SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended Commission file number
September 30, 1996 0-15645
FCNB Corp
(Exact name of registrant as specified in its charter)
MARYLAND 52-1479635
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7200 FCNB Court, Frederick, Maryland 21703
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(301) 662-2191
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: Common Stock, $1 par value
per share, 5,370,779 shares outstanding as of October 31, 1996.
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<CAPTION>
PART I FINANCIAL INFORMATION Item 1. Financial Statements
FCNB Corp and Subsidiaries (Restated
Consolidated Balance Sheets (Note 2) (Unaudited) Unaudited)
(Dollars in thousands, except per share amounts) September 30, 1996 December 31, 1995
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<S> <C> <C>
ASSETS
Cash and due from banks $ 23,822 $ 24,085
Interest-bearing deposits in other banks 1,615 2,261
Federal funds sold 12,454 20,017
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Cash and cash equivalents 37,891 46,363
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Loans held for sale 3,363 2,362
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Investment securities held to maturity at amortized cost-
fair value of $34,395 in 1996 and
$59,192 in 1995 34,552 58,511
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Investment securities available for sale -
at fair value 156,431 83,987
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Loans 480,451 440,881
Less: Allowance for credit losses (5,432) (5,242)
Unearned income (430) (1,087)
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Net loans 474,589 434,552
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Bank premises and equipment 22,198 19,997
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Other assets 20,025 15,212
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Total assets $749,049 $660,984
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Liabilities and Stockholders' Equity
LIABILITIES
Deposits:
Noninterest-bearing deposits $ 70,935 $ 66,558
Interest-bearing deposits 498,686 463,430
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Total deposits 569,621 529,988
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Short-term borrowings:
Federal funds purchased and securities
sold under agreements to repurchase 39,009 21,043
Other short-term borrowings 61,597 32,837
Long-term debt 6,180 5,680
Accrued interest and other liabilities 5,330 5,217
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Total liabilities 681,737 594,765
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STOCKHOLDERS' EQUITY
Preferred stock, per share par value $1.00;
1,000,000 shares authorized; none outstanding -- --
Common stock, per share par value $1.00;
20,000,000 shares authorized; 5,375,779
shares issued and outstanding in 1996
and 5,298,361 in 1995 5,376 5,298
Surplus 26,798 26,734
Retained earnings 35,439 33,657
Net unrealized gain (loss) on securities
available for sale (301) 530
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Total stockholders' equity 67,312 66,219
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Total liabilities and stockholders'
equity $749,049 $660,984
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</TABLE>
2
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<TABLE>
<CAPTION>
FCNB Corp and Subsidiaries
Consolidated Statements of Income (Unaudited) (Note 2)
For the Three and Nine Months Ended September 30, 1996 and 1995
(Dollars in thousands, except per share amounts)
- ---------------------------------------------------------------------------------------------------------------------------
For Three Months For Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
(Restated) (Restated)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $10,821 $10,308 $31,994 $29,151
Interest and dividends on investments:
Taxable 2,587 2,132 6,878 7,182
Tax exempt 123 288 407 996
Dividends 130 164 388 300
Interest on federal funds 137 136 597 306
Other interest income 34 117 146 326
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Total interest income 13,832 13,145 40,410 38,261
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Interest expense:
Interest on deposits 5,163 5,002 15,333 14,321
Interest on federal funds purchased and
securities sold under agreements to
repurchase 266 385 773 933
Interest on other short-term borrowings 871 299 1,912 1,508
Interest on long-term debt 108 67 254 282
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Total interest expense(1) 6,408 5,753 18,272 17,044
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Net interest income 7,424 7,392 22,138 21,217
Provision for credit losses 72 23 216 278
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Net interest income after provision
for credit losses 7,352 7,369 21,922 20,939
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Noninterest income:
Service fees 642 500 1,818 1,535
Net securities gains 10 8 171 64
Gain on sale of loans 24 99 246 167
Other operating income 312 394 941 992
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Total noninterest income 988 1,001 3,176 2,758
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Noninterest expenses:
Salaries and employee benefits 3,050 2,927 8,709 8,362
Occupancy expenses 642 401 1,887 1,225
Equipment expenses 455 361 1,255 1,051
Merger related expenses 113 82 2,013 213
Other operating expenses 2,130 1,253 5,061 4,393
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Total noninterest expenses 6,390 5,024 18,925 15,244
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Income before provision for income taxes 1,950 3,346 6,173 8,453
- ---------------------------------------------------------------------------------------------------------------------------
Provision for income taxes:
Income tax expense 630 1,233 2,208 2,941
Deferred income tax effect of pre-1988 thrift
reserve for credit losses (1,601) -- -- --
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Provision for income taxes (971) 1,233 2,208 2,941
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Net income $2,921 $2,113 $3,965 $5,512
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Net income per share $0.55 $0.40 $0.74 $1.03
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Dividends declared per share $0.14 $0.11 $0.40 $0.43
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Weighted average number
of shares outstanding 5,380,446 5,370,116 $5,386,360 $5,361,550
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</TABLE>
(1) Total interest expense has been reduced by $108,000 and $163,000 for the
nine month periods ended September 30, 1996, and 1995, respectively, and by
$43,000 for the three month period in 1995, while no adjustments have been made
for the three month period ended September 30, 1996.
3
<PAGE>
FCNB Corp and Subsidiaries
Consolidated Statements of Cash Flows (Note 2)
For the Nine Months Ended September 30, 1996 and 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
(Restated
(Unaudited) Unaudited)
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1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $3,965 $5,512
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,183 745
Provision for credit losses 216 278
Provision for foreclosed properties -- 90
Provision for deferred income taxes (benefits) 42 (23)
Net premium amortization (discount accretion)
on investment securities 15 (73)
Accretion of net loan origination fees (374) (339)
Net securities gains (171) (64)
Net loss (gain) on disposition of bank
premises and equipment 34 (30)
Net gain on sale of foreclosed properties (19) (8)
Increase in other assets (2,847) (235)
Increase in loans held for sale(1) (1,001) (1,960)
Increase in accrued interest and other liabilities 113 381
Distribution of stock purchased by Management
Recognition Plan -- 35
Income tax benefit from distribution of stock by Management
Recognition Plan and exercise of stock options -- 182
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Net cash provided by operating activities 1,156 4,491
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Cash flows from investing activities:
Proceeds from sales of investment securities - available for sale 1,219 20,269
Proceeds from maturities of investment securities - available for sale 10,129 5,881
Proceeds from maturities of investment securities - held to maturity 13,930 14,631
Purchases of investment securities - available for sale (72,418) (7,224)
Purchases of investment securities - held to maturity (2,493) (6,252)
Net increase in loans (39,985) (47,390)
Purchases of bank premises and equipment (4,552) (6,235)
Investment in foreclosed properties (867) --
Proceeds from dispositions of bank premises and equipment -- 120
Proceeds from dispositions of foreclosed properties 591 180
- ---------------------------------------------------------------------------------------------------------------------------
Net cash (used in) investing activities (94,446) (26,020)
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Cash flows from financing activities:
Net increase and (decrease) in noninterest-bearing
deposits, NOW accounts, money market accounts, and
savings accounts 10,227 (8,092)
Net increase in time deposits 29,406 43,442
Net increase (decrease) in short-term borrowings 46,726 (3,715)
Proceeds from long-term debt 500 2,235
Repayment of long-term debt -- (7,000)
Proceeds from sale of stock 423 130
Repurchase of common stock (280) --
Dividend reinvestment plan (13) (8)
Dividends paid (2,171) (2,264)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 84,818 24,728
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (8,472) 3,199
Cash and cash equivalents:
Beginning of period 46,363 37,924
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End of period $37,891 $41,123
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</TABLE>
(Continued)
4
<PAGE>
FCNB Corp and Subsidiaries
Consolidated Statements of Cash Flows (Note 2)
For the Nine Months Ended September 30, 1996 and 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
(Restated
(Unaudited) Unaudited)
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1996 1995
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<S> <C> <C>
Supplemental disclosures:
Interest paid $18,085 $16,953
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Income taxes paid $4,812 $2,383
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Supplemental schedule of noncash investing and financing activities:
Foreclosed properties acquired in settlement of loans $106 $1,513
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Foreclosed properties transferred to loans -- $253
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Bank premises transferred to other assets $1,190 $--
- ---------------------------------------------------------------------------------------------------------------------------
Fair value adjustment for securities available for sale,
net of applicable deferred income tax effects $(831) $2,166
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</TABLE>
(1) Loans held for sale are generally held for periods of ninety days or less.
5
<PAGE>
FCNB CORP AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
Note 1 - The accompanying unaudited consolidated financial statements for FCNB
Corp (the "Company") have been prepared in accordance with the instructions for
Form 10-Q and, therefore, do not include all information and footnotes required
by generally accepted accounting principles for complete financial statements.
The interim financial statements have been prepared utilizing the interim basis
of reporting and, as such, reflect all adjustments which are normal and
recurring in nature and are, in the opinion of management, necessary for a fair
presentation of the results for the periods presented. The financial data for
the period ended September 30, 1995 contained in these unaudited consolidated
financial statements has been restated to include the effects of the
pooling-of-interest transaction with Laurel Bancorp, Inc. ("Laurel"), discussed
below. The results of operations include the nine month periods ended September
30, 1995 for the Company and August 31, 1995 for Laurel. In management's
opinion, the one month difference between the period end dates does not cause a
material effect on the financial condition or results of operations. The period
ended September 30, 1996 includes the results of operations from Laurel for the
ten month period December 1, 1995 to September 30, 1996. The net income for
Laurel for the month ended December 31, 1995 was $124,000 and is not considered
to be a material amount relative to the consolidated net income. The December
net income for Laurel is included in the 1996 consolidated financial statements
and is not included in the restated 1995 consolidated financial statements. The
results of operations for the interim periods are not necessarily indicative of
the results for the full year.
Note 2 - Merger and Acquisitions: On April 30, 1996, the Company consummated its
merger of Harbor Investment Corporation ("Harbor"), the holding company for
Odenton Federal Savings and Loan Association, Odenton, Maryland, with and into
the Company. This transaction included approximately $35.0 million in assets,
the assumption of approximately $31.4 million in liabilities at a purchase price
of $6.67 million. This event was accounted for as a purchase and $3.21 million
of goodwill was recorded. The Company has decided to amortize the goodwill,
using the straight-line method over a 25 year period. The Company's results of
operations reflect earnings only since the date of the acquisition. The pro
forma combined information for the Harbor transaction is disclosed in the table
below.
On January 26, 1996, the Company consummated its merger of Laurel Bancorp, Inc.,
the holding company for Laurel Federal Savings Bank, Laurel, Maryland, with and
into the Company. As a result of the merger, each share of the outstanding
common stock, $0.01 par value of Laurel, was converted into 0.7656 shares of the
common stock, $1.00 par value, of the Company, resulting in the issuance of
approximately 1,320,900 shares of the Company's common stock.
The merger transaction with Laurel has been accounted for as a pooling of
interests. Therefore, the consolidated balance sheet as of December 31, 1995 and
the consolidated statements of income for the three and nine month periods ended
September 30, 1995 have been restated to reflect this business combination.
The results of operations for Laurel in the nine month period ended September
30, 1996 include their results for the period December 1, 1995 to January 26,
1996 and for the nine month period ended September 30, 1995 includes the nine
month period ended August 31, 1995. The three month period ended September 30,
1995 includes the financial results of Laurel for the three month period ended
August 31, 1995. The combined and separate results of operations for Laurel and
the Company preceding the consummation of the Laurel merger and the pro forma
combined information related to the Harbor merger are as follows:
<TABLE>
<CAPTION>
Pro forma
For the Three Months Ended September 30, 1996 Laurel FCNB Combined Harbor Combined
- --------------------------------------------- ------ ---- -------- ------ --------
<S> <C> <C> <C> <C> <C>
Total income $-- $14,820 $14,820 $-- $14,820
Net income -- 2,921 2,921 -- 2,921
Net income per share 0.55 0.55 0.55
Pro forma
For the Nine Months Ended September 30, 1996 Laurel FCNB Combined Harbor Combined
- -------------------------------------------- ------ ---- -------- ------ --------
Total income $1,510 $41,039 $42,549 $1,037 $43,586
Net income 261 3,615 3,876 89 3,965
Net income per share 0.69 0.72 0.74
6
<PAGE>
Pro forma
For the Three Months Ended September 30, 1995 Laurel FCNB Combined Harbor Combined
- --------------------------------------------- ------ ---- -------- ------ --------
Total income $2,443 $11,703 $14,146 $713 $14,859
Net income 323 1,790 2,113 67 2,180
Net income per share 0.44 0.39 0.41
Pro forma
For the Nine Months Ended September 30, 1995 Laurel FCNB Combined Harbor Combined
- -------------------------------------------- ------ ---- -------- ------ --------
Total income $7,100 $33,919 $41,019 $1,750 $42,769
Net income 1,059 4,453 5,512 156 5,668
Net income per share -- 1.09 1.03 1.06
</TABLE>
Note 3 - Investments: Using the criteria specified in Statement 115, the Company
classifies its investments in debt and equity securities at September 30, 1996
and December 31, 1995 into two categories: held-to-maturity and
available-for-sale.
Securities classified as held-to-maturity are those debt securities the Company
has both the intent and ability to hold to maturity regardless of changes in
market conditions, liquidity needs or changes in general economic conditions.
These securities are carried at cost adjusted for amortization of premium and
accretion of discount, computed using the interest method over their contractual
lives.
Securities classified as available-for-sale are equity securities with readily
determinable fair values and those debt securities that the Company intends to
hold for an indefinite period of time but not necessarily to maturity. Any
decision to sell a security classified as available-for-sale would be based on
various factors, including significant movements in interest rates, changes in
the maturity mix of the Company's assets and liabilities, liquidity needs,
regulatory capital considerations, and other similar factors. These securities
are carried at fair value with any unrealized gains or losses reported in
stockholders' equity, net of the related deferred tax effect.
As of September 30, 1996, the gross unrealized losses in the Company's
investment portfolio were $801,000 in the held-to-maturity investment portfolio
and $1.49 million in the available-for-sale investment portfolio compared to
$547,000 and $523,000, respectively, as of December 31, 1995. The increase in
the gross unrealized losses in the total investment portfolio is principally the
result of an increase in market interest rates during late 1995 and early 1996.
Since the Company's held-to-maturity investment portfolio includes fixed rate
investment securities that have below current market interest rates, the future
operating results of the Company would be negatively impacted in an increasing
rate environment. This reduction in net interest income would result when the
cost of funding the Company's operations increases, while the income earned on
the held-to-maturity portfolio remains constant.
The amortized cost and estimated fair value of securities classified as
held-to-maturity at September 30, 1996 are as follows:
<TABLE>
<CAPTION>
HELD-TO-MATURITY PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
September 30,1996 Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury and other U.S.
government agencies and corporations $ 4,894 $ -- $ 47 $ 4,847
State and political subdivisions 5,317 480 -- 5,797
Mortgage-backed debt securities 24,341 164 754 23,751
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$34,552 $644 $801 $34,395
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</TABLE>
The amortized cost and estimated fair value of securities classified as
available-for-sale at September 30, 1996 are as follows:
7
<PAGE>
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
September 30,1996 Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury and other U.S.
government agencies and corporations $ 32,708 $ 202 $ 196 $ 32,714
Mortgage-backed debt securities 107,500 315 1,266 106,549
Corporate bonds 4,028 30 12 4,046
Equity securities 12,658 482 18 13,122
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$156,894 $1,029 $1,492 $156,431
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</TABLE>
The gross realized gains on securities sold from the available-for-sale
portfolio for the first nine months of 1996 and 1995 are $218,000 and $155,000,
respectively. The gross realized losses on securities sold from the
available-for-sale portfolio for the same periods are $47,000 and $91,000,
respectively.
The amortized cost and estimated fair value of securities classified as
held-to-maturity and available-for-sale at September 30, 1996 summarized by
contractual maturity, are as follows:
<TABLE>
<CAPTION>
Held-to-maturity Available-for-sale
- -------------------------------------------------------------------------------------------------------------------
Estimated Estimated
Amortized Fair Amortized Fair
September 30, 1996 Cost Value Cost Value
- -------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 614 $ 628 $ 3,000 $ 2,998
Due after one through five years 7,230 7,317 24,285 24,243
Due after five through ten years 2,014 2,344 9,451 9,519
Due after ten years 353 355 -- --
Mortgage-backed debt securities 24,341 23,751 107,500 106,549
Equity securities -- -- 12,658 13,122
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$34,552 $34,395 $156,894 $156,431
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</TABLE>
Actual maturities may differ from the contractual maturities reflected in the
preceding table because borrowers may have the right to call or prepay
obligations with or without prepayment penalties. Mortgage-backed securities
have no stated maturity and primarily reflect investments in various
Pass-through and Participation Certificates issued by the Federal National
Mortgage Association and the Federal Home Loan Mortgage Corporation,
respectively. Repayment of mortgage-backed securities is dependent on the
contractual repayment terms of the underlying mortgages collateralizing these
obligations and the current level of interest rates.
The amortized cost and estimated fair value of securities classified as
held-to-maturity at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
HELD-TO-MATURITY PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1995 Cost Gains
Losses Value
- -------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury and other U.S.
government agencies and corporations $14,507 $ 37 $137 $14,407
State and political subdivisions 8,329 681 -- 9,010
Mortgage-backed debt securities 35,675 510 410 35,775
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$58,511 $1,228 $547 $59,192
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</TABLE>
8
<PAGE>
The amortized cost and estimated fair value of securities classified as
available-for-sale at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
December 31, 1995 Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury and other U.S.
government agencies and corporations $12,423 $ 53 $116 $12,360
State and political subdivisions 600 5 -- 605
Mortgage-backed debt securities 62,991 1,046 407 63,630
Equity securities 7,135 257 -- 7,392
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$83,149 $1,361 $523 $83,987
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</TABLE>
Note 4 - Long-Term Debt: The Company has a secured lending arrangement, with a
regional national bank, which financed the cost of its new corporate
headquarters facility in Frederick, Maryland (the "Facility"). Pursuant to the
terms of this arrangement, the Company will borrow $6.55 million. The loan is
secured by a first lien security interest on the Facility's land, improvements
and fixtures and equipment. The principal amount of the loan will be amortized
with monthly payments over a 15 year term commencing on November 1, 1996. Any
remaining unpaid balance on May 1, 2002 is due in full. The loan bears interest
at a fluctuating rate equal to the daily London Interbank Offering Rate for
one-month U.S. Dollar deposits (LIBOR), plus 1.35 percent, subject to a limited
upward adjustment if certain performance ratios are not maintained. The
outstanding balance as of September 30, 1996 was $6.18 million, bearing interest
at a rate of 6.79%. The interest paid on this loan totaled $302,000 during 1996
of which $66,000 was capitalized as part of the cost of the Facility.
Assuming the total amount borrowed is $6,545,000, payments begin in November
1996, and using the current interest rate of 6.79%, principal payments for the
next five years will be as follows:
- --------------------------------------------------------------------------------
Years ending December 31, (dollars in thousands)
1996 $ 42
1997 263
1998 282
1999 301
2000 323
Later years 5,334
- --------------------------------------------------------------------------------
$6,545
- --------------------------------------------------------------------------------
The balance of long-term debt as of September 30, 1995 consisted of $2.24
million of debt on the new headquarters facility and advances from the Federal
Home Loan Bank of Atlanta in the amount of $4.0 million and $1.0 milion which
are due in November 1996 and March 1997, respectively.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Overview
- --------
This section of the report contains forward looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, including
statements relating to the Company's beliefs, expectations, anticipations and
plans regarding, among other things, general economic trends, interest rates,
product expansions and other matters. Such statements are subject to numerous
uncertainties, such as federal monetary policy, inflation, employment,
profitability and consumer confidence levels, both nationally and in the
Company's market area, the health of the real estate and construction market in
the Company's market area, the Company's ability to develop and market new
products and to enter new markets, competitive challenges in the Company's
market, legislative changes and other factors, and as such, there can be no
assurance that future events will develop in accordance with the forward looking
statements contained herein.
On January 26, 1996, FCNB Corp (the "Company") consummated its merger of
Laurel Bancorp, Inc. ("Laurel"), the holding company for Laurel Federal Savings
Bank, Laurel, Maryland, with and into the Company. As a result
9
<PAGE>
of the merger, each share of the outstanding common stock, $0.01 par value of
Laurel, was converted into 0.7656 shares of the common stock, $1.00 par value,
of the Company, resulting in the issuance of approximately 1,320,900 shares of
the Company's common stock. As a result of the merger transaction, Laurel
Federal Savings Bank was merged with and into Elkridge Bank and the branch of
Laurel Federal Savings Bank in Monrovia, Maryland was transferred to FCNB Bank.
On April 30, 1996, the Company consummated its merger of Harbor Investment
Corporation ("Harbor"), the holding company for Odenton Federal Savings and Loan
Association, Odenton, Maryland, with and into the Company. This transaction
included approximately $35.0 million in assets, the assumption of approximately
$31.4 million in liabilities at a purchase price of $6.67 million. This
transaction was accounted for as a purchase, and $3.21 million of goodwill was
recorded. As a result of the merger, Odenton was merged with and into Elkridge
Bank. The Company has decided to amortize the goodwill, using the straight-line
method over a 25 year period. The Company's results of operations reflect
earnings only since the date of the acquisition.
During the third quarter of 1996, the Company announced its intention to
merge its subsidiary banks in March, 1997. Elkridge Bank will be merged with and
into FCNB Bank with FCNB Bank surviving the merger. The Company anticipates
significant cost savings and a more efficiently operated organization due to
this event.
Legislation relating to the reorganization of the deposit insurance fund
system was enacted on September 30, 1996. Currently, there are two deposit
insurance funds maintained by the FDIC, the Bank Insurance Fund ("BIF") and the
Savings Association Insurance Fund ("SAIF"). Deposits of SAIF insured
institutions assumed by BIF insured banks (plus the deemed growth in such
deposits) continue to be treated as SAIF insured deposits. The designation of
deposits as "BIF insured" or "SAIF insured" determines the level of the deposit
insurance premiums paid by an institution, and the allocation of such premiums
between BIF and SAIF. As a result of the legislation, the Company was assessed a
one-time fee in September 1996 of $813,000 on approximately $123.75 million of
SAIF deposits (after a 20% reduction in the level of SAIF deposits as provided
by the legislation) at a rate of .657%. Payment for the one-time special
assessment is due on November 27, 1996 and the Company recognized this expense
in its third quarter results of operations. It is anticipated that the Company's
annual assessment rates beginning January 1, 1997 will be .013% and 0.64% for
the BIF and SAIF insured deposits, respectively.
The following discussion and related financial data for the Company has been
restated to recognize the January 26, 1996 acquisition of Laurel which was
accounted for as a pooling of interests. This discussion provides an overview of
the financial condition and results of operations of the Company and its
wholly-owned subsidiaries, which is presented on a consolidated basis. The
principal subsidiaries of the Company are FCNB Bank and Elkridge Bank. Since the
merger transaction with Laurel has been accounted for as a pooling of interests,
the financial information has been combined for the two companies. For the first
nine months, the Company reported earnings of $3.97 million in 1996 and $5.51
million in 1995. However, net income before specific one-time merger related
costs was $5.85 million in 1996 compared to $5.73 million for the same period in
1995. The Company earned $1.90 million before one-time merger related expenses
for the third quarter of 1996 compared to $2.20 million for the same period in
1995. The net income for the third quarter of 1996 was $2.92 million compared to
$2.11 million in 1995. The financial results for the third quarter of 1996 have
been favorably impacted by the reversal of the recapture of the $1.60 million
pre-1988 thrift reserve for credit losses that was recorded in the first quarter
of 1996.
Throughout the discussion on the financial performance of the Company for the
periods ended September 30, 1996 and 1995, the yield on interest-earning assets,
the net interest spread, the net interest margin, the risk-based capital ratios,
and the leverage ratio, exclude the effects of the adoption of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." However, the return on average assets and the
return on average equity include the effects of this pronouncement.
Return on average assets and return on average equity are key measures of
earnings performance. Return on average assets measures the ability of a bank to
utilize its assets in generating income. Return on average assets for the nine
months ended September 30, 1996 was .77% (annualized), and 1.14% (annualized)
before specific one-time merger related costs compared to annualized rates of
1.15% and 1.19%, respectively, for the same period in 1995. Return on average
stockholders' equity, which measures the income earned on the capital invested,
for the nine months ended September 30, 1996 was 8.13% (annualized), and 11.98%
(annualized) before specific one-time merger related costs compared to
annualized rates of 11.95% and 12.41%, respectively for the nine months ended
September 30, 1995.
The annualized return on average assets for the third quarter of 1996 before
and after one time merger related costs was 1.06% and 1.63%, respectively,
compared to 1.35% and 1.30%, respectively, for the same period in 1995.
10
<PAGE>
The annualized return on average stockholders' equity for the third quarter of
1996 before and after one-time merger related costs was 11.67% and 17.91%,
respectively, compared to 13.86% and 13.34% , respectively, for the same period
in 1995.
In the ordinary course of its business, the Company routinely explores
opportunities for additional growth and expansion of its core banking business
and related activities, by acquisition of existing branches, by merger with
other institutions, and by de novo branching, both within the Company's existing
market, and in new markets. There can be no assurance that any growth or
expansion will have a positive impact on the Company's earnings, dividends, book
value or market value.
Net Interest Income
- -------------------
Net interest income represents the Company's gross profit from lending and
investment activities, and is the most significant component of the Company's
earnings. Net interest income is the difference between interest and related fee
income on earning assets (primarily loans and investment securities) and the
cost of funds (primarily deposits and short-term borrowings) supporting them. To
facilitate the analysis of net interest income, the table on page 17 is
presented on a taxable equivalent basis to adjust for the tax-exempt status of
certain loans and investment securities. This adjustment, based on the statutory
federal income tax rate of 34%, increases the tax-exempt income to an amount
representing an estimate of what would have been earned if that income were
fully taxable.
Taxable equivalent net interest income for the first nine months of 1996
totaled $21.85 million, increasing 1.3% from the $21.57 million recorded for the
same period in 1995. The Company's average interest-earning assets increased
5.9% to $635.51 million from September 30, 1995. This increase was primarily
funded with a 6.9% increase in the Company's average interest-bearing
liabilities, and an 11.8% increase in its average noninterest- bearing deposits
for the same period.
For the third quarter of 1996, the net interest income totaled $7.49 million,
increasing by 1.5% from the $7.38 million realized in the same period in 1995.
The Company's net interest margin (taxable equivalent net interest income as
a percent of average interest-earning assets) was 4.58% and 4.79% for the first
nine of 1996 and 1995, respectively. The net interest margin is impacted by the
change in the spread between yields on earning assets and rates paid on
interest-bearing liabilities. This spread decreased by 16 basis points when
compared to the same period in the prior year. The yield on earning assets
decreased 25 basis points to 8.36%, while the rates paid on interest-bearing
liabilities decreased by 9 basis points to 4.47%.
For the third quarter of 1996, the net interest margin was 4.50% compared to
4.89% in 1995. The spread during the period decreased 36 basis points which was
principally caused by the decrease in the yields earned on the investment and
loan portfolios being greater than the decrease in rates paid on
interest-bearing liabilities. The yield on earning assets decreased 49 basis
points to 8.32% while the rates paid on interest-bearing liabilities decreased
by 13 basis points to 4.44%
The rate of interest earned on interest-earning assets and the rate paid on
interest-bearing liabilities, while significantly affected by the actions taken
by the Federal Reserve to control economic growth, are influenced by competitive
factors within the Company's market. Competitive pressures during late 1995 and
early 1996 for both loans and the funding sources needed to satisfy loan demand
within the Company's market area caused its net interest spread to narrow. The
management of the Company feels that the competitive pressures in this market
will cause the net interest spread to continue to be under pressure during 1996.
Therefore, the Company is currently pursuing operating efficiencies through
improved technology and is evaluating new products and services in an effort to
enhance its level of noninterest income. There can be no assurance that these
benefits will be realized.
Management of the Company employs extensive computer simulations to model the
impact of rising and falling interest rates. These simulations are based on
numerous assumptions management determines from their strategic planning process
and are run on a monthly basis using a shock analysis technique to determine the
effects on the Company's net income assuming an immediate increase or decrease
in interest rates. The Company has an interest rate risk management policy that
limits the amount of deterioration in net income, associated with an assumed
interest rate shock of +/- 100 and +/- 200 basis point change in interest rates,
to no more than 10% and 20% of net income, respectively.
11
<PAGE>
Noninterest Income
- ------------------
Noninterest income increased $418,000 (15.2%) for the nine months ended
September 30, 1996, when compared to the same period in 1995. This increase was
partially attributable to the increase in service fee income of $283,000 which
was due to an increase in the volume of deposit accounts maintained. The gains
recognized on sales of loans into the secondary mortgage market in 1996 totalled
$246,000 compared to the $167,000 recognized during 1995. Security gains
increased in 1996 to $171,000 from the $64,000 realized in 1995. The other
operating income decreased by $51,000.
For the third quarter of 1996, noninterest income decreased by $13,000. This
decrease was primarily caused by $75,000 less in gains from loans sales, reduced
other income of $82,000 which was offset by an increase in service fees of
$142,000.
The Company is adding new products and services to enhance its level of
noninterest income in an effort to mitigate the effect of its decreasing net
interest spread. Some of these products are fee-based and, accordingly, the
income from these products is less sensitive to fluctuations in the level of
interest rates. The Company has an arrangement with Independent Financial
Marketing Group, Inc., a third party provider of mutual funds and annuities, to
offer these products to its customers. The arrangement will enable the Company
in future years to earn commissions on the sale of mutual funds and annuities
while providing customers access to alternative investment products. In January
1997, the Company will begin to offer asset management and trust services.
Additionally, revenue from service charges on deposit accounts will continue to
increase as the volume of accounts maintained expands.
Noninterest income from gains realized on the sale of mortgage loans is
directly affected by the volume of mortgage loans settled, which is
significantly influenced by increases and decreases in the level of interest
rates. In periods of rising interest rates mortgage loan production typically
declines, whereas in periods of declining interest rates mortgage loan
production increases. As a result, this source of noninterest income is highly
influenced by the level and direction of future interest rate changes. Servicing
income on mortgage loans originated and sold however, is expected to make a
smaller contribution to noninterest income since the Company is currently not
retaining servicing rights on mortgages sold.
The Company's management is committed to developing and offering innovative,
market-driven products and services that will generate additional sources of
noninterest income.
Noninterest Expenses
- --------------------
Noninterest expenses, excluding merger related expenses, increased $1.88
million (12.5%) for the first nine months of 1996, when compared to the first
nine months of 1995.
A portion of this increase is attributable to the additional overhead costs
associated with operating the new Brunswick branch opened in April 1995 and with
the acquisition of Harbor Investment Corporation on April 30, 1996 accounted for
as a purchase. Total salaries and employee benefits increased $347,000 (4.1%)
over the first nine months of 1995. The increase in salaries and employee
benefits is attributable to the increased wages of the employees along with the
increased costs of health and pension benefits.
Occupancy expenses increased $662,000 (54.0%) while equipment expenses
increased $204,000 (19.4%) over the first nine months of 1995. The increase in
occupancy and equipment expenses is primarily associated with the increased
costs of maintaining the new corporate headquarters facility. These costs
include additional depreciation, utility expenses and real estate taxes.
Other operating expenses increased $668,000 (15.2%) compared to the first
three quarters of 1995. The primary reason for the increase was associated with
the special FDIC assessment related to SAIF insured deposits owned by the
Company's subsidiary banks. The Company incurred an $813,000 expense for this
one-time fee in September 1996. In the third quarter of 1995, the Company
received a $237,000 refund for the overpayment of its normal FDIC insurance
charges.
For the third quarter of 1996, salaries and benefits increased $123,000
(4.2%), occupancy expenses increased $241,000 (60.1%), equipment expenses
increased $94,000 (26.0%), and other operating expenses increased $877,000
(70.0%). The increased costs for occupancy and equipment expenses are associated
with the new corporate headquarters facility. The increase in other operating
expenses is primarily related to the FDIC insurance charges as discussed above.
12
<PAGE>
Income Taxes
- ------------
The Company's effective tax rates for the first nine months of 1996 and 1995
were 35.8% and 34.8%, respectively. The Company's income tax expense differs
from the amount computed at statutory rates primarily due to the tax-exempt
earnings from certain loans and investment securities.
For the third quarter of 1996 and 1995, the effective tax rates were (49.8%)
and 36.8%, respectively. The effective tax rate for 1996 is considerably lower
than the effective tax rate experienced in 1995 due to the reversal of the
recapture of the deferred income tax effect of pre-1988 thrift reserves for
credit losses recorded in the first quarter of 1996.
Allowance for Credit Losses and Problem Assets
- ----------------------------------------------
The Company follows the guidance of Statement of Financial Accounting
Standards No. 114 (SFAS 114), "Accounting by Creditors for Impairment of a Loan"
as amended by Statement No. 118, "Accounting by Creditors for Impairment of a
Loan-Income Recognition and Disclosures." It requires that impaired loans within
its scope be measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate, except that as a practical
expedient, a creditor may measure impairment based on a loan's observable market
price, or the fair value of the collateral if the loan is collateral dependent.
Since the Company's allowance for credit losses was considered adequate when
this Statement was adopted, its impact on financial condition and results of
operations was not material.
SFAS 114 excludes smaller balance and homogeneous loans from impairment
reporting. Therefore, the Company has designated consumer, credit card and
residential mortgage loans to be excluded for this purpose. From the remaining
loan portfolio, loans rated as doubtful or worse, classified as nonaccrual, and
troubled debt restructurings are considered to be impaired. Loans are placed on
nonaccrual when a loan is specifically determined to be impaired or when
principal or interest is delinquent for 90 days or more. Any unpaid interest
previously accrued on those loans is reversed from income. Interest income
generally is not recognized on specific impaired loans unless the likelihood of
further loss is remote. Interest payments received on such loans are applied as
a reduction of the loan principal balance. Interest income on other nonaccrual
loans is recognized only to the extent of interest payments received. Up to this
point, slow payment on a loan is considered, by the Company, to only be a
minimum delay. The Company has identified commercial real estate and commercial
and industrial type loans as the major risk classifications to be used in the
application of SFAS 114.
As of September 30, 1996, the Company had impaired loans totaling $4.30 million,
for which a specific allowance for credit losses of $935,000 has been provided
and other impaired loans of $2.10 million for which no specific allowance for
credit losses is required. The average balance of impaired loans amounted to
approximately $6.54 million as of September 30, 1996. Cash receipts on impaired
loans applied to reduce the principal balance and cash receipts recognized as
interest income were $383,000 and $188,000, respectively. In addition, at
September 30, 1996, the Company had other nonaccrual loans of approximately
$808,000 for which impairment had not been recognized. If interest on these
other nonaccrual loans had been recognized at the original interest rates,
interest income would have increased approximately $50,000.
The Company maintains its allowance for credit losses at a level deemed
sufficient to provide for estimated potential losses in the credit extension
process. Management reviews the adequacy of the allowance each quarter,
considering factors such as current and future economic conditions and their
anticipated impact on specific borrowers and industry groups, the growth and
composition of the loan portfolio, the level of classified and problem assets,
historical loss experience, and the collectability of specific loans. Allowances
for impaired loans is generally determined based on collateral values or the
present value of estimated cash flows.
The provision for credit losses is charged to income in an amount necessary
to maintain the allowance at the level management believes is appropriate.
The allowance for credit losses was $5.43 million, or 1.13% of total loans,
net of unearned income, at September 30, 1996, compared to $4.87 million, or
1.12% as of September 30, 1995, and $5.24 million, or 1.19% as of December 31,
1995. The allowance for credit losses to nonperforming loans was 75.7%, 194.4%
and 197.5% as of September 30, 1996, September 30, 1995 and December 31, 1995,
respectively.
13
<PAGE>
Total nonperforming assets as of September 30, 1996 were $10.32 million, a
$5.02 million increase from the level of nonperforming assets as of September
30, 1995, and a $5.41 million increase from the level as of December 31, 1995.
Total nonperforming assets as of September 30, 1996, including properties
acquired through foreclosure, represent 1.38% of total assets, compared to .80%
and .74% as of September 30, 1995 and December 31, 1995, respectively. The
increase in nonperforming assets is the result of loans acquired in recent
acquisitions that have subsequently become nonperforming.
Nonperforming assets at September 30, 1996 included $5.31 million of
nonaccrual loans, $1.86 million of loans past due 90 days or more, $1.33 million
of foreclosed commercial properties, $632,000 of foreclosed residential
properties and $1.19 million for the Company's vacated Operations Center
transferred to other real estate owned.
14
<PAGE>
<TABLE>
<CAPTION>
Allowance for Credit Losses
- -------------------------------------------------------------------------------------------------------------------
Nine months
ended Year ended
September 30, 1996 December 31, 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Average total loans outstanding during period $456,893 $423,722
- -------------------------------------------------------------------------------------------------------------------
Allowance at beginning of year $5,242 $4,691
- -------------------------------------------------------------------------------------------------------------------
Charge-offs:
Real estate - construction- -- --
Real estate - mortgage -- 22
Commercial and agricultural 357 19
Consumer 216 168
- -------------------------------------------------------------------------------------------------------------------
Total charge-offs 573 209
- -------------------------------------------------------------------------------------------------------------------
Recoveries:
Real estate - construction -- --
Real estate - mortgage -- 1
Commercial and agricultural 17 --
Consumer 68 49
- -------------------------------------------------------------------------------------------------------------------
Total recoveries 85 50
- -------------------------------------------------------------------------------------------------------------------
Net charge-offs 488 159
- -------------------------------------------------------------------------------------------------------------------
Additions to Allowance charged to operating expenses 216 710
- -------------------------------------------------------------------------------------------------------------------
Transfer of Allowance associated with foreclosed
properties reclassified under SFAS 114 298 --
- -------------------------------------------------------------------------------------------------------------------
Allowance on loans acquired with purchased entity 164 --
- -------------------------------------------------------------------------------------------------------------------
Allowance at end of period $5,432 $5,242
- -------------------------------------------------------------------------------------------------------------------
Ratio of net charge-offs to average total loans 0.11% 0.04%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Allocation of Allowance for Credit Losses
- -------------------------------------------------------------------------------------------------------------------
September 30, 1996 December 31, 1995
(1) (1)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Real estate - construction $ 239 11% $ 806 9%
Real estate - mortgage 3,851 68 2,406 68
Commercial and agricultural 908 10 1,129 11
Consumer 404 11 476 12
Unallocated 30 -- 425 --
- -------------------------------------------------------------------------------------------------------------------
Total Allowance $5,432 100% $5,242 100%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Percent of loans in each category to total loans, net of unearned income.
The Company makes real estate-construction, real estate-mortgage, commercial
and agricultural, and consumer loans. The real estate-construction loans are
generally secured by the construction project and have a term of one year or
less. The real estate-mortgage loans are generally secured by the property with
a maximum loan to value ratio of 75% and a term of one to seven years. The
commercial and agricultural loans consist of secured and unsecured loans. The
unsecured commercial loans are made based on the financial strength of the
borrower and usually require personal guarantees from the principals of the
business. The collateral for the secured commercial loans may be equipment,
accounts receivable, marketable securities or deposits in the subsidiary banks
of the Company. These loans have a maximum loan to value ratio of 75% and a term
of one to five years. The consumer loan category consists of secured and
unsecured loans. The unsecured consumer loans are made on the financial strength
of the individual borrower. The collateral for the secured consumer loans may be
marketable securities, automobile, recreational vehicles or deposits in the
subsidiary banks of the Company. The usual term for these loans is three to five
years.
As of September 30, 1996, the Company had loans totaling $17.48 million that
were current but as to which there are concerns as to the ability of the
borrowers to comply with present loan repayment terms. While management of the
Company does not anticipate any loss not previously provided for on these loans,
changes in the financial condition of these borrowers may necessitate future
modifications in their loan repayment terms.
15
<PAGE>
At September 30, 1996, the Company had no concentrations of loans in any one
industry exceeding 10% of its total loan portfolio. An industry for this purpose
is defined as a group of counterparts that are engaged in similar activities and
have similar economic characteristics that would cause their ability to meet
contractual obligations to be similarly affected by changes in economic or other
conditions.
There were no other interest-bearing assets at September 30, 1996,
classifiable as nonaccrual, past due, restructured or problem assets.
16
<PAGE>
Distribution of Assets, Liabilities and Stockholders' Equity;
- -------------------------------------------------------------
Interest Rates and Interest Differentials
- -----------------------------------------
The following table shows average balances of asset and liability
categories, interest income and paid, and average yields and rates for the
periods indicated:
<TABLE>
<CAPTION>
Nine months ended
September 30,
--------------------------------------------------------------------------------
1996 1995
--------------------------------------------------------------------------------
Average Interest Average Average Interest Average
daily Income1/ yield/ daily income1/ yield/
balance paid rate balance paid rate
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets (dollars in thousands)
Interest-earning assets:
Interest-bearing deposits $2,761 $146 7.05% $6,340 $326 6.86%
- ---------------------------------------------------------------------------------------------------------------------------
Federal funds sold 15,640 577 4.92% 6,643 306 6.14%
- ---------------------------------------------------------------------------------------------------------------------------
Loans held for sale 3,371 188 7.44% 574 27 6.27%
- ---------------------------------------------------------------------------------------------------------------------------
Investment securities:
Taxable 149,699 7,192 6.41% 151,012 7,482 6.61%
Tax exempt 7,152 617 11.50% 15,829 1,509 12.71%
- ---------------------------------------------------------------------------------------------------------------------------
Total investment securities 156,851 7,809 6.64% 166,841 8,991 7.19%
- ---------------------------------------------------------------------------------------------------------------------------
Loans 2 456,893 31,147 9.09% 419,856 29,128 9.25%
- ---------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 635,516 39,867 8.36% 600,254 38,778 8.61%
Noninterest-earning assets 49,630 40,004
Net effect of SFAS 115 (108) (755)
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $685,038 $639,503
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits3 $481,291 15,058 4.17% $453,158 14,441 4.25%
Long-term debt 4 6,073 314 6.89% 6,412 325 6.76%
Federal funds purchased and securities sold
under agreements to repurchase 19,352 773 5.33% 20,863 933 5.96%
Other short-term borrowings 42,315 1,877 5.91% 33,203 1,508 6.06%
- ---------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 549,031 18,022 4.38% 513,636 17,207 4.47%
- ---------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits 64,995 58,119
Noninterest-bearing liabilities 5,971 6,253
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 619,997 578,008
- ---------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 65,149 62,250
Net effect of unrealized
gain (loss) on securities (108) (755)
- ---------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 65,041 61,495
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $685,038 $639,503
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income 21,845 21,571
- ---------------------------------------------------------------------------------------------------------------------------
Net interest spread 3.98% 4.14%
- ---------------------------------------------------------------------------------------------------------------------------
Net interest margin 4.58% 4.79%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
1 Taxable equivalent adjustments of $212,000 for 1996 and $517,000 for 1995
are included in the interest income for total interest-earning assets. The
statement of income for the nine month period ended September 30, 1996
includes the results of operations for Laurel for the ten month period from
December 1, 1995 to September 30, 1996. To facilitate an analysis of this
table, the effects of interest income and interest expense in the amounts
of $755,000 and $358,000, respectively, for Laurel during the month of
December 1995 have been eliminated from the above analysis.
17
<PAGE>
2 Nonaccruing loans, which include impaired loans, are included in the
average balances. Net loan fees included in interest income totaled
$910,000 in 1996 and $816,000 in 1995.
3 The interest paid on interest-bearing deposits in 1996 and 1995 includes
$42,000 and $120,000 of capitalized construction period interest.
4 The interest paid on long-term debt in 1996 and 1995 includes $66,000 and
$43,000 of capitalized construction period interest.
Capital Resources
- -----------------
The following table shows the risk-based capital and the leverage ratios for
the Company as of September 30, 1996:
<TABLE>
<CAPTION>
Risk-based capital ratios
-----------------------------------------------------------------------
Tier 1 Total Capital Leverage Ratio
-----------------------------------------------------------------------
<S> <C> <C> <C>
Actual 12.83% 13.92% 8.59%
Minimum 4.00% 8.00% 3.00%
- -------------------------------------------------------------------------------------------------------------------
Excess 8.83% 5.92% 5.59%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
No. 11 Statement Regarding Computation of Per Share Earnings
(b) Report on Form 8-K. None filed during the third quarter of 1996.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FCNB CORP
(Registrant)
November 12, 1996 BY: /s/ A Patrick Linton
----------------------------------------
A. Patrick Linton, President,
Chief Executive Officer and
Director
November 12, 1996 BY: /s/ Mark A Severson
----------------------------------------
Mark A. Severson, Senior Vice President and
Treasurer
20
Exhibit No. 11
Statement Regarding the Computation of Per Share Earnings
<TABLE>
<CAPTION>
1996 1995(1)
---- -------
<S> <C> <C>
Earnings per Common Share:
Primary $0.73 $1.02
Primary-before one-time
merger costs $1.08 $1.06
Primary average shares
outstanding 5,409,330 5,414,869
Fully diluted $0.73 $1.02
Fully diluted-before one-time
merger costs $1.08 $1.06
Fully diluted average shares
outstanding 5,410,103 5,414,073
</TABLE>
(1) The amounts shown for 1995 have been retroactively restated to reflect
the acquisition of Laurel Bancorp, Inc. consummated on January 26,
1996, accounted for as a pooling of interests, and for the effects of a
three-for-two stock split, effected in the form of a 50% stock
dividend, declared in April 1995.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 23,822
<INT-BEARING-DEPOSITS> 1,615
<FED-FUNDS-SOLD> 12,454
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 156,431
<INVESTMENTS-CARRYING> 34,552
<INVESTMENTS-MARKET> 34,395
<LOANS> 480,021
<ALLOWANCE> 5,432
<TOTAL-ASSETS> 749,049
<DEPOSITS> 569,621
<SHORT-TERM> 100,606
<LIABILITIES-OTHER> 5,330
<LONG-TERM> 6,180
5,376
0
<COMMON> 0
<OTHER-SE> 61,936
<TOTAL-LIABILITIES-AND-EQUITY> 749,049
<INTEREST-LOAN> 31,994
<INTEREST-INVEST> 7,673
<INTEREST-OTHER> 743
<INTEREST-TOTAL> 40,410
<INTEREST-DEPOSIT> 15,333
<INTEREST-EXPENSE> 18,272
<INTEREST-INCOME-NET> 22,138
<LOAN-LOSSES> 216
<SECURITIES-GAINS> 171
<EXPENSE-OTHER> 18,925
<INCOME-PRETAX> 6,173
<INCOME-PRE-EXTRAORDINARY> 6,173
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,965
<EPS-PRIMARY> 0.73
<EPS-DILUTED> 0.73
<YIELD-ACTUAL> 4.58
<LOANS-NON> 5,310
<LOANS-PAST> 1,861
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 17,480
<ALLOWANCE-OPEN> 5,242
<CHARGE-OFFS> 573
<RECOVERIES> 85
<ALLOWANCE-CLOSE> 5,432
<ALLOWANCE-DOMESTIC> 5,432
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
