(Mark One)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ  Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check One):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso  Noþ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

The accompanying unaudited consolidated financial statements of Fulton Financial Corporation (the Corporation) have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. generally accepted accounting principlesGAAP for complete financial statements. The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts of 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. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine-month periodsthree-month period ended September 30, 2006March 31, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006.2007.

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 2.2 million and 1.4 million anti-dilutive stock options for the three and nine months ended September 30, 2006.March 31, 2007 and 2006, respectively.

A reconciliation of the weighted average shares outstanding used to calculate basic net income per share and diluted net income per share follows:

As required by Statement of Financial Accounting Standards No. 123R, “Share-Based Payment” (Statement 123R), requires that the fair value of equity awards to employees beis recognized as compensation expense over the period during which an employee isemployees are required to provide service in exchange for such award. During the third quarter of 2005, the Corporation adopted Statement 123R using “modified retrospective application”, electing to restate all prior periods including all per-share amounts.awards. The Corporation’s equity awards consist of stock options and restricted stock granted under its Stock Option and Compensation Plans (Option Plans) and shares purchased by employees under its Employee Stock Purchase Plan.

The following table presents compensation expense and the related tax impacts for equity awards recognized in the consolidated income statements:

The Corporation maintains a defined benefit pension plan (Pension Plan) for certain employees. Contributions to the 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. The Corporation contributed approximately $4.1 million to the Pension Plan in September 2006.

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

The interest rate swaps are classified as fair value hedges and both the interest rate swaps and the certificates of deposit are recorded at fair value, with changes in the fair values during the period recorded asto other income or expense. For interest rate swaps accounted for as a fair value hedge,hedges, ineffectiveness is the difference between the changes in the fair value of the interest rate swapswaps and the hedged item,items, in this case the certificates of deposit.

The Corporation entered into a forward-starting interest rate swap with a notional amount of $150.0 million in October 2005 in anticipation of the issuance of $150.0 million of trust preferred securities in January 2006. This was accounted for as a cash flow hedge as it hedged the variability of interest payments attributable to changes in interest rates on the forecasted issuance of fixed-rate debt. As of December 31, 2005, $2.2 million had been recorded as an other comprehensive loss representing the estimated fair value of the swap on that date, net of a $1.2 million tax effect. The Corporation settled this derivative on its contractual maturity date in January 2006 with a total payment of $5.5 million to the counterparty, that resulted in an additionalincluding a $1.4 million charge to other comprehensive loss (net of $751,000 tax effect) recorded during the first quarter of 2006. The total amount recorded in other comprehensive loss is being amortized to interest expense over the life of the related securities using the effective interest method. The total amount of net losses in accumulated other comprehensive income that will be reclassified into earnings during the next twelve months is expected to be approximately $185,000.$120,000.

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. Those financial instruments include commitments to extend credit and letters of credit, which involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the Corporation’s Consolidated Balance Sheets. Exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and letters of credit is represented by the outstanding amount of those instruments.

The outstanding amounts of commitments to extend credit and letters of credit were as follows:

In 2005, theThe Corporation purchased 4.5 millionperiodically repurchases shares of its common stock from an investment bank at a total costunder repurchase plans approved by the Board of $73.6 million underDirectors. These repurchases have historically been through open market transactions and have complied with all regulatory restrictions on the timing and amount of such repurchases. Shares may also be repurchased through an “Accelerated Share Repurchase” programProgram (ASR), which allowed theallows shares to

Certain amounts in the 20052006 consolidated financial statements and notes have been reclassified to conform to the 20062007 presentation.

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 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 notes presented in this report.

The Corporation has made, and may continue to make, certain forward-looking statements with respect to its acquisition and growth strategies, management of net interest income and margin, the ability to realize gains on equity investments, allowance and provision for loan losses, expected levels of certain non-interest expenses and the liquidity position of the Corporation and Parent Company. The Corporation cautions that these forward-looking statements are subject to various assumptions, risks and uncertainties. Because of the possibility of changes in these assumptions, risks and uncertainties, actual results could differ materially from forward-looking statements.

In addition to the factors identified herein, the following risk factors could cause actual results to differ materially from such forward-looking statements:

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.

The Corporation currently derives the majority of its earnings from traditional banking activities, with net interest income, or the difference between interest income earned on loans and investments and interest paid on deposits and borrowings, accounting for approximately 78%77% of revenues for the three and nine monthsquarter ended September 30, 2006.March 31, 2007. Growth in net interest income is dependent upon balance sheet growth and/or maintaining or increasing the net interest margin, which is net interest income as a percentage of average interest-

services and products offered to its customers and through sales of assets, such as loans, investments, or properties. Offsetting these revenue sources are provisions for credit losses on loans, other operating expenses and income taxes.

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

The $2.8 million, or 6.3%, decline in net income for the thirdquarter ended March 31, 2007 was due to an increase in other expenses of $12.9 million, or 14.6%, offset by an increase in net interest income of $6.7 million, or 5.9%, and an increase in other income of $2.5 million, or 6.7%. The increase in other expenses was due to a number of factors, most notably, a $5.5 million contingent loss recorded during the first quarter of 2006 increased $6.2 million, or 14.8%,2007 related to losses that may be incurred due to the repurchase of residential mortgage loans and home equity loans that had been originated and sold in the secondary market.

The increase in net interest income was due to external growth through acquisitions and interest recoveries from $42.1 millionpreviously charged off loans, offset by the 14 basis point decline in 2005 to $48.3 million in 2006. Net income for the first nine months of 2006 increased $13.8 million, or 11.0%, from $125.2 million in 2005 to $138.9 million in 2006. Diluted net income per share for the third quarter increased $0.03, or 12.0%, from $0.25 in 2005 to $0.28 in 2006. For the first nine months of 2006, diluted net income per share increased $0.05 per share, or 6.7%, from $0.75 in 2005 to $0.80 in 2006.interest margin. The Corporation realized annualized returns on average assets of 1.31% and average equity of 13.26% during the third quarter of 2006. For the first nine months of 2006, the Corporation realized annualized returns on average assets of 1.32% and average equity of 13.04%. The annualized return on average tangible equity, which is net income, as adjusted for intangible amortization (net of tax), divided by average shareholders’ equity, excluding goodwill and intangible assets, was 25.14% and 24.34% for the three and nine months ended September 30, 2006, respectively.

The following summarizes some of the more significant factors that influenced the Corporation’s results for the three and nine months ended September 30, 2006.March 31, 2007.

Interest Rates – Changes in the interest rate environment generallycan impact both the Corporation’s net interest income and certain components of its non-interest income. The interestterm “interest rate environment includesenvironment” generally refers to both the level of interest rates and the shape of the U. S. Treasury yield curve, which is a plot of the yields on treasury issues over various maturity periods. Typically, the shape of the yield curve is upward sloping, with longer-term rates exceeding short-term rates. However, during 2006,For the past twelve months, the yield curve has beenremained relatively flat, and at times, downward sloping, with minimal differences between long and short-term rates, resulting in a negative impact to the Corporation’s net interest income.income and net interest margin.

Floating rate loans, short-term borrowings and savings and time deposit rates are generally influenced by short-term rates. The Federal Reserve Board (FRB) raised the Federal funds rate six timestwice since September 30, 2005,March 31, 2006, for a total increase of 15050 basis points (from 3.75%4.75% to 5.25%). The Corporation’s prime lending rate had a corresponding increase, from 6.75%7.75% to 8.25%, resulting in an increase in the

have begun to shiftshifted funds from lower rate core demand and savings accounts to fixed rate certificates of deposit in order to lock into higher rates.

With respect to longer-term rates, the 10-year treasury yield, which is a common benchmark for evaluating residential mortgage rates, increaseddecreased to 4.64%4.65% at September 30, 2006,March 31, 2007, as compared to 4.34%4.86% at SeptemberMarch 30, 2005. Higher mortgage2006. The decreasing yield on longer-term investments and the increasing yields on short-term rates have resulted in slower refinance activity and origination volumes and, therefore, lower total net gains for the Corporation on fixed-rate residential mortgages, which are generally sold in the secondary market. Note that while the absolute longer-term rates have increased, the 30 basis point increase in the 10-year treasury yield is significantly less then the 150 basis point increase in short term rates, resulting in a flatteningan inversion of the yield curve.

The Corporation manages its risk associated with changes in interest rates through the techniques described in the “Market Risk” section of Management’s Discussion.

During the thirdfirst quarter of 2006,2007, the Corporation experienced a shift from lower cost interest-bearing demand and savings deposit accounts (36.4%(47.0% of total interest-bearing liabilitiesdeposits in 2006,2007, compared to 41.1%51.3% in 2005)2006) to higher cost certificates of deposit and short-term borrowings (53.8%(53.0% in 2006, compared

Acquisitions have long been a supplement to the results ofCorporation’s internal growth. This recent acquisition provides the third quarter of 2005 were impactedopportunity for additional growth, as it has allowed 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 sound asset quality, among other factors. Under the Corporation’s “super-community” banking philosophy, acquired organizations generally retain their status as separate legal entities, unless consolidation with an existing subsidiary 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 February 2006 acquisition of Columbia, whose results are included in 2006 amounts, but notprices 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 2005 amounts.most cost-effective manner.

Net interest income increased $19.4$6.7 million, or 18.3%5.9%, to $125.9$121.8 million in 20062007 from $106.5$115.0 million in 2005.2006. The increase was due to average balance growth, with total interest-earning assets increasing 20.3%10.4%, offset by a lower net interest margin. The average fully taxable-equivalent (FTE)FTE yield on interest-earning assets increased 9354 basis points (a 15.6%(an 8.4% increase) over 20052006 while the cost of interest-bearing liabilities increased 11575 basis points (a 46.0%24.2% increase). Net interest margin decreased six basis points due to the more pronounced increase in the costs of interest-bearing liabilities.

The following table provides a comparative average balance sheet and net interest income analysis for the thirdfirst quarter of 20062007 as compared to the same period in 2005.2006. Interest income and yields are presented on an FTE basis, using a 35% Federal tax rate. The discussion following this table is based on these FTE amounts. All dollar amounts are in thousands.