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
March 31, 2000 0-15645
FCNB Corp
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MARYLAND 52-1479635
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
7200 FCNB Court, Frederick, Maryland 21703
(Address of principal executive offices) (Zip Code)
</TABLE>
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, 11,924,558 shares outstanding as of April 30, 2000.
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
FCNB CORP AND SUBSIDIARY
<TABLE>
<CAPTION>
- --------------------------------------------------------------- ------------------------- --------------------------
Consolidated Balance Sheets (Unaudited) (Unaudited)
(dollars in thousands, except per share amounts) March 31, 2000 December 31, 1999
- --------------------------------------------------------------- ------------------------- --------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $53,597 $39,323
Interest-bearing deposits in other banks 1,450 28,737
Federal funds sold 28,402 8,317
- --------------------------------------------------------------- ------------------------- --------------------------
Cash and cash equivalents 83,449 76,377
- --------------------------------------------------------------- ------------------------- --------------------------
Loans held for sale 239 878
- --------------------------------------------------------------- ------------------------- --------------------------
Investment securities held to maturity at amortized
cost-fair value of $20,765 in 2000 and $21,164
in 1999 20,984 21,263
- --------------------------------------------------------------- ------------------------- --------------------------
Investment securities available for sale-at fair value 409,938 404,818
- --------------------------------------------------------------- ------------------------- --------------------------
Restricted stock, at cost 15,601 16,061
- --------------------------------------------------------------- ------------------------- --------------------------
Loans - net of unearned income 928,669 903,072
Less: Allowance for credit losses (9,602) (10,043)
- --------------------------------------------------------------- ------------------------- --------------------------
Net loans 919,067 893,029
- --------------------------------------------------------------- ------------------------- --------------------------
Bank premises and equipment 25,672 25,543
Other assets 71,600 67,827
- --------------------------------------------------------------- ------------------------- --------------------------
Total assets $1,546,550 $1,505,796
=============================================================== ========================= ==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing deposits $179,113 $163,581
Interest-bearing deposits 885,418 865,278
- --------------------------------------------------------------- ------------------------- --------------------------
Total deposits 1,064,531 1,028,859
- --------------------------------------------------------------- ------------------------- --------------------------
Short-term borrowings:
Federal funds purchased and securities sold
under agreements to repurchase 62,682 59,995
Other short-term borrowings 276,265 269,268
Long-term debt:
Guaranteed preferred beneficial interests in the
Company's subordinated debenture 40,250 40,250
Accrued interest and other liabilities 15,069 17,659
- --------------------------------------------------------------- ------------------------- --------------------------
Total liabilities 1,458,797 1,416,031
- --------------------------------------------------------------- ------------------------- --------------------------
SHAREHOLDERS' EQUITY
Preferred stock, per share par value $1.00;
1,000,000 shares authorized; none outstanding -- --
Common stock, per share par value $1.00;
50,000,000 shares authorized: 11,924,558
shares in 2000 and 11,923,775 shares in 1999
issued and outstanding 11,925 11,924
Capital surplus 54,425 54,316
Retained earnings 34,204 32,581
Accumulated other comprehensive income (loss) (12,801) (9,056)
- --------------------------------------------------------------- ------------------------- --------------------------
Total shareholders' equity 87,753 89,765
- --------------------------------------------------------------- ------------------------- --------------------------
Total liabilities and shareholders' equity $1,546,550 $1,505,796
=============================================================== ========================= ==========================
</TABLE>
2
<PAGE>
FCNB CORP AND SUBSIDIARY
Consolidated Statements of Income and Comprehensive Income (Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------- ------------------------------------------------
For the 3 months ended
- ------------------------------------------------------------------- --------------------- --------------------------
(dollars in thousands, except per share amounts) March 31, 2000 March 31, 1999
- ------------------------------------------------------------------- --------------------- --------------------------
<S> <C> <C>
Interest income:
Interest and fees on loans $20,000 $17,936
Interest and dividends on investment securities:
Taxable 6,688 6,535
Tax exempt 129 146
Dividends 429 369
Interest on federal funds sold 337 159
Other interest income 81 37
- ------------------------------------------------------------------- --------------------- --------------------------
Total interest income 27,664 25,182
- ------------------------------------------------------------------- --------------------- --------------------------
Interest expense:
Interest on deposits 9,514 8,229
Interest on federal funds purchased and securities
sold under agreements to repurchase 806 749
Interest on other short-term borrowings 3,869 3,231
Interest on long-term debt 844 844
- ------------------------------------------------------------------- --------------------- --------------------------
Total interest expense 15,033 13,053
- ------------------------------------------------------------------- --------------------- --------------------------
Net interest income 12,631 12,129
Provision for credit losses 450 498
- ------------------------------------------------------------------- --------------------- --------------------------
Net interest income after provision for credit losses 12,181 11,631
- ------------------------------------------------------------------- --------------------- --------------------------
Noninterest income:
Service fees 1,436 1,303
Insurance commissions 1,663 1,410
Net securities gains 167 382
Gain on sale of loans 51 311
Income from bank-owned life insurance 390 384
Other operating income 1,041 799
- ------------------------------------------------------------------- --------------------- --------------------------
Total noninterest income 4,748 4,589
- ------------------------------------------------------------------- --------------------- --------------------------
Noninterest expenses:
Salaries and employee benefits 6,749 6,284
Occupancy expenses 1,367 1,386
Equipment expenses 1,106 922
Merger-related expenses -- 122
Other operating expenses 2,494 2,637
- ------------------------------------------------------------------- --------------------- --------------------------
Total noninterest expenses 11,716 11,351
- ------------------------------------------------------------------- --------------------- --------------------------
Income before provision for income taxes 5,213 4,869
Income tax expense 1,681 1,593
Net income 3,532 3,276
- ------------------------------------------------------------------- --------------------- --------------------------
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during
period, net of taxes of ($2,393), and ($1,318),
respectively (3,647) (2,120)
Less: reclassification adjustment for gain (losses)
included in net income, net of taxes of $69 and
$144, respectively 98 238
- ------------------------------------------------------------------- --------------------- --------------------------
Other comprehensive income (loss), net of taxes of ($2,462)
and ($1,462), respectively (3,745) (2,358)
=================================================================== ===================== ==========================
Comprehensive income $(213) $972
=================================================================== ===================== ==========================
Basic earnings per share $0.30 $0.28
=================================================================== ===================== ==========================
Diluted earnings per share $0.30 $0.27
=================================================================== ===================== ==========================
</TABLE>
3
<PAGE>
FCNB CORP AND SUBSIDIARY
Consolidated Statements of Cash Flows (Unaudited)
For the Three Months Ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------- ------------ -----------
(dollars in thousands) 2000 1999
- --------------------------------------------------------------------------- ------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $3,532 $3,276
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 928 891
Provision for credit losses 450 498
Provision for deferred income taxes (benefits) (15) --
Net premium amortization (discount accretion) on investment securities
securities (89) 110
Accretion of net loan origination fees (207) (351)
Net securities (gains) losses (167) (382)
Net (gain) loss on sale of foreclosed properties (28) 37
Net (gain) loss on disposition of bank premises and equipment 12 --
Decrease (increase) in other assets (1,466) 1,582
Decrease (increase) in loans held for sale(1) 639 1,321
Increase (decrease) in accrued interest and other liabilities (2,590) 2,546
- --------------------------------------------------------------------------- ------------ -----------
Net cash provided by operating activities 999 9,528
- --------------------------------------------------------------------------- ------------ -----------
Cash flow from investing activities:
Proceeds from sales of investment securities - available for sale 9,817 4,965
Proceeds from maturities of investment securities - available for sale 20,473 34,327
Proceeds from maturities of investment securities - held to maturity 301 424
Purchases of investment securities - available for sale (40,921) (26,253)
Net decrease (increase) in loans (26,281) (10,957)
Purchases of bank premises and equipment (956) (862)
Proceeds from dispositions of bank premises and equipment 5 --
Purchase of foreclosed properties -- (59)
Proceeds from dispositions of foreclosed properties 167 543
- --------------------------------------------------------------------------- ------------ -----------
Net cash (used in) provided by investing activities (37,395) 2,128
- --------------------------------------------------------------------------- ------------ -----------
Cash flows from financing activities:
Net increase (decrease) in noninterest-bearing deposits, NOW
accounts, money market accounts and savings accounts 27,585 (17,922)
Net increase (decrease) in time deposits 8,085 (2,776)
Net increase (decrease) in short-term borrowings 9,684 (27,910)
Proceeds from sale of stock 23 62
Dividend reinvestment plan -- (15)
Dividends paid (1,909) (1,559)
- --------------------------------------------------------------------------- ------------ -----------
Net cash (used in) provided by financing activities 43,468 (50,120)
- --------------------------------------------------------------------------- ------------ -----------
Increase (decrease) in cash and cash equivalents 7,072 (38,464)
Cash and cash equivalents:
Beginning of period 76,377 92,138
- --------------------------------------------------------------------------- ------------ -----------
End of period $83,449 $53,674
=========================================================================== ============ ===========
</TABLE>
(CONTINUED)
4
<PAGE>
FCNB CORP AND SUBSIDIARY
Consolidated Statements of Cash Flows (Unaudited)
For the three months ended
March 31, 2000 and 1999
(CONTINUED)
<TABLE>
<CAPTION>
(dollars in thousands) 2000 1999
- --------------------------------------------------------------- ----------------- ----------------
<S> <C> <C>
Supplemental disclosures
Interest paid $14,976 $13,040
=============================================================== ================= ================
Income taxes paid (refunds) $(573) $24
=============================================================== ================= ================
Supplemental schedule of noncash investing and financing activities:
Foreclosed properties acquired in settlement of loans $-- $--
Seller financed disposition of property $-- $--
Surplus from stock option transactions $87 $30
=============================================================== ================= ================
</TABLE>
(1) Loans held for sale are generally held for periods of ninety days or less.
FCNB CORP AND SUBSIDIARY
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 first quarter of 1999 has been restated to reflect the effects of the
acquisition of First Frederick Financial Corporation in August 1999, which was
accounted for using the pooling-of-interests method.
Note 2 - On August 19, 1999, FCNB Corp (the "Company") consummated its
previously announced merger of First Frederick Financial Corp ("First"), the
holding company for First Bank of Frederick, with and into FCNB, and the merger
of First Bank of Frederick with and into FCNB's wholly-owned subsidiary, FCNB
Bank, all headquartered in Frederick, Maryland. FCNB and First executed a
definitive agreement on March 12, 1999.
As a result of the Merger, each share of the $1.00 par value outstanding common
stock of First was converted into 1.0434 shares of the Company's $1.00 par value
common stock resulting in the issuance of approximately 1,543,012 shares of FCNB
common stock, subject to adjustment to account for the elimination of fractional
shares.
5
<PAGE>
The following table represents the combined and separate results of First and
the Company for the period preceding the acquisitions.
<TABLE>
<CAPTION>
- ------------------------------------ -------------- ----------------- ----------------- ------------------
Basic Diluted
(dollars in thousands Total Net earnings earnings
except per share data) income income per share per share
- ------------------------------------ -------------- ----------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Quarter ended March 31, 1999
Company $26,858 $2,898 $0.29 $0.29
First 2,913 378 -- --
- ------------------------------------ -------------- ----------------- ----------------- ------------------
Combined $29,771 $3,276 $0.28 $0.27
==================================== ============== ================= ================= ==================
</TABLE>
Note 3 - Investments: Using the criteria specified in Statement 115, the Company
classifies its investments in debt and equity securities at March 31, 2000, and
December 31, 1999, 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 included in
accumulated other comprehensive income, a component of shareholders' equity, net
of the related deferred tax effect.
As of March 31, 2000, the gross unrealized losses in the Company's investment
portfolio were $374,000 in the held-to-maturity investment portfolio and $22.80
million in the available-for-sale investment portfolio compared to $279,000 and
$16.37 million, respectively, as of December 31, 1999. As of March 31, 2000, the
gross unrealized gains in the Company's investment portfolio were $155,000 in
the held-to-maturity investment portfolio and $1.76 million in the
available-for-sale investment portfolio compared to $180,000 and $1.54 million,
respectively, as of December 31, 1999. 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 because the cost of funding the Company's
operations increases, while the income earned on the held-to-maturity portfolio
remains constant.
6
<PAGE>
The amortized cost and estimated fair value of securities classified as
held-to-maturity at March 31, 2000, are as follows:
HELD-TO-MATURITY PORTFOLIO
<TABLE>
<CAPTION>
- ------------------------------------------------------ -------------- -------------- -------------- --------------
Gross Gross
March 31, 2000 Amortized Unrealized Unrealized Estimated
(dollars in thousands) Cost Gains Losses Fair Value
- ------------------------------------------------------ -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
U. S. Treasury and other U.S. government
agencies and corporations $11,000 $-- $131 $10,869
State and political subdivision 5,078 153 165 5,066
Mortgage-backed debt securities 4,906 2 78 4,830
- ------------------------------------------------------ -------------- -------------- -------------- --------------
$20,984 $155 $374 $20,765
====================================================== ============== ============== ============== ==============
</TABLE>
The amortized cost and estimated fair value of securities classified as
available-for-sale at March 31, 2000, are as follows:
AVAILABLE-FOR-SALE-PORTFOLIO
<TABLE>
<CAPTION>
- ------------------------------------------------------ -------------- -------------- -------------- --------------
Gross Gross
March 31, 2000 Amortized Unrealized Unrealized Estimated
(dollars in thousands) Cost Gains Losses Fair Value
- ------------------------------------------------------ -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
U. S. Treasury and other U.S. government agencies
and corporations $197,717 $ 9 $8,339 $189,387
Corporate bonds 66,074 131 5,510 60,695
Mortgage-backed debt securities 141,656 16 5,305 136,367
State and political subdivisions 4,778 -- 312 4,466
Equity securities 20,753 1,608 3,338 19,023
- ------------------------------------------------------ -------------- -------------- -------------- --------------
$430,978 $1,764 $22,804 $409,938
====================================================== ============== ============== ============== ==============
</TABLE>
The gross realized gains on securities sold from the available-for-sale
portfolio for the first three months of 2000 and 1999 are $268,000 and $382,000,
respectively. The gross realized losses on securities sold from the
available-for-sale portfolio for the first three months of 2000 are $101,000 and
- -0- for 1999, respectively.
The amortized cost and estimated fair value of securities classified as
held-to-maturity and available-for-sale at March 31, 2000, summarized by
contractual maturity, are as follows:
<TABLE>
<CAPTION>
Held-to-maturity Available-for-sale
- ---------------------------------------- ----------------- ---------------- ----------------- ----------------
March 31, 2000 Estimated Fair Estimated Fair
(dollars in thousands) Amortized Cost Value Amortized Cost Value
- ---------------------------------------- ----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Due in one year or less $355 $355 $4,189 $4,180
Due after one through five years 13,302 13,323 86,053 84,772
Due after five through ten years 350 351 111,100 104,607
Due after ten years 2,071 1,906 67,227 60,989
Mortgage-backed debt securities 4,906 4,830 141,656 136,367
Equity securities -- -- 20,753 19,023
- ---------------------------------------- ----------------- ---------------- ----------------- ----------------
$20,984 $20,765 $430,978 $409,938
======================================== ================= ================ ================= ================
</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.
7
<PAGE>
The amortized cost and estimated fair value of securities classified as
held-to-maturity at December 31, 1999, are as follows:
HELD-TO-MATURITY PORTFOLIO
<TABLE>
<CAPTION>
- ---------------------------------------------- ------------- --------------- ---------------- -----------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(Dollars in thousands) Cost Gains Losses Value
- ---------------------------------------------- ------------- --------------- ---------------- -----------------
<S> <C> <C> <C> <C>
December 31, 1999
U.S. Treasury and other
U.S. government agencies
and corporations $11,000 $-- $41 $10,959
State and political subdivisions 5,054 178 149 5,083
Mortgage-backed debt securities 5,209 2 89 5,122
- ---------------------------------------------- ------------- --------------- ---------------- -----------------
$21,263 $180 $279 $21,164
============================================== ============= =============== ================ =================
</TABLE>
The amortized cost and estimated fair value of securities available-for-sale at
December 31, 1999, are as follows:
AVAILABLE-FOR-SALE-PORTFOLIO
<TABLE>
<CAPTION>
- ---------------------------------------------- ------------- --------------- ---------------- -----------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(Dollars in thousands) Cost Gains Losses Value
- ---------------------------------------------- ------------- --------------- ---------------- -----------------
<S> <C> <C> <C> <C>
December 31, 1999
U.S. Treasury and other
U.S. government agencies
and corporations $194,699 $94 $6,745 $188,048
Mortgage-backed debt securities 137,620 28 3,700 133,948
Corporate bonds 63,714 81 3,942 59,853
State and political subdivisions 4,782 -- 286 4,496
Equity securities 18,837 1,333 1,697 18,473
- ---------------------------------------------- ------------- --------------- ---------------- -----------------
$419,652 $1,536 $16,370 $404,818
============================================== ============= =============== ================ =================
</TABLE>
Note 4 - Earnings per share ("EPS") are disclosed as basic and diluted. Basic
EPS is generally computed by dividing net income by the weighted-average number
of common shares outstanding for the period, whereas diluted EPS essentially
reflects the potential dilution in basic EPS that could occur if other contracts
to issue common stock were exercised. Per share amounts are based on the
weighted-average number of shares outstanding during each year as follows:
<TABLE>
<CAPTION>
March 31,
- --------------------------------------------------------- ------------- -------------
2000 1999
<S> <C> <C>
Basic EPS weighted-average shares outstanding 11,924,474 11,602,624
Effect of dilutive securities - stock options 28,723 336,030
- --------------------------------------------------------- ------------- -------------
Diluted EPS weighted-average shares outstanding 11,953,197 11,938,654
========================================================= ============= =============
</TABLE>
Note 5 - Risk Management Instruments: Interest rate swaps used to achieve
interest rate risk management objectives are accounted for in a manner
consistent with the accounting basis of the related asset or liability. An
instrument designated to hedge an asset or liability carried at historical cost
is accounted for on an accrual basis, whereby the interest income or expense of
the related asset or liability is adjusted for the net amount of any interest
receivable or payable generated by the hedging instrument during the reporting
period. For such instruments, no amounts other than any accrued interest
receivable or payable are included in the accompanying consolidated balance
sheets.
8
<PAGE>
Interest rate swaps involve the exchange of payments between counterparties
based on the interest differential between a fixed and a variable interest rate
applied to a notional balance. Under accrual accounting, this interest
differential is recognized as an adjustment to the interest income or expense of
the related asset or liability in the accompanying statements of income.
Upon early termination of derivative instruments accounted for under the accrual
method, the net proceeds received or paid are deferred, if material, in the
accompanying consolidated balance sheets and amortized to the interest income or
expense of the related asset or liability over the lesser of the remaining
contractual life of the instrument or the maturity of the related asset or
liability. At March 31, 2000, there were $159,000 of gains in the accompanying
consolidated income statement arising from the termination of instruments
qualifying for accrual accounting prior to maturity, but no gains recognized as
of March 31, 1999.
Note 6 - Comprehensive Income: The Company follows Financial Accounting
Standards Board ("FASB") Statement No. 130, "Reporting Comprehensive Income"
(Statement 130) for reporting comprehensive income. Comprehensive income, as
defined by Statement 130, is the change in equity of a business enterprise
during a reporting period from transactions and other events and circumstances
from non-owner sources. In addition to the Company's net income, change in
equity components under comprehensive income reporting include the net change in
unrealized gain or loss on securities available-for-sale.
The following tables summarize the related tax effect of unrealized gains
(losses) on securities available-for-sale included in other comprehensive income
shown in the consolidated statements of income and comprehensive income.
For the three months ended March 31, 2000:
<TABLE>
<CAPTION>
- ------------------------------------------------ --------------------- ---------------- ---------------------
Tax Expense Net Amount
Pre-tax Amounts (Benefits)
- ------------------------------------------------ --------------------- ---------------- ---------------------
<S> <C> <C> <C>
Unrealized holding gains (losses) arising
during period $(6,040) $(2,393) $(3,647)
Less: reclassification adjustment for
gains(losses) included in net income 167 69 98
- ------------------------------------------------ --------------------- ---------------- ---------------------
Net unrealized gains (losses) on securities $(6,207) $(2,462) $(3,745)
- ------------------------------------------------ --------------------- ---------------- ---------------------
For the three months ended March 31, 1999:
<CAPTION>
- ------------------------------------------------ --------------------- ---------------- ---------------------
Tax Expense Net Amount
Pre-tax Amounts (Benefits)
- ------------------------------------------------ --------------------- ---------------- ---------------------
<S> <C> <C> <C>
Unrealized holding gains (losses) arising
during period $(3,438) $(1,318) $(2,120)
Less: reclassification adjustment for
gains(losses) included in net income 382 144 238
- ------------------------------------------------ --------------------- ---------------- ---------------------
Net unrealized gains (losses) on securities $(3,820) $(1,462) $(2,358)
- ------------------------------------------------ --------------------- ---------------- ---------------------
</TABLE>
Note 7 - Long-Term Debt: The guaranteed preferred beneficial interests in the
Company's subordinated debentures represent interests in 8.25% subordinated
debentures ("Subordinated Debentures"), due July 31, 2028, issued by the Company
to its subsidiary, FCNB Capital Trust, in connection with FCNB Capital's
Cumulative Trust Preferred Securities (the "Preferred Securities"). The
Subordinated Debentures and related payments are FCNB Capital's only assets.
The Preferred Securities meet the regulatory criteria for Tier I capital,
subject to Federal Reserve guidelines that limit the amount of the Preferred
Securities and cumulative perpetual preferred stock to an aggregate of 25% of
Tier I capital.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
FORWARD LOOKING STATEMENTS
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.
The following discussion and related financial data for the Company provides an
overview of the financial condition and results of operations of the Company and
its wholly-owned subsidiary, which is presented on a consolidated basis. The
principal subsidiary of the Company is FCNB Bank. For the first three months,
the Company reported earnings of $3.53 million in 2000 and $3.28 million in
1999. However, net income before specific one-time merger related costs was
$3.52 million in 2000 compared to $3.36 million for the same period in 1999.
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. Annualized return on average assets for
the three months ended March 31, 2000, was .94%, compared to .96% for the same
period in 1999, in each case before specific one-time merger related costs.
Annualized return on average assets for the three months ended March 31, 2000,
was .94% compared to .93% for the same period in 1999, in each case after
specific one-time merger related costs. The annualized return on average
shareholders' equity, which measures the income earned on the capital invested,
for the three months ended March 31, 2000, was 16.38% compared to 13.72% for the
three months ended March 31, 1999, in each case before specific one-time merger
related costs. Annualized return on average shareholders' equity for the three
months ended March 31, 2000, was 16.44%, compared to 13.37% for the same period
in 1999,in each case after specific one-time merger related costs.
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.
10
<PAGE>
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 14 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 35%, increases the tax-exempt income to an amount
representing an estimate of what could have been earned if that income were
fully taxable.
Taxable equivalent net interest income for the first three months of 2000
totaled $12.71 million, increasing 3.7% from the $12.26 million recorded for the
same period in 1999. The Company's average interest-earning assets for the three
months ended March 31, 2000, increased 8.3%, to $1.41 billion, from $1.30
billion for the three months ended March 31, 1999. This increase was primarily
funded with a 7.9% increase in the Company's average interest-bearing
liabilities.
The Company's net interest margin (taxable equivalent net interest income as a
percent of average interest-earning assets) was 3.62% and 3.78% for the first
quarter of 2000 and 1999, 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 21 basis points in the
first quarter of 2000 when compared to the same period in the prior year. The
yield on earning assets increased to 7.90% from 7.81%, while the rates paid on
interest-bearing liabilities increased 31 basis points to 4.84%.
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 early 2000 and
late 1999 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 2000.
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.
There is currently proposed legislation, which would permit the payment of
interest on business checking accounts. The exact nature of any legislation,
which may ultimately be approved, is uncertain. The impact of the payment of
interest on the checking accounts would likely be negative on the Company's net
interest income and other indicators of financial performance for other
financial institutions.
Noninterest Income
Noninterest income increased $159,000 or 3.5% for the three months ended March
31, 2000, when compared to the same period in 1999. This increase was partially
attributable to the increase in service fee income of $133,000, which was due to
an increase in the volume of deposit accounts maintained. Insurance commission
income increased in 2000 to $1.66 million from the $1.41 million realized in
1999. Security gains decreased in 2000 to $167,000 from the $382,000 realized in
1999. Gain on sale of loans decreased to $51,000 in 2000 from $311,000 in 1999.
The Company's management is committed to developing and offering innovative,
market-driven products and services that will generate additional sources of
noninterest income. However, the future results of any of these products or
services cannot be predicted at this time.
11
<PAGE>
Noninterest Expenses
Noninterest expenses increased $365,000 or 3.2% for the first three months of
2000, when compared to the first three months of 1999.
Total salaries and employee benefits increased $465,000 or 7.4%, over the first
three months of 2000. The increase in salaries and benefits reflect general
merit and cost of living adjustments in addition to increases in health care and
pension expenses.
Occupancy expenses decreased $19,000 or (1.4%) and equipment expenses increased
$184,000 or 20.0% over the first three months of 1999. The increase in equipment
expense is directly attributable to the activity surrounding the acquisition of
First Frederick Financial Corporation. Branch upgrading, signage, computer and
equipment upgrades have resulted in increased depreciation and maintenance
expenses.
Other operating expenses decreased $143,000 or 5.4% compared to the first three
months of 1999.
Income Taxes
The Company's effective tax rates for the first three months of 2000 and 1999
were 32.2% and 32.7%, 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, investment securities and the bank-owned life
insurance program. Additionally, the Company derives income tax benefits from a
subsidiary located in the state of Delaware that holds and manages a portion of
its investment portfolio.
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.
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, the Company considers slow payment on a loan, 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.
Selected information concerning the Company's recorded investment in impaired
loans and related interest income are summarized as follows:
<TABLE>
<CAPTION>
(dollars in thousands)
March 31, 2000 1999
- ------------------------------------------------------------------------------------ --------- ----------
<S> <C> <C>
Impaired loans with specific allocation of allowance for credit losses $5,190 $2,956
Specific allocation of allowance for credit losses 1,253 977
Other impaired loans 3,669 4,575
Average recorded investment in impaired loans 8,859 7,571
Interest income recognized (reversed) on impaired loans based on cash
payments received (35) 42
</TABLE>
Additional information concerning the Company's recorded investment in
nonaccrual loans, for which impairment had not been recognized are as follows:
<TABLE>
<CAPTION>
(dollars in thousands)
March 31, 2000 1999
- -------------------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Nonaccrual loans $-0- $638
Interest income recognized due to loans in nonaccrual status 22 (5)
- -------------------------------------------------------------------------------------- ----------- -----------
</TABLE>
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 are generally determined based on collateral values or the
present value of estimated cash flows.
12
<PAGE>
The provision for credit losses is charged to income in an amount necessary to
maintain the allowance at the level management believes is appropriate.
<TABLE>
<CAPTION>
March 31, 2000 March 31, 1999 December 31, 1999
- ------------------------------------- ----------------------- ------------------------ -----------------------
<S> <C> <C> <C>
Allowance for credit losses $9,602 $8,508 $10,043
===================================== ======================= ======================== =======================
% of total loans net of unearned
income 1.03% 1.03% 1.11%
===================================== ======================= ======================== =======================
Nonaccrual loans 8,686 9,778 10,605
Past due loans 2,013 2,384 674
- ------------------------------------- ----------------------- ------------------------ -----------------------
Nonperforming loans 10,699 12,162 11,279
Foreclosed properties 823 1,100 962
- ------------------------------------- ----------------------- ------------------------ -----------------------
Nonperforming assets $11,522 $13,262 $12,241
===================================== ======================= ======================== =======================
Allowance for credit losses to
nonperforming loans 89.7% 70.0% 89.0%
===================================== ======================= ======================== =======================
Nonperforming assets to total assets .75% 0.94% 0.81%
===================================== ======================= ======================== =======================
</TABLE>
ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------- --------------------- ----------------------
Three months ended Year ended
March 31, 2000 December 31, 1999
- ---------------------------------------------------------------- --------------------- ----------------------
<S> <C> <C>
Average total loans outstanding during period $914,010 $851,705
- ---------------------------------------------------------------- --------------------- ----------------------
Allowance at beginning of year $10,043 $8,237
- ---------------------------------------------------------------- --------------------- ----------------------
Charge-offs:
Real estate - construction -- --
Real estate - mortgage 441 702
Commercial and agricultural 678 2,619
Consumer 374 519
- ---------------------------------------------------------------- --------------------- ----------------------
Total charge-offs 1,493 3,840
- ---------------------------------------------------------------- --------------------- ----------------------
Recoveries:
Real estate - construction -- --
Real estate - mortgage 329 179
Commercial and agricultural 93 318
Consumer 180 141
- ---------------------------------------------------------------- --------------------- ----------------------
Total recoveries 602 638
- ---------------------------------------------------------------- --------------------- ----------------------
Net charge-offs (recoveries) 891 3,202
- ---------------------------------------------------------------- --------------------- ----------------------
Additions to allowance charged to operating expenses 450 5,008
- ---------------------------------------------------------------- --------------------- ----------------------
Allowance at end of period $9,602 $10,043
================================================================ ===================== ======================
Ratio of net charge-offs to average total loans .10% .38%
================================================================ ===================== ======================
</TABLE>
ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
- --------------------------------------------- ---------------------- -------------------------
March 31, 2000(1) December 31, 1999(1)
- --------------------------------------------- ---------------------- -------------------------
<S> <C> <C> <C> <C>
Real estate - construction $811 14% $1,145 14%
Real estate - mortgage 3,301 60 3,583 59
Commercial and agricultural 3,750 17 3,440 18
Consumer 1,216 9 1,412 9
Unallocated 524 -- 463 --
- --------------------------------------------- ------------- -------- ---------------- --------
Total Allowance $9,602 100% $10,043 100%
============================================= ============= ======== ================ ========
</TABLE>
(1) Percent of loans in each category to total loans, net of unearned income.
13
<PAGE>
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 financed, 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 generally a term of one
to five 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 bank 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, automobiles, recreational vehicles
or deposits in the Company's subsidiary bank. The usual term for these loans is
three to five years.
As of March 31, 2000, the Company had loans totaling $28.06 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.
At March 31, 2000, the Company had a significant concentration of credit risk in
the real estate loan portfolio of 16%. While this exceeded the 10% threshold, we
do not consider this to be an adverse risk. An industry for this purpose is
defined as a group of counterparties 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 March 31, 2000, classifiable as
nonaccrual, past due, restructured or problem assets.
14
<PAGE>
Distribution of Assets, Liabilities and Shareholders' 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>
- --------------------------------------------- -------------------------------------- --------------------------------------
Three months ended Three months ended
March 31, 2000 March 31, 1999
-------------------------------------- --------------------------------------
Average Interest Average Average Interest Average
Daily Income(1)/ Yield/ Daily Income(1)/ Yield/
(dollars in thousands) Balance Paid Rate Balance Paid Rate
- --------------------------------------------- ------------- ------------ ----------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Interest-bearing deposits $5,210 $81 6.22% $3,560 $37 4.16%
- --------------------------------------------- ------------- ------------ ----------- ------------- ------------ -----------
Federal funds sold 24,081 337 5.60% 15,041 159 4.23%
- --------------------------------------------- ------------- ------------ ----------- ------------- ------------ -----------
Loans held for sale 945 24 10.16% 4,749 124 10.44%
- --------------------------------------------- ------------- ------------ ----------- ------------- ------------ -----------
Investment securities:
Taxable 450,992 7,117 6.31% 444,773 6,904 6.21%
Tax exempt 9,843 198 8.05% 10,380 225 8.67%
- --------------------------------------------- ------------- ------------ ----------- ------------- ------------ -----------
Total investment securities 460,835 7,315 6.35% 455,153 7,129 6.27%
- --------------------------------------------- ------------- ------------ ----------- ------------- ------------ -----------
Loans(2) 914,010 19,990 8.75% 818,488 17,862 8.73%
- --------------------------------------------- ------------- ------------ ----------- ------------- ------------ -----------
Total interest-earning assets 1,405,081 27,747 7.90% 1,296,991 25,311 7.81%
Noninterest-earning assets 107,560 105,633
Net Effect of SFAS 115 (12,284) 3,349
- --------------------------------------------- ------------- ------------ ----------- ------------- ------------ -----------
Total assets $1,500,357 $1,405,973
============================================= ============= ============ =========== ============= ============ ===========
- --------------------------------------------- ------------- ------------ ----------- ------------- ------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------------- ------------- ------------ ----------- ------------- ------------ -----------
Interest-bearing liabilities:
Interest-bearing deposits $872,585 $9,514 4.36% $793,240 $8,229 4.15%
Other short-term borrowings 330,056 4,675 5.67% 318,630 3,980 5.00%
Long-term debt 40,250 844 8.39% 40,250 844 8.39%
- --------------------------------------------- ------------- ------------ ----------- ------------- ------------ -----------
Total interest bearing liabilities 1,242,891 15,033 4.84% 1,152,120 13,053 4.53%
- --------------------------------------------- ------------- ------------ ----------- ------------- ------------ -----------
Noninterest-bearing deposits 157,216 141,266
- --------------------------------------------- ------------- ------------ ----------- ------------- ------------ -----------
Total Deposits 1,400,107 15,033 4.29% 1,293,386 13,053 4.04%
- --------------------------------------------- ------------- ------------ ----------- ------------- ------------ -----------
Noninterest-bearing liabilities 14,306 14,600
- --------------------------------------------- ------------- ------------ ----------- ------------- ------------ -----------
Total liabilities 1,414,413 1,307,986
- --------------------------------------------- ------------- ------------ ----------- ------------- ------------ -----------
Shareholders' equity 98,228 94,638
Net effect of unrealized gains (losses)
on securities available for sale (12,284) 3,349
- --------------------------------------------- ------------- ------------ ----------- ------------- ------------ -----------
Total shareholders' equity 85,944 97,987
- --------------------------------------------- ------------- ------------ ----------- ------------- ------------ -----------
Total liabilities and shareholders'
equity $1,500,357 $1,405,973
- --------------------------------------------- ------------- ------------ ----------- ------------- ------------ -----------
Net interest income $12,714 $12,258
============================================= ============= ============ =========== ============= ============ ===========
Net interest spread 3.06% 3.27%
============================================= ============= ============ =========== ============= ============ ===========
Net interest margin 3.62% 3.78%
============================================= ============= ============ =========== ============= ============ ===========
</TABLE>
1 Taxable equivalent adjustments of $83,000 for 2000 and $129,000 for
1999 are included in the interest income for total interest-earning
assets.
2 Nonaccruing loans, which include impaired loans, are included in the
average balances. Net loan fees included in interest income totaled
$589,000 in 2000, and $514,000 in 1999.
15
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Asset/liability management involves the funding and investment strategies
necessary to maintain an appropriate balance between interest sensitive assets
and liabilities. It also involves providing adequate liquidity while sustaining
stable growth in net interest income. Regular review and analysis of deposit and
loan trends, cash flows in various categories of loans, and monitoring of
interest spread relationships are vital to this process.
The conduct of our banking business requires that we maintain adequate liquidity
to meet changes in the composition and volume of assets and liabilities due to
seasonal, cyclical or other reasons. Liquidity describes the ability of the
Company to meet financial obligations that arise during the normal course of
business. Liquidity is primarily needed to meet the borrowing and deposit
withdrawal requirements of the customers of the Company, as well as for meeting
current and future planned expenditures. This liquidity is typically provided by
the funds received through customer deposits, investment maturities, loan
repayments, borrowings, and income. Management considers the current liquidity
position to be adequate to meet the needs of the Company and its customers.
The Company seeks to limit the risks associated with interest rate fluctuations
by managing the balance between interest sensitive assets and liabilities.
Managing to mitigate interest rate risk is, however, not an exact science. Not
only does the interval until repricing of interest rates on assets and
liabilities change from day to day as the assets and liabilities change, but for
some assets and liabilities, contractual maturity and the actual maturity
experienced are not the same. For example, mortgage-backed securities may have
contractual maturities well in excess of five years but, depending upon the
interest rate carried by the specific underlying mortgages and the current
prevailing rate of interest, these securities may be repaid in a shorter time
period. Accordingly, mortgage-backed securities and collateralized mortgage
obligations that have average stated maturities in excess of five years are
evaluated as part of the asset/liability management process using their expected
average lives due to anticipated prepayments. Loans held for sale which have a
contracted maturity of five to thirty years are included in the one year or less
time frame since they are available to be sold at any time and are carried at
the lower of cost or fair value.
Interest rate sensitivity is an important factor in the management of the
composition and maturity configurations of the Company's earning assets and
funding sources. An Asset/Liability Committee manages the interest rate
sensitivity position in order to maintain an appropriate balance between the
maturity and repricing characteristics of assets and liabilities that is
consistent with the Company's liquidity analysis, growth, and capital adequacy
goals. The Company sells fixed-rate real estate loans in the secondary mortgage
market. The Company believes that by selling certain loans rather than retaining
them in its portfolio, it is better able to match the maturities or repricing of
interest sensitive assets to interest sensitive liabilities. It is the objective
of the Asset/Liability Committee to maximize net interest margins during periods
of both volatile and stable interest rates, to attain earnings growth, and to
maintain sufficient liquidity to satisfy depositors' requirements and meet
credit needs of customers.
The Company employs computer model simulations for monitoring interest rate
sensitivity. Interest rate risk ("IRR") management has various sources and it is
not simply the risk from rates rising and falling. In fact, there are four
sources of IRR: repricing risk, basis risk, yield curve risk, and option risk.
Gap modeling only focuses on repricing risk. Income simulations that incorporate
cash flow analyses: (1) measure the size and direction of interest rate exposure
under a variety of interest rate and yield curve shape scenarios; (2) provides
the opportunity to capture all critical elements such as volume, maturity dates,
repricing dates, prepayment volumes, and hidden options such as caps, floors,
puts, and calls; (3) utilizes the data to clearly focus attention on critical
variables; (4) are dynamic; and (5) reflect changes in prevailing interest rates
which affect different assets and liabilities in different ways. These
simulations are run on a monthly basis using an interest rate ramping technique
to determine the effects on the Company's net interest income, assuming a
gradual increase or decrease in interest rates. The Company has an interest rate
risk management policy that limits the amount of deterioration in net
16
<PAGE>
interest income, associated with an assumed interest rate shock of +/-100,
+/-200, and +/-300 basis points change in interest rates, to no more than 7.5%
(+/-100), 10.0% (+/-200), and 12.5% (+/-300) of net interest income. The model
results as of March 31, 2000 are as follows:
<TABLE>
<CAPTION>
Change in Interest Rate Assumption
- ------------------------------------ ------------ ----------- ----------- ------------ ----------- -----------
(dollars in thousands) +100bp +200bp +300bp -100bp -200bp -300bp
- ------------------------------------ ------------ ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net interest income-increase
(decrease) $(2,164) $(4,168) $(5,354) $1,992 $3,959 $4,954
Net interest income - % change (4.26) (8.20) (10.53) 3.92 7.79 9.74
- ------------------------------------ ------------ ----------- ----------- ------------ ----------- -----------
</TABLE>
CAPITAL RESOURCES
The following table shows the risk-based capital and the leverage ratios for the
Company as of March 31, 2000:
<TABLE>
<CAPTION>
To Be Well
For Capital Capitalized Under
Actual Adequacy Purposes Prompt Corrective
Action Provisions:
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 2000:
Total Capital
(to Risk-Weighted Assets):
FCNB Corp .............. $146,136 12.84% $90,985 8.00% N/A N/A
FCNB Bank .............. $120,083 10.75% $89,325 8.00% $111,657 10.00%
Tier I Capital
(To Risk-Weighted Assets):
FCNB Corp .............. $129,478 11.38% $45,492 4.00% N/A N/A
FCNB Bank .............. $83,296 7.46% $44,663 4.00% $66,994 6.00%
Tier I Capital
(To Average Assets):
FCNB Corp .............. $129,478 8.58% $60,368 4.00% N/A N/A
FCNB Bank .............. $83,296 5.59% $59,563 4.00% $74,453 5.00%
</TABLE>
INFLATION
The effect of changing prices on financial institutions is typically different
than on non-banking companies since virtually all of a bank's assets and
liabilities are monetary in nature. In particular, interest rates are
significantly affected by inflation, but neither the timing nor magnitude of the
changes are directly related to price level indices; therefore, the Company can
best counter inflation over the long term by managing net interest income and
controlling net increases in noninterest income and expenses.
17
<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
No. 27 Financial Data Schedule
(b) Report on Form 8-K.
Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended March 31, 2000.
18
<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)
May 15, 2000 By: /s/ A. Patrick Linton
---------------------
A. Patrick Linton
President Chief Executive Officer and Director
May 15, 2000 By: /s/ Mark A. Severson
--------------------
Mark A. Severson
Senior Vice President and Treasurer
19
EXHIBIT NO. 11
Statement Regarding the Computation of Per Share Earnings
<TABLE>
<CAPTION>
March 31,
2000 1999
----------------------------------------
<S> <C> <C>
Basic earnings per common share $0.30 $0.28
Basic earnings per common share before
merger-related expenses $0.30 $0.28
Basic weighted average number of shares
outstanding 11,924,474 11,602,624
Diluted earnings per common share $0.30 $0.27
Diluted earnings per common share before
merger-related expenses $0.29 $0.28
Diluted weighted average number of shares
outstanding 11,953,197 11,938,654
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
</LEGEND>
<CIK> 000803644
<NAME> FCNB CORP
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 53,597
<INT-BEARING-DEPOSITS> 1,450
<FED-FUNDS-SOLD> 28,402
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 424,999
<INVESTMENTS-CARRYING> 20,984
<INVESTMENTS-MARKET> 20,765
<LOANS> 928,669
<ALLOWANCE> 9,602
<TOTAL-ASSETS> 1,546,550
<DEPOSITS> 1,064,531
<SHORT-TERM> 338,947
<LIABILITIES-OTHER> 15,069
<LONG-TERM> 40,250
0
0
<COMMON> 11,925
<OTHER-SE> 75,828
<TOTAL-LIABILITIES-AND-EQUITY> 1,546,550
<INTEREST-LOAN> 20,000
<INTEREST-INVEST> 7,246
<INTEREST-OTHER> 418
<INTEREST-TOTAL> 27,664
<INTEREST-DEPOSIT> 9,514
<INTEREST-EXPENSE> 15,033
<INTEREST-INCOME-NET> 12,631
<LOAN-LOSSES> 450
<SECURITIES-GAINS> 167
<EXPENSE-OTHER> 11,716
<INCOME-PRETAX> 5,213
<INCOME-PRE-EXTRAORDINARY> 5,213
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,532
<EPS-BASIC> 0.30
<EPS-DILUTED> 0.30
<YIELD-ACTUAL> 7.90
<LOANS-NON> 8,686
<LOANS-PAST> 2,013
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 28,061
<ALLOWANCE-OPEN> 10,043
<CHARGE-OFFS> 1,493
<RECOVERIES> 602
<ALLOWANCE-CLOSE> 9,602
<ALLOWANCE-DOMESTIC> 9,602
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
