Fulton Financial Annual Report 2004

FY2004 Annual Report · Fulton Financial

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f u l t o n f i n a n c i a l c o r p o r a t i o n

Banking Subsidiaries:
Fulton Bank
Lebanon Valley Farmers Bank
Swineford National Bank
Lafayette Ambassador Bank

FNB Bank, N.A.
Hagerstown Trust
Delaware National Bank
The Bank

The Peoples Bank of Elkton
Skylands Community Bank
Premier Bank
Residential lending offered through Fulton Mortgage Company and Resource Mortgage

Resource Bank
First Washington State Bank

Financial Services Affiliates:
Fulton Financial Advisors, N.A.
Dearden, Maguire, Weaver, and Barrett, LLC
Fulton Insurance Services Group, Inc.

One Penn Square, P.O. Box 4887, Lancaster, PA 17604, 1-800-FULTON-4, www.fult.com

Working together beautifully.
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AT FULTON FINANCIAL, our strategy for creating value is somewhat unique in our industry. We find that our approach has

much in common with the attractive colors and distinctive shapes that complement one another within a kaleidoscope.

In a kaleidoscope, unique and shining pieces of glass come together to create a series of beautiful patterns. In much the

same way, our affiliate banks and financial services companies work in concert with one another to create value for you, our

shareholder. Our family of independent community banks, each a reflection of the market it serves, works in harmony to create

a strong corporation that is able to deliver attractive returns for investors.

Financial Highlights
(Dollars in thousands, except per-share data)

per-share data
Net income (diluted)
Cash dividends
Shareholders’ equity

2004
1.27
0.647
9.88

2003
1.22
0.593
8.33

at year end
Total assets
Loans, net of unearned
Deposits
Shareholders’ equity

Shares outstanding
Number of shareholders
Number of employees

$ 11,158,000
7,585,000
7,896,000
1,242,000

125,720,000
45,440
3,700

$ 9,767,000
6,160,000
6,752,000
947,000

p e r c e n t c h a n g e

2002
1.17
0.531
7.75

2004/2003
4%
9%
19%

2003/2002
4%
12%
7%

8,388,000
5,317,000
6,246,000
864,000

14%
23%
17%
31%

16%
16%
8%
10%

While our presence continues to expand geographically and our company grows and responds to the changing

Net income per share
( d i l u t e d )

Dividends per share

Return on average equity
( t a n g i b l e ) *

financial services industry over time, our corporate philosophy and commitment to our successful business model remains

constant. We believe our focus on creating

success for our customers, our employees and our

communities will continue to benefit you,

our shareholder, in the years to come.

* Net income divided by average shareholders’ equity, net of goodwill and intangible assets.

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l e t t e r t o o u r s h a r e h o l d e r s

W o r k i n g t o g e t h e r b e a u t i f u l l y .

hree simple words that sum up how Fulton Financial’s affiliate banks and

We ended the year with $11.2 billion in assets and a market capitalization of

• At the annual meeting, we also unveiled a significantly enhanced corporate website.

eastern Pennsylvania. Following this acquisition, Abraham S. Opatut joined the

financial services companies create success for our shareholders, our customers,

$2.9 billion, which makes us the second largest commercial bank headquartered in the

The newly designed site has much more information of interest to investors,

Fulton Financial board. Abe is president of Colonial Foods Inc. and Colonial

our employees and our communities. We hope you have been pleased with how our

Third Federal Reserve District. As of December 31, 2004, we operated 224 branches

including stock information, deposit market share information, analyst estimates, an

Marketing Associates.

unique business model has translated into strong performance and attractive returns for

located in Pennsylvania, New Jersey, Delaware, Maryland and Virginia.

event calendar, email notification and a frequently-asked questions page. Be sure to

• In January 2005, we announced our intent to acquire SVB Financial Services, Inc.

you, our shareholder, through the years. We are pleased to report continued solid

performance for 2004 as well.

In 2004, our net income per share increased 4.1% to $1.27 on total net income of

$152.9 million. These results represent a return on average assets of 1.48% and a return

on average tangible equity of 18.64%. The Corporation’s total capital was $1.2 billion at

December 31, 2004, representing a book value per share of $9.88 and a tangible book

value per share of $6.78.

Fulton Financial Corporation’s stock closed the year at $23.31 per share, compared to

the 2003 close of $20.86, which is adjusted for the five percent stock dividend paid in June

2004. Long-term shareholders have realized an attractive return on their investment in Fulton

Financial. For example, if you owned 100 shares of Fulton Financial Corporation common

stock on June 30, 1982, when the Corporation was formed, your investment was $1,750. By

Our consistent performance is reflected in our financial highlights and in the

following milestones and accomplishments:

• We had the honor of presiding over the Market Opening Ceremony at the NASDAQ

Stock Exchange. Fulton Financial has been listed on the NASDAQ exchange

(ticker symbol: FULT) since 1985, and it was a privilege to be able to recognize the

achievements of our employees during this nationally televised ceremony.

• Resource Bank, headquartered in Virginia Beach, became a part of Fulton Financial

and enabled us to establish a presence in several thriving Virginia markets. The

addition of Resource Bank, along with that of Premier Bank in August of 2003,

positively impacted the Corporation’s loan and deposit growth as well as our results

of operations.

visit us at www.fult.com.

and its banking subsidiary, Somerset Valley Bank, based in Somerville, NJ. This

• We recognized the outstanding service and dedication of three members of our board

acquisition enables us to further solidify our presence in New Jersey markets and

of directors who had reached the Corporation’s mandatory retirement age: Fred

further enhance banking convenience for our existing New Jersey customers. With

Fichthorn, chairman of the board of F&M Hat Company, who joined the board in

the addition of First Washington and Somerset Valley, we will serve 14 of the 21

1993; Sam Jones, founder of SJ Transportation Company, who joined the board in

counties in New Jersey and offer 64 community banking locations in those markets.

1997; and Stu Raub, retired chairman of the board of Industrial Piping Systems, Inc.,

In the coming months, we will continue to focus on maintaining our strong asset

who joined the board in 1982. We also welcomed Tom Hunt, chairman of the Resource

quality, growing our net interest margin, increasing our non-interest income by continuing

Bank board, to the Corporation’s board of directors. Tom is president of Management

to aggressively market Fulton Financial Advisors and our mortgage lending activities

Marketing Services, Inc. and is president and chairman of Digital Access Control, Inc.

throughout our company, expanding our franchise geographically into high-growth areas,

• We completed our acquisition of First Washington State Bank, which is based in

increasing loan activity and growing core deposits. We believe that the results we achieve

Windsor, NJ. First Washington has assets of approximately $494 million and

through these activities will enable us to continue to earn your confidence.

operates 16 community banking offices in Mercer, Monmouth and Ocean

As always, we thank you for the investment you have made in Fulton Financial and

doing nothing more than holding on to those shares, as of December 31, 2004, you would

• We enjoyed the opportunity to meet with nearly 2,000 of our shareholders at our

Counties in New Jersey. Our union with First Washington enhances our

appreciate your confidence in both our philosophy and our team.

have owned 1,645 shares, valued at $38,345, for a compounded annual rate of return of 15%

annual meeting. At that time, we announced that shareholders’ total dividends

geographic franchise by expanding our presence into central New Jersey.

over the 23-year period. If you had taken advantage of our dividend reinvestment plan, that

would increase by 8.3% due to a five percent stock dividend and an

These additional banking offices now provide increased convenience for

same investment of $1,750 in 1982 would have had a 2004 year-end market value of $83,833,

increase in the regular quarterly cash dividend to 16.5 cents per share.

our existing customers in northern and southern New Jersey and

representing 3,596 shares, for a compounded annual rate of return of 19%.

Rufus A. Fulton, Jr.
Chairman and
Chief Executive Officer

R. Scott Smith, Jr.
President and
Chief Operating Officer

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Working together

s e a m l e s s l y t o c r e a t e v a l u e f o r o u r s h a r e h o l d e r s , c u s t o m e r s , e m p l o y e e s a n d c o m m u n i t i e s .

Our decentralized business model drives everything we do

here at Fulton Financial. It exemplifies who we are, what we believe

in, and where we’re headed. As our company has grown, it is this

model, with its network of independent affiliates, that has

distinguished us from our peers.

At its simplest, our unique model allows each bank that

joins our Corporation to retain the qualities that create value for

(From left to right)
John Soffronoff, Premier
Bank, Ted Grell, Resource
Bank, and Lynda Messick,
Delaware National Bank,
meet with fellow Fulton
affiliate bank CEOs
and Presidents.

its customers - the bank’s name, its employees, its board of

consistent strong performance over time, which, in turn, leads to

that if we joined the company, they would want us to continue

directors, and its local decision-making ability. Frequently, so

a strong investment for you, our shareholder. Our way of doing

doing what had made us so successful in the past. In fact, they

little changes after a bank becomes a part of the Fulton family

business enables Fulton Financial to compare favorably to our

wanted to help us expand our presence in Virginia. Most

that some of the bank’s customers might not realize a change has

peers and to the top 50 banks in the country in many key

importantly, they wanted to keep our employees, which we knew

taken place at all!

performance measures, year after year.

would help keep our customers happy as well. Fulton is a solid

This autonomy enables each of our banks to make strong,

Our philosophy has enabled us to continue to grow by

individual contributions to the overall success of Fulton Financial.

attracting new, high performing banks to our franchise. Most

organization with a wonderful track record for growth and

strong earnings, so our decision was an easy one. Lots of banks

Your investment in Fulton Financial is actually an investment in

recently, we expanded into high growth areas in Virginia with our

13 thriving community banks, each guided by a common

acquisition of Resource Bank. When asked why the bank decided

philosophy, code of ethics, and set of overall financial goals. Our

to join with Fulton Financial, Ted Grell, Resource Bank’s CEO

model and the hard work of our talented employees help create

and president, said “Fulton Financial’s management made it clear

had approached us over the years, but the idea of

joining with one of them never felt right

until we found Fulton.”

Fulton Bank

The Bank

Delaware National Bank

FNB Bank

Hagerstown Trust

Lafayette Ambassador Bank

Lebanon Valley Farmers Bank

The Peoples Bank of Elkton

Premier Bank

Resource Bank

Skylands Community Bank

Swineford National Bank

First Washington State Bank

Somerset Valley Bank (acquisition pending)

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(From left to right)
Kathy Jeffers, Vice
President/Relationship
Manager with Fulton
Financial Advisors,
meets with Kim Mertz
and Susan Kent of Fine
Line Homes to discuss
their company’s retire-
ment plan.

Working together

e f f e c t i v e l y t o o f f e r a w i d e r a n g e o f

f i n a n c i a l p r o d u c t s a n d s e r v i c e s t o m e e t t h e u n i q u e n e e d s o f

e a c h o f o u r c u s t o m e r s .

Mike Firestine, Senior
Vice President/Senior
Agricultural Loan
Officer and farmer, at
the Irvin Z. Brubaker
family’s dairy farm in
Lebanon County, PA.

Although our affiliate banks operate as individual

with the farm and agricultural business relationships we’ve enjoyed

product that combines daily liquidity and enhanced investment

community banks, because they are part of a multi-

for more than 120 years, have made us the largest agricultural

return to more than 125 clients. We service approximately $700

billion-dollar corporation, the products and services

bank lender in the Northeast. Since our agricultural relationship

million in assets through this program. In addition, through our

each can offer match the depth and sophistication of those offered

managers are farmers themselves, we are able to offer farmers and

Cash Management Department, we provide lockbox services that

by many of the largest banks in the country.

agribusinesses very personalized service and an in-depth

allow companies to have their customers send payments directly

Our unique business model enables us to share specialized

understanding of the products they need and want.

to the bank, where they are processed, imaged and deposited

expertise across the entire company to meet the unique needs of

What’s more, our highly trained, experienced staff can offer

quickly and efficiently.

each retail or business customer. Through the strength of our

the sophisticated products many larger commercial clients desire.

Because of the collective strength of our individual

multi-bank holding company, each of our affiliate banks can

Through Fulton Financial Advisors, we offer efficient, qualified

affiliates, we can provide the depth of products and services

provide products and services other independent community

retirement plan administration services to more than 350 plan

our customers need to meet their unique financial goals

banks may not be able to offer. For example, our purchase of a

sponsors and service nearly $1 billion in assets. We also provide

and objectives.

sizeable agricultural loan portfolio just over a year ago, together

cash reserve investment management, an extremely innovative

Fulton’s Lockbox
area, where
payments are
received, a digital
image is made, and
funds are
immediately
deposited into
a business
customer’s account.

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Working together

Another strength of our business model is that we

are able to capitalize on the wide array of services

offered by a company of our size, but deliver them

in a highly personalized style that is more frequently associated

with small community banks. Although our company is one of the

largest 50 banks in the country, each of our affiliate banks is deeply

rooted in the community it serves. This focus enables them to

provide the personalized service and local leadership you won’t

necessarily find with larger banks.

c r e a t i v e l y t o p r o v i d e s e r v i c e t h a t ’ s b o t h p r o m p t a n d p e r s o n a l .

We know the key to offering this exceptional customer service

From developing leaders within our company through our

is recruiting, retaining and rewarding highly talented employees.

Management Training Program to enabling employees to make

That’s why we invest significant time and energy into providing

decisions in their local markets, Fulton Financial is committed to

competitive salaries, comprehensive benefits, and training and

the success of our strongest asset - our employees.

development programs. These help our employees to achieve

career success, and their satisfaction with their jobs enhances the

level of service they provide to our customers.

After all, having a group of satisfied employees, working

together beautifully towards a common goal, not only fosters

individual growth and corporate success, but also yields strong

performance and rock-solid customer relationships.

Angela Snyder
(right), President of
Retail Services at
The Bank, reviews a
loan request with
Vice President
Sharon Bianchi,
manager of the
Mantua branch.

Members of
Fulton Financial’s
Management Training Program
work together on a
team-building exercise.

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FULTON FINANCIAL CORPORATION
SENIOR MANAGEMENT

Rufus A. Fulton, Jr.
Chairman and
Chief Executive Officer

R. Scott Smith, Jr.
President and
Chief Operating Officer

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

Richard J. Ashby, Jr.
Executive Vice President

(From left to right)
Richard J. Ashby, Jr., Rufus A. Fulton, Jr.,
R. Scott Smith, Jr., Charles J. Nugent

FULTON BANK
DIVISIONAL BOARDS

Capital Division
Robert S. Jones, Chairman
James C. Byerly
Samuel T. Cooper III, Esq.
Steven S. Etter
Dolores Liptak
Barry E. Musser, C.P.A.
George A. Parmer

Drovers Division
A. Richard Pugh, Chairman
Vernon L. Bracey
Robert S. Freed
David W. Freeman
George W. Hodges
Richard M. Linder
Harlowe R. Prindle
Gary A. Stewart
Robert H. Stewart, Jr.
Delaine A. Toerper
James S. Wisotzkey

Great Valley Division
Gerald A. Nau, Chairman
Michael Fromm
Kathryn G. Goodman
Daniel M. Goodyear
Carolyn R. Holleran
William G. Koch, Sr., C.P.A.

FULTON FINANCIAL
CORPORATION

Board of Directors
Jeffrey G. Albertson, Esq.
Donald M. Bowman, Jr.
Craig A. Dally, Esq.
Clark S. Frame
Patrick J. Freer
Rufus A. Fulton, Jr.
Eugene H. Gardner
Charles V. Henry III, Esq.
J. Robert Hess
George W. Hodges
Carolyn R. Holleran
Clyde W. Horst
Thomas W. Hunt
Donald W. Lesher, Jr.
Joseph J. Mowad, M.D.
Abraham S. Opatut
Mary Ann Russell
John O. Shirk, Esq.
R. Scott Smith, Jr.
Gary A. Stewart

SOLICITORS

Barley, Snyder, Senft & Cohen, LLC

FULTON BANK

Board of Directors
Richard J. Ashby, Jr.
Larry D. Bashore
Dana A. Chryst
Eugene H. Gardner
James M. Herr
Harlowe R. Prindle
A. Richard Pugh
John O. Shirk, Esq.
E. Philip Wenger
James S. Wisotzkey

FULTON BANK
ADVISORY BOARDS

Akron/Lincoln/Ephrata
Larry L. Loose, Chairman
Fred N. Buch
Richard A. Hess
Louis G. Hurst
Kent M. Martin

Denver
Michael L. Weinhold, C.P.A.,
Chairman
Larry L. Gensemer
Gerald L. Harding
Ralph W. Roseboro

East Petersburg
Donald C. Emich, Chairman
William R. Gamber II
Kenneth L. Kreider
Jessica H. May

Elizabethtown
Sherri L. Gorman, Chairman
Nancy Z. Garber
Richard B. Kreamer
David B. Mueller
David W. Sweigart III

Gap
Aldus R. King, Chairman
A. Charles Artinian
Ruth D. Doutrich

Hershey/Hummelstown
Charles J. DeHart III, Esq.,
Chairman
Jack B. Billmyer
Thomas S. Davis, M.D.
Joan E. Spire
Daniel A. Verdelli

Leola
Joanne B. Ladley, Chairman
Robert M. Bard
Richard M. Hurst

Lititz
Ronald L. Miller, C.P.A., Chairman
Irel D. Buckwalter
Wilbur G. Rohrer
Paul W. Stauffer

Manheim
Peter J. Hondru, Chairman
H. Reid Graybill
Peter B. McCracken
Robert W. Obetz, Jr.
Larry D. Sauder
J. David Young, Jr., Esq.

New Holland
R. Douglas Good, Esq., Chairman
Vernon R. Martin
John D. Yoder

Oxford
Wilmer L. Hostetter
James D. McLeod, Jr.

Quarryville
Dwight E. Wagner, Chairman
Frank M. Abel, V.M.D.
John E. Chase
James W. Hostetter, Sr., C.P.A.

Agriculture Advisory Board
Harry H. Bachman
Amos J. Balsbaugh
I. Hershey Bare
Henry M. Berger
Richard E. Brandt
P. Larry Groff, Sr.
Dennis L. Grumbine
William Hostetter
Amos M. Hursh
Aldus R. King
Jay H. Kopp
Peter B. McCracken
John N. Oberholtzer

AFFILIATE BANK
BOARDS OF DIRECTORS

Lebanon Valley Farmers Bank

Randall I. Ebersole
Patrick J. Freer
Robert J. Funk
Harry J. Gensemer
Charles V. Henry III, Esq.
Robert P. Hoffman
Wendie DiMatteo Holsinger
Donald W. Lesher, Jr.
Robert J. Longo
Andrew M. Marhevsky
Albert B. Murry
Leonard H. Schott
M. Randolph Tice

Swineford National Bank
Thomas C. Clark, Esq.
Richard F. Erdley
Ann E. Kaye
Michael N. O’Keefe
Edwin A. Rhoads
Michael R. Wimer
Gene D. Zartman

Lafayette Ambassador Bank
Gary A. Clewell
Craig A. Dally, Esq.
L. Anderson Daub
Thomas J. Maloney, Esq.
Alan B. McFall, Esq.
Jamie P. Musselman
Robert A. Rupel
John J. Simon
Robert C. Wood

FNB Bank, N.A.
Robert O. Booth
Richard A. Grafmyre
James D. Hawkins
Joseph J. Mowad, M.D.
Joanne E. Wade

Hagerstown Trust
Donald M. Bowman, Jr.
James C. Bryan
Raymond A. Grahe
Donald R. Harsh, Jr.
Doris E. Lehman
Bernard P. Lesky
Paul C. Mellott, Jr.
Lynn F. Meyers, Esq.

Delaware National Bank
Dale R. Dukes
Jeffrey M. Fried
Amy A. Higgins
Mark E. Huntley
Greg N. Johnson
Terry A. Megee
Lynda A. Messick
Ronald T. Moore
Paul H. Mylander
Ralph W. Simpers
David T. Wilgus
Gordon E. Wood Sr., Esq.

The Bank
Joseph F. Adams, C.P.A.
Jeffrey G. Albertson, Esq.
Dennis N. DeSimone
Lawrence M. DiVietro, Jr.
Sandra J. Gubbine
Scott H. Kintzing
Warner A. Knobe
Ross Levitsky, Esq.
Sarah (Sally) Love
Robert R. McHarness
Angela M. Snyder
Daniel G. Timms, D.D.S.
Paul J. Tully

The Peoples Bank of Elkton
Harry C. Brown
Judy E. Hart
Donald S. Hicks
Mark E. Huntley
Robert O. Palsgrove
David K. Williams, Jr.

Skylands Community Bank
Norman S. Baron
Daniel M. DiCarlo, Jr.
Michael Halpin
Raymond Nisivoccia, C.P.A.
Denis H. O’Rourke
Paul J. Pinizzotto
Dominick V. Romano
Leslie E. Smith, Jr.
Mark F. Strauss, Esq.
Norman Worth

Premier Bank
Daniel E. Cohen
Clark S. Frame
John J. Ginley
Thomas E. Mackell, M.D.
Barry J. Miles, Sr.
Daniel A. Nesi, M.D.
Neil W. Norton
Thomas M. O’Mara
Michael J. Perucci
Brian R. Rich
Ezio U. Rossi
Richard F. Ryon
Gerald Schatz
John C. Soffronoff
Irving N. Stein
HelenBeth Garofalo Vilcek
John A. Zebrowski

Resource Bank
Alfred E. Abiouness
T.A. Grell, Jr.
Thomas W. Hunt
Louis R. Jones
A. Russell Kirk
Lawrence N. Smith
Elizabeth Addington Twohy

First Washington State Bank
James N. Corcodilos
Harry Horowitz
James R. Johnson, Jr.
Jerry Kokes
Joe J. Mayes, Jr.
Abraham S. Opatut
Steven I. Pfeffer
C. Herbert Schneider
Ross Wishnick

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1 0 Ye a r s I n R ev i ew ( 1 9 9 5 – 2 0 0 4 )

Net Income*
(in millions of dollars)

Total Assets
(in billions of dollars)

Dividends
(in millions of dollars)

Deposits
(in billions of dollars)

Shareholders’ Equity
(in millions of dollars)

Loans
(in billions of dollars)

The data above represent both internal and external growth. Prior year amounts have not been restated to reflect acquisitions.
*For 2001, amount is income before $6.4 million of merger-related expenses.

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INVESTOR INFORMATION

Stock Listing

Dividend Reinvestment Plan and

Form 10-K

Common shares of Fulton Financial

Direct Deposit of Cash Dividends

A copy of the Corporation’s Annual Report

Corporation are traded under the symbol

Fulton Financial Corporation offers its

to the Securities and Exchange Commission,

“FULT” and are listed in the National

shareholders the convenience of a Dividend

Form 10-K, can be viewed on the

Market System of NASDAQ.

Reinvestment and Stock Purchase Plan and

Corporation’s website at www.fult.com.

the direct deposit of cash dividends.

In addition, copies may be obtained without

Dividend Calendar

Holders of stock may have their

charge to shareholders by writing to:

Dividends on Fulton Financial

quarterly dividends automatically reinvested

George R. Barr, Secretary

Corporation’s common stock are

in additional shares of the Corporation’s

Fulton Financial Corporation

customarily payable on or about the 15th

common stock by utilizing the Dividend

P.O. Box 4887

of January, April, July and October.

Reinvestment Plan.

Lancaster, PA 17604-4887

Shareholders participating in the Plan

may also make voluntary cash contributions

The annual meeting and luncheon of

not to exceed $5,000 per month.

shareholders of Fulton Financial

In addition, shareholders also have the

Corporation will be held on Wednesday,

option of having their cash dividends sent

April 13, 2005, at noon in the Great

directly to their financial institution for

American Hall of the Hershey Lodge and

deposit into their savings or checking account.

Convention Center, West Chocolate Avenue

Shareholders may receive information

and University Drive, Hershey, PA. Please

on either the Dividend Reinvestment and

note that any shareholder who would like to

Stock Purchase Plan or direct deposit of

attend MUST HAVE A RESERVATION.

cash dividends by writing to:

You may let us know that you will attend by

Stock Transfer Department

returning the Reservation Form included in

Fulton Financial Advisors, N. A.

your proxy mailing.

P.O. Box 3215

Your reservation will help ensure that

Lancaster, PA 17604-3215

we have adequate seating for all

or calling: (717) 291-2546

shareholders who plan to join us that day.

or 1-800-626-0255.

Fulton Financial Corporation

Description

Page

5-Year Consolidated Summary of Financial Results.........................................................................

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

Consolidated Balance Sheets .............................................................................................................

Consolidated Statements of Income...................................................................................................

Consolidated Statements of Shareholders’ Equity and Comprehensive Income...............................

Consolidated Statements of Cash Flows............................................................................................

Notes to Consolidated Financial Statements .....................................................................................

Management Report on Internal Control Over Financial Reporting .................................................

Reports of Independent Registered Public Accounting Firm ............................................................

Quarterly Consolidated Results of Operations (Unaudited) ..............................................................

Fulton Financial Corporation

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

2004

2003

For the Year
2002

2001

2000

SUMMARY OF INCOME
Interest income.................................................. $ 493,643
Interest expense.................................................
135,994
Net interest income ...........................................
357,649
Provision for loan losses ...................................
4,717
Other income.....................................................
138,864
Other expenses..................................................
273,615
Income before income taxes .............................
218,181
Income taxes .....................................................
65,264
Net income ........................................................ $ 152,917

$ 435,531
131,094
304,437
9,705
134,370
231,559
197,543
59,363
$ 138,180

$ 469,288
158,219
311,069
11,900
114,012
223,765
189,416
56,468
$ 132,948

$ 518,680
227,962
290,718
14,585
102,057
218,234
159,956
46,367
$ 113,589

$ 519,661
243,874
275,787
15,024
76,717
186,209
151,271
44,437
$ 106,834

PER-SHARE DATA (1)
Net income (basic) ............................................ $
Net income (diluted) .........................................
Cash dividends..................................................

RATIOS
Return on average assets...................................
Return on average equity ..................................
Return on average equity (tangible) (2)............
Net interest margin............................................
Efficiency ratio..................................................
Average equity to average assets ......................
Dividend payout ratio .......................................

1.28
1.27
0.647

1.23
1.22
0.593

1.17
1.17
0.531

1.00
0.99
0.481

0.95
0.95
0.430

1.48%

14.31
18.64
3.83
55.10
10.30
50.50

1.57%
15.45
17.42
3.82
52.80
10.20
48.20

1.68%
15.86
17.38
4.35
52.60
10.60
45.40

1.51%
14.58
15.81
4.27
55.60
10.40
48.10

1.52%
15.85
16.29
4.31
52.80
9.60
45.30

PERIOD-END BALANCES
Total assets........................................................ $11,158,351
Loans, net of unearned income.........................
7,584,547
Deposits.............................................................
7,895,524
Federal Home Loan Bank advances
and long-term debt .........................................
Shareholders' equity..........................................

684,236
1,242,290

AVERAGE BALANCES
Total assets........................................................ $10,343,328
Loans, net of unearned income.........................
6,901,452
Deposits.............................................................
7,285,134
Federal Home Loan Bank advances
and long-term debt .........................................
Shareholders' equity..........................................

637,654
1,068,464

$ 9,767,288
6,159,994
6,751,783

$ 8,387,778
5,317,068
6,245,528

$ 7,770,711
5,373,020
5,986,804

$ 7,364,804
5,374,659
5,502,703

568,730
946,936

535,555
863,742

456,802
811,454

559,503
731,171

$ 8,802,138
5,589,663
6,505,371

$ 7,900,500
5,381,950
6,052,667

$ 7,520,071
5,341,497
5,771,089

$ 7,019,523
5,131,651
5,245,019

566,437
894,469

476,415
838,213

500,162
779,014

476,590
673,971

(1) Adjusted for stock dividends and stock splits.
(2) Net income divided by average shareholders’ equity, net of goodwill and intangible assets.

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

Fulton Financial Corporation

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, capital and liquidity strategies and other financial and business matters for future periods. The Corporation cautions
that these forward-looking statements are subject to various assumptions, risks and uncertainties. Because of the possibility that the
underlying assumptions may change, actual results could differ materially from these forward-looking statements.

In addition to the factors identified herein, the following 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, customers’ acceptance of the Corporation’s products and services and acquisition pricing and the ability of the
Corporation to continue making acquisitions.

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

OVERVIEW

As a financial institution with a focus on traditional banking activities, the Corporation generates the majority of its revenue through
net interest income, the difference between interest income earned on loans and investments and interest paid on deposits and
borrowings. Growth in net interest income is dependent upon balance sheet growth and maintaining or increasing the net interest
margin, which is net interest income 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 2004 increased $14.7 million, or 10.7%, from $138.2 million in 2003 to $152.9 million in 2004.
Diluted net income per share increased $0.05, or 4.1%, from $1.22 per share in 2003 to $1.27 per share in 2004. In 2004, the
Corporation realized a return on average assets of 1.48% and a return on average tangible equity of 18.64% compared to 1.57% and
17.42% in 2003. 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 4.3%, from $1.17 per share in 2002 to $1.22 per share in 2003.

The increase in earnings in 2004 was driven by a $53.2 million, or 17.5%, increase in net interest income due to both internal and
external growth and a stable net interest margin. Contributing to this increase was a $6.6 million, or 5.8%, increase in other income
(excluding securities gains), primarily as a result of acquisitions, and a $5.0 million, or 51.4%, reduction in the provision for loan
losses due to continued strong asset quality. These items were was offset by a $42.1 million, or 18.2%, increase in other expenses, as
a result of both internal and external growth, and a $2.1 million, or 10.8%, reduction in investment securities gains.

The following summarizes some of the more significant factors that influenced the Corporation’s 2004 results.

Fulton Financial Corporation

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

Acquisitions – In August 2003, the Corporation acquired Premier Bancorp, Inc. (Premier), a $600 million bank holding company
located in Doylestown, Pennsylvania whose primary subsidiary was Premier Bank, strengthening its presence in eastern Pennsylvania
markets. In December 2003, the Corporation acquired approximately $165 million of agricultural loans in Central Pennsylvania and
Delaware. In April 2004, the Corporation acquired Resource Bankshares Corporation, (Resource), an $885 million financial holding
company located in Virginia Beach, Virginia whose primary subsidiary was Resource Bank. This was the Corporation’s first
acquisition in Virginia, allowing it to enter a new geographic market. Results for 2004 in comparison to 2003 were impacted by these
acquisitions (referred to collectively as the “Acquisitions”).

On December 31, 2004, the Corporation acquired First Washington FinancialCorp (First Washington), of Windsor, New Jersey. First
Washington was a $490 million bank holding company whose primary subsidiary was First Washington State Bank, which operates
sixteen community banking offices in Mercer, Monmouth, and Ocean Counties in New Jersey. The accounts of First Washington are
included in the Corporation’s December 31, 2004 consolidated balance sheet, however, First Washington did not impact average
balances or the consolidated statement of income.

On January 11, 2005, the Corporation entered into a merger agreement to acquire SVB Financial Services, Inc. (SVB) of Somerville,
New Jersey. SVB is a $475 million bank holding company whose primary subsidiary is Somerset Valley Bank, which operates eleven
community banking offices in Somerset, Hunterdon and Middlesex counties in New Jersey. The acquisition is expected to be
completed in the third quarter of 2005. For additional information on the terms of this pending acquisition, see Note Q, “Mergers and
Acquisitions”, in the Notes to Consolidated Financial Statements.

Acquisitions have long been a supplement to the Corporation’s internal growth. These recent and pending acquisitions provide the
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 been very competitive in recent years, as evidenced by the prices
paid for certain acquisitions. While the Corporation has been an active acquirer, management is committed to basing its pricing on
rational economic models. Management will continue to focus on generating growth in the most cost-effective manner.

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

The Corporation has been able to maintain strong asset quality through different economic cycles, attributable to its credit culture and
underwriting policies. This trend continued in 2004 as asset quality measures such as non-performing assets to total assets and net
charge-offs to average loans improved in comparison to 2003, allowing a reduction in the provision for loan losses. While overall
asset quality has remained strong, deterioration in quality of one or several significant accounts could have a detrimental impact and
result in losses that may not be foreseeable based on current information. In addition, rising interest rates could increase the total
payments of borrowers and could have a negative impact on their ability to pay according to the terms of their loans.

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

Fulton Financial Corporation

Interest Rates – During the second half of 2004, the FRB increased short-term interest rates a total of 1.25%, with the overnight
borrowing, or Federal funds, rate ending the year at 2.25%. The average Federal funds rate for the year increased 22 basis points from
1.13% in 2003 to 1.35% in 2004 and the average prime lending rate increased from 4.13% in 2003 to 4.35% in 2004. This increase in
rates resulted in an expansion of the Corporation’s net interest margin during 2004 after decreasing significantly during 2003. While
the net interest margin for the year increased only slightly, the improvement is evident in the quarterly trend, which is shown in the
following table:

1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Year to Date

2004
3.79%
3.73
3.88
3.92
3.83

2003

4.06%
3.91
3.62
3.74
3.82

Unlike short-term interest rates, longer-terms rates remained relatively flat, with ten-year United States Treasury rates beginning and
ending the year at about the same level. However, this level was higher than the historic lows experienced during 2002 and 2003 and,
consequently, mortgage refinance activity continued its relative slowdown which started during the third and fourth quarter of 2003.
Long-term interest rate levels also continued to affect the Corporation’s deposit mix as funds from maturing time deposits continued
to flow into core demand and savings accounts as customers were reluctant to lock into the relatively low rates being offered on time
deposit products.

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.

Regulatory Environment – The Corporation is a registered financial holding company and its subsidiary banks are depository
institutions whose deposits are insured by the Federal Deposit Insurance Corporation (FDIC). The Corporation and its subsidiaries are
subject to various regulations and examinations by bank regulatory authorities, including the Federal Reserve, the FDIC, the Office of
the Comptroller of the Currency and certain state agencies. The financial services industry has been subjected to heightened scrutiny
by bank regulatory authorities in the areas of Bank Secrecy Act compliance and other anti-money laundering rules and regulations. As
a result the Corporation has hired additional staff for compliance related activities.

As a publicly traded company, the Corporation is also subject to Securities and Exchange Commission (SEC) regulations, which
govern the frequency and content of financial information required to be made available to the public. Recent legislative and
regulatory actions of the Federal government have significantly changed financial reporting requirements, primarily as a result of the
Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley). For the 2004 financial statements and footnotes, Sarbanes-Oxley required
management to issue a report on the effectiveness of its internal controls over financial reporting. In addition, the Corporation’s
independent public accountants were required to issue an opinion on management’s report and the Corporation’s internal controls
over financial reporting. These reports can be found after the Consolidated Financial Statements and Notes to Consolidated Financial
Statements.

The burden of compliance with the new reporting requirements has been significant for all publicly traded companies, including the
Corporation. The cost includes both the time devoted by its employees to complete the documentation and testing of controls and the
expense for engaging professionals to assist in the process. In addition, the Corporation experienced a significant increase in
independent accountant fees related to the internal controls testing process. See additional information in the “Other Expenses”
section of Management’s Discussion.

Fulton Financial Corporation

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

RESULTS OF OPERATIONS

Net Interest Income

Net interest income is the most significant component of the Corporation’s net income, accounting for approximately 75% of total
2004 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 25 provides additional information on the policies and procedures used by the Corporation to manage
net interest income. 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)..................... $ 6,901,452
Taxable inv. securities (2)............ 2,161,195
Tax-exempt inv. securities (2) .....
264,578
Equity securities (2).....................
133,870
Total investment securities ............ 2,559,643
Short-term investments ................
97,759
Total interest-earning assets........... 9,558,854
Non-interest-earning assets:
Cash and due from banks.............
Premises and equipment ..............
Other assets (2) ............................
Less: Allowance for loan losses...

316,170
128,902
424,385
(84,983)
Total Assets.......................... $ 10,343,328

Year Ended December 31

2004

Interest

$ 396,731
76,792
9,553
4,023
90,368
6,544
493,643

Yield/
Rate

Average
Balance

5.75% $ 5,589,663
2,170,889
3.55
266,426
3.61
129,584
3.01
2,566,889
3.53
47,122
6.69
8,203,684
5.16

2003

Interest

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

Yield/
Rate

6.11%
3.57
3.92
3.15
3.58
4.62
5.31

279,980
123,172
270,611
(75,309)
$ 8,802,138

LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing liabilities:
Demand deposits.......................... $ 1,364,953
Savings deposits........................... 1,846,503
Time deposits............................... 2,693,414
Total interest-bearing deposits....... 5,904,870
Short-term borrowings................. 1,238,073
Long-term debt ............................
637,654
Total interest-bearing liabilities..... 7,780,597
Noninterest-bearing liabilities:
Demand deposits.......................... 1,380,264
Other ............................................
114,003
Total Liabilities.................... 9,274,864
Shareholders' equity....................... 1,068,464
Total Liabs. and Equity........ $ 10,343,328
Net interest income ........................
Net yield on earning assets ............
Tax equivalent adjustment (3) .......
Net interest margin ........................

7,201
11,928
70,650
89,779
15,182
31,033
135,994

0.53% $ 1,158,333
1,655,325
0.65
2,496,234
2.62
5,309,892
1.52
738,527
1.23
566,437
4.87
6,614,856
1.75

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

0.52%
0.65
3.10
1.77
1.00
5.21
1.98

1,195,479
97,334
7,907,669
894,469
$ 8,802,138

2002

Interest

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

Yield/
Rate

6.88%
5.24
4.28
3.58
5.03
3.35
6.38

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

0.73%
1.08
3.96
2.50
1.52
5.51
2.67

Average
Balance

$ 5,381,950
1,605,077
229,938
113,422
1,948,437
27,741
7,358,128

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

$
910,934
1,516,832
2,579,441
5,007,207
434,402
476,415
5,918,024

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

357,649

9,176
$ 366,825

3.74

3.83%

304,437

9,698
$ 314,135

3.71

3.82%

311,069

9,193
$ 320,262

4.23

4.35%

Includes non-performing loans.

(1)
(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.

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

Fulton Financial Corporation

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:

2004 vs. 2003
Increase (decrease) due
To change in
Rate

Volume

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

Net
(in thousands)

Volume

Net

Interest income on:

Loans and leases .....................................
Taxable investment securities ................
Tax-exempt investment securities ..........
Equity securities .....................................
Short-term investments ..........................

76,352
(345)
(72)
132
3,080

(21,014)
(313)
(811)
(185)
1,288

Total interest-earning assets .............

79,147

(21,035)

Interest expense on:

Demand deposits ....................................
Savings deposits .....................................
Time deposits .........................................
Short-term borrowings ...........................
Long-term debt .......................................

1,088
1,236
5,796
5,839
3,551

102
(78)
(12,563)
1,970
(2,041)

55,338
(658)
(883)
(53)
4,368

14,292
29,660
1,561
579
650

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

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

58,112

46,742

(80,499)

(33,757)

1,190
1,158
(6,767)
7,809
1,510

1,812
1,502
(3,299)
4,619
4,956

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

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

Total interest-bearing liabilities .......

17,510

(12,610)

4,900

9,590

(36,715)

(27,125)

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

2004 vs. 2003

Net interest income increased $53.2 million, or 17.5%, from $304.4 million in 2003 to $357.6 million in 2004, primarily as a result of
earning asset growth as the Corporation’s net interest margin for the year was relatively constant at 3.83% for 2004 compared to
3.82% for 2003.

Average earning assets grew 16.5%, from $8.2 billion in 2003 to $9.6 billion in 2004. The Acquisitions contributed approximately
$900 million to this increase in average balances. Interest income increased $58.1 million, or 13.3%, mainly as a result of the 16.5%
increase in average earning assets, which resulted in a $79.1 million increase in interest income. This increase was partially offset by
the $21.0 million decrease in interest income that resulted from the decline in the average yield earned. This reflects the impact of
customers favoring floating rate loans which tend to carry lower interest rates than fixed rate products.

Fulton Financial Corporation

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

The increase in average interest-earning assets was due to loan growth, both internal and through acquisitions, as investment balances
remained relatively flat. Average loans increased by $1.3 billion, or 23.5%, to $6.9 billion in 2004. The following table presents the
growth in average loans, by type:

2004

Increase (decrease)
%

2003

$
(dollars in thousands)

Commercial - industrial and financial... $ 1,769,801
Commercial - agricultural .....................
330,269
Real estate - commercial mortgage .......
2,205,025
Real estate - commercial construction ..
304,845
Real estate - residential mortgage .........
509,593
Real estate - residential construction.....
205,581
Real estate - home equity ......................
988,454
Consumer ..............................................
517,138
Leasing and other..................................
70,746
Total .......................................... $ 6,901,452

$ 1,519,609
197,381
1,724,635
228,833
497,095
46,692
772,020
531,384
72,014
$ 5,589,663

250,192
132,888
480,390
76,012
12,498
158,889
216,434
(14,246)
(1,268)
$ 1,311,789

16.5%
67.3
27.9
33.2
2.5
340.3
28.0
(2.7)
(1.8)
23.5%

The Acquisitions contributed approximately $675.6 million to this increase in average balances. The following table presents the
average balance impact of the Acquisitions, by type:

2004

2003
(in thousands)

Increase

Commercial - industrial and financial... $
Commercial - agricultural .....................
Real estate - commercial mortgage .......
Real estate - commercial construction ..
Real estate - residential mortgage .........
Real estate - residential construction.....
Real estate - home equity ......................
Consumer ..............................................
Leasing and other..................................

Total .......................................... $

139,169
520
382,500
63,566
54,761
155,687
13,042
2,770
5,864
817,879

25,048
-
111,219
4,836
457
-
822
271
(408)
142,245

114,121
520
271,281
58,730
54,304
155,687
12,220
2,499
6,272
675,634

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

2004

Increase (decrease)
%

2003

$
(dollars in thousands)

Commercial - industrial and financial... $ 1,630,632
Commercial - agricultural .....................
329,749
Real estate - commercial mortgage .......
1,822,525
Real estate - commercial construction ..
241,279
Real estate - residential mortgage .........
454,832
Real estate - residential construction.....
49,894
Real estate - home equity ......................
975,412
Consumer ..............................................
514,368
Leasing and other..................................
64,882
Total .......................................... $ 6,083,573

$ 1,494,561
197,381
1,613,416
223,997
496,638
46,692
771,198
531,113
72,422
$ 5,447,418

136,071
132,368
209,109
17,282
(41,806)
3,202
204,214
(16,745)
(7,540)
636,155

9.1%
67.1
13.0
7.7
(8.4)
6.9
26.5
(3.2)
(10.4)
11.7%

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

Fulton Financial Corporation

Loan growth continued to be strong in the commercial and commercial mortgage categories. The growth shown in the commercial –
agricultural category reflects the agricultural loan portfolio purchased in December 2003. The reduction in mortgage loan balances
was due to customer refinance activity that occurred during 2003. The Corporation generally sells newly originated fixed rate
mortgages in the secondary market to promote liquidity and manage interest rate risk. Home equity loans increased significantly due
to promotional efforts and customers using home equity loans as a cost-effective refinance alternative and as a preferred type of
consumer loan. Consumer loans decreased, reflecting customers’ repayment of these loans with tax-advantaged residential mortgage
or home equity loans. In addition, the indirect finance market remains extremely competitive with the participation of vehicle
manufacturers.

The average yield on loans during 2004 was 5.75%, a 36 basis point, or 5.9%, decline from 2003. Much of the recent loan growth has
been experienced in the floating rate categories that tend to carry lower interest rates than fixed-rate products.

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

The average yield on investment securities declined slightly from 3.58% in 2003 to 3.53% in 2004. Premium amortization, which is
accounted for as a reduction of interest income, was $20.0 million in 2003 compared to $10.5 million in 2004. The benefit from the
lower premium amortization was offset by the reduction in stated yields experienced throughout 2004.

Interest expense increased $4.9 million, or 3.7%, to $136.0 million in 2004 from $131.1 million in 2003, mainly as a result of $1.2
billion increase in average interest-bearing liabilities, which included approximately $800 million added by the Acquisitions. The
increase in average interest-bearing liabilities resulted in an increase in interest expense of $17.5 million during 2004. This increase
was partially offset by a $12.6 million decrease due to the 23 basis point decrease in the cost of total interest-bearing liabilities. The
cost of interest-bearing deposits declined 25 basis points, or 14.1%, from 1.77% in 2003 to 1.52% in 2004. This reduction was due to
both the impact of declining short-term interest rates in the first half of 2003 and the continuing 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.

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

2004

2003

$
(dollars in thousands)

Increase

Noninterest-bearing demand ..... $ 1,380,264
Interest-bearing demand............
1,364,953
Savings/money market..............
1,846,503
Time deposits ............................
2,693,414
Total ............................... $ 7,285,134

$ 1,195,479
1,158,333
1,655,325
2,496,234
$ 6,505,371

184,785
206,620
191,178
197,180
779,763

15.5%
17.8
11.5
7.9
12.0%

Fulton Financial Corporation

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

The Acquisitions accounted for approximately $595.4 million of the increase in average balances. The following table presents the
average balance impact of the Acquisitions, by type:

2004

2003
(in thousands)

Increase

Noninterest-bearing demand ..... $
Interest-bearing demand............
Savings/money market..............
Time deposits ............................

Total ............................... $

64,683
126,569
103,797
470,733
765,782

14,454
45,099
33,522
77,337
170,412

50,229
81,470
70,275
393,396
595,370

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

2004

Increase (decrease)
%

2003

$
(dollars in thousands)

Noninterest-bearing demand ..... $ 1,315,581
Interest-bearing demand............
1,238,384
Savings/money market..............
1,742,706
Time deposits ............................
2,222,681
Total ............................... $ 6,519,352

$ 1,181,025
1,113,234
1,621,803
2,418,897
$ 6,334,959

134,556
125,150
120,903
(196,216)
184,393
$

11.4%
11.2
7.5
(8.1)
2.9%

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

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. 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. The decrease of
$80.5 million as a result of rates was partially offset by a $46.7 million increase due to average earning asset growth.

Average loans increased $207.7 million, or 3.9%, to $5.6 billion in 2003. 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.

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

Fulton Financial Corporation

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 short-term borrowing 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 2003 and 2002, 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 in cost resulted in a $36.7 million decrease in
interest expense, which 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.

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)%.

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 short-term borrowing 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.

Provision and Allowance for Loan Losses

The Corporation accounts for the credit risk associated with lending activities through its allowance and provision for loan losses. The
provision is the expense recognized in the income statement to adjust the allowance to its proper balance, as determined through the
application of the Corporation’s allowance methodology procedures. These procedures include the evaluation of the risk
characteristics of the portfolio and documentation in accordance with the Securities and Exchange Commission’s (SEC) Staff
Accounting Bulletin No. 102, “Selected Loan Loss Allowance Methodology and Documentation Issues” (SAB 102). See “Critical
Accounting Policies” on page 23 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:

2004

2003

Year Ended December 31
2002
(dollars in thousands)

2001

2000

Loans outstanding at end of year ................................ $ 7,584,547 $6,159,994
Daily average balance of loans and leases ................... $ 6,901,452 $5,589,663
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 ............................................

3,482
1,466
3,476
453
8,877

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

77,700 $ 71,920

$ 5,317,068 $ 5,373,020 $ 5,374,659
$ 5,381,950 $ 5,341,497 $ 5,131,651

71,872 $

65,640 $

61,538

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

6,296
767
6,683
529
14,275

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.................................................. $

1,210
2,042
711
906
1,811
1,496
97
76
3,829
4,520
9,399
4,357
9,705
4,717
11,567
5,474
89,627 $ 77,700

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

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

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.

0.06%

0.17%

0.22%

0.20%

0.26%

1.18%
0.30%
0.30%

1.26%
0.33%
0.36%

1.35%
0.47%
0.45%

1.34%
0.44%
0.42%

1.22%
0.41%
0.41%

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

Fulton Financial Corporation

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

2004

2003

December 31
2002
(in thousands)

2001

2000

Non-accrual loans (1) (2).................................... $ 22,574 $ 22,422 $ 24,090 $ 22,794 $ 21,790
Accruing loans past due 90 days or more...........
7,135
8,318
1,035
Other real estate ..................................................
2,209
Totals.............................................................. $ 33,101 $ 32,616 $ 39,123 $ 33,979 $ 29,960

14,095
938

9,368
1,817

9,609
585

(1) As of December 31, 2004, the additional interest income that would have been recorded during 2004 if nonaccrual loans
had been current in accordance with their original terms was approximately $1.5 million. The amount of interest income
on nonaccrual loans that was included in 2004 income was approximately $2.8 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, 2004 are $124.0 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. Nonaccrual loans include
$6.6 million of impaired loans.

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

2004

2003

December 31
2002
(dollars in thousands)

2001

2000

% of
Loans in
Each
Allowance Category Allowance Category Allowance Category Allowance Category Allowance Category

% of
Loans in
Each

Comm’l, financial
& agriculture ...... $ 43,207
Real estate –
mortgage ...........
Consumer, leasing
& other ...............
Unallocated .............

16,289
10,347
Totals.................. $ 89,627

19,784

29.9%

$ 34,247

31.6%

$ 33,130

31.6%

$ 22,531

27.8%

$ 21,193

25.8%

62.5

14,471

58.8

13,099

56.8

19,018

58.9

14,940

59.1

7.6
-
100.0%

16,279
12,703
$ 77,700

9.6
-
100.0%

14,178
11,513
$ 71,920

11.6
-
100.0%

10,855
19,468
$ 71,872

13.3
-
100.0%

10,772
18,735
$ 65,640

15.1
-
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
13

Fulton Financial Corporation

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

to improve its process and its documentation. The unallocated allowance for loan losses, as shown in the preceding table, decreased from
16% at December 31, 2003 to 12% at December 31, 2004. The Corporation continues to monitor its allowance methodology to ensure
compliance with both regulatory and accounting industry policies.

The provision for loan losses decreased $5.0 million from $9.7 million in 2003 to $4.7 million in 2004, after decreasing $2.2 million
in 2003. These decreases reflect the continued improvement in the Corporation’s asset quality reflected in both lower net charge-offs
and lower non-performing assets ratios. Net charge-offs as a percentage of average loans were 0.06% in 2004, an eleven basis point
improvement over 0.17% in 2003, which was a five basis point decrease from 2002. Non-performing assets as a percentage of total
assets decreased slightly from 0.33% at December 31, 2003 to 0.30% at December 31, 2004, after decreasing 14 basis points in 2003.
The declines in both ratios reflect the improving quality of the Corporation’s portfolio during the years.

The provision for loan losses in 2004 resulted from the Corporation’s allowance allocation procedures. The continued growth of the
Corporation’s commercial loan and commercial mortgage portfolios, which are inherently more risky than other loan types, is a trend
which would indicate the need for a higher allowance balance. 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 $5.0 million less than 2003 and was
comparable to total net charge-offs for the year. Management believes that the allowance balance of $89.6 million at December 31,
2004 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 presents the components of other income for each of the past three years:

2004

2003
(in thousands)

2002

Investment management and trust services .... $
Service charges on deposit accounts................
Other service charges and fees ........................
Gain on sale of mortgage loans .......................
Investment securities gains ..............................
Other ................................................................
Total ............................................................ $

34,817
39,451
20,494
19,262
17,712
7,128
138,864

33,898
38,500
18,860
18,965
19,853
4,294
134,370

29,114
37,502
17,743
13,941
8,992
6,720
114,012

Total other income increased $4.5 million, or 3.3%, from $134.4 million in 2003 to $138.9 million in 2004, after increasing $20.4
million, or 17.9%, from $114.0 million in 2002. Excluding investment securities gains, other income increased $6.6 million, or 5.8%,
in 2004 and $9.5 million, or 9.0%, in 2003. While the acquisition of Premier did not have a significant impact on other income growth
during 2003 and 2004, the acquisition of Resource Bank contributed $14.4 million to total other income in 2004.

Investment management and trust services income grew $919,000, or 2.7%, in 2004 and $4.8 million, or 16.4%, in 2003. Trust
commission income was relatively flat in 2004 after increasing $1.5 million, or 8.3%, in 2003 as improvements in the equity markets
increased values of assets under management. Brokerage revenue increased $974,000, or 8.3%, in 2004 and $3.0 million, or 33.8%, in
2003 as a result of the performance of the equity markets and increased annuity sales.

Total service charges on deposit accounts increased $951,000, or 2.5%, in 2004 and $1.0 million, or 2.7%, in 2003. Overdraft fees
increased $1.2 million, or 7.5%, in 2004 (including $175,000 due to the Acquisitions) and $407,000, or 2.7%, in 2003 (including
$46,000 due to the Acquisitions). Cash management fees increased $50,000, or 0.7%, in 2004 and $260,000, or 3.6%, in 2003. The
low interest rate environment has made cash management services less attractive for smaller business customers.

Other service charges and fees increased $1.6 million, or 8.7%, in 2004 (including $280,000 due to the Acquisitions) and $1.1
million, or 6.3%, in 2003 (including $53,000 due to the Acquisitions). The increase in both years was driven by growth in letter of

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

Fulton Financial Corporation

credit fees, merchant fees and debit card fees. Letter of credit fees increased $245,000, or 7.2% in 2004 and $889,000, or 35.1%, in
2003, and merchant fees increased $372,000, or 8.2%, in 2004 and $491,000, or 12.2%, in 2003, all as a result of an increased focus
on growing these business lines. Debit card fees increased $549,000, or 10.7%, in 2004 (including $55,000 due to the Acquisitions)
and $122,000, or 2.4%, in 2003 (including $19,000 due to the Acquisitions). While the earnings rate on debit card transactions has
decreased, the Corporation has seen an increase in transaction volume.

Gains on sales of mortgage loans increased $297,000, or 1.6%, in 2004 after increasing $5.0 million, or 36.0%, in 2003 and $4.4
million, or 45.6% in 2002. Resource Bank contributed $11.1 million to the 2004 amount and without that amount, this category would
show a $10.8 million, or 57.0%, decrease. The decrease in the current year was expected based on the increase in interest rates from
their historic lows and the resulting reduction in the level of mortgage refinancing activity.

Investment securities gains decreased $2.1 million, or 10.8%, in 2004 after increasing $10.9 million, or 120.8%, in 2003. Investment
securities gains included realized gains on the sale of equity securities of $14.8 million and $17.3 million in 2004 and 2003,
respectively, reflecting the general improvement in the equity markets and bank stocks in particular, and $3.1 million and $5.9 million
in 2004 and 2003, respectively, on the sale of debt securities, which were generally sold to take advantage of the interest rate
environment. These gains were offset by write-downs of $137,000 in 2004 and $3.3 million in 2003 for specific equity securities
deemed to exhibit other than temporary impairment in value. As of December 31, 2004, the impaired securities still being held in the
portfolio had recovered approximately $1.4 million of the original write-down amount.

Other income increased $2.8 million, or 66.0%, in 2004 after decreasing $2.4 million, or 36.1%, in 2003. The increase in 2004 is
entirely due to the acquisition of Resource Bank, which generated significant fee income from its mortgage-related business. The
decrease in 2003 resulted from the reversal of $848,000 of negative goodwill in 2002 and a decrease in mortgage loan servicing
income as the amortization of mortgage servicing rights increased.

Other Expenses

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

2004

2003
(in thousands)

2002

Salaries and employee benefits ....................... $
Net occupancy expense ..................................
Equipment expense .........................................
Data processing ...............................................
Advertising ......................................................
Intangible amortization....................................
Other ...............................................................

Total ............................................................ $

162,126
23,813
10,769
11,430
6,943
4,726
53,808
273,615

136,002
19,896
10,505
11,532
6,039
2,059
45,526
231,559

127,584
17,705
11,295
11,968
6,525
1,838
46,850
223,765

Total other expenses increased $42.1 million, or 18.2%, in 2004 (including $30.0 million due to the Acquisitions) and $7.8 million, or
3.5% in 2003 (including $4.8 million due to the Acquisitions).

Fulton Financial Corporation

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

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

2004

2003

(in thousands)

Total ............................................................ $

18,523
2,923
1,426
936
1,028
1,504
8,549
34,889

2,121
378
138
387
48
570
1,183
4,825

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

2004

2003
(in thousands)

2002

Total ............................................................ $

143,603
20,890
9,343
10,494
5,915
3,222
45,259
238,726

133,881
19,518
10,367
11,145
5,991
1,489
44,343
226,734

127,584
17,705
11,295
11,968
6,525
1,838
46,850
223,765

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

Salaries and employee benefits increased $9.7 million, or 7.3%, in 2004 and $6.3 million, or 4.9%, in 2003. The salary expense
component increased $4.2 million, or 3.9%, in 2004 and $5.3 million, or 5.2%, in 2003, driven by salary increases for existing
employees as total average full-time equivalent employees remained relatively consistent at approximately 2,900. In 2003, an increase
in commission expense related to brokerage business also contributed to the increase in salary expense. Employee benefits increased
$5.1 million, or 21.7%, in 2004 and $1.7 million, or 7.9%, in 2003 driven mainly by continued increases in healthcare costs and
retirement plan expenses. See additional discussion of the Corporations defined benefit pension plan in Note L, “Employee Benefit
Plans”, in the Notes to Consolidated Financial Statements.

Net occupancy expense increased $1.4 million, or 7.0%, to $20.9 million in 2004 after increasing $1.8 million, or 10.2%, in 2003.
The increases resulted from the expansion of the branch network and the addition of new office space for existing affiliates.
Equipment expense decreased $1.0 million, or 9.9%, in 2004 after decreasing $928,000, or 8.2%, in 2003. The decrease in both years
was due to lower depreciation expense as certain equipment became fully depreciated.

Data processing expense decreased $651,000, or 5.8%, in 2004 after decreasing $823,000, or 6.9%, in 2003. The Corporation has
been successful over the past few years in renegotiating key processing contracts with certain vendors.

Advertising expense decreased $76,000, or 1.3%, in 2004 after decreasing $534,000, or 8.2%, in 2003. The Corporation had made a
conscious decision to control advertising spending in both 2004 and 2003.

Intangible amortization increased $1.7 million, or 116.4%, in 2004 after decreasing $349,000, or 19.0%, in 2003. Intangible
amortization consists of the amortization of unidentifiable intangible assets related to branch and loan acquisitions, core deposit

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

Fulton Financial Corporation

intangible assets, and other identified intangible assets. The increase in 2004 primarily represents the amortization of intangible assets
related to the acquisition of an agriculture loan portfolio in December 2003. The decrease in 2003 resulted from an accelerated
amortization schedule in connection with a prior branch acquisition.

Other expense increased $916,000, or 2.1%, in 2004 after decreasing $2.5 million, or 5.4%, in 2003. The Corporation’s costs
increased as a result of complying with the provisions of the Sarbanes-Oxley Act of 2002. These costs were realized in external audit
fees, which increased from $363,000 in 2003 to $1.6 million in 2004 as well as an additional $400,000 in consulting expense during
2004. These cost increases were offset by reductions in operating risk loss, other real estate expenses and legal fees. In 2003, many
categories of costs decreased including operating risk loss, legal fees and non-income taxes. Additionally, there were amounts accrued
for leasing residual value losses and severance in 2002 that did not recur in 2003.

Income Taxes

Income taxes increased $5.9 million, or 9.9%, in 2004 and $2.9 million, or 5.1%, in 2003. The Corporation’s effective tax rate
(income taxes divided by income before income taxes) remained fairly stable at 29.9%, 30.1% and 29.8% in 2004, 2003 and 2002,
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 $4.5 million, $4.0 million and
$4.0 million in 2004, 2003 and 2002, respectively.

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

Fulton Financial Corporation

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

FINANCIAL CONDITION

Total assets increased $1.4 billion, or 14.2%, to $11.2 billion at December 31, 2004. Excluding the Resource and First Washington
acquisitions (the 2004 Acquisitions), total assets decreased $236.4 million, or 2.4%. During 2004, maturing investment securities
were not reinvested, instead paying off short-term borrowings and funding loan growth, in expectation of continued increases in
short-term interest rates. Total loans increased $1.4 billion, or 23.2% ($552.0 million, or 9.1%, excluding the 2004 Acquisitions),
while total investments decreased $477.3 million, or 16.3% ($808.8 million, or 27.6%, excluding the 2004 Acquisitions). Total
deposits increased $1.1 billion, or 16.9%, to $7.9 billion at December 31, 2004, with $1.0 billion of the increase attributable to the
2004 Acquisitions.

The table below presents a condensed ending balance sheet for the Corporation, adjusted for the balances recorded for the 2004
Acquisitions, in comparison to 2003 ending balances.

Fulton
Financial
Corporation
(As Reported)

2004

2004
Acquisitions
(1)

2003

Increase (decrease) (3)

Fulton
Financial
Corporation
(2)

Fulton
Financial
Corporation

(dollars in thousands)

Assets:

Cash and due from banks ........... $
Other earning assets....................
Investment securities ..................
Loans, net allowance ..................
Premises and equipment .............
Goodwill and intangible assets...
Other assets ................................

278,065
195,560
2,449,859
7,494,920
146,911
389,322
203,714

26,320
117,487
331,541
860,638
22,382
239,112
29,948

251,745
78,073
2,118,318
6,634,282
124,529
150,210
173,766

300,966
37,320
2,927,150
6,082,294
120,777
144,796
153,985

(49,221)
40,753
(808,832)
551,988
3,752
5,414
19,781

16.4%
109.2
(27.6)
9.1
3.1
3.7
12.9

Total Assets .............................. $ 11,158,351

1,627,428

9,530,923

9,767,288

(236,365)

(2.4)%

Liabilities and Shareholders’ Equity:

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

7,895,524
1,194,524
684,236
141,777

1,024,863
127,755
134,015
19,268

6,870,661
1,066,769
550,221
122,509

6,751,783
1,396,711
568,730
103,128

118,878
(329,942)
(18,509)
19,381

Total Liabilities ........................

9,916,061

1,305,901

8,610,160

8,820,352

(210,192)

Shareholders’ equity.....................

1,242,290

321,527

920,763

946,936

(26,173)

1.8%
(23.6)
(3.3)
18.8

(2.4)

(2.8)

Total Liabilities and

Shareholders’ Equity.............. $ 11,158,351

1,627,428

9,530,923

9,767,288

(236,365)

(2.4)%

(1) Balances recorded on acquisition dates.
(2) Excluding Resource and First Washington.
(3) Fulton Financial Corporation, excluding Resource and First Washington as compared to the prior year.

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

Fulton Financial Corporation

Loans

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

2004

2003

Commercial – industrial and financial.......... $ 1,946,962
Commercial – agricultural ............................
326,176
Real-estate – commercial mortgage..............
2,461,016
Real-estate – commercial construction .........
348,846
Real-estate – residential mortgage................
543,072
Real-estate – residential construction ...........
277,940
Real estate – home equity .............................
1,108,249
Consumer ......................................................
506,290
Leasing and other..........................................
77,767
Deferred loan fees, net of costs.....................
(4,972)
7,591,346
(6,799)
Totals ....................................................... $ 7,584,547

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

$ 1,594,451
354,517
1,992,650
264,129
434,568
42,979
890,044
516,587
84,056
(6,410)
6,167,571
(7,577)
$ 6,159,994

December 31
2002
(in thousands)

$ 1,489,990
189,110
1,527,143
201,178
534,286
47,387
710,497
543,040
89,903
(5,840)
5,326,694
(9,626)
$ 5,317,068

2001

2000

$ 1,341,280
154,100
1,428,066
208,191
793,507
59,436
675,292
626,985
107,054
(8,231)
5,385,680
(12,660)
$ 5,373,020

$ 1,248,045
138,127
1,359,715
202,286
965,760
45,096
603,876
738,797
97,138
(9,194)
5,389,646
(14,987)
$ 5,374,659

Total loans, net of unearned increased $1.4 billion, or 23.1%, in 2004 ($552.5 million, or 9.0%, excluding the 2004 Acquisitions).
The internal growth of $552.5 million included increases in total commercial loans ($148.5 million, or 7.6%), commercial mortgage
loans ($183.8 million, or 8.1%), construction loans ($42.7 million, or 13.9%), residential mortgages ($22.6 million, or 5.2%), and
home equity loans ($168.3 million, or 18.9%), offset partially by decreases in consumer loans ($16.6 million, or 3.2%) and leasing
and other loans ($8.0 million, or 10.3%).

In 2003, total loans increased $842.9 million, or 15.9% ($319.1 million, or 6.0%, excluding the Premier and purchased loan
acquisitions). Excluding these 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%).

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

2004
AFS

Total

HTM

December 31
2003
AFS
(in thousands)

Total

HTM

2002
AFS

Total

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

332,455
170,065
71,127
1,722,286
Totals................................ $ 25,001 $2,424,858

6,903 $ 128,925 $ 135,828
343,113
170,065
71,777
1,729,076
$2,449,859

10,658
-
650
6,790

7,728
4,462
-
640
10,163

$ 82,439
298,030
212,352
28,656
2,282,680
$ 22,993 $2,904,157

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

8,568 $ 97,304
249,866
4,679
155,138
-
50
300
1,880,999
19,387
$ 32,684 $2,383,607

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

Fulton Financial Corporation

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

Total investment securities decreased $477.3 million, or 16.4%, ($808.8 million, or 27.6%, excluding the 2004 Acquisitions), to a
balance of $2.4 billion at December 31, 2004. In 2003, investment securities increased $510.9 million, or 21.1%, to reach a balance of
$2.9 billion. As noted above, the decrease in 2004 represented maturities and prepayments that were not reinvested due to the
expectation of increasing short-term interest rates.

The Corporation classified virtually its entire investment portfolio as available for sale at December 31, 2004 and, as such, these
investments were recorded at their estimated fair values. As short-term interest rates increased in the second half of 2004, the net
unrealized gain on non-equity available for sale investment securities decreased $24.8 million from a net unrealized gain of $3.8
million at December 31, 2003 to a net unrealized loss of $21.1 million at December 31, 2004.

At December 31, 2004, equity securities consisted of FHLB and other government agency stock ($63.4 million), stocks of other
financial institutions ($69.2 million) and mutual funds and other ($37.4 million). The bank stock portfolio has historically been a
source of capital appreciation and realized gains ($14.8 million in 2004, $17.3 million in 2003 and $7.4 million in 2002).
Management periodically sells bank stocks when, in its opinion, valuations and market conditions warrant such sales.

Other Assets

Cash and due from banks decreased $22.9 million, or 7.6% ($49.2 million, or 16.4%, excluding the 2004 Acquisitions), in 2004,
following a $13.9 million, or 4.4%, decrease in 2003. 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
$36.2 million, or 12.9%, from $280.0 million in 2003 to $316.2 million in 2004, following a $26.5 million, or 10.4%, increase in
2003. The increase in both years resulted from acquisitions and growth in the Corporation’s branch network.

Premises and equipment increased $26.1 million, or 21.6%, in 2004 to $146.9 million, which included $22.4 as a result of the 2004
Acquisitions. The remaining increase reflects additions of $16.2 million primarily for the construction of various new branch and
office facilities, partially offset by current year depreciation expense.

Goodwill and intangible assets increased $244.5 million, or 168.9%, in 2004, following a $72.5 million, or 100.3%, increase in 2003,
as a result of acquisitions. Other assets increased $49.7 million, or 32.3%, in 2004 to $203.7 million, including $29.9 million as a
result of the 2004 Acquisitions, an increase in the net deferred tax asset mainly as a result of decreases in unrealized gains on
investment securities, and an $11.9 million increase in investments in low-income housing projects. During 2004, equity investments
of $17.5 million were made to eight new partnerships. The Corporation made its initial investment of this type during 1989 and is now
involved in 58 partnerships, located in the communities served by its subsidiary banks. The carrying value of these investments was
approximately $52.0 million at December 31, 2004. 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 $1.1 billion, or 16.9%, to $7.9 billion at December 31, 2004 ($118.9 million, or 1.8%, excluding the 2004
Acquisitions). This compares to an increase of $506.3 million, or 8.1%, in 2003, ($71.8 million, or 1.1%, excluding the Premier
acquisition). The recent trend has been strong growth in core demand and savings accounts, offset by declines in time deposits.
Consumers have continued to favor banks over the equity markets, even though market performance has recovered some of its decline
from the past few years. In addition, the relatively low interest rate environment resulted in consumers continuing to favor demand
and savings products over time deposits. Although short-term rates have increased in 2004, longer-term rate increases have not been
as significant. If longer-term rates increase significantly in the future, consumers may shift their deposit funds to higher cost time
deposits.

During 2004, demand deposits increased $457.1 million, or 17.9% ($234.6 million, or 10.8%, excluding the 2004 Acquisitions),
savings deposits increased $165.7 million, or 9.5% ($58.7 million, or 3.8%, excluding the 2004 Acquisitions) and time deposits
increased $521,000 , or 21.3% (decrease of $174.5 million, or 7.2%, excluding the 2004 Acquisitions).

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

Fulton Financial Corporation

During 2003, demand deposits increased $372.7 million, or 17.1% ($220.8 million, 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). Many of the trends experienced during 2003 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, decreased $202.2
million, or 14.5% ($329.9 million, or 23.6%, excluding the 2004 Acquisitions), in 2004 after increasing $764.5 million, or 120.9%, in
2003. The decrease in 2004 was due to strategies to reduce overnight Federal funds purchased in the recent rising rate environment. In
2003, the increase resulted from actions taken to manage the gap position and to take advantage of low short-term borrowing rates.
Long-term debt increased $115.5 million, or 20.3% (decrease of $18.5 million, or 3.3%, excluding the 2004 Acquisitions). The
decrease in 2004 was due to a decrease in Federal Home Loan Bank advances. Long-term debt increased $33.2 million, or 6.2%,
during 2003 mainly due to $25.0 million of junior subordinated debentures assumed from Premier.

Other Liabilities

Other liabilities increased $38.6 million, or 37.5% ($19.4 million, or 18.8%, excluding the 2004 Acquisitions), following a $2.1
million, or 2.0%, decrease in 2003. The increase in 2004 was primarily attributable to additional equity commitments for low-income
housing projects ($9.2 million increase), an increase in accrued retirement benefits ($2.4 million) and an increase in dividends payable
to shareholders ($2.5 million).

Shareholders’ Equity

Total shareholders’ equity of $1.2 billion, or 11.1% of ending total assets, increased $295.4 million, or 31.2%, since December 31,
2003. This growth reflected the issuance of stock to effect the 2004 Acquisitions in the amount of $311.1 million, offset by treasury
stock purchases of $79.0 million. Shareholders’ equity was also increased by retained earnings of $75.7 million.

The Corporation periodically implements stock repurchase plans for various corporate purposes. In addition to evaluating the
financial benefits of implementing repurchase plans, management also considers liquidity needs, the current market price per share
and regulatory limitations. In 2002, the Board of Directors approved a stock repurchase plan for 5.8 million shares, which was
extended through June 30, 2004. During 2004, 1.3 million shares were repurchased under this plan. On June 15, 2004, the Board of
Directors approved a stock repurchase plan for 4.0 million shares through December 31, 2004. During 2004, 2.5 million shares were
repurchased under this plan, including 1.0 million shares acquired under an accelerated share repurchase program. On December 21,
2004, the Board of Directors extended the stock repurchase plan through June 30, 2005 and increased the total number of shares that
could be repurchased to 4.0 million. No shares were purchased under this extended plan in 2004.

The Corporation and its subsidiary banks are subject to regulatory capital requirements administered by various banking regulators.
Failure to meet minimum capital requirements can initiate certain actions by regulators that could have a material effect on the
Corporation’s financial statements. The regulations require that banks maintain minimum amounts and ratios of total and Tier I capital
(as defined in the regulations) to risk weighted assets (as defined), and Tier I capital to average assets (as defined). As of December
31, 2004, the Corporation and each of its bank subsidiaries met the minimum capital requirements. In addition, the Corporation and
each of its bank subsidiaries’ capital ratios exceeded the amounts required to be considered “well-capitalized” as defined in the
regulations. See also Note J, “Regulatory Matters”, in the Notes to Consolidated Financial Statements.

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, 2004:

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).. $ 4,926,478
Time deposits (b)............................... 1,503,631
Short-term borrowings (c)................. 1,194,524
126,230
Long-term debt (c) ............................
8,051
Operating leases (d)...........................
11,438
Purchase obligations (e) ....................

-
982,014
-
104,008
13,961
6,675

-
173,822
-
281,347
8,592
3,411

-
309,579
-
172,651
19,752
-

$ 4,926,478
2,969,046
1,194,524
684,236
50,356
21,524

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

Consolidated Financial Statements.

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

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

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

The following table presents the Corporation’s commitments to extend credit and letters of credit as of December 31, 2004 (in
thousands):

Commercial mortgage, construction and land development............ $ 689,818
412,790
Home equity ....................................................................................
384,504
Credit card .......................................................................................
Commercial and other......................................................................
1,851,159
Total commitments to extend credit ........................................... $ 3,338,271

Standby letters of credit ................................................................... $ 533,094
Commercial letters of credit ............................................................
24,312
Total letters of credit................................................................... $ 557,406

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

Fulton Financial Corporation

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, that are rated less than “satisfactory” based upon the Corporation’s internal credit-rating process.

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

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

For loans identified as impaired, calculating the estimated fair value, using observable market prices, discounted cash flows
or the value of the underlying collateral.

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

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

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

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

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

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

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

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

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

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

Fulton Financial Corporation

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

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

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

Goodwill is not amortized to expense, but is evaluated at least annually for impairment. The Corporation completes its annual
goodwill impairment test as of October 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 2004, 2003 and 2002.

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

The Corporation must also evaluate the likelihood that deferred tax assets will be recovered from future taxable income. If any such
assets are not likely to be recovered, a valuation allowance must be recognized. The Corporation has determined that a valuation
allowance is not required for deferred tax assets as of December 31, 2004, except in the case of deferred tax benefits related to state
income tax net operating losses. The assessment of the carrying value of deferred tax assets is based on certain assumptions, changes
in which could have a material impact on the Corporation’s financial statements. See also Note K, “Income Taxes”, in the Notes to
Consolidated Financial Statements.

Recent Accounting Pronouncements

Note A, “Summary of Significant Accounting Policies”, in the Notes to Consolidated Financial Statements discusses the expected
impact of recently issued accounting standards which have not yet been adopted by the Corporation.

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

Fulton Financial 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 of common stocks of publicly
traded financial institutions, U.S. Government and agency stocks and money market mutual funds. The equity investments most
susceptible to equity market price risk are the financial institutions stocks, which had a cost basis of approximately $56.9 million and
a fair value of $64.3 million at December 31, 2004. Gross unrealized gains in this portfolio were approximately $7.8 million at
December 31, 2004.

Although the carrying value of the financial institutions stocks accounted only for 0.6% of the Corporation’s total assets, the
unrealized gains on the portfolio represent a potential source of revenue. The Corporation has a history of realizing gains from this
portfolio and, if values were to decline 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 29 as such
investments do not have maturity dates.

The Corporation has evaluated, based on existing accounting guidance, whether any unrealized losses on individual equity
investments constituted “other than temporary” impairment, which would require a write-down through a charge to earnings. Based
on the results of such evaluations, the Corporation recorded write-downs of $137,000 in 2004 and $3.3 million in 2003 for specific
equity securities which were deemed to exhibit other than temporary impairment in value. Through December 31, 2004, gains of
approximately $1.7 million had been realized on the sale of investments previously written down and, as of December 31, 2004, the
impaired securities still held in the portfolio had recovered approximately $1.4 million of the original write-down amount. Additional
impairment charges may be necessary depending upon the performance of the equity markets in general and the performance of the
individual investments held by the Corporation. See also Note C, “Investment Securities”, in the Notes to Consolidated Financial
Statements.

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

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

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

Fulton Financial Corporation

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

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

The Corporation’s sources and uses of cash were discussed in general terms in the “Overview” section of Management’s Discussion.
The consolidated statements of cash flows provide additional information. The Corporation generated $145.9 million in cash from
operating activities during 2004, mainly due to net income. Investing activities resulted in a net cash inflow of $215.8 million,
compared to a net cash outflow of $825.9 million in 2003. In 2004, proceeds from maturities and sales of investment securities
exceeded reinvestments in the portfolio and the net increase in the loan portfolio. In 2003, funds provided by investment maturities
and increased borrowings were used to purchase additional investment securities. Financing activities resulted in a net cash outflow of
$384.5 million in 2004, compared to a net cash inflow of $623.3 in 2003 as funds provided by maturing investments were used to
reduce short-term borrowings.

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

In 2004, the Parent Company entered into a revolving line of credit agreement with an unaffiliated bank. Under the terms of the
agreement, the Parent Company can borrow up to $50.0 million (may be increased to $100.0 million upon request) with interest
calculated at the one-month London Interbank Offering Rate (LIBOR) plus 0.625%. The credit agreement requires the Corporation to
maintain certain financial ratios related to capital strength and earnings. The Corporation was in compliance with all required covenants
under the credit agreement as of December 31, 2004.

This borrowing arrangement supplements the liquidity available from subsidiaries through dividends and borrowings and provides
some flexibility in Parent Company cash management. As of December 31, 2004, $11.9 million had been borrowed on this line.
Management continues to monitor the liquidity and capital needs of the Parent Company and will implement appropriate strategies, as
necessary, to remain well-capitalized and to meet its cash needs.

In addition to its normal recurring and operating cash needs, the Parent Company will also pay cash for a portion of the SVB
acquisition, which is expected to be completed in the third quarter of 2005. Based on the terms of the merger agreement, the Parent
Company will pay a minimum of approximately $17.0 million and a maximum of approximately $34.0 million to consummate the
acquisition. See Note Q, “Mergers and Acquisitions” in the Notes to Consolidated Financial Statements for a summary of the terms of
this transaction.

At December 31, 2004, liquid assets (defined as cash and due from banks, short-term investments, Federal funds sold, mortgages
available for sale, securities available for sale, and non-mortgage-backed securities held to maturity due in one year or less) totaled
$2.9 billion, or 26.1% of total assets. This compares to $3.2 billion, or 33.2% of total assets, at December 31, 2003.

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, 2004 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
Yield

Amount

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

862
8,893
50
Totals....................................... $ 9,805

$ 3,549
2.25%
1,110
2.98
6.91
600
2.93% $ 5,259

$ 2,179
4.13%
655
6.32
4.13
-
4.59% $ 2,834

4.29%
8.00
-

5.15% $

313
-
-
313

7.61%
-
-
7.61%

Mortgage-backed securities (2) .. $ 6,790

6.04%

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
Yield

Amount

U.S. Government and
agency securities.................... $ 82,954
30,570
State and municipal (1)...............
3,327
Other securities...........................
Totals....................................... $ 116,851

$ 29,884
1.97%
161,760
4.52
6.28
378
2.76% $ 192,022

$ 11,934
3.15%
98,740
5.17
5.01
2,962
4.85% $ 113,636

$ 4,153
5.04%
41,385
5.09
7.19
64,460
5.14% $ 109,998

3.39%
8.67
7.24
7.63%

Mortgage-backed securities (2) .. $1,722,286

3.45%

(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 decrease.
As rates decrease, cash flows generally increase as prepayments increase. The Corporation invests primarily in five and seven year
balloon mortgage-backed securities to limit interest rate risk and promote liquidity.

Fulton Financial Corporation

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

The following table presents the approximate contractual maturity and sensitivity of certain loan types, excluding consumer loans and
leases, to changes in interest rates as of December 31, 2004:

One Year
or Less

One
Through
Five Years

More Than
Five Years

Total

(in thousands)

Commercial, financial and agricultural:
Floating rate ................................................ $ 523,570
Fixed rate ....................................................
139,925
Total ....................................................... $ 663,495

$ 518,874
243,802
$ 762,676

$ 770,183
76,784
$ 846,967

$ 1,812,627
460,511
$ 2,273,138

Real-estate – mortgage:
Floating rate ................................................ $ 480,490
Fixed rate ....................................................
744,984
Total ....................................................... $ 1,225,474

$ 1,222,487
671,297
$ 1,893,784

$ 882,216
110,863
$ 993,079

$ 2,585,193
1,527,144
$ 4,112,337

Real-estate – construction:
Floating rate ................................................ $ 292,368
Fixed rate ....................................................
87,020
Total ....................................................... $ 379,388

$ 108,896
28,631
$ 137,527

72,776
37,095
$ 109,871

$ 474,040
152,746
$ 626,786

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.

Contractual maturities of time deposits of $100,000 or more outstanding at December 31, 2004 are as follows (in thousands):

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

114,859
77,021
95,626
248,458
535,964

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, 2004, the Corporation had $645.5 million in term advances from the FHLB with an additional $1.3 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.

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

Fulton Financial Corporation

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

2005

2006

2007

2008

2009

Beyond

Total

Expected Maturity Period

Estimated
Fair Value

Fixed rate loans (1) ....................... $ 747,825
Average rate (2) ........................
Floating rate loans (1) (3)..............
Average rate (2) ........................

1,362,108

6.07%

5.97%

$ 486,830

$ 402,921

$ 261,533

$ 161,706 $ 325,429

$ 2,386,244

$ 2,480,958

6.15%

6.08%

6.05%

6.31%

6.38%

6.14%

685,031

538,425

442,696

391,812

1,778,231

5,198,303

5,188,778

5.83%

6.02%

6.11%

5.70%

4.83%

5.56%

-
-

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

577,487

367,723

295,099

429,357

193,217

428,146

2,291,029

2,270,383

3.41%

3.77%

4.06%

-
-

4.07%

3.85%
141
-
5.85% -

4.05%
9,681
3.40%

3.81%
9,822
3.44%

9,823

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

195,560

-
6.09% -

-
-

195,560

6.09%

Total ............................................. $ 2,882,980
Average rate .............................

5.40%

$ 1,539,584

$ 1,236,445

$ 1,133,727

$ 746,735 $ 2,541,487

$10,080,958

$10,145,502

5.44%

5.57%

5.24%

5.41%

4.90%

5.29%

Fixed rate deposits (4)................... $ 1,521,075
Average rate..............................
Floating rate deposits (5)...............
Average rate..............................

1,978,454

2.25%

1.03%

$ 556,945

$ 409,100

$
3.93%

96,606 $ 64,590

$ 281,729

$ 2,930,045

$ 2,935,643

3.29%

3.82%

4.26%

2.88%

2.97%

192,717

2,216,157

4,965,479

4,965,384

0.27%

0.19%

0.54%

Fixed rate borrowings (6)..............
Average rate..............................
Floating rate borrowings (7) .........
Average rate..............................

154,728

37,874

87,487

221,671

42,405

140,071

684,236

710,215

4.37%

3.36%

3.80%

5.01%

4.80%

5.38%

4.68%

1,194,524

-
1.54% -

-
-

1,194,524

1.54%

Total ............................................. $ 4,848,781
Average rate .............................

1.75%

$ 787,536

$ 689,304

$ 510,994

$ 299,712 $ 2,637,957

$ 9,774,284

$ 9,805,766

2.33%

2.89%

1.67%

0.91%

1.71%

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) Floating rate loans include adjustable rate commercial loans and mortgages which may not reprice immediately upon a change in interest rates.
(4) Amounts are based on contractual maturities of fixed rate time deposits.
(5) Money market, Super NOW, NOW and savings accounts are placed based on history of deposit flows.
(6) Amounts are based on contractual maturities of Federal Home Loan Bank advances, adjusted for possible calls.
(7) Amounts are Federal funds purchased and securities sold under agreements to repurchase, which mature in less than 90 days.

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

In addition to the interest rate sensitive instruments included in the preceding table, the Corporation also had interest rate swaps with a
notional amount of $220 million as of December 31, 2004. These swaps were used to hedge certain long-term fixed rate certificates of
deposit held at one of the Corporation’s affiliate banks. The terms of the certificates of deposit and the interest rate swaps mirror each
other and were committed to simultaneously. Under the terms of the agreements, the Corporation is the fixed rate receiver and the
floating rate payer (generally tied to the three month London Interbank Offering Rate, or LIBOR, a common index used for setting

Fulton Financial Corporation

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

rates between financial institutions). The combination of the interest rate swaps and the issuance of the certificates of deposit
generates long-term floating rate funding for the Corporation.

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.

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, 2004 was 1.00. The following is a summary of the interest sensitivity gaps
for various time intervals as of December 31, 2004:

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

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

0-90
Days

1.00

91-180
Days

181-365
Days

0.97

1.00

1.08

1.01

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

Annual change
in net interest
income
+ $26.4 million
+ $17.6 million
+ $12.6 million
- $8.6 million

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

% Change
+6.9%
+4.6%
+3.3%
-2.2%

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

Fulton Financial Corporation

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
+ $36.0 million
+ $23.0 million
+ $34.2 million
- $52.6 million

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

% Change
+2.3%
+1.4%
+2.1%
-3.3%

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, 2004, the Corporation had 125.7 million shares of $2.50 par value common stock outstanding held by 45,440
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 2004 and 2003. Per-share amounts have been retroactively adjusted to reflect the effect of
stock dividends.

Price Range

High

Low

Per-Share
Dividend

2004
First Quarter ............ $ 21.70
Second Quarter ........
21.64
Third Quarter ..........
21.90
Fourth Quarter ........
23.60

2003
First Quarter............... $ 17.32
Second Quarter ..........
20.00
Third Quarter .............
20.48
Fourth Quarter ...........
20.95

$ 19.86
19.14
20.00
21.05

$ 15.89
17.01
18.33
18.81

0.152
0.165
0.165
0.165

0.136
0.152
0.152
0.152

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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 .......................................................................................
Federal funds sold .............................................................................................................................
Mortgage loans held for sale ............................................................................................................
Investment securities:
Held to maturity (estimated fair value of $25,413 in 2004 and $23,739 in 2003) ......................
Available for sale .........................................................................................................................

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

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

December 31

2004
278,065
4,688
32,000
158,872

25,001
2,424,858

7,584,547
(89,627)
7,494,920

146,911
40,633
364,019
25,303
163,081

2003
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
17,594
119,578

Total Assets .............................................................................................................. $ 11,158,351

$ 9,767,288

Liabilities
Deposits:
Noninterest-bearing ..................................................................................................................... $ 1,507,799
Interest-bearing ............................................................................................................................
6,387,725
Total Deposits ..........................................................................................................
7,895,524

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

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...................................................................
Total Liabilities ........................................................................................................

Shareholders' Equity
Common stock, $2.50 par value, 400 million shares authorized, 134.2 million shares issued
in 2004 and 119.5 million shares issued in 2003..........................................................................
Additional paid-in capital .................................................................................................................
Retained earnings .............................................................................................................................
Accumulated other comprehensive (loss) income.............................................................................
Treasury stock (8.5 million shares in 2004 and 5.8 million shares in 2003), at cost ........................
Total Shareholders' Equity ......................................................................................

676,922
517,602
1,194,524

27,279
114,498
684,236
9,916,061

335,604
1,000,111
77,419
(10,133)
(160,711)
1,242,290

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

Total Liabilities and Shareholders' Equity .............................................................. $ 11,158,351

$ 9,767,288

See Notes to Consolidated Financial Statements

2004

Year Ended December 31
2003

2002

396,731

341,393

370,318

Fulton Financial Corporation

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

76,792
9,553
4,023
6,544
493,643

89,779
15,182
31,033
135,994

357,649
4,717

Provision for Loan Losses .............................................

352,932

Other Income
Investment management and trust services ....................................................
Service charges on deposit accounts .............................................................
Other service charges and fees ......................................................................
Gain on sale of mortgage loans ......................................................................
Investment securities gains ............................................................................
Other ..............................................................................................................
Total Other Income ...............................................................

Other Expenses
Salaries and employee benefits .....................................................................
Net occupancy expense .................................................................................
Equipment expense ........................................................................................
Data processing .............................................................................................
Advertising .....................................................................................................
Intangible amortization...................................................................................
Other ..............................................................................................................
Total Other Expenses ...........................................................

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

34,817
39,451
20,494
19,262
17,712
7,128
138,864

162,126
23,813
10,769
11,430
6,943
4,726
53,808
273,615

218,181
65,264

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
18,965
19,853
4,294
134,370

136,002
19,896
10,505
11,532
6,039
2,059
45,526
231,559

197,543
59,363

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
13,941
8,992
6,720
114,012

127,584
17,705
11,295
11,968
6,525
1,838
46,850
223,765

189,416
56,468

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

152,917

138,180

132,948

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

1.28
1.27
0.647

1.23
1.22
0.593

1.17
1.17
0.531

See Notes to Consolidated Financial Statements

Fulton Financial Corporation

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

Number of
Shares
Outstanding

Common
Stock

Additional
Paid-In
Capital

Accumulated
Other
Comprehen-
sive (Loss)
Income

Retained
Earnings
(dollars in thousands)

Treasury

Stock

Total

$ 207,962

$ 536,235

65,649

12,970

(11,362)

$ 811,454

Balance at January 1, 2002......................................... 113,850,000
Comprehensive income:
Net income ........................................................
Unrealized gain on securities
(net of $14.9 million tax effect)...................
Less – reclassification adjustment for
gains included in net income (net

of $3.1 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 – $0.531 per share........................

371,000
(2,751,000)

51,981

(52,050)
(3,157)

27,676

(5,845)

132,948

(60,096)

132,948

27,676

(5,845)
154,779

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

6,964
(46,133)

Balance at December 31, 2002................................... 111,470,000
Comprehensive income:
Net income ........................................................
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 – $0.593 per share........................

566,000

4,846,000
(3,214,000)

Balance at December 31, 2003................................... 113,668,000
Comprehensive income:
Net income ........................................................
Unrealized loss on securities
(net of $5.6 million tax effect).....................
Less – reclassification adjustment for
gains included in net income (net of

$6.2 million tax expense)............................

Minimum pension liability adjustment
(net of $300,000 tax effect) ............................

Total comprehensive income.......................

Stock dividend – 5%..............................................
Stock issued ...........................................................
Stock issued for acquisition of
Resource Bankshares Corporation. ..................
Stock issued for acquisition of
First Washington FinancialCorp. .....................
Acquisition of treasury stock.................................
Cash dividends – $0.647 per share........................

259,943

481,028

138,501

34,801

(50,531)

863,742

138,180

(9,630)

(12,904)

12,998

79,491
(3,570)

(92,526)

11,539

76,639

(66,782)

138,180

(9,630)

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

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

9,458

(59,699)

284,480

633,588

117,373

12,267

(100,772)

946,936

152,917

(10,329)

(11,513)

(558)

152,917

(10,329)

(11,513)

(558)

130,517
(90)
10,061

185,863

125,225
(78,966)
(77,256)

19,027

(78,966)

1,048,000

15,278

100,247
(8,966)

(115,615)

9,030,000

21,498

164,365

5,739,000
(3,765,000)

14,348

110,877

(77,256)

Balance at December 31, 2004................................... 125,720,000

$ 335,604

$ 1,000,111

77,419

(10,133)

(160,711)

$ 1,242,290

See Notes to Consolidated Financial Statements

Fulton Financial Corporation

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:

Net Income ...................................................................................................................

152,917

138,180

132,948

Year Ended December 31

2004

2003

2002

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 ................................................
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 ..................................................................
Decrease (increase) in other assets .........................................................................
Decrease in accrued interest payable .....................................................................
Increase (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 .................................................................
(Increase) decrease in short-term investments .......................................................
Net (increase) decrease in loans .............................................................................
Net cash received from acquisitions .......................................................................
Net purchase of premises and equipment ...............................................................
Net cash provided by (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 .................................................................................
Decrease (increase) in short-term borrowings ........................................................
Dividends paid .......................................................................................................
Net proceeds from issuance of common stock .......................................................
Acquisition of treasury stock .................................................................................
Net cash (used in) provided by financing activities ........................................

Net Decrease in Cash and Due From Banks ..............................................................
Cash and Due From Banks at Beginning of Year .....................................................
Cash and Due From Banks at End of Year ...............................................................

Supplemental Disclosures of Cash Flow Information
Cash paid during period for:

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

See Notes to Consolidated Financial Statements

4,717
12,409
9,906
1,232
(17,712)
(19,262)
1,475,000
(1,487,303)
4,726
22
6,895
(759)
3,089
(7,040)
145,877

235,332
8,870
816,834
(11,402)
(269,776)
(9,188)
(546,565)
7,810
(16,161)
215,754

293,331
(174,453)
45,000
(63,509)
(338,845)
(74,802)
7,712
(78,966)
(384,532)

(22,901)
300,966
278,065

9,705
12,379
19,243
4,709
(19,853)
(18,965)
871,447
(813,476)
2,059
11,333
(14,595)
(6,136)
(7,370)
50,480
188,660

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)
5,122
(59,699)
623,304

(13,891)
314,857
300,966

136,753
54,457

137,230
48,924

11,900
12,786
3,974
1,955
(8,992)
(13,941)
609,726
(647,886)
1,838
713
87
(8,318)
(1,580)
(37,738)
95,210

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)
3,304
(46,133)
467,553

(41,682)
356,539
314,857

166,537
49,621

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fulton Financial Corporation

NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

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

Scope of Management’s Report on Internal Control Over Financial Reporting: Management’s report on internal control over
financial reporting includes controls at all consolidated entities, except for First Washington FinancialCorp (First Washington) which
was acquired on December 31, 2004. Management has not evaluated the internal controls over financial reporting of First Washington
and management’s conclusion regarding the effectiveness of internal control over financial reporting does not extend to the internal
controls of First Washington. See Note Q, “Mergers and Acquisitions”, for a summary of the account balances of First Washington
included in the consolidated balance sheet of December 31, 2004.

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.

Fulton Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

Interest Rate Swaps: As of December 31, 2004, interest rate swaps with a notional amount of $220 million were used to hedge
certain long-term fixed rate certificate of deposit liabilities held at one of the Corporation’s affiliate banks. The terms of the
certificates of deposit and the interest rate swaps mirror each other and were committed to simultaneously. Under the terms of the
swap agreements, the Corporation is the fixed rate receiver and the floating rate payer (generally tied to the three month London
Interbank Offering Rate, or LIBOR, a common index used for setting rates between financial institutions). The combination of the
interest rate swaps and the issuance of the certificates of deposit generates long-term floating rate funding for the Corporation. Both
the interest rate swaps and the certificates of deposit are recorded at fair value, with changes in fair value included in the consolidated
statements of income as interest expense. Risk management results indicate that the hedges were 98.3% effective as of December 31,
2004, resulting in a favorable adjustment to interest expense to reflect hedge ineffectiveness of $14,000 for the year ended December
31, 2004.

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

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

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

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

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

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fulton Financial Corporation

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. Leasehold
improvements are amortized over the shorter of 15 years or the noncancelable lease term. Interest costs incurred during the
construction of major bank premises are capitalized.

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

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

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

Stock-Based Compensation: The Corporation accounts for its stock 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
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 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 123r,
“Share-Based Payment” (Statement 123r). Statement 123r is a revision to the original Statement 123 which disallows the APB 25
method of accounting for stock options and requires public companies to recognize compensation expense related to stock options in
their income statements. Companies can adopt Statement 123r using either “modified prospective application” or “modified
retrospective application”. Modified prospective application requires expense to be recognized for all options granted or vested after
June 15, 2005. Modified retrospective application also results in restatement of prior period results, based on the amounts previously
disclosed in prior period financial statements. Management is in the process of evaluating the adoption alternatives. The impact of
adopting Statement 123r on the Corporation’s results of operations and financial condition is illustrated in the pro-forma information
presented 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 479,000 in 2002.

Fulton Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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)...........................

119,435
1,206
120,641

112,268
867
113,135

113,156
742
113,898

2004

2003
(in thousands)

2002

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 thirteen separate banks, each engages in similar
activities, provides similar products and services, and operates in the same general geographical area. The Corporation’s non-banking
activities are immaterial and, therefore, separate information has not been disclosed.

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

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

As required by Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (Statement 142),
goodwill is not amortized to expense, but is tested for impairment at least annually. Write-downs of the balance, if necessary as a
result of the impairment test, are to be charged to the results of operations in the period in which the impairment is determined. The
Corporation performed its annual tests of goodwill impairment on October 31 of each year. Based on the results of these tests the
Corporation concluded that there was no impairment and no write-downs were recorded. If certain events occur which might indicate
goodwill has been impaired, the goodwill is tested when such events occur.

In October 2002, the FASB issued Statement of Financial Accounting Standards No. 147, “Acquisitions of Certain Financial
Institutions” (Statement 147) 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: FASB Interpretation No. 46, “Consolidation of Variable Interest Entities – An Interpretation of ARB No.
51” (FIN 46), provides guidance on when to consolidate certain Variable Interest Entities (VIE’s) in the financial statements of the
Corporation. VIE’s are entities in which equity investors do not have a controlling financial interest or do not have sufficient equity at
risk for the entity to finance activities without additional financial support from other parties. Under FIN 46, a company must
consolidate a VIE if the company has a variable interest that will absorb a majority of the VIE’s losses, if they occur, and/or receive a
majority of the VIE’s residual returns, if they occur. For the Corporation, FIN 46 affects corporation-obligated mandatorily
redeemable capital securities 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, 2004 and 2003. The impact of this deconsolidation was
to increase long-term debt and reduce corporation-obligated mandatorily redeemable capital securities of subsidiary trust by $34.0

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fulton Financial Corporation

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, 2004 and 2003,
the Corporation’s LIH Investments totaled $52.0 million and $40.0 million, respectively. The net income tax benefit associated with
these investments was $4.5 million in 2004, $4.0 million in 2003 and 2002. Based on its review of FIN 46, the Corporation did not
consolidate any of its LIH Investments as of December 31, 2004 or 2003.

Accounting for Certain Loans or Debt Securities Acquired in a Transfer: In December 2003, the Accounting Standards
Executive Committee issued Statement of Position 03-3 (SOP 03-3), “Accounting for Certain Loans or Debt Securities Acquired in a
Transfer”. SOP 03-3 addresses accounting for differences between contractual cash flows and cash flows expected to be collected
from an investor’s initial investment in loans or debt securities acquired in a transfer, including business combinations, if those
differences are attributable, at least in part, to credit quality.

SOP 03-3 is effective for loans or debt securities acquired in fiscal years beginning after December 15, 2004. The Corporation intends
to adopt the provisions of SOP 03-3 effective January 1, 2005, and does not expect the initial implementation to have a material effect
on the Corporation’s financial condition or results of operations.

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

In September 2004, the FASB delayed the effective date of the measurement and recognition guidance of EITF 03-01 from the third
calendar quarter of 2004 to a date to be determined upon the issuance of a final FASB Staff Position. The Corporation continues to
apply the measurement and recognition criteria of existing authoritative literature in evaluating its investments for other than
temporary impairment. Management does not expect EITF 03-01 to have a material impact on its financial condition or results of
operations.

Reclassifications and Restatements: Certain amounts in the 2003 and 2002 consolidated financial statements and notes have been
reclassified to conform to the 2004 presentation. All share and per-share data have been restated to reflect the impact of the 5% stock
dividend paid in June 2004.

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 2004 and 2003 was approximately $100.8 million and
$94.4 million, respectively.

Fulton Financial Corporation

NOTE C – INVESTMENT SECURITIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

2004 Held to Maturity

Gross
Amortized Unrealized Unrealized
Gains

Losses

Gross

Cost

Estimated
Fair
Value

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

2004 Available for Sale

(in thousands)

6,903 $

10,658
650
6,790
25,001

78 $
65
1
323
467 $

(55) $

-
-
-

(55) $

6,926
10,723
651
7,113
25,413

Equity securities ................................. $ 163,249 $
U.S. Government and
agency securities............................
State and municipal securities ............
Corporate debt securities ....................
Mortgage-backed securities................

128,829
328,726
68,215
1,750,080
$ 2,439,099

7,822 $

(1,006) $ 170,065

144
4,350
3,053
1,427
16,796

(48)
128,925
(621)
332,455
(141)
71,127
1,722,286
(29,221)
(31,037) $ 2,424,858

2003 Held to Maturity

2003 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

Equity securities ................................. $ 197,262 $
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

15,597

(507) $ 212,352

261
7,115
292
9,109
32,374

-
82,439
(329)
298,030
(408)
28,656
2,282,680
(12,274)
(13,518) $ 2,904,157

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fulton Financial Corporation

The amortized cost and estimated fair value of debt securities at December 31, 2004 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 ...................

9,805
5,259
2,834
313
18,211
6,790
25,001

9,804
5,308
2,798
390
18,300
7,113
25,413

$ 116,720
190,051
112,882
106,117
525,770
1,750,080
$2,275,850

$ 116,851
192,022
113,636
109,998
532,507
1,722,286
$2,254,793

Gains totaling $14.8 million, $17.3 million and $7.4 million were realized on the sale of equity securities during 2004, 2003 and 2002,
respectively. Gains totaling $3.1 million, $5.9 million and $1.6 million were realized on the sale of available for sale debt securities
during 2004, 2003 and 2002, respectively. Losses of $137,000, and $3.3 million were recognized in 2004 and 2003 respectively, for
equity investments exhibiting other than temporary impairment.

Securities carried at $1.2 billion at December 31, 2004 and 2003 were pledged as collateral to secure public and trust deposits and
customer and brokered repurchase agreements.

The following table presents the gross unrealized losses and 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, 2004:

Less Than 12 months

12 Months or Longer

Total

Estimated
Fair Value

Unrealized
Losses

Estimated
Fair Value

Unrealized
Losses

Estimated
Fair Value

Unrealized
Losses

(in thousands)

U.S. Government and agency securities ........... $ 67,763
66,794
State and municipal securities...........................
2,296
Corporate debt securities ..................................
896,845
Mortgage-backed securities ..............................
1,033,698
Total debt securities .....................................
Equity securities................................................
13,063
Total............................................................. $1,046,761

(103)
(554)
(15)
(13,498)
(14,170)
(810)
$ (14,980)

-
2,392
8,118
632,216
642,726
10,469
$ 653,195

-
(67)
(126)
(15,723)
(15,916)
(196)
$ (16,112)

$ 67,763
69,186
10,414
1,529,061
1,676,424
23,532
$1,699,956

(103)
(621)
(141)
(29,221)
(30,086)
(1,006)
$ (31,092)

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, 2004
resulted from an increase in market rates since the securities were purchased. 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:

2004

2003

(in thousands)

Commercial - industrial and financial .................................................... $ 1,946,962
Commercial - agricultural.......................................................................
326,176
Real-estate - commercial mortgage ........................................................
2,461,016
Real-estate - commercial construction ...................................................
348,846
Real-estate - residential mortgage ..........................................................
543,072
Real-estate - residential construction......................................................
277,940
Real estate - home equity .......................................................................
1,108,249
Consumer ...............................................................................................
506,290
Leasing and other ...................................................................................
77,767
Deferred loan fees, net of costs ..............................................................
(4,972)
7,591,346
(6,799)
$ 7,584,547

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

$ 1,594,451
354,517
1,992,650
264,129
434,568
42,979
890,044
516,587
84,056
(6,410)
6,167,571
(7,577)
$ 6,159,994

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

2004

2003
(in thousands)

2002

Balance at beginning of year ........................................ $

77,700

71,920

71,872

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

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

(8,877)
4,520
(4,357)

4,717
11,567

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

9,705
5,474

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

11,900
-

Balance at end of year ................................................. $

89,627

77,700

71,920

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

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

2004

2003

(in thousands)

22,574
8,318
2,209
33,101

22,422
9,609
585
32,616

Interest of approximately $1.5 million, $1.8 million and $1.7 million was not recognized as interest income due to the non-accrual
status of loans during 2004, 2003 and 2002, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fulton Financial Corporation

The recorded investment in loans that were considered to be impaired as defined by Statement 114 was $130.6 million and $78.2
million at December 31, 2004 and 2003, respectively. At December 31, 2004 and 2003, $6.6 million and $8.9 million of impaired
loans were included in non-accrual loans, respectively. At December 31, 2004 and 2003, impaired loans had related allowances for
loan losses of $41.6 million and $25.8 million, respectively. There were no impaired loans in 2004 and 2003 that did not have a
related allowance for loan losses. The average recorded investment in impaired loans during the years ended December 31, 2004,
2003 and 2002 was approximately $108.0 million, $78.4 million, and $40.2 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 $5.6 million, $3.9 million and $1.7 million on impaired loans in 2004, 2003 and 2002, 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 $209.8 million and $170.1 million at December 31, 2004 and 2003,
respectively. During 2004, $48.4 million of new advances were made and repayments totaled $18.7 million. First Washington and
Resource added $10.0 million to related party loans.

The total portfolio of mortgage loans serviced by the Corporation for unrelated third parties was $1.1 billion at December 31, 2004
and 2003.

NOTE E – PREMISES AND EQUIPMENT

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

2004

2003

(in thousands)

Land........................................................................................................ $
Buildings and improvements..................................................................
Furniture and equipment ........................................................................
Construction in progress.........................................................................

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

NOTE F – GOODWILL AND INTANGIBLE ASSETS

The following table summarizes the changes in goodwill:

25,253
149,700
105,406
10,967
291,326
(144,415)
$ 146,911

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

2004

2003
(in thousands)

2002

Balance at beginning of year ........................................ $ 127,202
Goodwill acquired ........................................................
236,817
Reclassified goodwill ...................................................
-
Reversal of negative goodwill......................................
-
Balance at end of year .................................................. $ 364,019

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

38,900
-
21,300
848
61,048

Fulton Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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. Upon adoption of
Statement 147 retroactively to January 1, 2002, certain of these assets were reclassified to goodwill. See Note Q, “Mergers and
Acquisitions” for information regarding goodwill acquired in 2004 and 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 statement of income. The following table adjusts net
income and net income per share for this amount (in thousands, except per-share amounts):

2004

2003

2002

Net income, as reported................................................ $ 152,917
Reversal of negative goodwill......................................
-
Net income, as adjusted................................................ $ 152,917

$ 138,180
-
$ 138,180

$ 132,948
(848)
$ 132,100

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

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

1.28
-
1.28

1.27
-
1.27

1.23
-
1.23

1.22
-
1.22

1.17
(0.01)
1.17

1.17
(0.01)
1.16

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

The following table summarizes intangible assets at December 31:

2004
Accumulated
Amortization

Gross

Net

Gross

(in thousands)

2003
Accumulated
Amortization

Amortizing:
Core deposit ........................... $
Non-compete..........................
Unidentifiable ........................
Total amortizing..................
Non-amortizing - Trade name...

27,678
475
7,706
35,859
900
36,759

(7,418)
(40)
(3,998)
(11,456)
-

(11,456)

20,260
435
3,708
24,403
900
25,303

19,540
-
4,784
24,324
-
24,324

(4,320)
-
(2,410)
(6,730)
-
(6,730)

Net

15,220
-
2,374
17,594
-
17,594

Core deposit intangible assets are amortized using an accelerated method over the estimated remaining life of the acquired core
deposits. As of December 31, 2004, these assets had a weighted average remaining life of approximately eight years. Unidentifiable
intangible assets related to branch acquisitions are amortized on a straight-line basis over ten years. Non-compete intangible assets are
being amortized on a straight-line basis over five years, which is the term of the underlying contracts. Amortization expense related to
intangible assets totaled $4.7 million, $2.1 million and $1.8 million in 2004, 2003 and 2002, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fulton Financial Corporation

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

Year

2005 .................. $
2006 ..................
2007 ..................
2008 ..................
2009 ..................

4,639
4,266
3,663
3,081
2,791

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:

2004

2003
(in thousands)

2002

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

8,396
2,138
(2,377)
8,157

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

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

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

The Corporation estimates the fair value of its MSR’s by discounting the estimated cash flows of servicing revenue, net of costs, over
the expected life of the underlying loans at a discount rate commensurate with the risk associated with these assets. Expected life is
based on industry prepayment projections for mortgage-backed securities with rates and terms comparable to the loans underlying the
Corporation’s MSR’s. The estimated fair value of the Corporation’s MSR’s was approximately $8.5 million and $8.4 million at
December 31, 2004 and 2003, respectively.

Estimated MSR’s amortization expense for the next five years, based on balances at December 31, 2004 and the expected remaining
lives of the underlying loans follows (in thousands):

Year

2005 .................. $
2006 ..................
2007 ..................
2008 ..................
2009 ..................

1,931
1,730
1,499
1,236
938

Fulton Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE H – DEPOSITS

Deposits consisted of the following as of December 31:

2004

2003

(in thousands)

Noninterest-bearing demand .................................................................. $ 1,507,799
Interest-bearing demand .........................................................................
1,501,476
Savings and money market accounts .....................................................
1,917,203
Time deposits .........................................................................................
2,969,046
$ 7,895,524

$ 1,262,214
1,289,946
1,751,475
2,448,148
$ 6,751,783

Included in time deposits were certificates of deposit equal to or greater than $100,000 of $536.0 million and $451.0 million at
December 31, 2004 and 2003, respectively. The scheduled maturities of time deposits as of December 31, 2004 were as follows (in
thousands):

Year

2005 .................. $ 1,503,631
555,230
2006 ..................
426,784
2007 ..................
103,273
2008 ..................
70,549
2009 ..................
309,579
Thereafter..........
$ 2,969,046

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

Short-term borrowings at December 31, 2004, 2003, and 2002 and the related maximum amounts outstanding at the end of any month
in each of the three years are presented below. The securities underlying the repurchase agreements remain in available for sale
investment securities.

December 31
2003

2002

2004

Maximum Outstanding
2003

2002

2004

(in thousands)

Federal funds purchased ...................................... $ 676,922
Securities sold under agreements to repurchase ..
500,206
-
FHLB overnight repurchase agreements .............
Revolving line of credit .......................................
11,930
Other ....................................................................
5,466

$ 933,000
408,697
50,000
-
5,014

297,556

$ 330,000 $ 849,200 $ 933,000
429,819
50,000
-
6,387

708,830
-
26,000
5,807

-
-
4,638

$ 330,000
347,248
-
-
5,640

$ 1,194,524

$ 1,396,711

$ 632,194

In 2004, the Corporation entered into a $50.0 million revolving line of credit agreement with an unaffiliated bank that provides for
interest to be paid on outstanding balances at the one-month London Interbank Offering Rate (LIBOR) plus 0.625%. The credit
agreement requires the Corporation to maintain certain financial ratios related to capital strength and earnings. The Corporation was in
compliance with all required covenants under the credit agreement as of December 31, 2004.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fulton Financial Corporation

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

2004

December 31
2003
(dollars in thousands)

2002

Amount outstanding at December 31 ............................ $ 500,206
Weighted average interest rate at year end ....................
Average amount outstanding during the year ................ $ 531,196
Weighted average interest rate during the year .............

$ 408,697

$ 297,556

1.03%

0.72%

1.43%

$ 351,302

$ 297,453

0.97%

0.83%

1.43%

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

Federal Home Loan Bank advances ....................................................... $ 645,461
Junior subordinated deferrable interest debentures ................................
34,022
Other long-term debt ..............................................................................
4,753
$ 684,236

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

2004

2003

(in thousands)

The Parent Company owns all of the common stock of four 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.
Trust Preferred securities are redeemable on specified dates, or earlier if the deduction of interest for Federal income taxes is
prohibited, the Trust Preferred Securities no longer qualify as Tier I capital, or if certain other contingencies arise. The Trust Preferred
Securities must be redeemed upon maturity. The following table details the terms of the debentures (dollars in thousands):

Debentures Issued to

Premier Capital Trust ...............
PBI Capital Trust II..................
Resource Capital Trust II .........
Resource Capital Trust III........

Fixed/
Variable

Fixed
Variable
Variable
Variable

Rate at
December 31,
2004

Amount

Maturity

Callable

8.57 %
5.73 %
5.61 %
5.73 %

10,310
15,464
5,155
3,093
34,022

8/15/28
11/7/32
12/8/31
11/7/32

8/15/08
11/7/07
12/8/06
11/7/07

Federal Home Loan Bank advances mature through May 2014 and carry a weighted average interest rate of 4.61%. As of December
31, 2004, the Corporation had an additional borrowing capacity of approximately $1.3 billion with the Federal Home Loan Bank.
Advances from the Federal Home Loan Bank are secured by Federal Home Loan Bank stock, qualifying residential mortgages,
investments and other assets.

Fulton Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the scheduled maturities of Federal Home Loan Bank advances and long-term debt as of December
31, 2004 (in thousands):

Year

2005 .................. $ 126,230
33,706
2006 ..................
70,302
2007 ..................
212,359
2008 ..................
68,988
2009 ..................
172,651
Thereafter..........
$ 684,236

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 $230 million at
December 31, 2004.

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, 2004, the maximum amount available for transfer from the subsidiary
banks to the Parent Company in the form of loans and dividends was approximately $310 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, 2004, that all of its bank subsidiaries meet the capital adequacy requirements
to which they are subject.

As of December 31, 2004 and 2003, the Corporation's seven significant subsidiaries, Fulton Bank, Lebanon Valley Farmers Bank,
Lafayette Ambassador Bank, The Bank, Premier Bank, Resource Bank and First Washington State 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, 2004 that management believes have changed the institutions' categories.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fulton Financial Corporation

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, 2004

Actual

Amount

Ratio

For Capital
Adequacy Purposes
Ratio
Amount
(dollars in thousands)

Well-Capitalized
Ratio
Amount

Total Capital (to Risk Weighted Assets):
Corporation .................................................... $ 979,203
Fulton Bank....................................................
401,961
Lebanon Valley Farmers Bank.......................
59,860
Lafayette Ambassador Bank ..........................
95,631
The Bank ........................................................
89,891
Premier Bank..................................................
45,770
Resource Bank ...............................................
83,274
First Washington State Bank..........................
38,183
Tier I Capital (to Risk Weighted Assets):
Corporation .................................................... $ 886,729
Fulton Bank....................................................
366,633
Lebanon Valley Farmers Bank.......................
55,051
Lafayette Ambassador Bank ..........................
86,456
The Bank ........................................................
81,252
Premier Bank..................................................
39,858
Resource Bank ...............................................
75,503
First Washington State Bank..........................
34,729
Tier I Capital (to Average Assets):
Corporation .................................................... $ 886,729
Fulton Bank....................................................
366,633
Lebanon Valley Farmers Bank.......................
55,051
Lafayette Ambassador Bank ..........................
86,456
The Bank ........................................................
81,252
Premier Bank..................................................
39,858
Resource Bank ...............................................
75,503
First Washington State Bank..........................
34,729

11.7% $ 667,377 8.0%
11.2
11.6
11.4
11.1
13.0
11.1
12.7

286,697 8.0
41,254 8.0
67,124 8.0
64,969 8.0
28,218 8.0
60,241 8.0
24,142 8.0

10.6% $ 333,689 4.0%
10.2
10.7
10.3
10.0
11.3
10.0
11.5

143,349 4.0
20,627 4.0
33,562 4.0
32,485 4.0
14,109 4.0
30,121 4.0
12,071 4.0

8.7% $ 304,337 3.0%
8.4
7.2
7.4
7.7
8.6
7.7
7.2

130,290 3.0
23,048 3.0
35,166 3.0
31,762 3.0
13,903 3.0
29,304 3.0
14,564 3.0

$ 834,222
358,372
51,567
83,905
81,211
35,272
75,302
30,177

$ 500,533
215,023
30,940
50,343
48,727
21,163
45,181
18,106

$ 507,228
217,150
38,413
58,609
52,937
23,172
48,839
24,273

10.0%
10.0
10.0
10.0
10.0
10.0
10.0
10.0

6.0%
6.0
6.0
6.0
6.0
6.0
6.0
6.0

5.0%
5.0
5.0
5.0
5.0
5.0
5.0
5.0

Fulton Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2003

Actual

Amount

Ratio

For Capital
Adequacy Purposes
Ratio
Amount
(dollars in thousands)

Total Capital (to Risk Weighted Assets):
Corporation ...................................................... $ 899,512
Fulton Bank......................................................
363,827
60,714
Lebanon Valley Farmers Bank.........................
Lafayette Ambassador Bank ............................
89,046
The Bank ..........................................................
78,769
Premier Bank....................................................
40,582
Tier I Capital (to Risk Weighted Assets):
Corporation ...................................................... $ 815,021
Fulton Bank......................................................
328,868
Lebanon Valley Farmers Bank.........................
55,142
Lafayette Ambassador Bank ............................
79,810
The Bank ..........................................................
71,506
Premier Bank....................................................
34,515
Tier I Capital (to Average Assets):
Corporation ...................................................... $ 815,021
Fulton Bank......................................................
328,868
Lebanon Valley Farmers Bank.........................
55,142
Lafayette Ambassador Bank ............................
79,810
The Bank ..........................................................
71,506
Premier Bank....................................................
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
9.4
21,214
10.4
33,203
9.6
28,292
10.1
14,612
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%
8.0
8.0
8.0
8.0
8.0

4.0%
4.0
4.0
4.0
4.0
4.0

3.0%
3.0
3.0
3.0
3.0
3.0

Well-Capitalized
Ratio
Amount

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

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

10.0%
10.0
10.0
10.0
10.0
10.0

6.0%
6.0
6.0
6.0
6.0
6.0

5.0%

$ 465,941
198,753 5.0
5.0
40,096
5.0
60,171
5.0
51,551
5.0
25,981

NOTE K – INCOME TAXES

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

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

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

2004

Year ended December 31
2003
(in thousands)

2002

63,615
417
64,032
1,232
65,264

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

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fulton Financial Corporation

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

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.............................................

Year ended December 31
2003
35.0%
(3.2)
(2.0)
0.4
(0.1)
30.1%

2004
35.0%
(2.8)
(2.1)
0.1
(0.3)
29.9%

2002
35.0%
(3.2)
(2.1)
0.6
(0.5)
29.8%

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:

Deferred tax assets:
Allowance for loan losses.................................................................. $
Deferred compensation......................................................................
Investments in low income housing ..................................................
Post-retirement benefits.....................................................................
Other accrued expenses .....................................................................
Unrealized holding losses on securities available for sale ................
Other than temporary impairment of investments .............................
Other..................................................................................................
Total gross deferred tax assets......................................................

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

2004

2003

(in thousands)

31,370
6,072
2,724
3,403
1,549
5,155
1,022
1,541
52,836

10,038
-
2,855
2,003
5,014
2,522
22,432

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

9,877
6,620
2,939
1,304
2,723
328
23,791

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

30,404

16,907

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

As of December 31, 2004 and 2003, the Corporation had not established any valuation allowance against net Federal deferred tax
assets since these tax benefits are realizable either through carryback availability against prior years' taxable income or the reversal of
existing deferred tax liabilities. Income tax benefits arising from the exercise of non-qualified stock options totaling $2.3 million in
2004, $730,000 in 2003 and $434,000 in 2002 are included in shareholders’ equity.

Fulton Financial Corporation

NOTE L – EMPLOYEE BENEFIT PLANS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

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

2004

2003
(in thousands)

2002

8,251
3,072
967
12,290

6,606
3,025
596
10,227

6,220
1,812
667
8,699

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

2004

2003
(in thousands)

2002

Service cost .................................................................. $
Interest cost ..................................................................
Expected return on assets.............................................
Net amortization and deferral ......................................
Net periodic pension cost............................................. $

2,307
3,102
(3,001)
664
3,072

2,178
2,952
(2,631)
526
3,025

1,954
2,653
(2,835)
40
1,812

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fulton Financial Corporation

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

Plan Year Ended

September 30

2004

2003

(in thousands)

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

52,282

43,886

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

2,307
3,102
(1,270)
2,552
292

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

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

59,265

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

37,980

52,282

33,288

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

2,622
2,136
(1,270)

2,021
4,337
(1,666)

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

41,468

37,980

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

2004

2003

(in thousands)

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

(59,265) $
41,468
(17,797)

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

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

(51)
82
15,687
(82)
(858)

(64)
93
12,645
-
-

(3,019) $

(1,628)

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

44,487

39,124

Accumulated other comprehensive income was reduced by $858,000 ($558,000, net of tax) as of December 31, 2004 to increase the
pension liability to an amount equal to the difference between the accumulated benefit obligation and the fair value of plan assets.

Fulton Financial Corporation

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

2004
5.75%
4.50
8.00

2003
6.00%
4.50
8.00

2002
6.75%
5.00
8.00

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, total returns for 2004 and 2003
approximated this rate. The expected long-term return is considered to be appropriate based on the asset mix and the historical returns
realized.

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

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

2004
6.0%
50.0
44.0

2003
9.0%
51.0
40.0

Total ......................................................................... 100.0%

100.0%

Equity securities consist mainly of equity common trust and mutual funds. Fixed income securities consist mainly of fixed income
common trust funds. Defined benefit plan assets are invested with a balanced growth objective, with target asset allocations between
40 and 70 percent for equity securities and 30 to 60 percent for fixed income securities. The Corporation expects to contribute $2.3
million to the pension plan in 2005. Estimated future benefit payments are as follows (in thousands):

Year

2005.................. $
2006..................
2007..................
2008..................
2009..................
2010 - 2014 ......

1,217
1,370
1,411
1,583
1,761
13,376
$ 20,718

Post-retirement Benefits
The Corporation currently provides medical benefits and a death benefit 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:

2004

2003
(in thousands)

2002

Service cost ................................... .............................. $
Interest cost ................................... ..............................
Expected return on plan assets .....................................
Net amortization and deferral.......................................
Net post-retirement benefit cost .... .............................. $

364
474
(2)
(230)
606

281
446
(2)
(287)
438

260
444
(3)
(298)
403

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fulton Financial Corporation

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:

2004

2003

(in thousands)

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

7,815

7,104

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

364
474
(268)
296
248

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

8,929

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

165

251
2
(268)

281
446
(324)
(301)
609

7,815

171

316
2
(324)

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

150

165

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

2004

2003

(in thousands)

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

(8,929) $
150
(8,779)

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

(679)
(39)

(9,497) $

(9,141)

(7,815)
165
(7,650)

(905)
(586)

For measuring the post-retirement benefit obligation, the annual increase in the per capita cost of health care benefits was assumed to
be 8.5% in year one, declining to an ultimate rate of 4.5% by year nine. This health care cost trend rate has a significant impact on the
amounts reported. Assuming a 1.0% increase in the health care cost trend rate above the assumed annual increase, the accumulated
post-retirement benefit obligation would increase by approximately $1.1 million and the current period expense would increase by
approximately $123,000. Conversely, a 1% decrease in the health care cost trend rate would decrease the accumulated post-retirement
benefit obligation by approximately $904,000 and the current period expense by approximately $100,000.

The discount rate used in determining the accumulated post-retirement benefit obligation was 5.75% at December 31, 2004 and
6.00% at December 31, 2003. The expected long-term rate of return on plan assets was 3.00% at December 31, 2004 and 2003.

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. The impact of this benefit on the Corporation’s post-retirement benefit obligation was a reduction of $143,000 at
December 31, 2004.

Fulton Financial Corporation

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock Option and Compensation Plan and Employee Stock Purchase Plan
The Corporation has a Stock Option and Compensation 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 have been 100% vested immediately upon grant. The Plan has reserved 12.8 million
additional shares for future grant through 2013. 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 plans
follows:

Option Price Per Share

Balance at January 1, 2002...................
Granted ...............................................
Exercised ............................................
Canceled .............................................
Balance at December 31, 2002.............
Granted ...............................................
Exercised ............................................
Canceled .............................................
Assumed from Premier.......................
Balance at December 31, 2003.............
Granted .............................................
Exercised ...........................................
Canceled ............................................
Assumed from Resource ..................
Assumed from First Washington ....
Balance at December 31, 2004...........

Stock
Options

3,069,606
477,989
(394,244)
(6,777)
3,146,574
481,793
(424,006)
(33,802)
327,334
3,497,893
1,043,800
(1,110,991)
(2,544)
941,183
903,350
5,272,691

Range

$ 2.29 - $ 14.85
17.53
5.12 - 14.86
9.49 - 14.86
2.29 - 17.53
18.95 - 19.20
2.29 - 18.95
12.99 - 17.52
2.37 - 8.30
2.37 - 19.20
20.19
2.37 - 20.19
4.23 - 18.95
2.70 - 18.23
3.52 - 21.46
2.37 - 21.46

Weighted
Average

$11.24
17.53
8.73
11.93
12.51
18.95
7.43
14.16
4.26
13.22
20.19
8.39
15.62
6.08
7.87
13.43

Exercisable at December 31, 2004.....

5,244,437

$2.37 - $21.46

$13.46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fulton Financial Corporation

The following table summarizes information concerning options outstanding at December 31, 2004:

Range of
Exercise
Prices

Total
Unexercised
Stock
Options

Weighted
Average
Remaining
Life (Years)

Weighted
Average
Exercise
Price

$ 0.00 - $ 5.00
$ 5.00 - $10.00
$10.00 - $15.00
$15.00 - $20.00
$20.00 - $25.00

520,661

1,245,227
1,581,091
894,911
1,030,801

2.77
4.54
5.37
8.11
9.58

3.39
7.74
14.08
18.25
20.19

Exercisable
Stock
Options

520,661
1,216,973
1,581,091
894,911
1,030,801

5,272,691

6.21

$ 13.43

5,244,437

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, 84,000 shares, 85,000 shares and 92,000 shares were issued in 2004, 2003 and 2002,
respectively. A total of 1.6 million shares have been issued since the inception of the ESPP in 1986. As of December 31, 2004,
318,000 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 Statement
123, the Corporation’s net income and net income per share would have been reduced to the following pro-forma amounts:

2003
2004
(in thousands, except per-share data)

2002

Net income as reported ........................................................ $ 152,917
Stock-based employee compensation expense
under the fair value method, net of tax .....................
(3,309)
Pro-forma net income ......................................................... $ 149,608

$ 138,180

$ 132,948

(1,813)
$ 136,367

(1,993)
$ 130,955

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

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

1.28
1.25

1.27
1.24

1.23
1.21

1.22
1.21

1.17
1.16

1.17
1.15

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

3.48

3.84

4.26

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 ...........................................................

4.22%

3.55%

4.78%

18.12
3.22
7 Years

22.75
3.22
8 Years

23.64
3.10
8 Years

2004

2003

2002

Fulton Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 2004, the purchase price
had adjusted to $53.85 per share as a result of stock dividends.

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

Treasury Stock
The Corporation periodically repurchases shares of its common stock under repurchase plans approved by the Board of Directors.
These repurchases have typically been through open market transactions and have complied with all regulatory restrictions on the
timing and amount of such repurchases. Shares repurchased have been added to treasury stock and are accounted for at cost. These
shares are periodically reissued for stock option exercises, ESPP purchases, acquisitions or other corporate needs.

On November 19, 2004, the Corporation purchased 1.0 million shares of its common stock from an investment bank at a total cost of
$22.0 million under an “Accelerated Share Repurchase” program (ASR), which allowed the shares to be purchased immediately
rather than over time. The investment bank, in turn, is repurchasing shares on the open market over a period that is determined by the
average daily trading volume of our shares, among other factors. The Corporation periodically settles its position with the investment
bank by paying or receiving cash in an amount representing the difference between the initial price and the actual price of the shares
repurchased. The Corporation expects the ASR to be completed during 2005.

Total treasury stock purchases, including both open market purchases and the ASR, totaled approximately 3.8 million shares in 2004,
3.2 million shares in 2003 and 2.8 million shares in 2002.

NOTE N – LEASES

Certain branch offices and equipment are leased under agreements that expire at varying dates through 2025. Most leases contain
renewal provisions at the Corporation's option. Total rental expense was approximately $9.4 million in 2004, $6.4 million in 2003 and
$5.9 million in 2002. Future minimum payments as of December 31, 2004 under noncancelable operating leases are as follows (in
thousands):

Year

2005.................. $
2006..................
2007..................
2008..................
2009..................
Thereafter .........

8,051
7,453
6,508
4,867
3,725
19,752
50,356

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fulton Financial Corporation

NOTE O – COMMITMENTS AND CONTINGENCIES

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

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

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

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.

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

2004

2003

(in thousands)

Commercial mortgage, construction and land development ......... $ 689,818
Home equity..................................................................................
412,790
Credit card.....................................................................................
384,504
Commercial and other ...................................................................
1,851,159
Total commitments to extend credit......................................... $ 3,338,271

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

Standby letters of credit ................................................................ $ 533,094
Commercial letters of credit..........................................................
24,312
Total letters of credit ................................................................ $ 557,406

$ 483,522
16,992
$ 500,514

Fulton Financial Corporation

NOTE P – FAIR VALUE OF FINANCIAL INSTRUMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following are the estimated fair values of the Corporation's financial instruments as of December 31, 2004 and 2003, 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

2004

2003

Estimated
Book Value Fair Value Book Value

Estimated
Fair Value

(in thousands)

278,065 $

300,966 $

300,966

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

4,688
32,000
158,872
25,001
2,424,858
7,584,547
40,633

4,688
32,000
158,872
25,413
2,424,858
7,669,736
40,633

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

FINANCIAL LIABILITIES

Demand and savings deposits............. $ 4,926,476 $ 4,926,476 $ 4,303,635 $ 4,303,635
2,480,789
Time deposits......................................
1,396,711
Short-term borrowings........................
24,579
Accrued interest payable ....................
Other financial liabilities ....................
26,769
Federal Home Loan Bank advances
and long-term debt........................

2,974,551
1,194,524
27,279
29,640

2,969,048
1,194,524
27,279
29,640

2,448,148
1,396,711
24,579
26,769

560,699

568,730

710,215

684,236

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

Assets

Liabilities

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

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, “Summary of Significant Accounting Policies”, securities available for sale are carried at their estimated fair
values. The estimated fair values of securities held to maturity as of December 31, 2004 and 2003 were generally based on quoted
market prices, broker quotes or dealer quotes.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fulton Financial Corporation

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

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

NOTE Q – MERGERS AND ACQUISITIONS

Completed Acquisitions
On December 31, 2004, the Corporation acquired all of the outstanding common stock of First Washington FinancialCorp (First
Washington), of Windsor, New Jersey. First Washington was a $490 million bank holding company whose primary subsidiary was
First Washington State Bank, which operates sixteen community-banking offices in Mercer, Monmouth, and Ocean Counties in New
Jersey. This acquisition enabled the Corporation to expand and enhance its existing New Jersey franchise.

The total purchase price was $125.8 million including $125.2 million in stock issued and options assumed and $610,000 in First
Washington stock purchased for cash and other direct acquisition costs. The Corporation issued 1.35 shares of its stock for each of the
4.3 million shares of First Washington outstanding on the acquisition date. The purchase price was determined based on the value of
the Corporation’s stock on the date when the final terms of the acquisition were agreed to and announced.

The acquisition was accounted for as a purchase and the Corporation’s consolidated balance sheet includes First Washington balances
as of December 31, 2004. Since this acquisition occurred on the last day of the year, the Corporation’s results of operations do not
include First Washington. The following is a summary of the preliminary purchase price allocation based on estimated fair values on
the acquisition date (in thousands):

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

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

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

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

14,823
17,719
206,068
241,520
12,110
6,685
417
84,183
1,089

584,614

426,474
16,560
13,483
2,262
458,779

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

125,835

In August 2004, the Corporation acquired Penn Business Credit, Inc. (PBC), a finance company with approximately $10.0 million of
commercial loans located in Bala Cynwyd, PA. The Corporation paid approximately $6.1 million in cash and recorded $4.4 million in

Fulton Financial Corporation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

goodwill, representing the excess of the purchase price over the fair value of the net assets acquired. The goodwill recorded for this
acquisition is being deducted for Federal income tax purposes on a straight-line basis over 15 years. PBC became a wholly owned
subsidiary of Fulton Bank.

On April 1, 2004, the Corporation acquired all of the outstanding common stock of Resource Bankshares Corporation (Resource), an
$889 million financial holding company, and its primary subsidiary, Resource Bank. The total purchase price was $195.7 million,
including $185.9 million in stock issued and options assumed, and $9.8 million in Resource stock purchased for cash and other direct
acquisition costs. The Corporation issued 1.54 shares of its stock for each of the 5.9 million shares of Resource outstanding on the
acquisition date. The purchase price was determined based on the value of the Corporation’s stock on the date when the final terms of
the acquisition were agreed to and announced.

Resource Bank is located in Virginia Beach, Virginia, and operates six community-banking offices in Newport News, Chesapeake,
Herndon, Virginia Beach, and Richmond, Virginia and 14 loan production and residential mortgage offices in Virginia, North
Carolina, Maryland and Florida. This acquisition allowed the Corporation to enter a new geographic market.

The acquisition was accounted for as a purchase and the Corporation’s results of operations include Resource from the date of
acquisition. The following is a summary of the purchase price allocation based on estimated fair values on the acquisition date (in
thousands):

Cash and due from banks............................................................... $
Other earning assets ......................................................................
Mortgage loans held for sale .........................................................
Investment securities available for sale .........................................
Loans, net of allowance .................................................................
Premises and equipment ...............................................................
Core deposit intangible asset .........................................................
Trade name intangible asset...........................................................
Goodwill ........................................................................................
Other assets....................................................................................

11,497
5,222
94,546
125,473
619,118
10,272
1,450
484
146,062
28,690

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

1,042,814

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

598,389
111,195
120,532
17,006
847,122

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

195,692

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 1.477 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.

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 from the date of the
acquisition.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fulton Financial Corporation

The following table summarizes unaudited pro-forma information assuming the acquisitions of First Washington, Resource and
Premier had occurred on January 1, 2003. This pro-forma information includes certain adjustments, including amortization related to
fair value adjustments recorded in purchase accounting (in thousands, except per-share information):

2004

2003

Net interest income .......... $
Other income....................
Net income .......................

381,251
147,764
159,378

Per Share:
Net income (basic) ........ $
Net income (diluted) .....

1.25
1.23

354,424
163,352
153,851

1.18
1.16

Pending Acquisition
On January 11, 2005, the Corporation entered into a merger agreement to acquire SVB Financial Services (SVB), of Somerville, New
Jersey. SVB is a $475 million bank holding company whose primary subsidiary is Somerset Valley Bank, which operates eleven
community-banking offices in Somerset, Hunterdon and Middlesex Counties in New Jersey.

Under the terms of the merger agreement, each of the approximately 4.1 million shares of SVB’s common stock will be acquired
based on a “cash election merger” structure. Each SVB shareholder will have the ability to elect to receive 100% of the merger
consideration in stock, 100% in cash, or a combination of FFC stock and cash. Their elections will be subject to prorating to achieve a
result where a minimum of 20% and a maximum of 40% of SVB’s outstanding shares will receive cash consideration. Those shares
that will be converted into FFC stock would be exchanged based on a fixed exchange ratio of 0.9519 shares of FFC stock for each
share of SVB stock. Those shares of SVB stock that will be converted into cash will be converted into a per share amount of cash
based on a fixed price of $21.00 per share of SVB stock. In addition, each of the options to acquire SVB’s stock will be converted to
options to purchase the Corporation’s stock.

The acquisition is subject to approval by both the SVB shareholders and applicable bank regulatory authorities. The acquisition is
expected to be completed during the third quarter of 2005. As a result of the acquisition, SVB will be merged into the Corporation and
Somerset Valley 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. Resulting goodwill balances are then subject to an impairment review on at
least an annual basis. The results of SVB’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 $89.0 million, which includes cash paid, the value of the Corporation’s
stock to be issued, SVB’s options to be converted and certain acquisition related costs. The net assets of SVB as of December 31,
2004 were $29.4 million and accordingly, the purchase price exceeds the carrying value of the net assets by $59.6 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

NOTE R – CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED BALANCE SHEETS
(in thousands)

December 31

2004

2003

December 31

2004

2003

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

4,943 $
777

8,186
96

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

1,183,856
250,901

775,074
235,431

Total Assets .............................. $ 1,440,477 $ 1,018,787

LIABILITIES AND EQUITY
Line of credit with

bank subsidiaries....................... $
70,500 $
Revolving line of credit .................
11,930
Long-term debt ..............................
34,955
Payable to non-bank subsidiaries...
48,117
Other liabilities ..............................
32,685
Total Liabilities.........................
198,187
Shareholders’ equity ...................... 1,242,290
Total Liabilities and
Shareholders’ Equity .............. $ 1,440,477 $ 1,018,787

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

CONDENSED STATEMENTS OF INCOME

2004

Year ended December 31
2003
(in thousands)

2002

Income:
Dividends from bank subsidiaries ................................................................................. $ 62,131
Other..............................................................................................................................
40,227
102,358
54,663

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

$ 149,596
38,206
187,802
48,180

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

47,695
(5,829)
53,524

139,622
(3,898)
143,520

88,809
(4,171)
92,980

Equity in undistributed net income (loss) of:
Bank subsidiaries ..........................................................................................................
84,525
Non-bank subsidiaries...................................................................................................
14,868
Net Income ............................................................................................................... $ 152,917

(20,879)
15,539
$ 138,180

29,694
10,274
$ 132,948

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fulton Financial Corporation

CONDENSED STATEMENTS OF CASH FLOWS

Cash Flows From Operating Activities:

Net Income ........................................................................................................

152,917

138,180

132,948

Year Ended December 31

2004

2003

2002

(in thousands)

Adjustments to Reconcile Net Income to

Net Cash Provided by Operating Activities:
(Increase) decrease in other assets ....................................................................
(Increase) decrease in investment in subsidiaries ..............................................
Increase (decrease) 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 increase (decrease) in borrowings ...............................................................
Dividends paid ..................................................................................................
Net proceeds from issuance of common stock ..................................................
Acquisition of treasury stock ............................................................................
Net cash used in financing activities ..............................................................

(12,588)
(99,393)

36,859
(75,122)
77,795

(6,000)
(5,283)
(11,283)

79,552
(74,802)
7,712
(78,966)
(66,504)

1,499
5,340

(4,098)
2,741
140,921

(3,500)
(1,544)
(5,044)

(16,678)
(64,628)
5,122
(59,699)
(135,883)

Net Increase (Decrease) in Cash and Cash Equivalents .....................................
Cash and Cash Equivalents at Beginning of Year ............................................
Cash and Cash Equivalents at End of Year .......................................................

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

8
-
8

(6)
6
$ -

2,889
54,457

2,469
48,924

(2,107)
(39,968)

5,249
(36,826)
96,122

(3,500)
-
(3,500)

9,056
(58,954)
3,304
(46,133)
(92,727)

(105)
111
6

1,791
49,621

Fulton Financial Corporation

Management Report on Internal Control Over Financial Reporting

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

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

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004, using the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control –
Integrated Framework. A discussion of the scope of management’s assessment is included in Note A in the accompanying financial
statements. Based on this assessment, management concluded that, as of December 31, 2004, the company’s internal control over
financial reporting is effective based on those criteria.

Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004
has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which is included herein.

Rufus A. Fulton, Jr.
Chairman and Chief Executive Officer

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

Fulton Financial Corporation

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Fulton Financial Corporation:

We have audited management's assessment, included in the accompanying Management Report on Internal Control Over Financial
Reporting, that Fulton Financial Corporation maintained effective internal control over financial reporting as of December 31, 2004,
based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Fulton Financial Corporation’s management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to
express an opinion on management's assessment and an opinion on the effectiveness of the Company’s internal control over financial
reporting based on our audit.

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

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

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

In our opinion, management's assessment that Fulton Financial Corporation maintained effective internal control over financial
reporting as of December 31, 2004, is fairly stated, in all material respects, based on criteria established in Internal Control—
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our
opinion, Fulton Financial Corporation maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2004, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).

Fulton Financial Corporation

Fulton Financial Corporation acquired First Washington FinancialCorp. on December 31, 2004, and management excluded from its
assessment of the effectiveness of Fulton Financial Corporation’s internal control over financial reporting as of December 31, 2004,
First Washington FinancialCorp.’s internal control over financial reporting associated with total assets of approximately $585 million
and total revenues of $0 included in the consolidated financial statements of Fulton Financial Corporation as of and for the year ended
December 31, 2004. Our audit of internal control over financial reporting of Fulton Financial Corporation also excluded an
evaluation of the internal control over financial reporting of First Washington FinancialCorp.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Fulton Financial Corporation and subsidiaries as of December 31, 2004 and 2003, and the related
consolidated statements of income, shareholders’ equity and comprehensive income, and cash flows for each of the years in the three-
year period ended December 31, 2004, and our report dated February 22, 2005 expressed an unqualified opinion on those
consolidated financial statements.

Harrisburg, Pennsylvania
February 22, 2005

Fulton Financial Corporation

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Fulton Financial Corporation:

We have audited the accompanying consolidated balance sheets of Fulton Financial Corporation and subsidiaries as of December 31,
2004 and 2003, and the related consolidated statements of income, shareholders’ equity and comprehensive income, and cash flows
for each of the years in the three-year period ended December 31, 2004. These consolidated financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our
audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
Fulton Financial Corporation and subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 2004, in conformity with U.S. generally accepted accounting
principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
effectiveness of Fulton Financial Corporation’s internal control over financial reporting as of December 31, 2004, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated February 22, 2005 expressed an unqualified opinion on management’s assessment of, and
the effective operation of, internal control over financial reporting.

Harrisburg, Pennsylvania
February 22, 2005

Fulton Financial Corporation

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

FOR THE YEAR 2004
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 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.....................

Three Months Ended

March 31

June 30

Sept. 30

Dec. 31

$ 113,936
30,969
82,967
1,740
32,038
62,272
50,993
15,147
35,846

$ 122,024
33,318
88,706
800
36,663
70,538
54,031
16,167
37,864

$ 126,947
34,446
92,501
1,125
34,994
70,335
56,035
16,915
39,120

$ 130,736
37,261
93,475
1,052
35,169
70,470
57,122
17,035
40,087

0.32
0.31
0.152

0.31
0.31
0.165

0.32
0.32
0.165

0.33
0.33
0.165

$ 110,184
34,546
75,638
2,835
31,048
55,265
48,586
14,543
34,043

$ 107,166
32,796
74,370
2,490
33,862
57,393
48,349
14,287
34,062

$ 105,907
32,128
73,779
2,190
36,629
58,666
49,552
15,170
34,382

$ 112,274
31,624
80,650
2,190
32,831
60,235
51,056
15,363
35,693

0.30
0.30
0.136

0.30
0.30
0.152

0.31
0.31
0.152