UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20459
FORM 10-Q
(Mark One)
   
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period endedJuneSeptember 30, 2009,
or
   
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                    to                     
Commission File No.0-10587
FULTON FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
   
PENNSYLVANIA 23-2195389
 
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization) (I.R.S. Employer
Identification No.)
   
One Penn Square, P.O. Box 4887 Lancaster, Pennsylvania 17604
 
(Address of principal executive offices) (Zip Code)
(717) 291-2411

(Registrant’s telephone number, including area code)
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 has submitted electronically and posted on its corporate Web site, if any, every Interactive DateData File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yeso Noo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”,filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filerþAccelerated filero Non-accelerated filero
(Do not check if a smaller reporting company)		Smaller reporting companyo
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Common Stock, $2.50 Par Value — 176,038,000– 176,264,000 shares outstanding as of JulyOctober 31, 2009.
 
 

 

 

FULTON FINANCIAL CORPORATION
FORM 10-Q FOR THE QUARTER ENDED JUNESEPTEMBER 30, 2009
INDEX
     
Description Page
PART I. FINANCIAL INFORMATION    
 
Item 1. Financial Statements (Unaudited):    
 
(a) Consolidated Balance Sheets — JuneSeptember 30, 2009 and December 31, 2008  3 
 
(b) Consolidated Statements of Income — Three and sixnine months ended JuneSeptember 30, 2009 and 2008  4 
 
(c) Consolidated Statements of Shareholders’ Equity and Comprehensive Income (Loss)- Six— Nine months ended JuneSeptember 30, 2009 and 2008  5 
 
(d) Consolidated Statements of Cash Flows — SixNine months ended JuneSeptember 30, 2009 and 2008  6 
 
(e) Notes to Consolidated Financial Statements  7 
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations  26 
 
Item 3. Quantitative and Qualitative Disclosures about Market Risk  50 
 
Item 4. Controls and Procedures  5756 
 
PART II. OTHER INFORMATION    
 
Item 1. Legal Proceedings  5857 
 
Item 1A. Risk Factors  5857 
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds  5857 
 
Item 3. Defaults Upon Senior Securities  5857 
 
Item 4. Submission of Matters to a Vote of Security Holders  5857 
 
Item 5. Other Information  5857 
 
Item 6. Exhibits  5957 
 
Signatures  6058 
 
Exhibit Index  6159 
 
Certifications  60 

2

 

Item 1. Financial Statements
FULTON FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per-share data)
                
 June 30    September 30   
 2009 December 31  2009 December 31 
 (unaudited) 2008  (unaudited) 2008 
ASSETS
  
Cash and due from banks $299,818 $331,164  $252,004 $331,164 
Interest-bearing deposits with other banks 25,453 16,791  24,048 16,791 
Federal funds sold 437 4,919  — 4,919 
Loans held for sale 242,439 95,840  84,766 95,840 
Investment securities:  
Held to maturity (estimated fair value of $9,536 in 2009 and $9,765 in 2008) 9,435 9,636 
Held to maturity (estimated fair value of $9,248 in 2009 and $9,765 in 2008) 9,145 9,636 
Available for sale 3,325,968 2,715,205  3,265,254 2,715,205 
  
Loans, net of unearned income 11,866,818 12,042,620  11,968,246 12,042,620 
Less: Allowance for loan losses  (214,170)  (173,946)  (234,511)  (173,946)
          
Net Loans
 11,652,648 11,868,674  11,733,735 11,868,674 
          
  
Premises and equipment 205,074 202,657  204,520 202,657 
Accrued interest receivable 58,077 58,566  60,433 58,566 
Goodwill 534,720 534,385  534,919 534,385 
Intangible assets 20,552 23,448  19,122 23,448 
Other assets 501,231 323,821  338,763 323,821 
     
      
Total Assets
 $16,875,852 $16,185,106  $16,526,709 $16,185,106 
          
  
LIABILITIES
  
Deposits:  
Noninterest-bearing $1,942,845 $1,653,440  $1,932,382 $1,653,440 
Interest-bearing 9,773,452 8,898,476  10,100,298 8,898,476 
          
Total Deposits
 11,716,297 10,551,916  12,032,680 10,551,916 
          
  
Short-term borrowings:  
Federal funds purchased 781,357 1,147,673  210,865 1,147,673 
Other short-term borrowings 535,936 615,097  511,753 615,097 
          
Total Short-Term Borrowings
 1,317,293 1,762,770  722,618 1,762,770 
          
  
Accrued interest payable 61,471 53,678  49,962 53,678 
Other liabilities 156,896 169,298  146,816 169,298 
Federal Home Loan Bank advances and long-term debt 1,750,967 1,787,797  1,650,870 1,787,797 
          
Total Liabilities
 15,002,924 14,325,459  14,602,946 14,325,459 
          
  
SHAREHOLDERS’ EQUITY
  
Preferred stock, $1,000 par value, 376,500 shares authorized and outstanding 369,610 368,944  369,950 368,944 
Common stock, $2.50 par value, 600 million shares authorized, 192.6 million shares issued in 2009 and 192.4 million shares issued in 2008 481,419 480,978 
Common stock, $2.50 par value, 600 million shares authorized, 192.9 million shares issued in 2009 and 192.4 million shares issued in 2008 482,195 480,978 
Additional paid-in capital 1,258,627 1,260,947  1,257,608 1,260,947 
Retained earnings 44,937 31,075  57,962 31,075 
Accumulated other comprehensive loss  (24,687)  (17,907)
Treasury stock, 16.9 million shares in 2009 and 17.3 million shares in 2008, at cost  (256,978)  (264,390)
Accumulated other comprehensive income (loss) 11,006  (17,907)
Treasury stock, 16.7 million shares in 2009 and 17.3 million shares in 2008, at cost  (254,958)  (264,390)
          
Total Shareholders’ Equity
 1,872,928 1,859,647  1,923,763 1,859,647 
          
 
Total Liabilities and Shareholders’ Equity
 $16,875,852 $16,185,106  $16,526,709 $16,185,106 
          
See Notes to Consolidated Financial Statements

3

 

FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except per-share data)
                                
 Three Months Ended Six Months Ended  Three Months Ended Nine Months Ended 
 June 30 June 30  September 30 September 30 
 2009 2008 2009 2008  2009 2008 2009 2008 
INTEREST INCOME
  
Loans, including fees $162,276 $179,141 $324,590 $370,307  $162,375 $180,170 $486,965 $550,477 
Investment securities:  
Taxable 29,422 28,528 56,272 58,089  29,376 26,025 85,648 84,114 
Tax-exempt 4,176 4,492 8,652 9,027  3,966 4,513 12,618 13,540 
Dividends 555 1,519 1,172 3,682  543 1,421 1,715 5,103 
Loans held for sale 1,628 1,611 2,889 3,188  1,550 1,539 4,439 4,727 
Other interest income 40 101 89 319  51 141 140 460 
                  
Total Interest Income
 198,097 215,392 393,664 444,612  197,861 213,809 591,525 658,421 
  
INTEREST EXPENSE
  
Deposits 48,007 51,130 97,902 114,615  43,825 47,192 141,727 161,807 
Short-term borrowings 921 12,387 2,358 31,216  835 12,877 3,193 44,093 
Long-term debt 21,225 19,985 41,344 40,992  20,400 19,722 61,744 60,714 
                  
Total Interest Expense
 70,153 83,502 141,604 186,823  65,060 79,791 206,664 266,614 
                  
  
Net Interest Income
 127,944 131,890 252,060 257,789  132,801 134,018 384,861 391,807 
Provision for loan losses 50,000 16,706 100,000 27,926  45,000 26,700 145,000 54,626 
                  
 
Net Interest Income After Provision for Loan Losses
 77,944 115,184 152,060 229,863  87,801 107,318 239,861 337,181 
  
OTHER INCOME
  
Service charges on deposit accounts 15,061 15,319 29,955 29,286  15,321 16,177 45,276 45,463 
Other service charges and fees 9,595 9,131 17,949 17,722  10,003 9,598 27,952 27,320 
Investment management and trust services 7,876 8,389 15,779 17,148  8,191 8,045 23,970 25,193 
Gains on sales of mortgage loans 7,395 2,670 15,986 4,981  2,778 2,266 18,764 7,247 
Gain on sale of credit card portfolio — 13,910 — 13,910  — — — 13,910 
Other 5,373 4,378 9,626 7,184  4,932 4,230 14,558 11,414 
 
Total other-than-temporary impairment losses  (8,168)  (25,015)  (14,024)  (28,590)  (1,211)  (10,681)  (15,235)  (39,271)
Less: Portion of loss recognized in other comprehensive income (before taxes) 4,789 — 7,605 — 
Less: Portion of (gain) loss recognized in other comprehensive income (before taxes)  (1,584) — 6,021 — 
                  
Net other-than-temporary impairment losses  (3,379)  (25,015)  (6,419)  (28,590)  (2,795)  (10,681)  (9,214)  (39,271)
Net gains on sale of investment securities 3,456 3,368 9,415 8,189  2,750 1,180 12,165 9,369 
                  
Net investment securities gains (losses) 77  (21,647) 2,996  (20,401)  (45)  (9,501) 2,951  (29,902)
                  
  
Total Other Income
 45,377 32,150 92,291 69,830  41,180 30,815 133,471 100,645 
  
OTHER EXPENSES
  
Salaries and employee benefits 55,799 54,281 111,103 109,476  54,086 55,310 165,189 164,786 
Net occupancy expense 10,165 10,237 31,428 30,999 
FDIC insurance expense 12,206 675 16,494 1,537  5,244 1,147 21,738 2,684 
Net occupancy expense 10,240 10,238 21,263 20,762 
Equipment expense 3,300 3,398 6,379 6,846  3,281 3,061 9,660 9,907 
Data processing 2,907 3,116 5,979 6,362  3,121 3,242 9,100 9,604 
Marketing 1,724 3,519 4,295 6,424  1,982 3,097 6,277 9,521 
Intangible amortization 1,434 1,799 2,897 3,656  1,429 1,730 4,326 5,386 
Operating risk loss 144 14,385 6,345 15,628  338 3,480 6,683 19,108 
Other 20,052 18,325 39,423 35,705  20,164 18,051 59,587 53,756 
                  
Total Other Expenses
 107,806 109,736 214,178 206,396  99,810 99,355 313,988 305,751 
                  
 
Income Before Income Taxes
 15,515 37,598 30,173 93,297  29,171 38,778 59,344 132,075 
Income taxes 2,404 11,920 3,977 26,123  5,825 9,702 9,802 35,825 
         
          
Net Income
 13,111 25,678 26,196 67,174  23,346 29,076 49,542 96,250 
Preferred stock dividends and discount accretion  (5,046) —  (10,077) —   (5,046) —  (15,123) — 
                  
Net Income Available to Common Shareholders
 $8,065 $25,678 $16,119 $67,174  $18,300 $29,076 $34,419 $96,250 
                  
  
PER COMMON SHARE:
  
Net income (basic) $0.05 $0.15 $0.09 $0.39  $0.10 $0.17 $0.20 $0.55 
Net income (diluted) 0.05 0.15 0.09 0.39  0.10 0.17 0.20 0.55 
Cash dividends 0.03 0.15 0.06 0.30  0.03 0.15 0.09 0.45 
See Notes to Consolidated Financial Statements

4

 

FULTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
SIX
NINE MONTHS ENDED JUNESEPTEMBER 30, 2009 AND 2008
                                                                
 Accumulated      Accumulated     
 Common Stock Additional Other      Common Stock Additional Other     
 Preferred Shares Paid-in Retained Comprehensive Treasury    Preferred Shares Paid-in Retained Comprehensive Treasury   
 Stock Outstanding Amount Capital Earnings Income (Loss) Stock Total  Stock Outstanding Amount Capital Earnings Income (Loss) Stock Total 
 (in thousands)  (in thousands) 
Balance at December 31, 2008 $368,944 175,044 $480,978 $1,260,947 $31,075 $(17,907) $(264,390) $1,859,647  $368,944 175,044 $480,978 $1,260,947 $31,075 $(17,907) $(264,390) $1,859,647 
Cumulative effect of FSP FAS 115-2 and FAS 124-2 adoption (net of $3.4 million tax effect) 6,298  (6,298) —  6,298  (6,298) — 
Comprehensive income (loss): 
Comprehensive income: 
Net income 26,196 26,196  49,542 49,542 
Other comprehensive loss  (482)  (482)
Other comprehensive income 35,211 35,211 
                    
Total comprehensive income
 25,714  84,753 
                    
Stock issued, including related tax benefits 662 441  (3,147) 7,412 4,706  1,105 1,217  (4,708) 9,432 5,941 
Stock-based compensation awards 827 827  1,369 1,369 
Preferred stock discount accretion 666  (666) —  1,006  (1,006) — 
Preferred stock cash dividends  (7,424)  (7,424)  (12,130)  (12,130)
Common stock cash dividends — $0.06 per share  (10,542)  (10,542)
Common stock cash dividends — $0.09 per share  (15,817)  (15,817)
                                  
  
Balance at June 30, 2009 $369,610 175,706 $481,419 $1,258,627 $44,937 $(24,687) $(256,978) $1,872,928 
                 
Balance at September 30, 2009 $369,950 176,149 $482,195 $1,257,608 $57,962 $11,006 $(254,958) $1,923,763 
                  
Balance at December 31, 2007 $— 173,503 $479,559 $1,254,369 $141,993 $(21,773) $(279,228) $1,574,920  $— 173,503 $479,559 $1,254,369 $141,993 $(21,773) $(279,228) $1,574,920 
Cumulative effect of EITF 06-4 adoption  (677)  (677)
Cumulative effect of initial recognition of endorsement split-dollar life insurance liability  (677)  (677)
Impact of pension plan measurement date change (net of $23,000 tax effect) 43 43  43 43 
Comprehensive income (loss): 
Comprehensive income: 
Net income 67,174 67,174  96,250 96,250 
Other comprehensive loss  (2,511)  (2,511)
Other comprehensive income 511 511 
                    
Total comprehensive income
 64,663  96,761 
                    
Stock issued, including related tax benefits 604 811 566 4,261 5,638  1,184 1,251  (2,189) 10,419 9,481 
Stock-based compensation awards 1,065 1,065  1,671 1,671 
Common stock cash dividends — $0.30 per share  (52,174)  (52,174)
Common stock cash dividends — $0.45 per share  (78,289)  (78,289)
                                  
  
Balance at June 30, 2008 $— 174,107 $480,370 $1,256,000 $156,359 $(24,284) $(274,967) $1,593,478 
Balance at September 30, 2008 $— 174,687 $480,810 $1,253,851 $159,320 $(21,262) $(268,809) $1,603,910 
                                  
See Notes to Consolidated Financial Statements

5

 

FULTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
        
 Six Months Ended         
 June 30  Nine Months Ended 
 2009 2008  September 30 
 2009 2008 
CASH FLOWS FROM OPERATING ACTIVITIES:
  
Net Income $49,542 $96,250 
 
Net Income $26,196 $67,174 
Adjustments to reconcile net income to net cash provided by operating activities:  
Provision for loan losses 100,000 27,926  145,000 54,626 
Depreciation and amortization of premises and equipment 10,148 9,855  15,395 14,776 
Net amortization of investment securities premiums 1,081 530  1,265 372 
Gain on sale of credit card portfolio —  (13,910) —  (13,910)
Investment securities (gains) losses  (2,996) 20,401   (2,951) 29,902 
Net increase in loans held for sale  (146,599)  (12,367)
Net decrease in loans held for sale 11,074 17,396 
Amortization of intangible assets 2,897 3,656  4,326 5,386 
Stock-based compensation expense 827 1,065  1,369 1,671 
Excess tax benefits from stock-based compensation expense —  (6) —  (20)
Decrease in accrued interest receivable 489 12,069 
(Increase) decrease in accrued interest receivable  (1,867) 11,417 
Increase in other assets  (24,941)  (7,114)  (18,462)  (12,274)
Increase (decrease) in accrued interest payable 7,793  (17,199)
Decrease in accrued interest payable  (3,716)  (21,288)
Increase (decrease) in other liabilities 14,987  (4,196) 5,417  (17,279)
          
Total adjustments  (36,314) 20,710  156,850 70,775 
          
Net cash (used in) provided by operating activities
  (10,118) 87,884 
Net cash provided by operating activities
 206,392 167,025 
          
  
CASH FLOWS FROM INVESTING ACTIVITIES:
  
Proceeds from sales of securities available for sale 179,083 418,886  548,119 662,993 
Proceeds from maturities of securities held to maturity 3,101 5,028  3,836 5,273 
Proceeds from maturities of securities available for sale 401,328 400,968  588,003 546,407 
Proceeds from sale of credit card portfolio — 100,516  — 100,516 
Purchase of securities held to maturity  (3,056)  (4,759)  (3,501)  (4,813)
Purchase of securities available for sale  (1,349,391)  (570,411)  (1,654,074)  (903,817)
(Increase) decrease in short-term investments  (4,180) 10,919 
Net decrease (increase) in loans 116,619  (473,589)
Increase in short-term investments  (2,338)  (29,036)
Net increase in loans  (9,042)  (715,219)
Net purchases of premises and equipment  (12,565)  (13,493)  (17,258)  (20,944)
          
Net cash used in investing activities
  (669,061)  (125,935)  (546,255)  (358,640)
          
  
CASH FLOWS FROM FINANCING ACTIVITIES:
  
Net increase in demand and savings deposits 718,931 99,637 
Net increase (decrease) in demand and savings deposits 1,133,516  (21,071)
Net increase (decrease) in time deposits 445,450  (266,888) 347,248  (167,819)
Additions to long-term debt — 343,990  — 344,690 
Repayments of long-term debt  (36,830)  (166,695)  (136,927)  (166,934)
(Decrease) increase in short-term borrowings  (445,477) 113,443   (1,040,152) 206,022 
Dividends paid  (38,947)  (52,084)  (48,923)  (78,196)
Net proceeds from issuance of stock 4,706 5,632  5,941 9,461 
Excess tax benefits from stock-based compensation expense — 6  — 20 
          
Net cash provided by financing activities
 647,833 77,041  260,703 126,173 
          
  
Net (Decrease) Increase in Cash and Due From Banks
  (31,346) 38,990 
Net Decrease in Cash and Due From Banks
  (79,160)  (65,442)
Cash and Due From Banks at Beginning of Year
 331,164 381,283  331,164 381,283 
          
 
Cash and Due From Banks at End of Year
 $299,818 $420,273 
Cash and Due From Banks at End of Period
 $252,004 $315,841 
          
 
Supplemental Disclosures of Cash Flow Information
  
Cash paid during the period for:  
Interest $133,811 $204,022  $210,380 $287,902 
Income taxes 9,014 42,737  9,076 67,264 
See Notes to Consolidated Financial Statements

6

 

FULTON FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A —– Basis of Presentation
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. GAAP 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 six-monthnine-month periods ended JuneSeptember 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.
In June 2009, the Financial Accounting Standards Board (FASB) issued Statement No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (Statement 168). Statement 168 established the Accounting Standards Codification (FASB ASC) as the source of authoritative U.S. GAAP for all nongovernmental entities, excluding Securities and Exchange Commission (SEC) rules and interpretative releases, which are also authoritative U.S. GAAP for SEC registrants. References to specific U.S. GAAP provisions included in the accompanying report cite FASB ASC references where applicable.
NOTE B —– Net Income Per Common Share and Comprehensive Income (Loss)
The Corporation’s basic net income per common share is calculated as net income available to common shareholders divided by the weighted average number of common shares outstanding. Net income available to common shareholders is calculated as net income less accrued dividends and discount accretion related to preferred stock.
For diluted net income per common share, net income available to common shareholders is divided by the weighted average number of common shares outstanding plus the incremental number of shares added as a result of converting dilutive securities, calculated using the treasury stock method. The Corporation’s dilutive securities consist of outstanding stock options, restricted stock and common stock warrants.

7

A reconciliation of net income available to common shareholders and weighted average common shares outstanding used to calculate basic net income per common share and diluted net income per common share follows.
                
 Three months ended Six months ended                 
 June 30 June 30  Three months ended Nine months ended 
 2009 2008 2009 2008  September 30 September 30 
 (in thousands)  2009 2008 2009 2008 
  (in thousands) 
Net income $13,111 $25,678 $26,196 $67,174  $23,346 $29,076 $49,542 $96,250 
Preferred stock dividends and discount accretion  (5,046) —  (10,077) —   (5,046) —  (15,123) — 
                  
Net income available to common shareholders $8,065 $25,678 $16,119 $67,174  $18,300 $29,076 $34,419 $96,250 
                  
  
Weighted average shares outstanding (basic) 175,554 173,959 175,435 173,791  175,783 174,463 175,552 174,017 
Effect of dilutive securities 170 569 202 569  295 449 233 534 
                  
Weighted average shares outstanding (diluted) 175,724 174,528 175,637 174,360  176,078 174,912 175,785 174,551 
                  
  
Stock options and common stock warrants excluded from the diluted net income per share computation as their effect would have been anti-dilutive 11,957 5,017 11,887 5,017  11,719 5,560 11,831 5,261 
                  

7

The following table presents the components of other comprehensive income (loss):income:
         
  Six months ended 
  June 30 
  2009  2008 
  (in thousands) 
         
Unrealized gain (loss) on securities (net of $2.1 million and $10.2 million tax effect in 2009 and 2008, respectively) $3,929  $(18,931)
Non-credit related unrealized loss on other-than-temporarily impaired debt securities (net of $2.7 million tax effect) (1)  (4,944)  — 
Unrealized gain on derivative financial instruments (net of $36,000 tax effect in 2009 and 2008) (2)  68   68 
Unrecognized postretirement gains arising in 2009 due to plan amendment (net of $1.2 million tax effect)  2,125   — 
Amortization of unrecognized pension and postretirement costs (net of $155,000 tax effect)  288   — 
Reclassification adjustment for securities (gains) losses included in net income (net of $1.0 million tax expense in 2009 and $8.8 million tax benefit in 2008)  (1,948)  16,352 
       
Other comprehensive income (loss) $(482) $(2,511)
       
         
  Nine months ended 
  September 30 
  2009  2008 
  (in thousands) 
Unrealized gain (loss) on securities (net of $20.7 million and $11.9 million tax effect in 2009 and 2008, respectively) $38,437  $(22,118)
Non-credit related unrealized loss on other-than-temporarily impaired debt securities (net of $2.1 million tax effect) (1)  (3,914)  — 
Unrealized gain on derivative financial instruments (net of $55,000 tax effect in 2009 and 2008) (2)  102   102 
Unrecognized postretirement gains arising in 2009 due to plan amendment (net of $1.2 million tax effect) (3)  2,125   — 
Amortization of unrecognized pension and postretirement costs (net of $204,000 tax effect)  379   — 
Reclassification adjustment for securities (gains) losses included in net income (net of $1.0 million tax expense in 2009 and $12.1 million tax benefit in 2008)  (1,918)  22,527 
       
Other comprehensive income $35,211  $511 
       
 
(1) See Note C, “Investment Securities” for additional details related to the other-than-temporary impairment of debt securities.
 
(2) Amounts represent the amortization of the effective portions of losses on forward-starting interest rate swaps, designated as cash flow hedges and entered into in prior years in connection with the issuance of fixed-rate debt. The total amount recorded as a reduction to accumulated other comprehensive income upon settlement of these derivatives is being amortized to interest expense over the life of the related securities using the effective interest method. The 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 $135,000.
(3)See Note F, “Employee Benefit Plans” for additional details related to the amendment of the Corporation’s postretirement plan during 2009.

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NOTE C —– INVESTMENT SECURITIES
     The following tables present the amortized cost and estimated fair values of investment securities:
                                
 Gross Gross Estimated  Gross Gross Estimated 
 Amortized Unrealized Unrealized Fair  Amortized Unrealized Unrealized Fair 
 Cost Gains Losses Value  Cost Gains Losses Value 
 (in thousands)  (in thousands) 
Held to Maturity at June 30, 2009
 
 
Held to Maturity at September 30, 2009
 
U.S. Government sponsored agency securities $6,843 $11 $— $6,854  $6,763 $14 $— $6,777 
State and municipal securities 825 2 — 827  765 1 — 766 
Mortgage-backed securities 1,767 89  (1) 1,855  1,617 88 — 1,705 
                  
 $9,435 $102 $(1) $9,536  $9,145 $103 $— $9,248 
                  
  
Available for Sale at June 30, 2009
 
Available for Sale at September 30, 2009
 
  
Equity securities $132,812 $1,394 $(6,491) $127,715  $130,804 $2,563 $(3,986) $129,381 
U.S. Government securities 14,988 4 — 14,992  13,999 1 — 14,000 
U.S. Government sponsored agency securities 127,639 1,437  (705) 128,371  126,146 1,260  (34) 127,372 
State and municipal securities 460,380 6,947  (894) 466,433  421,639 16,373  (15) 437,997 
Corporate debt securities 159,868 55  (55,630) 104,293  158,040 370  (43,044) 115,366 
Collateralized mortgage obligations 881,649 17,016  (2,716) 895,949  975,384 25,238  (215) 1,000,407 
Mortgage-backed securities 1,267,979 31,818  (1,157) 1,298,640  1,110,423 44,722  (4) 1,155,141 
Auction rate securities (1) 298,809 2,526  (11,760) 289,575  292,256 2,474  (9,140) 285,590 
                  
 $3,344,124 $61,197 $(79,353) $3,325,968  $3,228,691 $93,001 $(56,438) $3,265,254 
                  
                 
      Gross  Gross  Estimated 
  Amortized  Unrealized  Unrealized  Fair 
  Cost  Gains  Losses  Value 
      (in thousands)     
Held to Maturity at December 31, 2008                
U.S. Government sponsored agency securities $6,782  $60  $—  $6,842 
State and municipal securities  825   5   —   830 
Corporate debt securities  25   —   —   25 
Mortgage-backed securities  2,004   66   (2)  2,068 
             
  $9,636  $131  $(2) $9,765 
             
                 
Available for Sale at December 31, 2008                
                 
Equity securities $138,071  $2,133  $(1,503) $138,701 
U.S. Government securities  14,545   83   —   14,628 
U.S. Government sponsored agency securities  74,616   2,406   (20)  77,002 
State and municipal securities  520,429   5,317   (2,210)  523,536 
Corporate debt securities  154,976   1,085   (36,167)  119,894 
Collateralized mortgage obligations  489,686   14,713   (206)  504,193 
Mortgage-backed securities  1,118,508   24,160   (1,317)  1,141,351 
Auction rate securities  208,281   —   (12,381)  195,900 
             
  $2,719,112  $49,897  $(53,804) $2,715,205 
             
 
(1) See Note H, “Commitments and Contingencies” for additional details related to auction rate securities.

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      Gross  Gross  Estimated 
  Amortized  Unrealized  Unrealized  Fair 
  Cost  Gains  Losses  Value 
      (in thousands)     
                 
Held to Maturity at December 31, 2008                
                 
U.S. Government sponsored agency securities $6,782  $60  $—  $6,842 
State and municipal securities  825   5   —   830 
Corporate debt securities  25   —   —   25 
Mortgage-backed securities  2,004   66   (2)  2,068 
             
  $9,636  $131  $(2) $9,765 
             
                 
Available for Sale at December 31, 2008                
                 
Equity securities $138,071  $2,133  $(1,503) $138,701 
U.S. Government securities  14,545   83   —   14,628 
U.S. Government sponsored agency securities  74,616   2,406   (20)  77,002 
State and municipal securities  520,429   5,317   (2,210)  523,536 
Corporate debt securities  154,976   1,085   (36,167)  119,894 
Collateralized mortgage obligations  489,686   14,713   (206)  504,193 
Mortgage-backed securities  1,118,508   24,160   (1,317)  1,141,351 
Auction rate securities  208,281   —   (12,381)  195,900 
             
  $2,719,112  $49,897  $(53,804) $2,715,205 
             
The amortized cost and estimated fair value of debt securities as of JuneSeptember 30, 2009, 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 Estimated Amortized Estimated  Held to Maturity Available for Sale 
 Cost Fair Value Cost Fair Value  Amortized Estimated Amortized Estimated 
 (in thousands)  Cost Fair Value Cost Fair Value 
  (in thousands) 
Due in one year or less $7,165 $7,178 $109,879 $110,439  $7,085 $7,100 $86,874 $87,290 
Due from one year to five years 503 503 266,885 271,330  443 443 253,567 259,695 
Due from five years to ten years — — 106,987 102,949  — — 105,271 105,528 
Due after ten years — — 577,933 518,946  — — 566,368 527,812 
                  
 7,668 7,681 1,061,684 1,003,664  7,528 7,543 1,012,080 980,325 
Collateralized mortgage obligations — — 881,649 895,949  — — 975,384 1,000,407 
Mortgage-backed securities 1,767 1,855 1,267,979 1,298,640  1,617 1,705 1,110,423 1,155,141 
                  
 $9,435 $9,536 $3,211,312 $3,198,253  $9,145 $9,248 $3,097,887 $3,135,873 
                  

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The following table presents information related to the Corporation’s gains and losses on the sales of equity and debt securities, and losses recognized for the other-than-temporary impairment of investments. Gross realized losses on equity and debt securities are net of other-than-temporary impairment charges:
                                
 Gross Gross Other-than-    Other-than-   
 Realized Realized temporary Net Gains  Gross Gross temporary   
 Gains Losses Impairment Losses (Losses)  Realized Realized Impairment Net Gains 
 (in thousands)  Gains Losses Losses (Losses) 
Three months ended June 30, 2009:
 
 (in thousands) 
Three months ended Sept. 30, 2009:
 
Equity securities $479 $(65) $(728) $(314) $49 $(408) $(949) $(1,308)
Debt securities 3,042 —  (2,651) 391  3,130  (21)  (1,846) 1,263 
                  
Total $3,521 $(65) $(3,379) $77  $3,179 $(429) $(2,795) $(45)
                  
  
Three months ended June 30, 2008: 
Three months ended Sept. 30, 2008: 
Equity securities $860 $— $(25,015) $(24,155) $1,276 $— $(2,836) $(1,560)
Debt securities 2,890  (382) — 2,508  418  (514)  (7,845)  (7,941)
                  
Total $3,750 $(382) $(25,015) $(21,647) $1,694 $(514) $(10,681) $(9,501)
                  
  
Six months ended June 30, 2009:
 
Nine months ended Sept. 30, 2009:
 
Equity securities $591 $(281) $(1,790) $(1,480) $640 $(689) $(2,739) $(2,788)
Debt securities 9,213  (108)  (4,629) 4,476  12,343  (129)  (6,475) 5,739 
                  
Total $9,804 $(389) $(6,419) $2,996  $12,983 $(818) $(9,214) $2,951 
                  
  
Six months ended June 30, 2008: 
Nine months ended Sept. 30, 2008: 
Equity securities $5,616 $(8) $(28,590) $(22,982) $6,884 $— $(31,426) $(24,542)
Debt securities 3,086  (505) — 2,581  3,504  (1,019)  (7,845)  (5,360)
                  
Total $8,702 $(513) $(28,590) $(20,401) $10,388 $(1,019) $(39,271) $(29,902)
                  

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The following table presents a summary of other-than-temporary impairment charges recorded by the Corporation, by investment security type:
                                
 Three Months Ended June 30 Six Months Ended June 30  Three Months Ended Nine Months Ended 
 2009 2008 2009 2008  September 30 September 30 
 (in thousands)  2009 2008 2009 2008 
  (in thousands) 
Financial institution stocks $728 $24,655 $1,684 $28,230  $949 $2,020 $2,633 $30,250 
Government sponsored agency stock — 356 — 356 
Mutual funds — 360 106 360  — 460 106 820 
                  
Total equity securities charges 728 25,015 1,790 28,590  949 2,836 2,739 31,426 
                  
Debt securities — Pooled trust preferred securities 2,651 — 4,629 — 
 
Bank-issued subordinated debt — 4,855 — 4,855 
Debt securities — pooled trust preferred securities 1,846 2,990 6,475 2,990 
         
Total debt securities charges 1,846 7,845 6,475 7,845 
         
          
Total other-than-temporary impairment charges $3,379 $25,015 $6,419 $28,590  $2,795 $10,681 $9,214 $39,271 
                  
The $728,000$949,000 and $1.7$2.6 million of other-than-temporary impairment charges related to financial institutions stocks during the three and sixnine months ended JuneSeptember 30, 2009 were due to the increasing severity and duration of the decline in fair values of certain bank stock holdings, in conjunction with management’s assessment of the near-term prospects of each specific issuer. As of JuneSeptember 30, 2009, after other-than-temporary impairment charges, the financial institutioninstitutions stock portfolio had a cost basis of $37.8$35.9 million and a fair value of $32.7$34.4 million.
In April 2009, the Financial Accounting Standards Board (FASB)FASB issued Staff Position No. 115-2 and 124-2, “Recognition and Presentation of Other-than-Temporary Impairments” (FSP FAS 115-2). FSP FAS 115-2, codified as FASB ASC paragraph 320-10-65-1, amends other-than-temporary impairment guidance for debt securities and expands disclosure requirements for other-than-temporarily impaired debt and equity securities. FSP FAS 115-2 requires companies to record

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other-than-temporary impairment charges, through earnings, if they have the intent to sell, or will more likely than not be required to sell, an impaired debt security before a recovery of its amortized cost basis. In addition, FSP FAS 115-2 requires companies to record other-than-temporary impairment charges through earnings for the amount of credit losses, regardless of the intent or the requirement to sell. Credit loss is measured as the difference between the present value of an impaired debt security’s expected cash flows and its amortized cost basis. Non-credit related write-downs to fair value must be recorded as decreases to accumulated other comprehensive income as long as a company has no intent or expected requirement to sell an impaired security before a recovery of amortized cost basis. Finally, FSP FAS 115-2 requires companies to record all previously recorded non-credit related other-than-temporary impairment charges for debt securities as cumulative effect adjustments to retained earnings as of the beginning of the period of adoption. FSP FAS 115-2 iswas effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for the period ending after March 15, 2009. The Corporation elected to early adopt FSP FAS 115-2, effective January 1, 2009.
During the year ended December 31, 2008, the Corporation recorded other-than-temporary impairment charges for pooled trust preferred securities of $15.8 million. Upon adoption of FSP FAS 115-2, the Corporation determined that $9.7 million of those other-than-temporary impairment charges were non-credit related. As such, a $6.3 million (net of $3.4 million of taxes) increase to retained earnings and a corresponding decrease to accumulated other comprehensive income was recorded as the cumulative effect impact of adopting FSP FAS 115-2 as of January 1, 2009.
During the three and sixnine months ended JuneSeptember 30, 2009, the $2.7$1.8 million and $4.6$6.5 million of other-than-temporary impairment losses for pooled trust preferred securities recognized in earnings were determined through the use of an expected cash flow model, consistent with the guidance in Emerging Issues Task Force 99-20-1, “Amendments to the Impairment Guidance in EITF Issue No. 99-20”.model. The most significant input to the expected cash flows model

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was the assumed default rate for each pooled trust preferred security. The Corporation evaluates the financial metrics, such as capital ratios and non-performing asset ratios, of each individual financial institution issuer that comprises theeach pooled trust preferred securitiessecurity to estimate theits expected default rates for each security.rate. The weighted average default rate for pooled trust preferred securities held by the Corporation at JuneSeptember 30, 2009 was approximately 20%14%.
The following table presents a summary of the cumulative credit related other-than-temporary impairment charges recognized as components of earnings for securities still held by the Corporation (in thousands):
        
 Three Months Nine Months 
         Ended Ended 
 Three Months Ended Six Months Ended  September 30, September 30, 
 June 30, 2009 June 30, 2009  2009 2009 
Balance of cumulative credit losses on pooled trust preferred securities, beginning of period (1) $(8,120) $(6,142) $(10,771) $(6,142)
Additions for credit losses recorded which were not previously recognized as components of earnings  (2,651)  (4,629)  (1,846)  (6,475)
          
Ending balance of cumulative credit losses on pooled trust preferred securities, end of period $(10,771) $(10,771) $(12,617) $(12,617)
          
 
(1) Cumulative credit losses of $6.1 million at January 1, 2009 represent the other-than-temporary impairment charges recorded during the year ended December 31, 2008 for pooled trust preferred securities, net of the Corporation’s cumulative effect adjustment upon adoption of FSP FAS 115-2.

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The following table presents the gross unrealized losses and estimated fair values of investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at JuneSeptember 30, 2009:
                        
 Less Than 12 months 12 Months or Longer Total                         
 Estimated Unrealized Estimated Unrealized Estimated Unrealized  Less Than 12 months 12 Months or Longer Total 
 Fair Value Losses Fair Value Losses Fair Value Losses  Estimated Unrealized Estimated Unrealized Estimated Unrealized 
 (in thousands)  Fair Value Losses Fair Value Losses Fair Value Losses 
  (in thousands) 
U.S. Government sponsored agency securities $84,858 $(696) $494 $(9) $85,352 $(705) $20,230 $(27) $478 $(7) $20,708 $(34)
State and municipal securities 69,745  (848) 1,731  (46) 71,476  (894) 801  (15) — — 801  (15)
Corporate debt securities 27,992  (21,159) 71,606  (34,471) 99,598  (55,630) 23,215  (16,312) 77,738  (26,732) 100,953  (43,044)
Collateralized mortgage obligations 295,566  (2,473) 4,042  (243) 299,608  (2,716) 12,159  (3) 3,869  (212) 16,028  (215)
Mortgage-backed securities 117,838  (1,157) 92  (1) 117,930  (1,158) 1,843  (4) — — 1,843  (4)
Auction rate securities 149,262  (6,425) 76,148  (5,335) 225,410  (11,760) 81,426  (1,897) 135,809  (7,243) 217,235  (9,140)
                          
Total debt securities 745,261  (32,758) 154,113  (40,105) 899,374  (72,863) 139,674  (18,258) 217,894  (34,194) 357,568  (52,452)
Equity securities 19,166  (6,393) 295  (98) 19,461  (6,491) 14,815  (3,825) 319  (161) 15,134  (3,986)
                          
 $764,427 $(39,151) $154,408 $(40,203) $918,835 $(79,354) $154,489 $(22,083) $218,213 $(34,355) $372,702 $(56,438)
                          
For its investments in equity securities, most notably its investments in stocks of financial institutions, management evaluates the near-term prospects of the issuers in relation to the severity and duration of the impairment. Based on that evaluation and the Corporation’s ability and intent to hold those investments for a reasonable period of time sufficient for a recovery of fair value, the Corporation does not consider those investments with unrealized holding losses as of JuneSeptember 30, 2009 to be other-than-temporarily impaired.
In relationWith respect to the Corporation’s investments in auction rate securities, the current unrealized holding losses on these securities are attributable to liquidity issues as a result of the failure of periodic auctions. As of JuneSeptember 30, 2009, approximately 65%$247 million, or 86%, of the auction rate securities held by the Corporation arewere rated above investment grade, with approximately $184 million, or 64%, AAA rated with 96%by at least one ratings agency. Approximately $39 million, or 14%, of them aboveauction rate securities are rated below investment grade. In addition,grade by at least one ratings agency. Of the $39 million of securities rated below investment

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grade, approximately 89%$22 million, or 57%, of the student loans underlying the auction rate securities have principal payments which are guaranteed by the Federal government. Finally, allIn total, approximately $254 million, or 89%, of the student loans underlying the auction rate securities have principal payments which are guaranteed by the Federal government. All auction rate securities currently held by the Corporation are current and making scheduled interest payments. Because the Corporation does not have the intention to sell and does not believe it will be required to sell any of these securities prior to a recovery of their fair value to amortized cost, the Corporation does not consider those investments to be other-than-temporarily impaired as of JuneSeptember 30, 2009. For additional information related to the Corporation’s investment in auction rate securities, see Note H, “Commitments and Contingencies”.
The following table presents the amortized cost and estimated fair values of corporate debt securities:
                
 June 30, 2009 December 31, 2008                 
 Amortized Estimated fair Amortized Estimated fair  September 30, 2009 December 31, 2008 
 cost value cost value  Amortized Estimated fair Amortized Estimated fair 
 (in thousands)  cost value cost value 
  (in thousands) 
Single-issuer trust preferred securities (1) $97,918 $66,214 $97,887 $69,819  $97,925 $75,195 $97,887 $69,819 
Subordinated debt 34,835 30,428 34,788 31,745  34,861 32,589 34,788 31,745 
Pooled trust preferred securities 24,379 4,915 19,351 15,381  22,518 4,846 19,351 15,381 
                  
Corporate debt securities issued by financial institutions 157,132 101,557 152,026 116,945  155,304 112,630 152,026 116,945 
Other corporate debt securities 2,736 2,736 2,950 2,949  2,736 2,736 2,950 2,949 
                  
Available for sale corporate debt securities $159,868 $104,293 $154,976 $119,894  $158,040 $115,366 $154,976 $119,894 
                  
 
(1) Single-issuer trust preferred securities with estimated fair values totaling $7.0$8.1 million as of JuneSeptember 30, 2009 are classified as Level 3 assets under Statement 157.FASB ASC Topic 820. See Note J, “Fair Value Measurements” for additional details.

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As required by FSP FAS 115-2, theThe Corporation has evaluated all corporate debt securities issued by financial institutions to determine if any unrealized holding losses represent credit losses, which would require an other-than-temporary impairment charge through earnings. In addition, the Corporation does not have the intention to sell and does not believe it will be required to sell any impaired corporate debt securities issued by financial institutions prior to a recovery to amortized cost. Therefore, the Corporation does not consider those investments with unrealized losses at JuneSeptember 30, 2009 to be other-than-temporarily impaired.
NOTE D —– Goodwill
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 an impairment test, are charged to expense in the period in which goodwill is determined to be impaired. The Corporation performs its annual test of goodwill impairment as of October 31st of each year. An interim goodwill impairment test is required if certain criteria are met. The Corporation evaluated whether any of the criteria for performing an interim impairment test were met during the secondthird quarter of 2009 and concluded they were not met.
NOTE E —– Stock-Based Compensation
As required by Statement of Financial Accounting Standards No. 123R, “Share-Based Payment”, theThe fair value of equity awards granted to employees is recognized as compensation expense over the period during which employees are required to provide service in exchange for such 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.

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The following table presents compensation expense and the related tax benefits for equity awards recognized in the consolidated statements of income:
                                
 Three months ended June 30 Six months ended June 30  Three months ended Nine months ended 
 2009 2008 2009 2008  September 30 September 30 
 (in thousands)  2009 2008 2009 2008 
  (in thousands) 
Stock-based compensation expense $447 $478 $827 $1,065  $542 $606 $1,369 $1,671 
Tax benefit  (37)  (52)  (75)  (126)  (111)  (108)  (186)  (234)
                  
Stock-based compensation expense, net of tax $410 $426 $752 $939  $431 $498 $1,183 $1,437 
                  
Under the Option Plans, stock options and restricted stock are granted to key employees. Stock option exercise prices are equal to the fair value of the Corporation’s stock on the date of grant, with terms of up to ten years. Stock options and restricted stock are typically granted annually on July 1st and become fully vested after a three-year vesting period. Certain events as defined in the Option Plans result in the acceleration of the vesting of both stock options and restricted stock. As of June 30, 2009, there were 13.6 million shares reserved for future grants through 2013. On July 1, 2009, the Corporation granted approximately 485,000 stock options and 214,000 shares of restricted stock under its Option Plans. As of September 30, 2009, there were 12.9 million shares reserved for future grants through 2013.
In connection with the Corporation’s participation in the U.S. Treasury Department’s Capital Purchase Program (CPP) component of the Troubled Asset Relief Program, the 2009 restricted stock grantsshares granted to certain key employees are subject to the requirements and limitations contained in the Emergency Economic Stabilization Act of 2008, as amended, and related regulations. Among other things, the 2009 restricted stock grants to these key employees provide that they may not fully vest until the Corporation’s participation in the CPP ends. None of the key employees who received 2009 restricted stock grants subject to the CPP vesting restrictions received 2009 stock option awards.

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NOTE F —– Employee Benefit Plans
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,bonds; U.S. Treasury securities and common trust funds; and equity securities, including common stocks and common stock mutual funds. Effective January 1, 2008, the accrual of benefits for all existing participants was discontinued.
The Corporation currently provides medical and life insurance benefits under a postretirement benefits plan (Postretirement Plan) to certain retired full-time employees who were employees of the Corporation prior to January 1, 1998. Certain full-time employees may become eligible for these discretionary benefits if they reach retirement age while working for the Corporation.
During 2009, the Corporation amended the Postretirement Plan to no longer pay benefits for early retirees from their retirement date to the date they attain age 65. As a result of this amendment, the Corporation recorded a $3.3 million ($2.1 million, net of tax) reduction to unrecognized prior service costs through an increase to other comprehensive income. The total amount of unrecognized prior service cost that is expected to be accreted as a reduction to periodic benefit cost for the remainder of 2009 is $291,000.$111,000.
As required by Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Postretirement Plans”, theThe Corporation recognizes the funded status of its Pension Plan and Postretirement Plan on the consolidated balance sheets and recognizes the changes in that funded status through other comprehensive income.

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The net periodic benefit cost for the Corporation’s Pension Plan and Postretirement Plan, as determined by consulting actuaries, consisted of the following components for the three and six-month periods ended June 30:components:
                
 Pension Plan                 
 Three months ended Six months ended  Pension Plan 
 June 30 June 30  Three months ended Nine months ended 
 2009 2008 2009 2008  September 30 September 30 
 (in thousands)  2009 2008 2009 2008 
  (in thousands) 
Service cost (1) $37 $37 $74 $74  $36 $36 $110 $110 
Interest cost 818 816 1,637 1,632  818 816 2,455 2,448 
Expected return on plan assets  (722)  (918)  (1,444)  (1,836)  (722)  (918)  (2,166)  (2,754)
Net amortization and deferral 262 — 524 —  262 — 786 — 
                  
Net periodic benefit cost (income) $395 $(65) $791 $(130) $394 $(66) $1,185 $(196)
                  
 
(1) The Pension Plan service cost recorded for the three and sixnine months ended JuneSeptember 30, 2009 and 2008 was related to administrative costs associated with the plan and not due to the accrual of additional participant benefits.
                
 Postretirement Plan                 
 Three months ended Six months ended  Postretirement Plan 
 June 30 June 30  Three months ended Nine months ended 
 2009 2008 2009 2008  September 30 September 30 
 (in thousands)  2009 2008 2009 2008 
  (in thousands) 
Service cost $75 $131 $181 $258  $37 $132 $218 $390 
Interest cost 151 187 317 354  73 184 390 538 
Expected return on plan assets  (1)  (2)  (2)  (3)  (1)  (1)  (3)  (4)
Net accretion and deferral  (81) —  (81) —   (81) —  (162) — 
                  
Net periodic benefit cost $144 $316 $415 $609  $28 $315 $443 $924 
                  

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NOTE G —– Derivative Financial Instruments
Effective January 1, 2009, the Corporation adopted Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (Statement 161)., codified as FASB ASC Section 815-10-50. As required by Statement 161,FASB ASC Section 815-10-50, the Corporation has included disclosures for its derivative instruments and for its hedging activities.
In connection with its mortgage banking activities, the Corporation enters into commitments to originate fixed-rate residential mortgage loans for customers, also referred to as interest rate locks. In addition, the Corporation enters into forward commitments for the future sale or purchase of mortgage-backed securities to or from third-party investors to hedge the effect of changes in interest rates on the value of the interest rate locks and mortgage loans held for sale. Forward sales commitments may also be in the form of commitments to sell individual mortgage loans at a fixed price at a future date. Both the interest rate locks and the forward commitments are accounted for as derivatives and carried at fair value, determined as the amount that would be necessary to settle each derivative financial instrument at the end of the period.balance sheet date. Gross derivative assets and liabilities are recorded within other assets and other liabilities on the consolidated balance sheets, with changes in fair value during the period recorded within gains on sales of mortgage loans on the consolidated statements of income.

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The following table presents a summary of the Corporation’s derivative financial instruments, none of which have been designated as hedging instruments:
                
 June 30, 2009 December 31, 2008                 
 Notional Notional    September 30, 2009 December 31, 2008 
 Amount Fair Value Amount Fair Value  Notional Notional   
 (in thousands)  Amount Fair Value Amount Fair Value 
  (in thousands) 
Interest Rate Locks with Customers:  
Positive fair values $112,938 $802 $103,824 $506  $184,599 $1,958 $103,824 $506 
Negative fair values 141,978  (1,088) 37,321  (81) 38,745  (57) 37,321  (81)
          
Net Interest Rate Locks with Customers  (286) 425  1,901 425 
Forward Commitments:  
Positive fair values 1,046,613 2,595 219,142 954  39,694 445 219,142 954 
Negative fair values 618,500  (1,577) 271,307  (2,399) 258,300  (3,495) 271,306  (2,399)
          
Net Forward Commitments 1,018  (1,445)  (3,050)  (1,445)
  
Interest rate swaps (1) — — 10,000 18  — — 10,000 18 
          
 $732 $(1,002) $(1,149) $(1,002)
          
 
(1) Interest rate swaps recorded as a component of other liabilities on the consolidated balance sheets. All swaps existing at December 31, 2008 were called in the first quarter of 2009.
The following table presents a summary of the fair value gains and losses recorded by the Corporation during the three and six months ended June 30, 2009:losses:
                        
 Fair Value Gains/(Losses) Statement of Income Classification Fair Value Gains (Losses) Statement of Income Classification
 Three Months Ended Six Months Ended  Three Months Ended Nine Months Ended 
 June 30, 2009 June 30, 2009  September 30, 2009 September 30, 2009 
 (in thousands)  (in thousands) 
Interest rate locks with customers $(4,674) $(711) Gains on sale of mortgage loans $2,187 $1,476 Gains on sales of mortgage loans
Forward commitments 4,591 2,463 Gains on sale of mortgage loans  (4,068)  (1,605)      Gains on sales of mortgage loans
Interest rate swaps —  (18) Other expense —  (18) Other expense
          
 $(83) $1,734  $(1,881) $(147) 
          

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NOTE H —– Commitments and Contingencies
Commitments
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 on 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:
        
 June 30, December 31,        
 2009 2008 September 30, December 31,
 (in thousands) 2009 2008
  (in thousands)
Commitments to extend credit $4,352,444 $3,360,499  $3,926,396 $3,360,499 
Standby letters of credit 728,210 789,804  635,646 789,804 
Commercial letters of credit 30,580 37,620  34,005 37,620 

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As of JuneSeptember 30, 2009 and December 31, 2008, the reserve for unfunded lending commitments, included in other liabilities on the consolidated balance sheets, was $6.8$7.2 million and $6.2 million, respectively.
Auction Rate Securities
The Corporation’s investment management and trust subsidiary, Fulton Financial Advisors, N.A. (FFA), previously held auction rate securities, also known as auction rate certificates (ARCs), for some of its customers’ accounts. Beginning in the second quarter of 2008, the Corporation agreedoffered to purchase illiquid student-loan backed ARCs from customers of FFA, upon notification that theysuch customers had liquidity needs or otherwise desired to liquidate their holdings, resulting in a pre-tax charge of $13.2 million, recorded as a component of operating risk loss on the consolidated statements of income during the three months ended June 30, 2008. Theholdings. A liability was established for this financial guarantee was recorded as a liability in accordance with FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others — an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34” and carried at estimated fair value withthrough a corresponding pre-tax charge to earnings both upon the initial establishment of the guarantee and upon changes in its estimated fair value. The estimated fair value of the guarantee was determined based on the difference between the fair value of the underlying ARCs assuming that all ARCs held in customer accounts would be purchased, and their estimated purchase price.
FFA had generally purchased ARCs from customers at par value with an interest adjustment which was designed to position customers as if they had owned 90-day U.S. Treasury bills instead of ARCs. As FFA’s approach to purchasing customers’ ARCs evolved, however, interest adjustments were not made on certain accounts due to various circumstances and restrictions. To provide similar treatment to all of FFA’s customers holding ARCs and in consideration of certain other market developments, in the first quarter ofDuring 2009, the Corporation decided thatcompleted the repurchase of all future ARC purchases from customer accounts would be at par value, without an interest adjustment. Furthermore, the Corporation reimbursed customers for the amount of the interest differential oneligible ARCs previously sold to the Corporation. As a result, during the first quarter of 2009, the Corporation recorded a pre-tax charge of $5.7 million related to the interest adjustment.
In April 2009, FFA notified its remaining customers holding ARCs that it would purchase the ARCs at par value if notice of their acceptance of this offer were received by May 15, 2009. As a result,and, as of June

16

September 30, 2009, there arewere no longer any ARCs still held by FFA’s customers which the Corporation will be requiredwas had agreed to purchase.
The following table presents the change in the ARC investment balances held by customers and the related financial guarantee liability for the three and sixnine months ended JuneSeptember 30, 2009:
                
 Three Months Ended June 30, 2009 Six Months Ended June 30, 2009 
 ARCs Held by Financial ARCs Held by Financial         
 Customers, at Guarantee Customers, at Guarantee  ARCs Held by Financial 
 Par Value Liability Par Value Liability  Customers, at Guarantee 
 (in thousands)  Par Value Liability 
  (in thousands) 
Balance, beginning of period $93,825 $(13,934) $105,165 $(8,653) $105,165 $(8,653)
Provision for financial guarantee —  (79) —  (6,237) —  (6,237)
Purchases of ARCs  (93,675) 14,013  (104,415) 14,890   (104,415) 14,890 
Redemptions of ARCs  (150) —  (750) —   (750) — 
              
Balance, end of period $— $— $— $—  $— $— 
              
Upon purchase from customers, the Corporation recordsrecorded ARCs as available for sale investment securities at their estimated fair value.
Residential Lending Contingencies
Residential mortgages are originated and sold by the Corporation through Fulton Mortgage Company, which is a division of each of the Corporation’s subsidiary banks. The loans originated and sold through these channels are predominately “prime” loans that conform to published standards of government sponsored agencies. Prior to 2008, the Corporation’s Resource Bank affiliate operated a significant national wholesale mortgage lending operation which originated and sold significant volumes of non-prime loans from the time the Corporation acquired Resource Bank in 2004 through 2007.

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The following table presents a summary of the approximate principal balances and related reserves/write-downs recognized on the Corporation’s consolidated balance sheet, by general category:
                
 June 30, 2009 December 31, 2008                 
 Reserves/ Reserves/  September 30, 2009 December 31, 2008 
 Principal Write-downs Principal Write-downs  Reserves/ Reserves/ 
 (in thousands)  Principal Write-downs Principal Write-downs 
  (in thousands) 
Outstanding repurchase requests (1) (2) $5,590 $(3,580) $6,290 $(2,900) $5,580 $(3,540) $6,290 $(2,900)
No repurchase request received — sold loans with identified potential misrepresentations of borrower information (1) (2) 3,650  (1,470) 7,990  (3,280)
No repurchase request received – sold loans with identified potential misrepresentations of borrower information (1) (2) 3,650  (1,470) 7,990  (3,280)
Repurchased loans (3) 7,450  (1,560) 10,000  (1,690) 6,990  (1,160) 10,000  (1,690)
Foreclosed real estate (OREO) (4) 18,180 — 15,920 —  11,930 — 15,920 — 
          
Total reserves/write-downs   $(6,610) $(7,870) $(6,170) $(7,870)
          
 
(1) Principal balances had not been repurchased and, therefore, are not included on the consolidated balance sheets as of JuneSeptember 30, 2009 and December 31, 2008.
 
(2) Reserve balance included as a component of other liabilities on the consolidated balance sheets as of JuneSeptember 30, 2009 and December 31, 2008.
 
(3) Principal balances, net of write-downs, are included as a component of loans, net of unearned income on the consolidated balance sheets as of JuneSeptember 30, 2009 and December 31, 2008.
 
(4) OREO is written down to its estimated fair value upon transfer from loans receivable.

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The following presentsDuring the change in the reserve/write-down balances for the three and sixnine months ended JuneSeptember 30, 2009:
         
  Three Months  Six Months 
  Ended June 30,  Ended June 30, 
  2009  2009 
  (in thousands) 
         
Total reserves/write-downs, beginning of period $7,330  $7,870 
Credits to expense  (400)  (600)
Charge-offs  (320)  (660)
       
Total reserves/write-downs, end of period $6,610  $6,610 
       
2009, the Corporation recorded credits, included within operating risk loss on the consolidated statements of income, of $600,000, representing a reduction in required reserves associated with potential repurchase requests. During the three and sixnine months ended June 30,September 31, 2008, the Corporation recorded charges of $700,000$500,000 and $1.5$2.3 million, respectively, related to the potential and actual repurchase of previously sold residential mortgages.
Management believes that the reserves recorded as of JuneSeptember 30, 2009 are adequate for the known potential repurchases. However, continued declines in collateral values or the identification of additional loans to be repurchased could necessitate additional reserves in the future.
NOTE I —– FAIR VALUE OPTION
Statement of Financial Accounting Standard No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — an Amendment of FASB Statement No. 115” (Statement 159) became effective for the Corporation on January 1, 2008. Statement 159ASC Subtopic 825-10 permits entities to measure many financial instruments and certain other items at fair value and requires certain disclosures for amounts for which the fair value option is applied.
The Corporation elected to record mortgage loans held for sale which were originated after September 30, 2008 at fair value under Statement 159.value. Prior to October 1, 2008, mortgage loans held for sale were reported at the lower of aggregate cost or market. The Corporation elected to adopt Statement 159 formeasure mortgage loans held for sale at fair value to more accurately reflect the financial performance of its entire mortgage banking activities in its consolidated financial statements. Derivative financial instruments related to these activities are also recorded at fair value, under Statement 133, as noted within Note G, “Derivative Financial Instruments”. The Corporation determines fair value for its mortgage loans held for sale based on the price that secondary market investors would pay for loans with similar characteristics, including interest rate and term, as of the date fair value is measured. The Corporation classifies interest income earned on mortgage loans held for sale within interest income on the consolidated statements of income, which is separate from the fair value adjustments on loans held for sale, which are recorded as components of gains on sales of mortgage loans.

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The following table presents a summary of the Corporation’s fair value elections under Statement 159 and their impact on the Corporation’s consolidated balance sheets:
                      
 Cost — Fair Value —   Cost – Fair Value –   
 Asset Asset Balance Sheet Asset Asset Balance Sheet 
 (Liability) (Liability) Classification (Liability) (Liability) Classification 
 (in thousands)  (in thousands) 
  
June 30, 2009:
  
September 30, 2009:
 
Mortgage loans held for sale (1) (2) $229,870 $231,806 Loans held for sale $75,543    $78,550 Loans held for sale
   
December 31, 2008:   
Mortgage loans held for sale (1) $64,787 $66,567 Loans held for sale $64,787 $66,567 Loans held for sale
Hedged certificates of deposit (3)  (7,458)  (7,517) Interest-bearing deposits  (7,458)  (7,517) Interest-bearing deposits
           
 $57,329 $59,050   $57,329 $59,050 
           
 
(1) Cost basis of mortgage loans held for sale represents the unpaid principal balance.
 
(2) For the three and sixnine months ended JuneSeptember 30, 2009, the Corporation recorded charges of $613,000 and income of $156,000,$1.1 million and $1.2 million, respectively, included within gains on sales of mortgage loans on the consolidated statements of income, representing the changes in fair values of mortgage loans held for sale.
 
(3) All hedged certificates of deposit were called in the first quarter of 2009.
NOTE J —– FAIR VALUE MEASUREMENTS
Statement 157FASB ASC Topic 820 Fair Value Measurements
Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (Statement 157)FASB ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into the following three categories (from highest to lowest priority):
 • Level 1 —– Inputs that represent quoted prices for identical instruments in active markets.
 
 • Level 2 —– Inputs that represent quoted prices for similar instruments in active markets, or quoted prices for identical instruments in non-active markets. Also includes valuation techniques whose inputs are derived principally from observable market data other than quoted prices, such as interest rates or other market-corroborated means.
 
 • Level 3 —– Inputs that are largely unobservable, as little or no market data exists for the instrument being valued.
Companies are required to categorize all assets and liabilities measured at fair value on both a recurring and nonrecurring basis into the above three levels.
In April 2009, the FASB issued Staff Position No. 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (FSP FAS 157-4). This staff position, codified as FASB ASC Sections 820-10-35 and 50, which provides additional guidance for estimating fair value in accordance with Statement 157FASB ASC Topic 820 when the volume and level of activity for an asset or liability have declined significantly and includes guidance on identifying circumstances that indicate a transaction is not orderly. This staff position is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Corporation elected to early adopt FSP FAS 157-4,this staff position, effective March 31, 2009. The Corporation’s available for sale debt securities include ARCs and pooled trust preferred securities and certain single-issuer trust preferred securities issued by financial institutions which, prior to the adoption of this staff position, were valued through means other than quoted market prices due the Corporation’s conclusion that the market for the securities was not active. Therefore, the adoption of this staff position did not impact the Corporation’s consolidated financial statements.
In August 2009, the FASB issued ASC Update No. 2009-05, “Measuring Liabilities at Fair Value” (ASC Update 2009-05). ASC Update 2009-05 amends ASC Topic 820 by allowing companies to determine the fair value of liabilities using the perspective of an investor that holds the related obligation as an asset as opposed to measuring liabilities based on the price that would be paid to transfer a liability to a new obligor. ASC Update 2009-05 was effective for the Corporation on September 30, 2009. The adoption of ASC Update 2009-05 did not impact the Corporation.

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Items Measured at Fair Value on a Recurring Basis
The Corporation’s assets and liabilities measured at fair value on a recurring basis and reported on the consolidated balance sheet as of JuneSeptember 30, 2009 were as follows:
                
 Level 1 Level 2 Level 3 Total                 
 (in thousands)  Level 1 Level 2 Level 3 Total 
  (in thousands) 
Mortgage loans held for sale $— $231,806 $— $231,806  $— $78,550 $— $78,550 
Available for sale investment securities 35,165 2,903,722 301,496 3,240,383  36,709 2,844,340 298,497 3,179,546 
Other financial assets 9,296 3,397 — 12,693  13,706 2,403 — 16,109 
                  
 
Total assets $44,461 $3,138,925 $301,496 $3,484,882  $50,415 $2,925,293 $298,497 $3,274,205 
                  
  
Other financial liabilities $9,296 $2,665 $— $11,961  $13,706 $3,552 $— $17,258 
                  
The valuation techniques used to measure fair value for the items in the table above are as follows:
 • Mortgage loans held for sale —– This category consists of mortgage loans held for sale that the Corporation has elected to measure at fair value under Statement 159.value. Fair value as of JuneSeptember 30, 2009 was measured as the price that secondary market investors were offering for loans with similar characteristics. See Note I, “Fair Value Option” for details related to the Corporation’s election to measure assets and liabilities at fair value under Statement 159.value.
 
 • Available for sale investment securities —– Included within this asset category are both equity and debt securities. Equity securities consisting of stocks of financial institutions and mutual funds are listed as Level 1 assets, measured at fair value based on quoted prices for identical securities in active markets. Debt securities, excluding ARCs, pooled trust preferred securities and certain single-issuer trust preferred securities, and other equity securities are classified as Level 2 assets and consist of: U.S. government and U.S. government sponsored agency securities, state and municipal securities, corporate debt securities, collateralized mortgage obligations and mortgage-backed securities. Fair values are determined by a third-party pricing service using both quoted prices for similar assets, when available, and model-based valuation techniques that derive fair value based on market-corroborated data, such as instruments with similar prepayment speeds and default interest rates. See Note C, “Investment Securities” for additional details related to the Corporation’s available for sale investment securities.
 
   ARCs, as discussed in Note H, “Commitments and Contingencies”, are classified as Level 3 assets and measured at fair value based on an independent third-party valuation. Due to their illiquidity, ARCs were valued through the use of an expected cash flows model. The assumptions used in preparing the expected cash flows model include estimates of coupon rates, time to maturity and market rates of return.
 
   Pooled trust preferred securities and certain single-issuer trust preferred securities are also classified as Level 3 assets. The fair values of pooled trust preferred securities and $7.0$6.9 million of single-issuer trust preferred securities were determined based on quotes provided by third-party brokers who determined fair values based predominantly on internal valuation models and were not indicative prices or binding offers. The Corporation classified $59.2$67.1 million of other single-issuer trust preferred securities as Level 2 assets above.
 
   Equity securities totaling $85.6$85.7 million, issued by the Federal Home Loan Bank and Federal Reserve Bank, have been excluded from the above table.
 
 • Other financial assets —– Included within this asset category are Level 1 assets, consisting of mutual funds that are held in trust for employee deferred compensation plans and measured at fair value based on quoted prices for identical securities in active markets, and Level 2 assets

20

 

   representing the fair value of mortgage banking derivatives in the form of interest rate locks with customers and forward commitments with secondary market investors. The fair value of the Corporation’s interest rate locks and forward commitments are determined as the amount that would be required to settle each derivative financial instrument at the end of the period.balance sheet date. See Note G, “Derivative Financial Instruments”, for additional information.
 
 • Other financial liabilities —– Included within this category are the following liabilities:are: Level 1 employee deferred compensation liabilities which are the amounts due to employees under the deferred compensation plans described under the heading “Other financial assets” above; Level 2 mortgage banking derivatives, described under the heading “Other financial assets” above; and Level 3 financial guarantees associated with the Corporation’s commitment to purchase ARCs held within customer accounts.
 
   The fair value of the financial guarantee liability associated with ARCs held by the Corporation’s customers was determined using the same methods as the ARCs held by the Corporation and described under the heading “Available for sale investment securities” above. The Corporation purchased all remaining ARCs held in customer accounts during the three months ended June 30, 2009, therefore, there is no balance outstanding as of JuneSeptember 30, 2009. See Note H, “Commitments and Contingencies” for additional information.

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The following tables present the changes in the Corporation’s assets and liabilities measured at fair value on a recurring basis using unobservable inputs (Level 3) for the three and sixnine months ended JuneSeptember 30, 2009:
                                
Three Months Ended June 30, 2009 
Three Months Ended September 30, 2009Three Months Ended September 30, 2009 
 Available for Sale Investment Securities Other Financial  Available for Sale Investment Securities Other Financial 
 Pooled Trust Single-issuer Liabilities —  Pooled Trust Single-issuer Liabilities – 
 Preferred Trust Preferred ARC ARC Financial  Preferred Trust Preferred ARC ARC Financial 
 Securities Securities Investments Guarantee  Securities Securities Investments Guarantee 
 (in thousands)  (in thousands) 
 
Balance, March 31, 2009 $10,692 $6,294 $203,578 $(13,934)
Purchases (1) — — 79,741 14,013 
Balance, June 30, 2009 $4,915 $7,006 $289,575 $— 
Realized adjustment to fair value (2)  (2,651) — —  (79)  (1,846) — — — 
Unrealized adjustment to fair value (3)  (3,129) 712 5,812 —  1,781 1,054 4,650 — 
Sales — —  (3,086) — 
Redemptions — —  (628) —  — —  (6,135) — 
Discount accretion (4) 3 — 1,072 — 
(Premium amortization)/Discount accretion (4)  (4) 1 586 — 
                  
Balance, June 30, 2009 $4,915 $7,006 $289,575 $— 
Balance, September 30, 2009 $4,846 $8,061 $285,590 $— 
                  
                
Six Months Ended June 30, 2009 
 Available for Sale Investment Securities Other Financial 
 Pooled Trust Single-issuer Liabilities — 
 Preferred Trust Preferred ARC ARC Financial 
 Securities Securities Investments Guarantee 
 (in thousands) 
 
Balance, December 31, 2008 $15,381 $7,544 $195,900 $(8,653)
Purchases (1) — — 89,383 14,890 
Realized adjustment to fair value (2)  (4,629) — —  (6,237)
Unrealized adjustment to fair value (3)  (5,840)  (540) 3,147 — 
Redemptions — —  (717) — 
Discount accretion (4) 3 2 1,862 — 
         
Balance, June 30, 2009 $4,915 $7,006 $289,575 $— 
         
                 
Nine Months Ended September 30, 2009 
  Available for Sale Investment Securities  Other Financial 
  Pooled Trust  Single-issuer      Liabilities – 
  Preferred  Trust Preferred  ARC  ARC Financial 
  Securities  Securities  Investments  Guarantee 
      (in thousands)     
Balance, December 31, 2008 $15,381  $7,544  $195,900  $(8,653)
Purchases (1)  —   —   89,383   14,890 
Realized adjustment to fair value (2)  (6,475)  —   —   (6,237)
Unrealized adjustment to fair value (3)  (4,059)  514   7,797   — 
Sales  —   —   (3,086)  — 
Redemptions  —   —   (6,852)  — 
(Premium amortization)/Discount accretion (4)  (1)  3   2,448   — 
             
Balance, September 30, 2009 $4,846  $8,061  $285,590  $— 
             
 
(1) For ARC investments, amount represents ARCs acquired from customers, less an adjustment to fair value upon purchase. For the ARC financial guarantee, amount represents the reversal of the guarantee liability due to the purchase of ARCs from customers.
 
(2) For pooled trust preferred securities, realized adjustments to fair value represent credit related other-than-temporary impairment charges that were recorded as a reduction to investment securities gains on the consolidated statements of income. For the ARC financial guarantee, the realized adjustment to fair value has been included as a component of operating risk loss on the Corporation’s consolidated statements of income.
 
(3) Pooled trust preferred securities, single-issuer trust preferred securities, and ARC investments are classified as available for sale investment securities; as such, the unrealized adjustment to fair value was recorded as an unrealized holding gain (loss) and included as a component of available for sale investment securities on the Corporation’s consolidated balance sheet.
 
(4) Included as a component of net interest income on the Corporation’s consolidated statements of income.
Items Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value measurement in certain circumstances, such as upon their acquisition or when there is evidence of impairment.

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The Corporation’s assets measured at fair value on a nonrecurring basis and reported on the Corporation’s consolidated balance sheet as of JuneSeptember 30, 2009 were as follows:
                
 Level 1 Level 2 Level 3 Total                 
 (in thousands)  Level 1 Level 2 Level 3 Total 
  (in thousands) 
Loans held for sale $— $10,633 $— $10,633  $— $6,216 $— $6,216 
Net loans — — 448,386 448,386  — — 636,610 636,610 
Other financial assets — 12,983 16,723 29,706  — 11,480 20,751 32,231 
                  
Total assets $— $23,616 $465,109 $488,725  $— $17,696 $657,361 $675,057 
                  
The valuation techniques used to measure fair value for the items in the table above are as follows:
 • Loans held for sale —– This category consists of loans held for sale that were measured at the lower of aggregate cost or fair value. Fair value was measured as the price that secondary market investors were offering for loans with similar characteristics.
 
 • Net loans—–This category includes commercial loans and commercial mortgage loans which were considered to be impaired under Statement of Financial Accounting Standards No. 114, “Accounting by Creditors for Impairment of a Loan”FASB ASC Section 310-10-35 and have been classified as Level 3 assets. Impaired loans are measured at fair value 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 its collateral, if the loan is collateral dependent. An allowance for loan losses is allocated to an impaired loan if its carrying value exceeds its estimated fair value. The amount shown is the balance of impaired loans, net of the related allowance for loan losses.
 
 • Other financial assets —– This category includes foreclosed assets that the Corporation obtained during the first sixnine months of 2009. Fair values for these Level 2 assets were based on estimated selling prices less estimated selling costs for similar assets in active markets.
 
   Classified as Level 3 assets above are mortgage servicing rights (MSRs), which are initially recorded at fair value upon the sale of residential mortgage loans, which the Corporation continues to service, to secondary market investors. MSRs are amortized as a reduction to servicing income over the estimated lives of the underlying loans.
 
   MSRs are evaluated quarterly for impairment, by comparing the carrying amount to estimated fair value. Fair value is determined at the end of each quarter through a discounted cash flows valuation. Significant inputs to the valuation include expected net servicing income, the discount rate and the expected life of the underlying loans.
Statement 107FASB ASC Section 825-10-50 Fair Values of Financial Instruments
In April 2009, the FASB issued Staff Position No. 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments”., codified as FASB ASC Section 825-10-50. This staff position requires publicly traded companies to include all disclosures required by Statement of Financial Accounting Standards No. 107, “Fair Value Measurements”FASB ASC Section 825-10-50 in interim reporting periods as well as in annual financial statements. This staff position iswas effective for interim reporting periods ending after June 15, 2009, or June 30, 2009 for the Corporation.
The following table details the book values and the estimated fair values of the Corporation’s financial instruments as of JuneSeptember 30, 2009 and December 31, 2008. In addition, a general description of the methods and assumptions used to estimate such fair values is also provided below.
Fair values of financial instruments are significantly affected by assumptions used, principally the timing of future cash flows and discount rates. Because assumptions are inherently subjective in nature, the

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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

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instrument. Further, certain financial instruments and all non-financial instruments not measured at fair value on the Corporation’s consolidated balance sheets are excluded. For financial instruments listed below which are not measured at fair value on the Corporation’s consolidated balance sheets, the aggregate fair value amounts presented do not necessarily represent management’s estimate of the underlying value of the Corporation.
                
 June 30, 2009 December 31, 2008                
 Estimated Estimated September 30, 2009 December 31, 2008
 Book Value Fair Value Book Value Fair Value Estimated Estimated
 (in thousands) Book Value Fair Value Book Value Fair Value
  (in thousands) 
FINANCIAL ASSETS
  
 
Cash and due from banks $299,818 $299,818 $331,164 $331,164  $252,004 $252,004 $331,164 $331,164 
Interest-bearing deposits with other banks 25,453 25,453 16,791 16,791  24,048 24,048 16,791 16,791 
Federal funds sold 437 437 4,919 4,919  — — 4,919 4,919 
Loans held for sale (1) 242,439 242,439 95,840 95,840  84,766 84,766 95,840 95,840 
Securities held to maturity 9,435 9,536 9,636 9,765  9,145 9,248 9,636 9,765 
Securities available for sale (1) 3,325,968 3,325,968 2,715,205 2,715,205  3,265,254 3,265,254 2,715,205 2,715,205 
 
Loans, net of unearned income (1) 11,866,818 11,535,840 12,042,620 11,764,715  11,968,246 11,634,700 12,042,620 11,764,715 
Accrued interest receivable 58,077 58,077 58,566 58,566  60,433 60,433 58,566 58,566 
Other financial assets (1) 239,861 239,861 114,219 114,219  128,072 128,072 114,219 114,219 
  
FINANCIAL LIABILITIES
  
  
Demand and savings deposits $6,172,730 $6,172,730 $5,453,799 $5,453,799  $6,587,314 $6,587,314 $5,453,799 $5,453,799 
Time deposits (1) 5,543,567 5,585,023 5,098,117 5,137,078  5,445,366 5,473,370 5,098,117 5,137,078 
Short-term borrowings 1,317,293 1,317,293 1,762,770 1,762,770  722,618 722,618 1,762,770 1,762,770 
Accrued interest payable 61,471 61,471 53,678 53,678  49,962 49,962 53,678 53,678 
Other financial liabilities (1) 56,182 56,182 73,203 73,203  51,401 51,401 73,203 73,203 
Federal Home Loan Bank advances and long-term debt 1,750,967 1,696,988 1,787,797 1,765,815  1,650,870 1,611,403 1,787,797 1,765,815 
 
(1) Description of fair value determinations for these financial instruments, or certain financial instruments within these categories, measured at fair value on the Corporation’s consolidated balance sheets, are detailed under the heading, “Statement 157“FASB ASC Topic 820 Fair Value Measurements” above.
For short-term financial instruments, defined as those with remaining maturities of 90 days or less and excluding those recorded at fair value and reported above under the heading, “Statement 157“FASB ASC Topic 820 Fair Value Measurements”, 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 Demand and savings deposits
Interest bearing deposits Short-term borrowings
Federal funds sold Accrued interest payable
Accrued interest receivable 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.
The estimated fair values of securities held to maturity as of JuneSeptember 30, 2009 and December 31, 2008 were based on quoted market prices, broker quotes or dealer quotes.

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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

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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.
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 values of commitments to extend credit and standby letters of credit, included within other financial liabilities above, are estimated to equal their carrying amounts.
NOTE K — New Accounting Standards– Subsequent Events
In May 2009, the FASB issued Statement of Financial Accounting Standards No. 165, “Subsequent Events” (Statement 165). Statement 165, codified as FASB ASC Section 855-10-50, which establishes the general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. Statement 165issued and was effective for the Corporation on June 30, 2009. The Corporation has evaluated subsequent events through August 10,November 9, 2009, the date these financial statements were issued.
NOTE L – New Accounting Standards
In June 2009, the FASB issued Statement of Financial Accounting Standards No. 166, “Accounting for Transfers of Financial Assets —– an amendment of FASB Statement No. 140” (Statement 166). Statement 166 amends the accounting for transfers of financial assets. Among its amendments to FASB Statement 140, it eliminates the concept of qualifying special-purpose entities, requires additional criteria to be met in order for the transfer of portions of financial assets to qualify for sale treatment, and expands the legal isolation criteria. Statement 166 is effective for a reporting entity’s first annual reporting period that begins after November 15, 2009, or January 1, 2010 for the Corporation. The Corporation is currently evaluatingdoes not believe the adoption of Statement 166 will have a material impact of adopting Statement 166.on its consolidated financial statements.
In June 2009, the FASB issued Statement of Financial Accounting Standards No. 167, “Amendments to FASB Interpretation No. 46(R)” (Statement 167). Statement 167 amends the accounting for variable interest entities. Statement 167 amends the criteria for determining the primary beneficiary of, and the entity required to consolidate, a variable interest entity. Statement 167 is effective for a reporting entity’s first annual reporting period that begins after November 15, 2009, or January 1, 2010 for the Corporation. The Corporation is currently evaluatingdoes not believe the adoption of Statement 167 will have a material impact of adopting Statement 167.on its consolidated financial statements.
NOTE L —M – Reclassifications
Certain amounts in the 2008 consolidated financial statements and notes have been reclassified to conform to the 2009 presentation.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis of Financial Condition and Results of Operations (Management’s Discussion) concerns Fulton Financial Corporation (the Corporation), a financial holding companycorporation incorporated under the laws of the Commonwealth of Pennsylvania in 1982 which is a financial holding company, 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.
FORWARD-LOOKING STATEMENTS
The Corporation has made, and may continue to make, certain forward-looking statements with respect toto: its acquisition and growth strategies; market risk; changes or adverse developments in economic, political, or regulatory conditions; a continuation or worsening of the current disruption in credit and other markets, including the lack of or reduced access to, and the abnormal functioning of markets for mortgages and other asset-backed securities and for commercial paper and other short-term borrowings; changes in the levels of Federal Deposit Insurance Corporation deposit insurance premiums and assessments; the effect of competition and interest rates on net interest margin and net interest income; investment strategy and income growth; investment securities gains and losses; declines in the value of securities which may result in charges to earnings; changes in rates of deposit and loan growth; asset quality and the impact on assets from adverse changes in the economy and in credit or other markets and resulting effects on credit risk and asset values; balances of risk-sensitive assets to risk-sensitive liabilities; salaries and employee benefits and other expenses; amortization of intangible assets; goodwill impairment; capital and liquidity strategies and other financial and business matters for future periods. The Corporation cautions that these forward-looking statements are subject to various assumptions, risks and uncertainties. Because of the possibility of changes in these assumptions, actual results could differ materially from forward-looking statements. The Corporation undertakes no obligations to update or revise any forward-looking statements.
RESULTS OF OPERATIONS
Overview
Summary Financial Results
The Corporation generates the majority of its revenue through net interest income, or the difference between interest earned on loans and investments and interest paid on deposits and borrowings. Growth in net interest income is dependent upon balance sheet growth and/or maintaining or increasing the net interest margin, which is net interest income (fully taxable-equivalent, or FTE) as a percentage of average interest-earning assets. The Corporation also generates revenue through fees earned on the various services and products offered to its customers and through sales of assets, such as loans, investments or properties. Offsetting these revenue sources are provisions for credit losses on loans, operating expenses and income taxes.

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The following table presents a summary of the Corporation’s earnings and selected performance ratios:
                
 As of or for the As of or for the                
 Three months ended Six months ended As of or for the As of or for the
 June 30 June 30 Three months ended Nine months ended
 2009 2008 2009 2008 September 30 September 30
  2009 2008 2009 2008
Net income available to common shareholders (in thousands) $8,065 $25,678 $16,119 $67,174  $18,300 $29,076 $34,419 $96,250 
Income before income taxes (in thousands) $15,515 $37,598 $30,173 $93,297  $29,171 $38,778 $59,344 $132,075 
Diluted net income per share $0.05 $0.15 $0.09 $0.39  $0.10 $0.17 $0.20 $0.55 
Return on average assets  0.32%  0.65%  0.32%  0.85%  0.56%  0.73%  0.40%  0.81%
Return on average common equity  2.16%  6.33%  2.17%  8.40%  4.78%  7.25%  3.06%  8.02%
Return on average tangible common equity (1)  3.83%  11.03%  3.85%  14.65%  7.91%  12.72%  5.24%  14.00%
Net interest margin (2)  3.43%  3.75%  3.44%  3.67%  3.55%  3.77%  3.48%  3.71%
Non-performing assets to total assets  1.73%  1.02%  1.73%  1.02%  1.82%  1.15%  1.82%  1.15%
Net charge-offs to average loans (annualized)  0.97%  0.33%  0.99%  0.24%  0.81%  0.38%  0.93%  0.29%
 
(1) Calculated as net income, adjusted for intangible asset amortization (net of tax), divided by average shareholders’ equity, excluding goodwill and intangible assets.
 
(2) Presented on a fully taxable-equivalent basis, using a 35% Federal tax rate and statutory interest expense disallowances. See also “Net Interest Income” section of Management’s Discussion.
The Corporation’s income before income taxes for the secondthird quarter of 2009 decreased $22.1$9.6 million, or 58.7%24.8%, from the same period in 2008. Income before income taxes for the first halfnine months of 2009 decreased $63.1$72.7 million, or 67.7%55.1%, in comparison to the first halfnine months of 2008. The decreasedecreases in income before income taxes for the three and sixnine months ended JuneSeptember 30, 2009 in comparison to the same periods in 2008 were primarily due to the following significant items:
Decreases in income before income taxes:
• Increases in the provision for loan losses of $33.3$18.3 million and $72.1$90.4 million for the three and sixnine months ended JuneSeptember 30, 2009, respectively.
During the first half of 2009, weak economic conditions continued to negatively impact the Corporation’s loan portfolio. The Corporation’s non-performing assets increased from $164.5 million, or 1.02% of total assets, at June 30, 2008 to $292.2 million, or 1.73% of total assets, at June 30, 2009, with significant increases in non-performing construction loans ($66.0 million, or 178.3%), commercial mortgages ($18.7 million, or 47.8%), commercial loans ($18.3 million, or 45.6%) and residential mortgage and home equity loans ($15.2 million, or 69.3%).
Annualized net charge-offs for the second quarter of 2009 were $29.1 million, or 0.97% of average loans, compared to annualized net charge-offs of $9.6 million, or 0.33% of average loans, for the second quarter of 2008. Annualized net charge-offs for the first half of 2009 were $59.2 million, or 0.99% of average loans, compared to annualized net charge-offs for the first half of 2008 of $13.9 million, or 0.24% of average loans.
The increase in the provision for loan losses waswere due to the increases in the levels of non-performing assets and net charge-offs, duringresulting in additional allocations to the allowance for credit losses.
•Increases in Federal Deposit Insurance Corporation (FDIC) insurance expense of $4.1 million and $19.1 million for the three and sixnine months ended JuneSeptember 30, 2009, respectively.The increases in FDIC insurance expense were primarily due to the increase in assessment rates in 2009 and a $7.7 million special assessment in the second quarter of 2009.

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• Decrease in other income of $13.9 million due to the pre-tax gain on the sale of the Corporation’s credit card portfolio in the second quarter of 2008.
During the second quarter of 2008, the Corporation sold its approximately $87 million credit card portfolio to U.S. Bank National Association ND, d/b/a Elan Financial Services, (Elan), and recorded a $13.9 million pre-tax gain on the transaction.
• IncreasesDecreases in Federal Deposit Insurance Corporation (FDIC) insurance expensenet interest income of $11.5$1.2 million and $15.0$6.9 million for the three and sixnine months ended JuneSeptember 30, 2009, respectively.The decreases in net interest income were due to declines in net interest margin, partially offset by increases in average interest-earning assets.
 
  During 2008, interest rates declined significantly due to the second quarter of 2009,Federal Reserve Board lowering the FDIC imposed a special assessment of 5 basis points on insured deposits, resulting in a one-time pre-tax charge of $7.7 millionFederal funds rate from 4.25% at January 1, 2008 to 0-0.25% at December 31, 2008. The average prime rate decreased from 5.45% for the Corporation. The remaining increases in FDIC insurance expensenine months ended September 30, 2008 to 3.25% for the nine months ended September 30, 2009. Asset yields declined further than rates paid on interest-

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bearing liabilities. As a result, the Corporation’s net interest margin for the three and sixnine months ended JuneSeptember 30, 2009 were primarily duedecreased in comparison to the significant increasesame periods in assessment rates in 2009. The FDIC may impose additional special assessments in the future.2008.
IncreaseIncreases in income before income taxes:
• DecreasesReductions in other-than-temporary impairment charges on investments of investment securities charges of $21.6$7.9 million and $22.2$30.1 million for the three and sixnine months ended JuneSeptember 30, 2009, respectively.
The decreases in other-than-temporary impairment charges were related to equity and debt securities issued by financial institutions. During the three and sixnine months ended JuneSeptember 30, 2008,2009, the Corporation recorded pre-tax charges of $24.7 million and $28.2 million, respectively, for the other-than-temporary impairment ofcharges for financial institutions stocks of financial institutions, recorded within investment securities gains (losses) on the consolidated statements of income.$949,000 and $2.6 million, respectively. In comparison,addition, the Corporation recorded pre-tax charges of $728,000 and $1.7 million, respectively, for the other-than-temporary impairment of stocks ofcharges for pooled trust preferred securities issued by financial institutions of $1.8 million and $6.5 million, respectively. In comparison, during the three and sixnine months ended JuneSeptember 30, 2009. These charges were due to the severity and duration of the declines in fair values of the stocks written down. As of June 30, 2009 the Corporation’s portfolio of financial institutions stocks had a cost basis of $37.8 million and a fair value of $32.7 million.
Partially offsetting the decrease in2008, other-than-temporary impairment charges for stocks of financial institutions stocks were $2.0 million and $30.3 million, respectively. In addition, other-than-temporary impairment charges for debt securities issued by financial institutions of $2.7 million and $4.6 million recorded during the three and sixnine months ended JuneSeptember 30, 2009, respectively. There2008 were no other-than-temporary impairment charges for debt securities in the first half of 2008.$7.8 million.
See Note C, “Investment Securities” in the Notes to Consolidated Financial Statements for additional details related to the other-than-temporary impairment of securities.
• A reductionReductions in contingent losses associated with the Corporation’s guarantee to purchase illiquid auction rate certificates (ARCs) from customers of $13.1$2.7 million and $7.0$9.6 million for the three and sixnine months ended JuneSeptember 30, 2009, respectively.
Beginning in the second quarter of 2008, the Corporation agreedoffered to purchase illiquid student-loan backed ARCs fromheld by customers of its investment management and trust subsidiary, Fulton Financial Advisors, N.A. (FFA), upon notification from customers that they had liquidity needs or otherwise desired to liquidate their holdings. This resulted in a pre-tax charge of $13.2 million, recorded as a component of operating risk loss on. During the consolidated statements of income, in the second quarter of 2008.
Throughout the remainder of 2008, FFA had generally purchased ARCs from customers at par value with an interest adjustment which was designed to position customers as if they had owned 90-day U.S. Treasury bills instead of ARCs. As FFA’s approach to purchasing customers’ ARCs evolved, however, interest adjustments were not made on certain accounts due to various circumstances and restrictions. To

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provide similar treatment to all of FFA’s customers holding ARCs and in consideration of certain other market developments, in the first quarter of 2009, the Corporation decided thatpurchased all future ARC purchases from customer accounts would be at par value, without an interest adjustment. Furthermore, the Corporation reimbursedremaining ARCs held by customers for the amount of the interest differential on ARCs previously sold to the Corporation. As a result of this interest adjustment, the Corporation recorded a pre-tax charge of $5.7 millionand, therefore, no contingent loss was required in the firstthird quarter of 2009.
In April 2009, FFA notified its remaining customers holding ARCs that it would purchase the ARCs at par value if notice of their acceptance of this offer were received by May 15, 2009. As a result, as of June 30, 2009, there are no longer any ARCs still held by FFA’s customers which the Corporation will be required to purchase. See Note H, “Commitments and Contingencies” in the Notes to Consolidated Financial Statements for additional details.
• IncreaseIncreases in gains on sales of mortgage loans of $4.7 million$512,000 and $11.0$11.5 million for the three and sixnine months ended JuneSeptember 30, 2009, respectively.
During the first half of 2009, low interest rates on residential mortgages resulted in a significant increase in residential mortgage refinances. As a result, the Corporation experienced a significant increase inCorporation’s volumes of residential mortgage loans sold to secondary market investors,sales and a corresponding increase in gains on such sales.sales increased.
Total loans sold in the second quarter of 2009 increased $486.5 million, or 297.4%, from $163.6 million in the second quarter of 2008 to $650.0 million in the second quarter of 2009. For the first half of 2009, total loans sold increased $870.8 million, or 266.2%, from $327.1 million in the first half of 2008 to $1.2 billion in the first half of 2009.
Approximately 80% of loans originated for sale in the three and six months ended June 30, 2009 were from refinances, with the remaining 20% from purchases. In comparison, for the three and six months ended June 30, 2008, refinances represented approximately 50% of loans originated for sale.

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Quarter Ended JuneSeptember 30, 2009 compared to the Quarter Ended JuneSeptember 30, 2008
Net Interest Income
Net interest income decreased $3.9 million, or 3.0%, to $127.9 million in 2009 from $131.9 million in 2008 due to a decrease in net interest margin, offset by an increase in average interest-earning assets.

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The following table provides a comparative average balance sheet and net interest income analysis for the secondthird quarter of 2009 as compared to the same period in 2008. Interest income and yields are presented on an FTE basis, using a 35% Federal tax rate and statutory interest expense disallowances. The discussion following this table is based on these FTE amounts. All dollar amounts are in thousands.
                                                
 Three months ended June 30  Three months ended September 30 
 2009 2008  2009 2008 
 Average Yield/ Average Yield/  Average Yield/ Average Yield/ 
 Balance Interest (1) Rate Balance Interest (1) Rate  Balance Interest (1) Rate Balance Interest (1) Rate 
ASSETS
  
Interest-earning assets:  
Loans, net of unearned income (2) $11,960,669 $163,744  5.49% $11,423,409 $180,433  6.35% $11,913,581 $163,915  5.46% $11,696,841 $181,562  6.18%
Taxable investment securities (3) 2,673,136 29,422 4.40 2,304,391 28,528 4.90  2,722,751 29,376 4.31 2,117,207 26,025 4.92 
Tax-exempt investment securities (3) 462,991 6,425 5.55 509,784 6,911 5.42  436,209 6,101 5.59 509,994 6,944 5.45 
Equity securities (1) (3) 134,702 660 1.96 196,981 1,729 3.52  132,176 632 1.90 168,690 1,614 3.82 
                          
Total investment securities 3,270,829 36,507 4.47 3,011,156 37,168 4.90  3,291,136 36,109 4.39 2,795,891 34,583 4.95 
Loans held for sale 139,354 1,628 4.67 108,478 1,611 5.94  102,367 1,550 6.06 101,319 1,539 6.08 
Other interest-earning assets 20,897 40 0.76 16,325 101 2.50  24,348 51 0.83 19,013 142 2.94 
                          
Total interest-earning assets 15,391,749 201,919  5.26% 14,559,368 219,313  6.05% 15,331,432 201,625  5.23% 14,613,064 217,826  5.94%
Noninterest-earning assets:  
Cash and due from banks 283,399 323,223  301,875 322,550 
Premises and equipment 204,451 196,990  204,416 197,895 
Other assets 938,156 984,000  959,628 933,303 
Less: Allowance for loan losses  (211,166)  (115,936)   (234,446)  (123,865) 
          
Total Assets
 $16,606,589 $15,947,645  $16,562,905 $15,942,947 
          
  
LIABILITIES AND EQUITY
  
Interest-bearing liabilities:  
Demand deposits $1,818,897 $2,002  0.44% $1,708,050 $2,968  0.70% $1,883,087 $2,119  0.45% $1,734,198 $3,166  0.73%
Savings deposits 2,307,089 4,401 0.76 2,207,699 6,600 1.20  2,556,717 5,187 0.80 2,192,747 6,633 1.20 
Time deposits 5,625,841 41,604 2.97 4,361,280 41,562 3.83  5,554,349 36,519 2.61 4,308,903 37,393 3.45 
                          
Total interest-bearing deposits 9,751,827 48,007 1.97 8,277,029 51,130 2.48  9,994,153 43,825 1.74 8,235,848 47,192 2.28 
Short-term borrowings 1,186,541 921 0.31 2,314,845 12,387 2.13  863,281 835 0.38 2,432,109 12,877 2.08 
FHLB advances and long-term debt 1,780,120 21,225 4.78 1,871,649 19,985 4.29  1,695,427 20,400 4.77 1,819,897 19,722 4.32 
                          
Total interest-bearing liabilities 12,718,488 70,153  2.21% 12,463,523 83,502  2.69% 12,552,861 65,060  2.06% 12,487,854 79,791  2.54%
Noninterest-bearing liabilities:  
Demand deposits 1,812,539 1,662,266  1,922,460 1,669,908 
Other 206,901 190,963  198,314 190,012 
          
Total Liabilities
 14,737,928 14,316,752  14,673,635 14,347,774 
Shareholders’ equity 1,868,661 1,630,893  1,889,270 1,595,173 
          
Total Liabilities and Shareholders’ Equity
 $16,606,589 $15,947,645  $16,562,905 $15,942,947 
          
Net interest income/net interest margin (FTE) 131,766  3.43% 135,811  3.75% 136,565  3.55% 138,035  3.77%
          
Tax equivalent adjustment  (3,822)  (3,921)   (3,764)  (4,017) 
          
Net interest income $127,944 $131,890  $132,801 $134,018 
          
 
(1) Includes dividends earned on equity securities.
 
(2) Includes non-performing loans.
 
(3) Balances include amortized historical cost for available for sale securities. The related unrealized holding gains (losses) are included in other assets.

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The following table summarizes the changes in FTE interest income and expense due to changes in average balances (volume) and changes in rates:
                        
 2009 vs. 2008  2009 vs. 2008 
 Increase (decrease) due  Increase (decrease) due 
 to change in  to change in 
 Volume Rate Net  Volume Rate Net 
 (in thousands)  (in thousands) 
Interest income on:  
Loans, net of unearned income $8,339 $(25,028) $(16,689) $3,389 $(21,036) $(17,647)
Taxable investment securities 4,032  (3,138) 894  6,879  (3,528) 3,351 
Tax-exempt investment securities  (640) 154  (486)  (1,024) 181  (843)
Equity securities  (444)  (625)  (1,069)  (295)  (687)  (982)
Loans held for sale 402  (385) 17  18  (7) 11 
Other interest-earning assets 23  (84)  (61) 31  (122)  (91)
              
  
Total interest income
 $11,712 $(29,106) $(17,394) $8,998 $(25,199) $(16,201)
              
  
Interest expense on:  
Demand deposits $184 $(1,150) $(966) $255 $(1,302) $(1,047)
Savings deposits 294  (2,493)  (2,199) 988  (2,434)  (1,446)
Time deposits 10,613  (10,571) 42  9,458  (10,332)  (874)
Short-term borrowings  (4,166)  (7,300)  (11,466)  (5,319)  (6,723)  (12,042)
FHLB advances and long-term debt  (997) 2,237 1,240   (1,373) 2,051 678 
              
  
Total interest expense
 $5,928 $(19,277) $(13,349) $4,009 $(18,740) $(14,731)
              
Interest income decreased $17.4$16.2 million, or 7.9%7.4%, due to a $29.1$25.2 million decrease related toas a result of changes in interest rates. During the secondthird quarter of 2009, the average yield on interest-earning assets decreased 7971 basis points, or 13.1%12.0%, in comparison to the secondthird quarter of 2008. ThisThe decrease in interest income due to changes in rates was partially offset by an $11.7a $9.0 million increase in interest income realized from growth in average interest-earning assets of $832.4$718.4 million, or 5.7%4.9%.
The increase in average interest-earning assets was due, in part, to loan growth, which is summarized, by type, in the following table:
                 
  Three months ended    
  June 30  Increase (decrease) 
  2009  2008  $  % 
  (dollars in thousands) 
                 
Real estate — commercial mortgage $4,091,498  $3,683,260  $408,238   11.1%
Commercial — industrial, financial and agricultural  3,656,294   3,502,082   154,212   4.4 
Real estate — home equity  1,668,562   1,568,012   100,550   6.4 
Real estate — construction  1,152,195   1,317,780   (165,585)  (12.6)
Real estate — residential mortgage  935,983   890,394   45,589   5.1 
Consumer  371,610   376,698   (5,088)  (1.4)
Leasing and other  84,527   85,183   (656)  (0.8)
             
Total
 $11,960,669  $11,423,409  $537,260   4.7%
             
                 
  Three months ended    
  September 30  Increase (decrease) 
  2009  2008  $  % 
  (dollars in thousands) 
Real estate – commercial mortgage $4,158,802  $3,806,311  $352,491   9.3%
Commercial – industrial, financial and agricultural  3,667,854   3,545,797   122,057   3.4 
Real estate – home equity  1,651,400   1,619,687   31,713   2.0 
Real estate – construction  1,050,359   1,324,085   (273,726)  (20.7)
Real estate – residential mortgage  933,943   947,510   (13,567)  (1.4)
Consumer  371,676   369,052   2,624   0.7 
Leasing and other  79,547   84,399   (4,852)  (5.7)
             
Total
 $11,913,581  $11,696,841  $216,740   1.9%
             
The growth in average loans was primarily in commercial mortgage loans,mortgages, commercial loans and home equity loans. The increases in commercial mortgages and commercial loans were primarily in floating and adjustable rate products while theand largely resulted from market share opportunities. The increase in home equity loans was primarily due to the introduction of a new blended fixed/floating rate product in late 2007, which continued toan increase in popularity throughout the second half of 2008.consumer demand.

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Geographically, the increase in commercial mortgage loans was mainly attributable to increases within the Corporation’s Pennsylvania ($220.7173.0 million), Maryland ($92.0 million) and New Jersey ($85.275.4 million) and Maryland ($83.1 million) markets,banks, while the increase in commercial loans was due to increases in the Pennsylvania ($127.2129.3 million), and New Jersey ($26.323.8 million) and Virginiabanks, offset by a decrease in Maryland ($25.835.4 million) markets. The increase in home equity loans was spread evenly throughout the Corporation’s markets..
Offsetting these increases was a decrease in construction loans, largely due to a decrease in floating rate commercial construction loans. The decrease in construction loans was due to a slowdown in residential housing construction and the Corporation’s efforts to reduce its lendingcredit exposure in this sector, particularlysector. Geographically, the decrease was attributable to decreases in itsthe Corporation’s Maryland ($129.2 million), Pennsylvania ($53.4 million), Virginia ($45.2 million) and Virginia markets.New Jersey ($38.9 million) banks.
The average yield on loans decreased 8672 basis points, or 13.5%11.7%, from 6.35%6.18% in 2008 to 5.49%5.46% in 2009. The decrease in yield reflected a lower interest rate environment, as illustrated by a lower average prime rate during the secondthird quarter of 2009 (3.25%) as compared to the same period in 2008 (5.09%(5.00%). The decrease in average yields was not as pronounced as the decrease in the average prime rate as fixed and adjustable rate loans, do not reprice whenunlike floating rate loans, have a lagged repricing effect during periods of short-term rates decline.rate declines.
Average investments increased $259.7$495.2 million, or 8.6%17.7%, due primarilyin large part, to Corporation’s purchaseincreases in collateralized mortgage obligations and ARCs. The increase in ARCs was related to purchases of ARCsthose securities from customers, which increasedincreasing total average investments by $232.7$158.6 million. The increase in collateralized mortgage obligations was due to the allocation of proceeds from significant deposit growth and, to a lesser extent, to the use of funds received from the issuance of preferred stock to the U.S. Treasury Department (UST) in December 2008.
The average yield on investments decreased 4356 basis points, or 8.8%11.3%, from 4.90%4.95% in 2008 to 4.47%4.39% in 2009, as reinvestment of cash flows wasand incremental purchases were at yields that were lower than the overall portfolio yield. The $232.7 million increase in the average balances of ARCs resulted in a decrease of 10 basis points in average yield. In addition, investment yields were adversely impacted by the reduction, or in some cases the suspension of, dividends on equities, particularly stocks of financial institutions stocks and Federal Home Loan Bank (FHLB) stock holdings.
Average loans held for sale increased $30.9 million, or 28.5%, as a result of a $533.8 million, or 181.0%, increase in the volume of loans originated for sale in the second quarter of 2009 as compared to the same period in 2008. The increase was primarily due to a decrease in interest rates, which resulted in an increase in refinances of mortgage loans.stocks.
The $17.4$16.2 million decrease in interest income was partially offset by a decrease in interest expense of $13.3$14.7 million, or 16.0%18.5%, to $70.2$65.1 million in the secondthird quarter of 2009 from $83.5$79.8 million in the same period in 2008. Interest expense decreased $19.3$18.7 million as a result of a 48 basis point, or 17.8%18.9%, decrease in the average cost of interest-bearing liabilities. TheThis decrease was partially offset by a $5.9$4.0 million increase in interest expense caused byresulting from growth in average interest-bearing liabilities of $255.0$65.0 million, or 2.0%0.5%.
The following table summarizes the changesincreases in average deposits, by type:
                
 Three months ended                   
 June 30 Increase  Three months ended   
 2009 2008 $ %  September 30 Increase 
 (dollars in thousands)  2009 2008 $ % 
  (dollars in thousands) 
Noninterest-bearing demand $1,812,539 $1,662,266 $150,273  9.0% $1,922,460 $1,669,908 $252,552  15.1%
Interest-bearing demand 1,818,897 1,708,050 110,847 6.5  1,883,087 1,734,198 148,889 8.6 
Savings 2,307,089 2,207,699 99,390 4.5  2,556,717 2,192,747 363,970 16.6 
                  
Total, excluding time deposits
 5,938,525 5,578,015 360,510 6.5  6,362,264 5,596,853 765,411 13.7 
Time deposits 5,625,841 4,361,280 1,264,561 29.0  5,554,349 4,308,903 1,245,446 28.9 
                  
Total
 $11,564,366 $9,939,295 $1,625,071  16.3% $11,916,613 $9,905,756 $2,010,857  20.3%
                  
The Corporation experienced an increase in noninterest-bearing and interest-bearing demand and savings accounts of $360.5$765.4 million, or 6.5%13.7%. The increase in noninterest-bearing demand accounts was primarily

32

in business accounts, while the increase in interest-bearing demand and savings accounts was primarily in business, personal and governmental accounts. The growth in business accounts due, in part, to businesses being

31

required to keep higher balances on hand to offset service fees, as well as a movement from the Corporation’s cash management products due to the current low rates.
The increase in time deposits was due, to a $1.1 billion increase in customer certificates of deposit and a $99.3 million increase in brokered certificates of deposit. The increase in customer certificates of deposit was due, in large part, to theactive promotion of a variable rate product during late 2008 and throughout the first quarter of 2009. In the short-term, this certificate of deposit growth had a negative impact on net interest income and net interest margin as alternative funding sources, such as short-term borrowings, currently carry a lower cost than time deposits. However, this shift in funding sources iswas consistent with the Corporation’s focus on building customer relationships, and strengthenedwhich has served to strengthen the Corporation’s overall liquidity profile.
The average cost of interest-bearing deposits decreased 54 basis points, or 23.7%, from 2.28% in 2008 to 1.74% in 2009 due to a decrease in cost of certificates of deposit. The average cost of certificates of deposit decreased 84 basis points, or 24.3%, due to the maturity and renewal of certificates of deposits at lower rates in 2009.
As average deposits increased, short-term and long-term borrowings decreased. Thedecreased, as summarized in the following table summarizes the changes in average borrowings, by type:table:
                
 Three months ended                   
 June 30 Increase (decrease)  Three months ended   
 2009 2008 $ %  September 30 Increase (decrease) 
 (dollars in thousands)  2009 2008 $ % 
  (dollars in thousands) 
Short-term borrowings:  
Customer short-term promissory notes $297,743 $468,802 $(171,059)  (36.5%) $259,534 $486,179 $(226,645)  (46.6%)
Customer repurchase agreements 256,306 223,092 33,214 14.9  254,789 213,827 40,962 19.2 
                  
Total short-term customer funding
 554,049 691,894  (137,845)  (19.9) 514,323 700,006  (185,683)  (26.5)
Federal funds purchased 580,020 1,303,590  (723,570)  (55.5) 348,444 1,399,130  (1,050,686)  (75.1)
Federal Reserve Bank borrowings 48,352 — 48,352 N/A 
FHLB overnight repurchase agreements — 300,549  (300,549)  (100.0) — 290,761  (290,761)  (100.0)
Other short-term borrowings 4,120 18,812  (14,692)  (78.1) 514 42,212  (41,698)  (98.8)
                  
Total other short-term borrowings
 632,492 1,622,951  (990,459)  (61.0) 348,958 1,732,103  (1,383,145)  (79.9)
                  
Total short-term borrowings
 1,186,541 2,314,845  (1,128,304)  (48.7) 863,281 2,432,109  (1,568,828)  (64.5)
                  
Long-term debt:  
FHLB advances 1,397,010 1,489,016  (92,006)  (6.2) 1,312,304 1,436,741  (124,437)  (8.7)
Other long-term debt 383,110 382,633 477 0.1  383,123 383,156  (33) — 
                  
Total long-term debt
 1,780,120 1,871,649  (91,529)  (4.9) 1,695,427 1,819,897  (124,470)  (6.8)
                  
Total
 $2,966,661 $4,186,494 $(1,219,833)  (29.1%) $2,558,708 $4,252,006 $(1,693,298)  (39.8%)
                  
N/A — Not applicable
The decrease in short-term borrowings was mainly due tothe result of a $723.6 million$1.1 billion decrease in Federal funds purchased and a $300.5$290.8 million decrease in FHLB overnight repurchase agreements andagreements. Also contributing to the decrease was a $137.8$185.7 million decrease in short-term customer funding. The decrease in other short-term borrowings wasfunding, due to customers transferring funds from the cash management program to deposits due to the increase in customer funding in the form of demand and saving accounts, which reduced funding needs. The decrease in short-term customer funding resulted from the lower yields available on these products.low interest rate environment. The decrease in long-term debt was due to maturities of FHLB advances.

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Provision for Loan Losses and Allowance for Credit Losses
The following table presents the activity in the Corporation’s allowance for credit losses:
        
 Three months ended         
 June 30  Three months ended 
 2009 2008  September 30 
 (dollars in thousands)  2009 2008 
  (dollars in thousands) 
Loans, net of unearned income outstanding at end of period $11,866,818 $11,577,495  $11,968,246 $11,823,529 
          
Daily average balance of loans, net of unearned income $11,960,669 $11,423,409  $11,913,581 $11,696,841 
          
  
Balance of allowance for credit losses at beginning of period
 $200,063 $119,069  $220,954 $126,223 
Loans charged off:  
Real estate — construction 11,294 — 
Commercial — industrial, agricultural and financial 6,274 4,752 
Real estate — commercial mortgage 5,961 386 
Real estate — residential mortgage and home equity 1,830 1,719 
Real estate – construction 9,356 2,733 
Commercial – industrial, agricultural and financial 7,787 4,684 
Real estate – commercial mortgage 3,554 2,405 
Real estate – residential mortgage and home equity 1,065 719 
Consumer 3,064 1,366  2,527 991 
Leasing and other 2,099 1,973  1,637 1,166 
          
Total loans charged off
 30,522 10,196  25,926 12,698 
          
Recoveries of loans previously charged off:  
Real estate — construction 214 — 
Commercial — industrial, agricultural and financial 306 — 
Real estate — commercial mortgage 25 65 
Real estate — residential mortgage and home equity 147 2 
Real estate – construction 26 17 
Commercial – industrial, agricultural and financial 444 749 
Real estate – commercial mortgage 493 88 
Real estate – residential mortgage and home equity 1 133 
Consumer 511 300  354 304 
Leasing and other 210 277  375 313 
          
Total recoveries
 1,413 644  1,693 1,604 
          
Net loans charged off 29,109 9,552  24,233 11,094 
Provision for loan losses 50,000 16,706  45,000 26,700 
          
Balance of allowance for credit losses at end of period
 $220,954 $126,223  $241,721 $141,829 
          
  
Components of Allowance for Credit Losses:
  
Allowance for loan losses $214,170 $122,340  $234,511 $136,988 
Reserve for unfunded lending commitments 6,784 3,883  7,210 4,841 
          
Allowance for credit losses $220,954 $126,223  $241,721 $141,829 
          
  
Selected Ratios:
  
Net charge-offs to average loans (annualized)  0.97%  0.33%  0.81%  0.38%
Allowance for credit losses to loans outstanding  1.86%  1.09%  2.02%  1.20%
Allowance for loan losses to loans outstanding  1.80%  1.06%  1.96%  1.16%

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The following table summarizes the Corporation’s non-performing assets as of the indicated dates:
            
 June 30 June 30 December 31             
 2009 2008 2008  September 30 September 30 December 31 
 (dollars in thousands)  2009 2008 2008 
  (dollars in thousands) 
Non-accrual loans $228,132 $108,699 $161,962  $228,961 $143,310 $161,962 
Loans 90 days past due and accruing 39,135 35,656 35,177  52,797 21,354 35,177 
              
Total non-performing loans
 267,267 144,355 197,139  281,758 164,664 197,139 
Other real estate owned (OREO) 24,916 20,156 21,855  19,151 21,706 21,855 
              
Total non-performing assets
 $292,183 $164,511 $218,994  $300,909 $186,370 $218,994 
              
 
Non-accrual loans to total loans  1.92%  0.94%  1.34%  1.91%  1.21%  1.34%
Non-performing assets to total assets  1.73%  1.02%  1.35%  1.82%  1.15%  1.35%
Allowance for credit losses to non-performing loans  82.67%  87.44%  91.38%  85.79%  86.13%  91.38%
Non-performing assets to tangible common shareholders’ equity and allowance for credit losses  24.99%  15.40%  19.68%  24.24%  17.00%  19.68%
Excluded from preceding table were $33.1 million of loans whose terms were modified under a troubled debt restructuring and were current under their modified terms at September 30, 2009. These troubled debt restructurings were predominantly adequately collateralized residential mortgage loans.
The following table summarizes loan delinquency rates, by type, as of the indicated dates:
                         
  September 30, 2009 December 31, 2008
  30-60 > 90     30-60 > 90  
  Days Days Total Days Days Total
Real estate – construction  1.25%  10.12%  11.37%  2.06%  6.15%  8.21%
Commercial – industrial, agricultural and financial  0.61   1.65   2.26   0.56   1.08   1.64 
Real estate – commercial mortgage  0.53   1.31   1.84   0.74   1.03   1.77 
Real estate – residential mortgage  4.14   5.14   9.28   4.14   2.97   7.11 
Consumer, home equity, leasing and other  1.14   0.60   1.74   0.82   0.41   1.23 
                         
Total
  1.00%  2.34%  3.34%  1.11%  1.64%  2.75%
The following table summarizes the Corporation’s non-performing loans, by type, as of the indicated dates:
             
  June 30  June 30  December 31 
  2009  2008  2008 
  (in thousands) 
             
Real estate — construction $102,977  $37,003  $80,083 
Commercial — industrial, agricultural and financial  58,433   40,127   40,294 
Real estate — commercial mortgage  57,786   39,099   41,745 
Real estate — residential mortgage and home equity  37,231   21,988   26,304 
Consumer  9,764   5,748   8,374 
Leasing  1,076   390   339 
          
Total non-performing loans
 $267,267  $144,355  $197,139 
          
             
  September 30  September 30  December 31 
  2009  2008  2008 
  (in thousands) 
Real estate – construction $104,789  $57,436  $80,083 
Commercial – industrial, agricultural and financial  63,217   41,489   40,294 
Real estate – commercial mortgage  54,930   32,642   41,745 
Real estate – residential mortgage and home equity  46,192   26,274   26,304 
Consumer  12,292   6,558   8,374 
Leasing  338   265   339 
          
Total non-performing loans
 $281,758  $164,664  $197,139 
          
Non-performing assets increased to $292.2$300.9 million, or 1.73%1.82% of total assets, at JuneSeptember 30, 2009, from $164.5$186.4 million, or 1.02%1.15% of total assets, at JuneSeptember 30, 2008. The increase in non-performing assets in comparison to JuneSeptember 30, 20092008 was primarily due to a $66.0$47.4 million, or 178.3%82.4%, increase in non-performing construction loans, an $18.7a $22.3 million, or 47.8%68.3%, increase in non-performing commercial mortgage loans, an $18.3

34

mortgages, a $21.7 million, or 45.6%52.4%, increase in non-performing commercial loans and a $15.2$19.9 million, or 69.3%75.8%, increase in non-performing residential mortgage and home equity loans.
The $66.0$47.4 million increase in non-performing construction loans was related to the slowdown of residential housing activity and deteriorating real estate values, particularly within the Corporation’s Maryland and Virginia markets, which accounted for $69.1$77.2 million, or 67.1%73.7%, of the $103.0$104.8 million of non-performing construction loans at JuneSeptember 30, 2009. Remaining non-performing construction loans at JuneSeptember 30, 2009 of $23.6$18.9 million and $10.3$8.6 million were originated withinin the Corporation’s New Jersey and Pennsylvania markets, respectively.
The $18.7$22.3 million increase in non-performing commercial mortgage loansmortgages was due primarily to an increase in non-performing loans in the Corporation’s New Jersey whose businesses are related to the residential housing industry.market. The $18.3$21.7 million increase in non-performing commercial loans was caused by both poor economic conditions and borrowers whose businesses are tied toan increase in non-performing loans in the to the residential construction sector.Corporation’s Pennsylvania market. The $15.2$19.9 million increase in non-performing residential housing and home equity loans was spread across most of the Corporation’s geographical markets.
The $24.9$19.2 million balance of OREO as of JuneSeptember 30, 2009 was primarily due toincluded $11.9 million of foreclosures on repurchased residential mortgage loans which contributed $18.2and $4.4 million to the balance of OREO.foreclosed commercial loan properties.

35

Net charge-offs increased $19.6$13.1 million, or 204.7%118.4%, to $29.1$24.2 million for the secondthird quarter of 2009 compared to $9.6$11.1 million for the secondthird quarter of 2008. Annualized net charge-offs to average loans increased 6443 basis points, or 193.9%113.2%, to 9781 basis points for the secondthird quarter of 2009. Of the $29.1$24.2 million of net charge-offs recorded for the secondthird quarter of 2009, 34%35.1% was for borrowersbanks located in New Jersey, 29%24.4% in Virginia, 20.8% in Pennsylvania, 16.7% in Maryland 23% in Pennsylvania, 13% in Virginia and 1%3.0% in Delaware. During the secondthird quarter of 2009, there were sevenfour individual charge-offs which exceeded $1.0 million, with an aggregate amount of $13.8$5.9 million, of which $8.6$4.7 million were loans to customers whose businessbusinesses were negatively impacted by the downturn in residential real estate.
The provision for loan losses totaled $50.0$45.0 million for the secondthird quarter of 2009, an increase of $33.3$18.3 million, or 199.3%68.5%, over the same period in 2008. This significant increase in the provision for loan losses was primarily related to the increase in non-performing loans and net charge-offs.charge-offs, and the resulting need for additional allocations to the allowance for credit losses.
The following table presents ending balances of loans outstanding, net of unearned income:
             
  June 30  June 30  December 31 
  2009  2008  2008 
  (in thousands) 
             
Real-estate — commercial mortgage $4,121,208  $3,771,209  $4,016,700 
Commercial — industrial, agricultural and financial  3,614,144   3,518,483   3,635,544 
Real-estate — home equity  1,653,461   1,593,405   1,695,398 
Real-estate — construction  1,096,047   1,321,980   1,269,330 
Real-estate — residential mortgage  925,270   924,789   972,797 
Consumer  371,492   362,925   365,692 
Leasing and other  85,196   84,704   87,159 
          
Loans, net of unearned income
 $11,866,818  $11,577,495  $12,042,620 
          
             
  September 30  September 30  December 31 
  2009  2008  2008 
  (in thousands) 
Real-estate – commercial mortgage $4,186,654  $3,873,802  $4,016,700 
Commercial – industrial, agricultural and financial  3,719,966   3,554,615   3,635,544 
Real-estate – home equity  1,651,711   1,647,063   1,695,398 
Real-estate – construction  1,029,079   1,308,008   1,269,330 
Real-estate – residential mortgage  930,207   972,930   972,797 
Consumer  375,685   388,032   365,692 
Leasing and other  74,944   79,079   87,159 
          
Loans, net of unearned income
 $11,968,246  $11,823,529  $12,042,620 
          
Approximately $5.2 billion, or 44.0%43.6%, of the Corporation’s loan portfolio was in commercial mortgage and construction loans at JuneSeptember 30, 2009. While the Corporation does not have a concentration of credit risk with any single borrower or industry, theThe performance of real estate markets and general economic conditions have adversely impacted the performance of these loans, most significantly construction loans to residential housing developers inby the Corporation’s Maryland and Virginia markets.banks. Construction loans outstanding for the Corporation’s Virginia and Maryland banks at September 30, 2009 were $266.2 million and $260.4 million, respectively.

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Commercial loans comprise 30.5%31.1% of the total loan portfolio. The credit quality of these loans has been impacted by generally poor economic conditions as evidenced by an increasing level of non-performing loans in this portfolio since December 31, 2008. In particular, the credit quality of loans to commercial borrowers whose businesses are related to the residential housing industry continued to deteriorate during the secondthird quarter of 2009.
Approximately $2.6 billion, or 21.7%21.6%, of the Corporation’s loan portfolio was in residential mortgage and home equity loans at JuneSeptember 30, 2009. Decreases in residential real estate values in some of the Corporation’s geographic areas, most notably in portions of Maryland, New Jersey and Virginia, and generally poor economic conditions have resulted in increases in non-performing loans and negatively impacted the overall credit quality of the portfolio.
Management believes that the allowance for credit losses balance of $221.0$241.7 million at JuneSeptember 30, 2009 is sufficient to cover losses inherent in both the loan portfolio and the unfunded lending commitments onas of that date and is appropriate based on applicable accounting standards.

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Other Income
The following table presents the components of other income:
                
 Three months ended                   
 June 30 Increase (decrease)  Three months ended   
 2009 2008 $ %  September 30 Increase (decrease) 
 (dollars in thousands)  2009 2008 $ % 
  (dollars in thousands) 
Service charges on deposit accounts $15,061 $15,319 $(258)  (1.7%) $15,321 $16,177 $(856)  (5.3%)
Other service charges and fees 9,595 9,131 464 5.1  10,003 9,598 405 4.2 
Investment management and trust services 7,876 8,389  (513)  (6.1) 8,191 8,045 146 1.8 
Gains on sales of mortgage loans 7,395 2,670 4,725 177.0  2,778 2,266 512 22.6 
Credit card income 1,364 1,086 278 25.6  1,520 1,356 164 12.1 
Gains on sales of OREO 883 81 802 990.1  521 164 357 217.7 
Other 3,126 3,211  (85)  (2.6) 2,891 2,710 181 6.7 
                  
Total, excluding gain on sale of credit card portfolio and investment securities gains (losses)
 45,300 39,887 5,413 13.6 
Gain on sale of credit card portfolio — 13,910  (13,910)  (100.0)
Investment securities gains (losses) 77  (21,647) 21,724 N/M 
Total, excluding investment securities losses
 41,225 40,316 909 2.3 
Investment securities losses  (45)  (9,501) 9,456 99.5 
                  
Total
 $45,377 $32,150 $13,227  41.1% $41,180 $30,815 $10,365  33.6%
                  
N/M —Not meaningful
The $513,000,$856,000, or 6.1%5.3%, decrease in investmentservice charges on deposit accounts was due primarily to a $722,000, or 21.4%, decrease in cash management fees and trust services incomea $122,000, or 1.3%, decrease in overdraft fees. The decrease in cash management fees was due to a $911,000,customers transferring funds from the cash management program to deposits due to the low interest rate environment.
The $405,000, or 14.3%, decrease in trust revenue, as a result of decreases in the values of assets under management. This decrease was offset by a $398,000, or 19.5%4.2%, increase in brokerage revenue. Theother service charges was primarily due to a $347,000, or 13.8%, increase in brokerage revenue wasdebit card fees due to the Corporation’s transition of its brokerage business from a transaction-based model to a relationship model during 2008.transaction volume increases.
Gains on sales of mortgage loans increased $4.7 million,$512,000, or 177.0%22.6%, due to an increase in the volume of loans sold. Total loans sold in the secondthird quarter of 2009 were $650.0$579.6 million, compared to $163.6$172.7 million in the secondthird quarter of 2008. The $486.5$406.8 million, or 297.4%235.5%, increase in the volume of loans sold was mainly due to an increase in refinance activity, as rates remained low.relatively low in comparison to the prior year. For the three months ended September 30, 2009, 58% of loans originated for sale represented refinances, compared to 31% for the same period in 2008.
Investment securities gainslosses of $77,000$45,000 for the secondthird quarter of 2009 included $3.5$2.8 million of net gains on the salesales of securities, primarily mortgage-backed securities, offset by $3.4$2.8 million of other-than-temporary impairment charges. The

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Corporation recorded $2.7$1.8 million of other-than-temporary impairment charges for pooled trust preferred securities issued by financial institutions and $728,000$949,000 of other-than-temporary impairment charges related to financial institutioninstitutions stocks. The $21.6$9.5 million of investment securities losses for the secondthird quarter of 2008 was due primarily to $24.7$7.8 million of other-than-temporary impairment charges for debt securities issued by financial institutioninstitutions, $2.0 million of other-than-temporary impairment charges related to financial institutions stocks and $816,000 of other-than-temporary impairment charges for other equity securities, offset by $3.4$1.2 million of net gains on the salesales of investment securities. See Note C, “Investment Securities” in the Notes to Consolidated Financial Statements for additional details.

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Other Expenses
The following table presents the components of other expenses:
                
 Three months ended                   
 June 30 Increase (decrease)  Three months ended   
 2009 2008 $ %  September 30 Increase (decrease) 
 (dollars in thousands)  2009 2008 $ % 
  (dollars in thousands) 
Salaries and employee benefits $55,799 $54,281 $1,518  2.8% $54,086 $55,310 $(1,224)  (2.2%)
Net occupancy expense 10,165 10,237  (72)  (0.7)
FDIC insurance expense 12,206 675 11,531 1,708.3  5,244 1,147 4,097 357.2 
Net occupancy expense 10,240 10,238 2 — 
Equipment expense 3,300 3,398  (98)  (2.9) 3,281 3,061 220 7.2 
Data processing 2,907 3,116  (209)  (6.7) 3,121 3,242  (121)  (3.7)
Professional fees 2,386 1,575 811 51.5 
Telecommunications 2,181 1,991 190 9.5  2,139 2,001 138 6.9 
Professional fees 2,088 1,795 293 16.3 
OREO expense 1,867 1,023 844 82.5 
Marketing 1,724 3,519  (1,795)  (51.0) 1,982 3,097  (1,115)  (36.0)
Supplies 1,500 1,527  (27)  (1.8) 1,453 1,418 35 2.5 
Intangible amortization 1,434 1,799  (365)  (20.3) 1,429 1,730  (301)  (17.4)
Postage 1,204 1,454  (250)  (17.2) 1,365 1,307 58 4.4 
OREO expense 1,095 1,471  (376)  (25.6)
Operating risk loss 144 14,385  (14,241)  (99.0) 338 3,480  (3,142)  (90.3)
Other 11,212 10,535 677 6.4  11,726 10,279 1,447 14.1 
                  
Total
 $107,806 $109,736 $(1,930)  (1.8%) $99,810 $99,355 $455  0.5%
                  
Salaries and employee benefits increased $1.5decreased $1.2 million, or 2.8%2.2%, with salaries increasing $646,000,decreasing $1.6 million, or 1.4%3.5%, and employee benefits increasing $872,000,$363,000, or 9.2%3.8%. The increasedecrease in salaries was primarily due to normal merit increases in the second half of 2008, offset by a $377,000$1.0 million decrease in employee bonuses. Averagebonus expense, in addition to a decrease in average full-time equivalent employees decreased from 3,6603,670 in the secondthird quarter of 2008 to 3,6303,580 in the secondthird quarter of 2009. The decrease in average full-time equivalent employees was primarily due to the consolidation of Columbia Bank’s back office functions in the third quarter of 2009.
The $872,000$363,000 increase in employee benefits was primarily due to a $540,000 increase in healthcare costs as claims increased and a $461,000$460,000 increase in defined benefit pension plan expense due to the amortization of prior year losseslower returns on plan assets.assets and a $438,000 increase in healthcare costs as claims costs increased, offset by a $287,000 reduction in postretirement plan expense due to a reduction in benefits covered and a $180,000 decrease in severance costs.
The $11.5$4.1 million increase in FDIC insurance expense was due to a $7.7 million special assessment recorded in the second quarter of 2009, in addition to an increase in assessment rates, which waswere effective January 1, 2009, as well as the expiration of one-time credits, the remaining balance of which were utilized during the first quarter of 2009. In the second quarter of 2009, gross FDIC insurance premiums, excluding the special assessment, were $4.5 million. In the secondthird quarter of 2008, gross FDIC insurance premiums were $1.4$1.8 million and were reduced by $791,000$664,000 of one-time credits.
The $293,000$811,000 increase in professional fees was primarily due to increased legal costs associated with collection and workout efforts for non-performing loans. The $1.8$1.1 million decrease in marketing expenses was due primarily to an effort to reduce discretionary spending and due to the timing of promotional campaigns. The $365,000$301,000 decrease in intangible amortization was mainly due to a decrease in core deposit intangible asset

37

amortization. The $844,000 increase$376,000 decrease in OREO expense was due to thea $618,000 decrease in loss provisions, offset by a $242,000 increase in the balance of OREO and due to decreases in real estate values, requiring additional loss provisions.carrying costs.
The $14.2$3.1 million decrease in operating risk loss was due to a $13.1$2.7 million reduction in charges associated with the financial guarantee liability related to the Corporation’s commitment to purchase ARCs from customer accounts and a $1.1 million$500,000 decrease in losses on the actual and potential repurchase of residential mortgage and home equity loans. See Note H, “Commitments and Contingencies” in the Notes to Consolidated Financial Statements for additional details.

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The $1.4 million increase in other expenses was due to $1.1 million in costs associated with the consolidation of Columbia Bank’s back office functions in the third quarter of 2009 and an increase in loan collection and workout costs.

Income Taxes
Income tax expense for the secondthird quarter of 2009 was $2.4$5.8 million, a $9.5$3.9 million, or 79.8%40.0%, decrease from $11.9$9.7 million in 2008. The decrease was primarily due to a decrease in income before income taxes.
The Corporation’s effective tax rate was 15.5%20.0% in 2009, as compared to 31.7%25.0% in 2008. The effective rate is generally lower than the Federal statutory rate of 35% due to investments in tax-free municipal securities and Federal tax credits earned from investments in low and moderate-income housing partnerships. The effective rate for the secondthird quarter of 2009 is lower than the same period in 2008 due to non-taxable income and tax credits having a larger impact on the effective rate due to the $22.1$9.6 million decrease in income before income taxes.

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SixNine Months Ended JuneSeptember 30, 2009 Compared to the SixNine Months Ended JuneSeptember 30, 2008
Net Interest Income
Net interest income decreased $5.7 million, or 2.2%, to $252.1 million in 2009 from $257.8 million in 2008 due to a decrease in net interest margin, offset by an increase in average interest-earning assets.

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The following table provides a comparative average balance sheet and net interest income analysis for the first sixnine months of 2009 as compared to the same period in 2008. Interest income and yields are presented on an FTE basis, using a 35% Federal tax rate and statutory interest expense disallowances. The discussion following this table is based on these FTE amounts. All dollar amounts are in thousands.
                                                
 Six months ended June 30  Nine months ended September 30 
 2009 2008  2009 2008 
 Average Yield/ Average Yield/  Average Yield/ Average Yield/ 
 Balance Interest (1) Rate Balance Interest (1) Rate  Balance Interest (1) Rate Balance Interest (1) Rate 
ASSETS
  
Interest-earning assets:  
Loans, net of unearned income (2) $12,000,755 $327,497  5.50% $11,359,470 $372,875  6.60% $11,971,378 $491,412  5.49% $11,472,748 $554,437  6.45%
Taxable investment securities (3) 2,444,159 56,272 4.61 2,355,791 58,089 4.91  2,538,045 85,648 4.50 2,275,681 84,114 4.93 
Tax-exempt investment securities (3) 483,016 13,312 5.51 512,820 13,887 5.42  467,242 19,413 5.54 511,871 20,831 5.43 
Equity securities (1) (3) 135,998 1,434 2.12 204,993 4,109 4.02  134,710 2,066 2.05 192,803 5,723 3.96 
                          
Total investment securities 3,063,173 71,018 4.64 3,073,604 76,085 4.93  3,139,997 107,127 4.55 2,980,355 110,668 4.95 
Loans held for sale 122,007 2,889 4.74 103,577 3,188 6.16  115,388 4,439 5.13 102,819 4,726 6.13 
Other interest-earning assets 18,927 89 0.95 21,555 319 2.96  20,754 140 0.90 20,701 462 2.96 
                          
Total interest-earning assets 15,204,862 401,493  5.32% 14,558,206 452,467  6.24% 15,247,517 603,118  5.29% 14,576,623 670,293  6.14%
Noninterest-earning assets:  
Cash and due from banks 300,568 316,971  301,009 318,844 
Premises and equipment 203,667 196,512  203,919 196,977 
Other assets 931,494 955,629  940,974 948,134 
Less: Allowance for loan losses  (199,241)  (112,925)   (211,105)  (116,598) 
          
Total Assets
 $16,441,350 $15,914,393  $16,482,314 $15,923,980 
          
  
LIABILITIES AND EQUITY
  
Interest-bearing liabilities:  
Demand deposits $1,786,629 $3,777  0.43% $1,696,835 $7,372  0.87% $1,819,135 $5,896  0.43% $1,709,380 $10,538  0.82%
Savings deposits 2,183,243 8,754 0.81 2,172,702 15,763 1.46  2,309,103 13,941 0.81 2,179,432 22,396 1.37 
Time deposits 5,529,794 85,371 3.11 4,440,641 91,480 4.14  5,538,068 121,890 2.94 4,396,409 128,873 3.92 
                          
Total interest-bearing deposits 9,499,666 97,902 2.08 8,310,178 114,615 2.77  9,666,306 141,727 1.96 8,285,221 161,807 2.61 
Short-term borrowings 1,350,889 2,358 0.35 2,331,153 31,216 2.66  1,186,568 3,193 0.36 2,365,052 44,093 2.46 
FHLB advances and long-term debt 1,783,787 41,344 4.67 1,835,079 40,992 4.49  1,754,010 61,744 4.71 1,829,981 60,714 4.43 
                          
Total interest-bearing liabilities 12,634,342 141,604  2.26% 12,476,410 186,823  3.00% 12,606,884 206,664  2.19% 12,480,254 266,614  2.85%
Noninterest-bearing liabilities:  
Demand deposits 1,735,525 1,639,275  1,798,522 1,649,560 
Other 204,190 190,730  202,209 190,487 
          
Total Liabilities
 14,574,057 14,306,415  14,607,615 14,320,301 
Shareholders’ equity 1,867,293 1,607,978  1,874,699 1,603,679 
          
Total Liabilities and Shareholders’ Equity
 $16,441,350 $15,914,393  $16,482,314 $15,923,980 
          
Net interest income/net interest margin (FTE) 259,889  3.44% 265,644  3.67% 396,454  3.48% 403,679  3.71%
          
Tax equivalent adjustment  (7,829)  (7,855)   (11,593)  (11,872) 
          
Net interest income $252,060 $257,789  $384,861 $391,807 
          
 
(1) Includes dividends earned on equity securities.
 
(2) Includes non-performing loans.
 
(3) Balances include amortized historical cost for available for sale securities. The related unrealized holding gains (losses) are included in other assets.

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The following table summarizes the changes in FTE interest income and expense due to changes in average balances (volume) and changes in rates:
                        
 2009 vs. 2008  2009 vs. 2008 
 Increase (decrease) due  Increase (decrease) due 
 to change in  to change in 
 Volume Rate Net  Volume Rate Net 
 (in thousands)  (in thousands) 
Interest income on:  
Loans, net of unearned income $19,846 $(65,224) $(45,378) $22,920 $(85,945) $(63,025)
Taxable investment securities 1,955  (3,772)  (1,817) 9,158  (7,624) 1,534 
Tax-exempt investment securities  (807) 232  (575)  (1,861) 443  (1,418)
Equity securities  (1,111)  (1,564)  (2,675)  (1,405)  (2,252)  (3,657)
Loans held for sale 506  (805)  (299) 534  (821)  (287)
Other interest-earning assets  (35)  (195)  (230) 1  (323)  (322)
              
  
Total interest income
 $20,354 $(71,328) $(50,974) $29,347 $(96,522) $(67,175)
              
  
Interest expense on:  
Demand deposits $368 $(3,963) $(3,595) $637 $(5,279) $(4,642)
Savings deposits 75  (7,084)  (7,009) 1,259  (9,714)  (8,455)
Time deposits 19,487  (25,596)  (6,109) 29,129  (36,112)  (6,983)
Short-term borrowings  (9,419)  (19,439)  (28,858)  (15,073)  (25,827)  (40,900)
FHLB advances and long-term debt  (1,208) 1,560 352   (2,603) 3,633 1,030 
              
  
Total interest expense
 $9,303 $(54,522) $(45,219) $13,349 $(73,299) $(59,950)
              
Interest income decreased $51.0$67.2 million, or 11.3%10.0%, due to a $71.3$96.5 million decrease related toas a result of changes in interest rates. During the first halfnine months of 2009, the average yield on interest-earning assets decreased 9285 basis points, or 14.7%13.8%, in comparison to the first halfnine months of 2008. ThisThe decrease in interest income due to changes in raterates was partially offset by a $20.4$29.3 million increase in interest income realized from growth in average interest-earning assets of $646.7$670.9 million, or 4.4%4.6%.
The increase in average interest-earning assets was due mainly to loan growth, which is summarized, by type, in the following table:
                 
  Six months ended    
  June 30  Increase (decrease) 
  2009  2008  $  % 
  (dollars in thousands) 
                 
Real estate — commercial mortgage $4,070,291  $3,606,929  $463,362   12.8%
Commercial — industrial, financial and agricultural  3,656,133   3,483,573   172,560   5.0 
Real estate — home equity  1,683,497   1,547,242   136,255   8.8 
Real estate — construction  1,190,803   1,336,826   (146,023)  (10.9)
Real estate — residential mortgage  946,710   874,289   72,421   8.3 
Consumer  366,293   424,973   (58,680)  (13.8)
Leasing and other  87,028   85,638   1,390   1.6 
             
Total
 $12,000,755  $11,359,470  $641,285   5.6%
             
                 
  Nine months ended    
  September 30  Increase (decrease) 
  2009  2008  $  % 
  (dollars in thousands) 
Real estate – commercial mortgage $4,100,119  $3,673,874  $426,245   11.6%
Commercial – industrial, financial and agricultural  3,660,083   3,504,467   155,616   4.4 
Real estate – home equity  1,672,678   1,571,567   101,111   6.4 
Real estate – construction  1,143,476   1,332,548   (189,072)  (14.2)
Real estate – residential mortgage  942,407   898,875   43,532   4.8 
Consumer  368,109   406,196   (38,087)  (9.4)
Leasing and other  84,506   85,221   (715)  (0.8)
             
Total
 $11,971,378  $11,472,748  $498,630   4.3%
             
Loan growth in the first halfnine months of 2009 in comparison to the first halfnine months of 2008 was primarily in commercial mortgage loans,mortgages, with growth also occurring in commercial loans, home equity loans and residential mortgages. The increases in commercial mortgages and commercial loans were primarily in floating and adjustable rate products. The increase in home equity loans was primarily due to the introduction of a newan increase in consumer demand.

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blended fixed/floating rate product in late 2007. The growth in residential mortgages was primarily from adjustable rate mortgages.
Geographically, the increase in commercial mortgage loans was mainly attributable to increases within the Corporation’s Pennsylvania ($241.1218.9 million), New Jersey ($98.991.0 million) and Maryland ($76.982.0 million) markets,banks, while the increase in commercial loans was due to increases in the Pennsylvania ($131.1131.6 million), New Jersey ($27.025.9 million) and Virginia ($28.621.0 million) markets. The increasebanks, offset by a decrease in home equity loans was spread evenly throughout the Corporation’s markets.Maryland ($22.0 million).
Offsetting these increases was a $146.0$189.1 million decrease in construction loans primarily in floating rate commercial construction loans, and a $58.7$38.1 million decrease in consumer loans. The decrease in construction loans was due to a slowdown in residential housing construction and the Corporation’s efforts to reduce its lendingcredit exposure in this sector, particularly within its Maryland and Virginia markets. The decrease in consumer loans was largely due to the sale of the Corporation’s credit card portfolio during the second quarter of 2008 and partially due to a decrease in other consumer loans.the indirect automobile loan portfolio.
The average yield on loans decreased 11096 basis points, or 16.7%14.9%, from 6.60%6.45% in 2008 to 5.50%5.49% in 2009. The decrease in yield reflected a lower interest rate environment, as illustrated by a lower average prime rate during the first halfnine months of 2009 (3.25%) as compared to the first halfnine months of 2008 (5.68%(5.45%). The decrease in average loan yields was not as pronounced as the decrease in the average prime rate as fixed and adjustable rate loans, unlike floating rate loans, do not immediately reprice whenhave a lagged repricing effect during periods of short-term rates decline.rate declines.
Average investments decreased $10.4increased $159.6 million, or 0.3%.5.4%, due primarily to Corporation’s purchase of ARCs from customers, which increased average investments by $201.8 million. The average yield on investments decreased 2940 basis points, or 5.9%8.1%, from 4.93%4.95% in 2008 to 4.64%4.55% in 2009 as reinvestment of portfolio cash flows wasand incremental purchases were at yields that were lower than the overall portfolio yield. A $223.5 million increase in the average balances of ARCs resulted in a decrease of 10 basis points in average yield. In addition, investmentInvestment yields were also adversely impacted by the reduction, or in some cases the suspension of, dividends on equities, particularly stocks of financial institutions stocks and FHLB stock holdings.stocks. In addition, the $201.8 million increase in the average balances of ARCs resulted in an 8 basis point decrease in average yield.
The $51.0$67.2 million decrease in interest income was partially offset by a decrease in interest expense of $45.2$60.0 million, or 24.2%22.5%, to $141.6$206.7 million in the first halfnine months of 2009 from $186.8 million in the first half of 2008.2009. Interest expense decreased $54.5$73.3 million as a result of a 7466 basis point, or 24.7%23.2%, decrease in the average cost of interest-bearing liabilities. TheThis decrease was slightly offset by a $9.3$13.3 million increase in interest expense caused by growth in average interest-bearing liabilities of $157.9$126.6 million, or 1.3%1.0%.
The following table summarizes the changesincreases in average deposits, by type:
                
 Six months ended                   
 June 30 Increase  Nine months ended   
 2009 2008 $ %  September 30 Increase 
 (dollars in thousands)  2009 2008 $ % 
  (dollars in thousands) 
Noninterest-bearing demand $1,735,525 $1,639,275 $96,250  5.9% $1,798,522 $1,649,560 $148,962  9.0%
Interest-bearing demand 1,786,629 1,696,835 89,794 5.3  1,819,135 1,709,380 109,755 6.4 
Savings 2,183,243 2,172,702 10,541 0.5  2,309,103 2,179,432 129,671 5.9 
                  
Total, excluding time deposits
 5,705,397 5,508,812 196,585 3.6  5,926,760 5,538,372 388,388 7.0 
Time deposits 5,529,794 4,440,641 1,089,153 24.5  5,538,068 4,396,409 1,141,659 26.0 
                  
Total
 $11,235,191 $9,949,453 $1,285,738  12.9% $11,464,828 $9,934,781 $1,530,047  15.4%
                  
The Corporation experienced an increase in noninterest-bearing and interest-bearing demand and savings accounts of $196.6$388.4 million, or 3.6%7.0%. The increase in noninterest-bearing demand accounts was in business accounts, while the increase in interest-bearing demand and savings accounts was primarily in governmental accounts. The growth in business accounts due, in part, to businesses being required to keep

41

higher balances on hand to offset byservice fees, as well as a decrease in personal accounts. movement from the Corporation’s cash management products due to the current low rates.
The increase in time deposits was due to a $996.9 million$1.1 billion increase in customer certificates of deposit and a $92.3$55.0 million increase in brokered

42

certificates of deposit. The increase in customer certificates of deposit was due to the promotion of a variable rate product during late 2008 and throughout the first quarter of 2009. These average deposit increases were used to reduce the Corporation’s short and long-term borrowings.
The average cost of interest-bearing deposits decreased 65 basis points, or 24.9%, from 2.61% in 2008 to 1.96% in 2009 due to a decrease in cost of certificates of deposit. The average cost of certificates of deposit decreased 98 basis points, or 25.0%, due to the maturity and renewal of certificates of deposits at lower rates in 2009.
The following table summarizes the changes in average borrowings, by type:
                                
 Six months ended    Nine months ended   
 June 30 Increase (decrease)  September 30 Increase (decrease) 
 2009 2008 $ %  2009 2008 $ % 
 (dollars in thousands)  (dollars in thousands) 
Short-term borrowings:  
Customer short-term promissory notes $317,297 $470,136 $(152,839)  (32.5%) $297,831 $475,523 $(177,692)  (37.4%)
Customer repurchase agreements 251,395 225,006 26,389 11.7  252,539 221,253 31,286 14.1 
                  
Total short-term customer funding
 568,692 695,142  (126,450)  (18.2) 550,370 696,776  (146,406)  (21.0)
Federal funds purchased 685,425 1,243,980  (558,555)  (44.9) 571,864 1,296,074  (724,210)  (55.9)
Federal Reserve Bank borrowings 93,039 — 93,039 N/A  61,685 — 61,685 N/A 
FHLB overnight repurchase agreements — 375,082  (375,082)  (100.0) — 346,770  (346,770)  (100.0)
Other short-term borrowings 3,733 16,949  (13,216)  (78.0) 2,649 25,432  (22,783)  (89.6)
                  
Total other short-term borrowings
 782,197 1,636,011  (853,814)  (52.2) 636,198 1,668,276  (1,032,078)  (61.9)
         
         
Total short-term borrowings
 1,350,889 2,331,153  (980,264)  (42.1) 1,186,568 2,365,052  (1,178,484)  (49.8)
                  
Long-term debt:  
FHLB advances 1,400,623 1,452,428  (51,805)  (3.6) 1,370,860 1,447,161  (76,301)  (5.3)
Other long-term debt 383,164 382,651 513 0.1  383,150 382,820 330 0.1 
                  
Total long-term debt
 1,783,787 1,835,079  (51,292)  (2.8) 1,754,010 1,829,981  (75,971)  (4.2)
         
         
Total
 $3,134,676 $4,166,232 $(1,031,556)  (24.8%) $2,940,578 $4,195,033 $(1,254,455)  (29.9%)
                  
 
N/A —– Not applicable
The decrease in short-term borrowings was mainly due to a $558.6result of a $724.2 million decrease in Federal funds purchased and a $375.1$346.8 million decrease in FHLB overnight repurchase agreements andagreements. Also contributing to the decrease was a $126.5$146.4 million decrease in short-term customer funding. The decrease in other short-term borrowings wasfunding due to customers transferring funds from the cash management program to deposits due to the increase in low cost customer funding available in the form of demand and saving accounts.interest rate environment. The $51.3$76.0 million decrease in long-term debt was due to maturities of FHLB advances.

4342

 

Provision for Loan Losses and Allowance for Credit Losses
The following table presents the activity in the Corporation’s allowance for credit losses:
        
 Six months ended June 30         
 2009 2008  Nine months ended September 30 
 (dollars in thousands)  2009 2008 
  (dollars in thousands) 
Loans, net of unearned income outstanding at end of period $11,866,818 $11,577,495  $11,968,246 $11,823,529 
          
Daily average balance of loans, net of unearned income $12,000,755 $11,359,470  $11,971,378 $11,472,748 
          
 
Balance of allowance for credit losses at beginning of period
 $180,137 $112,209  $180,137 $112,209 
Loans charged off:  
Real estate — construction 23,536 — 
Commercial — industrial, agricultural and financial 16,896 7,516 
Real estate — commercial mortgage 9,921 704 
Real estate — residential mortgage and home equity 3,767 2,250 
Real estate – construction 32,892 3,014 
Commercial – industrial, agricultural and financial 24,683 12,200 
Real estate – commercial mortgage 13,475 2,828 
Real estate – residential mortgage and home equity 4,832 2,969 
Consumer 5,140 2,747  7,667 3,738 
Leasing and other 3,045 2,605  4,682 3,771 
          
Total loans charged off
 62,305 15,822  88,231 28,520 
          
Recoveries of loans previously charged off:  
Real estate — construction 326 — 
Commercial — industrial, agricultural and financial 1,210 276 
Real estate — commercial mortgage 35 142 
Real estate — residential mortgage and home equity 148 5 
Real estate – construction 352 17 
Commercial – industrial, agricultural and financial 1,654 1,025 
Real estate – commercial mortgage 528 230 
Real estate – residential mortgage and home equity 149 138 
Consumer 940 718  1,294 1,022 
Leasing and other 463 769  838 1,082 
          
Total recoveries
 3,122 1,910  4,815 3,514 
          
Net loans charged off 59,183 13,912  83,416 25,006 
Provision for loan losses 100,000 27,926  145,000 54,626 
          
Balance of allowance for credit losses at end of period
 $220,954 $126,223  $241,721 $141,829 
          
  
Net charge-offs to average loans (annualized)  0.99%  0.24%  0.93%  0.29%
          
The provision for loan losses for the first halfnine months of 2009 totaled $100.0$145.0 million, an increase of $72.1$90.4 million, or 258.1%165.4%, from the first halfnine months of 2008. The significant increase in the provision for loan losses was related to the increase in non-performing loans and net charge-offs, which required additional allowance for credit loss balances to meet allocation needs.
The $45.3$58.4 million, or 325.4%233.6%, increase in net charge-offs for the first halfnine months of 2009 in comparison to the same period in 2008 was due to increases in construction loan net charge-offs ($23.229.5 million), commercial loan net charge-offs ($11.9 million) and commercial mortgage net charge-offs ($9.3 million) and commercial loan net charge-offs ($8.410.3 million). During the first halfnine months of 2009, there were 1317 charge-offs of $1.0 million or greater, with an aggregate amount of $29.6$35.5 million, of which $23.4$28.1 million werewas for loans to customers whose businesses were negatively impacted by the downturn in residential real estate.

4443

 

Other Income
The following table presents the components of other income:
                
 Six months ended                   
 June 30 Increase (decrease)  Nine months ended   
 2009 2008 $ %  September 30 Increase (decrease) 
 (dollars in thousands)  2009 2008 $ % 
  (dollars in thousands) 
Service charges on deposit accounts $29,955 $29,286 $669  2.3% $45,276 $45,463 $(187)  (0.4%)
Other service charges and fees 17,949 17,722 227 1.3  27,952 27,320 632 2.3 
Investment management and trust services 23,970 25,193  (1,223)  (4.9)
Gains on sales of mortgage loans 15,986 4,981 11,005 220.9  18,764 7,247 11,517 158.9 
Investment management and trust services 15,779 17,148  (1,369)  (8.0)
Credit card income 2,551 1,086 1,465 134.9  4,071 2,442 1,629 66.7 
Gains on sales of OREO 1,044 415 629 151.6  1,565 579 986 170.3 
Other 6,031 5,683 348 6.1  8,922 8,393 529 6.3 
                  
Total, excluding gain on sale of credit card portfolio and investment securities gains (losses)
 89,295 76,321 12,974 17.0  130,520 116,637 13,883 11.9 
Gain on sale of credit card portfolio — 13,910  (13,910)  (100.0%) — 13,910  (13,910)  (100.0%)
Investment securities gains (losses) 2,996  (20,401) 23,397 N/M  2,951  (29,902) 32,853 N/M 
                  
Total
 $92,291 $69,830 $22,461  32.2% $133,471 $100,645 $32,826  32.6%
                  
 
N/M —– Not meaningful
The $669,000,$632,000, or 2.3%, increase in other service charges on deposit accountsand fees was primarily due to a $722,000, or 9.8%, increase in debit card fees, due to increased transaction volumes, and a $778,000, or 18.1%, increase in letter of credit fees. These increases were offset by a $306,000 decrease in foreign currency processing revenue, a $211,000 decrease in merchant fees and an $186,000 decrease in automated teller machine fees.
The $1.2 million, or 4.9%, decrease in investment management and trust services income was due to an increase of $903,000,a $2.6 million, or 5.5%13.3%, decrease in overdraft fees,trust revenue, offset by a decrease$1.3 million, or 21.6%, increase in brokerage revenue. The performance of $271,000 in cash management fees,equity markets negatively impacted both trust and brokerage revenues, however, brokerage revenue increased over the 2008 levels due to a net decrease in short-term customer funding. The increase in overdraft fees was a result of the rollout of a matrix-based overdraft program in the fall of 2007, as well as the impact of current economic conditions on the Corporation’s customers.transition of its brokerage business from a transaction-based model to a relationship model during 2008.
Gains on sales of mortgage loans increased $11.0$11.5 million, or 220.9%158.9%, due to an increase in the volume of loans sold. Total loans sold in the first halfnine months of 2009 were $1.2$1.8 billion, compared to $327.1$499.9 million in the first halfnine months of 2008. The $870.8 million,$1.3 billion, or 266.2%255.6%, increase in the volume of loans sold was mainly due to an increase in refinance activity, as mortgage rates dropped to historic lows.
The $1.4 million, or 8.0%, decrease For the nine months ended September 30, 2009, 74% of loans originated for sale represented refinances, compared to 44% for the same period in investment management and trust services income was due to a $1.6 million, or 12.4%, decrease in trust revenue, offset by a $207,000, or 4.7%, increase in brokerage revenue. The performance of equity markets negatively impacted both trust and brokerage revenues. The increase in brokerage revenue was due to the Corporation’s transition of its brokerage business from a transaction-based model to a relationship model during 2008.
Credit card income includes fees earned for each new account opened and a percentage of revenue earned on both new accounts and accounts sold, under an agreement with the purchaser of the credit card portfolio. The increase was primarily due to sixnine months of income being earned in 2009 compared to less than threesix months of income earned during the first halfnine months of 2008, as the agreement was executed during the second quarter of 2008.
The $986,000, or 170.3%, increase in gains on sales of OREO was due to an increase in the number of sales during the first nine months of 2009 in comparison to the first nine months of 2008.
Investment securities gains of $3.0 million for the first halfnine months of 2009 included $9.4$12.2 million of net gains on the salesales of securities, primarily collateralized mortgage obligations, offset by $6.4$9.2 million of other-than-temporary impairment charges. During the first halfnine months of 2009, the Corporation recorded $4.6$6.5 million of other-than-temporary impairment

44

charges for pooled trust preferred securities issued by financial institutions and $1.7$2.6 million of other-than-temporary impairment charges related to financial institutioninstitutions stocks. The $20.4$29.9 million of investment securities losses for the first halfnine months of 2008 was due primarily to $28.2$30.3 million of other-than-temporary impairment charges for financial institution stocks and $7.8 million of other-than-temporary impairment charges for debt securities issued by financial institutions, offset by $8.2$9.4 million of net gains on the salesales of investment securities. See Note C, “Investment Securities” in the Notes to Consolidated Financial Statements for additional details.

45

Other Expenses
The following table presents the components of other expenses:
                
 Six months ended                   
 June 30 Increase (decrease)  Nine months ended   
 2009 2008 $ %  September 30 Increase (decrease) 
 (dollars in thousands)  2009 2008 $ % 
  (dollars in thousands) 
Salaries and employee benefits $111,103 $109,476 $1,627  1.5% $165,189 $164,786 $403  0.2%
Net occupancy expense 21,263 20,762 501 2.4  31,428 30,999 429 1.4 
FDIC insurance expense 16,494 1,537 14,957 973.1  21,738 2,684 19,054 709.9 
Equipment expense 6,379 6,846  (467)  (6.8) 9,660 9,907  (247)  (2.5)
Data processing 9,100 9,604  (504)  (5.2)
Professional fees 6,702 5,717 985 17.2 
Operating risk loss 6,345 15,628  (9,283)  (59.4) 6,683 19,108  (12,425)  (65.0)
Data processing 5,979 6,362  (383)  (6.0)
Telecommunications 4,344 3,959 385 9.7  6,483 5,960 523 8.8 
Professional fees 4,316 4,142 174 4.2 
Marketing 4,295 6,424  (2,129)  (33.1) 6,277 9,521  (3,244)  (34.1)
Intangible amortization 4,326 5,386  (1,060)  (19.7)
OREO expense 3,183 1,667 1,516 90.9  4,278 3,138 1,140 36.3 
Intangible amortization 2,897 3,656  (759)  (20.8)
Supplies 2,781 2,885  (104)  (3.6) 4,234 4,303  (69)  (1.6)
Postage 2,588 2,911  (323)  (11.1) 3,953 4,218  (265)  (6.3)
Other 22,211 20,141 2,070 10.3  33,937 30,420 3,517 11.6 
                  
Total
 $214,178 $206,396 $7,782  3.8% $313,988 $305,751 $8,237  2.7%
                  
Salaries and employee benefits increased $1.6 million,$403,000, or 1.5%0.2%, with salaries decreasing $593,000,$2.2 million, or 0.7%1.6%, offset by an increase in employee benefits of $2.2$2.6 million, or 11.6%9.1%. The decrease in salaries was primarily due to a $1.7$2.7 million decrease in employee bonusesbonus expense and a $238,000$304,000 decrease in stock-based compensation, offset by a $900,000an increase in salaries due to the effect of normal merit increases in the second half of 2008, as meritincreases. Merit increases were suspended as of March 2009. Average full-time equivalent employees decreased from 3,670 in the first halfnine months of 2008 to 3,6403,610 in the first halfnine months of 2009.
The $2.2$2.6 million increase in employee benefits was primarily due to a $1.5$2.0 million, or 13.3%, increase in healthcare costs as claims costs increased, a $921,000$1.4 million increase in defined benefit pension plan expense due to a lower return on plan assets and $808,000 ofin severance expense associated withrelated to the Corporation’sconsolidation of Columbia Bank subsidiary in anticipation of consolidatingBank’s back office functions in the third quarter of 2009. These increases were offset by a $718,000an $719,000 decrease in accruals for the cost of compensated absences.absences and a $481,000 decrease in postretirement plan expense due to a reduction in benefits covered.
The $15.0$19.1 million increase in FDIC insurance expense was due to a $7.7 million special assessment recorded in the second quarter of 2009, in addition to an increase in assessment rates, which waswere effective January 1, 2009. Gross FDIC insurance premiums for the first halfnine months of 2009, excluding the special assessment, were $8.9$14.0 million and were reduced by $114,000 of one-time credits. For the first halfnine months of 2008, gross FDIC insurance premiums were $3.2$5.0 million and were reduced by $1.7$2.3 million of one-time credits.
The $9.3$12.4 million decrease in operating risk loss was due to a $7.0$9.6 million reduction in charges associated with the financial guarantee liability related to the Corporation’s commitment to purchase ARCs from customer accounts and a $2.1$2.6 million decrease in

45

losses on the actual and potential repurchase of residential mortgage and home equity loans. See Note H, “Commitments and Contingencies” in the Notes to Consolidated Financial Statements for additional details.
The $2.1$985,000 increase in professional fees was primarily due to increased legal costs associated with collection and workout efforts for non-performing loans. The $3.2 million decrease in marketing expenses was due primarily to an effort to reduce discretionary spending and due to the timing of promotional campaigns. The $759,000$1.1 million decrease in intangible amortization was mainly due to a decrease in core deposit intangible asset amortization. The $1.5$1.1 million increase in

46

OREO expense was mainly due to the increaseincreases in the balance of OREO and a decrease in real estate values, requiring additional loss provisions.carrying costs.
The $2.1$3.5 million increase in other expenses was primarily due to the reversal of $1.4 million of litigation reserves in the first quarter of 2008 associated with the Corporation’s share of indemnification liabilities with Visa, Inc. (Visa), which were no longer necessary as a result of Visa’s initial public offeringoffering. Also contributing to the increase was $1.1 million of costs associated with the consolidation of Columbia Bank’s back office functions in 2008.the third quarter of 2009 and an increase in loan collection and workout costs.
Income Taxes
Income tax expense for the first halfnine months of 2009 was $4.0$9.8 million, a $22.1$26.0 million, or 84.8%72.6%, decrease from $26.1$35.8 million in 2008. The decrease was primarily due to a decrease in income before income taxes.
The Corporation’s effective tax rate was 13.2%16.5% in 2009, as compared to 28.0%27.1% in 2008. The effective rate is generally lower than the Federal statutory rate of 35% due to investments in tax-free municipal securities and Federal tax credits earned from investments in low and moderate-income housing partnerships. The effective rate for the first halfnine months of 2009 is lower than the same period in 2008 due to non-taxable income and tax credits having a larger impact on the effective rate due to the $63.1$72.7 million decrease in income before income taxes.

4746

 

FINANCIAL CONDITION
Total assets of the Corporation increased $690.7$341.6 million, or 4.3%2.1%, to $16.9$16.5 billion at JuneSeptember 30, 2009, compared to $16.2 billion at December 31, 2008.
Loans held for sale increased $146.6Cash and due from banks decreased $79.2 million, or 153.0%23.9%. Because of 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 decreased $16.1 million, or 5.3%, from $290.0 million for the month of September 2009 to $242.4$306.1 million at June 30, 2009. The increase in loans held for sale was due to significant increases in volumesthe month of mortgage loans originated and held for sale during the first half of 2009.December 2008.
Investment securities increased $610.6$549.6 million, or 22.4%20.2%. During the first halfnine months of 2009, purchases of investments resulted from an increase in deposits combined with a decrease in loans, as well as the use of funds received as a resultfrom of the Corporation’s issuance of preferred stock to the U.S. Treasury Department (UST)UST in December 2008. Also contributing to the increase in investments was the Corporation’s purchase of $104.4 million of ARCs from customers during the first halfnine months of 2009.
The Corporation experienced a $175.8$74.4 million, or 1.5%0.6%, decrease in loans, net of unearned income. Construction loans decreased $173.3$240.3 million, or 13.7%18.9%, due to paydowns on existing loans, a significant slowdown in residential housing construction and $23.2$32.5 million of net charge-offs recorded in the first halfnine months of 2009. Residential mortgages decreased $47.5 million, or 4.9%, and homeHome equity loans decreased $41.9$43.7 million, or 2.5%2.6%, and residential mortgages decreased $42.6 million, or 4.4%, both due to refinance activity generated by low interest rates. Offsetting these decreases was a $104.5$170.0 million, or 2.6%4.2%, increase in commercial mortgages.
Other assets increased $177.4mortgages and an $84.4 million, or 54.8%2.3%, primarily due to a $137.4 million receivable related to investment securities sales executed prior to the end of the quarter, but not settled until after June 30, 2009. Also contributing to the increase was a $9.2 million increase in mortgage servicing rights as residential mortgage loans sold with servicing retained increased, an $8.4 million increase in net deferred tax assets, a $6.8 million increase in low-income housing investments, a $3.1 million increase in the cash surrender value of officer life insurance contracts and a $3.1 million increase in OREO.commercial loans.
Deposits increased $1.2$1.5 billion, or 11.0%14.0%, due to an increase in demand and savings deposits of $718.9 million,$1.1 billion, or 13.2%20.8%, and an increase in time deposits of $445.4$347.2 million, or 8.7%6.8%. The increase in demand and savings accounts was in personal, business and governmental accounts. The growth in business accounts due, in part, to businesses being required to keep higher balances on hand to offset service fees, as well as a movement from the Corporation’s cash management products due to the current low rates. The increase in municipal accounts reflected these same factors, along with the seasonal impact related to the tax collection process. The increase in time deposits was due to a $711.3$672.5 million, or 15.0%14.1%, increase in customer certificates of deposit, offset by a $265.8$325.3 million, or 77.7%95.0%, decrease in brokered certificates of deposit. The increase in customer certificates of deposit was due to theactive promotion of a variable rate product induring late 2008 and throughout the first quarter of 2009.
Short-term borrowings decreased $445.5 million,$1.0 billion, or 25.3%59.0%, due to a $366.3$936.8 million, or 31.9%81.6%, decrease in Federal funds purchased and a $77.1$100.8 million, or 12.6%16.5%, decrease in short-term customer funding.funding due to customers transferring funds from the cash management program to deposits due to the low interest rate environment. The decrease in short-term borrowings largely resulted from the increase in deposits. Long-term borrowings decreased $36.8$136.9 million, or 2.1%7.7%, due primarily to a $36.7$136.8 million, or 2.6%9.7%, decrease in FHLB advances.
Other liabilities decreased $22.5 million, or 13.3%, due to a $21.0 million decrease in dividends payable to common shareholders, as the quarterly dividend rate was reduced from $0.15 per share to $0.03 per share, and a $12.9 million reduction in financial guarantee liabilities related to commitments to purchase ARCs from customers. These decreases were offset by a $3.3 million increase in accrued FDIC insurance assessments and a $3.6 million increase in mortgage banking derivative liabilities.
Capital Resources
Total shareholders’ equity increased $13.3$64.1 million, or 0.7%3.4%, during the first halfnine months of 2009. The increase was due to $26.2$49.5 million of net income, a $38.4 million increase in net holding gains on investment securities and $4.7$5.9 million in stock issuances, offset by $18.0$27.9 million in dividends on common and preferred shares outstanding.

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The Corporation and its subsidiary banks are subject to various regulatory capital requirements administered by banking regulators. Failure to meet minimum capital requirements can initiate certain actions by regulators that could have a material effect on the Corporation’s consolidated 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 JuneSeptember 30, 2009, the Corporation and each of its bank subsidiaries met the

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minimum requirements. In addition, each of the Corporation’s bank subsidiaries’ capital ratios exceeded the amounts required to be considered “well capitalized” as defined in the regulations.
The following table summarizes the Corporation’s capital ratios in comparison to regulatory requirements:
            
             Regulatory
 Regulatory Minimum Minimum
 June 30 December 31 Capital September 30 December 31 Capital
 2009 2008 Adequacy 2009 2008 Adequacy
Total Capital (to Risk Weighted Assets)  13.9%  14.3%  8.0%  14.4%  14.3%  8.0%
Tier I Capital (to Risk Weighted Assets)  11.2%  11.5%  4.0%  11.6%  11.5%  4.0%
Tier I Capital (to Average Assets)  9.4%  9.6%  3.0%  9.5%  9.6%  3.0%
In connection with the Emergency Economic Stabilization Act of 2008 (EESA), the UST initiated a Capital Purchase Program (CPP) which allowsallowed for qualifying financial institutions to issue preferred stock to the UST, subject to certain terms and conditions. The EESA was initially developed to attract broad participation by strong financial institutions, to stabilize the financial system and increase lending to benefit the national economy and citizens of the U.S.
In December 2008, the Corporation voluntarily participated in the CPP by issuing $376.5 million of fixed rate cumulative perpetual preferred stock, and warrants to purchase 5.5 million of the Corporation’s common stock, to the UST. The preferred stock pays a compounding cumulative dividend at a rate of 5.0% for the first five years and 9.0% thereafter.
The $376.5 million par value of the preferred stock is included in regulatory capital. Pro-forma regulatory capital ratios, excluding this amount, at JuneSeptember 30, 2009 would be as follows:
     
Total Capital (to Risk Weighted Assets)  11.111.5%
Tier I Capital (to Risk Weighted Assets)  8.48.7%
Tier I Capital (to Average Assets)  7.07.1%
Liquidity
The Corporation must maintain a sufficient level of liquid assets to meet the cash needs of its customers, who, as depositors, may want to withdraw funds or who, as borrowers, need credit availability. Liquidity is provided on a continuous basis through scheduled and unscheduled principal and interest payments on outstanding loans and investments and through the availability of deposits and borrowings. The Corporation also maintains secondary sources that provide liquidity on a secured and unsecured basis to meet short-term needs. Liquidity must also be managed at the Fulton Financial Corporation Parent Companyparent company level. For safety and soundness reasons, banking regulations limit the amount of cash that can be transferred from subsidiary banks to the Parent Companyparent company in the form of loans and dividends. Generally, these limitations are based on the subsidiary banks’ regulatory capital levels and their net income. Management continues to monitor the liquidity and capital needs of the Parent Companyparent company and will implement appropriate strategies, as necessary, to remain adequately capitalized and to meet its cash needs.

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The Corporation’s sources and uses of cash were discussed in general terms in the net interest income section of Management’s Discussion. The consolidated statements of cash flows provide additional information. The Corporation used $10.1 million in cash forCorporation’s operating activities during the first halfnine months of 2009 generated $206.4 million, mainly due to a net increase in loans held for sale, offset by net income, as adjusted for non-cash expenses, most notably the provision for loan losses. Investing activities resulted in a net cash outflow of $669.1$546.3 million, due to purchases of available for sale securities exceeding the proceeds from the sales and maturities of available for sale securities and a net decrease in loans.securities. Cash flows provided by financing activities were $647.8$260.7 million, primarily due to net increases in deposits exceeding net decreases in short-term borrowings, dividend payments and long-term debt repayments.

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Item 3. Quantitative and Qualitative Disclosures About 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, debt security market price risk, foreign currency risk and commodity price risk. Due to the nature of its operations, only equity market price risk, debt security 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 $32.7$34.4 million of stocks of publicly traded financial institutions, $85.6$85.7 million of FHLB and Federal Reserve Bank stock and $9.4$9.3 million of money market mutual funds and other equity investments. The equity investments most susceptible to equity market price risk are the financial institutions stocks, which had a cost basis of approximately $37.8$35.9 million and fair value of $32.7$34.4 million at JuneSeptember 30, 2009. Gross unrealized gains in this portfolio were $1.4$2.5 million and gross unrealized losses were $6.5$4.0 million.
Management continuously monitors the fair value of its equity investments and evaluates current market conditions and operating results of the companies.issuers. 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 5453 as such investments do not have maturity dates.
Although the carrying value of financial institution stocks accounted for less than 0.2% of the Corporation’s total assets at JuneSeptember 30, 2009, the Corporation has a history of realizing gains from this portfolio. However, significant declines in the values of financial institutioninstitutions stocks held in this portfolio have not only impacted the Corporation’s ability to realize gains, on their sale, but have also resulted in significant other-than-temporary impairment charges in 2008 and 2009.
The Corporation evaluated 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 $728,000$949,000 and $1.7$2.6 million for specific financial institutioninstitutions stocks that were deemed to exhibit other-than-temporary impairment in value during the three and sixnine months ended JuneSeptember 30, 2009, respectively. In addition, the Corporation recorded an other-than-temporary impairment charge of $106,000 during the first half of 2009 for a mutual fund investment. Additional impairment charges may be necessary in the future depending upon the performance of the equity markets in general and the performance of the individual investments held by the Corporation. See Note C, “Investment Securities” in the Notes to Consolidated Financial Statements for additional details.
In addition to the Corporation’s investment portfolio, its investment management and trust services income could behas been impacted by fluctuations in the securities markets. A portion of this revenue is based on the value of the underlying investment portfolios. IfAs the values of those investment portfolios decrease, whether due to factors influencing U.S. securities markets in general or otherwise, the Corporation’s revenue could behas been negatively impacted. In addition, theThe Corporation’s ability to sell its brokerage services isin the future will be dependent, in part, upon consumers’ level of confidence in the outlook for rising securities prices.
Debt Security Market Price Risk
Debt security market price risk is the risk that changes in the values of debt security investments could have a material impact on the financial position or results of operations of the Corporation. The Corporation’s debt security investments consist primarily of mortgage-backed securities and

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collateralized mortgage obligations whose principal payments are guaranteed by U.S. government sponsored agencies, state and municipal securities, U.S. government sponsored and U.S. government debt

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securities, auction rate certificates and corporate debt securities. OnlyThe Corporation’s investments in auction rate certificates and corporate debt securities have significant debt securityare susceptible to market price risk.
Auction Rate Certificates (ARCs)
The Corporation’s debt securities include ARCs purchased from customers. Due to the current market environment, these ARCs are susceptible to significant market price risk. At JuneSeptember 30, 2009, ARCs held by the Corporation had a cost basis of $298.8$292.3 million and fair value of $289.6$285.6 million, or 1.7% of total assets.
ARCs are long-term securities structured to allow their sale in periodic auctions, resulting in the treatment of ARCs as short-term instruments in normal market conditions. However, as previously disclosed, beginning in mid-February 2008, market auctions for these securities began to fail due to an insufficient number of buyers, resulting in an illiquid market. This illiquidity has resulted in recent market prices that represent forced liquidations or distressed sales and do not provide an accurate basis for fair value. Therefore, at JuneSeptember 30, 2009, the fair value of the ARCs held by the Corporation were derived using significant unobservable inputs based on an expected cash flow model which produced fair values that were materially different from those that would be expected from settlement of these investments in the illiquid market that presently exists. The expected cash flow model produced fair values which assumed a return to market liquidity sometime within the next three to five years. If liquidity does not return within a time-frametime frame that is materially consistent with the Corporation’s assumptions, the fair value of ARCs could significantly change.
The credit quality of the underlying debt associated with ARCs is also a factor in the determination of their estimated fair values. As of JuneSeptember 30, 2009, approximately 65%$247 million, or 86%, of the auction rate securities held by the Corporation arewere rated above investment grade, with approximately $184 million, or 64%, AAA rated with 96%by at least one ratings agency. Approximately $39 million, or 14%, of them aboveauction rate securities are rated below investment grade. In addition,grade by at least one ratings agency. Of the $39 million of securities rated below investment grade, approximately 89%$22 million, or 57%, of the student loans underlying the auction rate securities have principal payments which are guaranteed by the Federal government. Finally, allIn total, approximately $254 million, or 89%, of the student loans underlying the auction rate securities currentlyhave principal payments which are guaranteed by the Federal government. All auction rate securities held by the Corporation arewere current and making scheduled interest payments. Therefore, as of JuneSeptember 30, 2009, the risk of changes in the estimated fair values of ARCs due to deterioration in the credit quality of their underlying debt instruments is not significant.
Corporate Debt Securities
The Corporation holds corporate debt securities in the form of pooled trust preferred securities, single-issuer trust preferred securities and subordinated debt issued by financial institutions, as presented in the following table:
                
 June 30, 2009  September 30, 2009 
 Amortized cost Estimated fair value  Amortized Estimated fair 
 (in thousands)  cost value 
  (in thousands) 
Single-issuer trust preferred securities (1) $97,918 $66,214  $97,925 $75,195 
Subordinated debt 34,835 30,428  34,861 32,589 
Pooled trust preferred securities 24,379 4,915  22,518 4,846 
          
Total corporate debt securities issued by financial institutions $157,132 $101,557  $155,304 $112,630 
          
 
(1) Single-issuer trust preferred securities with estimated fair values totaling $7.0$8.1 million as of JuneSeptember 30, 2009 are classified as Level 3 assets under Statement 157.assets. See Note J, “Fair Value Measurements” in the Notes to Consolidated Financial Statements for additional details.
Historically, the Corporation determined the fair value of these securities based on prices received from third-party brokers and pricing agencies who determined fair values using both quoted prices for similar assets,

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when available, and model-based valuation techniques that derived fair value based on market-corroborated data, such as instruments with similar prepayment speeds and default interest rates.
Due to distressed market prices that currently exist for these securities, the Corporation determined that the market for pooled trust preferred securities and certain single-issuer trust preferred securities held by the Corporation was not active. Consistent with the Financial Accounting Standards Board’s (FASB) Staff Position No. 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset is not Active”, issued in October 2008, and FASB Staff Position No. 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”, issued in April 2009, theThe Corporation determined the fair value of its investments in pooled trust preferred securities and for certain single-issuer trust preferred securities based on quotes provided by third-party brokers who determined fair values based predominantly on internal valuation models and were not indicative prices or binding offers.
In April 2009, the FASBFinancial Accounting Standards Board (FASB) issued Staff Position No. 115-2 and 124-2, “Recognition and Presentation of Other-than-Temporary Impairments” (FSP FAS 115-2). FSP FAS 115-2, codified as FASB Accounting Standards Codification (ASC) paragraph 320-10-65-1, amends other-than-temporary impairment guidance for debt securities and expands disclosure requirements for other-than-temporarily impaired debt and equity securities. FSP FAS 115-2 requires companiesSee Note C, “Investment Securities” in the Notes to record other-than-temporary impairment charges, through earnings,Consolidated Financial Statements for impaired debt securities if they have the intent or requirement to sell, before a recovery in their amortized cost basis. In addition, FSP FAS 115-2 requires companies to record other-than-temporary impairment charges through earnings for the amount of credit losses, regardless of the intent or requirement to sell. Credit loss is measured as the difference between the present value of an impaired debt security’s cash flows and its amortized cost basis. Non-credit related write-downs to fair value must be recorded as decreases to accumulated other comprehensive income as long as a company has no intent to sell, or will more likely than not be required, to sell an impaired security before a recovery of amortized cost basis. Finally, FSP FAS 115-2 requires companies to record all previously recorded non-credit related other-than-temporary impairment charges for debt securities as cumulative effect adjustments to retained earnings as of the beginning of the period of adoption. FSP FAS 115-2 is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for the period ending after March 15, 2009. The Corporation elected to early adopt FSP FAS 115-2, effective January 1, 2009.additional details.
During the three and sixnine months ended JuneSeptember 30, 2009, the Corporation recorded $2.7$1.8 million and $4.6$6.5 million, respectively, of other-than-temporary impairment charges as a reductionreductions to investment securities gains on the consolidated statements of income, related to investments in pooled trust preferred securities issued by financial institutions. These other-than-temporary impairment charges were based on the credit losses determined bythrough present value modeling of expected cash flows. In addition, during the first halfnine months of 2009, the Corporation recorded $7.6$6.0 million ($4.93.9 million, net of tax) of non-credit related write-downs to fair value as a component of other comprehensive loss.
During 2008, the Corporation recorded other-than-temporary impairment charges for pooled trust preferred securities of $15.8 million. Upon adoption of FSP FAS 115-2, the Corporation determined that $9.7 million of those other-than-temporary impairment charges were non-credit related. As such, a $6.3 million (net of $3.4 million of taxes) increase to retained earnings and a corresponding decrease to accumulated other comprehensive income was recorded as the cumulative effect impact of adopting FSP FAS 115-2 as of January 1, 2009. Because previously recognized other-than-temporary impairment charges were reversed through equity rather than earnings, $4.3$6.1 million of the $4.6$6.5 million other-than-temporary impairment charges for certain pooled trust preferred securities recorded during the first halfnine months of 2009 were also presented as other-than-temporary impairment charges on the Corporation’s statements of operations for the year ended December 31, 2008.
Additional impairment charges for debt securities may be necessary in the future depending upon the performance of the individual investments held by the Corporation.

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See Note C, “Investment Securities”, in the Notes to Consolidated Financial Statements for further discussion related to the Corporation’s other-than-temporary impairment evaluations for debt securities and Note J, “Fair Value Measurements”, in the Notes to Consolidated Financial Statements for further discussion related to debt securities’ fair values.
Interest Rate Risk
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 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 bi-weeklyperiodic basis. The ALCO is responsible for reviewing the interest rate sensitivity

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position of the Corporation, approving asset and liability management policies, and overseeing the formulation and implementation of strategies regarding balance sheet positions and earnings.

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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. None of the Corporation’s financial instruments are classified as trading. All dollar amounts are in thousands.
                 
 Expected Maturity Period Estimated                 
 Year 1 Year 2 Year 3 Year 4 Year 5 Beyond Total Fair Value Expected Maturity Period Estimated
  Year 1 Year 2 Year 3 Year 4 Year 5 Beyond Total Fair Value
Fixed rate loans (1) $1,120,255 $539,508 $407,312 $341,814 $257,242 $641,891 $3,308,022 $3,333,352  $1,097,557 $537,977 $420,095 $357,031 $278,242 $608,693 $3,299,595 $3,309,995 
Average rate
  5.14%  6.52%  6.55%  6.47%  6.55%  6.31%  6.01%   4.85%  6.54%  6.55%  6.39%  6.44%  6.22%  5.89% 
Floating rate loans (1) (2) 2,301,033 1,097,922 835,078 686,792 1,831,687 1,788,958 8,541,470 8,188,064  2,263,079 1,133,438 864,745 747,904 1,694,650 1,955,363 8,659,179 8,315,233 
Average rate
  4.84%  5.18%  5.22%  5.18%  4.34%  5.92%  5.06%   4.88%  5.12%  5.18%  5.04%  4.40%  5.68%  5.04% 
 
Fixed rate investments (3) 680,189 367,263 349,982 312,665 246,086 875,021 2,831,206 2,861,910  689,372 468,281 396,795 267,498 203,115 701,852 2,726,913 2,799,869 
Average rate
  4.29%  4.65%  4.78%  4.81%  4.67%  4.41%  4.52%   4.36%  4.69%  4.73%  4.78%  4.56%  4.25%  4.50% 
Floating rate investments (3) — 500 298,809 — 126 91,037 390,472 346,716  — 500 292,256 116 — 88,176 381,048 346,105 
Average rate
 —  5.61%  2.48% —  1.20%  3.37%  2.69%  —  5.62%  2.69%  1.18% —  3.03%  2.77% 
 
Other interest-earning assets 268,329 — — — — — 268,329 268,329  105,807 — — — — — 105,807 108,814 
Average rate
  4.00% — — — — —  4.00%   3.33% — — — — —  3.33% 
    
  
Total
 $4,369,806 $2,005,193 $1,891,181 $1,341,271 $2,335,141 $3,396,907 $15,339,499 $14,998,371  $4,155,815 $2,140,196 $1,973,891 $1,372,549 $2,176,007 $3,354,084 $15,172,542 $14,880,016 
Average rate
  4.78%  5.44%  4.99%  5.42%  4.62%  5.53%  5.09%   4.75%  5.38%  5.01%  5.34%  4.68%  5.41%  5.06% 
    
  
Fixed rate deposits (4) $4,389,539 $728,399 $172,064 $150,852 $52,950 $10,253 $5,504,057 $5,545,659  $4,117,008 $837,402 $238,995 $154,506 $50,015 $9,803 $5,407,729 $5,435,772 
Average rate
  2.65%  3.09%  3.57%  4.29%  3.84%  3.48%  2.80%   2.25%  2.70%  3.25%  4.18%  3.22%  3.49%  2.43% 
Floating rate deposits (5) 1,749,118 192,916 190,891 183,887 163,279 1,789,305 4,269,396 4,269,369  2,174,808 199,106 196,958 186,133 153,944 1,781,620 4,692,569 4,692,530 
Average rate
  0.89%  0.60%  0.60%  0.57%  0.48%  0.41%  0.63%   0.89%  0.68%  0.68%  0.64%  0.50%  0.46%  0.68% 
 
Fixed rate borrowings (6) 438,471 338,788 102,792 5,796 5,837 838,971 1,730,655 1,691,848  497,546 179,823 102,775 5,815 5,794 838,808 1,630,561 1,606,294 
Average rate
  4.79%  4.24%  4.01%  2.88%  5.53%  4.96%  4.72%   4.88%  3.74%  4.01%  2.89%  5.52%  4.96%  4.74% 
Floating rate borrowings (7) 1,317,606 — — — — 20,000 1,337,606 1,322,354  722,927 — — — — 20,000 742,927 727,727 
Average rate
  0.32% — — — —  3.04%  0.36%   0.36% — — — —  2.69%  0.43% 
    
  
Total
 $7,894,734 $1,260,103 $465,747 $340,535 $222,066 $2,658,529 $12,841,714 $12,829,230  $7,512,289 $1,216,331 $538,728 $346,454 $209,753 $2,650,231 $12,473,786 $12,462,323 
Average rate
  1.99%  3.02%  2.45%  2.26%  1.41%  1.88%  2.08%   1.85%  2.52%  2.46%  2.26%  1.29%  1.91%  1.95% 
    
 
(1) Amounts are based on contractual payments and maturities, adjusted for expected prepayments. Excludes overdraft deposit balances.
 
(2) Line of credit amounts are based on historical cash flow assumptions, with an average life of approximately 5 years.
 
(3) Amounts are based on contractual maturities; adjusted for expected prepayments on mortgage-backed securities, collateralized mortgage obligations and expected calls on agency and municipal securities.
 
(4) Amounts are based on contractual maturities of time deposits.
 
(5) Estimated based on history of deposit flows.
 
(6) Amounts are based on contractual maturities of debt instruments, adjusted for possible calls. Amounts also include junior subordinated deferrable interest debentures.
 
(7) Amounts include Federal Funds purchased, short-term promissory notes and securities sold under agreements to repurchase, which mature in less than 90 days, in addition to junior subordinated deferrable interest debentures.
The preceding table and discussion addressed the liquidity implications of interest rate risk and focused on expected cash flows from financial instruments. Expected maturities,The periods of these expected principal cash flows, however, doare not necessarily estimateconsistent with the periods that would realize 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 periods. Overdraft deposit balances are not included in the preceding table.
Included within the $8.5$8.7 billion of floating rate loans above are $3.5$3.6 billion of loans, or 42%41.4% of the total, that float with the prime interest rate, $1.1$1.2 billion, or 13%13.4%, of loans which float with other interest rates, primarily LIBOR, and $3.9 billion, or 45%45.2%, of adjustable rate loans. The $3.9 billion of adjustable rate loans include loans that are fixed rate instruments for a certain period of time, and then convert to floating rates.

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The following table presents the percentage of adjustable rate loans, stratified by their remaining fixed term at JuneSeptember 30, 2009:
     
  Percent of Total
  Adjustable Rate
Fixed Rate Term Loans
One year  18.818.3%
Two years  1.0 
Three years  2.11.8 
Four years  1.4 
Five years  60.059.6 
Greater than five years  16.717.9 
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 rate relationships.
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 sum of assets and liabilities in each of these periods are compared for mismatches within that maturity segment. Core deposits having no contractual maturities are placed into repricing periods based upon historical balance performance. Repricing for mortgage loans, mortgage-backed securities and collateralized mortgage obligations 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 six-month ratio of rate sensitive assets to rate sensitive liabilities (RSA/RSL) to a range of 0.85 to 1.15. As of JuneSeptember 30, 2009, the cumulative six-month ratio of RSA/RSL was 1.08.1.11.
Simulation of net interest income and net 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 a 100 basis point shock in interest rates, 15% for a 200 basis point shock and 20% for a 300 basis point shock. A “shock’ is an immediate upward or downward movement of interest rates across the yield curve based upon changes in the prime rate. The shocks do not take into account changes in customer behavior that could result in changes to mix and/or volumes in the balance sheet nor do they account for competitive pricing over the forward 12-month period.
The following table summarizes the expected impact of interest rate shocks on net interest income (due to the current level of interest rates, the 200 and 300 basis point downward shock scenario is not shown):
       
  Annual change  
  in net interest  
Rate Shock income  % Change
+300 bp + $47.9$63.5 million  + 8.711.5%
+200 bp + $30.6$38.7 million  +  5.57.0%
+100 bp + $10.6$17.5 million  +  1.93.2%
- 100 bp (1) -  $5.1$  6.6 million  -  0.91.2%
(1)Because certain current short-term interest rates are at or below 1.00%, the 100 basis point downward shock assumes that corresponding short-term interest rates approach an implied floor that, in effect, reflects a decrease of less than the full 100 basis points downward shock.

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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

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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. As of JuneSeptember 30, 2009, the Corporation was within policy limits for every 100 basis point shock movement in interest rates.

5655

 

Item 4. Controls and Procedures
The Corporation carried out an evaluation, under the supervision and with the participation of the Corporation’s management, including the Corporation’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Corporation’s Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this quarterly report, the Corporation’s disclosure controls and procedures are effective. Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in Corporation reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
There have been no changes in our internal control over financial reporting during the fiscal quarter covered by this quarterly report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 1A. Risk Factors
Information responsive to this item as of June 30, 2009 appearsThere were no material changes from the risk factors set forth under the heading,Part I, Item 1A. “Risk Factors” withinon the Corporation’s Form 10-K for the year ended December 31, 2008.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities and Use of Proceeds
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of the Corporation was held April 29, 2009. There were 173,431,657 shares of common stock entitled to vote at the meeting and a total of 136,994,361 shares, or 78.1%, were represented at the meeting. At the annual meeting, the following individuals were elected to the Board of Directors:Not applicable.
             
Nominee Term For Withheld
             
Jeffrey G. Albertson 1 Year  95,949,263   41,045,098 
Craig A. Dally 1 Year  129,398,252   7,596,109 
Rufus A. Fulton, Jr. 1 Year  128,942,235   8,052,125 
Willem Kooyker 1 Year  129,418,026   7,576,335 
R. Scott Smith, Jr. 1 Year  126,967,892   10,026,469 
E. Philip Wenger 1 Year  128,536,393   8,457,968 
The following represents the results of a non-binding resolution to approve compensation of the named executive officers:
         
For Against Abstain
         
118,868,410  15,612,831   2,513,119 
The following represents the results to retain KPMG LLP, as independent auditor:
         
For Against Abstain
         
133,563,840  2,828,365   602,156 
Item 5. Other Information
Not applicable.

58

Item 6.Exhibits
See Exhibit Index for a list of the exhibits required by Item 601 of Regulation S-K and filed as part of this report.

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FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
FULTON FINANCIAL CORPORATION
     
   
Date: August 10,November 9, 2009 /s/ R. Scott Smith, Jr.   
 R. Scott Smith, Jr.  
 Chairman and Chief Executive Officer  
 
   
Date: August 10,November 9, 2009 /s/ Charles J. Nugent   
 Charles J. Nugent  
 Senior Executive Vice President and
Chief Financial Officer 		 

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EXHIBIT INDEX
Exhibits Required Pursuant
to Item 601 of Regulation S-K
3.1 Articles of Incorporation, as amended and restated, of Fulton Financial Corporation as amended —– Incorporated by reference to Exhibit 3.1 of the Fulton Financial Corporation Form S-4 Registration Statement filed on October 7, 2005.
 
3.2 Bylaws of Fulton Financial Corporation as amended —– Incorporated by reference to Exhibit 3.1 of the Fulton Financial Corporation Current Report on Form 8-K dated September 18, 2008.
 
3.3 Certificate of Designations of Fixed Rate Cumulative Preferred Stock, Series A of Fulton Financial Corporation —– Incorporated by reference to Exhibit 3.1 of the Fulton Financial Corporation Current Report on Form 8-K dated December 23, 2008.
 
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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