Fulton Financial Annual Report 2003

FY2003 Annual Report · Fulton Financial

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Fulton Financial Corporation

Independent Auditors’ Report

The Board of Directors
Fulton Financial Corporation:

We have audited the accompanying consolidated balance sheets of Fulton Financial Corporation and subsidiaries as of December 31,
2003 and 2002, and the related consolidated statements of income, shareholders’ equity, and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. The financial statements of the Company for the year ended December 31, 2001 were
audited by other auditors who have ceased operations. The auditors’ report, dated January 22, 2002, on those financial statements was
unqualified and included an explanatory note that they did not audit the financial statements of Drovers Bancshares Corporation, a
company acquired during 2001 in a transaction accounted for as a pooling of interests.

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

In our opinion, the 2003 and 2002 consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Fulton Financial Corporation and subsidiaries as of December 31, 2003 and 2002, and the results of their
operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United
States of America.

Harrisburg, Pennsylvania
March 5, 2004

Fulton Financial Corporation

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders of Fulton Financial Corporation

We have audited the accompanying consolidated balance sheets of Fulton Financial Corporation (a Pennsylvania corporation) and
subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not
audit the financial statements of Drovers Bancshares Corporation, a company acquired during 2001 in a transaction accounted for as a
pooling of interests, as discussed in Note O. Such statements are included in the consolidated financial statements of Fulton Financial
Corporation and reflect total assets of 10 percent in 2000 and interest income of 11 percent and 10 percent in 2000 and 1999,
respectively, of the consolidated totals. These statements were audited by other auditors whose report has been furnished to us and our
opinion, insofar as it relates to amounts included for Drovers Bancshares Corporation, is based solely upon the report of the other
auditors.

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

In our opinion, based on our audits and the report of the other auditors, the financial statements referred to above present fairly, in all
material respects, the financial position of Fulton Financial Corporation and subsidiaries as of December 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with
accounting principles generally accepted in the United States.

Lancaster, Pennsylvania
January 22, 2002

NOTE: This report represents a copy of the predecessor auditor's report included in the Company's Form 10-K for the year ended
December 31, 2001 and does not represent a reissuance of the report.

Fulton Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

Basis of Financial Statement Presentation: The consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States and include the accounts of the Parent Company and all wholly-owned
subsidiaries. All significant intercompany accounts and transactions have been eliminated. The preparation of financial statements in
accordance with accounting principles generally accepted in the United States requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of
the financial statements as well as revenues and expenses during the period. Actual results could differ from those estimates.

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

Securities are evaluated periodically to determine whether a decline in their value is other than temporary. Declines in value that are
determined to be other than temporary are recorded as realized losses.

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

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

Fulton Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

Impaired loans, as defined by Statement of Financial Accounting Standards No. 114, “Accounting by Creditors for Impairment of a
Loan” (Statement 114), are measured based on the present value of expected future cash flows discounted at the loan's effective
interest rate, or at the loan's observable market price or fair value of the collateral if the loan is collateral dependent. A loan is
considered to be impaired when, based on current information and events, it is probable that the Corporation will be unable to collect
all amounts due according to the contractual terms of the loan agreement.

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

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

Premises and Equipment: Premises and equipment are stated at cost, less accumulated depreciation and amortization. The provision
for depreciation and amortization is generally computed using the straight-line method over the estimated useful lives of the related
assets, which are a maximum of 50 years for buildings and improvements and eight years for furniture and equipment. Interest costs
incurred during the construction of major bank premises are capitalized. During 2001 the Corporation capitalized approximately
$390,000 in interest expense related to the construction of new office space at its headquarters location.

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

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

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

Stock-Based Compensation: The Corporation accounts for its stock options in accordance with Accounting Principles Board
Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25). As such, no compensation expense has been recognized as
stock options are granted with an exercise price equal to the fair market value of the Corporation’s stock. Pro-forma disclosures of the

Fulton Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

impact of stock option grants on the Corporation’s net income and net income per share, had compensation expense been recognized,
are provided in Note M, “Stock-based Compensation Plans and Shareholders’ Equity”, as required by Statement of Financial
Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (Statement 123).

In December 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 148,
“Accounting for Stock-Based Compensation – Transition and Disclosure” (Statement 148). Statement 148 clarifies the accounting for
options issued in prior periods when a company elects to transition from APB 25 accounting to Statement 123 accounting. It also
requires additional disclosures with respect to accounting for stock-based compensation. The Corporation has elected to continue
application of APB 25 in accounting for its stock-based compensation plans and, accordingly, the transition accounting provided by
Statement 148 had no impact on the Corporation’s financial statements. All required disclosures have been provided in Note M.

Net Income Per Share: The Corporation’s basic net income per share is calculated as net income divided by the weighted average
number of shares outstanding. For diluted net income per share, net income is divided by the weighted average number of shares
outstanding plus the incremental number of shares added as a result of converting common stock equivalents, calculated using the
treasury stock method. The Corporation’s common stock equivalents consist solely of outstanding stock options. Excluded from the
calculation were anti-dilutive options totaling 456,000 in 2002 and 2001.

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

Weighted average shares outstanding (basic) .............................
Impact of common stock equivalents..........................................
Weighted average shares outstanding (diluted) ..........................

106,922
826
107,748

107,768
707
108,475

108,408
728
109,136

2003

2002
(in thousands)

2001

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

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

Business Combinations and Intangible Assets: In June 2001, the FASB issued Statements of Financial Accounting Standards Nos.
141, “Business Combinations” (Statement 141) and 142 “Goodwill and Other Intangible Assets” (Statement 142). Statement 141
requires that the purchase method of accounting be used for all business combinations and eliminated the use of pooling of interests
for transactions initiated subsequent to June 30, 2001. Statement 142 eliminated the amortization to expense of goodwill recorded as a
result of such combinations, but requires goodwill to be evaluated for impairment at least annually. Write-downs of the balance, if
necessary, are to be charged to the results of operations in the period in which the impairment is determined. Goodwill existing prior
to the issuance of the statement was required to be amortized through December 31, 2001.

The Corporation performed its initial test of goodwill impairment upon adoption of Statement 142 on January 1, 2002 and its annual
tests of goodwill impairment on October 31, 2003 and 2002. Based on the results of these tests the Corporation concluded that there
was no impairment and no write-downs were recorded. As a result adopting Statement 142, the Corporation was not required to
recognize $2.7 million of goodwill amortization in 2002, for a net benefit of $0.03 per share (basic and diluted).

Fulton Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In October 2002, the FASB issued Statement 147, “Acquisitions of Certain Financial Institutions”, which allowed the excess purchase
price recorded in qualifying branch acquisitions to be treated in the same manner as Statement 142 goodwill. Upon adoption of
Statement 147, its provisions were applied retroactively to the January 1, 2002 adoption date for Statement 142. As a result of
adopting Statement 147, the Corporation was not required to recognize $1.0 million of goodwill amortization in 2002 ($677,000, net
of taxes), for a net benefit of $0.01 per share (basic and diluted). See Note F, “Goodwill and Intangible Assets” for additional
disclosures.

Variable Interest Entities: In January 2003, the Financial Accounting Standards Board issued FASB Interpretation No. 46,
“Consolidation of Variable Interest Entities – An Interpretation of ARB No. 51”, which was revised in December 2003 (FIN-46).
FIN-46 provides guidance on when to consolidate certain Variable Interest Entities (VIE’s) in the financial statements of the
Corporation. VIE’s are entities in which equity investors do not have a controlling financial interest or do not have sufficient equity at
risk for the entity to finance activities without additional financial support from other parties. Under FIN-46, a company must
consolidate a VIE if the company has a variable interest that will absorb a majority of the VIE’s losses, if they occur, and/or receive a
majority of the VIE’s residual returns, if they occur. For the Corporation, FIN-46 affects corporation-obligated mandatorily
redeemable capital securities of subsidiary trust (Trust Preferred Securities) and its investments in low and moderate income housing
partnerships.

Trust Preferred Securities had historically been presented as minority interests in the Corporation’s Consolidated Balance Sheet. With
the adoption of the related FIN-46 provisions, as interpreted by the Securities and Exchange Commission, Trust Preferred Securities
were deconsolidated from the Consolidated Balance Sheet as of December 31, 2003, with no restatement of prior periods. The impact
of this deconsolidation was to increase long-term debt and reduce corporation-obligated mandatorily redeemable capital securities of
subsidiary trust by $33.5 million. There was no impact of the deconsolidation on net income or net income per share. Prospectively,
expense related to these issuances will be recorded as interest expense on long-term debt rather than minority interest expense.

Current regulatory capital rules allow Trust Preferred Securities to be included as a component of regulatory capital. This treatment
has continued despite the deconsolidation of these instruments for financial reporting purposes. If banking regulators make a
determination that Trust Preferred Securities can no longer be considered in regulatory capital, the securities become callable and the
Corporation may redeem them. See additional disclosures in Note I, “Short-Term Borrowings and Long-term Debt”.

Investments in low and moderate income partnerships (LIH investments) are amortized under the effective interest method over the
life of the Federal income tax credits generated as a result of such investments, generally ten years. At December 31, 2003 and 2002,
the Corporation’s LIH Investments totaled $40.0 million and $38.6 million, respectively. The net income tax benefit associated with
these investments was $4.0 million in 2003 and 2002 and $3.6 million in 2001.

FIN-46 was effective as of December 31, 2003 for new LIH Investments made by the Corporation on or after January 31, 2003 and is
effective March 31, 2004 for all other partnerships. No LIH Investments were consolidated as of December 31, 2003. The
Corporation is currently reviewing all of its LIH Investments to determine whether any or all must be consolidated in the
Corporation’s financial statements in the future. Management cannot reasonably estimate the impact of the potential consolidation of
LIH Investments on the financial statements of the Corporation at this time.

Reclassifications and Restatements: Certain amounts in the 2002 and 2001 consolidated financial statements and notes have been
reclassified to conform to the 2003 presentation. All share and per-share data have been restated to reflect the impact of the 5% stock
dividend paid in May 2003.

NOTE B - RESTRICTIONS ON CASH AND DUE FROM BANKS

The Corporation's subsidiary banks are required to maintain reserves, in the form of cash and balances with the Federal Reserve Bank,
against their deposit liabilities. The average amount of such reserves during 2003 and 2002 was approximately $94.4 million and
$64.8 million, respectively.

Fulton Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE C - INVESTMENT SECURITIES

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

2003 Held to Maturity

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair
Value

(in thousands)

U.S. Government and
agency securities............................. $
State and municipal securities .............
Corporate debt securities .....................
Mortgage-backed securities.................

2003 Available for Sale

Equity securities .................................. $
U.S. Government and
agency securities.............................
State and municipal securities .............
Corporate debt securities .....................
Mortgage-backed securities.................

82,178
291,244
28,772
2,285,845
$ 2,885,301

2002 Held to Maturity

U.S. Government and
agency securities............................. $
State and municipal securities .............
Debt securities issued
by foreign governments..................
Mortgage-backed securities.................

8,568
4,679

50
19,387
32,684

2002 Available for Sale

7,728
4,462
640
10,163
22,993

158
87
1
541
787

(41)
-
-
-
(41)

7,845
4,549
641
10,704
23,739

197,262

15,597

(507)

212,352

261
7,115
292
9,109
32,374

259
123

-
1,069
1,451

-
(329)
(408)
(12,274)
(13,518)

82,439
298,030
28,656
2,282,680
$ 2,904,157

-
-

8,827
4,802

50
20,456
34,135

Equity securities .................................. $
U.S. Government and
agency securities.............................
State and municipal securities .............
Other debt securities ............................
Mortgage-backed securities.................

152,985

8,948

(6,795)

155,138

96,112
241,451
300
1,839,240
$ 2,330,088

1,196
8,422
-
41,810
60,376

(4)
(7)
-
(51)
(6,857)

97,304
249,866
300
1,880,999
$ 2,383,607

Fulton Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The amortized cost and estimated fair value of debt securities at December 31, 2003 by contractual maturity are shown in the
following table. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.

Held to Maturity

Available for Sale

Amortized
Cost

Estimated
Fair Value

Amortized
Cost

Estimated
Fair Value

(in thousands)

Due in one year or less........................... $
Due from one year to five years.............
Due from five years to ten years ............
Due after ten years .................................

Mortgage-backed securities ...................

3,253
5,626
3,635
316
12,830
10,163
22,993

3,281
5,670
3,684
400
13,035
10,704
23,739

76,203
158,600
128,164
39,227
402,194
2,285,845
$ 2,688,039

76,509
162,503
129,786
40,327
409,125
2,282,680
$ 2,691,805

Gains totaling $17.3 million, $7.4 million and $9.6 million were realized on the sale of equity securities during 2003, 2002 and 2001,
respectively. Gains totaling $5.9 million, $1.6 million and $3.0 million were realized on the sale of available for sale debt securities
during 2003, 2002 and 2001, respectively. Losses of $3.3 million and $340,000 were recognized in 2003 and 2002 respectively, for
equity investments exhibiting other than temporary impairment.

Securities carried at $1.2 billion and $937.1 million at December 31, 2003 and 2002, respectively, were pledged as collateral to secure
public and trust deposits, and for other purposes.

The following table presents the gross unrealized losses and fair values of investments, aggregated by investment category and length
of time that individual securities have been in a continuous unrealized loss position, at December 31, 2003:

Less Than 12 months
Estimated Unrealized
Fair Value

Losses

12 Months or Longer
Estimated Unrealized
Fair Value

Losses

Total
Estimated Unrealized
Fair Value

Losses

U.S. Government and agency securities ............ $
State and municipal securities............................
Corporate debt securities ...................................
Mortgage-backed securities ...............................
Total debt securities ......................................
Equity securities.................................................
Total.............................................................. $ 1,325,867 $

30,558
-
1,289,116
1,320,786
5,081

1,112 $

(37) $

(329)
-
(12,274)
(12,640)
(255)
(12,895) $

(in thousands)
254 $
-
7,959
-
8,213
3,067
11,280 $

1,366 $

(4) $
-
(408)
-
(412)
(252)
(664) $ 1,337,147 $

30,558
7,959
1,289,116
1,328,999
8,148

(41)
(329)
(408)
(12,274)
(13,052)
(507)
(13,559)

Mortgage-backed securities consist of five and seven-year balloon pools issued by the Federal Home Loan Mortgage Corporation
(FHLMC) and the Federal National Mortgage Association (FNMA). The majority of the securities shown in the above table were
purchased during 2003 when mortgage rates were at historical lows. Unrealized losses on these securities at December 31, 2003
resulted from an increase in market rates during the third and fourth quarters of 2003. Because FHLMC and FNMA guarantee the
payment of principal, the credit risk for these securities is minimal and, as such, no impairment write-offs were considered to be
necessary.

Fulton Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE D - LOANS AND ALLOWANCE FOR LOAN LOSSES

Gross loans are summarized as follows as of December 31:

2003

2002

(in thousands)

Commercial, financial and agricultural .................................................. $ 1,948,968
Real estate-construction .........................................................................
307,109
Real estate-mortgage:
First and second-residential.................................................................
Commercial .........................................................................................
Consumer ...............................................................................................
Leasing and other ...................................................................................

Unearned income....................................................................................

$ 1,679,100
248,565

1,244,783
1,527,143
543,040
84,063
5,326,694
(9,626)
$ 5,317,068

1,324,611
1,992,650
516,587
77,646
6,167,571
(7,577)
$ 6,159,994

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

2003

2002
(in thousands)

2001

Balance at January 1..................................................... $

71,920

71,872

65,640

Loans charged off.........................................................
Recoveries of loans previously charged off .................
Net loans charged off ..............................................

Provision for loan losses ..............................................
Allowance purchased ...................................................

(13,228)
3,829
(9,399)

9,705
5,474

(15,670)
3,818
(11,852)

11,900
-

(14,275)
3,837
(10,438)

14,585
2,085

Balance at December 31............................................... $

77,700

71,920

71,872

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

Nonaccrual loans .................................................................................... $
Accruing loans greater than 90 days past due ........................................
Other real estate owned ..........................................................................

2003

2002

(in thousands)

22,422
9,609
585
32,616

24,090
14,095
938
39,123

Interest of approximately $1.8 million, $1.7 million and $1.9 million was not recognized as interest income due to the non-accrual
status of loans during 2003, 2002 and 2001, respectively.

The recorded investment in loans that were considered to be impaired as defined by Statement 114 was $65.7 million and $42.8
million at December 31, 2003 and 2002, respectively. At December 31, 2003 and 2002, $8.9 million of impaired loans were included
in non-accrual loans. At December 31, 2003 and 2002, impaired loans had related allowances for loan losses of $21.2 million and

Fulton Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

$9.0 million, respectively. The average recorded investment in impaired loans during the years ended December 31, 2003, 2002 and
2001 was approximately $57.6 million, $40.2 million, and $21.1 million, respectively.

The Corporation applies all payments received on non-accruing impaired loans to principal until such time as the principal is paid off,
after which time any additional payments received are recognized as interest income. Payments received on accruing impaired loans
are applied to principal and interest according to the original terms of the loan. The Corporation recognized interest income of
approximately $2.4 million, $1.7 million and $980,000 on impaired loans in 2003, 2002 and 2001, respectively.

The Corporation has extended credit to the officers and directors of the Corporation and to their associates. Related-party loans are
made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable
transactions with unrelated persons and do not involve more than the normal risk of collectibility. The aggregate dollar amount of
these loans, including unadvanced commitments, was $169.9 million and $147.8 million at December 31, 2003 and 2002,
respectively. During 2003, $47.3 million of new advances were made and repayments totaled $25.2 million.

The total portfolio of mortgage loans serviced by the Corporation for unrelated third parties at December 31, 2003 and 2002 was $1.1
billion and $1.0 billion, respectively.

NOTE E - PREMISES AND EQUIPMENT

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

Land........................................................................................................ $
Buildings and improvements..................................................................
Furniture and equipment ........................................................................
Other.......................................................................................................

Less: Accumulated depreciation and amortization.................................

2003

2002

(in thousands)

18,626
131,971
92,468
1,909
244,974
(124,197)
120,777

16,635
133,173
87,567
2,722
240,097
(116,647)
123,450

NOTE F – GOODWILL AND INTANGIBLE ASSETS

The following table summarizes goodwill and intangible assets at December 31:

2003

2002

(in thousands)

Core deposit intangible assets ................................................................ $
Unidentifiable intangible assets..............................................................
Accumulated amortization......................................................................
Total Intangible Assets ......................................................................
Goodwill.................................................................................................
Total Goodwill and Intangible Assets ............................................... $

19,546
5,082
(7,034)
17,594
127,202
144,796

11,146
5,082
(4,979)
11,249
61,048
72,297

Fulton Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the changes in goodwill:

2003

2002
(in thousands)

2001

Balance at beginning of year ........................................ $
Goodwill acquired ........................................................
Reclassified goodwill ...................................................
Reversal of negative goodwill......................................
Amortization expense...................................................
Balance at end of year .................................................. $

61,048
66,154
-
-
-
127,202

38,900
-
21,300
848
-
61,048

25,764
15,863
-
-
(2,727)
38,900

Reclassified goodwill consists of certain branch acquisition unidentifiable intangible assets that were accounted for as unidentifiable
intangible assets prior to the adoption of Statement 147. Upon adoption of Statement 147, previous acquisitions giving rise to
unidentifiable intangible assets were reviewed to determine if they constituted the acquisition of a business. The June 2001 acquisition
of 18 branches was determined to be a business combination based upon the existence of the necessary inputs, processes and outputs.
Upon adoption of Statement 147 retroactively to January 1, 2002, these assets were reclassified to goodwill. Amortization expense of
$483,000, or $314,000, net of taxes, was recognized for these assets in 2001. See Note Q, “Mergers and Acquisitions” for information
regarding goodwill acquired in 2003.

The cumulative effect of adopting Statement 142 was $848,000, representing the reversal of negative goodwill balances existing at
January 1, 2002. This has been presented as other income in the Consolidated Statements of Income. The following table adjusts net
income and net income per share for the amortization expense related to Statements 142 and 147 goodwill that is no longer being
amortized (in thousands, except per-share amounts):

Net income, as reported................................................ $
Amortization of goodwill, net of taxes.........................
Reversal of negative goodwill......................................
Net income, as adjusted................................................ $

Basic net income per share, as reported ....................... $
Amortization of goodwill, net of taxes.........................
Reversal of negative goodwill......................................
Basic net income per share, as adjusted ....................... $

Diluted net income per share, as reported .................... $
Amortization of goodwill, net of taxes.........................
Reversal of negative goodwill......................................
Diluted net income per share, as adjusted .................... $

2003

138,180
-
-
138,180

1.29
-
-
1.29

1.28
-
-
1.28

2002

2001

132,948
-
(848)
132,100

1.23
-
(0.01)
1.23

1.23
-
(0.01)
1.22

113,589
3,041
-
116,630

1.05
0.03
-
1.08

1.04
0.03
-
1.07

Note: Adjusted per share amounts do not sum in all cases due to rounding.

Fulton Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Core deposit intangible assets are amortized using an accelerated method over the estimated remaining life of the acquired core
deposits. As of December 31, 2003, these assets had a weighted average remaining life of approximately eight years. Unidentifiable
intangible assets are amortized on a straight-line basis over ten years. Amortization expense related to intangible assets totaled $2.1
million, $1.8 million and $2.1 million in 2003, 2002 and 2001, respectively. Amortization expense for the next five years is expected
to be as follows (in thousands):

Year

2004 .................. $
2005 ..................
2006 ..................
2007 ..................
2008 ..................

2,852
2,614
2,433
2,308
2,160

NOTE G – MORTGAGE SERVICING RIGHTS

The following table summarizes the changes in mortgage servicing rights (MSR’s), which are included in other assets in the
Consolidated Balance Sheets:

2003

2002
(in thousands)

2001

Balance at beginning of year ........................................ $
Originations of mortgage servicing rights....................
Amortization expense...................................................
Balance at end of year .................................................. $

6,233
4,992
(2,829)
8,396

3,271
3,839
(877)
6,233

540
3,158
(427)
3,271

MSR’s represent the economic value to be derived by the Corporation based upon its existing contractual rights to service mortgage
loans that have been sold and are outstanding. Accordingly, to the extent mortgage loan prepayments occur, the value of MSR’s can
be impacted. As a result of the declining interest rate environment, the prepayment experience has been higher than expected and the
carrying value of MSR’s has been reduced accordingly through additional amortization.

Expected MSR amortization expense for the next five years, based on balances at December 31, 2003 and the expected remaining
lives of the underlying loans follows (in thousands):

Year

2004 .................. $
2005 ..................
2006 ..................
2007 ..................
2008 ..................

1,986
1,780
1,543
1,273
966

Fulton Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE H – DEPOSITS

Deposits consisted of the following as of December 31:

2003

2002

(in thousands)

Noninterest-bearing demand .................................................................. $ 1,262,214
Interest-bearing demand .........................................................................
1,289,946
Savings and money market accounts .....................................................
1,751,475
Time deposits .........................................................................................
2,448,148
$ 6,751,783

$ 1,118,227
1,061,277
1,529,117
2,536,907
$ 6,245,528

Included in time deposits were certificates of deposit equal to or greater than $100,000 of $451.0 million and $420.2 million at
December 31, 2003 and 2002, respectively. The scheduled maturities of time deposits as of December 31, 2003 were as follows (in
thousands):

Year

2004 .................. $ 1,273,905
531,108
2005 ..................
230,914
2006 ..................
228,162
2007 ..................
77,822
2008 ..................
106,237
Thereafter..........
$ 2,448,148

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

Short-term borrowings at December 31, 2003, 2002 and 2001 and the related maximum amounts outstanding at the end of any month in
each of the three years are presented below.

2003

At December 31
2002
(in thousands)

2001

2003

Maximum Outstanding
2002
(in thousands)

2001

Federal funds purchased ......................................
Securities sold under repurchase agreements ......
FHLB overnight repurchase agreements .............
Other ....................................................................

$ 933,000
408,697
50,000
5,014
$ 1,396,711

$ 330,000
297,556
-
4,638
$ 632,194

$ 105,000
289,659
-
5,676
$ 400,335

$ 933,000
429,819
50,000
6,387

$ 330,000
347,248
-
5,640

$ 248,500
342,079
-
5,676

Fulton Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table presents information related to short-term borrowings.

2003

December 31
2002
(dollars in thousands)

2001

Amount outstanding at December 31 ............................. $ 1,396,711
Weighted average interest rate at year end .....................
0.92%
Average amount outstanding during the year ................. $
738,527
Weighted average interest rate during the year ..............
1.00%

632,194
1.16%
434,402
1.52%

400,335
1.75%
355,953
3.68%

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

Federal Home Loan Bank advances ....................................................... $
Junior subordinated deferrable interest debentures ................................
Other long-term debt ..............................................................................

2003

2002

(in thousands)

532,344
33,509
2,877
568,730 $

531,478
-
4,077
535,555

The Parent Company owns all of the common stock of three Delaware business trusts, which have issued Trust Preferred Securities in
conjunction with the Parent Company issuing junior subordinated deferrable interest debentures to the trusts. The terms of the junior
subordinated deferrable interest debentures are the same as the terms of the Trust Preferred Securities. The Parent Company’s
obligations under the debentures constitute a full and unconditional guarantee by the Parent Company of the obligations of the trusts.
The preferred securities are redeemable on specified dates, or earlier if the deduction of interest for Federal income taxes is
prohibited, the Trust Preferred Securities no longer qualify as Tier I capital, or if certain other contingencies arise. The Trust Preferred
Securities must be redeemed upon maturity.

As a result of the deconsolidation of the trusts upon adoption of FIN-46 on December 31, 2003, the Trust Preferred Securities are no
longer shown as minority interests in the Consolidated Balance Sheets and the junior subordinated deferrable interest debentures are
included in long-term debt. The following table details the terms of the debentures (dollars in thousands):

Debentures Issued to

Rate

Amount

Maturity

Callable

Drovers Capital Trust I ................ 9.25%
Premier Capital Trust................... 8.57
PBI Capital Trust II...................... Variable

7,735
10,310
15,464
33,509

9/30/29
8/15/28
11/7/32

9/30/04
8/15/08
11/7/07

Fulton Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Federal Home Loan Bank advances mature through May 2014 and carry a weighted average interest rate of 4.95%. As of December
31, 2003, the Corporation had an additional borrowing capacity of approximately $1.1 billion with the Federal Home Loan Bank.
Advances from the Federal Home Loan Bank are secured by qualifying residential mortgages, investments and other assets. The
following table summarizes the scheduled maturity periods of Federal Home Loan Bank advances and junior subordinated deferrable
interest debentures as of December 31, 2003 (in thousands):

Year

2004 .................. $
2005 ..................
2006 ..................
2007 ..................
2008 ..................
Thereafter..........

5,000
85,180
15,000
55,169
206,000
199,504
$ 565,853

NOTE J - REGULATORY MATTERS

Dividend and Loan Limitations
The dividends that may be paid by subsidiary banks to the Parent Company are subject to certain legal and regulatory limitations.
Under such limitations, the total amount available for payment of dividends by subsidiary banks was approximately $160 million at
December 31, 2003.

Under current Federal Reserve regulations, the subsidiary banks are limited in the amount they may loan to their affiliates, including
the Parent Company. Loans to a single affiliate may not exceed 10%, and the aggregate of loans to all affiliates may not exceed 20%
of each bank subsidiary's regulatory capital. At December 31, 2003, the maximum amount available for transfer from the subsidiary
banks to the Parent Company in the form of loans and dividends was approximately $220 million.

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

Quantitative measures established by regulation to ensure capital adequacy require the subsidiary banks to maintain minimum
amounts and ratios of total and Tier I capital to risk-weighted assets, and of Tier I capital to average assets (as defined in the
regulations). Management believes, as of December 31, 2003, that all of its bank subsidiaries meet the capital adequacy requirements
to which they are subject.

As of December 31, 2003 and 2002, the Corporation's five significant subsidiaries, Fulton Bank, Lebanon Valley Farmers Bank,
Lafayette Ambassador Bank, The Bank and Premier Bank were well capitalized under the regulatory framework for prompt corrective
action based on their capital ratio calculations. To be categorized as well capitalized, these banks must maintain minimum total risk-
based, Tier I risk-based, and Tier I leverage ratios as set forth in the following table. There are no conditions or events since
December 31, 2003 that management believes have changed the institutions' categories.

Fulton Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables present the total risk-based, Tier I risk-based and Tier I leverage requirements for the Corporation and its
significant subsidiaries.

As of December 31, 2003

Actual

Amount

Ratio

For Capital
Adequacy Purposes
Ratio
Amount
(dollars in thousands)

Well-Capitalized
Ratio
Amount

Total Capital (to Risk Weighted Assets):

Corporation .................................................... $
Fulton Bank....................................................
Lebanon Valley Farmers Bank.......................
Lafayette Ambassador Bank ..........................
The Bank ........................................................
Premier Bank..................................................

Tier I Capital (to Risk Weighted Assets):

Tier I Capital (to Average Assets):

899,512
363,827
60,714
89,046
78,769
40,582

815,021
328,868
55,142
79,810
71,506
34,515

12.7% $ 564,986
278,843
10.4
42,428
11.4
66,405
10.7
56,583
11.1
29,223
11.4

11.5% $ 282,493
139,421
21,214
33,203
28,292
14,612

9.4
10.4
9.6
10.1
9.7

8.8% $ 279,565
119,252
8.3
24,058
6.9
36,102
6.6
30,931
6.9
15,589
6.6

8.0% $ 706,233
348,553
8.0
53,035
8.0
83,007
8.0
70,729
8.0
36,529
8.0

10.0%
10.0
10.0
10.0
10.0
10.0

4.0% $ 423,740
209,132
4.0
31,821
4.0
49,804
4.0
42,437
4.0
21,917
4.0

3.0% $ 465,941
198,753
3.0
40,096
3.0
60,171
3.0
51,551
3.0
25,981
3.0

6.0%
6.0
6.0
6.0
6.0
6.0

5.0%
5.0
5.0
5.0
5.0
5.0

As of December 31, 2002

Total Capital (to Risk Weighted Assets):

Corporation ...................................................... $
Fulton Bank......................................................
Lebanon Valley Farmers Bank.........................
Lafayette Ambassador Bank ............................
The Bank ..........................................................

Tier I Capital (to Risk Weighted Assets):

Tier I Capital (to Average Assets):

837,645
353,258
64,582
84,129
79,632

764,325
320,362
58,763
75,539
72,201

13.8% $ 485,112
243,538
11.6
41,398
12.5
56,107
12.0
53,284
12.0

12.6% $ 242,556
121,769
10.5
20,699
11.4
28,053
10.8
26,642
10.8

9.4% $ 243,068
108,685
8.8
22,910
7.7
31,957
7.1
29,767
7.3

8.0% $ 606,390
304,422
8.0
51,747
8.0
70,134
8.0
66,605
8.0

10.0%
10.0
10.0
10.0
10.0

4.0% $ 363,834
182,653
4.0
31,048
4.0
42,080
4.0
39,963
4.0

3.0% $ 405,113
181,142
3.0
38,183
3.0
53,262
3.0
49,612
3.0

6.0%
6.0
6.0
6.0
6.0

5.0%
5.0
5.0
5.0
5.0

Fulton Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE K - INCOME TAXES

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

2003

Year ended December 31
2002
(in thousands)

2001

Current tax expense:
Federal.................................................................... $
State........................................................................

Deferred tax expense ...................................................

53,377
1,277
54,654
4,709
59,363

52,749
1,764
54,513
1,955
56,468

44,625
222
44,847
1,520
46,367

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

Year ended December 31
2002

2001

2003

Statutory tax rate .........................................................
Effect of tax-exempt income .......................................
Effect of low income housing investments..................
State income taxes, net of Federal benefit...................
Other............................................................................
Effective income tax rate.............................................

35.0%
(3.2)
(2.0)
0.4
(0.1)
30.1%

35.0%
(3.2)
(2.1)
0.6
(0.5)
29.8%

35.0%
(3.4)
(2.6)
0.1
(0.1)
29.0%

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

2003

2002

(in thousands)

Deferred tax assets:
Allowance for loan losses.................................................................. $
Deferred compensation......................................................................
Investments in low income housing ..................................................
Post-retirement benefits.....................................................................
Other accrued expenses .....................................................................
Fixed asset depreciation ....................................................................
Other than temporary impairment writedown of investments ...........
Other..................................................................................................
Total gross deferred tax assets......................................................

Deferred tax liabilities:
Direct leasing.....................................................................................
Unrealized holding gains on securities available for sale..................
Mortgage servicing rights..................................................................
Fixed asset depreciation ....................................................................
Intangible assets ................................................................................
Other..................................................................................................
Total gross deferred tax liabilities ................................................

27,195
3,776
2,951
3,318
1,406
-
1,285
767
40,698

9,877
6,620
2,939
1,304
1,811
1,240
23,791

25,172
3,638
3,063
3,266
1,671
809
-
1,144
38,763

8,759
18,732
2,181
-
-
876
30,548

Net deferred tax asset ................................................................... $

16,907

8,215

Fulton Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2003 and 2002, the Corporation had not established any valuation allowance against deferred tax assets since
these tax benefits are realizable either through carry-back availability against prior years' taxable income or the reversal of existing
deferred tax liabilities.

NOTE L – EMPLOYEE BENEFIT PLANS

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

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

Defined Benefit Pension Plans and 401(k) Plans – The Corporation maintains two defined benefit plans, the Fulton Financial
Affiliates’ Defined Benefit Pension Plan and the Drovers & Mechanics Pension Plan (Pension Plans). Contributions to the Pension
Plans are actuarially determined and funded annually. Plan assets are invested in money markets, fixed income securities, including
corporate bonds, U.S. Treasury securities and common trust funds, and equity securities, including common stocks and common stock
mutual funds. The Pension Plans have been closed to new participants, but existing participants continue to accrue benefits according
to the terms of the plan. As of January 1, 2004, the Pension Plans were merged into one plan.

Employees covered under the Pension Plans are also eligible to participate in the Fulton Financial Affiliates 401(k) Savings Plan. The
401(k) Plan generally allows employees to defer up to $11,000 of their pre-tax salary on an annual basis. At its discretion, the
Corporation may also make a matching contribution up to 3%.

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

Profit Sharing Plan....................................................... $
Pension Plans ...............................................................
401(k) Plan...................................................................

2003

2002
(in thousands)

2001

6,606
3,025
596
10,227

6,220
1,812
667
8,699

5,050
989
597
6,636

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

2003

2002
(in thousands)

2001

Service cost – benefits earned during period ............... $
Interest cost on projected benefit obligation ................
Actual return on assets .................................................
Net amortization and deferral ......................................
Net periodic pension cost............................................. $

2,178
2,952
(4,337)
2,232
3,025

1,954
2,653
2,086
(4,881)
1,812

1,873
2,472
3,103
(6,459)
989

Fulton Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Plan Year Ended
September 30

2003

2002

(in thousands)

Projected benefit obligation, beginning.............................................. $

43,886

37,207

Service cost ............................................................................................
Interest cost ............................................................................................
Benefit payments ....................................................................................
Actuarial loss..........................................................................................
Amendments...........................................................................................
Experience (gain) loss ............................................................................

2,178
2,952
(1,666)
5,309
-
(377)

Projected benefit obligation, ending ................................................... $

52,282

Fair value of plan assets, beginning .................................................... $

33,288

Employer contributions ..........................................................................
Actual return on assets ...........................................................................
Benefit payments ....................................................................................

2,021
4,337
(1,666)

1,954
2,653
(1,699)
3,644
93
34

43,886

35,433

1,640
(2,086)
(1,699)

Fair value of plan assets, ending ......................................................... $

37,980

33,288

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

2003

2002

(in thousands)

Projected benefit obligation.................................................................... $
Fair value of plan assets .........................................................................
Funded status.....................................................................................

Unrecognized net transition asset...........................................................
Unrecognized prior service cost .............................................................
Unrecognized net loss ............................................................................
Pension liability recognized in the
consolidated balance sheets............................................................... $

(52,282)
37,980
(14,302)

(64)
93
12,645

(1,628)

Accumulated benefit obligation ............................................................. $

39,124

(43,886)
33,288
(10,598)

(77)
109
9,942

(624)

31,868

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

Discount rate-projected benefit obligation ...................
Rate of increase in compensation level ........................
Expected long-term rate of return on plan assets .........

2003
6.00%
4.50
8.00

2002
6.75%
5.00
8.00

2001
7.25%
5.00
8.00

Fulton Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Cash and equivalents.....................................................
Equity securities ............................................................
Fixed income securities.................................................

2003

9.0%

51.0
40.0

2002
9.0%

45.0
46.0

Total .........................................................................

100.0%

Equity securities consist mainly of equity common trust and mutual funds. Fixed income securities consist mainly of fixed income
common trust funds. Defined benefit plan assets are invested with a balanced growth objective, with target asset allocations between
40 and 70 percent for equity securities and 30 to 60 percent for fixed income securities. The Corporation expects to contribute $2.6
million to the pension plan in 2004.

The 8.0% long-term rate of return on plan assets used to calculate the net periodic pension cost and present value of benefit
obligations is based on historical returns. Although plan assets generated a negative return in 2002 and 2001, the expected long-term
return is considered to be appropriate based on the asset mix and the historical returns realized.

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

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

2003

2002
(in thousands)

2001

Service cost-benefits earned during the period ............ $
Interest cost on accumulated
post-retirement benefit obligation ...........................
Actual return on plan assets..........................................
Net amortization and deferral.......................................
Net nonpension post-retirement benefit cost ................ $

281

260

240

446
(2)
(287)
438

444
(3)
(298)
403

393
(7)
(375)
251

Fulton Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

2003

2002

(in thousands)

Accumulated post-retirement benefit obligation, beginning ............ $

7,104

5,798

Service cost ............................................................................................
Interest cost ............................................................................................
Benefit payments ....................................................................................
Change due to change in experience ......................................................
Change due to change in assumptions....................................................

281
446
(324)
(301)
609

Accumulated post-retirement benefit obligation, ending ................. $

7,815

Fair value of plan assets, beginning .................................................... $

171

316
2
(324)

Fair value of plan assets, ending ......................................................... $

165

260
444
(263)
509
356

7,104

185

246
3
(263)

171

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

Accumulated post-retirement benefit obligation .................................... $
Fair value of plan assets .........................................................................
Funded status.....................................................................................

Unrecognized prior service cost .............................................................
Unrecognized net gain............................................................................
Post-retirement benefits liability recognized
in the consolidated balance sheets..................................................... $

2003

2002

(in thousands)

(7,815)
165
(7,650)

(905)
(586)

(7,104)
171
(6,933)

(1,132)
(955)

(9,141)

(9,020)

For measuring the post-retirement benefit obligation, the annual increase in the per capita cost of health care benefits was assumed to
be 9.0% in year one, declining to an ultimate rate of 4.5% by year nine. This health care cost trend rate has a significant impact on the
amounts reported. Assuming a 1.0% increase in the health care cost trend rate above the assumed annual increase, the accumulated
post-retirement benefit obligation would increase by approximately $929,000 and the current period expense would increase by
approximately $99,000. Conversely, a 1% decrease in the health care cost trend rate would decrease the accumulated post-retirement
benefit obligation by approximately $777,000 and the current period expense by approximately $82,000.

The discount rate used in determining the accumulated post-retirement benefit obligation was 6.00% at December 31, 2003 and
6.75% at December 31, 2002. The expected long-term rate of return on plan assets was 3.00% at December 31, 2003 and 2002.

In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“Medicare Bill”) was signed into
law. The Medicare Bill expands Medicare benefits, primarily by adding a prescription drug benefit for Medicare-eligible retirees
beginning in 2006. FASB Staff Position 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003” permits deferring the recognition of the new Medicare provisions' impact due to lack
of specific authoritative guidance on accounting for the Federal subsidy. The Corporation has elected to defer accounting for the
effects of this new legislation until the specific authoritative guidance is issued. Accordingly, the post-retirement benefit obligations

Fulton Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

and net periodic costs reported in the accompanying financial statements and notes do not reflect the impact of this legislation.
Adoption of this standard when final guidance is issued is not expected to have a material impact on the Corporation’s financial
statements.

NOTE M- STOCK-BASED COMPENSATION PLANS AND SHAREHOLDERS' EQUITY

Incentive Stock Option Plan and Employee Stock Purchase Plan
The Corporation has an Incentive Stock Option Plan (Option Plan) and an Employee Stock Purchase Plan (ESPP). Under the Option
Plan, options are granted to key personnel for terms of up to 10 years at option prices equal to the fair market value of the
Corporation's stock on the date of grant. Options are 100% vested immediately upon grant. The Plan has reserved 232,000 additional
shares for future grant through 2006. The number of options granted in any year is dependent upon the Corporation's performance
relative to that of a self-defined peer group. A summary of stock option activity under the current and prior plan follows:

Balance at January 1, 2001...................
Granted ...............................................
Exercised ............................................
Canceled .............................................
Balance at December 31, 2001.............
Granted ...............................................
Exercised ............................................
Canceled .............................................
Balance at December 31, 2002.............
Granted .............................................
Exercised ...........................................
Canceled ............................................
Assumed from Premier ....................
Balance at December 31, 2003...........

Option Price Per Share

Stock
Options

2,987,301
455,306
(492,899)
(26,274)
2,923,434
455,228
(375,470)
(6,454)
2,996,738
458,850
(403,821)
(32,192)
311,747
3,331,322

Range

$ 2.40 - $ 15.60
15.60

2.40 - 15.60
10.13 - 15.60
2.40 - 15.60

18.41

5.38 - 15.60
9.96 - 15.60
2.40 - 18.41
19.90 - 20.16
2.40 - 19.90
13.64 - 18.40
2.49 -
8.71
2.49 - 20.16

Weighted
Average

$ 10.65
15.60
8.11
14.92
11.80
18.41
9.17
12.52
13.13
19.90
7.80
14.87
4.47
13.88

Exercisable at December 31, 2003.....

3,290,958

2.49 - 20.16

13.96

The following table summarizes information concerning options outstanding at December 31, 2003:

Range of
Exercise
Prices
$ 0.00 - $ 5.00
$ 5.00 - $10.00
$10.00 - $15.00
$15.00 - $20.00
$20.00 - $25.00

Total
Unexercised
Stock
Options

202,504
694,909
807,045
1,624,864
2,000

Weighted
Average
Remaining
Life (Years)
3.02
1.29
4.67
7.86
9.67

Weighted
Average
Exercise
Price
3.39
8.06
14.10
17.57
20.16

Exercisable
Stock
Options

202,504
654,545
807,045
1,624,864
2,000

3,331,322

5.42

$ 13.88

3,290,958

Fulton Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The ESPP allows eligible employees to purchase stock of the Corporation at 85% of the fair market value of the stock on the date of
exercise. Under the terms of the ESPP, 83,000 shares, 87,000 shares and 93,000 shares were issued in 2003, 2002 and 2001,
respectively. A total of 1.5 million shares have been issued since the inception of the ESPP in 1986. As of December 31, 2003,
383,000 shares have been reserved for future issuances under the ESPP.

The Corporation accounts for both the Option Plan and the ESPP under APB 25 and, accordingly, no compensation expense is
reflected in net income. Had compensation cost for these plans been recorded consistent with the fair value provisions of Statements
123 and 148, the Corporation’s net income and net income per share would have been reduced to the following pro-forma amounts:

Net income as reported ........................................................ $
Stock-based employee compensation expense
under the fair value method, net of tax .....................
Pro-forma net income ......................................................... $

Net income per share (basic) ............................................... $
Pro-forma net income per share (basic)...............................

Net income per share (diluted) ............................................ $
Pro-forma net income per share (diluted) ............................

2001
2002
2003
(in thousands, except per-share data)

138,180

132,948

113,589

1,813
136,367

1.29
1.28

1.28
1.27

1,993
130,955

1.23
1.22

1.23
1.21

1,828
117,761

1.05
1.03

1.04
1.02

4.00

Weighted average fair value of options granted .................. $

4.03

4.48

The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model and the following
assumptions:

Risk-free interest rate ...............................................................
Volatility of Corporation’s stock .............................................
Expected dividend yield...........................................................
Expected life of options ...........................................................

2003

3.55%

22.75
3.22
8 Years

2002

4.78%

23.64
3.10
8 Years

2001

5.32%

23.80
3.13
8 Years

Shareholder Rights
On June 20, 1989, the Board of Directors of the Corporation declared a dividend of one common share purchase right (Original
Rights) for each outstanding share of common stock, par value $2.50 per share of the Corporation. The dividend was paid to the
shareholders of record as of the close of business on July 6, 1989. On April 27, 1999, the Board of Directors approved an amendment
to the Original Rights and the rights agreement. The significant terms of the amendment included extending the expiration date from
June 20, 1999 to April 27, 2009 and resetting the purchase price to $90.00 per share. As of December 31, 2003, the purchase price
had adjusted to $56.54 per share as a result of stock dividends.

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

Fulton Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE N – LEASES

Certain branch offices and equipment are leased under agreements that expire at varying dates through 2020. Most leases contain
renewal provisions at the Corporation's option. Total rental expense was approximately $6.4 million in 2003, $5.9 million in 2002 and
$5.1 million in 2001. Future minimum payments as of December 31, 2003 under noncancelable operating leases are as follows (in
thousands):

Year

2004................... $
2005...................
2006...................
2007...................
2008...................
Thereafter ..........

5,713
5,161
4,511
3,878
3,222
15,916
38,401

NOTE O - COMMITMENTS AND CONTINGENCIES

The Corporation is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit, which involve,
to varying degrees, elements of credit and interest rate risk that are not recognized in the Consolidated Balance Sheets.

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

Standby letters of credit are conditional commitments issued to guarantee the financial or performance obligation of a customer to a
third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to
customers.

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

Fulton Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

2003

2002

(in thousands)

Commercial mortgage, construction and land development .... $
297,156
Home equity .............................................................................
333,139
Credit card................................................................................
314,532
Commercial and other ..............................................................
1,617,108
Total commitments to extend credit .................................... $ 2,561,935

197,879
285,574
321,602
1,280,814
$ 2,085,869

Standby letters of credit............................................................ $
Commercial letters of credit .....................................................
Total letters of credit ........................................................... $

510,806
16,992
527,798

446,953
2,311
449,264

NOTE P - FAIR VALUE OF FINANCIAL INSTRUMENTS

The following are the estimated fair values of the Corporation's financial instruments as of December 31, 2003 and 2002, followed by
a general description of the methods and assumptions used to estimate such fair values. These fair values are significantly affected by
assumptions used, principally the timing of future cash flows and the discount rate. Because assumptions are inherently subjective in
nature, the estimated fair values cannot be substantiated by comparison to independent market quotes and, in many cases, the
estimated fair values could not necessarily be realized in an immediate sale or settlement of the instrument. Further, certain financial
instruments and all non-financial instruments are excluded. Accordingly, the aggregate fair value amounts presented do not
necessarily represent management's estimation of the underlying value of the Corporation.

FINANCIAL ASSETS

Book Value

Estimated
Fair Value

Book Value

Estimated
Fair Value

(in thousands)

2003

2002

Cash and due from banks .................... $
Interest-bearing deposits
with other banks .............................
Mortgage loans held for sale ...............
Securities held to maturity...................
Securities available for sale .................
Net loans..............................................
Accrued interest receivable .................

300,966

314,857

4,559
32,761
22,993
2,904,157
6,082,294
34,407

4,559
32,761
23,739
2,904,157
6,187,091
34,407

7,899
70,475
32,684
2,383,607
5,245,148
42,675

7,899
70,475
34,135
2,383,607
5,410,828
42,675

Fulton Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2003

2002

FINANCIAL LIABILITIES

Book Value

Demand and savings deposits.............. $ 4,303,635
Time deposits.......................................
2,448,148
Short-term borrowings.........................
1,396,711
Accrued interest payable .....................
24,579
Other financial liabilities .....................
26,769
Federal Home Loan Bank advances
and long-term debt.........................
Corporation-obligated mandatorily
redeemable capital securities of
subsidiary trust................................

568,730

Estimated
Fair Value

Book Value

Estimated
Fair Value

(in thousands)

$ 4,303,635
2,480,789
1,396,711
24,579
26,769

$ 3,708,621
2,536,907
632,194
27,608
33,708

$ 3,708,621
2,612,927
632,194
27,608
33,708

560,699

535,555

567,546

5,500

5,638

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

Assets

Cash and due from banks
Interest bearing deposits
Accrued interest receivable
Mortgage loans held for sale

Liabilities

Demand and savings deposits
Short-term borrowings
Accrued interest payable
Other financial liabilities

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

As indicated in Note A, securities available for sale are carried at their estimated fair values. The estimated fair values of securities
held to maturity as of December 31, 2003 and 2002 were generally based on quoted market prices, broker quotes or dealer quotes.

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

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

NOTE Q – MERGERS AND ACQUISITIONS

Premier Bancorp, Inc - On August 1, 2003, the Corporation acquired all of the outstanding common stock of Premier Bancorp, Inc.
(Premier), a $600 million financial holding company, and its wholly-owned subsidiary, Premier Bank. The total purchase price was
$92.0 million, including $2.1 million of direct acquisition costs. The Corporation issued 1.407 shares of its stock for each of the 3.4
million shares of Premier outstanding on the acquisition date. The purchase price was determined based on the value of the
Corporation’s stock on the date when the final terms of the acquisition were agreed to and announced.

Fulton Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Premier Bank is located in Doylestown, Pennsylvania and the eight community banking offices in Bucks, Northampton and
Montgomery Counties, Pennsylvania acquired by the Corporation in this transaction complement its existing retail banking network.

The acquisition was accounted for as a purchase and the Corporation’s results of operations include Premier prospectively from the
date of the acquisition. The purchase price was allocated based on estimated fair values on the acquisition date as follows (in
thousands):

Cash and due from banks............................................................... $
Other earning assets ......................................................................
Investment securities available for sale .........................................
Loans, net .....................................................................................
Premises and equipment ...............................................................
Core deposit intangible asset .........................................................
Goodwill ........................................................................................
Other assets....................................................................................

Total assets acquired.................................................................

Deposits .........................................................................................
Short-term borrowings...................................................................
Long-term debt ..............................................................................
Other liabilities ..............................................................................

Total liabilities assumed ............................................................

17,222
30,701
168,022
359,704
4,976
8,400
66,154
7,419

662,598

454,350
20,094
91,026
5,141
570,611

Net assets acquired .................................................................... $

91,987

Resource Bankshares Corporation – On August 25, 2003, the Corporation entered into a merger agreement to acquire Resource
Bankshares Corporation (Resource), of Virginia Beach, Virginia. Resource is an $870 million financial holding company whose
primary subsidiary is Resource Bank, which operates six community banking offices in Newport News, Chesapeake, Herndon,
Virginia Beach (two locations) and Richmond in Virginia. In addition, Resource operates 14 loan production and residential mortgage
offices in Virginia, North Carolina, Maryland and Florida.

Under the terms of the merger agreement, each of the approximately 6.0 million shares of Resource’s common stock will be
exchanged for 1.4667 shares of the Corporation’s common stock. In addition, each of the options to acquire Resource’s stock will be
converted to options to purchase the Corporation’s stock. The acquisition is subject to approval by bank regulatory authorities and
Resource’s shareholders, and is expected to be completed in the first half of 2004. As a result of the acquisition, Resource will be
merged into the Corporation and Resource Bank will become a wholly-owned subsidiary.

The acquisition will be accounted for as a purchase. Purchase accounting requires the Corporation to allocate the total purchase price
of the acquisition to the assets acquired and liabilities assumed, based on their respective fair values at the acquisition date, with any
remaining acquisition cost being recorded as goodwill. The resulting goodwill balance is then subject to an impairment test on at least
an annual basis. The results of Resource’s operations will be included in the Corporation’s financial statements prospectively from the
date of the acquisition.

The total purchase price is estimated to be approximately $196.0 million, which includes the value of the Corporation’s stock to be
issued, Resource stock options to be converted and certain acquisition-related costs. The net assets of Resource as of December 31,
2003 were approximately $60.0 million (unaudited) and accordingly, the purchase price exceeds the carrying value of the net assets
by $136.0 million as of this date. The total purchase price will be allocated to the net assets acquired as of the merger effective date,
based on fair market values at that date. The Corporation expects to record a core deposit intangible asset and goodwill as a result of
the acquisition accounting.

Fulton Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE R - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY

CONDENSED BALANCE SHEETS
(in thousands)

December 31

2003

2002

December 31

2003

2002

ASSETS
Cash, securities,
and other assets ........................ $
Receivable from subsidiaries.........

8,186
96

3,010
9

Investment in:
Bank subsidiaries .....................
Non-bank subsidiaries..............

775,074
235,431

709,217
211,626

Total Assets .............................. $ 1,018,787

$ 923,862

LIABILITIES AND EQUITY
Line of credit with
bank subsidiaries....................... $
Long-term debt ..............................
Payable to non-bank subsidiaries...
Other liabilities ..............................
Total Liabilities.........................
Shareholders’ equity ......................
Total Liabilities and
Shareholders’ Equity .............. $ 1,018,787

2,878
34,717
5,662
28,594
71,851
946,936

19,556
7,735
8,661
24,168
60,120
863,742

$ 923,862

CONDENSED STATEMENTS OF INCOME

2003

Year ended December 31
2002
(in thousands)

2001

Income:
Dividends from bank subsidiaries .................................................................................. $ 149,596
Other...............................................................................................................................
38,206
187,802
48,180

Expenses..............................................................................................................................
Income before income taxes and equity in
undistributed net income of subsidiaries........................................................................
Income tax benefit...............................................................................................................

$ 100,161
32,531
132,692
43,883

$ 126,897
24,417
151,314
38,772

139,622
(3,898)
143,520

88,809
(4,171)
92,980

112,542
(6,329)
118,871

Equity in undistributed net income (loss) of:
Bank subsidiaries ...........................................................................................................
(20,879)
Non-bank subsidiaries....................................................................................................
15,539
Net Income ................................................................................................................ $ 138,180

29,694
10,274
$ 132,948

(14,367)
9,085
$ 113,589

Fulton Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED STATEMENTS OF CASH FLOWS

2003

Year Ended December 31
2002
(in thousands)

2001

Cash Flows From Operating Activities:
Net Income ...................................................................................... $ 138,180

$ 132,948

$ 113,589

Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Decrease (increase) in other assets ...............................................
Decrease (increase) in investment in subsidiaries ........................
(Decrease) increase in other liabilities and
payable to non-bank subsidiaries ............................................
Total adjustments .....................................................................
Net cash provided by operating activities ................................

Cash Flows From Investing Activities:
Investment in bank subsidiaries....................................................
Net cash paid for acquisitions.......................................................
Net cash used in investing activities .........................................

Cash Flows From Financing Activities:
Net (decrease) increase in short-term borrowings ........................
Dividends paid..............................................................................
Net proceeds from issuance of common stock .............................
Acquisition of treasury stock........................................................
Net cash used in financing activities ........................................

769
5,340

(4,098)
2,011
140,191

(5,044)
-
(5,044)

(16,678)
(64,628)
5,852
(59,699)
(135,153)

Net Decrease in Cash and Cash Equivalents...................................
Cash and Cash Equivalents at Beginning of Year..........................
Cash and Cash Equivalents at End of Year .................................... $

(6)
6
-

Cash paid during the year for:
Interest ........................................................................................... $
Income taxes..................................................................................

2,469
48,924

(2,541)
(39,968)

5,249
(37,260)
95,688

(3,500)
-
(3,500)

9,056
(58,954)
3,738
(46,133)
(92,293)

(105)
111
6

1,791
49,621

706
5,282

(12,951)
(6,963)
106,626

(47,039)
(16,224)
(63,263)

(925)
(51,486)
16,795
(7,922)
(43,538)

(175)
286
111

3,319
46,633

Fulton Financial Corporation

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

FOR THE YEAR 2003
Interest income .........................
Interest expense ........................
Net interest income...................
Provision for loan losses...........
Other income ............................
Other expenses..........................
Income before income taxes.....
Income taxes .............................
Net income................................
Per-share data:
Net income (basic)...............
Net income (diluted)............
Cash dividends.....................

FOR THE YEAR 2002
Interest income .........................
Interest expense ........................
Net interest income...................
Provision for loan losses...........
Other income ............................
Other expenses..........................
Income before income taxes.....
Income taxes .............................
Net income................................
Per-share data:
Net income (basic)...............
Net income (diluted)............
Cash dividends.....................

Three Months Ended

March 31

June 30

Sept. 30

Dec. 31

110,184
34,546
75,638
2,835
31,665
55,882
48,586
14,543
34,043

0.32
0.32
0.143

117,799
41,469
76,330
2,780
26,683
54,928
45,305
13,075
32,230

0.30
0.30
0.130

107,166
32,796
74,370
2,490
34,534
58,065
48,349
14,287
34,062

0.32
0.32
0.160

118,887
39,329
79,558
2,680
26,719
56,504
47,093
14,103
32,990

0.30
0.30
0.143

105,907
32,128
73,779
2,190
37,513
59,550
49,552
15,170
34,382

0.32
0.32
0.160

117,156
39,318
77,838
4,370
31,400
56,573
48,295
14,474
33,821

0.31
0.31
0.143

112,274
31,624
80,650
2,190
33,275
60,679
51,056
15,363
35,693

0.33
0.33
0.160

115,446
38,103
77,343
2,070
30,981
57,531
48,723
14,816
33,907

0.32
0.32
0.143

Fulton Financial Corporation

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

Assets
Cash and due from banks ................................................................................................................. $
Interest-bearing deposits with other banks .......................................................................................
Mortgage loans held for sale ............................................................................................................
Investment securities:
Held to maturity (estimated fair value of $23,739 in 2003 and $34,135 in 2002) ......................
Available for sale .........................................................................................................................

Loans, net of unearned income .........................................................................................................
Less: Allowance for loan losses .................................................................................................
Net Loans .................................................................................................................

Premises and equipment ...................................................................................................................
Accrued interest receivable ..............................................................................................................
Goodwill ...........................................................................................................................................
Other assets .......................................................................................................................................

December 31

2003

2002

300,966
4,559
32,761

22,993
2,904,157

6,159,994
(77,700)
6,082,294

120,777
34,407
127,202
137,172

314,857
7,899
70,475

32,684
2,383,607

5,317,068
(71,920)
5,245,148

123,450
42,675
61,048
105,935

Total Assets .............................................................................................................. $

9,767,288

8,387,778

Liabilities
Deposits:
Noninterest-bearing ..................................................................................................................... $
Interest-bearing ............................................................................................................................
Total Deposits ..........................................................................................................

Short-term borrowings:
Federal funds purchased ...............................................................................................................
Other short-term borrowings ........................................................................................................
Total Short-Term Borrowings .................................................................................

Accrued interest payable ..................................................................................................................
Other liabilities .................................................................................................................................
Federal Home Loan Bank advances and long-term debt...................................................................
Corporation-obligated mandatorily redeemable capital securities of subsidiary trust ......................
Total Liabilities ........................................................................................................

Shareholders' Equity
Common stock, $2.50 par value, 400 million shares authorized, 113.8 million shares issued .........
in 2003 and 109.2 million shares issued in 2002..........................................................................
Additional paid-in capital .................................................................................................................
Retained earnings .............................................................................................................................
Accumulated other comprehensive income.......................................................................................
Treasury stock (5.4 million shares in 2003 and 3.1 million shares in 2002).....................................
Total Shareholders' Equity ......................................................................................

1,262,214
5,489,569
6,751,783

933,000
463,711
1,396,711

24,579
78,549
568,730
-
8,820,352

284,480
633,588
117,373
12,267
(100,772)
946,936

1,118,227
5,127,301
6,245,528

330,000
302,194
632,194

27,608
77,651
535,555
5,500
7,524,036

259,943
481,028
138,501
34,801
(50,531)
863,742

Total Liabilities and Shareholders' Equity .............................................................. $

9,767,288

8,387,778

See Notes to Consolidated Financial Statements

Fulton Financial Corporation

2003

Year Ended December 31
2002

2001

341,393

370,318

424,527

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

Interest Income
Loans, including fees ...................................................................................... $
Investment securities:
Taxable ......................................................................................................
Tax-exempt ................................................................................................
Dividends ...................................................................................................
Other interest income .....................................................................................
Total Interest Income ............................................................

Interest Expense
Deposits ..........................................................................................................
Short-term borrowings ....................................................................................
Long-term debt ...............................................................................................
Total Interest Expense ...........................................................

Net Interest Income ...............................................................
Provision for Loan Losses ............................................................................
Net Interest Income After
Provision for Loan Losses ..............................................

Other Income
Investment management and trust services .....................................................
Service charges on deposit accounts ..............................................................
Other service charges and fees .......................................................................
Mortgage banking income...............................................................................
Investment securities gains .............................................................................
Other ...............................................................................................................

Other Expenses
Salaries and employee benefits ......................................................................
Net occupancy expense ..................................................................................
Equipment expense .........................................................................................
Data processing ..............................................................................................
Advertising ......................................................................................................
Merger-related expenses..................................................................................
Goodwill and intangible amortization.............................................................
Other ...............................................................................................................

Income Before Income Taxes ................................................
Income Taxes ................................................................................................

77,450
10,436
4,076
2,176
435,531

94,198
7,373
29,523
131,094

304,437
9,705

294,732

33,898
38,500
18,860
21,482
19,853
4,394
136,987

138,619
19,896
10,505
11,532
6,039
-
2,059
45,526
234,176

197,543
59,363

Net Income ............................................................................. $

138,180

Per-Share Data:
Net Income (Basic).......................................................................................... $
Net Income (Diluted).......................................................................................
Cash Dividends ...............................................................................................

1.29
1.28
0.623

See Notes to Consolidated Financial Statements

84,139
9,835
4,066
930
469,288

125,394
6,598
26,227
158,219

311,069
11,900

299,169

29,114
37,502
17,743
17,154
8,992
5,278
115,783

129,355
17,705
11,295
11,968
6,525
-
1,838
46,850
225,536

189,416
56,468

132,948

1.23
1.23
0.558

77,701
9,465
5,097
1,890
518,680

186,969
13,150
27,843
227,962

290,718
14,585

276,133

27,138
32,388
15,916
11,782
12,561
2,959
102,744

116,907
17,074
12,345
11,782
6,117
7,105
4,786
42,805
218,921

159,956
46,367

113,589

1.05
1.04
0.505

Fulton Financial Corporation

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Dollars in thousands, except per-share data)

Balance at January 1, 2001.......................................
Comprehensive income:
Net income ......................................................
Other – unrealized gain on securities
(net of $10.8 million tax effect)..................
Less – reclassification adjustment for
gains included in net income (net
of $4.4 million tax expense) ......................
Total comprehensive income.....................
Stock dividend – 5%............................................
Stock issued .........................................................
Acquisition of treasury stock...............................
Cash dividends - $0.505 per share ......................

Balance at December 31, 2001.................................
Comprehensive income:
Net income ......................................................
Other – unrealized gain on securities
(net of $14.9 million tax effect).................
Less – reclassification adjustment for
gains included in net income (net
of $4.4 million tax expense) .....................
Total comprehensive income.....................
5 for 4 stock split paid in the form
of a 25% stock dividend .................................
Stock issued .........................................................
Acquisition of treasury stock...............................
Cash dividends - $0.558 per share ......................

Balance at December 31, 2002.................................
Comprehensive income:
Net income ......................................................
Other – unrealized loss on securities
(net of $5.2 million tax effect)...................
Less – reclassification adjustment for
gains included in net income (net of
$6.9 million tax expense)..........................
Total comprehensive income.....................
Stock dividend – 5%............................................
Stock issued .........................................................
Stock issued for acquisition of
Premier Bancorp, Inc. .....................................
Acquisition of treasury stock...............................
Cash dividends - $0.623 per share ......................

Number of
Shares
Outstanding

Common
Stock

Additional
Paid-In
Capital

Retained
Earnings

Accumulated
Other
Comprehen-
sive Income
(Loss)

Treasury
Stock

Total

107,584,000

$ 198,612

$ 472,829

76,615

1,148

$ (18,033)

731,171

113,589

(70,554)

(54,001)

19,987

(8,165)

14,593
(7,922)

113,589

19,987

(8,165)
125,411
(74)
16,869
(7,922)
(54,001)

1,325,000
(480,000)

9,103
247

61,377
2,029

108,429,000

207,962

536,235

65,649

12,970

(11,362)

811,454

132,948

(60,096)

27,676

(5,845)

6,964
(46,133)

132,948

27,676

(5,845)
154,779

(69)
3,807
(46,133)
(60,096)

353,000
(2,620,000)

51,981

(52,050)
(3,157)

106,162,000

259,943

481,028

138,501

34,801

(50,531)

863,742

138,180

(9,630)

(12,904)

539,000

4,615,000
(3,061,000)

12,998

79,491
(3,570)

(92,526)

11,539

76,639

(66,782)

9,458

(59,699)

138,180

(9,630)

(12,904)
115,646
(37)
5,888

88,178
(59,699)
(66,782)

Balance at December 31, 2003.................................

108,255,000

$ 284,480

633,588

$ 117,373

12,267

$ (100,772)

946,936

See Notes to Consolidated Financial Statements

Fulton Financial Corporation

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

Cash Flows from Operating Activities:
Net income ................................................................................................. $

138,180

132,948

113,589

2003

Year Ended December 31
2002

2001

Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities:

Provision for loan losses ...........................................................................
Depreciation and amortization of premises and equipment ......................
Net amortization of investment security premiums/ discounts .................
Deferred income tax expense ....................................................................
Gain on sale of investment securities ........................................................
Gain on sale of mortgage loans..................................................................
Proceeds from sales of mortgage loans held for sale.................................
Originations of mortgage loans held for sale.............................................
Amortization of intangible assets ..............................................................
Decrease in accrued interest receivable .....................................................
Increase in other assets ..............................................................................
Decrease in accrued interest payable ........................................................
Decrease in other liabilities........................................................................
Total adjustments.................................................................................
Net cash provided by operating activities ................................

Cash Flows from Investing Activities:

Proceeds from sales of securities available for sale ..................................
Proceeds from maturities of securities held to maturity ...........................
Proceeds from maturities of securities available for sale ..........................
Purchase of securities held to maturity .....................................................
Purchase of securities available for sale ...................................................
Decrease (increase) in short-term investments .........................................
Net (increase) decrease in loans ................................................................
Net cash received from (paid for) acquisitions .........................................
Purchase of premises and equipment, net ..................................................
Net cash used in investing activities .........................................

Cash Flows from Financing Activities:

Net increase in demand and savings deposits ...........................................
Net decrease in time deposits ....................................................................
Addition to long-term debt.........................................................................
Repayment of long-term debt ....................................................................
Increase (decrease) increase in short-term borrowings .............................
Dividends paid ..........................................................................................
Net proceeds from issuance of common stock .........................................
Acquisition of treasury stock ....................................................................
Net cash provided by financing activities..................................

Net (Decrease) Increase in Cash and Due From Banks .......................
Cash and Due From Banks at Beginning of Year ................................

Cash and Due From Banks at End of Year .......................................... $
Cash paid during the year for:

9,705
12,379
19,243
4,709
(19,853)
(21,582)
871,447
(810,859)
2,059
11,333
(15,325)
(6,136)
(7,370)
49,750
187,930

521,520
18,146
1,543,992
(8,514)
(2,445,592)
19,248
(487,147)
17,222
(4,730)
(825,855)

347,665
(295,760)
90,000
(157,360)
757,964
(64,628)
5,852
(59,699)
624,034

(13,891)
314,857

300,966

Interest .............................................................................................. $
Income taxes .....................................................................................

137,230
48,924

See Notes to Consolidated Financial Statements

11,900
12,786
3,974
1,955
(8,992)
(15,712)
609,726
(646,115)
1,838
713
(347)
(8,318)
(1,580)
(38,172)
94,776

67,633
21,247
807,980
(5,654)
(1,528,199)
(931)
44,098
-
(10,619)
(604,445)

366,981
(108,257)
100,406
(21,653)
231,859
(58,954)
3,738
(46,133)
467,987

(41,682)
356,539

314,857

166,537
49,621

14,585
12,990
147
1,520
(12,561)
(10,260)
420,220
(423,093)
4,786
1,359
(5,448)
(11,787)
(1,640)
(9,182)
104,407

206,688
42,342
478,310
(7,200)
(970,779)
1,449
(6,714)
(45,044)
(22,200)
(323,148)

516,439
(32,337)
-
(102,701)
(46,094)
(51,486)
16,795
(7,922)
292,694

73,953
282,586

356,539

239,749
46,633

Fulton Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

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

FORWARD-LOOKING STATEMENTS

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

In addition to the factors identified herein, the following could cause actual results to differ materially from such forward-looking
statements: pricing pressures on loan and deposit products, actions of bank and non-bank competitors, changes in local and national
economic conditions, changes in regulatory requirements, actions of the Federal Reserve Board (FRB), creditworthiness of current
borrowers and customers’ acceptance of the Corporation’s products and services.

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

RESULTS OF OPERATIONS

Overview

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

The Corporation’s net income for 2003 increased $5.2 million, or 3.9%, from $132.9 million in 2002 to $138.2 million in 2003.
Diluted net income per share increased $0.05, or 4.1%, from $1.23 per share in 2002 to $1.28 per share in 2003. In 2003, the
Corporation realized a return on average assets of 1.57% and a return on average equity of 15.45%.

Net income for 2002 was $132.9 million, or $1.23 per share (diluted), compared to $113.6 million, or $1.04 per share (diluted), in
2001. The increase in net income for the year was $19.4 million, or 17.0%, and the increase in net income per share was $0.19, or
18.3%. Excluding the impact of merger-related expenses in 2001, the increase in net income was $13.0 million, or 10.8%.

The increase in earnings in 2003 was achieved despite the continued contraction of the net interest margin and the resulting $6.6
million, or 2.1%, decrease in net interest income due to the low interest rate environment. This decline was offset by a $10.3 million,
or 9.7%, increase in non-interest revenue, excluding investment securities gains, particularly from investment management and trust
services as well as mortgage sale gains, and a $2.2 million, or 18.4%, decrease in the provision for loan losses as asset quality
continued to improve. Finally, the Corporation realized $19.9 million in investment securities gains, a $10.9 million increase over
2002.

Fulton Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

The following summarizes some of the more significant factors that influenced the Corporation’s 2003 results.

Interest Rates - Short-term interest rates remained low throughout 2003, as the FRB’s monetary policies focused on lower interest
rates to stimulate economic growth. The overnight borrowing, or Federal funds, rate and the prime lending rate ended the year at
1.00% and 4.00%, respectively, the lowest these key rates have been in decades. The low short-term interest rates had a negative
impact on the Corporation’s net interest income and net interest margin. As interest rates dropped in 2002 and 2003, reducing the
rates paid on deposits became exceedingly difficult. As a result, average rates on earning assets decreased more than the average rates
paid on liabilities, and the net interest margin and net interest income both decreased in 2003 compared to 2002.

While not directly influenced by the monetary policies of the FRB, longer-term interest rates, including residential mortgage rates,
also remained low during 2003, dropping to the lowest rates in decades around mid-year. This stimulated mortgage refinance activity
which, coupled with the Corporation’s recent investments in its mortgage banking business through the formation of Fulton Mortgage
Company, resulted in unprecedented residential mortgage volumes and gains on sales of loans in the secondary market. As longer-
term rates started to increase during the third and fourth quarter of 2003, mortgage volumes declined. Lower long-term interest rates
also affected the Corporation’s deposit mix as funds from maturing time deposits were deposited in core demand and savings
accounts as customers were reluctant to lock into the relatively low rates being offered on time deposit products.

If the current interest rate environment continues, the Corporation will be challenged to maintain and grow its net interest margin and
to increase net interest income. Most of the Corporation’s balance sheet has repriced to current rates, however, and management does
not expect further significant erosion of the net interest margin if rates remain low. In such an environment, however, growth in net
interest income will be more reliant on growth in balances than changes in rates. In a rising rate environment, the Corporation expects
improvements in net interest income, as discussed in the “Market Risk” section of Management’s Discussion. Increasing long-term
rates, however, tend to have a detrimental impact on mortgage loan origination volumes and related mortgage-banking income.

Earning Assets - The Corporation’s total average loan portfolio grew modestly during 2003, as the runoff of residential mortgages
from refinancings offset moderate growth in commercial loans and commercial mortgages. This lack of net loan growth, combined
with an increase in funds from deposit growth and additional borrowings, resulted in an increase in investment securities. This change
in the mix of earning assets from loans to investments also had a negative impact on interest income, as rates earned on investments
are generally lower than those on loans.

With the improving economy, the slowdown in mortgage refinance activity and recent and pending acquisitions, the Corporation is
optimistic that loan growth will improve during 2004, resulting in an increase in net interest income.

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

Throughout the recent economic recession, which ended in the third quarter of 2001, and the subsequent recovery, the Corporation
was able to maintain strong asset quality, attributable to its credit culture and underwriting policies. This continued in 2003 as asset
quality measures such as non-performing assets to total assets and net charge-offs to average loans improved in comparison to 2002.
As a result, asset quality had no negative impact on earnings beyond normal provisions for loan losses. While overall asset quality has
remained strong, a deterioration in quality of one or several significant accounts could have a detrimental impact and result in losses
that may not be foreseeable based on current information. In addition, rising interest rates could increase the total payments of
borrowers and could have a negative impact on their ability to pay according to the terms of their loans.

Equity Markets - During 2003, equity markets in general experienced significant growth, which benefited the Corporation in two
ways. First, investment management and trust services income increased as values of assets under management improved and as
brokerage income grew. Second, the value of the Corporation’s equity investment portfolio, which consists mainly of bank stocks,
increased, resulting in decisions to sell certain securities and allowing additional gains to be realized.

Gains on sales of equities have been a recurring component of the Corporation’s earnings for many years. The contribution of these
gains to earnings in 2003, however, exceeded previous years due to the aforementioned improving values. If equity markets do not
continue to perform, this component of earnings could contract.

Fulton Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Acquisitions - During 2003, the Corporation completed two acquisitions. In August, Premier Bank (Premier) of Doylestown,
Pennsylvania became a wholly-owned subsidiary and strengthened the Corporation’s presence in eastern Pennsylvania markets. In
December, the Corporation acquired approximately $165 million of agricultural loans in Central Pennsylvania and Delaware. Both
acquisitions strengthen the Corporation’s core banking franchise.

In August, the Corporation announced its intention to acquire Resource Bankshares Corporation, located in Virginia Beach, Virginia.
This will be the Corporation’s first acquisition in Virginia, allowing it to enter a new geographic market. The transaction is expected
to close on or about April 1, 2004.

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

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

Net Interest Income

Net interest income is the most significant component of the Corporation’s net income, accounting for approximately 72% of total
2003 revenues, excluding investment securities gains. The ability to manage net interest income over a variety of interest rate and
economic environments is important to the success of a financial institution. Growth in net interest income is generally dependent
upon balance sheet growth and maintaining or growing the net interest margin. The “Market Risk” section of Management’s
Discussion beginning on page 22 provides additional information on the policies and procedures used by the Corporation to manage
net interest income.

Fulton Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

The following table summarizes the average balances and interest earned or paid on the Corporation’s interest-earning assets and
interest-bearing liabilities.

(Dollars in thousands)

Average
Balance

ASSETS
Interest-earning assets:
Loans and leases (1)......................... $5,589,663
Taxable inv. securities (2)................ 2,170,889
Tax-exempt inv. securities (2) .........
266,426
Equity securities (2).........................
129,584
Total investment securities ................ 2,566,889
Short-term investments....................
47,122
Total interest-earning assets .............. 8,203,684
Non-interest-earning assets:
Cash and due from banks.................
279,980
Premises and equipment ..................
123,172
Other assets (2) ................................
270,611
Less: Allowance for loan losses ......
(75,309)
Total Assets.............................. $8,802,138

Year Ended December 31

2003

Interest

$ 341,393
77,450
10,436
4,076
91,962
2,176
435,531

Yield/
Rate

Average
Balance

6.11% $5,381,950
1,605,077
3.57
229,938
3.92
113,422
3.15
1,948,437
3.58
27,741
4.62
7,358,128
5.31

2002

Interest

$ 370,318
84,139
9,835
4,066
98,040
930
469,288

Yield/
Rate

Average
Balance

6.88% $5,341,497
1,300,169
5.24
216,783
4.28
103,286
3.58
1,620,238
5.03
44,405
3.35
7,006,140
6.38

2001

Interest

$ 424,527
77,701
9,465
5,097
92,263
1,890
518,680

Yield/
Rate

7.95%
5.98
4.37
4.93
5.69
4.26
7.40

253,503
123,658
238,441
(73,230)
$7,900,500

241,660
124,003
217,717
(69,449)
$7,520,071

LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing liabilities:
Demand deposits.............................. $1,158,333
Savings deposits............................... 1,655,325
Time deposits................................... 2,496,234
Total interest-bearing deposits........... 5,309,892
Short-term borrowings.....................
738,527
Long-term debt ................................
566,437
Total interest-bearing liabilities......... 6,614,856
Noninterest-bearing liabilities:
Demand deposits.............................. 1,195,479
Other ................................................
97,334
Total Liabilities........................ 7,907,669
Shareholders' equity...........................
894,469
Total Liabs. and Equity............ $8,802,138
Net interest income ............................
Net yield on earning assets ................
Tax equivalent adjustment (3) ...........
Net interest margin ............................

6,011
10,770
77,417
94,198
7,373
29,523
131,094

0.52% $ 910,934
1,516,832
0.65
2,579,441
3.10
5,007,207
1.77
434,402
1.00
476,415
5.21
5,918,024
1.98

6,671
16,453
102,270
125,394
6,598
26,227
158,219

0.73% $ 744,831
1,313,880
1.08
2,786,513
3.96
4,845,224
2.50
355,953
1.52
500,162
5.51
5,701,339
2.67

8,795
25,381
152,793
186,969
13,150
27,843
227,962

1.18%
1.93
5.48
3.86
3.69
5.57
4.00

1,045,460
98,803
7,062,287
838,213
$7,900,500

925,865
113,853
6,741,057
779,014
$7,520,071

3.71

3.82%

311,069

9,193
$ 320,262

4.23

4.35%

290,718

8,286
$ 299,004

4.15

4.27%

304,437

9,698
$ 314,135

(1)

Includes non-performing loans.

(2) Balances include amortized historical cost for available for sale securities. The related unrealized holding gains (losses) are included in other assets.
(3) Based on marginal Federal income tax rate and statutory interest expense disallowances.

Fulton Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

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

2003 vs. 2002
Increase (decrease) due
to change in
Rate

Net

Volume

2002 vs. 2001
Increase (decrease) due
to change in
Rate

Net

Volume

Interest income on:
Loans and leases ................................. $ 14,292
Taxable investment securities .............
29,660
Tax-exempt investment securities.......
1,561
Equity securities..................................
579
Short-term investments .......................
650

$ (43,217)
(36,349)
(960)
(569)
596

$ (28,925)
(6,689)
601
10
1,246

$ 3,229
17,995
572
500
(711)

$ (57,438)
(11,557)
(202)
(1,531)
(249)

$ (54,209)
6,438
370
(1,031)
(960)

(in thousands)

Total interest-earning assets............. $ 46,742

$ (80,499) $ (33,757)

$ 21,585

$ (70,977)

$ (49,392)

Interest expense on:
Demand deposits................................. $ 1,812
Savings deposits..................................
1,502
Time deposits ......................................
(3,299)
Short-term borrowings ........................
4,619
Long-term debt ...................................
4,956

$ (2,472)
(7,185)
(21,554)
(3,844)
(1,660)

(660)
(5,683)
(24,853)
775
3,296

$ 1,974
3,938
(11,355)
2,886
(1,317)

$ (4,098)
(12,866)
(39,168)
(9,438)
(299)

$ (2,124)
(8,928)
(50,523)
(6,552)
(1,616)

Total interest-bearing liabilities ....... $ 9,590

$(36,715)

$(27,125)

$ (3,874)

$(65,869) $(69,743)

Note: The rate/volume variances are allocated in the table above by applying the changes in volume times the prior period rate and by

applying the changes in rate times the current period volume on a consistent basis throughout.

The Corporation’s net interest income has been significantly impacted by the reductions in short-term interest rates enacted by the
FRB over the past three years, as well as by the historic low levels of those rates. During 2001, the FRB reduced the overnight
borrowing rate from 6.00% at the beginning of the year to 1.75% at the end of the year. During this time, the Corporation’s assets
repriced more quickly than its deposits (primarily time deposits), resulting in a reduction in the net interest margin. During 2002, the
overnight borrowing rate declined further to 1.25% and the Corporation’s longer-term liabilities, primarily time deposits, repriced to
lower rates resulting in an increase in the net interest margin. The positive impact of the time deposit repricing on the net interest
margin peaked in mid-2002, and was somewhat offset by the inability to continue to lower core deposit rates. During 2003, the
overnight borrowing rate declined to 1.00% at mid-year and the impact of not being able to lower core deposit rates sufficiently
became more pronounced, resulting in further net interest margin compression.

2003 vs. 2002

Net interest income decreased $6.6 million, or 2.1%, from $311.1 million in 2002 to $304.4 million in 2003. While average earning
assets grew 11.5%, from $7.4 billion in 2002 to $8.2 billion in 2003, the net interest margin declined 12.2%, or 53 basis points, from
4.35% in 2002 to 3.82% in 2003 as a result of the interest rate environment, as discussed above. During 2003, yields earned on assets
decreased further than rates paid on liabilities.

Interest income decreased $33.8 million, or 7.2%, mainly as a result of the 107 basis point decrease in the average yield on earning
assets. Average yields decreased during 2003 due both to the general decrease in short-term interest rates as well as the shift in
earning assets, on a percentage basis, from higher yielding loans to generally lower yielding investment securities. This decrease in
interest income was partially offset by a $46.7 million increase due to average earning asset growth.

Fulton Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Average interest-earning assets increased both in the loan and investment categories. Average loans increased by $207.7 million, or
3.9%, to $5.6 billion in 2003. The following summarizes the growth in average loans by category.

2003

2002

Increase (decrease)
%

(dollars in thousands)

Commercial.......................... $ 1,717,000
Commercial mortgage..........
1,953,000
Residential mortgage ...........
544,000
Home equity.........................
772,000
Consumer and other .............
604,000
Total......................... $ 5,590,000

1,566,000
1,697,000
758,000
696,000
665,000
5,382,000

151,000
256,000
(214,000)
76,000
(61,000)
208,000

9.6%
15.1
(28.2)
10.9
(9.2)
3.9%

Loan growth was particularly strong in the commercial and commercial mortgage categories. Even factoring out the loans acquired in
the Premier acquisition, these categories both grew approximately 8.0%. The significant reduction in mortgage loan balances was due
to customer refinance activity that continued at a high rate through much of the year. The Corporation generally sells newly originated
fixed rate mortgages in the secondary market to promote liquidity and manage interest rate risk. Home equity loans increased
significantly due to promotional efforts and customers using home equity loans as a cost-effective refinance alternative. Consumer
loans decreased, reflecting customers’ repayment of these loans with tax-advantaged residential mortgage or home equity loans. In
addition, many vehicle manufacturers continued to offer attractive financing rates, with which the Corporation chose not to compete.

The average yield on loans during 2003 was 6.11%, a 77 basis point, or 11.2%, decline from 2002. This reflects the 55 basis point
reduction in the Corporation’s average prime lending rate from 4.68% in 2002 to 4.13% in 2003, as well as higher than normal
prepayments received on fixed rate commercial and commercial mortgage loans.

Average investment securities increased $618.5 million, or 31.7%, during 2003. The increase was attributable primarily to deposit
growth exceeding loan growth. Total average deposit growth of $452.7 million exceeded average loan growth by $245.0 million
during 2003. In addition, the Corporation employed certain limited strategies to manage the Corporation’s gap position and to take
advantage of low wholesale funding rates. Most of the growth in investment securities was in mortgage-backed securities, which
increased by $553.2 million, or 38.1%.

The average yield on investment securities declined significantly from 5.03% in 2002 to 3.58% in 2003. This 28.8% decrease was due
to both the relatively short maturity of the portfolio as well as the high prepayment levels experienced on mortgage-backed securities.
During the past two years and particularly during 2003, most mortgage-backed securities were being purchased at premiums. As
longer-term interest rates continued to fall through the first half of 2003, the prepayments on these securities exceeded expected
levels. Prepayments negatively impact yields through the acceleration of premium amortization expense, which is accounted for as a
reduction of interest income. Premium amortization was $20.0 million in 2003 compared to $5.7 million in 2002. Approximately
$17.3 million of premium amortization during 2003 was accelerated amortization.

Interest expense decreased $27.1 million, or 17.1%, to $131.1 million in 2003 from $158.2 million in 2002, mainly as a result of the
69 basis point decrease in the cost of total interest-bearing liabilities. This decrease was partially offset by a $9.6 million increase in
interest expense due to average balance growth. The cost of interest-bearing deposits declined 73 basis points, or 29.2%, from 2.50%
in 2002 to 1.77% in 2003. This reduction was due to both the impact of declining short-term interest rates and the continuing shift in
the composition of deposits from higher-rate time deposits to lower-rate demand and savings deposits. Customers continued to exhibit
an unwillingness to invest in certificates of deposit at the rates available, instead keeping their funds in demand and savings products.

Fulton Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

The following table summarizes the growth in average deposits by category.

2003

Increase (decrease)
%

2002
$
(dollars in thousands)

Noninterest-bearing demand.... $ 1,195,000
Interest-bearing demand...........
1,158,000
Savings/money market.............
1,655,000
Time deposits ...........................
2,496,000
Total............................. $ 6,504,000

1,045,000
911,000
1,517,000
2,579,000
6,052,000

150,000
247,000
138,000
(83,000)
452,000

14.4%
27.1
9.1
(3.2)
7.5%

The acquisition of Premier added $187.4 million to the total average balance of deposits in 2003. If those balances were factored out,
the deposit categories would show the following increases (decreases) – noninterest-bearing demand, 12.9%, interest-bearing demand,
21.6%, savings/money market, 6.7%, and time deposits, (6.5)%.

Other borrowings increased significantly during 2003. Average short-term borrowings increased $304.1 million, or 70.0%, to $738.5
million in 2003, while average long-term debt increased $90.0 million, or 18.9%, to $566.4 million in 2003. The increase in short-
term borrowings resulted primarily from certain limited strategies to manage the Corporation’s gap position and to take advantage of
low wholesale funding rates. In addition, customer cash management accounts, which are included in short-term borrowings, grew
$53.8 million, or 18.1%, to reach $351.3 million in 2003.

2002 vs. 2001

In 2002, net interest income was positively impacted by the full year impact of the acquisition of 18 branches in June 2001 (Branch
Acquisition), which provided approximately $300 million in deposits and $50 million in loans. Net interest income for the year was
$311.1 million, a $20.4 million, or 7.0%, increase over 2001. The net interest margin for 2002 was 4.35%, an eight basis point
increase from 4.27% in 2001. Average interest rates paid on interest-bearing liabilities decreased 133 basis points to 2.67% in 2002 as
compared to 4.00% in 2001. This change was more pronounced than the 102 basis point decrease in yields on average interest-earning
assets, resulting in the increase in the Corporation’s net interest margin.

Interest income decreased $49.4 million, or 9.5%, mainly as a result of the 102 basis point decrease in average yields that accounted
for a $71.0 million decline in interest income. As previously discussed, average yields decreased during 2002 due to a general
decrease in interest rates as a result of the actions of the FRB. The Corporation’s prime lending rate averaged 6.89% in 2001,
dropping to an average of 4.68% during 2002. The decrease in interest income as a result of rate changes was partially offset by a
$21.6 million increase due to average balance growth, primarily in investment securities.

Average loans of $5.4 billion were essentially flat for the period. This was the result of strong commercial loan and commercial
mortgage growth ($241.3 million, or 8.0%, increase in average balances) being offset by decreases in residential mortgages ($166.4
million, or 18.0%) and consumer loans ($39.4 million, or 3.0%). Residential mortgages decreased as a result of the low interest rate
environment generating strong refinance activity. Newly originated fixed rate mortgages were sold in the secondary market to
promote liquidity and reduce interest rate risk. Consumer loans decreased mainly in direct and indirect automobile loans ($109.0
million, or 20.7%) due to the Corporation electing not to compete with manufacturer-sponsored loan rate incentives and consumers
paying off such consumer debt with cash from mortgage refinances. These decreases were offset in part by an increase in home equity
loans ($63.7 million, or 10.1%), as consumers took advantage of the lower rates available on these loans.

The average yield on loans during 2002 was 6.88%, a 107 basis point decline from 2001. The reduction in the Corporation’s average
prime lending rate resulted in lower overall yields as compared to 2001. The Corporation also experienced a shift of approximately
$450 million from fixed rate to adjustable rate commercial loan and commercial mortgage balances.

Average investment securities increased $328.2 million, or 20.3%, during 2002. The increase was mainly the result of deposit growth
exceeding net increases in loans. Total average deposits increased $281.6 million, or 4.9%, during 2002. The Corporation used the

Fulton Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

excess funds to purchase investment securities, particularly mortgage-backed securities, which grew by $325.9 million, or 29.0%. The
average yield on investment securities declined during 2002, although the reduction was not as pronounced as that realized on the
loan portfolio. The average yield on investments was 5.03% in 2002 and 5.69% in 2001.

Interest expense decreased $69.7 million, or 30.6%, to $158.2 million in 2002 from $228.0 million in 2001. This resulted from a
combination of declining interest rates and a shift in the composition of liabilities from higher-rate time deposits to lower-rate demand
and savings deposits. Interest-bearing demand and savings deposits increased $369.1 million, or 17.9%, and noninterest-bearing
deposits increased $119.6 million, or 12.9%, while time deposits decreased by $207.1 million, or 7.4%. The Branch Acquisition
contributed $101.4 million to the increase in average deposits. The net $216.7 million, or 3.8%, increase in average interest-bearing
liabilities actually resulted in a $3.9 million decrease in interest expense due to the change in the composition of these liabilities. The
133 basis point decline in the average cost of interest-bearing funds resulted in a $65.9 million decrease in interest expense.

Average short-term borrowings increased $78.4 million, or 22.0%. This additional source of funds was partially used to reduce the
Corporation’s higher rate long-term borrowings in the early part of 2002. Average long-term debt decreased $23.7 million, or 4.7%,
from $500.2 million in 2001 to $476.4 million in 2002.

Provision and Allowance for Loan Losses

The credit risk associated with lending activities is accounted for by the Corporation through its allowance and provision for loan
losses. The provision is the expense recognized in the income statement to adjust the allowance to its proper balance, as determined
through the application of the Corporation’s allowance methodology procedures. These procedures include the evaluation of the risk
characteristics of the portfolio and documentation in accordance with the Securities and Exchange Commission’s (SEC) Staff
Accounting Bulletin No. 102, “Selected Loan Loss Allowance Methodology and Documentation Issues” (SAB 102). See “Critical
Accounting Policies” on page 21 for a discussion of the Corporation’s allowance for loan loss evaluation methodology.

Fulton Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

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

2003

2002

Year Ended December 31
2001
(dollars in thousands)

2000

1999

Loans outstanding at end of year ...........................
Daily average balance of loans and leases ..............
Balance of allowance for loan losses
at beginning of year............................................
Loans charged-off:
Commercial, financial and agricultural...............
Real estate – mortgage ........................................
Consumer ............................................................
Leasing and other ................................................
Total loans charged-off .......................................
Recoveries of loans previously charged-off:
Commercial, financial and agricultural...............
Real estate – mortgage ........................................
Consumer ............................................................
Leasing and other ................................................
Total recoveries...................................................
Net loans charged-off..............................................
Provision for loan losses .........................................
Allowance purchased ..............................................
Balance at end of year.............................................

Selected Asset Quality Ratios:
Net charge-offs to average loans.............................
Allowance for loan losses to loans
outstanding at end of year ..................................
Non-performing assets (1) to total assets ................
Non-accrual loans to total loans..............................

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

$ 6,159,994 $ 5,317,068
$ 5,589,663 $ 5,381,950

$ 5,373,020
$ 5,341,497

$ 5,374,659
$ 5,131,651

$ 4,882,606
$ 4,601,801

71,920 $

71,872

65,640

61,538

61,327

6,604
1,476
4,497
651
13,228

1,210
711
1,811
97
3,829
9,399
9,705
5,474
77,700 $

0.17%

1.26%
0.33%
0.36%

7,203
2,204
5,587
676
15,670

842
669
2,251
56
3,818
11,852
11,900
-
71,920

6,296
767
6,683
529
14,275

703
364
2,683
87
3,837
10,438
14,585
2,085
71,872

9,242
1,922
6,911
282
18,357

1,518
541
2,724
19
4,802
13,555
15,024
2,633
65,640

4,797
1,604
8,147
124
14,672

2,027
710
2,202
1
4,940
9,732
9,943
-
61,538

0.22%

0.20%

0.26%

0.21%

1.35%
0.47%
0.45%

1.34%
0.44%
0.42%

1.22%
0.41%
0.41%

1.26%
0.49%
0.49%

Fulton Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

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

2003

2002

December 31
2001
(in thousands)

2000

1999

Non-accrual loans (1) (2).................................... $ 22,422
Accruing loans past due 90 days or more...........
9,609
Other real estate ..................................................
585
Totals.............................................................. $ 32,616

$ 24,090
14,095
938
$ 39,123

$ 22,794
9,368
1,817
$ 33,979

$ 21,790
7,135
1,035
$ 29,960

$ 23,989
8,549
1,002
$ 33,540

(1) As of December 31, 2003, the gross interest income that would have been recorded during 2003 if nonaccrual loans had
been current in accordance with their original terms was approximately $1.8 million. The amount of interest income on
nonaccrual loans that was included in 2003 income was approximately $1.6 million.

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

(3) Excluded from the amounts presented at December 31, 2003 are $56.8 million in loans where possible credit problems of
borrowers have caused management to have serious doubts as to the ability of such borrowers to comply with the
present loan repayment terms. These loans are considered to be impaired under Statement 114, but continue to pay
according to their contractual terms and are therefore not included in non-performing loans.

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

2003

2002

December 31
2001
(dollars in thousands)

2000

1999

% of
Loans in
Each
Category

Allowance

% of
Loans in
Each
Category

Allowance

Comm’l, financial
& agriculture....... $
Real estate –
mortgage ............
Consumer, leasing
& other ................
Unallocated..............
Totals .................. $

34,247

31.6% $

33,130

31.6% $

22,531

27.8% $

21,193

25.8% $

15,516

24.8%

14,471

58.8

16,279
12,703
77,700

9.6
-

100.0% $

13,099

14,178
11,513
71,920

56.8

11.6
-

100.0% $

19,018

10,855
19,468
71,872

58.9

13.3
-

100.0% $

14,940

10,772
18,735
65,640

59.1

15.1
-

100.0% $

17,425

57.4

9,435
19,162
61,538

17.8
-
100.0%

Over the past several years, the procedures used by the banking industry to evaluate the allowance for loan losses have received increased
attention from the SEC, regulatory bodies and the accounting industry. These groups have attempted to reconcile the accounting theory of
reserving for loan losses, which requires that the allowance represent management’s estimate of the losses inherent in the loan portfolio as of
the balance sheet date, with the regulatory goals of safety and soundness.

While the resulting guidance provided by these groups has not changed the accounting, it has focused on clarifying the application of
existing accounting pronouncements and improving documentation. As with others in the industry, the Corporation has used this guidance
to improve its process and its documentation. The unallocated allowance for loan losses, as shown in the preceding table, remained at 16%

Fulton Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

of the total allowance, unchanged from 2002. The Corporation continues to monitor its allowance methodology to ensure compliance with
both regulatory and accounting industry policies.

The provision for loan losses decreased $2.2 million, or 18.4%, in 2003 and $2.7 million, or 18.4%, 2002. The decrease in 2003 was
due to the continued improvement in the Corporation’s asset quality resulting in lower net charge-offs and a lower required provision
for the year. Net charge-offs were elevated in both 2002 and 2001 related to specific credits. In 2001 the Corporation provided an
additional $2.7 million related to the July 2001 acquisition of Drovers Bancshares Corporation (Drovers).

Non-performing assets decreased $6.5 million, or 16.6%, as compared to 2002, representing a 14 basis point decrease as a percentage
of total assets (0.33% in 2003 and 0.47% in 2002). Net charge-offs as a percentage of average loans were 0.17% in 2003, a five basis
point decrease from 2002. Net charge-offs decreased in all loan types during 2003. The declines in both ratios reflect the improving
quality of the Corporation’s portfolio during the year.

The provision for loan losses in 2003 resulted from the Corporation’s allowance allocation procedures. Trends that would indicate the
need for a higher provision include the general national and regional economies and the continued growth in the Corporation’s
commercial loan and commercial mortgage portfolios, which are inherently more risky than other loan types. Offsetting these trends
were the improvements in the quality of the Corporation’s portfolio, as evidenced by its improving asset quality measures over the
past several years. The net result of the Corporation’s allowance allocation procedures was a provision for loan losses that was $2.2
million less than 2002 and was comparable to total net charge-offs for the year. Management believes that the allowance balance of
$77.7 million at December 31, 2003 is sufficient to cover losses inherent in the loan portfolio on that date and is appropriate based on
applicable accounting standards.

Other Income

The following table details the components of other income for each of the last three years:

2003

Year Ended December 31
2002
(in thousands)

2001

Investment management and trust services ........................................ $
Service charges on deposit accounts...................................................
Other service charges and fees............................................................
Mortgage banking income ..................................................................
Investment securities gains .................................................................
Other....................................................................................................
Total ............................................................................................... $

33,898
38,500
18,860
21,482
19,853
4,394
136,987

29,114
37,502
17,743
17,154
8,992
5,278
115,783

27,138
32,388
15,916
11,782
12,561
2,959
102,744

Other income for 2003 was $137.0 million, an increase of $21.2 million, or 18.3%, over other income of $115.8 million in 2002.
Excluding investment securities gains, other income increased $10.3 million, or 9.7%, in 2003 and $16.6 million, or 18.4%, in 2002.
The acquisition of Premier did not have a significant impact on other income growth during 2003.

Other than investment securities gains the most significant percentage growth in each year was realized in mortgage banking income,
which increased $4.3 million, or 25.2%, to $21.5 million in 2003, following an increase of $5.4 million, or 45.6%, in 2002. The low
interest rate environment over the past two years fueled significant residential mortgage refinance activity, resulting in increases in
gains on sales. Mortgage banking income consists of net gains on the sales of mortgage loans and servicing income, net of the
amortization of mortgage servicing rights. Net gains on sales of mortgage loans increased $5.8 million, or 37.4%, partially offset by a
decrease in net servicing income of $1.5 million, or 107.0%. In 2002, net gains on sales of mortgage loans increased $5.5 million, or
53.2%, and servicing income decreased $80,000, or 5.3%. The increase in gains on sales of mortgage loans in both years was due to
the historically low average rates for 30-year fixed rate mortgage loans throughout the period and to the Corporation dedicating
additional resources to enhance its mortgage banking activities. The decreases in net servicing income in 2003 and 2002 resulted from
increased amortization of servicing rights due to prepayments of serviced loans.

Fulton Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Although mortgage rates were generally low throughout 2003, an upward trend during the last six months of the year was evident. In
addition, it is generally believed that the refinancing market has reached a saturation point due to the high volume of activity during
the past two years. For these reasons, the Corporation expects future mortgage origination volumes to be much lower than those
realized over the past two years.

Investment management and trust services income grew $4.8 million, or 16.4%, in 2003 and $2.0 million, or 7.3%, in 2002. Trust
commission income increased $1.5 million, or 8.3%, in 2003 as improvements in the equity markets increased values of assets under
management. Brokerage revenue increased $3.0 million, or 33.8%, in 2003 and $2.4 million, or 37.5%, in 2002 as a result of
improving equity markets and increased annuity sales.

Total service charges on deposit accounts increased $1.0 million, or 2.7%, in 2003 and $5.1 million, or 15.8%, in 2002. Overdraft fees
increased $407,000, or 2.7%, in 2003 and $2.9 million, or 24.5%, in 2002. Cash management fees increased $260,000, or 3.6%, in
2003, after increasing $1.2 million, or 18.8%, in 2002. While the balances of cash management accounts increased during both years,
during 2003 the number of accounts actually decreased due to the low interest rates, making cash management services less attractive
for smaller business customers.

Other service charges and fees increased $1.1 million, or 6.3%, in 2003 and $1.8 million, or 11.5%, in 2002. Letter of credit fees
increased $878,000, or 37.4%, in 2003 and $982,000, or 71.9%, in 2002, and merchant fees increased $491,000, or 12.2%, in 2003
and $395,000, or 10.9%, in 2002, all as a result of an increased focus on growing these business lines. Debit card revenues grew only
$122,000, or 2.4%, in 2003 after growing $938,000, or 23.2%, in 2002. Due to the legal settlements between VISA and MasterCard
and a third party, effective August 1, 2003, the Corporation’s earnings rate on debit card transactions decreased by approximately
20%. As of January 1, 2004, debit card pricing will be based on more competitive factors. The Corporation does not expect to
generate growth in this category in 2004 compared to 2003.

Other income decreased $884,000, or 16.8%, in 2003 after increasing $2.3 million, or 78.4%, in 2002. The 2002 increase included the
reversal of $848,000 of negative goodwill upon adoption of Statement 141, which did not recur in 2003, as well as increases in gains
on sale of fixed assets and earnings on the Corporation’s life insurance investments.

Investment securities gains increased $10.9 million, or 120.8%, to $19.9 million in 2003, following a decrease of $3.6 million, or
28.4%, in 2002. In 2003, investment securities gains included realized gains of $17.3 million on the sale of equity securities,
reflecting the general improvement in the equity markets and bank stocks in particular, and $5.9 million on the sale of debt securities,
which were generally sold to take advantage of the interest rate environment. These gains were offset by $3.3 million of losses
recognized for investment securities exhibiting other than temporary impairment during the early part of the year. As of December 31,
2003, those individual securities had recovered approximately $2.0 million of the amount written down.

Fulton Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Other Expenses

The following table details the components of other expenses for each of the past three years:

2003

Year Ended December 31
2002
(in thousands)

2001

Salaries and employee benefits .......................................................... $
Net occupancy expense ......................................................................
Equipment expense ............................................................................
Data processing ..................................................................................
Advertising..........................................................................................
Merger-related expenses .....................................................................
Goodwill and intangible amortization ................................................
Other ...................................................................................................
Total ............................................................................................... $

138,619
19,896
10,505
11,532
6,039
-
2,059
45,526
234,176

129,355
17,705
11,295
11,968
6,525
-
1,838
46,850
225,536

116,907
17,074
12,345
11,782
6,117
7,105
4,786
42,805
218,921

Total other expenses for 2003 increased $8.6 million, or 3.8%, to $234.2 million ($3.8 million, or 1.7%, excluding Premier). This
followed a 2002 increase of $6.6 million, or 3.0%, to $225.5 million.

Salaries and employee benefits increased $9.3 million, or 7.2%, in 2003 to $138.6 million, as compared to a $12.4 million, or 10.6%,
increase to $129.4 million in 2002. Premier contributed $2.1 million to the total salary and benefits increase in 2003. The salary
expense component increased $8.0 million, or 7.7%, in 2003, driven by salary increases for existing employees as well as an increase
in the total number of employees. Total average full-time equivalent employees were 2,950 in 2003 as compared to 2,905 in 2002 and
2,761 in 2001. Employee benefits increased $2.0 million, or 9.0%, driven mainly by continued increases in retirement plan expenses
($1.6 million, or 19.8%).

The Corporation maintains two primary retirement plans, a defined contribution Profit Sharing Plan and a defined benefit plan, which
has been closed to new participants. In general, the expense for the Profit Sharing Plan is a function of salary expense, while the
defined benefit plan expense is actuarially determined. Defined benefit plan expense increased 66.9% from $1.8 million in 2002 to
$3.0 million in 2003, following an increase of 83.2% in 2002. Defined benefit plan expense is expected to level off in 2004, with total
expense expected to remain at approximately $3.0 million. The sharp increases in recent years were attributable to negative returns on
plan assets. In 2003, the return on plan assets improved, ending the upward trend in expense. For more details on retirement plan
expense, see “Note L – Employee Benefit Plans” in the Notes to Consolidated Financial Statements.

Net occupancy expense increased $2.1 million, or 12.4%, to $19.9 million in 2003 as a result of additional branches and new office
space for existing affiliates as well as the acquisition of Premier. Equipment expense decreased $790,000, or 7.0%, in 2003 following
a decrease of $1.1 million, or 8.5%, in 2002. The decrease in both years was due to lower depreciation expense as certain equipment
became fully depreciated. In addition, in 2002, the Corporation realized a full year’s impact of efficiencies related to the July 2001
acquisition of Drovers.

Data processing expense decreased $436,000, or 3.6%, in 2003, compared to an increase of $186,000, or 1.6%, in 2002. The decrease
in 2003 was due to favorable renegotiations of certain contracts for data processing services.

Advertising expense decreased $486,000, or 7.4%, in 2003, following a $408,000, or 6.7%, increase in 2002. Advertising expense in
2002 included a significant image campaign for the Corporation’s lead bank. In addition, the Corporation made a conscious decision
to control advertising spending in 2003.

Intangible amortization increased $221,000, or 12.0%, due to the amortization of the core deposit intangible asset recorded from the
Premier acquisition. Goodwill and intangible amortization consists of the amortization of goodwill (prior to January 1, 2002),

Fulton Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

unidentifiable intangible assets related to branch acquisitions and core deposit intangible assets. In 2002, intangible amortization
decreased $2.9 million, or 61.6%, due to the non-amortization of goodwill in accordance with Financial Accounting Standards Board
(FASB) Statement of Financial Accounting Standards Nos. 142, “Goodwill and Other Intangible Assets” (Statement 142) and 147,
“Acquisitions of Certain Financial Institutions” (Statement 147). See “Note F – Goodwill and Intangible Assets” in the Notes to
Consolidated Financial Statements.

Other expense decreased $1.3 million, or 2.8%, in 2003, to $45.5 million, following an increase of $4.0 million, or 9.4%, in 2002. In
2002, the significant increase included a $962,000 increase in operating risk losses related to overdrafts and robberies, a $534,000
increase in costs related to student lending due to the significant drop in interest rates, a $530,000 increase in non-income taxes due to
growth and a $476,000 increase in telephone and data line expense primarily associated with connecting all locations to a wide area
network. These increases did not recur in 2003 – operating risk losses actually decreased $245,000, and non-income taxes decreased
$1.3 million due to both the availability of state tax credits and corporate restructurings.

Income Taxes

Income taxes increased $2.9 million, or 5.1%, in 2003 to $59.4 million, following an increase of $10.1 million, or 21.8%, in 2002.
The Corporation’s effective tax rate (income taxes divided by income before income taxes) remained fairly stable at 30.1%, 29.8%
and 29.0% in 2003, 2002 and 2001, respectively. In general, the variances from the 35% Federal statutory rate consisted of tax-
exempt interest income and investments in low and moderate income housing partnerships, which generate Federal tax credits. Net
credits were $4.0 million in 2003 and 2002 and $3.6 million in 2001.

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

FINANCIAL CONDITION

Total assets increased $1.4 billion, or 16.4%, to $9.8 billion at December 31, 2003 with approximately half of the increase attributable
to the Premier acquisition. The increase, net of Premier, was driven by loan growth and strategies to maintain higher investment
balances. Total loans increased $842.9 million, or 15.9% ($480.6 million, or 9.0%, excluding Premier), while total investments
increased $510.9 million, or 21.1% ($327.1 million, or 13.5%, excluding Premier).

Asset growth was funded by both deposit growth and increases in borrowings. Total deposits increased $506.3 million, or 8.1%, to
$6.8 billion at December 31, 2003. Premier contributed $434.5 million to the increase. Total borrowings increased $792.2 million, or
67.5%, with the increase primarily in Federal funds purchased. Additional borrowings, both short-tem and long-term, were used to
purchase investment securities under limited strategies to take advantage of low borrowing rates. In addition, the Corporation
purchased approximately $165 million of agricultural loans in December 2003, which was funded by Federal funds purchased.

Fulton Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Loans

The following table sets forth the amount of loans outstanding as of the dates shown:

2003

2002

December 31
2001
(in thousands)

2000

1999

Commercial – industrial and financial.......... $ 1,594,451
Commercial – agricultural ............................
354,517
Real-estate – construction .............................
307,109
Real-estate – residential mortgage ................
1,324,611
Real-estate – commercial mortgage..............
1,992,650
Consumer ......................................................
516,587
Leasing and other..........................................
77,646
6,167,571
Unearned income ..........................................
(7,577)
Totals........................................................ $ 6,159,994

$ 1,489,990
189,110
248,565
1,244,783
1,527,143
543,040
84,063
5,326,694
(9,626)
$ 5,317,068

$ 1,341,280
154,100
267,627
1,468,799
1,428,066
626,985
98,823
5,385,680
(12,660)
$ 5,373,020

$ 1,248,045
138,127
247,382
1,569,636
1,359,715
738,797
87,944
5,389,646
(14,987)
$ 5,374,659

$ 1,092,718
120,089
171,351
1,428,467
1,204,803
793,776
83,576
4,894,780
(12,174)
$ 4,882,606

Total loans increased $842.9 million, or 15.9% in 2003 ($319.1 million, or 6.0%, excluding Premier and the purchased agricultural
loans). Excluding the acquisitions, increases in total commercial loans ($45.6 million, or 2.7%), commercial mortgage loans ($177.2
million, or 11.6%), construction loans ($50.6 million, or 20.4%) and residential mortgages ($76.2 million, or 6.1%), were offset by
decreases in consumer loans ($27.1 million, or 5.0%) and leasing and other ($3.4 million, or 4.6%). Residential mortgage loans
increased due to an increase in home equity loans and consumer loans decreased due to increased competition in indirect auto lending.

In 2002, loans decreased $56.0 million, or 1.0%. Commercial loans increased $183.7 million, or 12.3%, and commercial mortgage
loans increased $99.1 million, or 6.9%. These increases were offset by decreases in residential mortgage loans ($224.0 million, or
15.3%), construction loans ($19.1 million, or 7.1%), consumer loans ($83.9 million, or 13.4%) and leasing and other loans ($11.7
million, or 13.6%).

Investment Securities

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

HTM

2003
AFS

Total

HTM

December 31
2002
AFS
(in thousands)

Total

HTM

2001
AFS

Total

U.S. Government and
agency securities................ $
State and municipal ................
Equity securities .....................
Corporate debt securities ........
Mortgage-backed securities....
Totals................................ $

7,728
4,462
-
640
10,163
22,993

82,439
298,030
212,352
28,656
2,282,680
$2,904,157

90,167
302,492
212,352
29,296
2,292,843
$2,927,150

8,568
4,679
-
50
19,387
32,684

97,304
249,866
155,138
300
1,880,999
$2,383,607

$ 105,872
254,545
155,138
350
1,900,386
$2,416,291

8,170
9,840
-
165
31,382
49,557

99,682
218,181
151,333
300
1,218,291
$1,687,787

$ 107,852
228,021
151,333
465
1,249,673
$1,737,344

Total investment securities increased $510.9 million, or 21.1%, ($327.1 million, or 13.5%, excluding Premier), to reach a balance of
$2.9 billion at December 31, 2003. In 2002, investment securities increased $678.9 million, or 39.1%, to reach a balance of $2.4
billion. The majority of the increase in both years was in mortgage-backed securities.

Fulton Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

The Corporation classified virtually its entire investment portfolio (99.2%) as available for sale at December 31, 2003 and, as such,
these investments were recorded at their estimated fair values. As rates continued to decrease and the Corporation reinvested funds
from existing mortgage-backed securities payoffs in new mortgage-backed securities, total net unrealized gains on non-equity
investments decreased $46.7 million to $3.8 million at December 31, 2003.

At December 31, 2003, equity investments consisted of FHLB and other government agency stock ($52.1 million), stocks of other
financial institutions ($86.5 million) and mutual funds and other ($73.8 million). The bank stock portfolio has historically been a
source of capital appreciation and realized gains ($17.5 million in 2003, $7.4 million in 2002 and $9.5 million in 2001). Management
periodically sells bank stocks when, in its opinion, valuations and market conditions warrant such sales.

Other Assets

Premises and equipment decreased $2.7 million, or 2.2%, in 2003 to $120.8 million, following a $2.2 million, or 1.7%, decrease in
2002. The decrease in both years was mainly due to excess branch and other properties disposed of during 2003 and 2002 and
depreciation of existing property.

Cash and due from banks decreased $13.9 million, or 4.4%, to $301.0 million in 2003, following a $41.7 million, or 11.7%, decrease
in 2002. Because of the daily fluctuations that result in the normal course of business, cash is more appropriately analyzed in terms of
average balances. On an average balance basis, cash and due from banks increased $26.5 million, or 10.4%, from $253.5 million in
2002 to $280.0 million in 2003 following an $11.8 million, or 4.9%, increase in 2002. Excluding the impact of Premier, the increases
in both years resulted from growth in the Corporation’s branch network.

Other assets, including accrued interest receivable and goodwill, increased $89.0 million, or 42.5%, in 2003 to $298.7 million,
following a $15.1 million, or 6.7%, decrease in 2002. The net increase in 2003 was primarily due to a $73.9 million increase in
goodwill and intangible assets recorded for Premier and an $8.7 million increase in the net deferred tax asset mainly as a result of a
decrease in the unrealized gains on investment securities. The net decrease in 2002 resulted mainly from an $11.8 million decrease in
the net deferred tax asset due to an increase in unrealized gains on investment securities.

The Corporation continued to increase its participation in affordable housing projects through investments in partnerships. Equity
investments of $8.4 million were made to five new partnerships in 2003. The Corporation made its initial investment of this type
during 1989 and is now involved in 56 partnerships, located in the communities served by its subsidiary banks. The carrying value of
these investments was approximately $40.0 million at December 31, 2003. With these investments, the Corporation not only improves
the quantity and quality of available housing for low income individuals in support of its banks’ Community Reinvestment Act
compliance efforts, but also becomes eligible for tax credits under Federal and, in some cases, state programs.

Deposits and Borrowings

Deposits increased $506.3 million, or 8.1%, to $6.8 billion at December 31, 2003 ($71.8 million, or 1.1%, excluding Premier). This
compares to an increase of $258.7 million, or 4.3%, in 2002. The recent trend has been moderate internal growth in deposit funding,
supplemented by acquisitions. The relatively poor performance of the equity markets in 2001 and 2002 led consumers to favor banks
over equity investments. In addition, the relatively low interest rate environment resulted in consumers favoring demand and savings
products over time deposit products.

During 2003, demand deposits increased $372.7 million, or 17.1% ($220.8, or 10.1%, excluding Premier), savings deposits increased
$222.4 million, or 14.5%, ($139.0 million, or 9.1%, excluding Premier), while time deposits decreased $88.8 million, or 3.5%,
($287.9 million, or 11.3%, excluding Premier).

During 2002, demand deposits increased $260.3 million, savings deposits increased $106.7 million and time deposits decreased
$108.2 million. Many of the trends experienced during 2002 began in 2001 when the FRB started its series of rate cuts.

Short-term borrowings, which consist mainly of Federal funds purchased and customer cash management accounts, increased $764.5
million, or 120.9% ($703.6 million, or 111.3%, excluding Premier), during 2003 after increasing $231.9 million, or 57.9%, in 2002.
In both years the increase resulted from the actions taken to manage the gap position and to take advantage of low funding rates.

Fulton Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Long-term debt increased $33.2 million, or 6.2%, during 2003, after increasing $78.8 million, or 17.2%, during 2002. The increase in
2003 was mainly due to the $25.0 million of junior subordinated debentures assumed from Premier. The increase in 2002 resulted
from the Corporation taking advantage of the lower rates available and increasing its borrowings from the Federal Home Loan Bank.

Shareholders’ Equity

Total shareholders’ equity of $946.9 million, or 9.7% of ending total assets, increased $83.2 million, or 9.6%, from December 31,
2002. Growth in shareholders’ equity generally results from comprehensive income during the period, offset by dividends paid to
shareholders, which have historically amounted to 40-50% of current period net income. Shareholders’ equity also increased $88.2
million as a result of stock issued for the Premier acquisition. This increase was somewhat offset by the purchase of $59.7 million of
treasury stock. In 2002, shareholders’ equity increased $52.3 million, or 6.4%. This higher growth rate in 2002 reflects fewer treasury
stock purchases.

The Corporation periodically implements stock repurchase plans for various corporate purposes. In addition to evaluating the
financial benefits of implementing repurchase plans, management also considers liquidity needs, the current market price per share
and relevant accounting and regulatory issues. Repurchase plans were significantly limited during periods when the Corporation
accounted for acquisitions using pooling of interests accounting. While Statement 142 removed these accounting restraints by
requiring the use of purchase accounting, recent SEC rules have placed additional restrictions on stock repurchases.

The Corporation has a stock repurchase plan that was originally approved by the Board of Directors in December 2002 and is
currently scheduled to terminate in June 2004. This plan allows for the repurchase of up to 5.8 million shares of the Corporation’s
common stock to be used for general corporate purposes. Through December 31, 2003 approximately 795,000 shares had been
repurchased under this plan.

The Corporation and its subsidiary banks are subject to various regulatory capital requirements administered by banking regulators.
Failure to meet minimum capital requirements can initiate certain actions by regulators that could have a material effect on the
Corporation’s financial statements. The regulations require that banks maintain minimum amounts and ratios of total and Tier I capital
(as defined in the regulations) to risk weighted assets (as defined), and Tier I capital to average assets (as defined). As of December
31, 2003, the Corporation and each of its bank subsidiaries met the minimum capital requirements. In addition, the Corporation and
each of its bank subsidiaries’ capital ratios exceeded the amounts required to be considered “well-capitalized” as defined in the
regulations.

Fulton Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Contractual Obligations and Off-Balance Sheet Arrangements

The Corporation has various financial obligations that may require future cash payments. These obligations include the payment of
liabilities recorded on the Corporation’s balance sheet as well as contractual obligations for purchased services or for operating leases.
The following table summarizes significant contractual obligations to third parties, by type, that are fixed and determinable at
December 31, 2003:

One Year
or Less

One to
Three Years

Payments Due In
Three to
Five Years
(in thousands)

Over Five
Years

Total

Deposits with no stated maturity (a).. $ 4,303,635
1,273,905
Time deposits (b)...............................
1,396,711
Short-term borrowings (c).................
5,000
Long-term debt (c) ............................
5,713
Operating leases (d)...........................
5,831
Purchase obligations (e) ....................

-
762,022
-
100,180
9,672
7,750

-
305,984
-
261,169
7,100
3,661

-
106,237
-
199,504
15,916
-

$ 4,303,635
2,448,148
1,396,711
565,853
38,401
17,242

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

Consolidated Financial Statements.

(d) See additional information regarding operating leases in “Note N – Leases” in the Notes to Consolidated Financial Statements.
(e) Includes significant information technology, telecommunication and data processing outsourcing contracts. Variable obligations,

such as those based on transaction volumes, are not included.

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

The following table summarizes the Corporation’s commitments to extend credit and letters of credit as of December 31, 2003 (in
thousands):

Commercial mortgage, construction and land development .......... $
Home equity ...................................................................................
Credit card......................................................................................
Commercial and other ....................................................................
Total commitments to extend credit

297,156
333,139
314,532
1,617,108
$ 2,561,935

Standby letters of credit..................................................................
Commercial letters of credit ...........................................................
Total letters of credit ................................................................. $

510,806
16,992
527,798

Fulton Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

CRITICAL ACCOUNTING POLICIES

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

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

- Identifying loans for individual review under FASB Statement of Financial Accounting Standards No. 114, “Accounting by
Creditors for Impairment of a Loan” (Statement 114). In general, these consist of large balance commercial loans and
commercial mortgages.

- Assessing whether the loans identified for review under Statement 114 are “impaired”. That is, whether it is probable that all

amounts will not be collected according to the contractual terms of the loan agreement.

- For loans identified as impaired, calculating the estimated fair value, using observable market prices, discounted cash flows

or the value of the underlying collateral.

- Classifying all non-impaired large balance loans based on credit risk ratings and allocating an allowance for loan losses

based on appropriate factors, including recent loss history for similar loans.

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

- Statement 5 loans are segmented into groups with similar characteristics and an allowance for loan losses is allocated to each

segment based on recent loss history and other relevant information.

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

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

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

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

Goodwill – With the adoption of Statements 142 and 147, effective on January 1, 2002, the Corporation discontinued the amortization
of goodwill associated with qualifying acquisitions. As of January 1, 2002, and at least annually thereafter, recorded goodwill is
subject to impairment testing to determine whether write-downs of the recorded balances are necessary. The Corporation performs its
annual goodwill impairment test as of October 31st of each year.

The Corporation tests for impairment by first allocating its goodwill and other assets and liabilities, as necessary, to defined reporting
units. A fair value is then determined for each reporting unit. If the fair values of the reporting units exceed their book values, no
write-down of the recorded goodwill is necessary. If the fair values are less than the book values, an additional test is necessary to
assess the proper carrying value of the goodwill. The Corporation determined that no impairment write-offs were necessary during
2003 and 2002.

Fulton Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

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

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

The Corporation must also evaluate the likelihood that deferred tax assets will be recovered from future taxable income. If any such
assets are not likely to be recovered, a valuation allowance must be recognized. The Corporation has determined that a valuation
allowance is not required for deferred tax assets as of December 31, 2003. The assessment of the carrying value of deferred tax assets
is based on certain assumptions, changes in which could have a material impact on the Corporation’s financial statements.

Recent Accounting Pronouncements

Note A of the Notes to Consolidated Financial Statements discusses the expected impact of recently issued accounting standards
which have not yet been adopted by the Corporation.

MARKET RISK

Market risk is the exposure to economic loss that arises from changes in the values of certain financial instruments. The types of
market risk exposures generally faced by financial institutions include interest rate risk, equity market price risk, foreign currency risk
and commodity price risk. Due to the nature of its operations, only equity market price risk and interest rate risk are significant to the
Corporation.

Equity Market Price Risk
Equity market price risk is the risk that changes in the values of equity investments could have a material impact on the financial
position or results of operations of the Corporation. The Corporation’s equity investments consist primarily of common stocks of
publicly traded financial institutions (cost basis of approximately $71.3 million, fair value of $86.1 million at December 31, 2003).
The Corporation’s financial institutions stock had gross unrealized gains of approximately $15.4 million at December 31, 2003.

Although the carrying value of financial institutions stock accounted for less than 1.0% of the Corporation’s total assets, the
unrealized gains on the portfolio represent a potential source of revenue. The Corporation has a history of periodically realizing gains
from this portfolio and, if values were to decline significantly, this revenue source could be lost.

Management continuously monitors the fair value of its equity investments and evaluates current market conditions and operating
results of the companies. Periodic sale and purchase decisions are made based on this monitoring process. None of the Corporation’s
equity securities are classified as trading. Future cash flows from these investments are not provided in the table on page 26 as such
investments do not have maturity dates.

Through early 2003, certain of the Corporation’s equity investments had shown negative returns in tandem with the general
performance of equity markets. The Corporation evaluated, based on existing accounting guidance, whether the decreases in value of
any of these investments constituted “other than temporary” impairment, which would require a write-down through a charge to
earnings. In 2003, the Corporation recorded write-downs of $3.3 million for specific equity securities which were deemed to exhibit
“other than temporary” impairment in value. As of December 31, 2003, those individual securities had recovered approximately $2.0
million of the amount written down. Additional impairment charges may be necessary depending upon the performance of the equity
markets in general and the performance of the individual investments held by the Corporation.

In addition to its equity portfolio, the Corporation’s investment management and trust services revenue could be impacted by
fluctuations in the securities markets. A portion of the Corporation’s trust revenue is based on the value of the underlying investment

Fulton Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

portfolios. If securities markets contract, the Corporation’s revenue could be negatively impacted. In addition, the ability of the
Corporation to sell its brokerage services is dependent in part, upon consumers’ level of confidence in the outlook for rising securities
prices.

Interest Rate Risk and Asset/Liability Management
Interest rate risk creates exposure in two primary areas. First, changes in rates have an impact on the Corporation’s liquidity position
and could affect its ability to meet obligations and continue to grow. Second, movements in interest rates can create fluctuations in the
Corporation’s net interest income and changes in the economic value of its equity.

The Corporation employs various management techniques to minimize its exposure to interest rate risk. An Asset/Liability
Management Committee (ALCO), consisting of key financial and senior management personnel, meets on a weekly basis. The ALCO
is responsible for reviewing the interest rate sensitivity position of the Corporation, approving asset and liability management policies,
and overseeing the formulation and implementation of strategies regarding balance sheet positions and earnings. The primary goal of
asset/liability management is to address the liquidity and net interest income risks noted above.

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

The Corporation’s sources and uses of cash were discussed in general terms in the “Net Interest Income” section of Management’s
Discussion. The Consolidated Statements of Cash Flows provide additional information. The Corporation generated $187.9 million in
cash from operating activities during 2003, mainly due to net income. Investing activities resulted in a net cash outflow of $825.9
million, compared to a net cash outflow of $604.4 million in 2002, as proceeds from sales and maturities of investment securities
decreased in proportion to purchases in both periods. Finally, financing activities resulted in a net inflow of $624.0 million in 2003
and $468.0 million in 2002 as excess funds from net deposit growth and borrowings exceeded net common stock activity in both
periods

Liquidity must also be managed at the Fulton Financial Corporation parent company level. For safety and soundness reasons, banking
regulations limit the amount of cash that can be transferred from subsidiary banks to the Parent Company in the form of loans and
dividends. Generally, these limitations are based on the subsidiary banks’ regulatory capital levels and their net income. The Parent
Company has historically been able to meet its cash needs through normal, allowable dividends and loans. If additional cash needs
arise that cannot be met through such dividends and loans, the Parent Company may need to pursue alternative funding sources,
including stock or debt issuances.

At December 31, 2003, liquid assets (defined as cash and due from banks, short-term investments, mortgages available for sale,
securities available for sale, and non-mortgage-backed securities held to maturity due in one year or less) totaled $3.2 billion, or
33.2% of total assets. This compares to $2.8 billion, or 33.1% of total assets, at December 31, 2002.

Fulton Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

The following tables set forth the maturities of investment securities at December 31, 2003 and the weighted average yields of such
securities (calculated based on historical cost).

HELD TO MATURITY (at amortized cost)

MATURING

Within One Year
Yield

Amount

After One But
Within Five Years
Yield

Amount

After Five But
Within Ten Years
Yield

Amount
(dollars in thousands)

After Ten Years

Amount

Yield

U.S. Government and
agency securities .................... $
State and municipal (1) ...............
Other securities ...........................
Totals ....................................... $

675
2,488
90
3,253

6.13% $
4.52
3.07
4.81% $

4,516
560
550
5,626

3.61% $
4.41
2.79
3.61% $

2,221
1,414
-
3,635

4.93% $
7.85
-
6.06% $

316
-
-
316

7.61%

-
-

7.61%

Mortgage-backed securities (2) .. $ 10,163

6.05%

AVAILABLE FOR SALE (at estimated fair value)

MATURING

Within One Year
Yield

Amount

After One But
Within Five Years
Yield

Amount

After Five But
Within Ten Years
Yield

Amount
(dollars in thousands)

After Ten Years

Amount

Yield

U.S. Government and
agency securities .................... $
State and municipal (1) ...............
Other securities ...........................
Totals ....................................... $

53,205
10,167
13,136
76,508

1.36% $ 29,234
129,610
6.15
3,660
5.00
2.62% $ 162,504

-
2.07% $
129,786
6.05
-
5.95
5.33% $ 129,786

Mortgage-backed securities (2) .. $2,282,680

3.64%

-% $

4.77
-

-
28,467
11,860
4.77% $ 40,327

8.22
3.74
6.90%

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

(2) Maturities for mortgage-backed securities are dependent upon the interest rate environment and prepayments on the underlying loans. For the purpose of this table,

the entire balance and weighted average rate is shown in one period.

The Corporation’s investment portfolio consists mainly of mortgage-backed securities, which do not have stated maturities. Cash
flows from such investments are dependent upon the performance of the underlying mortgage loans, and are generally influenced by
the level of interest rates. As rates increase, cash flows generally decrease as prepayments on the underlying mortgage loans slow. As
rates decrease, cash flows generally increase as prepayments increase. The Corporation invests primarily in five and seven year
balloon mortgage-backed securities.

Fulton Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

The following table summarizes the approximate contractual maturity and sensitivity of certain loan types, excluding consumer loans
and leases, to changes in interest rates as of December 31, 2003:

One Year
or Less

One
Through
Five Years

More Than
Five Years

Total

(in thousands)

Commercial, financial and agricultural:
Floating rate ................................................ $
Fixed rate ....................................................
Total ....................................................... $

366,215
195,872
562,087

342,417
361,347
703,764

Real-estate – mortgage:
Floating rate ................................................ $
Fixed rate ....................................................
Total ....................................................... $

457,781
537,162
994,943

278,817
1,165,663
$ 1,444,480

Real-estate – construction:
Floating rate ................................................ $
Fixed rate ....................................................
Total ....................................................... $

57,172
63,302
120,474

35,465
41,564
77,029

550,201
132,916
683,117

$ 1,258,833
690,135
$ 1,948,968

182,811
695,027
877,838

919,409
2,397,852
$ 3,317,261

48,016
61,590
109,606

140,653
166,456
307,109

From a funding standpoint, the Corporation has been able to rely over the years on a stable base of "core" deposits. Even though the
Corporation has experienced notable changes in the composition and interest sensitivity of this deposit base, it has been able to rely on
this base to provide needed liquidity.

The Corporation also has access to sources of large denomination or jumbo time deposits and repurchase agreements as potential
sources of liquidity. However, the Corporation has attempted to minimize its reliance upon these more volatile short-term funding
sources and to use them primarily to meet the requirements of its existing customer base or when it is profitable to do so.

Maturities of time deposits of $100,000 or more outstanding at December 31, 2003 are summarized as follows (in thousands):

Three months or less.................................. $
Over three through six months ..................
Over six through twelve months................
Over twelve months...................................
Total ..................................................... $

84,457
70,390
75,759
220,360
450,966

Each of the Corporation's subsidiary banks is a member of the FHLB and has access to FHLB overnight and term credit facilities. At
December 31, 2003, the Corporation had $532.3 million in term advances from the FHLB with an additional $1.1 billion of
borrowing capacity (including both short-term funding on its lines of credit and long-term borrowings). This availability, along with
Federal funds lines at various correspondent commercial banks, provides the Corporation with additional liquidity.

Fulton Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

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

Fixed rate loans (1) ..................
Average rate.........................
Floating rate loans (1) ..............
Average rate.........................

Fixed rate investments (1)(2) ...
Average rate………………….
Floating rate investments (1)(2)
Average rate.........................

2003

2004

Expected Maturity Period
2006

2005

2007

Beyond

Total

Estimated
Fair Value

$ 937,942

$ 645,389

$ 501,262

$ 387,986

$ 253,538

$ 799,059

$3,525,176

$ 3,629,973

6.41%

6.50%

6.43%

6.55%

6.48%

6.63%

6.49%

977,191

275,959

224,287

180,395

131,338

845,648

2,634,818

4.59%

4.63%

4.54%

4.61%

4.74%

4.16%

4.46%

736,832

520,542

345,357

253,552

363,757

486,125

2,706,165

2,710,626

3.66%

3.96%
344
-
5.85% -

3.77%

3.85%

3.79%

-
-

3.56%
4,523
2.94%

-
-

3.77%
4,867
3.15%

37,320

5.37%

4,867

37,320

Other interest-earning assets ....
Average rate.........................

37,320

-
5.37% -

Total ........................................
Average rate ........................

$2,689,629

$1,441,890

$1,070,906

$ 821,933

$ 748,633

$2,135,355

5.06%

5.11%

5.18%

5.29%

4.87%

4.95%

$8,908,346
5.06%

$ 9,017,604

Fixed rate deposits (3)..............
Average rate.........................
Floating rate deposits (4)..........
Average rate.........................

$1,204,082

$ 443,872

$ 185,566

$ 211,655

$ 70,873

$ 74,420

$2,190,468

$ 2,223,109

2.24%

3.15%

3.71%

4.66%

3.37%

4.68%

2.90%

2,002,702

156,046

1,934,429

4,561,315

0.91%

0.16%

0.13%

0.48%

Fixed rate borrowings (5).........
Average rate.........................
Floating rate borrowings (6) ....
Average rate.........................

Total ........................................
Average rate ........................

66,360

1.58%

83,250

6.29%

15,265

3.24%

55,414

3.46%

206,286

176,952

603,527

595,496

4.95%

5.41%

4.72%

1,346,914

-
0.95% -

-
-

15,000

-
4.89% -

-
-

1,361,914

0.99%

$4,620,058

$ 683,168

$ 356,877

$ 438,115

$ 433,205

$2,185,801

$8,717,224

$ 8,741,834

1.28%

2.85%

2.14%

2.91%

2.96%

.71%

1.46%

Assumptions:

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

(2) Average rates are shown on a fully taxable equivalent basis using an effective tax rate of 35%.

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

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

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

(6) Amounts include Federal funds purchased and securities sold under agreements to repurchase, which mature in less than 90 days, and floating rate FHLB

advances.

The preceding table and discussion addressed the liquidity implications of interest rate risk and focused on expected contractual cash
flows from financial instruments. Expected maturities, however, do not necessarily estimate the net interest income impact of interest
rate changes. Certain financial instruments, such as adjustable rate loans, have repricing periods that differ from expected cash flows.

The Corporation uses three complementary methods to measure and manage interest rate risk. They are static gap analysis, simulation
of earnings, and estimates of economic value of equity. Using these measurements in tandem provides a reasonably comprehensive
summary of the magnitude of interest rate risk in the Corporation, level of risk as time evolves, and exposure to changes in interest
rates.

Fulton Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Static gap provides a measurement of repricing risk in the Corporation’s balance sheet as of a point in time. This measurement is
accomplished through stratification of the Corporation’s assets and liabilities into repricing periods. The assets and liabilities in each
of these periods are compared for mismatches within that maturity segment. Core deposits not having a contractual maturity are
placed into repricing periods based upon historical balance performance. Repricing for mortgage loans and for mortgage-backed
securities includes the effect of expected cash flows. Estimated prepayment effects are applied to these balances based upon industry
projections for prepayment speeds. The Corporation’s policy limits the cumulative 6-month gap to plus or minus 15% of total earning
assets. The cumulative 6-month gap as of December 31, 2003 was 0.88. The following is a summary of the interest sensitivity gaps
for various time intervals as of December 31, 2003:

GAP......................................

CUMULATIVE GAP...........

0-90
Days

0.85

91-180
Days

1.14

0.88

181-365
Days

1.35

0.95

Simulation of net interest income is performed for the next twelve-month period. A variety of interest rate scenarios is used to
measure the effects of sudden and gradual movements upward and downward in the yield curve. These results are compared to the
results obtained in a flat or unchanged interest rate scenario. Simulation of earnings is used primarily to measure the Corporation’s
short-term earnings exposure to rate movements. The Corporation’s policy limits the potential exposure of net interest income to 10%
of the base case net interest income for every 100 basis point “shock” in interest rates. A “shock” is an immediate upward or
downward movement of interest rates across the yield curve based upon changes in the prime rate. The following table summarizes
the expected impact of interest rate shocks on net interest income (due to the current low rates, only the 100 basis shock in a
downward scenario is shown):

Annual change
in net interest
income
$7.3 million
+
+
$8.0 million
+ $7.6 million
- $18.9 million

Rate Shock
+300 bp
+200 bp
+100 bp
-100 bp

% Change
+2.3%
+2.5%
+2.4%
-6.0%

Fulton Financial Corporation

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Economic value of equity estimates the discounted present value of asset cash flows and liability cash flows. Discount rates are based
upon market prices for like assets and liabilities. Upward and downward shocks of interest rates are used to determine the
comparative effect of such interest rate movements relative to the unchanged environment. This measurement tool is used primarily to
evaluate the longer term repricing risks and options in the Corporation’s balance sheet. A policy limit of 10% of economic equity may
be at risk for every 100 basis point “shock” movement in interest rates. The following table summarizes the expected impact of
interest rate shocks on economic value of equity (due to the current low rates, only the 100 basis shock in a downward scenario is
shown):

Change in
economic value
of equity
- $150.0 million
- $108.2 million
- $44.1 million
$9.6 million
-

Rate Shock
+300 bp
+200 bp
+100 bp
-100 bp

% Change
-11.5%
-8.3%
-3.4%
-0.7%

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

Common Stock

As of December 31, 2003, the Corporation had 108.3 million shares of $2.50 par value common stock outstanding held by 34,328
shareholders. The common stock of the Corporation is traded on the national market system of the National Association of Securities
Dealers Automated Quotation System (NASDAQ) under the symbol FULT.

The following table presents the quarterly high and low prices of the Corporation's common stock and per-share cash dividends
declared for each of the quarterly periods in 2003 and 2002. Per-share amounts have been retroactively adjusted to reflect the effect of
stock dividends.

Price Range

2003
First Quarter ............ $
Second Quarter ........
Third Quarter ..........
Fourth Quarter ........

2002
First Quarter............... $
Second Quarter ..........
Third Quarter .............
Fourth Quarter ...........

High

18.19
21.00
21.50
22.00

19.28
19.41
18.66
18.21

Low

16.69
17.86
19.25
19.75

16.11
17.36
15.91
16.11

Per-Share
Dividend

0.143
0.160
0.160
0.160

0.130
0.143
0.143
0.143