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, 2008, 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)

(717) 291-2411

 

(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 (Do not check if a smaller reporting company)		Smaller reporting company 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, 2008, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $1.7 billion. The number of shares of the registrant’s Common Stock outstanding on January 31, 2009 was 175,432,000.

Portions of the Definitive Proxy Statement of the Registrant for the Annual Meeting of Shareholders to be held on April 29, 2009 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			13
Item 2.		Properties			13
Item 3.		Legal Proceedings			14
Item 4.		Submission of Matters to a Vote of Security Holders			14
PART II
Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			15
Item 6.		Selected Financial Data			17
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			18
Item 7A.		Quantitative and Qualitative Disclosures About Market Risk			43
Item 8.		Financial Statements and Supplementary Data:
		Consolidated Balance Sheets			50
		Consolidated Statements of Operations			51
		Consolidated Statements of Shareholders’ Equity and Comprehensive Income (Loss)			52
		Consolidated Statements of Cash Flows			53
		Notes to Consolidated Financial Statements			54
		Management Report On Internal Control Over Financial Reporting			96
		Report of Independent Registered Public Accounting Firm			97
		Quarterly Consolidated Results of Operations (unaudited)			98
Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			99
Item 9A.		Controls and Procedures			99
Item 9B.		Other Information			99
PART III
Item 10.		Directors, Executive Officers and Corporate Governance			100
Item 11.		Executive Compensation			100
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			100
Item 13.		Certain Relationships and Related Transactions, and Director Independence			100
Item 14.		Principal Accounting Fees and Services			100
PART IV
Item 15.		Exhibits and Financial Statement Schedules			101
		Signatures			104
		Exhibit Index			106
EX-21
EX-23
EX-31.1
EX-31.2
EX-32.1
EX-32.2

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-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 ten community banks, two financial services companies and eleven non-bank entities. As of December 31, 2008, the Corporation had approximately 3,630 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 2008 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 ten 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 March 2008, the former Resource Bank subsidiary consolidated with Fulton Bank. In addition, during 2008, the Corporation announced the consolidation of its Maryland banking subsidiaries. The consolidation, which is expected to take place in 2009, will merge the Corporation’s Hagerstown Trust Company and Peoples Bank of Elkton subsidiaries into its Columbia Bank subsidiary.

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 account and savings deposit 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 The Columbia Bank, which maintains its own mortgage lending operation). Consumer loan products also include automobile loans, automobile and equipment leases, personal lines of credit, credit cards 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 as of December 31, 2008, 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, 2008.

		Main Office		Total				Total
Subsidiary		Location		Assets				Deposits				Branches (1)
				(dollars in millions)
Fulton Bank		Lancaster, PA		$	7,936			$	4,854				102
The Bank		Woodbury, NJ			2,036				1,567				51
The Columbia Bank		Columbia, MD			1,679				1,128				26
Lafayette Ambassador Bank		Easton, PA			1,418				1,042				25
Skylands Community Bank		Hackettstown, NJ			1,276				956				27
Hagerstown Trust Company		Hagerstown, MD			527				423				12
Delaware National Bank		Georgetown, DE			469				319				12
FNB Bank, N.A.		Danville, PA			364				273				10
Swineford National Bank		Hummels Wharf, PA			296				225				7
The Peoples Bank of Elkton		Elkton, MD			140				123				2
Fulton Financial Advisors, N.A. and Fulton Insurance Services Group, Inc.		Lancaster, PA			—				—				—
													274

Non-Bank Subsidiaries

The Corporation owns 100% of the common stock of five 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; and (v) 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, 2008:

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 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 53 counties across five states. In nine of these counties, the Corporation ranked in the top three in deposit market share (based on deposits as of June 30, 2008). 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								(June 30, 2008)
				Population						Banks/				Credit
County		State		(2008 Est.)				Banking Subsidiary		Thrifts				Unions				Rank				%
Lancaster		PA			500,000			Fulton Bank			19				13				1				19.4	%
Berks		PA			408,000			Fulton Bank			21				12				9				2.9	%
Bucks		PA			628,000			Fulton Bank			37				16				17				1.9	%
Centre		PA			142,000			Fulton Bank			15				4				18				0.4	%
Chester		PA			493,000			Fulton Bank			42				5				15				1.4	%
Columbia		PA			65,000			FNB Bank, N.A.			7				—				6				5.1	%
Cumberland		PA			229,000			Fulton Bank			22				5				15				1.3	%
Dauphin		PA			255,000			Fulton Bank			19				9				7				3.0	%
Delaware		PA			557,000			Fulton Bank			43				16				42				0.1	%
Lebanon		PA			129,000			Fulton Bank			10				2				1				26.7	%
Lehigh		PA			342,000			Lafayette Ambassador Bank			19				13				9				3.5	%
Lycoming		PA			117,000			FNB Bank, N.A.			11				10				14				0.8	%
Montgomery		PA			779,000			Fulton Bank			50				23				34				0.3	%
Montour		PA			18,000			FNB Bank, N.A.			4				3				1				29.3	%
Northampton		PA			297,000			Lafayette Ambassador Bank			17				13				3				13.6	%
Northumberland		PA			91,000			Swineford National Bank			18				3				14				1.8	%
								FNB Bank, N.A.											8				4.8	%

										No. of Financial								Deposit Market Share
										Institutions								(June 30, 2008)
				Population						Banks/				Credit
County		State		(2008 Est.)				Banking Subsidiary		Thrifts				Unions				Rank				%
Schuylkill		PA			147,000			Fulton Bank			20				4				10				3.5	%
Snyder		PA			38,000			Swineford National Bank			8				—				1				28.8	%
Union		PA			44,000			Swineford National Bank			8				1				6				6.0	%
York		PA			426,000			Fulton Bank			18				16				5				8.7	%
New Castle		DE			531,000			Delaware National Bank			31				24				24				0.1	%
Sussex		DE			186,000			Delaware National Bank			16				4				6				0.7	%
Anne Arundel		MD			512,000			The Columbia Bank			32				8				37				—
Baltimore		MD			794,000			The Columbia Bank			44				18				24				0.9	%
Baltimore City		MD			639,000			The Columbia Bank			40				16				25				0.3	%
Cecil		MD			103,000			Peoples Bank of Elkton			8				3				5				10.3	%
Frederick		MD			228,000			The Columbia Bank			18				2				16				0.5	%
Howard		MD			277,000			The Columbia Bank			20				3				2				13.2	%
Montgomery		MD			941,000			The Columbia Bank			36				20				33				0.3	%
Prince Georges		MD			846,000			The Columbia Bank			23				20				14				1.5	%
Washington		MD			147,000			Hagerstown Trust Company			13				3				2				18.8	%
Atlantic		NJ			275,000			The Bank			15				6				15				0.9	%
Burlington		NJ			454,000			The Bank			23				10				23				0.2	%
Camden		NJ			519,000			The Bank			21				8				12				1.5	%
Cumberland		NJ			157,000			The Bank			12				4				9				2.4	%
Gloucester		NJ			288,000			The Bank			22				4				2				13.4	%
Hunterdon		NJ			132,000			Skylands Community Bank			14				3				12				2.1	%
Mercer		NJ			371,000			The Bank			27				19				18				0.6	%
Middlesex		NJ			791,000			Skylands Community Bank			44				25				38				0.2	%
Monmouth		NJ			637,000			The Bank			27				9				24				0.7	%
Morris		NJ			498,000			Skylands Community Bank			33				10				17				1.4	%
Ocean		NJ			571,000			The Bank			23				6				16				0.8	%
Salem		NJ			67,000			The Bank			8				4				1				27.6	%
Somerset		NJ			330,000			Skylands Community Bank			26				7				8				3.4	%
Sussex		NJ			155,000			Skylands Community Bank			14				1				13				0.7	%
Warren		NJ			112,000			Skylands Community Bank			14				2				5				10.1	%
Chesapeake		VA			222,000			Fulton Bank			14				6				14				1.4	%
Fairfax		VA			1,022,000			Fulton Bank			40				14				25				0.2	%
Henrico		VA			291,000			Fulton Bank			24				10				25				0.1	%
Manassas		VA			37,000			Fulton Bank			14				1				10				1.9	%
Newport News		VA			180,000			Fulton Bank			12				7				15				0.8	%
Richmond City		VA			192,000			Fulton Bank			16				15				17				0.2	%
Virginia Beach		VA			436,000			Fulton Bank			16				8				9				2.3	%

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

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 for 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 may 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. Effective October 3, 2008 with the enactment of the Emergency Economic Stabilization Act of 2008 (EESA), the $100,000 insurance limit was increased to $250,000 through December 31, 2009. See additional discussion of the EESA under “Regulatory Developments”. 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. For the period from 1997 through 2006, the Corporation’s subsidiary banks (based on the FDIC’s classification system), did not pay 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 and 2008, the Corporation’s subsidiary banks were assessed insurance premiums, which were partially 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. Furthermore, with the recent increase in bank failures, the BIF has become underfunded and the FDIC has proposed changes in the assessment rates which will become effective in 2009. In addition, the FDIC has adopted an interim rule imposing an emergency special assessment of 20 basis points on insured deposits. If this interim rule is implemented, the Corporation could incur additional FDIC insurance premiums of approximately $20 million in 2009.

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. 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.

Regulatory Developments – On October 3, 2008 the EESA, also known as the Troubled Asset Relief Program (TARP), was enacted. In connection with the EESA, the U.S. Treasury Department (UST) initiated a Capital Purchase Program (CPP), which allows for qualifying financial institutions to issue preferred stock to the UST, subject to certain limitations and terms. The EESA was developed to attract broad participation by strong financial institutions, to stabilize the financial system and increase lending to benefit the national economy and citizens of the U.S.

On December 23, 2008, the Corporation entered into a Securities Purchase Agreement with the UST pursuant to which the Corporation sold to the UST for an aggregate purchase price of $376.5 million, 376,500 shares of preferred stock and warrants to purchase up to 5.5 million shares of common stock of the Corporation. The preferred stock ranks senior to the Corporation’s common shares and pays a compounding cumulative dividend at a rate of 5% per year for the first five years, and 9% per year thereafter. The preferred stock is non-voting, other than class voting rights on matters that could adversely affect the preferred stock. The preferred stock is callable at par after three years. Prior to the end of three years, the preferred stock may be redeemed with the proceeds from one or more qualified equity offerings, as defined, of any Tier 1 perpetual preferred or common stock of at least $94.1 million. The UST may also transfer the preferred stock to a third-party at any time. The Corporation’s preferred stock is included as a component of Tier 1 capital in accordance with regulatory capital requirements.

As a condition of its participation in the CPP, and as long as the preferred stock issued to the UST is outstanding, without the consent of the UST, common stock repurchases are currently limited to purchases in connection with the administration of any employee benefit plan, consistent with past practices, including purchases to offset share dilution in connection with any such plans until December 2011 or until the UST no longer owns any of the Corporation’s preferred shares issued under the CPP. In addition, the Corporation is prohibited from paying any dividend with respect to shares of common stock or repurchasing or redeeming any shares of the Corporation’s common shares in any quarter unless all accrued and unpaid dividends are paid on the preferred stock for all past dividend periods (including the latest completed dividend period), subject to certain limited exceptions. In addition, without the consent of the UST, the Corporation is prohibited from declaring or paying any cash dividends on common shares in excess of $0.15 per share, which was the last quarterly cash dividend per share declared prior to October 14, 2008.

See also Note M, “Stock-based Compensation Plans and Shareholders’ Equity” in the Notes to Consolidated Financial Statements for additional details related to the Corporation’s participation in the CPP.

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 or loss.

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 76% of total revenues in 2008. 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 interest 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. 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.

The severity and duration of the current recession and the composition of the Corporation’s loan portfolio could impact the level of loan charge-offs and the provision for loan losses and may affect the Corporation’s net income or loss.

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 further 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:

	•		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 these scenarios could require the Corporation to charge-off a higher percentage of its loans and/or increase its provision for loan losses, which would negatively impact its results of operations.

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. During 2008, the Corporation’s provision for loan losses was $119.6 million. While the Corporation believes that its allowance for loan losses as of December 31, 2008 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 negatively impacting its results of operations. 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.

Price fluctuations in securities markets, as well as recent market events, such as a continuation of the disruption in credit and other markets and the abnormal functioning of markets for securities, could have an impact on the Corporation’s results of operations.

As of December 31, 2008, the Corporation’s equity investments consisted of Federal Home Loan Bank (FHLB) and Federal Reserve Bank stock ($85.3 million), common stocks of publicly traded financial institutions ($43.4 million), and money market mutual funds and other equity investments ($10.0 million). 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. Historically, gains on sales of stocks of other financial institutions have been a recurring component of the Corporation’s earnings. However, general economic conditions and uncertainty surrounding the financial institution sector as a whole has impacted the value of these securities over the past two years. Further declines in bank stock values could result in additional other-than-temporary impairment charges. During 2008, $43.1 million of impairment charges were recorded for stocks of financial institutions.

As of December 31, 2008, the Corporation has $119.9 million of corporate debt securities issued by financial institutions whose values declined significantly during 2008. As with stocks of financial institutions, continued declines in the values of these securities, combined with adverse changes in the expected cash flows from these investments, could result in additional other-than-temporary impairment charges. During 2008, $20.7 million of impairment charges were recorded for debt securities issued by financial institutions.

The Corporation’s investment management and trust services income could also 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.

During 2008, developments in the market for student loan auction rate securities (also known as “auction rate certificates” or “ARCs”) resulted in the Corporation recording charges of $19.8 million.

The Corporation’s investment management and trust subsidiary, Fulton Financial Advisors, N.A. (FFA), holds ARCs for some of its customers’ accounts. ARCs are one of several types of securities that were previously utilized by FFA as short-term investment vehicles for its customers. ARCs are long-term securities structured to allow their sale in periodic auctions, resulting in the treatment of ARCs as short-term instruments in normal market conditions. However, in mid-February, 2008, market auctions for ARCs began to fail due to an insufficient number of buyers; these market failures were the first widespread and continuing failures in the over 20-year history of the auction rate securities markets. As a result, although the credit quality of ARCs has not been impacted, ARCs are currently not liquid investments for their holders, including FFA’s customers. It is unclear when liquidity will return to this market.

FFA has agreed to purchase ARCs from customer accounts upon notification from customers that they have liquidity needs or otherwise desire to liquidate their holdings. Specifically, FFA will generally purchase customer ARCs at par value with an interest adjustment, which would position customers as if they had owned 90-day U.S. Treasury bills instead of ARCs.

Management believes that the financial guarantee liability recorded as of December 31, 2008 is adequate. Future purchases of ARCs, changes in their estimated fair value or changes in the likelihood of their purchase could require the Corporation to make adjustments to the amount of the liability and have a material impact on the Corporation’s results of operations.

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

The Corporation has historically supplemented its internal growth with strategic acquisitions of banks, branches and other financial services companies. 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. During 2008, the Corporation recorded a $90.0 million goodwill impairment charge for one of its defined reporting units. As of December 31, 2008, the Corporation had $534.4 million of goodwill on its consolidated 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 earnings in the period in which the impairment occurs. Despite the current year’s impairment charge, there can be no assurance that future evaluations of goodwill will not result in additional findings of impairment.

Difficult conditions in the capital markets and the economy generally may materially adversely affect the Corporation’s business and results of operations. The Corporation does not expect these conditions to improve in the near future.

The Corporation’s results of operations and financial condition are affected by conditions in the capital markets and the economy generally. The capital and credit markets have been experiencing extreme volatility and disruption for more than twelve months. The volatility and disruption in these markets have produced downward pressure on stock prices of, and credit availability to, certain companies without regard to those companies’ underlying financial strength.

In response to the financial crises affecting the banking system and financial markets and going concern threats to investment banks and other financial institutions, on October 3, 2008, President Bush signed the Emergency Economic Stabilization Act of 2008 (EESA) into law. Pursuant to the EESA, the U.S. Treasury (UST) was authorized to, among other things, deploy up to $750 billion into the financial system. On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act of 2009 (ARRA) into law. The Federal Government, the Federal Reserve and other governmental and regulatory bodies have taken or are considering taking other actions to address the financial crisis. There can be no assurance as to what impact such actions will have on the financial markets, including the extreme levels of volatility currently being experienced. Such actions, although intended to aid the financial markets, and continued volatility in the markets could materially and adversely affect our business, financial condition and results of operations, or the trading price of our common stock.

Recently, concerns over the availability and cost of credit and a declining U.S. real estate market have contributed to increased volatility and diminished expectations for the economy and the capital and credit markets going forward. These factors, combined with declining business and consumer confidence, have precipitated an economic slowdown and induced fears of a prolonged recession. These events and the continuing market upheavals may have a continued adverse effect on the Corporation.

Included among the potential adverse effects of the current economic downturn on the Corporation are the following:

	•		A prolonged economic downturn, especially one affecting the Corporation’s geographic market areas, could reduce the Corporation’s customer base level of deposits and demand for financial products, such as loans. The Corporation’s success depends significantly upon the growth in population, income levels, deposits and housing starts in its geographic markets. Unlike many larger institutions, the Corporation is not able to spread the risks of unfavorable local economic conditions across a large number of diversified economies and geographic locations. If the communities in which the Corporation operates do not grow, or if prevailing economic conditions locally or nationally are unfavorable, its business could be adversely affected.
	•		Recent negative developments in the financial industry and the credit markets may subject the Corporation to additional regulation. As discussed above, the Corporation and its subsidiaries are subject to regulations and examinations by various regulatory authorities. In addition, as a result of its participation in the UST’s Capital Purchase Program (CPP), the Corporation is subject to certain restrictions associated with participation in the CPP.

			As a result of the recent global financial crisis, the potential exists for new Federal or state laws and regulations regarding lending and funding practices and liquidity standards, and bank regulatory agencies are expected to be active in responding to concerns and trends identified in examinations, which may result in the issuance of formal enforcement orders. Negative developments in the financial industry and the domestic and international credit markets, and the impact of new legislation in response to those developments, may negatively impact the Corporation’s operations, including its ability to originate or sell loans, and adversely impact its financial performance.
	•		The Corporation’s future growth and liquidity needs may require the Corporation to raise additional capital in the future, but that capital may not be available when it is needed or may be available at an excessive cost. The Corporation is required by regulatory authorities to maintain adequate levels of capital to support its operations. In October 2008, the UST announced plans to direct $250 billion of its authority under EESA into preferred stock investments in banks under the CPP. In November 2008, the Corporation voluntarily applied to the UST to participate in the CPP and the application was approved. As a result, on December 23, 2008, the Corporation issued $376.5 million of preferred stock, as well as warrants to purchase 5.5 million shares of the Corporation’s common stock, to the UST.
			The Corporation anticipates that current capital levels will satisfy regulatory requirements for the foreseeable future. The Corporation may at some point choose to raise additional capital to support its continued growth or to redeem the preferred stock issued under the CPP. The Corporation’s ability to raise additional capital will depend, in part, on conditions in the capital markets at that time, which are outside of the Corporation’s control. Accordingly, the Corporation may be unable to raise additional capital, if and when needed, on terms acceptable to the Corporation, or at all. If the Corporation cannot raise additional capital when needed, its ability to further expand operations through internal growth and acquisitions could be materially impacted. In addition, if the Corporation decides to raise additional equity capital, shareholders’ interests could be diluted.
			In addition to primary sources of liquidity in the form of principal and interest payments on outstanding loans and investments and deposits, the Corporation maintains secondary sources that provide it with additional liquidity. These secondary sources include secured and unsecured borrowings from sources such as the Federal Reserve Bank and FHLB and third-party commercial banks. The Corporation’s strong liquidity position was further enhanced by its participation in the CPP and it believes that it is well positioned to withstand current market conditions. However, market liquidity conditions have been negatively impacted by the recent disruptions in the capital markets and could, in the future, have a negative impact on secondary sources of liquidity.

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

There is significant competition among commercial banks in the market areas served by 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, 2008. Remote service facilities (mainly stand-alone automated teller machines) are excluded.

										Total
Subsidiary Bank		Owned				Leased				Branches
Fulton Bank			37				65				102
The Bank			32				19				51
The Columbia Bank			5				21				26
Lafayette Ambassador Bank			8				17				25
Skylands Community Bank			7				20				27
Hagerstown Trust Company			6				6				12
Delaware National Bank			9				3				12
FNB Bank, N.A.			8				2				10
Swineford National Bank			5				2				7
The Peoples Bank of Elkton			1				1				2
Total			118				156				274

The following table summarizes the Corporation’s other significant administrative properties. Banking subsidiaries also maintain administrative offices at their respective main banking branches. These properties are included within the preceding table.

						Owned/
Entity		Property		Location		Leased
Fulton Bank/Fulton Financial Corporation		Corporate Headquarters		Lancaster, PA		(1)
Fulton Financial Corporation		Operations Center		East Petersburg, PA		Owned
Fulton Bank		Operations Center		Mantua, NJ		Owned
Lafayette Ambassador Bank		Operations Center		Bethlehem, PA		Owned

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 2008.

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, 2008, the Corporation had 175.0 million shares of $2.50 par value common stock outstanding held by approximately 48,000 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 2008 and 2007.

		Price Range								Per-Share
		High				Low				Dividend
2008
First Quarter		$	13.69			$	9.83			$	0.1500
Second Quarter			13.66				10.03				0.1500
Third Quarter			17.00				7.35				0.1500
Fourth Quarter			13.04				7.89				0.1500
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

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, 2008:

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

7,056,184

$

13.66

13,609,429

Equity compensation plans not approved by security holders

—

—

—

Total

7,056,184

$

13.66

13,609,429

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, 2003, 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		2003				2004				2005				2006				2007				2008
Fulton Financial Corporation			100.00				115.21				112.35				115.99				81.37				73.52
NASDAQ Composite			100.00				108.59				110.08				120.56				132.39				78.72
Fulton Financial 2008 Peer Group			100.00				116.00				115.67				126.42				102.33				88.74

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)

		2008				2007				2006				2005				2004
SUMMARY OF OPERATIONS
Interest income		$	867,494			$	939,577			$	864,507			$	625,767			$	493,643
Interest expense			343,346				450,833				378,944				213,219				135,994
Net interest income			524,148				488,744				485,563				412,548				357,649
Provision for loan losses			119,626				15,063				3,498				3,120				4,717
Investment securities (losses) gains, net			(58,241	)			1,740				7,439				6,625				17,712
Other income			155,387				146,284				142,436				137,673				121,152
Gain on sale of credit card portfolio			13,910				—				—				—				—
Other expenses			406,625				405,455				365,991				316,291				277,515
Goodwill impairment			90,000				—				—				—				—
Income before income taxes			18,953				216,250				265,949				237,435				214,281
Income taxes			24,570				63,532				80,422				71,361				64,673
Net income (loss)			(5,617	)			152,718				185,527				166,074				149,608
Preferred stock dividends and discount accretion			(463	)			—				—				—				—
Net income (loss) available to common shareholders		$	(6,080	)		$	152,718			$	185,527			$	166,074			$	149,608
PER COMMON SHARE (1)
Net income (loss) (basic)		$	(0.03	)		$	0.88			$	1.07			$	1.01			$	0.95
Net income (loss) (diluted)			(0.03	)			0.88				1.06				1.00				0.94
Cash dividends			0.600				0.598				0.581				0.540				0.493
RATIOS
Return on average assets			(0.04	%)			1.01	%			1.30	%			1.41	%			1.45	%
Return on average equity			(0.35	)			9.98				12.84				13.24				13.98
Return on average tangible equity (2)			9.29				18.16				23.87				20.28				18.58
Net interest margin			3.70				3.66				3.82				3.93				3.83
Efficiency ratio			56.31				61.20				56.00				55.50				55.90
Ending tangible common equity to tangible assets			5.97				6.03				5.98				6.98				7.94
Dividend payout ratio			N/M				68.00				54.80				54.00				52.50
PERIOD-END BALANCES
Total assets		$	16,185,106			$	15,923,098			$	14,918,964			$	12,401,555			$	11,160,148
Investment securities			2,724,841				3,153,552				2,878,238				2,562,145				2,449,859
Loans, net of unearned income			12,042,620				11,204,424				10,374,323				8,424,728				7,533,915
Deposits			10,551,916				10,105,445				10,232,469				8,804,839				7,895,524
Federal Home Loan Bank advances and long-term debt			1,787,797				1,642,133				1,304,148				860,345				684,236
Shareholders’ equity			1,859,647				1,574,920				1,516,310				1,282,971				1,244,087
AVERAGE BALANCES
Total assets		$	15,976,871			$	15,090,458			$	14,297,681			$	11,781,485			$	10,348,268
Investment securities			2,924,340				2,843,478				2,869,862				2,498,538				2,563,143
Loans, net of unearned income			11,595,243				10,736,566				9,892,082				7,981,604				6,857,386
Deposits			10,016,528				10,222,594				9,955,247				8,364,435				7,285,134
Federal Home Loan Bank advances and long-term debt			1,822,115				1,579,527				1,069,868				839,694				641,154
Shareholders’ equity			1,609,828				1,530,613				1,444,793				1,254,476				1,069,904

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 its acquisition and growth strategies; market risk; changes or adverse developments in economic, political, or regulatory conditions; a continuation or worsening of the current disruption in credit and other markets, including the lack of or reduced access to, and the abnormal functioning of, markets for mortgages and other asset-backed securities and for commercial paper and other short-term borrowings; the effect of competition and interest rates on net interest margin and net interest income; investment strategy and income growth; investment securities gains; declines in the value of securities which may result in charges to earnings; changes in rates of deposit and loan growth; asset quality and the impact on assets from adverse changes in the economy and in credit or other markets and resulting effects on credit risk and asset values; 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 of changes in these assumptions, actual results could differ materially from forward-looking statements. The Corporation undertakes no obligations to update or revise any forward-looking statements.

OVERVIEW

During 2008, the Corporation faced significant challenges associated with the overall economic downturn. Poor economic conditions, which were initially evident within the residential housing market beginning in 2007, spread throughout most sectors of the economy in 2008. The values of various assets, including loans, investment securities and intangible assets, declined significantly in the current year, resulting in a number of significant charges to earnings.

Despite these setbacks and the expectation of a challenging economy – at least in the short-term – the Corporation believes it is positioned to withstand the current conditions through its strong capital and liquidity positions, conservative underwriting of loans and prudent management of interest rate risk.

Summary Financial Results

The Corporation generates the majority of its revenue through net interest income, or the difference between interest earned on loans and investments and interest paid on deposits and borrowings. Growth in net interest income is dependent upon balance sheet growth and/or maintaining or increasing the net interest margin, which is net interest income (fully taxable-equivalent) 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:

		2008				2007
Net income (loss) available to common shareholders (in thousands)		$	(6,080	)		$	152,718
Income before income taxes (in thousands)		$	18,953			$	216,250
Diluted net income (loss) per common share (1)		$	(0.03	)		$	0.88
Return on average assets			(0.04	%)			1.01	%
Return on average equity (2)			(0.35	%)			9.98	%
Return on average tangible equity (3)			9.29	%			18.16	%
Net interest margin (4)			3.70	%			3.66	%
Non-performing assets to total assets			1.35	%			0.76	%

The Corporation’s income before income taxes in 2008 decreased $197.3 million, or 91.2%, from 2007. The decrease in income before income taxes in 2008 in comparison to 2007 was primarily due to the following:

Decreases in income before income taxes:

•		An increase in the provision for loan losses of $104.6 million, or 694.2%, to $119.6 million in 2008.
		During 2008, deteriorating economic conditions negatively impacted the quality of the Corporation’s loan portfolio. In general, significant declines in residential real estate values led to a slowing of the housing markets. This, in turn, had a detrimental impact on residential real estate developers and their ability to meet the contractual payments on their loans. Ultimately, as the slowdown spread through other sectors of the economy and recessionary conditions became evident, other types of credit began to deteriorate as the confidence of both businesses and consumers declined.
		The Corporation’s non-performing assets increased significantly, from $120.9 million, or 0.76% of total assets, as of December 31, 2007 to $219.0 million, or 1.35% of total assets, as of December 31, 2008, with significant increases occurring in non-performing construction loans, commercial mortgages and commercial loans. Net charge-offs for 2008 were 0.45% of average loans, compared to 0.09% in 2007. As a result of these increases in non-performing assets and net charge-offs, the Corporation increased the provision for loan losses as additional allocations of the allowance for loan losses became necessary.
•		A goodwill impairment charge of $90.0 million, recorded in 2008.
		As required by Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (Statement 142), the Corporation completes an annual goodwill impairment test as of October 31st each year. In connection with its 2008 impairment test, the Corporation determined that the goodwill associated with its Columbia Bank reporting unit was impaired; resulting in a $90.0 million impairment charge.
•		A $65.0 million increase in charges related to the other-than-temporary impairment of securities.
		During 2008, the Corporation recorded pre-tax charges of $65.3 million for the other-than-temporary impairment of investment securities, recorded within investment securities (losses) gains on the consolidated statements of operations. During 2007, the Corporation recorded $324,000 of other-than-temporary impairment charges. Other-than-temporary impairment charges were recognized mainly for the Corporation’s investments in stocks of financial institutions and debt securities issued by financial institutions. Uncertainty surrounding the sector as a whole negatively impacted the value of securities issued by financial institutions.
		During 2008, the Corporation’s other-than-temporary impairment charges related to stocks of financial institutions were $43.1 million, while its other-than-temporary impairment charges for debt securities were $20.7 million, primarily for pooled trust preferred securities issued by financial institutions.

•		Contingent losses of $19.8 million associated with the Corporation’s guarantee to purchase illiquid auction rate securities from customers.
		The Corporation’s investment management and trust subsidiary, Fulton Financial Advisors, N.A. (FFA), held student loan auction rate securities, also known as auction rate certificates (ARCs), for some of its customers’ accounts. ARCs were one of several types of securities that were previously utilized by FFA as short-term investment vehicles for its customers. ARCs are long-term securities structured to allow their sale in periodic auctions, giving the securities some of the characteristics of short-term instruments in normal market conditions. However, in 2008, market auctions for ARCs began to fail due to an insufficient number of buyers. As a result, although the credit quality of ARCs was not impacted, they were not liquid investments for their holders, including FFA’s customers.
		During 2008, FFA agreed to purchase ARCs from customer accounts upon notification from customers that they have liquidity needs or otherwise desire to liquidate their holdings. The estimated fair value of this guarantee resulted in a $19.8 million pre-tax charge to earnings in 2008, included within operating risk loss on the consolidated statements of operations.

Increases in income before income taxes:

•		A $35.4 million, or 7.2%, increase in net interest income.
		The 2008 improvement in net interest income in comparison to 2007 was largely due to an increase in average interest-earning assets, and a four basis point increase in net interest margin. Decreases in interest rates on short-term borrowings and deposit balances were the result of the Federal Reserve Board (FRB) lowering the target Federal funds rate a total of 400-425 basis points since December 31, 2007 (from 4.25% to 0-0.25%).
		During 2008, interest rates paid on short-term borrowings and many deposit balances declined more quickly than interest rates earned on assets. The more pronounced decrease in interest expense during 2008 in comparison to 2007 produced an increase in net interest income and net interest margin. Further decreases in rates on interest-bearing liabilities are not expected in the near future, due both to the current low-interest rate environment and the ongoing strong competition for deposits. As a result, the Corporation expects net interest margin compression in 2009. See the discussion under the heading, “Net Interest Income” below, for additional details.
•		A $22.8 million reduction in pre-tax contingent losses associated with the potential repurchase of previously sold residential mortgage and home equity loans.
		During 2007, the Corporation recorded $25.1 million of pre-tax charges associated with the potential repurchase of residential mortgage and home equity loans sold to secondary market investors through its former Resource Mortgage affiliate. During 2008, the Corporation recorded an additional $2.3 million of contingent losses related to such loans, all of which were originated prior to 2008. See Note O, “Commitments and Contingencies” in the Notes to Consolidated Financial Statements for additional details.
•		A $13.9 million pre-tax gain on the sale of the Corporation’s credit card portfolio.
		In 2008, the Corporation sold its approximately $87 million credit card portfolio to U.S. Bank National Association ND, d/b/a Elan Financial Services (Elan), and recorded a $13.9 million pre-tax gain on the transaction.
		Under a separate agreement, the Corporation provides ongoing marketing services on behalf of Elan and receives fee income for each new account originated and a percentage of the revenue earned on both new accounts and accounts sold. During 2008, the Corporation recognized $3.6 million of credit card fee income, included within other income on the consolidated statements of operations, in connection with this agreement.
		The sale of the credit card portfolio reduced the Corporation’s net interest income for 2008. During the year ended December 31, 2007, interest income earned on the credit card portfolio was $14.8 million, or 1.6% of total interest income, at an average yield of 19.2%. In 2008, prior to the sale of the credit card portfolio, the Corporation recognized interest income on the credit card portfolio of $5.1 million at an average yield of 20.1%. Assuming the funding for credit cards was provided by Federal funds purchased, the net interest income contribution of the credit card portfolio in 2008 and 2007 was approximately $4.3 million and

$10.9 million, respectively. Despite the negative impact to the Corporation’s net interest income, the sale of the credit card portfolio has resulted in a reduction of consumer credit risk, while providing a future revenue stream.

Participation in United States Treasury Capital Purchase Program

In connection with the Emergency Economic Stabilization Act of 2008 (EESA), the U.S. Treasury Department (UST) initiated a Capital Purchase Program (CPP) which allows for qualifying financial institutions to issue preferred stock to the UST, subject to certain limitations and terms. The EESA was developed to attract broad participation by strong financial institutions, to stabilize the financial system and increase lending to benefit the national economy and citizens of the U.S.

In December 2008, the Corporation voluntarily applied to the UST to participate in the CPP and the application was approved. As a result, the Corporation issued $376.5 million of preferred stock, including warrants to purchase 5.5 million shares of the Corporation’s common stock, to the UST in December 2008.

For additional details related to the terms of the preferred stock and common stock warrants issued by the Corporation, see Note M, “Stock-based Compensation Plans and Shareholders Equity” in the Notes to Consolidated Financial Statements and the “Financial Condition” section of Management’s Discussion.

RESULTS OF OPERATIONS

Net Interest Income

Net interest income is the most significant component of the Corporation’s net income. 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 2008 compared to 2007 and 2006. 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.

(dollars in thousands)		2008												2007												2006
		Average								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)		$	11,595,243			$	732,533				6.32	%		$	10,736,566			$	805,881				7.51	%		$	9,892,082			$	731,057				7.39	%
Taxable inv. securities (3)			2,228,204				110,220				4.82				2,157,325				99,621				4.62				2,268,209				97,652				4.31
Tax-exempt inv. securities (3)			512,920				27,904				5.44				496,820				25,856				5.20				447,000				21,770				4.87
Equity securities (3)			183,216				6,520				3.56				189,333				9,073				4.79				154,653				7,341				4.75
Total investment securities			2,924,340				144,644				4.95				2,843,478				134,550				4.73				2,869,862				126,763				4.42
Loans held for sale			93,085				5,701				6.12				166,437				11,501				6.91				215,255				15,564				7.23
Other interest-earning assets			21,503				586				2.71				33,015				1,630				4.90				53,211				2,530				4.73
Total interest-earning assets			14,634,171				883,464				6.04				13,779,496				953,562				6.93				13,030,410				875,914				6.73
Noninterest-earning assets:
Cash and due from banks			318,524												329,814												335,935
Premises and equipment			197,967												190,910												185,084
Other assets (3)			951,270												899,292												852,186
Less: Allowance for loan losses			(125,061	)											(109,054	)											(105,934	)
Total Assets		$	15,976,871											$	15,090,458											$	14,297,681
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing liabilities:
Demand deposits		$	1,714,029			$	13,168				0.77	%		$	1,696,624			$	28,331				1.67	%		$	1,673,407			$	25,112				1.50	%
Savings deposits			2,152,158				28,520				1.32				2,258,113				53,312				2.36				2,340,402				51,394				2.19
Time deposits			4,502,399				170,426				3.79				4,553,994				212,752				4.67				4,134,190				170,435				4.12
Total interest-bearing deposits			8,368,586				212,114				2.53				8,508,731				294,395				3.46				8,147,999				246,941				3.03
Short-term borrowings			2,336,526				50,091				2.12				1,574,495				73,983				4.66				1,653,974				78,043				4.67
Long-term debt			1,822,115				81,141				4.45				1,579,527				82,455				5.22				1,069,868				53,960				5.04
Total interest-bearing liabilities			12,527,227				343,346				2.74				11,662,753				450,833				3.86				10,871,841				378,944				3.48
Noninterest-bearing liabilities:
Demand deposits			1,647,942												1,713,863												1,807,248
Other			191,874												183,229												173,799
Total Liabilities			14,367,043												13,559,845												12,852,888
Shareholders’ equity			1,609,828												1,530,613												1,444,793
Total Liabs. and Equity		$	15,976,871											$	15,090,458											$	14,297,681
Net interest income/net interest margin (FTE)							540,118				3.70	%							502,729				3.66	%							496,970				3.82	%
Tax equivalent adjustment							(15,970	)											(13,985	)											(11,407	)
Net interest income						$	524,148											$	488,744											$	485,563

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:

		2008 vs. 2007												2007 vs. 2006
		Increase (decrease) due												Increase (decrease) due
		to change in												to change in
		Volume				Rate				Net				Volume				Rate				Net
		(in thousands)
Interest income on:
Loans, net of unearned income		$	61,027			$	(134,375	)		$	(73,348	)		$	63,236			$	11,588			$	74,824
Taxable investment securities			4,588				6,011				10,599				(4,913	)			6,882				1,969
Tax-exempt investment securities			854				1,194				2,048				2,529				1,557				4,086
Equity securities			(285	)			(2,268	)			(2,553	)			1,661				71				1,732
Loans held for sale			(4,610	)			(1,190	)			(5,800	)			(3,399	)			(664	)			(4,063	)
Short-term investments			(457	)			(587	)			(1,044	)			(984	)			84				(900	)
Total interest-earning assets		$	61,117			$	(131,215	)		$	(70,098	)		$	58,130			$	19,518			$	77,648
Interest expense on:
Demand deposits		$	288			$	(15,451	)		$	(15,163	)		$	352			$	2,867			$	3,219
Savings deposits			(2,375	)			(22,417	)			(24,792	)			(1,914	)			3,832				1,918
Time deposits			(2,384	)			(39,942	)			(42,326	)			18,304				24,013				42,317
Short-term borrowings			26,332				(50,224	)			(23,892	)			(3,892	)			(168	)			(4,060	)
Long-term debt			11,713				(13,027	)			(1,314	)			26,543				1,952				28,495
Total interest-bearing liabilities		$	33,574			$	(141,061	)		$	(107,487	)		$	39,393			$	32,496			$	71,889