**FORM 10-K/A**

 

**SECURITIESAND EXCHANGE COMMISSION**

 

**Washington, D.C. 20549**

 

| **ý**                                                                                                                                                                                                                 | **Annual Report pursuant  to Section 13 or 15(d) of the Securities Exchange Act of 1934**     |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                                                                 | ** **                                                                                         |
| **for****the fiscal year ended  December 31, 2004.**                                                                                                                                                                  |
| ** **                                                                                                                                                                                                                 |
| **or**                                                                                                                                                                                                                     |
| ** **                                                                                                                                                                                                                 |
| **o**                                                                                                                                                                                                                      | **Transition Report  pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934** |
| ** **                                                                                                                                                                                                                 | ** **                                                                                         |
| **for the transition  period  from              to                ** |

 

**Fulton Bancshares Corporation**

(Exact name of registrant as specified in itscharter)

 

| **Pennsylvania**                                        |   | **33-85626**              |   | **25-1598464**                     |
|---------------------------------------------------------|--------|---------------------------|--------|------------------------------------|
| (State or other  jurisdiction of  incorporation)        |   | (Commission  File Number) |   | (IRS Employer  Identification No.) |
|                                                    |   |                      |   |                               |
| **100 Lincoln Way East,  McConnellsburg, Pennsylvania** |   | **17233**                 |
| (Address of principal  executive offices)               |   | (Zip Code)                |

 

**(717) 485-3144**

(Registrant’s telephone number, including area code)

 

Securities registered under Section 12 (b) of the Exchange Act:

**None**

 

Securities registered under Section 12 (g) of the Exchange Act:

**Common Stock, $.625 par value**

 

Indicate by check mark whether the registrant (1)has filed all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for shorterperiod that the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.    Yes  ý  No  o

 

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is notcontained herein and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form10-K.  ý

 

Indicate by check mark whether the registrant is anaccelerated filer (as defined in Rule 12b-2 of the Act).    Yes  o  No  ý

 

The aggregate market valueof voting stock held by non-affiliates of the registrant is $18,110,000 as of June 30,2004.

 

The number of shares of the Issuer’s commonstock, par value $.625 per share, outstanding as of December 31, 2004 was492,790.

 

**DOCUMENTSINCORPORATED BY REFERENCE**

 

Portions of the annual shareholders’ reportfor the year ended December 31, 2004 are incorporated by reference intoParts I and II. Portions of the Proxy Statement for the Annual Meeting ofSecurity Holders to be held on May 19, 2005 are incorporated by reference inPart III of this Form 10-K.

 

 

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**FULTONBANCSHARES CORPORATION**

 

INDEX

 
| Part I                                                                                                                     |   |
|----------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                       |   |
| Item 1. Business                                                                                                           |   |
|                                                                                                                       |   |
| Item 2. Properties                                                                                                         |   |
|                                                                                                                       |   |
| Item 3. Legal Proceedings                                                                                                  |   |
|                                                                                                                       |   |
| Item 4. Submission of Matters to a Vote of Security Holders                                                                |   |
|                                                                                                                       |   |
| Part II                                                                                                                    |   |
|                                                                                                                       |   |
| Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities |   |
|                                                                                                                       |   |
| Item 6. Selected Financial Data                                                                                            |   |
|                                                                                                                       |   |
| Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations                         |   |
|                                                                                                                       |   |
| Item 7A. Quantitative and Qualitative Disclosure About Market Risk                                                         |   |
|                                                                                                                       |   |
| Item 8. Financial Statements and Supplementary Data                                                                        |   |
|                                                                                                                       |   |
| Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                               |   |
|                                                                                                                       |   |
| Item 9A. Controls and Procedures                                                                                           |   |

 

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|                                                                                                    |   |
|---------------------------------------------------------------------------------------------------------|--------|
| Item 9B. Other Information                                                                              |   |
|                                                                                                    |   |
| Part III                                                                                                |   |
|                                                                                                    |   |
| Item 10. Directors and Executive Officers of the Registrant                                             |   |
|                                                                                                    |   |
| Item 11. Executive Compensation                                                                         |   |
|                                                                                                    |   |
| Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |   |
|                                                                                                    |   |
| Item 13. Certain Relationships and Related Transactions                                                 |   |
|                                                                                                    |   |
| Item 14. Principal Accountant Fees and Services                                                         |   |
|                                                                                                    |   |
| Part IV                                                                                                 |   |
|                                                                                                    |   |
| Item 15. Exhibits, Financial Statement Schedules                                                        |   |
|                                                                                                    |   |
| Signatures                                                                                              |   |

 

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**PART I**

 

**Item 1.****Business.**

 

**Description of theCompany**

 

Fulton Bancshares Corporation (the “Company”),a Pennsylvania business corporation, is a bank holding company registered withand supervised by the Board of Governors of the Federal Reserve System (the “FederalReserve Board”). The Company was incorporated on March 29, 1989 under thebusiness corporation law of the Commonwealth of Pennsylvania for the purpose ofbecoming a bank holding company. Since commencing operations, the Company’sbusiness has consisted primarily of managing and supervising the Fulton CountyNational Bank and Trust Company (the “Bank”), and its principal source ofincome has been dividends paid by the Bank. The Company has two wholly-ownedsubsidiaries - the Bank, and Fulton County Community Development Corporation (“FCCDC”),which was formed on June 7, 1996 to support efforts of the local downtownbusiness revitalization project by making low interest loans to eligible smallbusinesses for the purpose of facade improvement. FCCDC had minimal activity in2003 and 2004.

 

The principal executive office of the Companyis located at 100 Lincoln Way East, McConnellsburg, FultonCounty, Pennsylvania 17233. The telephone number of the Company is (717)485-3144.

 

**Description of theBank**

 

The Bank was organized on February 24,1887 as a Pennsylvania state- chartered banking institution. It converted to anational banking association on September 5, 1933, and is presently underthe supervision of the Office of the Comptroller of the Currency (the “Comptroller”).The Bank is a member of the Federal Reserve System. Customers’ deposits held bythe Bank are insured by the FDIC to the maximum extent permitted by law. TheBank’s legal headquarters are located at 100 Lincoln Way East, McConnellsburg, Fulton County, Pennsylvania 17233.

 

The Bank engages in a full service commercialand consumer banking business, including the acceptance of time and demanddeposits and the making of secured and unsecured commercial and consumer loans,and offers trust services through its affiliation with Sentry Trust Company.The Bank’s primary service area is located in Fulton County, Pennsylvania.Specifically, the main office of the Bank is located in McConnellsburg, thecounty seat. Within the defined service area of the Bank’s main office, thebanking business is highly competitive. In addition to local community banks,the Bank competes with regionally-based commercial banks, all of which havegreater assets, capital and lending limits. The Bank also competes with savingsbanks, savings and loan associations, money market funds, insurance companies,stock brokerage firms, regulated small loan companies, credit unions and withthe issuers of commercial paper and other securities.

 

In order to compete effectively in thismarket and to obtain business from individuals, small and medium-sizedbusinesses and professionals, the Bank offers specialized services such as

 

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\extendedhours of operation and personal and business checking accounts at competitiverates in addition to traditional commercial and consumer banking and trustservices. The Bank accepts time, demand, andsavings deposits, statement savings accounts, NOW accounts, money marketaccounts, certificates of deposit, and club accounts. The Bank makes securedand unsecured commercial, consumer, mortgage, and construction loans. Consumerloans include revolving credit lines. The following support services areoffered by the Bank to make financial management more efficient and convenientfor its customers: bank by mail, direct deposit, drive-in banking, Federal TaxDepository, automatic teller machine, night deposit services, notary publicservices, payroll deduction plan, bond coupon collections, safe deposit boxes,signature guarantees, travelers checks, money orders, cashiers checks, treasurysecurities, U.S. Savings Bonds, individual retirement accounts, and utility andmunicipal payments. The Bank also offers its customers access to discountbrokerage services, mutual funds, and other alternative investment productsthrough its affiliation with Sentry Trust Company. The Bank also offers telephoneand internet banking to its customers. The Bank expects to experience a modestincrease in growth.

 

**Supervision andRegulation - The Company**

 

The Company is subject to the provisions ofthe Bank Holding Company Act of 1956, as amended (the “Bank Holding Company Act”),and to supervision by the Federal Reserve Board. The Bank Holding Company Actrequires the Company to secure the prior approval of the Federal Reserve Boardbefore it owns or controls, directly or indirectly, more than five percent (5%)of the voting shares or substantially all of the assets of any institution,including another bank. The Bank Holding Company Act prohibits acquisition bythe Company of more than five percent (5%) of the voting shares of, or interestin, all or substantially all of the assets of any bank located outside ofPennsylvania unless such acquisition is specifically authorized by the laws ofthe state in which such bank is located.

 

A bank holding company is prohibited fromengaging in or acquiring direct or indirect control of more than five percent(5%) of the voting shares of any company engaged in nonbanking activitiesunless the Federal Reserve Board, by order or regulation, has found suchactivities to be so closely related to banking or managing or controlling banksas to be a proper incident thereto.

 

The Company is required to file an annualreport with the Federal Reserve Board and any additional information that theFederal Reserve Board may require pursuant to the Bank Holding Company Act. TheFederal Reserve Board may also make examinations of the Company and any or allof its subsidiaries.

 

Federal law prohibits acquisitions of controlof a bank holding company without prior notice to certain federal bankregulators. Control is defined for this purpose as the power, directly orindirectly, to direct the Management or policies of the bank or bank holdingcompany or to vote 25% or more of any class of voting securities of the bankholding company. A person or group holding revocable proxies to vote 25% or moreof the stock of a bank or its holding company would presumably be deemed tocontrol the institution for purposes of this federal law.

 

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Subsidiary banks of a bank holding companyare subject to certain restrictions imposed by the Federal Reserve Act on anyextensions of credit to the bank holding company or any of its subsidiaries, oninvestments in the stock or other securities of the bank holding company and ontaking of such stock or securities as collateral for loans to any borrower.

 

The Federal Reserve Board permits bankholding companies to engage in activities so closely related to banking ormanaging or controlling banks as to be a proper incident thereto. The Companydoes not at this time engage in any of the permissible activities describedbelow, nor does the Company have any current plans to engage in theseactivities in the foreseeable future.

 

**Legislation andRegulatory Changes**

 

From time to time, legislation is enactedwhich has the effect of increasing the cost of doing business, limiting orexpanding permissible activities or affecting the competitive balance betweenbanks and other financial institutions. Proposals to change the laws andregulations governing the operations and taxation of banks, bank holdingcompanies and other financial institutions are frequently made in Congress, andbefore various bank regulatory agencies. No prediction can be made as to thelikelihood of any major changes or the impact such changes might have on the Companyand its subsidiary, the Bank. Certain changes of potential significance to theCompany are discussed below.

 

**Recent Legislation**

 

**USA PATRIOT ACT**

 

In October 2001, the USA Patriot Act of2001 was enacted in response to the terrorist attacks in New York, Pennsylvaniaand Washington, D.C., which occurred on September 11, 2001. The PatriotAct is intended to strengthen U.S. law enforcement’s and the intelligencecommunities’ abilities to work cohesively to combat terrorism on a variety offronts. The potential impact of the Patriot Act on financial institutions ofall kinds is significant and wide ranging. The Patriot Act contains sweepinganti-money laundering and financial transparency laws and imposes variousregulations, including standards for verifying client identification at accountopening, and rules to promote cooperation among financial institutions,regulators and law enforcement entities in identifying parties that may beinvolved in terrorism or money laundering

 

**SARBANES-OXLEY ACT**

 

On July 30, 2002, President Bush signedinto law the Sarbanes-Oxley Act of 2002. The Sarbanes-Oxley Act represents acomprehensive revision of laws affecting corporate governance, accountingobligations and corporate reporting. The Sarbanes-Oxley Act is applicable toall companies with equity securities registered or that file reports under theSecurities Exchange Act of 1934. In particular, the Sarbanes-Oxley Actestablishes: (i) new requirements for audit committees, including independence,expertise, and responsibilities; (ii) additional responsibilities regardingfinancial statements for the Chief Executive Officer and Chief FinancialOfficer of the reporting company; (iii) new standards for auditors andregulation of audits; (iv) increased disclosure and reporting obligations forthe reporting company and its

 

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directorsand executive officers; and (v) new and increased civil and criminal penaltiesfor violations of the securities laws. Many of the provisions were effectiveimmediately while other provisions become effective over a period of time andare subject to rulemaking by the SEC. Because the Company’s common stock isregistered with the SEC, it is currently subject to this Act.

 

**AMERICAN JOBS CREATION ACT**

 

In 2004, the American Jobs Creation Act wasenacted as the first major corporate tax act in years. The act addresses anumber of areas of corporate taxation including executive deferred compensationrestrictions. The impact of the act on the Company and the Bank is unknown atthis time, but management is monitoring its developments.

 

**Supervision andRegulation - The Bank**

 

The operations of the Bank are subject tofederal and state statutes applicable to banks chartered under the banking lawsof the United States, to members of the Federal Reserve System and to bankswhose deposits are insured by the FDIC. The operations of the Bank are alsosubject to regulations of the Comptroller, the Federal Reserve Board, and theFDIC. The primary supervisory authority of the Bank is the Comptroller, whichregulates and examines the Bank. The Comptroller has authority to preventnational banks from engaging in unsafe or unsound practices in conducting theirbusinesses.

 

Federal and state banking laws andregulations govern, among other things, the scope of a bank’s business, theinvestments a bank may make, the reserves against deposits a bank mustmaintain, loans a bank makes and collateral it takes, the maximum interestrates a bank may pay on deposits, the activities of a bank with respect tomergers and consolidations and the establishment of branches. UnderPennsylvania law, the Bank may establish or acquire branch offices, subject tocertain limitations, in any county of the state. National bank branches,however, may be established within the permitted area only after approval bythe Comptroller.

 

As a subsidiary bank of a bank holdingcompany, the Bank is subject to certain restrictions imposed by the FederalReserve Act on any extensions of credit to the bank holding company or itssubsidiaries, or investments in the stock or other securities as collateral forloans. The Federal Reserve Act and Federal Reserve Board regulations also placecertain limitations and reporting requirements on extensions of credit by the Bankto principal shareholders of its parent holding company, among others, and torelated interests of such principal shareholders. In addition, such legislationand regulations may affect the terms upon which any person becoming a principalshareholder of a holding company may obtain credit from banks with which thesubsidiary Bank maintains a correspondent relationship.

 

**FDIC**

 

Under the Federal Deposit Insurance Act, theComptroller possesses the power to prohibit institutions regulated by it (suchas the Bank) from engaging in any activity that would be an unsafe and unsoundbanking practice or would otherwise be in violation of the law. Moreover,

 

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the Financial Institutions Regulatory andInterest Rate Control Act of 1978 (“FIRA”) generally expanded the circumstancesunder which officers or directors of a bank may be removed by the institution’sfederal supervisory agency, restricts lending by a bank to its executiveofficers, directors, principal shareholders or related interests thereof andrestricts management personnel of a bank from serving as directors or in othermanagement positions with certain depository institutions whose assets exceed aspecified amount or which have an office within a specified geographic area,and restricts management personnel from borrowing from another institution thathas a correspondent relationship with their bank.

 

Additionally, FIRA requires that no personmay acquire control of a bank unless the appropriate federal supervisory agencyhas been given sixty (60) days prior written notice and within that time hasnot disapproved the acquisition or otherwise extended the period fordisapproval. Control for purposes of FIRA, means the power, directly orindirectly, to direct the management or policies or to vote twenty-five percent(25%) or more of any class of outstanding stock of a financial institution orits respective holding company. A person or group holding revocable proxies tovote twenty-five percent (25%) or more of the outstanding common stock of afinancial institution or holding company such as the Company, would presumablybe deemed to control the institution for purposes of FIRA.

 

**CRA**

 

Under the Community Reinvestment Act of 1977,as amended (“CRA”), the Comptroller is required to assess the record of allfinancial institutions regulated by it to determine if these institutions aremeeting the credit needs of the community (including low and moderate incomeneighborhoods) which they serve and to take this record into account in itsevaluation of any application made by any of such institutions for, among otherthings, approval of a branch or other deposit facility, office relocation, amerger or an acquisition of bank shares. The Financial Institutions Reform, Recoveryand Enforcement Act of 1989 amended the CRA to require, among other things,that the Comptroller make publicly available the evaluation of a bank’s recordof meeting the credit needs of its entire community, including low and moderateincome neighborhoods. This evaluation will include a descriptive rating and astatement describing the basis for the rating, which is publicly disclosed.

 

**BSA**

 

Under the Bank Secrecy Act (“BSA”), banks andother financial institutions are required to report to the Internal RevenueService currency transactions of more than $ 10,000 or multiple transactions ofwhich the Bank is aware in any one day that aggregate in excess of $ 10,000.Civil and criminal penalties are provided under the BSA for failure to file arequired report, for failure to supply information required by the BSA or forfiling a false or fraudulent report.

 

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**FDICIA**

 

**CapitalCategories**

 

In December of 1991 the Federal DepositInsurance Corporation Improvement Act of 1991 (“FDICIA”) became law. UnderFDICIA, institutions must be classified, based on their risk-based capitalratios into one of five defined categories, as illustrated below: 

 
| ** **                     | ** ** | **Total Risk–  Based Ratio** | ** ** | **Tier 1  Risk-Based  Ratio** | ** ** | **Tier 1  Leverage  Ratio** | ** ** | **Under a  Capital  Order or  Directive** |
|--------------------------------|------------|-----------------------------------|------------|-------------------------------|------------|-----------------------------|------------|-------------------------------------------|
| CAPITAL CATEGORY               |       |                              |       |                          |       |                        |       |                                      |
| Well capitalized               |       | >10.0                          |       | >6.0                       |       | >5.0                     |       | No                                        |
|                           |       |                              |       |                          |       |                        |       |                                      |
| Adequately capitalized         |       | > 8.0                          |       | > 4.0                      |       | > 4.0                    | *          |                                      |
|                           |       |                              |       |                          |       |                        |       |                                      |
| Undercapitalized               |       | < 8.0                          |       | < 4.0                      |       | < 4.0                    | *          |                                      |
|                           |       |                              |       |                          |       |                        |       |                                      |
| Significantly Undercapitalized |       | < 6.0                          |       | < 3.0                      |       | < 3.0                    |       |                                      |
|                           |       |                              |       |                          |       |                        |       |                                      |
| Critically Undercapitalized    |       |                              |       | < 2.0                      |       |                        |       |                                      |

 

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* 3.0 for those banks having the highestavailable regulatory rating.

 

As of December 31, 2004, the most recentnotification from the comptroller of the currency categorizes the Bank asadequately capitalized under the regulatory framework for prompt correctiveaction.

 

Under FDICIA, financial institutions aresubject to increased regulatory scrutiny and must comply with certainoperational, managerial and compensation standards to be developed by FederalReserve Board regulations.

 

FDICIA also requires the regulators to issuenew rules establishing certain minimum standards to which an institution mustadhere including standards requiring a minimum ratio of classified assets tocapital, minimum earnings necessary to absorb losses and minimum ratio ofmarket value to book value for publicly held institutions. Additionalregulations are required to be developed relating to internal controls, loandocumentation, credit underwriting, interest rate exposure, asset growth andexcessive compensation, fees and benefits.

 

In addition to banking and securities laws,regulations and regulatory agencies, the Company also is subject to variousother laws, regulations, and regulatory agencies throughout the United States.Furthermore, various proposals, bills, and regulations have been and are beingconsidered in the United States Congress, and various other governmentalregulatory and legislative bodies, which could result in changes in theprofitability and governance of the Company. It cannot be

 

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predictedwhether new legislation or regulations will be adopted and, if so, how theywould affect the Company.

 

References under the caption “Supervision andRegulation” to applicable statutes, regulations and orders are brief summariesof portions thereof which do not purport to be complete and which are qualifiedin their entirety by reference thereto.

 

**Future Legislation**

 

Changes to the laws and regulations in thestate where the Company and the Bank do business can affect the operatingenvironment of bank holding companies and their subsidiaries in substantial andunpredictable ways. The Company cannot accurately predict whether those changesin laws and regulations will occur, and, if those changes occur, the ultimateeffect they would have upon the financial condition or results of operations ofthe Company.

 

**Effects of Inflation**

 

Inflation has some impact on the Company’s,the Bank’s, and FCCDC’s operating costs. Unlike many industrial companies,however, substantially all of the Bank’s and FCCDC’s assets and liabilities aremonetary in nature. As a result, interest rates have a more significant impacton the Company’s, the Bank’s, and FCCDC’s performance than the general level ofinflation. Over short periods of time, interest rates may not necessarily movein the same direction or in the same magnitude as prices of goods and services.

 

**Monetary Policy**

 

The earnings of the Company, the Bank, andFCCDC are affected by domestic economic conditions and the monetary and fiscalpolicies of the United States Government and its agencies. An importantfunction of the Federal Reserve System is to regulate the money supply andinterest rates. Among the instruments used to implement those objectives areopen market operations in United States government securities and changes inreserve requirements against member bank deposits. These instruments are usedin varying combinations to influence overall growth and distribution of bankloans, investments and deposits, and their use may also affect rates charged onloans or paid for deposits.

 

The Bank is a member of the Federal ReserveSystem and, therefore, the policies and regulations of the Federal Reserve Boardhave a significant effect on its deposits, loans and investment growth, as wellas the rate of interest earned and paid, and are expected to affect the Bank’soperations in the future. The effect of such policies and regulations upon thefuture business and earnings of the Company, the Bank, and FCCDC cannot bepredicted.

 

**EnvironmentalRegulation**

 

There are several federal and state statuteswhich regulate the obligations and liabilities of financial institutionspertaining to environmental issues. In addition to the potential for attachmentof liability resulting from its own actions, a bank may be held liable undercertain

 

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circumstancesfor the actions of its borrowers, or third parties, when such actions result inenvironmental problems on properties that collateralize loans held by the Bank.Further, the liability has the potential to far exceed the original amount ofthe loan issued by the Bank. Currently, the Company, the Bank, and FCCDC arenot party to any pending legal proceeding pursuant to any environmentalstatute, nor is the Company, the Bank, or FCCDC aware of any circumstanceswhich may give rise to liability under any such statute

 

**Concentrations**

 

The Bank is neither dependent upon depositsfrom nor exposed to loan concentrations to a single customer, the loss of whichwould have a material adverse effect on the financial condition of the Bank.Although the Bank has a diversified loan portfolio, a significant portion ofits customers’ ability to honor their contracts is dependent upon theagribusiness economic sector (approximately 20% of loan portfolio and****119% of stockholders’ equity).  The Corporation also had a significantconcentration in FNMA and FHLMC preferred stocks, representing 37% of the totalinvestments and 72% of the stockholder’s equity at December 31, 2003.  All of these investments were sold in 2004.

 

**CompetitiveBusiness Conditions**

 

The Company’scurrent primary service area, generally characterized as Fulton County, Pennsylvania.  The bank competes with local commercial banksas well as numerous regionally based commercial banks, some of which haveassets, capital, and lending limits larger than the bank.  The bank competes with respect to its lendingactivities as well as in attracting demand, savings, and time deposits withother commercial banks, savings banks, regulated small loan companies, creditunions and other money market funds.  Thebusiness of the bank is not seasonal in nature.

 

**Employees**

 

As of December 31, 2004, the Companythrough its subsidiary had 47 full-time equivalent employees.  None of these employees are represented by acollective bargaining agreement, and the Company believes it enjoys goodrelations with its personnel.

 

**Available Information**

 

The Company’s reports, proxy statements andother information are available for inspection and copying at the PublicReference Room at Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC,20549, at prescribed rates. The public may obtain information on the operationof the Public Reference Room by calling the Commission at 1-800-SEC-0330. TheCompany is an electronic filer with the Commission. The Commission maintains awebsite that contains reports, proxy and information statements and otherinformation regarding registrants that file electronically with the Commission.The address of the Commission’s website is http://www.sec.gov.

 

Upon a stockholder’s written request, a copyof the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q andCurrent Reports on Form 8-K, as required to be filed with

 

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theSEC pursuant to Securities Exchange Act Rule 13a-1, may be obtained, withoutcharge, from David Cathell, Fulton Bancshares Corporation, 100 Lincoln WayEast, McConnellsburg, PA 17233. The Company has not yet made arrangements tohave these filings available on its website at www.fnbctc.com.

 

**Important Factors relating to Forward LookingStatements**

 

The Private Securities Litigation Reform Actof 1995 provides a “safe harbor” for forward-looking statements to encouragecompanies to provide prospective information about their companies without fearof litigation so long as those statements are identified as forward-looking andare accompanied by meaningful cautionary statements identifying importantfactors that could cause actual results to differ materially from thoseprojected in such statements. In connection with certain statements made inthis report and those that may be made in the future by or on behalf of theCompany which are identified as forward-looking statements, the Company notesthat the following important factors, among others, could cause actual resultsto differ materially from those set forth in any such forward-looking statement.Further, such forward- looking statements speak only as of the date on whichsuch statement or statements are made, and the Company undertakes no obligationto update any forward-looking statement or statements to reflect events orcircumstances after the date on which such statement is made or to reflect theoccurrence of unanticipated events.

 

The business and profitability of a financialservices organization such as the Company is influenced by prevailing economicconditions and governmental policies. The actions and policy directives of theFRB determine to a significant degree the cost and the availability of fundsobtained from money market sources for lending and investing. FRB polices andregulations also influence, directly and indirectly, the rates of interest paidby commercial banks on their interest-bearing deposits and may also impact thevalue of financial instruments held by the Company. The nature and impact onthe Company of future changes in economic and market conditions and monetary andfiscal policies, both foreign and domestic, are not predictable and are beyondthe Company’s control. In addition, these conditions and policies can impactthe Company’s customers and counterparties which may increase the risk ofdefault on their obligations to the Company and its affiliates. They can alsoaffect the competitive conditions in the markets and products within which theCompany operates, which can have an adverse impact on the Company’s ability tomaintain its revenue streams.

 

As part of its ongoing business, the Companyassumes financial exposures to interest rates, currencies, equities and otherfinancial products. In doing so, the Company is subject to unforeseen eventswhich may not have been anticipated or which may have effects which exceedthose assumed within its risk management processes. This risk can beaccentuated by volatility and reduction in liquidity and those markets which inturn can impact the Company’s ability to hedge and trade the positionsconcerned. In addition, the Company is dependent on its ability to access thefinancial markets for its funding needs.

 

As noted in “Supervision and Regulation”, theCompany is regulated by and subject to various regulators. The actions of theseregulators can have an impact on the profitability and governance of the Company.Increases by regulatory authorities of minimum capital, reserve,

 

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depositinsurance and other financial viability requirements can also affect theCompany’s profitability.

 

The Company is subject to operational andcontrol risk which is the potential for loss caused by a breakdown incommunication, information, processing and settlement systems or processes orlack of compliance with the procedures on which they rely either within theCompany or within the broader financial systems infrastructure.

 

As with any financial institution, theCompany and its affiliates are also subject to the risk of litigation and to anunexpected or adverse outcome in such litigation. Competitive pressures in themarketplace and unfavorable or adverse publicity and news coverage can have theeffect of lessening customer demand for the Company’s services. Ultimately, theCompany’s businesses and their success are dependent on the Company’s abilityto attract and retain high quality employees.

 

**Item 2.****Properties**

 

The main administrative office of the Bank,which also includes a drive-up facility, is located in McConnellsburg,Pennsylvania. The Bank currently has seven branch offices one of which islocated at Penn’s Village on Route 16 at the east end of McConnellsburg,Pennsylvania. This branch office opened on May 11, 1981. In addition, the Bankinstalled an ATM at the Penn’s Village Shopping Center in March, 1989.

 

The Bank also serves the communitiessurrounding the Pennsylvania/Maryland border through its branch office locatedin Warfordsburg, Pennsylvania. This branch opened for business on April 4,1983. On the same day, a third branch office was opened in Hustontown,Pennsylvania, which services northern Fulton County. Finally, to service thesouthern end of Huntington County, the Bank acquired a branch in Shade Gap,Pennsylvania, on September 26, 1988.

 

On July 15, 1999, the Bank opened abranch, including an ATM, at the Sandy Ridge Mall in Orbisonia, PA. To servicethe western portion of Franklin County, the Bank opened a branch, including anATM, on Route 30 in St. Thomas, PA on November 15, 1999. On February 11,2002, the Bank opened a branch in Breezewood, Pennsylvania, including an ATM,to service eastern Bedford County.

 

On January 7, 1997 ATM’s were opened atthe Warfordsburg and Hustontown branches. In June, 1998 the Bank opened an ATMat the Shade Gap branch and added an ATM to its main office drive-up facility.The main office, Warfordsburg, Hustontown, Orbisonia and Breezewood branchesare owned by the Bank. The Penn’s Village branch is rented.  The Shade Gap branch is still owned by the Bank, however the branch itself was closed while the ATMremains open.

 

**Item 3.****Legal Proceedings.**

 

Fulton Bancshares Corporation is anoccasional party to legal actions arising in the ordinary course of itsbusiness. In the opinion of the Company’s management, Fulton BancsharesCorporation has adequate legal defenses and/or insurance coverage respectingany and each of

 

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theseactions and does not believe that they will materially affect the Company’soperations or financial position.

 

**Item 4.****Submission of Matters to Vote ofSecurity Holders.**

 

None.

 

**PART II**

 

**Item 5.****Market for Registrant’s CommonStock, Related Security Holder Matters and Issuer Purchases of EquitySecurities.**

 

The Company’s common stock is traded on alimited basis in the local over-the-counter market under the symbol FULB. As ofDecember 31, 2004, the approximate number of shareholders of record was504. Market prices at the end of each quarter are based on the latest salesprices.

 

The stock market analysis and dividends for2004 and 2003 on page 46 of the annual shareholders report for the year ended December 31,2004 is incorporated herein by reference**.**

 

Dividend restrictions are detailed in Note 14of the annual shareholders report and are incorporated herein by reference.

 

The Company has no securities authorized forissuance under any equity compensation plans.

 

The Company made no sales of unregisteredsecurities within the past three years****nor has theCompany made any repurchases within the past three months.

 

**Item 6.****Selected Financial Data.**

 

The selected five-year financial data on page27 of the annual shareholders’ report for the year ended December 31, 2004is incorporated herein by reference.

 

**Item 7.****Management’s Discussion andAnalysis of Financial Condition and Results of Operations.**

 

Information required by Item 7 is included in“Management’s Discussion and Analysis of Financial Condition and Results ofOperation”, on pages 31 through 46****of the annualshareholders’ report which are incorporated herein by reference.

 

**Item 7A.****Quantitative and Qualitative Disclosure AboutMarket Risk.**

 

Information required by Item 7 is included in“Management’s Discussion and Analysis of Financial Condition and Results ofOperations”, on pages 31 through 46****of the annualshareholders’ report which are incorporated herein by reference.

 

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**Item 8.****Financial Statements andSupplementary Data.**

 

The financial statements and supplementary data, some of which isrequired under Guide 3 (statistical disclosures by bank holding companies) are shownon pages 2 through 30 of the annual shareholders’ report for the year ended December 31,2004 and are incorporated herein by reference. Additional required schedulesare included in ““Management’s Discussion and Analysis of Financial Conditionand Results of Operations”, on pages 31 through 46****ofthe annual shareholders’ report which are incorporated herein by reference.

 

**Item 9.****Disagreements on Accounting andFinancial Disclosures.**

 

Not applicable.

 

**Item 9A.****Controls and Procedures**

 

**Disclosure Controlsand Procedures**

 

The Company’s Principal Executive Officer andChief Financial Officer have evaluated the effectiveness of the Company’sdisclosure controls and procedures (as such term is defined in Rules 13a-15(e)under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) asof December 31, 2004. Based on such evaluation, such officers haveconcluded that, as of December 31, 2004, the Company’s disclosure controlsand procedures are effective in alerting them on a timely basis to materialinformation relating to the Company (including its consolidated subsidiaries)required to be included in the Company’s periodic filings under the ExchangeAct.

 

**Internal Controls OverFinancial Reporting**

 

The Company made no significant changes inits internal controls or in other factors that could significantly affect thesecontrols during the fourth quarter of the year ended December 31, 2004,including any corrective actions with regard to significant deficiencies andmaterial weaknesses

 

**9B. Other Information.**

 

**Item 2.06  Material Impairments.**

 

On December 23, 2004,****the Board of Directors concluded that a material charge forimpairment would be required with regards to the Company’s investment in FNMAand FHLMC preferred stocks.  The estimatedamount of the impairment charge would have been $950,000.  However, instead of taking the impairmentcharge the Company chose to sell its entire position in FNMA and FHLMCpreferred stocks during the fourth quarter due to concerns about protractedmarket value impairment in an expected return to rising rates environment anddue to regulatory concerns about the Bank’s concentration in this investmenttype.

 

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**PART III**

 

**Item 10.****Directors and Executive Officers of the Registrant**

 

The information under the captions “Informationabout Nominees and continuing Directors” “Executive Officers” and “Section 16(a)Beneficial Ownership Reporting Compliance” is incorporated herein by referenceto the Company’s proxy statement for its 2005 Annual Meeting of Shareholdersscheduled for May 19, 2005.

 

The Company has adopted a code of ethics thatapplies to all directors, officers, and employees (including its chiefexecutive officer, chief financial officer, and any person performing similarfunctions). The Company has filed a copy of this Code of Ethics as Exhibit 14to its Form 10-K for fiscal year ended December 31, 2003. The Company hasalso made the Code of Ethics available on its website at http://www.fcnbtc.com.

 

**Item 11.****Executive Compensation**

 

The information under the caption “ExecutiveCompensation” is incorporated herein by reference to the Company’s proxystatement for its 2005 annual meeting of shareholders scheduled for May 19,2005.

 

**Item 12.****Security Ownership of Certain Beneficial Owners andManagement and Related Stockholder Matters**

 

The information under the caption “PrincipalBeneficial Owners of the Corporations Common Stock” is incorporated herein byreference to the Company’s proxy statement for its 2005 annual meeting ofshareholders scheduled for May 19,2005.

 

**Item 13.****Certain Relationships and Related Transactions**

 

The information under the caption “CertainTransactions with Directors and Executive Officers” is incorporated herein byreference to the Company’s proxy statement for its 2005 annual meeting ofshareholders scheduled for May 19, 2005.

 

**Item 14.****Principal Accountant Fees and Services**

 

Theinformation under the caption “Report of the Audit Committee” is incorporatedherein by reference to the Company’s proxy statement for its 2005 annualmeeting of shareholders scheduled for May 19, 2005.

 

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**PART IV**

 

**Item 15.****Exhibits, Financial StatementSchedules, and Reports of Form 8-K.**

 

(a) (1) - List of Financial Statements. Thefollowing consolidated financial statements of Fulton Bancshares Corporationand its subsidiaries, included in the annual report of the registrant to itsshareholders for the year ended December 31, 2004, are incorporated byreference in Item 8:

 

Consolidated balance sheets - December 31,2004 and 2003

 

Consolidated statements of income - Yearsended December 31, 2004, 2003, and 2002

 

Consolidated statements of stockholders’equity - Years ended December 31, 2004, 2003, and 2002

 

Consolidated statements of cash flows - Yearsended December 31, 2004, 2003, and 2002

 

Notes to consolidated financial statements - December 31,2004

 

(2) List of Financial Statement Schedules.All financial statement schedules for which provision is made in the applicableaccounting regulations of the Securities and Exchange Commission are notrequired under the related instructions or are inapplicable and therefore havebeen omitted.

 

(b) Listing of Exhibits

 

 3  (i)       Articlesof Incorporation

 

(ii)       Bylaws

 

10.1         SalaryContinuation Agreement/Supplemental Executive Retirement Plan for the ChiefExecutive Officer: Clyde H. Bookheimer (Incorporated by reference to theRegistrant’s Form 10-K for the year ended December 31, 2002).

 

10.3         DirectorDeferred Compensation Plan Agreement applicable to Cecil B. Mellott, David L.Seiders, Clair R. Miller, Ellis L. Yingling, Martin R. Brown and Robert C.Snyder (Incorporated by reference to the Registrant’s Form 10-K for the yearended December 31, 2002).

 

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10.4         DirectorEmeritus Retirement Agreement applicable to Raleigh Barnett, K.G. Richards andMerill Kerlin (Incorporated by reference to the registrant’s Form 10-K for theyear ended December 31, 2002).

 

10.5         SalaryContinuation Agreement/Supplemental Executive Retirement Plan for Alice Clark,Senior Vice President

 

13            AnnualReport to security holders.

 

14            Codeof Ethics (Incorporated by reference to the Registrant’s Form 10-K for theyear   ended December 31, 2003).

 

21            Subsidiariesof the registrant

 

23            Consentof independent auditors.

 

31.1 Certification of Chief Executive Officerpursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

31.2 Certification of Chief Financial Officerpursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

32.1 Certification of Chief Executive Officerpursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906of the Sarbanes-Oxley Act of 2002

 

32.2 Certification of Chief Financial Officerpursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906of the Sarbanes-Oxley Act of 2002

 

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**SIGNATURES**

 

Pursuant to the requirements of Section 13or 15(d) of the Securities Exchange Act of 1934, the registrant has duly causedthis report to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 

**FULTONBANCSHARES CORPORATION**

(Registrant)

 

 
|                             | *By*   | */s/ David Cathell*         |   |
|----------------------------------|--------|-----------------------------|--------|
|                             |   | Principal Executive Officer |
| Dated:  March 30, 2005 |   |                        |
|                             |   |                        |
|                             | *By*   | */s/ David Cathell*         |   |
|                             |   | Chief Financial Officer     |

 

In accordance with the requirements of Section 13or 15(d) of the Securities Act of 1934, this report was signed by the followingpersons on behalf of the Registrant in the capacities and on the datesindicated. 

 
| **Signature**             | ** ** | **Title** | ** **                   | **Date** |
|---------------------------|------------|-----------|------------------------------|----------|
| * *                  | * *   | * *  | * *                     | * * |
| */S/ David L. Seiders*    | * *   | * *  | Director & Vice Chairman |     | March 30, 2005 |
| David L. Seiders          |       |      |                         |     |
|                      |       |      |                         |     |
| */S/ Cecil B. Mellott*    | * *   | * *  | Director & Chairman      |     | March 30, 2005 |
| Cecil B. Mellott          |       |      |                         |     |
|                      |       |      |                         |     |
| */S/ Robert C. Snyder*    | * *   | * *  | Director                     |     | March 30, 2005 |
| Robert C. Snyder          |       |      |                         |     |
|                      |       |      |                         |     |
| */S/ Clyde H. Bookheimer* | * *   | * *  | Director                     |     | March 30, 2005 |
| Clyde H. Bookheimer       |       |      |                         |     |
|                      |       |      |                         |     |
| */S/ Ellis L. Yingling*   | * *   | * *  | Director                     |     | March 30, 2005 |
| Ellis L. Yingling         |       |      |                         |     |
|                      |       |      |                         |     |
| */S/ Clair R. Miller*     | * *   | * *  | Director & Vice Chairman | * * | March 30, 2005 |
| Clair R. Miller           |       |      |                         |     |
|                      |       |      |                         |     |
| */s/ Martin R. Brown*     | * *   | * *  | Director                     |     | March 30, 2005 |
| Martin R. Brown           |       |      |                         |     |
|                      |       |      |                         |     |
| */s/Robert L. Thomas*     | * *   | * *  | Director                     |     | March 30, 2005 |
| Robert L. Thomas          |       |      |                         |     |
|                           |            |           |                              |          |  |  |  |  |  |

 

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