**Exhibit 99.2**

 

**Fulton Bancshares Corporation**

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

 

August 15, 2005

 

 

Dear Shareholder,

 

I welcome thisopportunity to provide you with a summary of the work your company hasundertaken during the Second Quarter of this year and of the financialresults.  Since starting as your InterimPresident and CEO on June 28, I have had the opportunity to visit withcustomers and investors, and I understand how important Fulton BancsharesCorporation (“Company”) is to both.  Overthe years I have had the opportunity to work with other banks under theregulatory scrutiny now faced by the Company as well as with a number of otherfinancial institutions, large and small. The community bank is a critical asset to support growth and developmentof our cities and towns, and I always appreciate the opportunity to assistcommunity banks fulfill their mission.

 

Enclosed is asummary financial report for the Second Quarter of 2005.  Your company plans to continue this practiceof providing you with quarterly financial information and a letter providingyou with an overall update on a regular basis in the future.

 

The Companyhas completed its first three months of work to address the deep criticismsdirected at the Company and its subsidiary, The Fulton County National Bank andTrust Company (“Bank”) by its regulators, the Federal Reserve Bank ofPhiladelphia (“Federal Reserve”) and the Office of the Comptroller of theCurrency (“OCC”), respectively.  Thesecriticisms have pointed to weaknesses throughout the Bank, and the regulatoryorders have called for extensive change in how we run this business.

 

We believethat we have made significant progress towards resolving these criticisms.  This progress comes with a price.  We have redirected staff time and energy andwe have engaged outside audit, legal and consulting firms to perform specificprojects to improve our operations.  Inaddition, FDIC insurance has significantly risen, and the Bank has incurredsignificant other operating expenses to address these issues.

 

Net loss forthe Second Quarter of 2005 was $(75 thousand), $(0.15) per common share,compared to a net loss of $(26 thousand), $(0.05) per diluted share, asrestated for the same period last year.  Previously,the Company restated the financial statements for the Second Quarter of 2004 toaccount for an additional $261 thousand in provision for loan and leaselosses.  Net loss for the first sixmonths of 2005 was $(15 thousand), $(0.03) per diluted share, compared to therestated net income of $257 thousand, $0.52

 

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per dilutedshare, for the same period last year. The major difference was caused by the significant costs of complyingwith the regulatory orders as described earlier in this letter.

 

Our loansdecreased by $13.9 million to $85.5 million at June 30, 2005 from $99.4 millionat the same time last year as the Bank focused its attention on creditquality.  While interest bearing depositsdecreased by $6.3 million to $89.8 million from $96.1 million at the same timelast year, non-interest bearing deposits remained essentially constant,  decreasing by $0.5 million year-to-year.  Overall, depositors have maintained theirconfidence in the Bank, and we continue to see interest in our loan products.

 

The Company’scapital remains strong.  The regulatoryorders imposed significant requirements on the Company to maintain much higherthan typical capital ratios, and at the end of the Second Quarter, the Company’sleverage ratio was 11.15% compared to the minimum required by the Consent Orderof 10.00% (and a typical minimum of 4.00%) and its Tier 1, risk-based capitalratio was 18.36% compared to the minimum required by the Consent Order of14.00% (and a typical minimum of 4.00%).

 

As you arewell aware, the Company has been required to suspend payment of thedividend.  We will not be able to resumethe dividend payment until given approval by the Federal Reserve and theOCC.  We cannot predict when thatapproval might be given.

 

Your Board andmanagement team is now focused on four critical priorities:  (1) address the regulatory issues by usingall resources that we can muster, (2) maintain customer confidence by providingour customers with open, direct, courteous “home-town” service delivered asbanking professionals should deliver these services, (3) support our employeesas they perform the important work of caring for our customers and their money,and (4) work to get these issues addressed to provide you, our shareholder,with the financial performance you desire.

 

As I saidearlier in this letter, your Board and staff are making significant progress,but we have extensive work remaining.  Wecannot now predict when we will complete this effort.

 

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

 

 

George WMillward

InterimPresident and CEO

 

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FULTONBANCSHARES CORPORATION AND SUBSIDIARIES

CONDENSEDCONSOLIDATED BALANCE SHEETS

($000 omitted )

 
| ** **                                                                                   | ** ** | **June 30,**    | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------|------------|-----------------|------------|------------------|------------|
| ** **                                                                                   | ** ** | **2005**        | ** ** | **2004**         | ** ** |
| ** **                                                                                   | ** ** | **(Unaudited)** | ** ** | **(Audited)**    | ** ** |
| **ASSETS**                                                                                   |       |            |       |             |       |
| Cash and due from banks                                                                      |       | $               | 3,781      |             | $          | 12,809 |   |
| Interest-bearing deposits in other banks                                                     |       | 396             |       | 55               |       |
| Federal funds sold                                                                           |       | 4,800           |       | 3,500            |       |
| Cash and cash equivalents                                                                    |       | 8,977           |       | 16,364           |       |
|                                                                                         |       |            |       |             |       |
| Investment securities available for sale                                                     |       | 32,875          |       | 18,985           |       |
| Federal Reserve, Atlantic Central Bankers  Bank and Federal Home Loan Bank stocks            |       | 993             |       | 1,207            |       |
| Loans, net of reserve for loan losses 2005-$1,905;  2004-$1,821                              |       | 83,642          |       | 92,649           |       |
|                                                                                         |       |            |       |             |       |
| Premises and equipment                                                                       |       | 3,591           |       | 3,596            |       |
| Cash surrender value of life insurance                                                       |       | 5,524           |       | 5,430            |       |
| Accrued interest receivable                                                                  |       | 551             |       | 660              |       |
| Real estate owned other than premises                                                        |       | 700             |       | 1,534            |       |
| Other assets                                                                                 |       | 1,430           |       | 1,332            |       |
|                                                                                         |       |            |       |             |       |
| Total assets                                                                                 |       | $               | 138,283    |             | $          | 141,757 |   |
|                                                                                         |       |            |       |             |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                |       |            |       |             |       |
| Deposits                                                                                     |       |            |       |             |       |
| Noninterest bearing                                                                          |       | $               | 16,333     |             | $          | 16,524 |   |
| Interest bearing                                                                             |       | 89,793          |       | 93,097           |       |
|                                                                                         |       | 106,126         |       | 109,621          |       |
|                                                                                         |       |            |       |             |       |
| Other borrowed funds                                                                         |       | 15,000          |       | 15,000           |       |
| Accrued interest payable                                                                     |       | 247             |       | 243              |       |
| Other liabilities                                                                            |       | 1,463           |       | 1,375            |       |
| Total liabilities                                                                            |       | 122,836         |       | 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                                                                            |       | 13,211          |       | 13,226           |       |
| Accumulated other comprehensive income  (loss)                                               |       | (35             | )          | 21               |       |
| Treasury stock; shares at cost- 2005-  2,210; 2004 - 2,210                                   |       | (89             | )          | (89              | )          |
| Total stockholders’ equity                                                              |       | 15,447          |       | 15,518           |       |
| Total liabilities and stockholders’s equity                                             |       | $               | 138,283    |             | $          | 141,757 |   |

 

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FULTONBANCSHARES CORPORATION AND SUBSIDIARIES

CONDENSEDCONSOLIDATED STATEMENTS OF INCOME

ThreeMonths Ended June 30, 2005 and 2004

UNAUDITED

($000 omitted except per share)

 
| ** **                                                                  | ** ** | **2005**   | ** ** | **2004**          | ** ** |
|-----------------------------------------------------------------------------|------------|------------|------------|-------------------|------------|
| ** **                                                                  | ** ** | ** ** | ** ** | **(As Restated)** | ** ** |
| **Interest Income**                                                         |       |       |       |              |       |
| Interest and fees on loans                                                  |       | $          | 1,466      |              | $          | 1,571 |   |
| Interest and dividends on investment  securities:                           |       |       |       |              |       |
| Other U.S. Government agencies                                              |       | 64         |       | 77                |       |
| Mortgage-backed securities                                                  |       | 151        |       | 19                |       |
| Obligations of state and political  subdivisions- tax exempt                |       | 52         |       | 52                |       |
| FNMA and FHLMC preferred stock                                              |       | —     |       | 147               |       |
| Other interest and dividends                                                |       | 4          |       | 8                 |       |
| Interest on federal funds sold                                              |       | 42         |       | 4                 |       |
| Total interest income                                                       |       | 1,779      |       | 1,878             |       |
|                                                                        |       |       |       |              |       |
| **Interest Expense**                                                        |       |       |       |              |       |
| Interest on deposits                                                        |       | 486        |       | 504               |       |
| Interest on federal funds purchased                                         |       | —     |       | 1                 |       |
| Interest on other borrowed money                                            |       | 225        |       | 225               |       |
| Total interest expense                                                      |       | 711        |       | 730               |       |
|                                                                        |       |       |       |              |       |
| Net interest income before provision for  loan losses                       |       | 1,068      |       | 1,148             |       |
|                                                                        |       |       |       |              |       |
| **Provision for Loan Losses**                                               |       | 17         |       | 261               |       |
|                                                                        |       |       |       |              |       |
| Net interest income after provision for  loan losses                        |       | 1,051      |       | 887               |       |
|                                                                        |       |       |       |              |       |
| **Other Income**                                                            |       |       |       |              |       |
|                                                                        |       |       |       |              |       |
| Service charges on deposit accounts                                         |       | 41         |       | 45                |       |
| Other service charges and fees                                              |       | 42         |       | 40                |       |
| Earnings-Cash surrender value of life  insurance                            |       | 60         |       | 63                |       |
| Trust services                                                              |       | —     |       | 1                 |       |
| Gain (loss) on sale of investment  securities                               |       | —     |       | 6                 |       |
| Gain on sale of OREO property                                               |       | —     |       | 8                 |       |
| Gain on sale of assets                                                      |       | 9          |       | —            |       |
| Gain on sale of loans                                                       |       | —     |       | —            |       |
| Other income                                                                |       | 2          |       | 6                 |       |
| Total other income                                                          |       | 154        |       | 169               |       |
|                                                                        |       |       |       |              |       |
| **Other Expenses**                                                          |       |       |       |              |       |
| Salaries, fees and employee benefits                                        |       | 479        |       | 482               |       |
| Net occupancy expense of bank premises and furniture  and equipment expense |       | 197        |       | 205               |       |
| Professional and loan-related fees                                          |       | 302        |       | 70                |       |
| Data processing                                                             |       | 83         |       | 61                |       |
| FDIC insurance premiums                                                     |       | 48         |       | 4                 |       |
| Other expenses                                                              |       | 266        |       | 267               |       |
| Total other expenses                                                        |       | 1,375      |       | 1,089             |       |
|                                                                        |       |       |       |              |       |
| Income (loss) before income taxes                                           |       | (170       | )          | (33               | )          |
| Applicable income tax (benefit)                                             |       | (95        | )          | (7                | )          |
|                                                                        |       |       |       |              |       |
| Net income (loss)                                                           |       | $          | (75        | )                 | $          | (26 | ) |
|                                                                        |       |       |       |              |       |
| Earnings per common share                                                   |       | $          | (0.15      | )                 | $          | (0.05 | ) |
| Cash dividends declared per share                                           |       | $          | —     |              | $          | 0.23 | ** ** |

 

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