**Exhibit 99.2**

 

**Fulton Bancshares Corporation**

**100Lincoln Way East, McConnellsburg, PA 17233**

 

 
|   | November 14,  2005 |
|--------|-------------------------|

 

Dear Shareholder,

 

For the Third Quarter of this year, FultonBancshares Corporation (“Company”) recorded net income of $(99 thousand), $(0.20)per diluted share, compared to net income of $306 thousand, $0.62 per dilutedshare, for the same period last year. For the first nine months of this year, the Company recorded net incomeof $(114 thousand), $(0.23) per diluted share, compared to net income of $563thousand or $1.14 per common share for the same period one year ago.

 

Total assetshave declined from $141.8 million at December 31, 2004 to $139.4 millionat September 30, 2005.  The majorchanges in the balance sheet is the migration of funds from loans recorded netof the allowance for loan and lease losses, which declined from $92.6 millionto $81.6 million, to investment securities, which increased from $19.0 millionto $32.4 million over the same period.

 

The loss forthe Quarter reflects this migration of funds from loans to investmentsecurities, which do not return the same level of income to the Company.  The loss also reflects the continued expenseof bringing the Company and its subsidiary, The Fulton County National Bank andTrust Company (“Bank”), into compliance with the consent orders issued by theOffice of the Comptroller of the Currency (“OCC”) and the Federal Reserve Bankof Philadelphia(“Consent Orders”).  YourBoard and management team spent this Third Quarter systematically addressingmany of the provisions of the Consent Orders, and believe that substantialprogress has been made in resolving the issued addressed in the Consent Orders.

 

I would liketo mention one area that affects you.  InAugust, the Board completed a strategic planning exercise to examine theopportunities and challenges facing the Company.  In doing so, the Board and management focusedon what the Company means to all of its constituencies and developed thefollowing mission statement:

 

*“Fulton Bancshares Corporation and itssubsidiary, Fulton County National Bank and Trust Company, will buildshareholder value as a strong community bank through solid, steady growthcreated through:*

•                  *Understanding deeply our customers’ banking needs*

•                  *Providing them with banking services they want withthe quality they deserve*

•                  *Serving our customers with engaged, enthusiastic,appreciated staff*

•                  *Supporting the Communities in which we reside*

•                  *Doing so in a manner in which we can be proud.”*

 

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Our goal is tobuild shareholder value.  We will do soby attending to our customers, our people and our communities.   The Company’s first priority is completingthe work required to resolve the issues that led to the Consent Orders.  Once that work is done, then we need to demonstratethat the changes will be permanent.  Untilthen the Company will be under the scrutiny of all of our constituencies –including you, our shareholder.

 

The Companyhas strength to build upon. Specifically, the Company’s capital remains strong.  The Consent Orders imposed significantrequirements on the Company to maintain much higher than typical capitalratios, and, at the end of the Third Quarter, the Company’s leverage ratio was11.05% compared to the minimum required by the Consent Order of 10.00% (and atypical minimum of 4.00%) and its Tier 1, risk-based capital ratio was 18.13%compared to the minimum required by the Consent Order of 14.00% (and a typicalminimum of 4.00%).

 

Again, Ishould remind you that the Company will not be able to resume the dividendpayment until given approval by the Federal Reserve and the OCC.  We cannot predict when such approval might begiven.

 

Your Board,management and staff continue to make significant progress, but we haveextensive work remaining.  As I said inlast quarter’s Shareholder Letter, we cannot now predict when we will completethis effort.

 

Thank you foryour continued support.  If you have anyquestions, please call.

 

 
|   | George W Millward         |
|--------|---------------------------|
|   | Interim President and CEO |

 

 

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FULTON BANCSHARES CORPORATION AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

($ 000 omitted )

 

 
| ** **                                                                                   | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------|------------|-------------------|------------|------------------|------------|
| ** **                                                                                   | ** ** | **2005**          | ** ** | **2004**         | ** ** |
| ** **                                                                                   | ** ** | **(Unaudited)**   | ** ** | **(Audited)**    | ** ** |
| **ASSETS**                                                                                   |       |              |       |             |       |
| Cash and due from banks                                                                      |       | $                 | 3,739      |             | $          | 12,809 |   |
| Interest-bearing deposits in other banks                                                     |       | 364               |       | 55               |       |
| Federal funds sold                                                                           |       | 8,250             |       | 3,500            |       |
| Cash and cash equivalents                                                                    |       | 12,353            |       | 16,364           |       |
|                                                                                         |       |              |       |             |       |
| Investment securities available for sale                                                     |       | 32,405            |       | 18,985           |       |
| Federal Reserve, Atlantic Central Bankers  Bank and Federal Home Loan Bank stocks            |       | 1,052             |       | 1,207            |       |
| Loans, net of reserve for loan losses 2005-$1,903;  2004-$1,828                              |       | 81,617            |       | 92,649           |       |
|                                                                                         |       |              |       |             |       |
| Premises and equipment                                                                       |       | 3,522             |       | 3,596            |       |
| Cash surrender value of life insurance                                                       |       | 5,572             |       | 5,430            |       |
| Accrued interest receivable                                                                  |       | 566               |       | 660              |       |
| Real estate owned other than premises                                                        |       | 700               |       | 1,534            |       |
| Other assets                                                                                 |       | 1,570             |       | 1,332            |       |
|                                                                                         |       |              |       |             |       |
| Total assets                                                                                 |       | $                 | 139,357    |             | $          | 141,757 |   |
|                                                                                         |       |              |       |             |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                               |       |              |       |             |       |
| Deposits                                                                                     |       |              |       |             |       |
| Noninterest bearing                                                                          |       | $                 | 17,740     |             | $          | 16,524 |   |
| Interest bearing                                                                             |       | 89,769            |       | 93,097           |       |
|                                                                                         |       | 107,509           |       | 109,621          |       |
|                                                                                         |       |              |       |             |       |
| Other borrowed funds                                                                         |       | 15,000            |       | 15,000           |       |
| Accrued interest payable                                                                     |       | 247               |       | 243              |       |
| Other liabilities                                                                            |       | 1,456             |       | 1,375            |       |
| Total liabilities                                                                            |       | 124,212           |       | 126,239          |       |
|                                                                                         |       |              |       |             |       |
| Stockholders’ Equity                                                                    |       |              |       |             |       |
| Common stock: par value $.625 per share;  4,000,000 shares authorized; 495,000 shares issued |       | 309               |       | 309              |       |
| Additional paid-in capital                                                                   |       | 2,051             |       | 2,051            |       |
| Retained earnings                                                                            |       | 13,112            |       | 13,226           |       |
| Accumulated other comprehensive income  (loss)                                               |       | (238              | )          | 21               |       |
| Treasury stock; shares at cost- 2,210                                                        |       | (89               | )          | (89              | )          |
| Total stockholders’ equity                                                              |       | 15,145            |       | 15,518           |       |
| Total liabilities and stockholders’s equity                                             |       | $                 | 139,357    |             | $          | 141,757 |   |
|                                                                                              |            |                   |            |                  |            |  |  |  |  |  |  |

 

The Notes to Condensed Consolidated Financial Statements are anintegral part of these statements.

 

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FULTON BANCSHARESCORPORATION AND SUBSIDIARIES

 

CONDENSED CONSOLIDATEDSTATEMENTS OF INCOME

UNAUDITED

($ 000 omitted except pershare)

 

 
| **Three Months Ended September 30,** | ** ** | ** ** | ** ** | **Nine Months Ended September 30,**                                         | ** ** |
|-------------------------------------------|------------|------------|------------|-----------------------------------------------------------------------------|------------|
| **2005**                                  | ** ** | **2004**   | ** ** | ** **                                                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                | ** ** | ** ** | ** ** | ** **                                                                  | ** ** | ** ** | ** ** | **(As Restated)** | ** ** |
| ** **                                |       |       |       | **Interest Income**                                                         |       |   |   |   |   |
| $                                         | 1,423      |       | $          | 1,590                                                                       |       | Interest and  fees on loans |   | $ | 4,396 |   | $ | 4,769 |   |
|                                      |       |       |       | Interest and  dividends on investment securities:                           |       |   |   |   |   |
| 66                                        |       | 70         |       | Other U.S. Government agencies                                              |       | 194 |   | 214 |   |
| 147                                       |       | 18         |       | Mortgage-backed securities                                                  |       | 430 |   | 59 |   |
| 52                                        |       | 52         |       | Obligations of state and political  subdivisions- tax exempt                |       | 156 |   | 156 |   |
| 0                                         |       | 152        |       | FNMA and FHLMC preferred stock                                              |       | 0 |   | 463 |   |
| 12                                        |       | (7         | )          | Other interest and dividends                                                |       | 26 |   | 8 |   |
| 93                                        |       | 5          |       | Interest on  federal funds sold                                             |       | 154 |   | 5 |   |
| 1,793                                     |       | 1,880      |       | Total interest income                                                       |       | 5,356 |   | 5,674 |   |
|                                      |       |       |       |                                                                        |       |   |   |   |   |
| ** **                                |       |       |       | **Interest Expense**                                                        |       |   |   |   |   |
| 508                                       |       | 489        |       | Interest on  deposits                                                       |       | 1,468 |   | 1,503 |   |
| 0                                         |       | 0          |       | Interest on  federal funds purchased                                        |       | 0 |   | 0 |   |
| 227                                       |       | 228        |       | Interest on  other borrowed money                                           |       | 674 |   | 678 |   |
| 735                                       |       | 717        |       | Total interest expense                                                      |       | 2,142 |   | 2,181 |   |
|                                      |       |       |       |                                                                        |       |   |   |   |   |
| 1,058                                     |       | 1,163      |       | Net interest income before provision for  loan losses                       |       | 3,214 |   | 3,493 |   |
|                                      |       |       |       |                                                                        |       |   |   |   |   |
| 80                                        |       | 0          | ** ** | **Provision for Loan Losses**                                               |       | 167 |   | 261 |   |
|                                      |       |       |       |                                                                        |       |   |   |   |   |
| 978                                       |       | 1,163      |       | Net interest income after provision for  loan losses                        |       | 3,047 |   | 3,232 |   |
|                                      |       |       |       |                                                                        |       |   |   |   |   |
| ** **                                |       |       |       | **Other Income**                                                            |       |   |   |   |   |
| 46                                        |       | 40         |       | Service  charges on deposit accounts                                        |       | 125 |   | 130 |   |
| 42                                        |       | 44         |       | Other  service charges and fees                                             |       | 136 |   | 115 |   |
| 59                                        |       | 59         |       | Earnings-Cash  surrender value of life insurance                            |       | 177 |   | 184 |   |
| 1                                         |       | 3          |       | Trust  services                                                             |       | 3 |   | 4 |   |
| 0                                         |       | (6         | )          | Gain (loss)  on sale of investment securities                               |       | 0 |   | 4 |   |
| 0                                         |       | (7         | )          | Gain (loss) on  sale of OREO property                                       |       | 19 |   | 5 |   |
| 2                                         |       | 1          |       | Other income                                                                |       | 16 |   | 24 |   |
| 150                                       |       | 134        |       | Total other income                                                          |       | 476 |   | 466 |   |
|                                      |       |       |       |                                                                        |       |   |   |   |   |
| ** **                                |       |       |       | **Other Expenses**                                                          |       |   |   |   |   |
| 486                                       |       | 354        |       | Salaries,  fees and employee benefits                                       |       | 1,403 |   | 1,267 |   |
| 214                                       |       | 207        |       | Net occupancy expense of bank premises and furniture  and equipment expense |       | 618 |   | 624 |   |
| 267                                       |       | 84         |       | Professional  and loan-related fees                                         |       | 722 |   | 200 |   |
| 69                                        |       | 70         |       | Data  processing                                                            |       | 226 |   | 206 |   |
| 49                                        |       | 12         |       | FDIC  insurance premiums                                                    |       | 147 |   | 20 |   |
| 244                                       |       | 277        |       | Other  expenses                                                             |       | 735 |   | 790 |   |
| 1,329                                     |       | 1,004      |       | Total other expenses                                                        |       | 3,851 |   | 3,107 |   |
|                                      |       |       |       |                                                                        |       |   |   |   |   |
| (201                                      | )          | 293        |       | Income (loss) before income taxes                                           |       | (328 | ) | 591 |   |
| (102                                      | )          | (13        | )          | Applicable  income tax (benefit)                                            |       | (214 | ) | 28 |   |
|                                      |       |       |       |                                                                        |       |   |   |   |   |
| $                                         | (99        | )          | $          | 306                                                                         |       | Net income (loss) |   | $ | (114 | ) | $ | 563 |   |
|                                      |       |       |       |                                                                        |       |   |   |   |   |
| $                                         | (.20       | )          | $          | .62                                                                         |       | Earnings  (loss) per common share |   | $ | (.23 | ) | $ | 1.14 |   |
| $                                         | 0          |       | $          | .27                                                                         |       | Cash  dividends declared per share |   | $ | 0 |   | $ | 0.73 |   |

 

The Notes to Condensed Consolidated Financial Statements are anintegral part of these statements.

 

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