporation’s banks maintain branch offices in 49 counties across five states. In ten of these counties, the Corporation ranked in the top three in deposit market share (based on deposits as of June 30, 2007). 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
										Institutions				Deposit Market Share
				Population				Banking		Banks/		Credit		(6/30/07)
County		State		(2007 Est.)				Subsidiary		Thrifts		Unions		Rank		%
Lancaster		PA			496,000			Fulton Bank		20		13		1		20.2%
Berks		PA			403,000			Fulton Bank		22		12		8		3.5%
Bucks		PA			628,000			Fulton Bank		34		14		14		2.1%
Centre		PA			142,000			Fulton Bank		15		4		19		0.1%
Chester		PA			485,000			Fulton Bank		43		5		16		1.4%
Columbia		PA			65,000			FNB Bank, N.A.		7		—		6		4.7%
Cumberland		PA			226,000			Fulton Bank		22		7		14		1.5%
Dauphin		PA			255,000			Fulton Bank		18		8		8		4.2%
Delaware		PA			557,000			Fulton Bank		43		17		42		0.2%
Lebanon		PA			127,000			Fulton Bank		10		2		1		28.4%
Lehigh		PA			337,000			Lafayette Ambassador Bank		21		13		8		3.8%
Lycoming		PA			118,000			FNB Bank, N.A.		12		10		16		0.7%
Montgomery		PA			781,000			Fulton Bank		47		24		36		0.2%
Montour		PA			18,000			FNB Bank, N.A.		4		3		1		26.9%
Northampton		PA			294,000			Lafayette Ambassador Bank		19		13		3		14.4%
Northumberland		PA			92,000			Swineford National Bank		18		3		14		1.8%
								FNB Bank, N.A.						9		4.8%
Schuylkill		PA			147,000			Fulton Bank		19		5		8		3.7%
Snyder		PA			38,000			Swineford National Bank		9		—		1		29.3%
Union		PA			44,000			Swineford National Bank		8		1		6		5.6%
York		PA			418,000			Fulton Bank		18		18		4		9.4%
New Castle		DE			530,000			Delaware National Bank		33		24		25		0.1%
Sussex		DE			183,000			Delaware National Bank		17		4		7		0.8%
Baltimore		MD			795,000			The Columbia Bank		44		18		23		1.0%
Baltimore City		MD			632,000			The Columbia Bank		41		17		22		0.4%
Cecil		MD			101,000			Peoples Bank of Elkton		8		3		5		9.2%
Frederick		MD			227,000			The Columbia Bank		16		2		15		0.6%
Howard		MD			274,000			The Columbia Bank		22		3		2		13.6%
Montgomery		MD			939,000			The Columbia Bank		38		21		33		0.3%
Prince Georges		MD			856,000			The Columbia Bank		22		21		14		1.5%
Washington		MD			145,000			Hagerstown Trust Company		12		3		2		20.5%
Atlantic		NJ			276,000			The Bank		17		6		16		0.8%
Camden		NJ			522,000			The Bank		24		9		15		1.2%
Gloucester		NJ			283,000			The Bank		23		4		2		12.7%
Hunterdon		NJ			132,000			Skylands Community Bank		17		3		14		1.5%
Mercer		NJ			370,000			The Bank		27		19		15		1.6%
Middlesex		NJ			799,000			Skylands Community Bank		47		26		47		0.1%
Monmouth		NJ			640,000			The Bank		28		9		24		0.8%
Morris		NJ			496,000			Skylands Community Bank		35		10		15		1.4%

										No. of Financial
										Institutions				Deposit Market Share
				Population				Banking		Banks/		Credit		(6/30/07)
County		State		(2007 Est.)				Subsidiary		Thrifts		Unions		Rank		%
Ocean		NJ			569,000			The Bank		25		6		16		0.9%
Salem		NJ			67,000			The Bank		8		4		1		31.7%
Somerset		NJ			326,000			Skylands Community Bank		29		8		9		3.4%
Sussex		NJ			155,000			Skylands Community Bank		14		1		12		0.8%
Warren		NJ			112,000			Skylands Community Bank		13		3		2		11.3%
Chesapeake		VA			221,000			Resource Bank		14		6		14		1.4%
Fairfax		VA			1,026,000			Resource Bank		39		15		23		0.3%
Henrico		VA			288,000			Resource Bank		23		10		24		0.2%
Newport News		VA			181,000			Resource Bank		12		7		10		0.9%
Richmond City		VA			193,000			Resource Bank		16		15		12		0.4%
Virginia Beach		VA			440,000			Resource Bank		16		8		6		6.6%

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 or potentially increase.

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

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

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

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, among others. In general, these statutes and related interpretations establish: the eligible business activities of the Corporation; certain acquisition and merger restrictions; limitations on intercompany transactions such as loans and dividends; and capital adequacy requirements, among other statutes and regulations.

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

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

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

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

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

Federal Deposit Insurance — Substantially all of the deposits of the Corporation’s subsidiary banks are insured up to the applicable limits by the Bank Insurance Fund (BIF) of the FDIC, generally up to $100,000 per insured depositor and up to $250,000 for retirement accounts. The subsidiary banks pay deposit insurance premiums to the FDIC based on an assessment rate established by the FDIC for Bank Insurance Fund member institutions. The FDIC has established a risk-based assessment system under which institutions are classified and pay premiums according to their perceived risk to the federal deposit insurance funds. The FDIC is not required to charge deposit insurance premiums when the ratio of deposit insurance reserves to insured deposits is maintained above specified levels. Since 1997, the Corporation’s subsidiary banks (based on the FDIC’s classification system), had not paid any premiums as the BIF was sufficiently funded. However, in 2006, legislation was passed reforming the bank deposit insurance system. The reform act allowed the FDIC to raise the minimum reserve ratio and allowed eligible insured institutions an initial one-time credit to be used against premiums due. During 2007, the Corporation’s subsidiary banks were assessed insurance premiums, the majority of which were offset by each affiliate’s one-time credit. It is likely that premiums will continue to be assessed in the near term and that the Corporation’s expense will increase as deposits grow and one-time credits expire.

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 requires management to issue a report on the effectiveness of its internal controls over financial reporting. In addition, the Corporation’s independent registered public accountants are required to issue an opinion on the effectiveness of the Corporation’s internal control over financial reporting. These reports can be found in Item 8, “Financial Statements and Supplementary Data”. 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.

Item 1A. Risk Factors

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

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

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

Net interest income is the most significant component of the Corporation’s net income, accounting for approximately 77% of total revenues in 2007. The narrowing of interest rate spreads, the difference between interest rates earned on loans and investments and interest rates paid on deposits and borrowings, could adversely affect the Corporation’s net income and financial condition. Based on the current interest rate environment and the price sensitivity of customers, loan demand could continue to outpace the growth of core demand and savings accounts, resulting in compression of net interest margin. Furthermore, the U. S. Treasury yield curve, which is a plot of the yields on treasury securities over various maturity terms, was relatively flat, with minimal differences between long and short-term rates during the majority of 2007, resulting in a negative impact to the Corporation’s net interest income and net interest margin. Finally, regional and local economic conditions as well as fiscal and monetary policies of the federal government, including those of the FRB, may affect prevailing interest rates. The Corporation cannot predict or control changes in interest rates.

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

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

	•		customers may not want or need the Corporation’s products or services;
	•		borrowers may not be able to repay their loans;
	•		the value of the collateral securing the Corporation’s loans to borrowers may decline; and
	•		the quality of the Corporation’s loan portfolio may decline.

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

The second and third scenarios could also result in potential repurchase liability to the Corporation on residential mortgage loans originated and sold into the secondary market. The Corporation’s Resource Bank subsidiary originates a variety of residential products through its Resource Mortgage Division to meet customer demand. These products include conventional residential mortgages that meet published guidelines of the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation for sale into the secondary market, which are generally considered prime loans, and loans that deviate from those guidelines. This latter category of loans includes loans with higher loan-to-value ratios, loans with no or limited verification of a borrower’s income or net worth stated on the loan application, and loans to borrowers with lower credit ratings, referred to as FICO scores. The general market for these alternative loan products across the country has declined as a result of moderating real estate prices, increased payment defaults by borrowers and increased loan foreclosures. In particular, Resource Bank has experienced an increase in requests from investors for Resource Bank to repurchase loans sold to those investors due to claimed loan payment defaults and instances of misrepresentations of borrower information. These repurchase requests resulted in the Corporation recording charges of $25.1 million in 2007. These charges reflect losses incurred due to actual and potential repurchases of residential mortgage loans and home equity loans originated and sold in the secondary market. The Corporation cannot be assured that additional repurchase requests with respect to loans originated and sold by Resource Bank will not continue, which may result in additional related charges, adversely affecting the Corporation’s net income. The Corporation has exited the national wholesale residential mortgage business at Resource Bank, which is where most of these alternative loan products were originated. In addition, the management team from Fulton Mortgage Company has assumed oversight responsibility for Resource Mortgage. Policies and procedures, risk management analyses, and all secondary market and underwriting functions have been centralized, with all operations reporting through Fulton Mortgage Company. Other changes have occurred in underwriting criteria, including requiring higher loan-to-value loans with certain risk characteristics to be pre-approved by secondary market investors using their own underwriting criteria. This pre-approval reduces the early payment default exposure for these loans. Also, changes in secondary market guidelines, including the elimination of previously purchased mortgage products, are continuously monitored.

In addition, the amount of the Corporation’s provision for loan losses and the percentage of loans it is required to charge-off may be impacted by the overall risk composition of the loan portfolio. While the Corporation believes that its allowance for loan losses as of December 31, 2007 is sufficient to cover losses inherent in the loan portfolio on that date, the Corporation may be required to increase its loan loss provision or charge-off a higher percentage of loans due to changes in the risk characteristics of the loan portfolio, thereby reducing its net income. A decrease in real estate values could cause higher loan losses and require higher loan loss provisions for loans that are secured by real estate.

Fluctuations in the value of the Corporation’s equity portfolio and/or assets under management by the Corporation’s investment management and trust services could have an impact on the Corporation’s net income.

At December 31, 2007, the Corporation’s equity investments consisted of $109.7 million of FHLB and other government agency stock, $69.4 million of stocks of other financial institutions and $12.6 million of mutual funds and other. The Corporation realized net gains on sales of financial institutions stocks of $1.8 million in 2007, $7.0 million in 2006 and $5.8 million in 2005. The value of the securities in the Corporation’s equity portfolio may be affected by a number of factors, including factors that impact the performance of the U.S. securities market in general and, due to the concentration in stocks of financial institutions in the Corporation’s equity portfolio, specific risks associated with that sector. Recent declines in the values of financial institution stocks held in this portfolio may impact the Corporation’s ability to realize gains in the future. In addition, if the values of the stocks held in this portfolio continue to decline and there is an indication that declines are “other than temporary”, the Corporation may be required to write-down the values of such stocks in the future, depending on the facts and circumstances surrounding the decease in the value of each individual financial institution’s stock.

In addition to the Corporation’s equity portfolio, the Corporation’s investment management and trust services income could be impacted by fluctuations in the securities market. A portion of this revenue is based on the value of the underlying investment portfolios. If the values of those investment portfolios decrease, whether due to factors influencing U.S. securities markets in general, or otherwise, the Corporation’s revenue could be negatively impacted. In addition, the Corporation’s ability to sell its brokerage services is dependent, in part, upon consumers’ level of confidence in the outlook for rising securities prices.

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

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

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

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, 2007, the Corporation had $624.1 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 occurs. Based on tests of goodwill impairment conducted to date, the Corporation has concluded that there has been no impairment, and no write-downs have been recorded. However, there can be no assurance that future evaluations of goodwill will not result in findings of impairment.

The competition the Corporation faces is increasing and may reduce the Corporation’s customer base and negatively impact the Corporation’s net income.

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

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

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

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

The Corporation is a registered financial holding company, and its subsidiary banks are depository institutions whose deposits are insured by the Federal Deposit Insurance Corporation (FDIC). As a result, the Corporation and its subsidiaries are subject to

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

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The following table summarizes the Corporation’s branch properties, by subsidiary bank as of December 31, 2007. Remote service facilities (mainly stand-alone automated teller machines) are excluded.

										Total
Subsidiary Bank		Owned				Leased				Branches
Fulton Bank			33				61				94
Delaware National Bank			9				3				12
FNB Bank, N.A.			8				2				10
Hagerstown Trust Company			6				6				12
Lafayette Ambassador Bank			8				17				25
Resource Bank			2				5				7
Skylands Community Bank			7				20				27
Swineford National Bank			5				2				7
The Bank			31				19				50
The Columbia Bank			5				21				26
The Peoples Bank of Elkton			1				1				2
Total			115				157				272

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

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 2007.

PART II

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

Common Stock

As of December 31, 2007, the Corporation had 173.5 million shares of $2.50 par value common stock outstanding held by approximately 50,000 holders of record. The common stock of the Corporation is traded on The NASDAQ Stock Market 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 2007 and 2006. Per-share amounts have been retroactively adjusted to reflect the effect of stock dividends and splits.

		Price Range								Per-Share
		High				Low				Dividend
2007
First Quarter		$	16.81			$	14.50			$	0.1475
Second Quarter			15.32				14.21				0.1500
Third Quarter			16.26				11.25				0.1500
Fourth Quarter			15.02				9.91				0.1500
2006
First Quarter		$	17.35			$	16.07			$	0.1380
Second Quarter			16.47				15.36				0.1475
Third Quarter			16.99				15.55				0.1475
Fourth Quarter			16.88				15.65				0.1475

Securities Authorized for Issuance under Equity Compensation Plans

The following table provides information about options outstanding under the Corporation’s 1996 Incentive Stock Option Plan and 2004 Stock Option and Compensation Plan as of December 31, 2007:

Number of securities

remaining available for

future issuance under

Number of securities to

Weighted-average

equity compensation

be issued upon exercise

exercise price of

plans (excluding

of outstanding options,

outstanding options,

securities reflected in

Plan Category

warrants and rights

warrants and rights

first column)

Equity compensation plans approved by security holders

7,709,790

$ 13.45

14,019,720

Equity compensation plans not approved by security holders

—

—

—

Total

7,709,790

$ 13.45

14,019,720

Performance Graph

The graph below shows cumulative investment returns to shareholders based on the assumptions that (A) an investment of $100.00 was made on December 31, 2002, in each of the following: (i) Fulton Financial Corporation common stock; (ii) the stock of all U. S. companies traded on The NASDAQ Stock Market and (iii) common stock of the performance peer group approved by the Board of Directors on September 21, 2004 consisting of bank and financial holding companies located throughout the United States with assets between $6-20 billion which were not a party to a merger agreement as of the end of the period and (B) all dividends were reinvested in such securities over the past five years. The graph is not indicative of future price performance.

The graph below is furnished under this Part II Item 5 of this Form 10-K and shall not be deemed to be “soliciting material” or to be “filed” with the Commission or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act of 1934, as amended.

		Period Ending December 31
Index		2002				2003				2004				2005				2006				2007
Fulton Financial Corporation			100.00				134.31				154.74				150.89				155.79				109.28
NASDAQ Composite			100.00				150.01				162.89				165.13				180.85				198.60
Fulton Financial Peer Group (1)			100.00				129.13				149.78				149.36				163.25				132.14

Issuer Purchases of Equity Securities

Not Applicable.

Item 6. Selected Financial Data

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

		For the Year
		2007				2006				2005				2004				2003
SUMMARY OF INCOME
Interest income		$	939,577			$	864,507			$	625,767			$	493,643			$	435,531
Interest expense			450,833				378,944				213,219				135,994				131,094
Net interest income			488,744				485,563				412,548				357,649				304,437
Provision for loan losses			15,063				3,498				3,120				4,717				9,705
Other income			148,024				149,875				144,298				138,864				134,370
Other expenses			405,455				365,991				316,291				277,515				233,651
Income before income taxes			216,250				265,949				237,435				214,281				195,451
Income taxes			63,532				80,422				71,361				64,673				59,084
Net income		$	152,718			$	185,527			$	166,074			$	149,608			$	136,367
PER-SHARE DATA (1)
Net income (basic)		$	0.88			$	1.07			$	1.01			$	0.95			$	0.93
Net income (diluted)			0.88				1.06				1.00				0.94				0.92
Cash dividends			0.598				0.581				0.540				0.493				0.452
RATIOS
Return on average assets			1.01	%			1.30	%			1.41	%			1.45	%			1.55	%
Return on average equity			9.98				12.84				13.24				13.98				15.23
Return on average tangible equity (2)			18.16				23.87				20.28				18.58				17.33
Net interest margin			3.66				3.82				3.93				3.83				3.82
Efficiency ratio			61.20				56.00				55.50				55.90				54.00
Average equity to average assets			10.10				10.10				10.60				10.30				10.20
Dividend payout ratio			68.00				54.80				54.00				52.50				49.20
PERIOD-END BALANCES
Total assets		$	15,923,098			$	14,918,964			$	12,401,555			$	11,160,148			$	9,768,669
Investment securities			3,153,552				2,878,238				2,562,145				2,449,859				2,927,150
Loans, net of unearned income			11,204,424				10,374,323				8,424,728				7,533,915				6,140,200
Deposits			10,105,445				10,232,469				8,804,839				7,895,524				6,751,783
Federal Home Loan Bank advances and long-term debt			1,642,133				1,304,148				860,345				684,236				568,730
Shareholders’ equity			1,574,920				1,516,310				1,282,971				1,244,087				948,317
AVERAGE BALANCES
Total assets		$	15,090,458			$	14,297,681			$	11,781,485			$	10,348,268			$	8,805,554
Investment securities			2,843,478				2,869,862				2,498,538				2,563,143				2,569,168
Loans, net of unearned income			10,736,566				9,892,082				7,981,604				6,857,386				5,564,806
Deposits			10,222,594				9,955,247				8,364,435				7,285,134				6,505,371
Federal Home Loan Bank advances and long-term debt			1,579,527				1,069,868				839,694				641,154				568,706
Shareholders’ equity			1,530,613				1,444,793				1,254,476				1,069,904				895,616

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. Management’s Discussion should be read in conjunction with the consolidated financial statements and other financial information presented in this report.

FORWARD-LOOKING STATEMENTS

The Corporation has made, and may continue to make, certain forward-looking statements with respect to acquisition and growth strategies, market risk, the effect of competition and interest rates on net interest margin and net interest income, investment strategy and income growth, investment securities gains, other than temporary impairment of investment securities, deposit and loan growth, asset quality, balances of risk-sensitive assets to risk-sensitive liabilities, salaries and employee benefits and other expenses, amortization of intangible assets, goodwill impairment, capital and liquidity strategies and other financial and business matters for future periods. 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. The Corporation undertakes no obligation to update or revise any forward-looking statements. Accordingly, readers are cautioned not to place undue reliance on such forward-looking statements.

OVERVIEW

Banking Industry Challenges

There were a number of issues that the industry faced during 2007 and will continue to face in the coming months and years. While these do not apply to all financial institutions, including the Corporation, a general understanding of the operating environment for banks is helpful in understanding the Corporation’s financial performance in 2007.

	•		Residential Lending – Instability in the housing markets, in conjunction with increasing defaults on mortgage loans and decreasing values of residential real estate, had repercussions throughout the industry. In addition to the contribution of changes in economic conditions, defaults were often related to higher-risk “subprime” or “non-prime” loans. Subprime refers to a type of mortgage that is made to borrowers with lower credit ratings who, therefore, do not qualify for loans with conventional terms, or “prime” loans. Rates are typically higher than prime loans to compensate lenders for the increased credit risk. Non-prime refers to loans that are made to borrowers with credit characteristics that are between prime and subprime. Other defaults included loans originated with steep “teaser” or introductory rates that reset to market rates when the introductory period expired.
	•		Investment Portfolios – Certain investment securities are backed by the high-risk mortgage loans discussed above and the payments on such securities may not be guaranteed by a government-sponsored agency. As a result of the higher risk, the yields on these securities are typically higher than agency-guaranteed mortgage-backed securities. In recent years, these securities increased in popularity as the loans underlying the securities also became more prevalent. However, as defaults on these loans increased, the credit quality of the securities also deteriorated and many investors faced increasing credit losses.
	•		Net Interest Margin – While not an issue limited solely to 2007, the interest rate environment continued to present challenges to banks in maintaining and growing their net interest margin, or net interest income as a percentage of interest earning assets. The term “interest rate environment” generally refers to both the level of interest rates and the shape of the U. S. Treasury yield curve, which is a plot of the yields on treasury securities over various maturity terms. Typically, the shape of the yield curve is upward sloping, with longer-term rates exceeding shorter-term rates. However, the yield curve continued to be flat during most of 2007, meaning that there was little difference between the rates on shorter-term financial instruments and those on longer-term instruments. For banks that depend on shorter-term funding to invest longer term in investment securities or loans, this situation is not favorable. Beginning in September 2007, the FRB began implementing a series of decreases in short-term rates to stimulate the economy.

	•		Asset Quality – For the past several years, the industry had been operating in an environment where credit losses and non-performing assets were at historical lows. During 2007, due to a combination of the previously discussed residential mortgage issues and general economic conditions, the industry began to see a return to higher credit losses and higher non-performing asset levels.
	•		Capital and Liquidity – Losses from subprime lending and general credit issues have challenged many banks to maintain or grow capital to support their business. In some cases, banks have lowered or eliminated dividends to shareholders in order to maintain capital.

These are some of the more significant factors that presented challenges to the industry during this most recent year. The specific impact to the Corporation of these and other issues are discussed throughout the “Overview” and other sections of Management’s Discussion, where appropriate.

Summary Financial Results

As a financial institution with a focus on traditional banking activities, the Corporation generates the majority of its revenue through net interest income, or the difference between interest earned on loans and investments and interest paid on deposits and borrowings. Growth in net interest income is dependent upon balance sheet growth and/or maintaining or increasing the net interest margin, which is net interest income (fully taxable-equivalent) as a percentage of average interest-earning assets. The Corporation also generates revenue through fees earned on the various services and products offered to its customers and through sales of assets, such as loans, investments, or properties. Offsetting these revenue sources are provisions for credit losses on loans, operating expenses and income taxes.

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

		Year ended December 31
		2007				2006
Net income (in thousands)		$	152,718			$	185,527
Diluted net income per share		$	0.88			$	1.06
Return on average assets			1.01	%			1.30	%
Return on average equity			9.98	%			12.84	%
Return on average tangible equity (1)			18.16	%			23.87	%
Net interest margin (2)			3.66	%			3.82	%
Non-performing assets to total assets			0.76	%			0.39	%

The Corporation’s net income for 2007 decreased $32.8 million, or 17.7%, from 2006 due to an increase in other expenses of $39.5 million, or 10.8%, an increase in the provision for loan losses of $11.6 million, or 330.6%, and a $1.9 million, or 1.2%, decrease in other income, offset by a $16.9 million, or 21.0%, decrease in income tax expense and a $3.2 million, or 0.7%, increase in net interest income.

The increase in other expenses was primarily due to $25.1 million in charges for contingent losses related to the Corporation’s mortgage banking operations at Resource Bank (Resource Mortgage). The increase in the provision for loan losses was due to an increased estimate of losses inherent in the Corporation’s loan portfolio, driven in part by an increase in the level of net charge-offs and non-performing loans in 2007 in comparison to 2006. The decrease in income tax expense was due to a decrease in income before income taxes in 2007 as well as a decrease in the effective tax rate. The net interest income increase was driven by average balance sheet growth, partially offset by a 16 basis point decline in net interest margin. Net interest margin decreased as a result of funding loan growth with borrowings and time deposits as opposed to lower cost core demand and savings accounts.

Residential Lending – Residential mortgages are originated and sold by the Corporation through three channels: 1) Fulton Mortgage Company (Fulton Mortgage), which is a division of each of the Corporation’s subsidiary banks, excluding Resource Bank and The

Columbia Bank; 2) The Columbia Bank, which maintains its own mortgage lending operations; and 3) Resource Mortgage, which is a division of Resource Bank.

Fulton Mortgage primarily originates “prime” loans that conform to published standards of government sponsored agencies, including the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Such loans are typically sold to these agencies, if servicing is retained by the Corporation, or to other investors, if servicing is released. For loans underwritten to agency standards, recourse risk – or the requirement to repurchase these loans in the event of borrower default – is minimal. A much less significant portion of Fulton Mortgage’s volume is originated under other investor programs, which do not conform to agency standards and, therefore, carry a somewhat higher recourse risk. Depending on balance sheet management decisions, some originated loans are held in portfolio. These loans would typically be adjustable rate loans, to minimize interest rate risk.

Total loans sold by Fulton Mortgage in 2007 and 2006 were $425.6 million and $443.3 million, respectively. Of this volume, less than 10% of total loans sold was considered to be non-prime for both 2007 and 2006. There were no losses incurred on loan repurchases by Fulton Mortgage in 2007 or 2006.

The Columbia Bank sold residential mortgages totaling $73.8 million and $99.0 million in 2007 and 2006, respectively. As with Fulton Mortgage, the vast majority of these loans sold were prime loans that conformed to published standards of government sponsored agencies. There were no losses incurred on loan repurchases by The Columbia Bank in 2007 or 2006.

Resource Mortgage operated a significant national wholesale mortgage lending operation from the time the Corporation acquired Resource Bank in 2004 through early 2007. Loans were originated and sold under various investor programs, including some that allowed for reduced documentation and/or no verification of certain borrower qualifications, such as income or assets. While few of the loans originated and sold by Resource Mortgage were considered to be subprime, significant volumes of non-prime loans were originated and sold. Total loans sold by Resource Mortgage in 2007 and 2006 were $769.5 million and $1.4 billion, respectively. Of this volume, less than 15% of total loans sold in 2007 was considered non-prime, compared to approximately 40% in 2006.

Loans sold under these non-prime investor programs included standard representations and warranties regarding the origination of the loans, as well as standard agreements to repurchase loans under specified circumstances, including “early payment defaults” by the borrowers or evidence of misrepresentation of borrower information. During 2007, the general market for these alternative loan products across the country had declined due to moderating real estate prices, increased payment defaults by borrowers and increased loan foreclosures. As a result, Resource Mortgage experienced an increase in requests from secondary market purchasers to repurchase loans sold to those investors. These repurchase requests resulted in the Corporation recording $25.1 million of charges during 2007. These charges, included in “operating risk loss” on the Corporation’s consolidated statements of income, represented the write-downs that were necessary to reduce the loan balances to their estimated net realizable values, based on valuations of the properties, as adjusted for market factors and other considerations. Operating risk loss consists of losses incurred during the normal conduct of banking operations. Many of the loans the Corporation repurchased or that may be repurchased are delinquent and will likely be settled through foreclosure and sale of the underlying collateral.

The following table presents a summary of approximate principal balances and related reserves/write-downs recognized on the Corporation’s consolidated balance sheet, by general category:

		December 31, 2007
						Reserves/
		Principal				Write-downs
		(in thousands)
Outstanding repurchase requests (1) (2)		$	19,830			$	(6,450	)
No repurchase request received – sold loans with identified potential misrepresentations of borrower information (1) (2)			16,610				(6,330	)
Repurchased loans (3)			23,700				(5,060	)
Foreclosed real estate (OREO)			14,360				—
Other (3) (4)			N/A				(780	)
Total reserves/write-downs at December 31, 2007						$	(18,620	)

Of the $23.7 million of repurchased loans outstanding as of December 31, 2007, approximately $12 million were classified as non-performing loans, net of write-downs.

The following presents the change in the reserve/write-down balances for the year ended December 31, 2007 (in thousands):

Total reserves/write-downs, beginning of year		$	500
Additional charges to expense			25,100
Charge-offs			(6,980	)
Total reserves/write-downs, end of year		$	18,620

Included in the $25.1 million of charges recorded in 2007 was $9.9 million of losses for two unrelated groups of loans totaling $26.6 million for which management identified potential misrepresentations of borrower information. As of December 31, 2007, the Corporation had received repurchase requests for $9.4 million of these loans. In addition, $540,000 of these loans were originated for sale, but later transferred to portfolio.

In order to limit additional losses associated with the potential repurchase of previously originated and sold residential mortgage loans and home equity loans, the Corporation exited the national wholesale residential mortgage business at Resource Mortgage, where the majority of the repurchased loans were generated. In addition, in the third quarter of 2007, Resource Bank, including Resource Mortgage, began reporting directly to Fulton Bank, and the Corporation intends to legally merge Resource into Fulton Bank in the first quarter of 2008. See Note A, “Significant Accounting Policies” in the Notes to Consolidated Financial Statements for more details of bank subsidiary consolidations.

During the third quarter of 2007, the Audit Committee of the Corporation’s Board of Directors engaged outside counsel to review whether there were additional potentially material occurrences of misrepresentations of borrower information that should be considered in determining the level of loss reserves. The investigation involved sampling and analyzing data on loans originated by Resource Mortgage, examining underlying loan documentation on selected loans identified as a result of this analysis together with other records of the Corporation, and conducting interviews of relevant employees. Based on the results of the review, completed in November 2007, the Audit Committee and management concluded that no changes to the consolidated financial statements were necessary as of the end of the third quarter of 2007.

Management believes that the reserves recorded as of December 31, 2007 for the known Resource Mortgage issues are adequate, based on the results of the aforementioned review, the assessment of collateral values and other market factors. However, continued declines in collateral values or the identification of additional loans to be repurchased could necessitate additional reserves in the future.

Investment Portfolio – The Corporation’s investment strategy for debt securities has historically been conservative, to minimize potential credit losses. Mortgage-backed securities and collateralized mortgage obligations in the portfolio are generally guaranteed by government-sponsored agencies, minimizing the amount of principal at risk of loss. During 2007, the Corporation sold $55.8 million of collateralized mortgage obligations, which were not agency-guaranteed securities, for a total loss of $678,000. As a result of these sales, as of December 31, 2007, the investment portfolio includes only mortgage-backed securities and collateralized mortgage obligations whose timely principal payments are guaranteed by government-sponsored agencies.

Net Interest Margin – Changes in the interest rate environment can impact both the Corporation’s net interest income and its non-interest income. During 2006 and for a majority of 2007, the yield curve was relatively flat and, at times, downward sloping, with minimal differences between long and short-term rates, negatively impacting the Corporation’s net interest income and net interest margin. During the fourth quarter of 2007, the yield curve began to steepen slightly as a result of decreases in short-term interest rates. However, for durations of seven years or less – which is the term of the majority of the Corporation’s interest-earning assets and interest-bearing liabilities – there remained little difference in yields.

The following graph shows the U. S. treasury yield curves at the end of each of the last three years:

The Corporation’s net interest margin was negatively impacted due to the Corporation funding loan growth and investment purchases with higher cost short-term borrowings and time deposits as opposed to lower cost savings and demand deposits. The Corporation experienced a 38 basis point increase in the cost of average interest-bearing liabilities (from 3.48% in 2006 to 3.86% in 2007) as compared to a 20 basis point increase in the yield on average interest-earning assets (from 6.73% in 2006 to 6.93% in 2007). As a result, the net interest margin decreased 16 basis points on an annual basis and trended downward throughout much of 2006 and 2007, as shown in the following table.

		2007				2006
1st Quarter			3.74	%			3.88	%
2nd Quarter			3.70				3.90
3rd Quarter			3.62				3.85
4th Quarter			3.56				3.68
Year to Date			3.66				3.82

Floating rate loans, short-term borrowings and savings and time deposit rates are generally influenced by short-term rates. During 2007, the Federal Reserve Board (FRB) lowered the overnight borrowing, or Federal funds, rate three times, for a total decrease of 100 basis points since December 31, 2006, ending 2007 at 4.25%. The Corporation’s prime lending rate had a corresponding decrease, from 8.25% to 7.25%, resulting in a decrease in the rates on floating rate loans as well as the rates on new fixed-rate loans. In addition, the decrease in short-term rates also resulted in decreased funding costs, with short-term borrowings immediately repricing to lower rates. Deposit rates also decreased, although to a lesser degree as practical limits exist on how low such rates can decline before they would no longer be attractive to depositors, relative to rates paid by competitors of the Corporation. In January 2008, the FRB lowered the Federal funds rate an additional 125 basis points. The “Market Risk” section of Management’s Discussion summarizes the expected impact of rate changes on net interest income.

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, which, in turn, result in provisions for loan losses recorded on the consolidated statements of income. By its nature, risk in lending cannot be completely eliminated, but it can be controlled and managed through proper underwriting policies, effective collection procedures and risk management activities. External factors, such as economic conditions, which cannot be controlled by the Corporation, will always have some effect on asset quality, regardless of the strength of an organization’s control policies and procedures.

The Corporation has historically been able to maintain strong asset quality through different economic cycles and, in recent years, asset quality measures, such as net charge-offs to average loans and non-performing assets to total assets, have been at historically low levels. During 2007, these measures began to return to more normal levels as a result of economic factors and their impact on the overall lending environment, but also as a result of the repurchase of Resource Mortgage loans, almost all of which were placed on non-accrual status or were foreclosed and recorded in other real estate owned. At December 31, 2007, total non-performing assets were $120.9 million, or 0.76% of total assets. This represented an increase of $63.0 million, or 108.9%, from $57.8 million at December 31, 2006. The Resource Mortgage repurchased loans increased non-performing assets by approximately $29 million at December 31, 2007, or 0.18% of total assets.

Management believes that its policies and procedures for managing asset quality are sound. However, there can be no assurance about maintaining strong asset quality in the future. Continuing decreases in the values of underlying collateral or negative trends in general economic conditions could have a detrimental impact on borrowers’ ability to repay their loans.

Capital and Liquidity – Despite the decrease in net income in 2007, the Corporation’s capital levels remain strong. At December 31, 2007, total leverage, tier 1 risk-based and total risk-based capital, as defined in banking regulations, were 7.4%, 9.3% and 11.9%, respectively, as compared to 7.6%, 9.8% and 11.7%, respectively, at December 31, 2006. These ratios continue to exceed the minimum required to be considered “well capitalized” under the regulations. In addition, from a liquidity standpoint, the Parent Company and its subsidiary banks have access to sufficient funding sources to support operations. The Corporation has no plans to raise additional capital at this time.

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. Economic uncertainty surrounding the financial institution sector as a whole has impacted the value of the Corporation’s financial institutions stock portfolio. Historically, gains on sales of these equities have been a recurring component of the Corporation’s earnings. However, recent declines in values have resulted in decreases in realized investment securities gains. During 2007, the Corporation’s net gains on investment securities sales decreased $5.7 million, or 76.6%, with $5.1 million of the decrease attributable to bank stocks. As of December 31, 2007, the Corporation’s bank stock portfolio had a net unrealized loss of $23.3 million, compared to a net unrealized loss of $100,000 at December 31, 2006. These declines in bank stock portfolio values may impact the Corporation’s ability to realize gains in the future.

Expense Control through Consolidation and Centralization – During 2006 and 2007, the Corporation continued to implement changes to its operating structure to improve expense efficiency. Specifically, a number of subsidiary bank consolidations were completed. In December 2006, the former Premier Bank subsidiary was consolidated with Fulton Bank. In February 2007, the former First Washington State Bank subsidiary was consolidated with The Bank. In May 2007, the former Somerset Valley Bank subsidiary was consolidated with Skylands Community Bank. In July 2007, the former Lebanon Valley Farmers Bank subsidiary was consolidated with Fulton Bank. The Corporation also plans to complete the consolidation of Resource Bank with Fulton Bank in the

first quarter of 2008, at which time the total number of subsidiary banks will have decreased from 15 to 10. The consolidated banks retain the local autonomy and decision-making that has long been the Corporation’s operating model. However, by combining these banks, additional resources are available to customers in their markets, and overlapping functions are eliminated.

During 2007, the Corporation also completed a workforce management initiative which resulted in the centralization of a number of fragmented back office functions, including finance, human resources and marketing, among others. A separate initiative in the branch system further reduced staffing and the related expense. The result of these initiatives, plus staffing decreases at Resource Mortgage mainly due to exiting the national wholesale residential mortgage business, was a decrease of 330 full-time equivalent employees, to 3,680 at December 31, 2007 from 4,010 at December 31, 2006. Average full-time equivalent employees decreased to 3,840 in 2007 from 4,020 in 2006. This decrease in employees will continue to benefit the Corporation through lower salary and benefits costs in the future.

Acquisitions – The Corporation has historically supplemented its internal growth with strategic acquisitions, primarily of high quality community banks operating in desirable markets. Upon acquisition, acquired organizations generally retain their status as separate legal entities unless consolidation with an existing subsidiary bank is practical, as was the case in the consolidations discussed in the previous section.

During 2007, the Corporation did not consummate or announce any bank acquisitions, as few opportunities meeting the Corporation’s requirements of a comparable corporate culture, strong performance and sound asset quality in high growth markets were available. In addition, the prices being sought in many cases exceeded management’s estimate of value. The Corporation will continue to focus on generating growth in the most cost-effective manner.

RESULTS OF OPERATIONS

In February 2006, the Corporation acquired Columbia Bancorp (Columbia), of Columbia, Maryland, a $1.3 billion bank holding company whose primary subsidiary was The Columbia Bank. Results for 2007 in comparison to 2006 were impacted by a full year contribution by Columbia in 2007, compared to an eleven-month contribution in 2006. 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. Results for 2006 in comparison to 2005 were impacted by both the Columbia and SVB acquisitions.

Net Interest Income

Net interest income is the most significant component of the Corporation’s net income. The ability to manage net interest income over changing interest rate and economic environments is important to the success of a financial institution. Growth in net interest income is generally dependent upon balance sheet growth and/or maintaining or increasing the net interest margin. The “Market Risk” section of Management’s Discussion provides additional information on the policies and procedures used by the Corporation to manage net interest income. The following table provides a comparative average balance sheet and net interest income analysis for 2007 compared to 2006 and 2005. Interest income and yields are presented on a fully taxable-equivalent (FTE) basis, using a 35% Federal tax rate and statutory interest expense disallowances. The discussion following this table is based on these tax-equivalent amounts.

		Year Ended December 31
(dollars in thousands)						2007												2006												2005
										Yield/				Average								Yield/				Average								Yield/
		Balance				Interest (1)				Rate				Balance				Interest (1)				Rate				Balance				Interest (1)				Rate
ASSETS
Interest-earning assets:
Loans, net of unearned income (2)		$	10,736,566			$	805,881				7.51	%		$	9,892,082			$	731,057				7.39	%		$	7,981,604			$	520,565				6.52	%
Taxable inv. securities (3)			2,157,325				99,621				4.62				2,268,209				97,652				4.31				1,996,005				74,921				3.75
Tax-exempt inv. securities (3)			496,820				25,856				5.20				447,000				21,770				4.87				368,845				17,971				4.87
Equity securities (3)			189,333				9,073				4.79				154,653				7,341				4.75				133,688				5,562				4.16
Total investment securities			2,843,478				134,550				4.73				2,869,862				126,763				4.42				2,498,538				98,454				3.94
Loans held for sale			166,437				11,501				6.91				215,255				15,564				7.23				241,996				14,940				6.17
Other interest-earning assets			33,015				1,630				4.90				53,211				2,530				4.73				48,357				1,586				3.27
Total interest-earning assets			13,779,496				953,562				6.93				13,030,410				875,914				6.73				10,770,495				635,545				5.90
Noninterest-earning assets:
Cash and due from banks			329,814												335,935												346,535
Premises and equipment			190,910												185,084												158,526
Other assets (3)			899,292												852,186												598,709
Less: Allowance for loan losses			(109,054	)											(105,934	)											(92,780	)
Total Assets		$	15,090,458											$	14,297,681											$	11,781,485
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing liabilities:
Demand deposits		$	1,696,624			$	28,331				1.67	%		$	1,673,407			$	25,112				1.50	%		$	1,547,766			$	15,370				0.99	%
Savings deposits			2,258,113				53,312				2.36				2,340,402				51,394				2.19				2,055,503				27,116				1.32
Time deposits			4,553,994				212,752				4.67				4,134,190				170,435				4.12				3,171,901				98,288				3.10
Total interest-bearing deposits			8,508,731				294,395				3.46				8,147,999				246,941				3.03				6,775,170				140,774				2.08
Short-term borrowings			1,574,495				73,983				4.66				1,653,974				78,043				4.67				1,186,464				34,414				2.87
Long-term debt			1,579,527				82,455				5.22				1,069,868				53,960				5.04				839,694				38,031				4.53
Total interest-bearing liabilities			11,662,753				450,833				3.86				10,871,841				378,944				3.48				8,801,328				213,219				2.42
Noninterest-bearing liabilities:
Demand deposits			1,713,863												1,807,248												1,589,265
Other			183,229												173,799												136,416
Total Liabilities			13,559,845												12,852,888												10,527,009
Shareholders’ equity			1,530,613												1,444,793												1,254,476
Total Liabs. and Equity		$	15,090,458											$	14,297,681											$	11,781,485
Net interest income/net interest margin (FTE)							502,729				3.66	%							496,970				3.82	%							422,326				3.93	%
Tax equivalent adjustment							(13,985	)											(11,407	)											(9,778	)
Net interest income						$	488,744											$	485,563											$	412,548

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:

						2007 vs. 2006												2006 vs. 2005
		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		$	63,236			$	11,588			$	74,824			$	135,262			$	75,230			$	210,492
Taxable investment securities			(4,913	)			6,882				1,969				10,940				11,791				22,731
Tax-exempt investment securities			2,529				1,557				4,086				3,805				(6	)			3,799
Equity securities			1,661				71				1,732				937				842				1,779
Loans held for sale			(3,399	)			(664	)			(4,063	)			(1,762	)			2,386				624
Short-term investments			(984	)			84				(900	)			173				771				944
Total interest-earning assets		$	58,130			$	19,518			$	77,648			$	149,355			$	91,014			$	240,369
Interest expense on:
Demand deposits		$	352			$	2,867			$	3,219			$	1,335			$	8,407			$	9,742
Savings deposits			(1,914	)			3,832				1,918				4,229				20,049				24,278
Time deposits			18,304				24,013				42,317				34,536				37,611				72,147
Short-term borrowings			(3,892	)			(168	)			(4,060	)			16,848				26,781				43,629
Long-term debt			26,543				1,952				28,495				11,262				4,667				15,929
Total interest-bearing liabilities		$	39,393			$	32,496			$	71,889			$	68,210			$	97,515			$	165,725

2007 vs. 2006

Net interest income increased $5.8 million, or 1.2%, from $497.0 million in 2006 to $502.7 million in 2007 due to an increase in average interest-earning assets, offset by a decline in net interest margin.

Average interest-earning assets grew 5.7%, from $13.0 billion in 2006 to $13.8 billion in 2007. Interest income increased $77.6 million, or 8.9%, primarily as a result of an increase in average interest-earning assets, which contributed $58.1 million to the increase, with the remaining growth in interest income due to the 20 basis point, or 3.0%, increase in average rates on interest-earning assets. Columbia contributed approximately $99 million to the increase in average interest-earning assets.

The increase in average interest-earning assets was primarily due to loan growth. Average loans increased by $844.5 million, or 8.5%, to $10.7 billion in 2007. The following table presents the growth in average loans, net of unearned income, by type:

										Increase (decrease)
		2007				2006				$				%
						(dollars in thousands)
Commercial — industrial, financial and agricultural		$	3,213,357			$	2,814,489			$	398,868				14.2	%
Real estate — commercial mortgage			3,337,762				3,073,830				263,932				8.6
Real estate — residential mortgage			753,789				640,775				113,014				17.6
Real estate — home equity			1,454,753				1,417,259				37,494				2.6
Real estate — construction			1,384,548				1,345,191				39,357				2.9
Consumer			506,201				522,761				(16,560	)			(3.2	)
Leasing and other			86,156				77,777				8,379				10.8
Total		$	10,736,566			$	9,892,082			$	844,484				8.5	%