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 ended September 30, 2006, 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)		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. Yes þ No o

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

Large accelerated filer þ       Accelerated filer o       Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

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 – 173,502,000 shares outstanding as of October 31, 2006.

 

 

FULTON FINANCIAL CORPORATION
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2006

INDEX

Description		Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
(a) Consolidated Balance Sheets — September 30, 2006 and December 31, 2005			3
(b) Consolidated Statements of Income — Three and nine months ended September 30, 2006 and 2005			4
(c) Consolidated Statements of Shareholders’ Equity and Comprehensive Income — Nine months ended September 30, 2006 and 2005			5
(d) Consolidated Statements of Cash Flows — Nine months ended September 30, 2006 and 2005			6
(e) Notes to Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			15
Item 3. Quantitative and Qualitative Disclosures about Market Risk			41
Item 4. Controls and Procedures			44
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			45
Item 1A. Risk Factors			45
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			45
Item 3. Defaults Upon Senior Securities			45
Item 4. Submission of Matters to a Vote of Security Holders			45
Item 5. Other Information			45
Item 6. Exhibits			45
Signatures			46
Exhibit Index			47
Certifications			48

Item 1. Financial Statements
FULTON FINANCIAL CORPORATION

		September 30
		2006				December 31
		(unaudited)				2005
ASSETS
Cash and due from banks		$	338,598			$	368,043
Interest-bearing deposits with other banks			26,072				31,404
Federal funds sold			9,812				528
Loans held for sale			236,787				243,378
Investment securities:
Held to maturity (estimated fair value of $12,689 in 2006 and $18,317 in 2005)			12,703				18,258
Available for sale			2,937,968				2,543,887
Loans, net of unearned income			10,312,057				8,424,728
Less: Allowance for loan losses			(107,422	)			(92,847	)
Net Loans			10,204,635				8,331,881
Premises and equipment			188,403				170,254
Accrued interest receivable			70,901				53,261
Goodwill			621,837				418,735
Intangible assets			39,757				29,687
Other assets			223,179				192,239
Total Assets		$	14,910,652			$	12,401,555
LIABILITIES
Deposits:
Noninterest-bearing		$	1,886,514			$	1,672,637
Interest-bearing			8,390,514				7,132,202
Total Deposits			10,277,028				8,804,839
Short-term borrowings:
Federal funds purchased			1,183,447				939,096
Other short-term borrowings			650,197				359,866
Total Short-Term Borrowings			1,833,644				1,298,962
Accrued interest payable			57,130				38,604
Other liabilities			135,937				115,834
Federal Home Loan Bank advances and long-term debt			1,109,220				860,345
Total Liabilities			13,412,959				11,118,584
SHAREHOLDERS’ EQUITY
Common stock, $2.50 par value, 600 million shares authorized, 190.6 million shares issued in 2006 and 181.0 million shares issued in 2005			476,588				430,827
Additional paid-in capital			1,245,038				996,708
Retained earnings			71,596				138,529
Accumulated other comprehensive loss			(34,607	)			(42,285	)
Treasury stock, 17.1 million shares in 2006 and 16.1 million shares in 2005, at cost			(260,922	)			(240,808	)
Total Shareholders’ Equity			1,497,693				1,282,971
Total Liabilities and Shareholders’ Equity		$	14,910,652			$	12,401,555

See Notes to Consolidated Financial Statements

FULTON FINANCIAL CORPORATION AND SUBSIDIARIES

		Three Months Ended								Nine Months Ended
		September 30								September 30
		2006				2005				2006				2005
INTEREST INCOME
Loans, including fees		$	193,433			$	135,320			$	534,493			$	373,748
Investment securities:
Taxable			25,323				18,863				71,426				55,301
Tax-exempt			3,773				3,213				10,849				8,905
Dividends			1,653				1,177				4,553				3,496
Loans held for sale			4,224				4,955				11,688				10,973
Other interest income			695				542				1,950				1,066
Total Interest Income			229,101				164,070				634,959				453,489
INTEREST EXPENSE
Deposits			67,041				38,480				176,227				97,392
Short-term borrowings			21,697				8,655				55,430				23,393
Long-term debt			14,439				10,450				39,484				28,048
Total Interest Expense			103,177				57,585				271,141				148,833
Net Interest Income			125,924				106,485				363,818				304,656
PROVISION FOR LOAN LOSSES			555				815				2,430				2,340
Net Interest Income After Provision for Loan Losses			125,369				105,670				361,388				302,316
OTHER INCOME
Investment management and trust services			8,887				8,730				27,975				26,715
Service charges on deposit accounts			11,345				10,488				32,484				29,780
Other service charges and fees			6,693				5,818				19,923				18,519
Gains on sales of mortgage loans			5,480				7,586				15,439				19,533
Investment securities gains			1,450				905				5,524				5,638
Gain on sale of deposits			—				—				—				2,201
Other			3,057				2,636				8,176				7,947
Total Other Income			36,912				36,163				109,521				110,333
OTHER EXPENSES
Salaries and employee benefits			55,048				46,761				158,367				136,294
Net occupancy expense			9,260				7,459				26,856				21,506
Equipment expense			3,703				3,203				10,791				9,161
Data processing			3,057				3,100				9,131				9,590
Advertising			2,934				1,995				8,214				6,244
Intangible amortization			2,025				1,510				5,883				3,857
Other			16,398				17,509				51,992				46,902
Total Other Expenses			92,425				81,537				271,234				233,554
Income Before Income Taxes			69,856				60,296				199,675				179,095
INCOME TAXES			21,514				18,168				60,753				53,927
Net Income		$	48,342			$	42,128			$	138,922			$	125,168
PER-SHARE DATA:
Net income (basic)		$	0.28			$	0.26			$	0.80			$	0.76
Net income (diluted)			0.28				0.25				0.80				0.75
Cash dividends			0.1475				0.138				0.433				0.402

See Notes to Consolidated Financial Statements

FULTON FINANCIAL CORPORATION

																		Accumulated
		Number of								Additional								Other Com-
		Shares				Common				Paid-in				Retained				prehensive				Treasury
		Outstanding				Stock				Capital				Earnings				(Loss) Income				Stock				Total
Balance at December 31, 2005			164,868,000			$	430,827			$	996,708			$	138,529			$	(42,285	)		$	(240,808	)		$	1,282,971
Comprehensive income:
Net income															138,922												138,922
Unrealized gain on securities (net of $6.8 million tax effect)																			12,602								12,602
Unrealized loss on derivative financial instrument (net of $719,000 tax effect)																			(1,334	)							(1,334	)
Less — reclassification adjustment for gains included in net income (net of $1.9 tax expense)																			(3,590	)							(3,590	)
Total comprehensive income																											146,600
Stock dividend — 5%							22,648				107,952				(130,600	)											—
Stock issued, including related tax benefits			1,062,000				2,590				5,575																8,165
Stock-based compensation awards											1,195																1,195
Stock issued for acquisition of Columbia Bancorp			8,619,000				20,523				133,608																154,131
Acquisition of treasury stock			(1,056,000	)																			(16,691	)			(16,691	)
Accelerated share repurchase settlement																							(3,423	)			(3,423	)
Cash dividends — $0.433 per share															(75,255	)											(75,255	)
Balance at September 30, 2006			173,493,000			$	476,588			$	1,245,038			$	71,596			$	(34,607	)		$	(260,922	)		$	1,497,693
Balance at December 31, 2004			165,007,500			$	335,604			$	1,018,403			$	60,924			$	(10,133	)		$	(160,711	)		$	1,244,087
Comprehensive income:
Net income															125,168												125,168
Unrealized loss on securities (net of $7.6 million tax effect)																			(14,015	)							(14,015	)
Less — reclassification adjustment for gains included in net income (net of $2.0 million tax expense)																			(3,664	)							(3,664	)
Total comprehensive income																											107,489
Stock split paid in the form of a 25% stock dividend							84,046				(84,114	)															(68	)
Stock issued, including tax related benefits			1,108,800				1,637				3,698												5,071				10,406
Stock-based compensation awards											618																618
Shares issued for acquisition of SVB Financial Services, Inc.			3,934,350				9,368				57,242																66,610
Acquisition of treasury stock			(5,250,000	)																			(85,168	)			(85,168	)
Cash dividends — $0.402 per share															(65,646	)											(65,646	)
Balance at September 30, 2005			164,800,650			$	430,655			$	995,847			$	120,446			$	(27,812	)		$	(240,808	)		$	1,278,328

See Notes to Consolidated Financial Statements

FULTON FINANCIAL CORPORATION

		Nine Months Ended
		September 30
		2006				2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income		$	138,922			$	125,168
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses			2,430				2,340
Depreciation and amortization of premises and equipment			12,524				10,337
Net amortization of investment security premiums			2,861				3,879
Investment securities gains			(5,524	)			(5,638	)
Net decrease (increase) in loans held for sale			6,591				(54,060	)
Amortization of intangible assets			5,883				3,857
Stock-based compensation			1,195				618
Increase in accrued interest receivable			(10,984	)			(4,593	)
Increase in other assets			(21,615	)			(4,925	)
Increase in accrued interest payable			17,479				10,319
Decrease in other liabilities			(333	)			(4,281	)
Total adjustments			10,507				(42,147	)
Net cash provided by operating activities			149,429				83,021
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale			133,355				128,310
Proceeds from maturities of securities held to maturity			5,576				4,041
Proceeds from maturities of securities available for sale			472,535				509,082
Purchase of securities held to maturity			(529	)			(4,398	)
Purchase of securities available for sale			(790,634	)			(590,940	)
Decrease in short-term investments			12,902				14,725
Net increase in loans			(822,500	)			(458,552	)
Net cash paid for acquisitions			(104,891	)			(3,877	)
Net purchase of premises and equipment			(22,898	)			(21,138	)
Net cash used in investing activities			(1,117,084	)			(422,747	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in demand and savings deposits			(43,868	)			56,047
Net increase in time deposits			547,121				386,267
Additions to long-term debt			326,873				420,388
Repayment of long-term debt			(158,134	)			(231,267	)
Increase (decrease) in short-term borrowings			350,599				(29,231	)
Dividends paid			(72,432	)			(62,749	)
Net proceeds from issuance of common stock			8,165				10,406
Acquisition of treasury stock			(20,114	)			(85,168	)
Net cash provided by financing activities			938,210				464,693
Net (Decrease) Increase in Cash and Due From Banks			(29,445	)			124,967
Cash and Due From Banks at Beginning of Period			368,043				278,065
Cash and Due From Banks at End of Period		$	338,598			$	403,032
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest		$	253,755			$	138,546
Income taxes			58,102				43,356

See Notes to Consolidated Financial Statements

FULTON FINANCIAL CORPORATION

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 for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine-month periods ended September 30, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2006.

NOTE B – Net Income Per Share and Comprehensive Income

The Corporation’s basic net income per share is calculated as net income divided by the weighted average number of shares outstanding. For diluted net income per share, net income is divided by the weighted average number of shares outstanding plus the incremental number of shares added as a result of converting common stock equivalents, calculated using the treasury stock method. The Corporation’s common stock equivalents consist solely of outstanding stock options. Excluded from the calculation were 2.2 million anti-dilutive options for the three and nine months ended September 30, 2006.

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

		Three months ended								Nine months ended
		September 30								September 30
		2006				2005				2006				2005
		(in thousands)
Weighted average shares outstanding (basic)			173,439				164,656				172,595				164,034
Impact of common stock equivalents			1,951				1,955				2,094				2,015
Weighted average shares outstanding (diluted)			175,390				166,611				174,689				166,049

Total comprehensive income was $80.6 million and $146.6 million for the three and nine months ended September 30, 2006, respectively. Total comprehensive income was $33.5 million and $107.5 million for the three and nine months ended September 30, 2005, respectively.

NOTE C – Stock Dividend

The Corporation paid a 5% stock dividend on June 8, 2006 to shareholders of record on May 19, 2006. All share and per-share information has been restated to reflect the impact of this stock dividend.

NOTE D – Disclosures about Segments of an Enterprise and Related Information

The Corporation does not have any operating segments which require disclosure of additional information. While the Corporation owned fifteen separate banks as of September 30, 2006, each engaged in similar activities and provided similar products and services. The Corporation’s non-banking activities are immaterial and, therefore, separate information has not been disclosed.

NOTE E – Stock-Based Compensation

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

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

		Three months ended								Nine months ended
		September 30								September 30
		2006				2005				2006				2005
		(in thousands)
Compensation expense		$	509			$	439			$	1,195			$	618
Tax benefit			(76	)			(99	)			(195	)			(208	)
Net income effect		$	433			$	340			$	1,000			$	410

Under the Option Plans, options are granted to key employees for terms of up to ten years at option prices equal to the fair market value of the Corporation’s stock on the date of grant. Options are typically granted annually on July 1^st and, prior to the July 1, 2005 grant, had been 100% vested immediately upon grant. For the July 1, 2006 and 2005 grant, a three-year cliff-vesting feature was added. Certain events, as specified in the Option Plans and agreements, would result in the acceleration of the vesting period. As of September 30, 2006, the Option Plans had 14.1 million shares reserved for the future grants through 2013. On July 1, 2006, the Corporation granted approximately 840,000 options under its Option Plans.

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, U.S. Treasury securities and common trust funds; and equity securities, including common stocks and common stock mutual funds. The Pension Plan has been closed to new participants, but existing participants continue to accrue benefits according to the terms of the plan. The Corporation contributed approximately $4.1 million to the Pension Plan in September 2006.

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

The 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 nine-month periods ended September 30:

		Pension Plan
		Three months ended								Nine months ended
		September 30								September 30
		2006				2005				2006				2005
		(in thousands)
Service cost		$	607			$	619			$	1,822			$	1,864
Interest cost			864				843				2,593				2,528
Expected return on plan assets			(1,056	)			(818	)			(3,170	)			(2,455	)
Net amortization and deferral			202				222				605				665
Net periodic benefit cost		$	617			$	866			$	1,850			$	2,602

		Postretirement Plan
		Three months ended								Nine months ended
		September 30								September 30
		2006				2005				2006				2005
		(in thousands)
Service cost		$	208			$	88			$	498			$	265
Interest cost			269				115				643				346
Expected return on plan assets			—				—				(2	)			(1	)
Net amortization and deferral			(116	)			(56	)			(278	)			(168	)
Net periodic benefit cost		$	361			$	147			$	861			$	442

NOTE G – Acquisitions

On February 1, 2006, the Corporation completed its acquisition of Columbia Bancorp (Columbia) of Columbia, Maryland. Columbia was a $1.3 billion bank holding company whose primary subsidiary was The Columbia Bank, which operates 20 full-service community-banking offices and five retirement community offices in Howard, Montgomery, Prince George’s and Baltimore Counties and Baltimore City.

Under the terms of the merger agreement, each of the approximately 6.9 million shares of Columbia’s common stock was acquired by the Corporation based on a “cash election merger” structure. Each Columbia shareholder elected to receive 100% of the merger consideration in stock, 100% in cash, or a combination of stock and cash.

As a result of Columbia shareholder elections, approximately 3.5 million of the Columbia shares outstanding on the acquisition date were converted into shares of the Corporation’s common stock, based upon a fixed exchange ratio of 2.441 shares of Corporation stock for each share of Columbia stock. The remaining 3.4 million shares of Columbia stock were purchased for $42.48 per share. In addition, each of the options to acquire Columbia’s stock was converted into options to purchase the Corporation’s stock or was settled in cash, based on the election of each option holder and the terms of the merger agreement. The total purchase price was approximately $305.4 million, including $154.1 million in stock issued and stock options assumed, $149.4 million of Columbia stock purchased and options settled for cash and $1.9 million for other direct acquisition costs. The purchase price for shares issued was determined based on the value of the Corporation’s stock on the date when the number of shares was fixed and determinable.

As a result of the acquisition, Columbia was merged into the Corporation, and The Columbia Bank became a wholly owned subsidiary. The acquisition was accounted for using purchase accounting, which requires the allocation of the total purchase price to the assets acquired and liabilities assumed, based on their respective fair values at the acquisition date, with any remaining purchase price being recorded as goodwill. Resulting

goodwill balances are then subject to an impairment review on at least an annual basis. The results of Columbia’s operations are included in the Corporation’s financial statements prospectively from the February 1, 2006 acquisition date.

The following is a summary of the purchase price allocation based on estimated fair values on the acquisition date (in thousands):

Cash and due from banks		$	46,407
Other earning assets			16,854
Investment securities available for sale			113,761
Loans, net of allowance			1,052,684
Premises and equipment			7,775
Core deposit intangible asset			14,689
Trade name intangible asset			964
Goodwill			202,060
Other assets			92,859
Total assets acquired			1,548,053
Deposits			968,936
Short-term borrowings			184,083
Long-term debt			80,136
Other liabilities			9,495
Total liabilities assumed			1,242,650
Net assets acquired		$	305,403

On July 1, 2005, the Corporation completed its acquisition of SVB Financial Services, Inc. (SVB). SVB was a $530 million bank holding company whose primary subsidiary was Somerset Valley Bank, which operates 13 community-banking offices in Somerset, Hunterton and Middlesex Counties in New Jersey. The total purchase price was $90.4 million, including $66.6 million in stock issued and options assumed, $22.4 million in SVB stock purchased and options settled for cash and $1.4 million in other direct acquisition costs.

The following table summarizes unaudited pro-forma information assuming the acquisitions of Columbia and SVB had occurred on January 1, 2005. This pro-forma information includes certain adjustments, including amortization related to fair value adjustments recorded in purchase accounting (in thousands, except per-share information):

		Three months ended September 30								Nine months ended September 30
		2006 (1)				2005				2006				2005
Net interest income		$	125,924			$	121,548			$	369,316			$	355,615
Other income			36,912				37,660				108,788				115,618
Net income			48,342				46,253				139,729				138,157
Per Share:
Net income (basic)		$	0.28			$	0.27			$	0.80			$	0.78
Net income (diluted)			0.28				0.26				0.79				0.77

NOTE H – Derivative Financial Instruments

As of September 30, 2006, interest rate swaps with a notional amount of $300.0 million were used to hedge certain long-term fixed rate certificates of deposit. The terms of the certificates of deposit and the interest rate

swaps are similar and were committed to simultaneously. Under the terms of the swap agreements, the Corporation is the fixed rate receiver and the floating rate payer (generally tied to the three-month London Interbank Offering Rate, or LIBOR, a common index used for setting rates between financial institutions). The interest rate swaps are classified as fair value hedges and both the interest rate swaps and the certificates of deposit are recorded at fair value, with changes in the fair values during the period recorded as income or expense. For interest rate swaps accounted for as a fair value hedge, ineffectiveness is the difference between the changes in the fair value of the interest rate swap and the hedged item, in this case the certificates of deposit.

The Corporation’s analysis of hedge effectiveness indicated they were highly effective as of September 30, 2006. For the three and nine months ended September 30, 2006, net gains of $380,000 and $225,000, respectively, were recorded in other expense, representing the net impact of the change in fair values of the interest rate swaps and the certificates of deposit.

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

NOTE I – Commitments and Contingencies

The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. Those financial instruments include commitments to extend credit and letters of credit, which involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the Corporation’s Consolidated Balance Sheets. Exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and letters of credit is represented by the outstanding amount of those instruments.

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

		September 30
		2006				2005
		(in thousands)
Commitments to extend credit			4,420,948				3,556,674
Standby letters of credit			725,656				548,713
Commercial letters of credit			34,307				21,471

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

NOTE J – Stock Repurchases

In 2005, the Corporation purchased 4.5 million shares of its common stock from an investment bank at a total cost of $73.6 million under an “Accelerated Share Repurchase” program (ASR), which allowed the shares to

be purchased immediately rather than over time. The investment bank, in turn, repurchased shares on the open market over a period that was determined by the average daily trading volume of the Corporation’s shares, among other factors. The Corporation completed the ASR in February 2006 and settled its position with the investment bank by paying $3.4 million, representing the difference between the initial payment and the actual total price of the shares repurchased.

In March 2006, the Corporation’s Board of Directors approved a stock repurchase plan for 2.1 million shares through December 31, 2006. Repurchases under this plan will occur through open market acquisitions. During the nine months ended September 30, 2006, 1.1 million shares were repurchased under this plan. There were no shares repurchased under this plan for the three months ended September 30, 2006.

NOTE K – Long-Term Debt

In January 2006, the Corporation purchased all of the common stock of a subsidiary trust, Fulton Capital Trust I, which was formed for the purpose of issuing $150.0 million of trust preferred securities at a fixed rate of 6.29% and an effective rate of approximately 6.50% as a result of issuance costs and the settlement cost of the forward-starting interest rate swap. In connection with this transaction, $154.6 million of junior subordinated deferrable interest debentures were issued to the trust. These debentures carry the same rate and mature on February 1, 2036.

In February 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Financial Instruments – an amendment of FASB Statements No. 133 and 140” (Statement 155). Statement 155 amends the guidance in FASB Statements No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” Statement 155 allows financial instruments that have embedded derivatives to be accounted for as a whole, thereby eliminating the need to bifurcate the derivative from its host, if the holder elects to account for the whole instrument on a fair value basis. Statement 155 is effective for all financial instruments acquired, issued, or subject to a remeasurement date after the beginning of a company’s first fiscal year that begins after September 15, 2006, or January 1, 2007 for the Corporation. The Corporation does not expect Statement 155 to materially impact the Corporation’s consolidated financial statements.

In March 2006, the FASB issued Statement of Financial Accounting Standards No. 156, “Accounting for Servicing of Financial Assets — an amendment of FASB Statement No. 140” (Statement 156). Statement 156 requires recognition of a servicing asset or liability at fair value each time an obligation is undertaken to service a financial asset by entering into a servicing contract. Statement 156 also provides guidance on subsequent measurement methods for each class of separately recognized servicing assets and liabilities and specifies financial statement presentation and disclosure requirements. This statement is effective for fiscal years beginning after September 15, 2006, or January 1, 2007 for the Corporation. The Corporation is currently evaluating the impact of Statement 156 on the consolidated financial statements.

In April 2006, the FASB issued Staff Position FIN 46(R)-6, “Determining the Variability to Be Considered in Applying FASB Interpretation No. 46(R)” (Staff Position FIN 46(R)-6). This staff position addresses how an entity should determine the variability to be considered in applying FASB Interpretation No. FIN 46(R) (FIN 46). The variability that is to be considered in applying FIN 46 affects the determination of (a) whether the entity is a variable interest entity (VIE), (b) which interests are “variable interests” in the entity and (c) which party, if any, is the primary beneficiary of the VIE. The requirements prescribed by this staff position are to be applied prospectively for all new arrangements at the commencement of the first reporting period that begins after June 15, 2006, or July 1, 2006 for the Corporation. The new requirements need not be applied to entities that have previously been analyzed under FIN 46 unless a reconsideration event occurs. The staff position did not impact the Corporation’s consolidated financial statements.

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48). The interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes”. Specifically, the interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation is effective for fiscal years beginning after December 15, 2006, or January 1, 2007 for the Corporation. The Corporation is currently evaluating the impact of FIN 48 on the consolidated financial statements.

In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 108 (Topic 1N), “Correcting the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (SAB No. 108). SAB No. 108 provides interpretations of the SEC’s views regarding the process of quantifying financial statement misstatements. Specifically, the interpretation requires registrants to quantify misstatements using both a balance-sheet and income-statement approach and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. This SEC interpretation is effective for all quantifications of financial statement misstatements occurring for fiscal periods ending after November 15, 2006, or December 31, 2006 for the Corporation. The interpretation is not expected to materially impact the Corporation’s consolidated financial statements.

In September 2006, the Financial Accounting Standard Board (FASB) issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurement” (Statement 157). Statement 157 defines fair value, establishes a framework for measuring fair value in U.S. generally accepted accounting principles, and expands disclosure requirements for fair value measurements. Statement 157 does not require any new fair value measurements and is effective for financial statements issued for fiscal years beginning after November 15, 2007, or January 1, 2008 for the Corporation. The Corporation is currently evaluating the impact of Statement 157 on the consolidated financial statements.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Pension and Other Postretirement Plans” (Statement 158). Statement 158 requires employers to recognize the overfunded or underfunded status of defined benefit pension and postretirement plans as an asset or liability in its balance sheet and to recognize changes in that funded status in the year in which changes occur through comprehensive income, in addition to expanded disclosure requirements. The standard requires employers to measure defined benefit plan assets and obligations as of the date of the employer’s fiscal year-end balance sheet, for fiscal years after December 15, 2008, or December 31, 2008 for the Corporation. All other requirements of the standard are effective for employers with defined benefit pension or postretirement plans that issue publicly traded equity securities, for all fiscal years ending after December 15, 2006, or December 31, 2006 for the Corporation. The impact of Statement 158 on the Corporation’s consolidated balance sheets as of September 30, 2006, based upon the most recent actuarial measurements of the Pension and Postretirement Plans, would result in a decrease to assets of $400,000 additional liabilities of $10.6 million, representing the under funded status of the Corporation’s Pension and Postretirement Plans, and a decrease to equity, in the form of additional accumulated other comprehensive income, of $10.2 million.

In September 2006, the FASB ratified Emerging Issues Task Force (EITF) 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements ” (EITF 06-4). EITF 06-4 addresses accounting for endorsement split-dollar life insurance arrangements that provide a benefit to an employee that extends to postretirement periods. The EITF 06-4 would require that the postretirement benefit aspects of an endorsement-type split-dollar life insurance arrangement be recognized as a liability by the employer and that the obligation is not settled upon entering into an insurance arrangement. EITF 06-4 is effective for fiscal years beginning after December 15, 2007, or January 1, 2008 for the Corporation. The Corporation is currently evaluating the impact of EITF 06-4 on the consolidated financial statements.

NOTE M – Reclassifications

Certain amounts in the 2005 consolidated financial statements and notes have been reclassified to conform to the 2006 presentation.

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

FORWARD-LOOKING STATEMENTS

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

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

•

Changes in interest rates may have an adverse effect on the Corporation’s profitability.

•

Changes in economic conditions and the composition of the Corporation’s loan portfolios could lead to higher loan charge-offs or an increase in the allowance for loan losses and may reduce the Corporation’s income.

•

Fluctuations in the value of the Corporation’s equity portfolio, or assets under management by the Corporation’s trust and investment management services, could have a material impact on the Corporation’s results of operations.

•

If the Corporation is unable to acquire additional banks on favorable terms or if it fails to successfully integrate or improve the operations of acquired banks, the Corporation may be unable to execute its growth strategies.

•

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

•

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

•

The supervision and regulation by various regulatory authorities to which the Corporation is subject can be a competitive disadvantage.

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

RESULTS OF OPERATIONS

Overview

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

earning assets. The Corporation also generates revenue through fees earned on the various services and products offered to its customers and through sales of assets, such as loans, investments, or properties. Offsetting these revenue sources are provisions for credit losses on loans, other operating expenses and income taxes.

The Corporation’s net income for the third quarter of 2006 increased $6.2 million, or 14.8%, from $42.1 million in 2005 to $48.3 million in 2006. Net income for the first nine months of 2006 increased $13.8 million, or 11.0%, from $125.2 million in 2005 to $138.9 million in 2006. Diluted net income per share for the third quarter increased $0.03, or 12.0%, from $0.25 in 2005 to $0.28 in 2006. For the first nine months of 2006, diluted net income per share increased $0.05 per share, or 6.7%, from $0.75 in 2005 to $0.80 in 2006. The Corporation realized annualized returns on average assets of 1.31% and average equity of 13.26% during the third quarter of 2006. For the first nine months of 2006, the Corporation realized annualized returns on average assets of 1.32% and average equity of 13.04%. The annualized return on average tangible equity, which is net income, as adjusted for intangible amortization (net of tax), divided by average shareholders’ equity, excluding goodwill and intangible assets, was 25.14% and 24.34% for the three and nine months ended September 30, 2006, respectively.

For the three and nine months ended September 30, 2006, the Corporation experienced declines in net interest margin of six and five basis points, respectively. Significant increases in loans and investments have been funded by higher cost certificates of deposits and short-term borrowings, as opposed to lower cost core demand and savings accounts. Net interest income for the three and nine months ended September 30, 2006 included interest recoveries of $3.3 million and $4.6 million, respectively. Included in these totals was $2.3 million of interest related to one customer account. If loan demand continues to outpace the growth of core demand and savings accounts based upon continuation of the current interest rate environment and price sensitivity of customers, then further compression of the net interest margin may occur.

The increase in net income compared to the third quarter of 2005 resulted from a $19.4 million, or 18.3%, increase in net interest income due primarily to external growth through acquisitions, partially offset by the decline in net interest margin. Also contributing to the increase in net income was a slight increase in other income of $749,000, or 2.1%, offset by a $10.9 million, or 13.4%, increase in other expenses and a $3.3 million, or 18.4%, increase in income taxes.

For the first nine months of 2006, the increase in net income compared to the first nine months of 2005 resulted from a $59.2 million, or 19.4%, increase in net interest income, also due primarily to acquisitions, offset by the decline in net interest margin and an increase in other expenses of $37.7 million, or 16.1%. The increase in earnings was further offset by a $6.8 million, or 12.7%, increase in income taxes and an $812,000 decrease in other income.

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

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

Floating rate loans, short-term borrowings and savings and time deposit rates are generally influenced by short-term rates. The Federal Reserve Board (FRB) raised the Federal funds rate six times since September 30, 2005, for a total increase of 150 basis points (from 3.75% to 5.25%). The Corporation’s prime lending rate had a corresponding increase, from 6.75% to 8.25%, resulting in an increase in the

rates on floating rate loans as well as the rates on new fixed-rate loans. More significantly, the increase in short-term rates also resulted in increased funding costs, with short-term borrowings immediately repricing to higher rates and deposit rates – although more discretionary – increasing due to competitive pressures. Additionally, as rates have increased, customers have begun to shift funds from lower rate core demand and savings accounts to fixed rate certificates of deposit in order to lock into higher rates.

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

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

Acquisitions – In February 2006, the Corporation acquired Columbia Bancorp (Columbia), of Columbia, Maryland, a $1.3 billion bank holding company whose primary subsidiary was The Columbia Bank. Results for the three months and nine months ended September 30, 2006 in comparison to 2005 were impacted by this acquisition, as documented in the appropriate sections of Management’s Discussion.

In July 2005, the Corporation acquired SVB Financial Services, Inc. (SVB) of Somerville, New Jersey, a $530 million bank holding company whose primary subsidiary was Somerset Valley Bank. Results for the nine months ended 2006 in comparison to 2005, in addition to being impacted by the Columbia acquisition, were also impacted by the SVB acquisition, as documented in the appropriate sections of Management’s Discussion.

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

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

Merger and acquisition activity has also impacted the Corporation’s capital and liquidity. In order to complete acquisitions, the Corporation implemented strategies to maintain appropriate levels of capital and to provide necessary cash resources. In January 2006, the Corporation issued $154.6 million of junior subordinated deferrable interest debentures to fund the Columbia acquisition. See additional information in the “Liquidity” section of Management’s Discussion.

Deposits and Borrowings – The Corporation’s interest-bearing liabilities increased from 2005 to 2006 through a combination of acquisitions and efforts to fund loan growth and investment purchases.

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

to 48.4% in 2005). For the nine months ended September 30, 2006, a similar shift in the composition of interest-bearing liabilities from interest-bearing demand and savings deposit accounts (37.6% of total interest-bearing liabilities in 2006, compared to 40.9% in 2005) to certificates of deposit and short-term borrowings (52.8% in 2006, compared to 49.5% in 2005) occurred. The shift to higher cost liabilities has resulted in a decline in net interest margin.

Earning Assets – The Corporation’s interest-earning assets increased from 2005 to 2006 through a combination of acquisitions and internal loan growth.

During the third quarter of 2006, the Corporation experienced a slight shift in its composition of interest-earning assets from investments (21.8% of total average interest-earning assets in 2006, compared to 22.9% in 2005) to loans (76.1% in 2006, compared to 73.7% in 2005). For the nine months ended September 30, 2006, a similar shift in the composition of interest-earning assets from investments (22.1% in 2006, compared to 23.3% in 2005) to loans (75.8% in 2006, compared to 73.9% in 2005) occurred. The movement to higher-yielding loans has mitigated some of the factors that have had a negative effect on the Corporation’s net interest income and net interest margin. Slower growth in loans could result in a future shift in the composition of interest-earning assets from loans to investments.

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

The Corporation continued to maintain excellent asset quality throughout the first nine months of 2006, attributable to its credit culture and underwriting policies. The Corporation experienced annualized net recoveries to average loans of 0.01% in the third quarter of 2006 in comparison to annualized net charge-offs of 0.02% in the third quarter of 2005. Annualized net charge-offs to average loans improved from 0.02% for the nine months ended 2005 to 0.01% for the nine months ended September 30, 2006.

While overall asset quality has remained strong, deterioration in quality of one or several significant accounts could have a detrimental impact and result in losses that may not be foreseeable based on current information. In addition, rising interest rates could increase the total payments of borrowers and could have a negative impact on the ability of some to pay according to the terms of their loans. Finally, decreases in the values of underlying collateral as a result of market or economic conditions could affect asset quality.

Equity Markets – As noted in the “Market Risk” section of Management’s Discussion, equity valuations can have an impact on the Corporation’s financial performance. In particular, bank stocks account for a significant portion of the Corporation’s equity investment portfolio. Historically, gains on sales of these equities have been a recurring component of the Corporation’s earnings. Declines in bank stock portfolio values could have a detrimental impact on the Corporation’s ability to recognize gains in the future.

Quarter Ended September 30, 2006 versus Quarter Ended September 30, 2005

Results for the third quarter of 2006 compared to the results of the third quarter of 2005 were impacted by the February 2006 acquisition of Columbia, whose results are included in 2006 amounts, but not in the 2005 amounts.

Net Interest Income

Net interest income increased $19.4 million, or 18.3%, to $125.9 million in 2006 from $106.5 million in 2005. The increase was due to average balance growth, with total interest-earning assets increasing 20.3%, offset by a lower net interest margin. The average fully taxable-equivalent (FTE) yield on interest-earning assets increased 93 basis points (a 15.6% increase) over 2005 while the cost of interest-bearing liabilities increased 115 basis points (a 46.0% increase). Net interest margin decreased six basis points due to the more pronounced increase in the costs of interest-bearing liabilities.

The following table provides a comparative average balance sheet and net interest income analysis for the third quarter of 2006 as compared to the same period in 2005. Interest income and yields are presented on an FTE basis, using a 35% Federal tax rate. The discussion following this table is based on these FTE amounts. All dollar amounts are in thousands.

		Three months ended September 30
		2006												2005
		Average								Yield/				Average								Yield/
		Balance				Interest				Rate				Balance				Interest				Rate
ASSETS
Interest-earning assets:
Loans and leases (1)		$	10,167,362			$	194,379				7.59	%		$	8,186,974			$	136,143				6.60	%
Taxable investment securities (2)			2,309,644				25,323				4.39				2,016,879				18,863				3.74
Tax-exempt investment securities (2)			449,181				5,496				4.89				387,233				4,761				4.92
Equity securities (2)			155,894				1,834				4.69				139,097				1,369				3.92
Total investment securities			2,914,719				32,653				4.48				2,543,209				24,993				3.93
Loans held for sale			227,038				4,224				7.44				314,145				4,955				6.31
Other interest-earning assets			54,424				695				5.03				62,406				542				3.43
Total interest-earning assets			13,363,543				231,951				6.90	%			11,106,734				166,633				5.97	%
Noninterest-earning assets:
Cash and due from banks			329,482												370,531
Premises and equipment			187,876												164,447
Other assets			859,800												637,682
Less: Allowance for loan losses			(107,090	)											(94,527	)
Total Assets		$	14,633,611											$	12,184,867
LIABILITIES AND EQUITY
Interest-bearing liabilities:
Demand deposits		$	1,689,386			$	6,529				1.53	%		$	1,586,338			$	4,169				1.04	%
Savings deposits			2,385,811				14,257				2.37				2,162,030				7,640				1.40
Time deposits			4,294,731				46,255				4.27				3,301,661				26,671				3.20
Total interest-bearing deposits			8,369,928				67,041				3.18				7,050,029				38,480				2.17
Short-term borrowings			1,730,970				21,697				4.92				1,115,122				8,655				3.05
Long-term debt			1,093,815				14,439				5.24				955,096				10,450				4.34
Total interest-bearing liabilities			11,194,713				103,177				3.65	%			9,120,247				57,585				2.50	%
Noninterest-bearing liabilities:
Demand deposits			1,811,264												1,651,787
Other			181,322												133,704
Total Liabilities			13,187,299												10,905,738
Shareholders’ equity			1,446,312												1,279,129
Total Liabilities and Shareholders’ Equity		$	14,633,611											$	12,184,867
Net interest income/net interest margin (FTE)							128,774				3.85	%							109,048				3.91	%
Tax equivalent adjustment							(2,850	)											(2,563	)
Net interest income						$	125,924											$	106,485

The following table summarizes the changes in FTE interest income and expense due to changes in average balances (volume) and changes in rates:

		2006 vs. 2005
		Increase (decrease) due
		To change in
		Volume				Rate				Net
		(in thousands)
Interest income on:
Loans and leases		$	35,839			$	22,397			$	58,236
Taxable investment securities			2,942				3,518				6,460
Tax-exempt investment securities			758				(23	)			735
Equity securities			178				287				465
Loans held for sale			(1,533	)			802				(731	)
Other interest-earning assets			(75	)			228				153
Total interest income		$	38,109			$	27,209			$	65,318
Interest expense on:
Demand deposits		$	286			$	2,074			$	2,360
Savings deposits			862				5,755				6,617
Time deposits			9,291				10,293				19,584
Short-term borrowings			6,173				6,869				13,042
Long-term debt			1,647				2,342				3,989
Total interest expense		$	18,259			$	27,333			$	45,592

Interest income increased $65.3 million, or 39.2%, due to both increases in average balances of interest-earning assets and due to increases in rates. Interest income increased $38.1 million as a result of a $2.3 billion, or 20.3%, increase in average balances, while an increase of $27.2 million was realized from the 93 basis point increase in rates.

The increase in average interest-earning assets was primarily due to loan growth. Average loans increased $2.0 billion, or 24.2%. The following summarizes the growth in average loans, by type:

		Three months ended
		September 30								Increase
		2006				2005				$				%
		(dollars in thousands)
Commercial – industrial and financial		$	2,587,869			$	2,046,919			$	540,950				26.4	%
Commercial – agricultural			337,660				323,216				14,444				4.5
Real estate – commercial mortgage			3,113,086				2,725,748				387,338				14.2
Real estate – residential mortgage and home equity			2,108,792				1,751,744				357,048				20.4
Real estate – construction			1,412,678				756,102				656,576				86.8
Consumer			527,915				515,327				12,588				2.4
Leasing and other			79,362				67,918				11,444				16.8
Total		$	10,167,362			$	8,186,974			$	1,980,388				24.2	%