<PAGE>
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
June 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, 5,380,779 shares outstanding as of June 30, 1996.
1
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<TABLE>
<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) June 30, 1996 December 31, 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 24,052 $ 24,085
Interest-bearing deposits in other banks 1,229 2,261
Federal funds sold 16,315 20,017
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 41,596 46,363
- ---------------------------------------------------------------------------------------------------------------------------
Loans held for sale 2,371 2,362
- ---------------------------------------------------------------------------------------------------------------------------
Investment securities held to maturity at amortized cost-
fair value of $38,839 in 1996 and
$59,192 in 1995 39,422 58,511
- ---------------------------------------------------------------------------------------------------------------------------
Investment securities available for sale -
at fair value 128,911 83,987
- ---------------------------------------------------------------------------------------------------------------------------
Loans 469,842 440,881
Less: Allowance for credit losses (5,450) (5,242)
Unearned income (564) (1,087)
- ---------------------------------------------------------------------------------------------------------------------------
Net loans 463,828 434,552
- ---------------------------------------------------------------------------------------------------------------------------
Bank premises and equipment 22,007 19,997
- ---------------------------------------------------------------------------------------------------------------------------
Other assets 19,612 15,212
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $717,747 $660,984
===========================================================================================================================
Liabilities and Stockholders' Equity
LIABILITIES
Deposits:
Noninterest-bearing deposits $ 68,856 $ 66,558
Interest-bearing deposits 499,965 463,430
- ---------------------------------------------------------------------------------------------------------------------------
Total deposits 568,821 529,988
- ---------------------------------------------------------------------------------------------------------------------------
Short-term borrowings:
Federal funds purchased and securities
sold under agreements to repurchase 18,781 21,043
Other short-term borrowings 53,797 32,837
Long-term debt 6,180 5,680
Accrued interest and other liabilities 5,067 5,217
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 652,646 594,765
- ---------------------------------------------------------------------------------------------------------------------------
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; 5,380,779
shares issued and outstanding in 1996
and 5,298,361 in 1995 5,381 5,298
Surplus 26,890 26,734
Retained earnings 33,277 33,657
Net unrealized gain (loss) on securities
available for sale (447) 530
- ---------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 65,101 66,219
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders'
equity $717,747 $660,984
===========================================================================================================================
</TABLE>
2
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<TABLE>
<CAPTION>
FCNB Corp and Subsidiaries
Consolidated Statements of Income (Unaudited) (Note 2)
For the Three and Six Months Ended June 30, 1996 and 1995
(Dollars in thousands, except per share amounts)
- ---------------------------------------------------------------------------------------------------------------------------
For Three Months For Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $10,404 $ 9,799 $21,173 $18,843
Interest and dividends on investments:
Taxable 2,187 2,456 4,291 5,050
Tax exempt 135 348 284 708
Dividends 138 66 258 136
Interest on federal funds 180 95 460 170
Other interest income 35 130 112 209
- ---------------------------------------------------------------------------------------------------------------------------
Total interest income 13,079 12,894 26,578 25,116
- ---------------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest on deposits 4,945 5,007 10,170 9,319
Interest on federal funds purchased and
securities sold under agreements to
repurchase 217 302 507 548
Interest on long-term debt 128 99 146 215
Interest on other short-term borrowings 580 589 1,041 1,209
- ---------------------------------------------------------------------------------------------------------------------------
Total interest expense(1) 5,870 5,997 11,864 11,291
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income 7,209 6,897 14,714 13,825
Provision for credit losses 72 112 144 255
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for credit losses 7,137 6,785 14,570 13,570
- ---------------------------------------------------------------------------------------------------------------------------
Noninterest income:
Service fees 610 597 1,176 1,035
Net securities gains 96 42 161 56
Gain on sale of loans 133 31 222 68
Other operating income 336 350 629 598
- ---------------------------------------------------------------------------------------------------------------------------
Total noninterest income 1,175 1,020 2,188 1,757
- ---------------------------------------------------------------------------------------------------------------------------
Noninterest expenses:
Salaries and employee benefits 2,838 2,761 5,659 5,435
Occupancy expenses 643 421 1,245 824
Equipment expenses 432 329 800 690
Merger related expenses 26 79 1,900 131
Other operating expenses 1,518 1,628 2,931 3,140
- ---------------------------------------------------------------------------------------------------------------------------
Total noninterest expenses 5,457 5,218 12,535 10,220
- ---------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 2,855 2,587 4,223 5,107
- ---------------------------------------------------------------------------------------------------------------------------
Provision for income taxes:
Income tax expense 1,002 869 1,578 1,708
Deferred income tax effect of pre-1988 thrift
reserve for credit losses -- -- 1,601 --
- ---------------------------------------------------------------------------------------------------------------------------
Provision for income taxes 1,002 869 3,179 1,708
- ---------------------------------------------------------------------------------------------------------------------------
Net income $1,853 $1,718 $1,044 $3,399
- ---------------------------------------------------------------------------------------------------------------------------
Net income per share $0.34 $0.32 $0.19 $0.63
===========================================================================================================================
Dividends declared per share $0.14 $0.12 $0.26 $0.32
===========================================================================================================================
Weighted average number
of shares outstanding 5,387,854 5,360,011 5,389,317 5,357,267
===========================================================================================================================
<FN>
(1) The total interest expense amount has been reduced by $12,000 and $108,000
for the three and six month periods ended June 30, 1996, respectively, while no
adjustment was made in 1995. This interest reduction is due to the
capitalization of interest on the new corporate headquarters.
</FN>
</TABLE>
3
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<TABLE>
<CAPTION>
FCNB Corp and Subsidiaries
Consolidated Statements of Cash Flows (Note 2)
For the Six Months Ended June 30, 1996 and 1995
(Dollars in thousands)
(Restated
(Unaudited) Unaudited)
- ---------------------------------------------------------------------------------------------------------------------------
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,044 $ 3,399
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 688 488
Provision for credit losses 144 255
Provision for foreclosed properties -- 62
Provision for deferred income taxes (benefits) 20 (73)
Net premium amortization (discount accretion)
on investment securities 23 (50)
Accretion of net loan origination fees (270) (138)
Net securities gains (161) (56)
Net loss (gain) on disposition of bank
premises and equipment 10 (27)
Net gain on sale of foreclosed properties (19) (8)
(Increase) decrease in other assets (1,846) 82
Decrease (increase) in loans held for sale(1) (9) 364
Decrease in accrued interest and
other liabilities (150) (373)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (526) 3,925
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sales of investment securities -
available for sale 1,095 18,757
Proceeds from maturities of investment securities -
available for sale 6,622 4,745
Proceeds from maturities of investment securities -
held to maturity 8,984 6,707
Purchases of investment securities - available for sale (41,433) (4,466)
Purchases of investment securities - held to maturity (2,493) (2,152)
Net increase in loans (29,256) (40,544)
Purchases of bank premises and equipment (3,932) (3,693)
Proceeds from dispositions of bank premises and equipment -- 110
Investment in foreclosed properties (867) --
Proceeds from dispositions of foreclosed properties 193 --
- ---------------------------------------------------------------------------------------------------------------------------
Net cash (used in) investing activities (61,087) (20,536)
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in noninterest-bearing
deposits, NOW accounts, money market accounts, and
savings accounts 13,665 14,784
Net increase in time deposits 25,168 9,514
Net increase (decrease) in short-term borrowings 18,698 (9,242)
Proceeds from long-term debt 500 2,236
Proceeds from sale of stock 423 130
Repurchase of common stock (183) --
Dividend reinvestment plan (7) (6)
Dividends paid (1,418) (1,655)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 56,846 15,761
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (4,767) (850)
Cash and cash equivalents:
Beginning of period 46,363 37,924
- ---------------------------------------------------------------------------------------------------------------------------
End of period $41,596 $37,074
===========================================================================================================================
</TABLE>
(continued)
4
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<TABLE>
<CAPTION>
FCNB Corp and Subsidiaries
Consolidated Statements of Cash Flows (Note 2)
For the Three Months Ended June 30, 1996 and 1995
(Dollars in thousands)
(Restated
(Unaudited) Unaudited)
- ---------------------------------------------------------------------------------------------------------------------------
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Supplemental disclosures:
Interest paid $11,742 $11,211
===========================================================================================================================
Income taxes paid $2,892 $1,712
===========================================================================================================================
Supplemental schedule of noncash investing and financing activities:
Foreclosed properties acquired in settlement of loans $106 $--
===========================================================================================================================
Foreclosed properties transferred to loans $-- $253
===========================================================================================================================
Bank premises transferred to other assets $1,235 $--
===========================================================================================================================
Fair value adjustment for securities available for sale,
net of applicable deferred income tax effects $(977) $2,064
===========================================================================================================================
<FN>
(1) Loans held for sale are generally held for periods of ninety days or less.
</FN>
</TABLE>
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 June 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 six month periods ended June 30,
1995 for the Company and May 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
June 30, 1996 includes the results of operations from Laurel for the seven month
period December 1, 1995 to June 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
with a purchase price of $6.67 million. This event was accounted for as a
purchase and $3.16 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 six month periods ended
June 30, 1995 have been restated to reflect this business combination.
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 June 30, 1996 Laurel FCNB Combined Harbor Combined
- ---------------------------------------- ------ ---- -------- ------ --------
<S> <C> <C> <C> <C> <C>
Total income $1,510 $12,744 $14,254 $259 $14,513
Net income 261 1,592 1,853 22 1,875
Net income per share 0.34 0.34 0.35
Pro forma
For the Six Months Ended June 30, 1996 Laurel FCNB Combined Harbor Combined
- -------------------------------------- ------ ---- -------- ------ --------
Total income $1,510 $27,256 $28,766 $1,037 $29,803
Net income 261 783 1,044 89 1,133
Net income per share 0.19 0.19 0.21
6
<PAGE>
Pro forma
For the Three Months Ended June 30, 1995 Laurel FCNB Combined Harbor Combined
- ---------------------------------------- ------ ---- -------- ------ --------
Total income $2,381 $11,533 $13,914 $712 $14,626
Net income 367 1,351 1,718 9 1,727
Net income per share 0.33 0.32 0.32
Pro forma
For the Six Months Ended June 30, 1995 Laurel FCNB Combined Harbor Combined
- -------------------------------------- ------ ---- -------- ------ --------
Total income $4,657 $22,216 $26,873 $1,385 $28,258
Net income 736 2,663 3,399 99 3,498
Net income per share 0.65 0.63 0.65
</TABLE>
Note 3 - Investments: Using the criteria specified in Statement 115, the Company
classifies its investments in debt and equity securities at June 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 June 30, 1996, the gross unrealized losses in the Company's investment
portfolio were $1.18 million in the held-to-maturity investment portfolio and
$1.73 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 June 30, 1996 are as follows:
<TABLE>
<CAPTION>
Held-to-maturity portfolio
- -------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
June 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 $ 7,393 $ 3 $ 78 $ 7,318
State and political subdivisions 6,628 485 3 7,110
Mortgage-backed debt securities 25,401 110 1,100 24,411
- -------------------------------------------------------------------------------------------------------------------
$39,422 $598 $1,181 $38,839
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and estimated fair value of securities classified as
available-for-sale at June 30, 1996 are as follows:
7
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<TABLE>
<CAPTION>
Available-for-sale portfolio
- -------------------------------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
June 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 $ 26,570 $ 146 $ 247 $ 26,469
State and political subdivisions 400 1 -- 401
Mortgage-backed debt securities 87,229 338 1,464 86,103
Corporate bonds 3,067 42 -- 3,109
Equity securities 12,334 515 20 12,829
- -------------------------------------------------------------------------------------------------------------------
$129,600 $1,042 $1,731 $128,911
===================================================================================================================
</TABLE>
The gross realized gains on securities sold from the available-for-sale
portfolio for the first six months of 1996 and 1995 are $200,000 and $147,000,
respectively. The gross realized losses on securities sold from the
available-for-sale portfolio for the same periods are $39,000 and $91,000,
respectively.
8
<PAGE>
The amortized cost and estimated fair value of securities classified as
held-to-maturity and available-for-sale at June 30, 1996 summarized by
contractual maturity, are as follows:
<TABLE>
<CAPTION>
Held-to-maturity Available-for-sale
- -------------------------------------------------------------------------------------------------------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
- -------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Due in one year or less $ 4,348 $ 4,381 $ 4,136 $ 4,136
Due after one through five years 6,924 6,999 16,474 16,326
Due after five through ten years 2,396 2,697 9,427 9,517
Due after ten years 353 351 -- --
Mortgage-backed debt securities 25,401 24,411 87,229 86,103
Equity securities -- -- 12,334 12,829
- -------------------------------------------------------------------------------------------------------------------
$39,422 $38,839 $129,600 $128,911
===================================================================================================================
</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
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
- -------------------------------------------------------------------------------------------------------------------
$58,511 $1,228 $547 $59,192
===================================================================================================================
</TABLE>
9
<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
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
- -------------------------------------------------------------------------------------------------------------------
$83,149 $1,361 $523 $83,987
===================================================================================================================
</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 the earlier of the first
day of the first month following the completion of the Facility, or 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 June 30, 1996 was $6.18 million, bearing interest at a
rate of 6.79%. The interest paid on this loan totaled $66,000 during 1996 and
was capitalized as part of the cost of the Facility. The balance of long-term
debt as of June 30, 1995 consisted of $2.24 million of mortgage debt and $5.00
million of advances from the Federal Home Loan Bank of Atlanta which are due in
November 1996 and March 1997.
Assuming the total amount borrowed is $6,545,000, payments begin in July 1996,
and using the current interest rate of 6.79%, principal payments for the next
five years will be as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Years ending December 31, (dollars in thousands)
<S> <C> <C>
1996 $ 128
1997 269
1998 288
1999 308
2000 330
Later years 5,222
- -------------------------------------------------------------------------------------------------------------------
$6,545
====================================================================================================================
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Overview
- --------
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 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
10
<PAGE>
Company. This transaction included approximately $35.0 million in assets with a
purchase price of $6.67 million. This transaction was accounted for as a
purchase, and $3.16 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.
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
six months, the Company reported earnings of $1.04 million in 1996 and $3.40
million in 1995. However net income before specific one-time merger related
costs was $3.94 million in 1996 compared to $3.53 million for the same period in
1995. The Company earned $1.87 million before one-time merger related expenses
for the second quarter of 1996 compared to $1.80 million for the same period in
1995. The net income for the second quarter of 1996 was $1.85 million compared
to $1.72 million in 1995.
Throughout the discussion on the financial performance of the Company for the
periods ended June 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 six
months ended June 30, 1996 was .31% (annualized), and 1.18% (annualized) before
specific one-time merger related costs compared to annualized rates of 1.07% and
1.11%, respectively, for the same period in 1995. Return on average
stockholders' equity, which measures the income earned on the capital invested,
for the six months ended June 30, 1996 was 3.22% (annualized), and 12.15%
(annualized) before specific one-time merger related costs compared to
annualized rates of 11.22% and 11.66%, respectively for the six months ended
June 30, 1995.
The annualized return on average assets for the second quarter of 1996 before
and after one time merger related costs was 1.10% and 1.09%, respectively,
compared to 1.14% and 1.06%, respectively, for the same period in 1995. The
annualized return on average stockholders' equity before and after one-time
merger related costs was 11.62% and 11.38%, respectively, compared to 11.98% and
11.10% , 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 six months of 1996
totaled $14.35 million, increasing 1.1% from the $14.19 million recorded for the
same period in 1995. The Company's average interest-earning assets increased
3.5% to $619.91 million from June 30, 1995. This increase was primarily funded
with a 4.5% increase
11
<PAGE>
in the Company's average interest-bearing liabilities, and a 9.3% increase in
its average noninterest-bearing deposits for the same period.
For the second quarter of 1996, the net interest income totaled $7.27 million,
increasing by 2.6% from the $7.08 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 4.63% and 4.74% for the first
half 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 6 basis points when
compared to the same period in the prior year. The yield on earning assets
decreased 13 basis points to 8.38%, while the rates paid on interest-bearing
liabilities decreased by 7 basis points to 4.35%.
For the second quarter of 1996, the net interest margin was 4.60% compared to
4.64% in 1995. The spread during the period increased 3 basis points which was
principally caused by the decrease in rates paid on interest-bearing liabilities
being greater than the decrease in the yields earned on the investment and loan
portfolios. The yield on earning assets decreased 26 basis points to 8.33% while
the rates paid on interest-bearing liabilities decreased by 29 basis points to
4.32%.
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 adding 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.
Noninterest Income
- ------------------
Noninterest income increased $431,000 (24.5%) for the six months ended June
30, 1996, when compared to the same period in 1995. This increase was partially
attributable to the increase in service fee income of $141,000 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 $222,000
compared to the $68,000 recognized during 1995. Security gains increased in 1996
to $161,000 from the $56,000 realized in 1995. The other operating income
increased by $31,000, principally due to increases in fees collected for various
credit related services.
For the second quarter of 1996, noninterest income increased by $155,000.
This increase was primarily caused by increases in gains from loan sales of
$102,000, security gains of $54,000, and service fees of $13,000.
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 Liberty Securities Corp, 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. Additionally, revenue from service
charges on deposit accounts will continue to increase as the volume of accounts
maintained expands.
12
<PAGE>
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 $546,000
(5.4%) for the first six months of 1996, when compared to the first six 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. Total
salaries and employee benefits increased $224,000 (4.1%) over the first six
months of 1995, which was primarily attributable to an increase in salary
expenses of $173,000 and payroll taxes. This change reflects the increase in the
current year's average number of full-time equivalent employees. During the
first six months of 1996, the Company employed 329 average full-time equivalent
employees, an increase of 3 people over the same period in 1995.
Occupancy expenses increased $421,000 (51.1%) while equipment expenses
increased $110,000 (15.9%) over the first six 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 decreased $209,000 (6.7%) compared to the first
quarter of 1995. The primary reason for the decrease was associated with the
reduced FDIC insurance premiums.
For the second quarter of 1996, salaries and benefits increased $77,000
(2.8%), occupancy expenses increased $222,000 (52.7%), equipment expenses
increased $103,000 (31.3%), while other operating expenses decreased $110,000
The increased costs for occupancy and equipment expenses are associated with the
new corporate headquarters facility. The reduction in other operating expenses
is related to the reduced FDIC insurance charges.
Income Taxes
- ------------
The Company's effective tax rates for the first half of 1996 and 1995 were
75.3% and 33.4%, respectively. The effective tax rate for 1996 is considerably
higher than the effective tax rate experienced in 1995 due to the
nondeductibility of certain merger related costs. Also, included in the income
tax expense for 1996 is the deferred income tax effect of pre-1988 thrift
reserves for credit losses. If these items are excluded from the income tax
expense calculation the effective tax rate is 35.6%. The Company's income tax
expense also differs from the amount computed at statutory rates primarily due
to tax-exempt interest from certain loans and investment securities.
For the second quarter of 1996 and 1995, the effective tax rates were 35.1%
and 33.6%, respectively.
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.
13
<PAGE>
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 June 30, 1996, the Company had impaired loans totaling $4.30 million, for
which a specific allowance for credit losses of $885,000 has been provided and
other impaired loans of $2.50 million for which no specific allowance for credit
losses is required. The average balance of these loans amounted to approximately
$6.87 million. Cash receipts on impaired loans applied to reduce the principal
balance and cash receipts recognized as interest income were $135,000 and
$141,000, respectively. In addition, at June 30, 1996, the Company had other
nonaccrual loans of approximately $893,000 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
$46,000.
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 $5.45 million, or 1.16% of total loans,
net of unearned income, at June 30, 1996, compared to $4.85 million, or 1.13% as
of June 30, 1995, and $5.24 million, or 1.19% as of December 31, 1995. The
allowance for credit losses to nonperforming loans was 83.6%, 121.3% and 197.5%
as of June 30, 1996, June 30, 1995 and December 31, 1995, respectively.
Total nonperforming assets as of June 30, 1996 were $10.53 million, a $5.52
million increase from the level of nonperforming assets as of June 30, 1995, and
a $6.73 million increase from the level as of December 31, 1995. Total
nonperforming assets as of June 30, 1996, including properties acquired through
foreclosure, represent 1.62% of total assets, compared to .77% and .74% as of
June 30, 1995 and December 31, 1995, respectively.
Nonperforming assets at June 30, 1996 included $5.42 million of nonaccrual
loans, $1.10 million of loans past due 90 days or more, $1.79 million of
foreclosed commercial properties, $984,000 of foreclosed residential properties
and $1.24 million for the Company's vacated Operations Center transferred to
other real estate owned.
14
<PAGE>
<TABLE>
<CAPTION>
.
Allowance for Credit Losses
- -------------------------------------------------------------------------------------------------------------------
Six months
ended Year ended
June 30, 1996 December 31, 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Average total loans outstanding during period $448,293 $423,722
- -------------------------------------------------------------------------------------------------------------------
Allowance at beginning of year $5,242 $4,691
- -------------------------------------------------------------------------------------------------------------------
Charge-offs:
Real estate - construction- -- --
Real estate - mortgage -- 22
Commercial and agricultural 334 19
Consumer 117 168
- -------------------------------------------------------------------------------------------------------------------
Total charge-offs 451 209
- -------------------------------------------------------------------------------------------------------------------
Recoveries:
Real estate - construction -- --
Real estate - mortgage -- 1
Commercial and agricultural 15 --
Consumer 38 49
- -------------------------------------------------------------------------------------------------------------------
Total recoveries 53 50
- -------------------------------------------------------------------------------------------------------------------
Net charge-offs 398 159
- -------------------------------------------------------------------------------------------------------------------
Additions to Allowance charged to operating expenses 144 710
- -------------------------------------------------------------------------------------------------------------------
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 $5,450 $5,242
- -------------------------------------------------------------------------------------------------------------------
Ratio of net charge-offs to average total loans 0.09% 0.04%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Allocation of Allowance for Credit Losses
- -------------------------------------------------------------------------------------------------------------------
June 30, 1996 December 31, 1995
(1) (1)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Real estate - construction $ 298 10% $ 806 9%
Real estate - mortgage 3,298 68 2,406 68
Commercial and agricultural 916 11 1,129 11
Consumer 395 11 476 12
Unallocated 543 -- 425 --
- -------------------------------------------------------------------------------------------------------------------
Total Allowance $5,450 100% $5,242 100%
- -------------------------------------------------------------------------------------------------------------------
<FN>
(1) Percent of loans in each category to total loans, net of unearned income.
</FN>
</TABLE>
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 June 30, 1996, the Company had loans totaling $16.53 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 June 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 June 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>
Six months ended
June 30,
--------------------------------------------------------------------------------
1996 1995
--------------------------------------------------------------------------------
Average Interest Average Average Interest Average
daily Income1/ yield/ daily income1/ yield/
balance paid rate balance paid rate
--------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Interest-bearing deposits $ 2,902 $ 112 7.72% $ 5,979 $ 209 6.99%
- ---------------------------------------------------------------------------------------------------------------------------
Federal funds sold 18,005 440 4.89% 5,400 170 6.30%
- ---------------------------------------------------------------------------------------------------------------------------
Loans held for sale 3,769 140 7.43% 470 20 8.51%
- ---------------------------------------------------------------------------------------------------------------------------
Investment securities:
Taxable 139,443 4,475 6.42% 157,247 5,185 6.59%
Tax exempt 7,498 430 11.48% 16,503 1,073 13.00%
- ---------------------------------------------------------------------------------------------------------------------------
Total investment securities 146,941 4,905 6.68% 173,750 6,258 7.20%
- ---------------------------------------------------------------------------------------------------------------------------
Loans 2 448,293 20,371 9.09% 413,202 18,826 9.11%
- ---------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 619,910 25,968 8.38% 598,801 25,483 8.51%
Noninterest-earning assets 48,788 37,102
Net effect of SFAS 115 104 (1,074)
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $668,802 $634,829
===========================================================================================================================
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits $475,367 9,895 4.16% $445,987 9,309 4.17%
Long-term debt 3 6,008 206 6.86% 6,333 215 6.79%
Federal funds purchased and securities sold
under agreements to repurchase 19,323 507 5.25% 19,486 471 4.83%
Other short-term borrowings 33,671 1,006 5.98% 39,567 1,296 6.55%
- ---------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities 534,369 11,614 4.35% 511,373 11,291 4.42%
- ---------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits 63,367 57,952
Noninterest-bearing liabilities 6,148 4,942
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 603,884 574,267
- ---------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 64,814 61,636
Net effect of unrealized
gain (loss) on securities 104 (1,074)
- ---------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 64,918 60,562
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $668,802 $634,829
===========================================================================================================================
Net interest income $14,354 $14,192
===========================================================================================================================
Net interest spread 4.03% 4.09%
===========================================================================================================================
Net interest margin 4.63% 4.74%
===========================================================================================================================
<FN>
1 Taxable equivalent adjustments of $145,000 for 1996 and $367,000 for 1995
are included in the interest income for total interest-earning assets. The
statement of income for the six month period ended June 30, 1996 includes
the results of operations for Laurel for the seven month period from
December 1, 1995 to June 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.
</FN>
17
<PAGE>
2 Nonaccruing loans, which include impaired loans, are included in the average
balances. Net loan fees included in interest income totaled $585,000 in 1996
and $472,000 in 1995.
3 The interest paid in 1996 includes $108,000 of capitalized construction
period interest.
</TABLE>
Capital Resources
- -----------------
The following table shows the risk-based capital and the leverage ratios for
the Company as of June 30, 1996:
<TABLE>
<CAPTION>
Risk-based capital ratios
-----------------------------------------------------------------------
Tier 1 Total Capital Leverage Ratio
-----------------------------------------------------------------------
<S> <C> <C> <C>
Actual 12.71% 13.84% 8.58%
Minimum 4.00% 8.00% 3.00%
- -------------------------------------------------------------------------------------------------------------------
Excess 8.71% 5.84% 5.58%
===================================================================================================================
</TABLE>
Recent developments
- -------------------
There are currently being discussed certain proposals relating to the reform
or restructuring of the deposit insurance fund system. 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, unless "entrance and
exit fees" amounting to approximately 1.79% of the assumed deposits are paid.
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 of June 30, 1996, the
Company had approximately $152.00 million in deposits designated as SAIF
insured, out of $568.82 million in total deposits. Deposit premium assessments
for the Company's BIF insured deposits are .00%. SAIF deposit insurance premiums
are currently .23% and will remain at this level until SAIF meets the mandated
level of 1.25% of insured deposits. Among the proposals to recapitalize SAIF and
allow the equalization at the lower BIF premium levels is one which would impose
a one-time assessment of .85% to .90% of SAIF insured deposits on all
institutions holding SAIF insured deposits. If a one-time assessment of .85% of
SAIF insured deposits were imposed on the Company as of June 30, 1996, and the
assessment were imposed utilizing the same formula for calculating the level of
the SAIF insured deposit base as that currently utilized for allocating premiums
between BIF and SAIF, then the Company would be required to pay approximately
$1.29 million in connection with the assessment without reduction for the effect
of income taxes. There can be no assurance as to the enactment of any of the
current proposals, the form of any such proposals, the amount, tax treatment or
timing of any one-time assessment, or the means used to calculate the deposit
base subject to any such assessment.
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) A Report on Form 8-K/A Item 5. Other Events. was filed on April 1, 1996
for the event dated March 28, 1996. The filing reported the
announcement of a stock repurchase program in which the Company may
repurchase up to 80,000 shares of FCNB common stock in open market
transactions over the next two years, and an aggregate of 200,000
shares over the next five years, with an aggregate maximum expenditure
of approximately $4,000,000. There is no minimum number of shares which
the Company is obligated to repurchase.
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)
August 12, 1996 BY: /s/A. Patrick Linton
--------------------
A. Patrick Linton, President,
Chief Executive Officer and
Director
August 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 $0.19 $0.63
Primary-before one-time
merger costs $0.73 $0.65
Primary average shares
outstanding 5,410,241 5,407,267
Fully diluted $0.19 $0.63
Fully diluted-before one-time
merger costs $0.73 $0.65
Full diluted average shares
outstanding 5,410,241 5,410,587
<FN>
(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.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 24,052
<INT-BEARING-DEPOSITS> 1,229
<FED-FUNDS-SOLD> 16,315
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 128,911
<INVESTMENTS-CARRYING> 39,422
<INVESTMENTS-MARKET> 38,839
<LOANS> 469,278
<ALLOWANCE> 5,450
<TOTAL-ASSETS> 717,747
<DEPOSITS> 568,821
<SHORT-TERM> 72,578
<LIABILITIES-OTHER> 5,067
<LONG-TERM> 6,180
5,381
0
<COMMON> 0
<OTHER-SE> 59,720
<TOTAL-LIABILITIES-AND-EQUITY> 717,747
<INTEREST-LOAN> 21,173
<INTEREST-INVEST> 4,833
<INTEREST-OTHER> 572
<INTEREST-TOTAL> 26,578
<INTEREST-DEPOSIT> 10,170
<INTEREST-EXPENSE> 11,864
<INTEREST-INCOME-NET> 14,714
<LOAN-LOSSES> 144
<SECURITIES-GAINS> 161
<EXPENSE-OTHER> 12,535
<INCOME-PRETAX> 4,223
<INCOME-PRE-EXTRAORDINARY> 4,223
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,044
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
<YIELD-ACTUAL> 4.63
<LOANS-NON> 5,417
<LOANS-PAST> 1,099
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 16,532
<ALLOWANCE-OPEN> 5,242
<CHARGE-OFFS> 451
<RECOVERIES> 53
<ALLOWANCE-CLOSE> 5,450
<ALLOWANCE-DOMESTIC> 5,450
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
