FCNB CORP AND SUBSIDIARY

                                FINANCIAL REPORT

                           DECEMBER 31, 1996 and 1995












<PAGE>
THE YEAR IN SUMMARY
FCNB CORP AND SUBSIDIARIES
<TABLE>
<CAPTION>


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Years ended December 31,                                                  1996          1995(1)          1994(1)
------------------------------------------------------------------------------------------------------------------------------------
                                                                      (dollars in thousands, except per share data)

<S>                                                                     <C>             <C>              <C>   
Net income                                                              $5,867          $6,998           $6,772
Net income before merger-related expenses                                7,778           7,301            6,999
Per share:
     Net income                                                           1.09            1.31             1.26
     Net income before merger-related expenses                            1.45            1.37             1.31
     Cash dividends declared                                               .54             .55              .48
     Book value at period end                                            12.88           12.50            11.20

Return on average assets                                                  0.84%           1.09%            1.14%
Return on average assets before merger-related expenses                   1.11            1.14             1.17
Return on average shareholders' equity                                    8.92           11.21            11.79
Return on average shareholders' equity before
  merger-related expenses                                                11.82           11.70            12.18

------------------------------------------------------------------------------------------------------------------------------------


December 31,                                                             1996           1995(1)          1994(1)
------------------------------------------------------------------------------------------------------------------------------------
                                                                                  (dollars in thousands)

Assets                                                                $779,169        $660,984         $627,050
Loans, net of unearned income                                          497,995         439,794          390,177
Deposits                                                               587,074         529,988          505,202
Federal funds purchased and securities sold
 under agreements to repurchase                                         40,739          21,043           25,103
Other short-term borrowings                                             76,516          32,426           26,089
Long-term debt                                                              --           5,680            7,000
Shareholders' equity                                                    69,110          66,219           59,037

Banking facilities                                                          21              19               17


----------

(1) Restated retroactively to reflect the acquisition of Laurel Bancorp, Inc. consummated on January 26, 1996 and accounted for as a
    pooling of interests.

</TABLE>

                                                                     2

<PAGE>

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

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  FCNB  Corp  (the
"Company")  recognizes the January 26, 1996 acquisition of Laurel Bancorp,  Inc.
("Laurel"),  which was accounted  for as a pooling of  interests.  The financial
data presented  including earnings per share, have been restated to reflect this
business combination.  Laurel was the holding company for Laurel Federal Savings
Bank, a $108 million  financial  institution  headquartered in Laurel,  Maryland
("Laurel FSB"). Pursuant to the terms of this merger, Laurel FSB was merged with
and into the Company's wholly-owned subsidiary, Elkridge Bank, and the branch of
Laurel FSB in  Monrovia,  Maryland  was  transferred  to FCNB  Bank.  A total of
approximately  1,321,000  shares of the Company's common stock was issued in the
transaction.

The  following  paragraphs  provide an overview of the  financial  condition and
results of operations of the Company and its principal wholly-owned subsidiaries
FCNB Bank and Elkridge Bank (the "Banks"). This discussion is intended to assist
the  readers  in  their  analysis  of the  accompanying  consolidated  financial
statements and notes thereto.

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. With this acquisition
the  Company  obtained   approximately  $35.0  million  in  assets  and  assumed
approximately  $31.4 million in liabilities,  for a cash price of $6.67 million.
This transaction was accounted for as a purchase,  and $3.21 million of goodwill
was  recorded.  As a result of the  merger,  Odenton  was  merged  with and into
Elkridge Bank. The Company's  results of operations  reflect  earnings of Harbor
since the date of its acquisition.

During the third quarter of 1996,  the Company  announced its intention to merge
its subsidiary banks in March, 1997.  Elkridge Bank will be merged with and into
FCNB Bank,  with FCNB Bank surviving the merger.  The Company expects to realize
significant  cost  savings and other  operational  efficiencies  following  this
event.

Throughout the discussion on the financial performance of the Company, 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,  the return on average  equity,  and the book value per share at
period end include the effects of this pronouncement.

The  following  analysis of the  Company's  operating  results is presented on a
consolidated  basis.  Net income was $5.87  million  in 1996  compared  to $7.00
million in 1995.  Earnings  per share were  $1.09 in 1996  compared  to $1.31 in
1995.  In  connection  with the  Laurel  merger,  accounted  for as a pooling of
interests,  certain costs incurred to effect the combination are expenses of the
combined  enterprise and,  accordingly,  were charged to expense and deducted in
determining  the results of  operations  of the  combined  entity.  The specific
one-time  costs  associated  with this merger that were charged to the Company's
results of operations following consummation of the merger, principally include:
(1) salaries and employee benefits associated with change-in-control payments to
certain executive officers of Laurel,  totaling approximately $1.36 million; (2)
legal,  accounting,  financial  advisor  fees,  and  other  conversion  costs of
approximately   $697,000  and  (3)  assessments  to  recapitalize   the  Savings
Association  Insurance Fund of approximately  $813,000.  Net income before these
specific  one-time  merger  related  costs was $7.78  million  in 1996 and $7.30
million  in 1995,  while  earnings  per share  were $1.45 and $1.37 for 1996 and
1995, respectively.

Return on average  assets and  return on  average  shareholders'  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
was .84%in 1996 and 1.09% in 1995.

                                        3

<PAGE>



Return on average  shareholders' equity, which measures the income earned on the
capital invested, was 8.92% in 1996 compared to 11.21% in 1995. However,  before
specific one-time merger related costs the return on average assets was 1.11% in
1996 and 1.14% in 1995,  and the  return on  average  shareholders'  equity  was
11.82% and 11.70% in 1996 and 1995, respectively.

During 1996, the Company  experienced  strong loan demand and,  coupled with its
acquisition  of Harbor,  experienced  an increase in net loans of $58.32 million
13.4% over the level at the end of 1995.

Noninterest  income  increased  $343,000  (8.8%)  from  the  level  in 1995  and
noninterest  expenses  increased  $3.78 million  (18.3%) during the same period.
Included in the  noninterest  expenses are merger related costs of $2.87 million
in 1996  and  $303,000  in 1995.  If these  amounts  are  excluded,  noninterest
expenses would have risen by $1.22 million (6.0%).

In the ordinary course of business, the Company routinely explores opportunities
for  additional  growth and  expansion of its core banking  business and related
activities.  However,  there can be no  assurance  that this growth or expansion
will have a positive impact on the Company's earnings,  dividends, book value or
market value.

The Company moved into its new headquarters facility during the first quarter of
1996.  The Company's  operating  results for 1996 were impacted by the increased
overhead costs associated with this facility.  However,  the Company is pursuing
leasing  opportunities for the facilities  vacated with this move, in an attempt
to lessen the impact of the new facility's overhead expenses.

DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; INTEREST RATES AND
INTEREST DIFFERENTIAL

Table 1 shows  average  balances  of asset and  liability  categories,  interest
income  and  interest  paid,  and  average  yields  and  rates  for the  periods
indicated.

NET INTEREST INCOME

Net  interest  income is generated  from the  Company's  lending and  investment
activities, and is the most significant component of the Company's earnings. Net
interest income is the difference  between  interest and rate-related fee income
on earning assets  (primarily  loans and investment  securities) and the cost of
the funds  (primarily  deposits and short-term  borrowings)  supporting them. To
facilitate  analysis,  net interest income 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% in 1996 and 1995,  increases the tax-exempt income to an amount representing
an estimate of what would have been earned if that income were fully taxable.

Changes in net  interest  income  between  periods is affected  primarily by the
volume of  interest-earning  assets  and the yield on those  assets,  and by the
volume of interest-bearing  deposits and other liabilities and the rates paid on
those  deposits and  liabilities.  Table 2  reconciles  the impact of changes in
average balances and average rates with the change in the Company's net interest
income for the periods indicated.

Taxable-equivalent   net  interest   income  totaled  $29.39  million  in  1996,
increasing   2.4%  from  $28.69   million  in  1995.   The   Company's   average
interest-earning  assets  increased 8.2% to $649.92  million  during 1996.  This
increase  was  primarily  funded  by  9.5%  increase  in the  Company's  average
interest-bearing  liabilities  and by a 12.5% increase in the Company's  average
noninterest-bearing deposits during the year.

The Company's net interest margin  (taxable-equivalent  net interest income as a
percent of average  interest-earning  assets) was 4.52% in 1996,  as compared to
4.78% in 1995.  This  decrease in net  interest  margin  primarily  reflects the
impact of the change in the spread  between  yields on average  interest-earning
assets and rates paid on average  interest-bearing  liabilities  realized during
1996.  This spread  decreased by 21 basis points in 1996.  During the year,  the
rate paid on average  interest-bearing  liabilities  decreased  8 basis  points,
while the yield on average interest earning assets decreased 29 basis points.

The yield on the average investment portfolio dropped drastically, falling by 47
basis points  during 1996  compared to 1995,  as  investments  in high  yielding
tax-exempt  securities  matured in 1996. The yield on the average loan portfolio
decreased,  reflecting  the impact of competitive  pressures.  The rates paid on
federal  funds  purchased  and  securities  sold under  agreements to repurchase
decreased by 46 basis points.  The rate of interest  earned on  interest-earning
assets and the rate paid on  interest-bearing  liabilities,  while significantly
affected by

                                        4

<PAGE>

the  actions  taken by the  Federal  Reserve to  control  economic  growth,  are
influenced  by  competitive  factors  within the Company's  market.  Competitive
pressures  during 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 Company's  management feels that the competitive  pressures in this
market will cause the net  interest  spread to  continue  to be under  pressure.
Therefore,  the Company is currently  pursuing  operating  efficiencies  through
improved technology and is adding new products and services to enhance its level
of noninterest income.



                                        5

<PAGE>
<TABLE>
<CAPTION>

Table 1. Comparative Statement Analysis
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                                   Years ended December 31,
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                                               1996                            1995                                 1994
------------------------------------------------------------------------------------------------------------------------------------
                               Average     Interest   Average    Average     Interest   Average    Average     Interest   Average
                                daily      income(2)   yield/     daily      income(2)   yield/     daily      income(2)   yield/
                              balance(1)  / paid       rate     balance(1)  / paid       rate    balance(1)   / paid        rate

                                                                (dollars in thousands)
<S>                            <C>         <C>          <C>      <C>          <C>        <C>      <C>         <C>       <C> 
Assets
Interest-earning assets:
  Interest-bearing
   deposits in
   other banks                $   2,763    $    174     6.30%    $  5,966     $   411     6.89%   $  3,264      $   194   5.94%
------------------------------------------------------------------------------------------------------------------------------------
  Federal funds sold             14,710         739     5.02        7,460         457     6.13      10,802          439   4.06
------------------------------------------------------------------------------------------------------------------------------------
  Loans held for sale             3,287         237     7.21        1,252          82     6.55       3,398          251   7.39
------------------------------------------------------------------------------------------------------------------------------------
  Investment securities:
   Taxable                      158,055      10,193     6.45      147,597       9,706     6.58     164,275       10,353   6.30
   Nontaxable                     6,664         765    11.48       14,435       1,835    12.71      21,342        2,752  12.89
------------------------------------------------------------------------------------------------------------------------------------
     Total invest-
      ment securities           164,719      10,958     6.65      162,032      11,541     7.12     185,617       13,105   7.06
------------------------------------------------------------------------------------------------------------------------------------
  Loans(3), net of
    unearned income             464,440      42,050     9.05      423,722      39,261     9.27     358,051       30,848   8.62
------------------------------------------------------------------------------------------------------------------------------------
     Total interest-earning
      assets                    649,919      54,158     8.33      600,432      51,752     8.62     561,132       44,837   7.99
------------------------------------------------------------------------------------------------------------------------------------
Noninterest-earning
 assets                          50,975                            41,616                           36,207
Net effect of unrealized
 gain (loss) on securities
 available for sale                  27                              (529)                            (947)
------------------------------------------------------------------------------------------------------------------------------------
  Total assets                 $700,921                          $641,519                         $596,392
====================================================================================================================================
Liabilities and
 Shareholders' Equity
Interest-bearing
 liabilities:
   NOW/SuperNOW accounts       $ 55,626       1,153     2.07%    $ 51,370       1,195     2.33%   $ 50,700        1,124   2.22%
   Savings accounts              84,294       2,596     3.08       81,128       2,497     3.08      85,102        2,457   2.89
   Money market accounts         80,654       2,589     3.21       84,904       2,852     3.36      93,690        2,848   3.04
   Certificates of deposit
    and other time deposits
    less than $100,000          221,471      11,704     5.28      188,243      10,135     5.38     156,639        6,583   4.20
   Certificates of deposit
    and other time deposits
    of $100,000 or more          43,709       2,232     5.11       50,377       2,846     5.65      38,409        1,614   4.20
   Federal funds purchased
    and securities sold
    under agreements to
    repurchase                   24,815       1,357     5.47       18,928       1,122     5.93      29,592        1,247   4.21
   Other short-term
    borrowings                   46,626       2,727     5.85       32,246       1,882     5.84      19,059          846   4.44
   Long-term debt                 5,901         406     6.88        7,087         530     7.48       5,667          291   5.13
------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
 liabilities(4)                 563,096      24,764     4.40      514,283      23,059     4.48     478,858       17,010   3.55
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                                                     6

<PAGE>
<TABLE>
<CAPTION>

<S>                              <C>        <C>        <C>     <C>          <C>        <C>       <C>         <C>    <C>
Noninterest-bearing
 deposits                        66,111                            58,789                           55,503
Noninterest-bearing
 liabilities                      5,929                             6,034                            4,589
------------------------------------------------------------------------------------------------------------------------------------
     Total liabilities          635,136                           579,106                          538,950
------------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity             65,758                            62,942                           58,389
Net effect of unrealized
 gain (loss) on securities available
 for sale                            27                              (529)                            (947)
------------------------------------------------------------------------------------------------------------------------------------
     Total shareholders'
      equity                     65,785                            62,413                           57,442
------------------------------------------------------------------------------------------------------------------------------------
     Total liabilities
      and shareholders'
      equity                   $700,921                          $641,519                         $596,392
------------------------------------------------------------------------------------------------------------------------------------
Net interest income                         $29,394                           $28,693                           $27,827
====================================================================================================================================
Net interest spread                                     3.93%                             4.14%                       4.44%
Net interest margin                                     4.52%                             4.78%                       4.96%
====================================================================================================================================
</TABLE>

(1)       The average  daily  balances  for  investment  securities  exclude the
          effects of the fair value  adjustments under of Statement of Financial
          Accounting  Standards No. 115,  "Accounting for Certain Investments in
          Debt and Equity Securities."
(2)       Presented on a  taxable-equivalent  basis using the statutory  federal
          income tax rate of 34%. The  statement of income for 1996 includes the
          results of  operations  for Laurel for the thirteen  month period from
          December 1, 1995 to December 31, 1996. To  facilitate  the analysis in
          this table,  Laurel's interest income and interest  expense,  totaling
          $755,000 and  $358,000,  respectively,  for the month of December 1995
          have been eliminated.
(3)       Nonaccruing  loans,  which include impaired loans, are included in the
          average  balances.  Net loan fees included in interest  income totaled
          $1,149,000,   $1,051,000  and  $809,000  for  1996,   1995  and  1994,
          respectively.
(4)       The interest  paid in 1996 and 1995  includes  $108,000 and  $300,000,
          respectively, of capitalized construction period interest.

                                        7

<PAGE>
<TABLE>
<CAPTION>

Table 2
Rate/Volume Analysis
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                                      1996 compared to 1995           1995 compared to 1994            1994 compared to 1993
------------------------------------------------------------------------------------------------------------------------------------
                                          Increase                          Increase                         Increase
                                         (decrease)      Net              (decrease)      Net              (decrease)       Net
                                           due to     increase               due to     increase              due to     increase
                                 Volume    Rate(1)    (decrease)   Volume    Rate(1)   (decrease)   Volume    Rate(1)    (decrease)
------------------------------------------------------------------------------------------------------------------------------------
                                                                  (dollars in thousands)
<S>                             <C>        <C>          <C>        <C>       <C>         <C>       <C>        <C>          <C>    
Interest Income
Interest-earning assets:
   Interest-bearing deposits
    in other banks              $  (221)   $  (16)      $  (237)   $  161    $   56      $   217   $   (84)   $   60       $   (24)
   Federal funds sold               444      (162)          282      (136)      154           18       (74)      110            36
   Loans held for sale              133        22           155      (159)      (10)        (169)     (317)      (26)         (343)
   Investment securities
     Taxable 689                   (202)      487        (1,051)      404      (647)         664      (643)       21
     Nontaxable(2)                 (988)      (82)       (1,070)     (891)      (26)        (917)     (446)       12          (434)

   Loans(3)                       3,773      (984)        2,789     5,658     2,755        8,413     3,187      (398)        2,789
------------------------------------------------------------------------------------------------------------------------------------
          Total interest
           income(6)              3,830    (1,424)        2,406     3,582     3,333        6,915     2,930      (885)        2,045
------------------------------------------------------------------------------------------------------------------------------------
Interest Paid
Interest-bearing
 liabilities:
   Savings deposits(4)               95      (301)         (206)     (339)      454          115       604      (188)          416
   Time deposits                  1,445      (490)          955     1,831     2,953        4,784        41      (111)          (70)

   Federal funds purchased and
    securities sold under
    agreements to repurchase        349      (114)          235      (449)      324         (125)      292       338           630
   Other short-term
    borrowings                      839         6           845       585       451        1,036      (441)      139          (302)
   Long-term debt                   (89)      (35)         (124)       --       239          239       291        (9)          282
------------------------------------------------------------------------------------------------------------------------------------
          Total interest
           paid(5) (6)            2,639      (934)        1,705     1,628     4,421        6,049       787       169           956
------------------------------------------------------------------------------------------------------------------------------------
Net interest income              $1,191     $(490)        $ 701    $1,954   $(1,088)      $  866    $2,143   $(1,054)       $1,089
====================================================================================================================================
</TABLE>

(1)       The volume/rate variance is allocated entirely to changes in rates.

(2)       Taxable-equivalent  adjustments  of $260,000  for 1996,  $624,000  for
          1995,  and  $934,000  for  1994 are  included  in the  calculation  of
          nontaxable investment securities rate variances.

(3)       Taxable-equivalent adjustments of $2,000 for 1995 and $11,000 for 1994
          are included in the calculation of loan rate variances.

(4)       Savings  deposits  include  NOW/SuperNOW,  savings  and  money  market
          accounts.

(5)       Total interest paid includes capitalized  construction period interest
          of $108,000 for 1996 and $300,000 for 1995.

(6)       The  statement of income for 1996  includes the results of  operations
          for Laurel for the  thirteen  month  period  from  December 1, 1995 to
          December 31, 1996. To facilitate the analysis in this table,  Laurel's
          interest income and interest expense,  totaling $755,000 and $358,000,
          respectively, for the month of December 1995, have been eliminated.


                                        8

<PAGE>
Noninterest Income

Noninterest income increased by $343,000 or 8.8% in 1996. The Company engages in
the  secondary  mortgage  market to enable it to  satisfy  customer  demand  for
fixed-rate  mortgage loans. In past years,  this product assisted the Company in
generating additional  noninterest income. Gains realized from loan sales in the
secondary market were $305,000 in 1996 and $315,000 in 1995.  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.  In 1996 and 1995,  servicing fee income  totaled
$490,000 and $597,000.  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. For
an  analysis of  securities  gains and  losses,  see Note 4 to the  consolidated
financial statements.

The increase in service fees on deposit  accounts is  attributable to some price
increases but primarily to increases in account volume and activity.

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, are 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.

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 increased $3.78 million, but excluding merger related costs
of $2.87  million in 1996 and $303,000 in 1995 would have only  increased  $1.22
million.  Total  salaries and employee  benefits  increased  $428,000 or 3.8% in
1996.

Net occupancy and equipment  expenses  increased  $736,000  (43.7%) and $161,000
(11.2%),  respectively,  compared to those incurred during 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 $106,000 (1.7%) compared to the prior year.
See Note 13 to the  consolidated  financial  statements for a schedule showing a
detailed breakdown of the Company's more significant other operating expenses.

Income Taxes

Income tax expense decreased to $3.25 million in 1996, compared to $3.89 million
in 1995,  reflecting  the lower level of pre-tax  income in 1996.  The Company's
effective tax rate was 35.6% in 1996,  compared to 35.7% in 1995.  The Company's
income tax expense differs from the amount computed at statutory rates primarily
due to tax-exempt interest from certain investment securities. 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.  Note 12
to the consolidated  financial  statements  reconciles  expected income taxes at
statutory rates for the past three years with income tax expense included in the
consolidated statements of income

Liquidity and Interest Rate Sensitivity

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.

                                        9

<PAGE>
The conduct of our banking business requires that we maintain adequate liquidity
to meet  changes in  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.  Normally,  this  requires  maintaining
prospective liquidity sufficient to meet our customers' demand for loans.

The  Company  seeks  to  contain  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  then
currently  prevailing  rate of interest,  these  securities  may be prepaid in a
shorter  time  period.   Accordingly,   the   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 on the
underlying loans.  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. Similarly,  NOW/SuperNOW accounts, by contract, may be withdrawn in their
entirety upon demand and savings deposits may be withdrawn on seven days notice.
While these contracts are extremely short, it has been the Company's  experience
that these  accounts turn over at the rate of five percent (5%) per year. If all
of the Company's  NOW/SuperNOW and savings accounts were treated as repricing in
one year or  less,  the  cumulative  negative  gap at one year or less  would be
$187.88 million or 24.11% of total assets.  Due to their very liquid nature, the
entire  balance of money  market  accounts is assumed to be repriced  within one
year.

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  following  table  summarizes,  as of December  31,  1996,  the  anticipated
maturities   or  repricing  of  the   Company's   interest-earning   assets  and
interest-bearing  liabilities,  the  Company's  interest  rate  sensitivity  gap
(interest-earning  assets  less  interest-bearing  liabilities),  the  Company's
cumulative interest rate sensitivity gap, and the Company's  cumulative interest
sensitivity gap ratio (cumulative interest rate sensitivity gap divided by total
assets).  A negative  gap for any time period  means that more  interest-bearing
liabilities will reprice or mature during that time period than interest-earning
assets.  During periods of rising  interest rates, a negative gap position would
generally decrease  earnings,  and during periods of declining interest rates, a
negative gap position would generally increase  earnings.  The converse would be
true for a positive gap position.  Therefore, a positive gap for any time period
means that more interest-earning  assets will reprice or mature during that time
period than  interest-bearing  liabilities.  During  periods of rising  interest
rates, a positive gap position would  generally  increase  earnings,  and during
periods of declining  interest  rates, a positive gap position  would  generally
decrease earnings.

In addition  to the gap method of  monitoring  interest  rate  sensitivity,  the
Company also employs computer model simulations.  These simulations 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 points change in interest  rates,  to no more
than 10% and 20% of net income, respectively.


                                       10

<PAGE>
Interest Rate Sensitivity Analysis - December 31, 1996
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------
                                                             Interest sensitivity period
------------------------------------------------------------------------------------------------------------------------------------
                                                                                   After 1
                                             3 or less          4 to 12            through            After 5
                                               months            months            5 years             years               Total
------------------------------------------------------------------------------------------------------------------------------------
                                                                          (dollars in thousands)
<S>                                           <C>               <C>               <C>               <C>                 <C>      
INTEREST-EARNING ASSETS
Interest-bearing deposits
 in other banks                               $  1,065          $     --          $      --         $      --           $   1,065
Federal funds sold                              12,438                --                 --                --              12,438
Loans held for sale:
   Fixed rate                                    3,162                --                 --                --               3,162
Investment securities:(1)
   Fixed rate                                    1,577            14,510             76,512            39,306             131,905
   Variable rate                                46,869             5,436                196                --              52,501
Loans:(2)
   Fixed rate                                   37,284            49,491            164,292            60,858             311,925
   Variable rate                               181,439                --                 --                --             181,439
------------------------------------------------------------------------------------------------------------------------------------
    Total interest-earning
       assets                                 $283,834           $69,437           $241,000          $100,164            $694,435
====================================================================================================================================
INTEREST-BEARING LIABILITIES
Deposits:
   NOW/SuperNOW accounts
    and savings                               $  1,842           $ 5,527            $29,478          $110,543            $147,390
   Money market accounts                        78,156                --                 --                --              78,156
   Certificates of deposit and
    other time deposits:
     Fixed rate                                 66,367           116,480             65,522             5,499             253,868
     Variable rate                              31,295                --                 --                --              31,295
Federal funds purchased and securities
 sold under agreements to repurchase            40,739                --                 --                --              40,739
Other short-term borrowings:
     Fixed rate                                 40,643            20,873                 --                --              61,516
     Variable rate                              15,000                --                 --                --              15,000
------------------------------------------------------------------------------------------------------------------------------------
       Total interest-bearing
             liabilities                      $274,042          $142,880            $95,000          $116,042            $627,964
====================================================================================================================================
Interest-earning assets less
 interest-bearing liabilities ("Gap")           $9,792          $(73,443)          $146,000          $(15,878)            $66,471
Cumulative Gap                                  $9,792          $(63,651)          $ 82,349           $66,471             $66,471
Cumulative Gap as a percentage of
 total assets                                     1.26%            (8.17)%            10.57%             8.53%               8.53%

------------------------------------
(1)Excludes non-rate sensitive equity securities.  Reflects fair value adjustments for securities available for sale.
(2)Includes consumer loans net of unearned income, and excludes nonaccrual and impaired loans.
</TABLE>


                                       11

<PAGE>
Investment Portfolio

Investment  securities represent the second largest component of earning assets,
at 25% of  average  earning  assets  in 1996  and 27% in  1995.  The  investment
portfolio is used as a source of interest  income,  credit risk  diversification
and liquidity,  as well as to manage rate sensitivity and provide collateral for
secured  public  funds  and  repurchase  agreements.  The  investment  portfolio
averaged  $164.72  million in 1996,  compared  to $162.03  million in 1995.  The
average yield on the portfolio decreased 47 basis points to 6.65% in 1996.

Mortgage-backed pass-through agency securities are popular investments for banks
because they are generally higher yielding than U.S. Treasury  securities,  have
little credit risk and have a lower  risk-weighting under the risk-based capital
guidelines than many other investments.

As of December 31, 1996, the gross unrealized losses in the Company's investment
portfolio  were  $472,000  in  the  held-to-maturity  investment  portfolio  and
$714,000 in the available-for-sale investment portfolio compared to $547,000 and
$523,000, respectively, as of December 31, 1995. The investment portfolio had an
average life of less than four years, with an estimated  tax-equivalent  average
yield of 6.63%,  at December  31,  1996.  Since the  Company's  held-to-maturity
investment  portfolio includes fixed rate investment  securities that have below
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.

On December 29, 1995,  the Company  transferred  $23,751,000  of  securities  at
amortized cost, having an unrealized gain of $336,000, from the held-to-maturity
portfolio into the available-for-sale  portfolio. This transfer has been handled
in accordance with the special  provisions  related to the one-time  transfer of
investment  securities as allowed by the Financial  Accounting  Standards Board.
The Company took  advantage of this  opportunity  to reposition  its  investment
portfolios to enhance its ability to react to changes in the  securities  market
and liquidity needs.
<TABLE>
<CAPTION>

Investment Portfolio Distribution-Book Value (Amortized cost)
------------------------------------------------------------------------------------------------------------------------------------
December 31,                                                        1996(1)                1995(1)                   1994(1)
------------------------------------------------------------------------------------------------------------------------------------
                                                                                  (dollars in thousands)
<S>                                                               <C>                    <C>                       <C>     
U.S. Treasury and other U.S. government
 agencies and corporations                                        $166,801               $125,596                  $148,647
State and political subdivisions                                     5,138                  8,929                    17,955
Other securities                                                    23,632                  7,135                    12,275
------------------------------------------------------------------------------------------------------------------------------------

     Total                                                        $195,571               $141,660                  $178,877
====================================================================================================================================
(1)  Reflects   the  cost  of   securities   purchased,   adjusted  for  premium
     amortization  and  discount  accretion,  which  differs  from  the  amounts
     reflected in the consolidated balance sheets due to fair value adjustments.

Analysis of Investment Portfolio (Held-to-Maturity) - December 31, 1996

------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>

                                                               After 1                After 5
                                       1 year                  through                through               After 10
Maturing in:                          or less                  5 years               10 years                 years
------------------------------------------------------------------------------------------------------------------------------------
                                         Average                  Average                Average                  Average
                              Amount      Yield       Amount       Yield      Amount      Yield       Amount       Yield
------------------------------------------------------------------------------------------------------------------------------------
                                                                 (dollars in thousands)
<S>                              <C>       <C>           <C>            <C>        <C>          <C>         <C>       <C>      
U.S. Treasury and other
 U.S. government agencies
 and corporations                    --       --          $24,931        5.80%      $3,456       7.35%          --        --
State and political
 subdivisions (1)                  $985       14.31%        1,462       10.28        2,338      11.64         $353      8.44%
------------------------------------------------------------------------------------------------------------------------------------
     Total                         $985       14.31%      $26,393        6.05%      $5,794       9.08%        $353      8.44%
====================================================================================================================================
</TABLE>

(1)  Yields,  calculated  using  amortized cost book values,  are presented on a
     fully taxable equivalent basis using the federal statutory rate of 34%. All
     of the  obligations  of states and  political  subdivisions  are rated A or
     higher by either  Moody's  Investors  Service,  Inc.  or  Standard & Poor's
     Corporation.

                                       12

<PAGE>
<TABLE>
<CAPTION>

Analysis of Investment Portfolio (Available-for-Sale) - December 31, 1996
------------------------------------------------------------------------------------------------------------------------------------
                                                               After 1                After 5
                                       1 year                  through                through               After 10
Maturing in:                          or less                  5 years               10 years                 years
------------------------------------------------------------------------------------------------------------------------------------
                                         Average                  Average                Average                  Average
                              Amount(1)     Yield       Amount(1)       Yield      Amount(1)     Yield       Amount(1)      Yield
------------------------------------------------------------------------------------------------------------------------------------
                                                                (dollars in thousands)
<S>                              <C>           <C>        <C>            <C>       <C>           <C>          <C>        <C>  
U.S. Treasury and other
 U.S. government agencies
 and corporations                $1,558        6.16%      $94,235        6.58%     $45,394       6.80%        $854       7.68%
Other securities                     --       --            1,007        6.69        5,918       7.06       13,080       5.65
------------------------------------------------------------------------------------------------------------------------------------

     Total                       $1,558        6.16%      $95,242        6.58%     $51,312       6.83%     $13,934       5.77%
====================================================================================================================================
</TABLE>

(1)  Reflects   the  cost  of   securities   purchased,   adjusted  for  premium
     amortization  and  discount  accretion,  which  differs  from  the  amounts
     reflected in the consolidated balance sheets due to fair value adjustments.

The Company had no investments that were  obligations of the issuer,  or payable
from or secured by a source of revenue or taxing authority of the issuer,  whose
aggregate book value exceeded 10% of shareholders' equity at December 31, 1996.

Loan Portfolio

During 1996, the Company sold $28.99 million of conforming  residential mortgage
loans to Countrywide  Mortgage  (Countrywide) and other private  investors,  and
held  additional  loans totaling $3.16 million at December 31, 1996,  whereas in
1995, the Company sold loans totaling $23.16 million to FHLMC  ("Freddie  Mac"),
Countrywide, and FNMA ("Fannie Mae") and held additional loans for sale totaling
$2.36 million at December 31, 1995.  The average  balance of loans held for sale
for 1996 was  $3.29  million,  and in 1995 was  $1.25  million  which  generated
average yields of 7.21% and 6.55%, respectively.

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  and have 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 based on the
financial  strength  of the  individual  borrower.  The  collateral  for secured
consumer loans may be marketable securities, automobiles,  recreational vehicles
or deposits in the Company's subsidiary banks. The usual term for these loans is
three to five years.
<TABLE>
<CAPTION>

Loan Distribution

------------------------------------------------------------------------------------------------------------------------------------
December 31,                  1996      %          1995      %             1994      %            1993        %     1992         %
------------------------------------------------------------------------------------------------------------------------------------
                                                                  (dollars in thousands)

<S>                         <C>        <C>       <C>          <C>        <C>          <C>       <C>            <C>             <C>
Real estate-construction    $ 55,614   11%       $ 38,043      9%        $ 25,988      7%       $ 18,678        6%  $ 16,197      5%
Real estate-mortgage         335,784   67         299,114     68          273,485     70         245,209       73    235,673     75
Commercial and agricultural   52,515   11          49,667     11           44,164     11          38,843       11     32,664     10
Consumer                      54,082   11          52,970     12           46,540     12          34,186       10     31,797     10
------------------------------------------------------------------------------------------------------------------------------------
  Total loans, net of
    unearned income          497,995  100%        439,794    100%         390,177    100%        336,916      100%   316,331    100%
  Less: Allowance for
   credit losses              (5,123)              (5,242)                 (4,691)                (4,219)             (3,694)
------------------------------------------------------------------------------------------------------------------------------------
Net loans                   $492,872             $434,552                $385,486               $332,697            $312,637
====================================================================================================================================
</TABLE>


                                                                    13

<PAGE>

Maturity and Interest Rate Sensitivity of Loans-December 31, 1996
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------
                                             1 year                      After 1
Maturing in:                                or less                  through 5 years             After 5 years
------------------------------------------------------------------------------------------------------------------------------------
                                      Fixed       Variable        Fixed       Variable       Fixed       Variable
                                     interest     interest       interest     interest      interest     interest
                                      rates        rates          rates        rates         rates        rates          Total
------------------------------------------------------------------------------------------------------------------------------------
                                                                         (dollars in thousands)
<S>                                   <C>          <C>           <C>          <C>            <C>           <C>         <C>     
Real estate - construction            $12,757      $31,223       $  4,376     $  2,378       $   419       $4,461      $ 55,614
Real estate - mortgage(1)              63,348       10,265         88,656       92,449        81,066           --       335,784
Commercial and agricultural             5,376       11,274         18,474       16,268         1,065           58        52,515
Consumer                                3,020        2,653         44,027        1,349         2,959           74        54,082
------------------------------------------------------------------------------------------------------------------------------------
            Total                     $84,501      $55,415       $155,533     $112,444       $85,509       $4,593      $497,995
====================================================================================================================================
</TABLE>

(1) The Company's  customary  business practice is to write real estate mortgage
loans,  which will be  retained  in its loan  portfolio,  with  repayment  terms
normally  not  exceeding  seven  years.  Most loans  mature in one year with the
balance  due at  maturity.  Assuming  that  credit  standards  are  met at  each
maturity,  the Company  customarily  extends its loans for  successive  one year
periods. During 1994, the Company began to write some real estate mortgage loans
with terms up to 15 years,  of which the volume was minimal as of  December  31,
1996.

Allowance for Credit Losses

The Company follows the guidance of Statement of Financial  Accounting Standards
No. 114 (Statement 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, the impact on the Company's
financial condition and results of operations was not material.

Statement 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  may  be  evaluated  to be  impaired.  Loans  are
evaluated for nonaccrual  status when principal or interest is delinquent for 90
days or more and are placed on  nonaccrual  status  when a loan is  specifically
determined to be impaired. 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.  See Note 5 to the
consolidated  financial  statements  for  selected  information  concerning  the
Company's recorded investment in impaired loans.

The  Company  maintains  its  allowance  for  credit  losses  at a level  deemed
sufficient  to provide for  estimated  potential  losses  inherent 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.

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 $5.12 million,  or 1.03% of total loans, net
of unearned income, at December 31, 1996, compared to $5.24 million, or 1.19% as
of December 31, 1995. The allowance for credit losses to nonperforming loans was
71.5% and 197.5% as of December 31, 1996 and 1995, respectively.


                                       14

<PAGE>

The  Company's  provision  for credit  losses in 1996 was  $318,000  compared to
$710,000 in 1995.  Net credit  losses in 1996  exceeded the provision for credit
losses by $581,000.  The provision for credit losses in 1995 exceeded net credit
losses by $551,000.

Total  nonperforming  assets as of December  31, 1996  totaled  $10.29  million,
reflecting a $5.37  million  increase  from the $4.92  million in  nonperforming
assets as of December 31, 1995. Total nonperforming assets, including properties
acquired  through  foreclosure,  represent  1.32% and .74% of total assets as of
December 31, 1996 and 1995  respectively.  The increase in nonperforming  assets
principally related to loans acquired in recent acquisitions.

Nonperforming  assets at December 31, 1996,  include $4.63 million of nonaccrual
loans,  $2.53  million  of  loans  past due 90 days or more,  $1.94  million  of
foreclosed  properties,  consisting  principally of commercial  properties,  and
$1.19 million for the Company's vacated  Operations Center  transferred to other
real estate  owned.  The  increase in past due loans is  principally  related to
loans acquired in recent acquisitions.

It is the  Company's  practice  to  continue  the  recognition  of  earnings  on
delinquent  consumer loans until the loans are  charged-off  after being 90 days
past due.
<TABLE>
<CAPTION>

Problem Assets
------------------------------------------------------------------------------------------------------------------------------------

December 31,                                            1996          1995            1994          1993            1992
------------------------------------------------------------------------------------------------------------------------------------
                                                                     (dollars in thousands)
Nonperforming loans:
<S>               <C>                                <C>             <C>            <C>            <C>            <C>   
  Nonaccrual loans(1)                                $ 4,631         $2,532         $3,445         $3,282         $5,279
  Restructured loans(2)                                    -              -              -              -              -
  Past due loans(3)                                    2,531            122            153             89             90
------------------------------------------------------------------------------------------------------------------------------------

    Total nonperforming loans                          7,162          2,654          3,598          3,371          5,369
Foreclosed properties(4)                               3,131          2,262          2,212          2,665          3,420
------------------------------------------------------------------------------------------------------------------------------------
   Total nonperforming
    assets                                           $10,293         $4,916         $5,810         $6,036         $8,789
====================================================================================================================================
Nonperforming assets to
 total loans (net of
 unearned income) and foreclosed
 properties at period end                              2.05%          1.11%          1.48%          1.78%          2.75%

Nonperforming assets to total
 assets at period end                                  1.32%           .74%           .93%          1.00%          1.62%

Allowance for credit losses
 to nonperforming loans at
 period end                                            71.5%         197.5%         130.4%         125.2%          68.8%

------------------------------------
</TABLE>

(1)  See discussion at "Allowance for Credit Losses" for nonaccrual and impaired
     loans.

(2)  Restructured  loans  are  "troubled  debt  restructurings"  as  defined  in
     Statement of Financial  Accounting  Standards No. 15.  Nonaccrual loans are
     not included in these totals.

(3)  Past due loans are loans that were  contractually  past due 90 days or more
     as to principal or interest payments at the dates indicated. Nonaccrual and
     restructured loans are not included in these totals.

(4)  Foreclosed  properties  include  facilities  no  longer  used  for  banking
     purposes  and  properties  that have been  acquired  in complete or partial
     satisfaction  of debt.  These  properties,  which are held for resale,  are
     carried at the lower of fair value (net of estimated  selling  expenses) or
     cost.

                                       15

<PAGE>
The Company has loans  totaling  $16.88  million  that are now current for which
there are  concerns as to the ability of the  borrowers  to comply with  present
loan  repayment  terms.  While  management  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 December  31,  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 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 December 31, 1996,  classifiable
as nonaccrual, past due, restructured or problem assets.

Allowance for Credit Losses
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------
Years ended December 31,                                     1996           1995           1994            1993             1992
------------------------------------------------------------------------------------------------------------------------------------
                                                                                    (dollars in thousands)
<S>                                                        <C>            <C>            <C>             <C>              <C>     
Average total loans out-
 standing during year                                      $464,440       $423,722       $358,051        $321,539         $323,357
====================================================================================================================================
Allowance at beginning
 of year                                                     $5,242         $4,691         $4,219          $3,694           $3,671
------------------------------------------------------------------------------------------------------------------------------------
Charge-offs:
  Real estate-construction                                       --             --             --              --               31
  Real estate-mortgage                                          136             22             32               -              856
  Commercial and agricultural                                   570             19              -             140               86
  Consumer                                                      293            168            129             127              145
------------------------------------------------------------------------------------------------------------------------------------
     Total charge-offs                                          999            209            161             267            1,118
------------------------------------------------------------------------------------------------------------------------------------
Recoveries:
   Real estate-construction                                      --              -              -               -                -
   Real estate-mortgage                                          --              1              -               2                2
   Commercial and agricultural                                   20              -             38               8               11
   Consumer                                                      80             49             70              17               52
------------------------------------------------------------------------------------------------------------------------------------
     Total recoveries                                           100             50            108              27               65
------------------------------------------------------------------------------------------------------------------------------------
Net charge-offs                                                 899            159             53             240            1,053
------------------------------------------------------------------------------------------------------------------------------------
Additions to allowance charged
 to operating expenses                                          318            710            525             765            1,076
------------------------------------------------------------------------------------------------------------------------------------
Other transfers and allowance on loans
  acquired with purchased entity                                462             --             --              --               --
------------------------------------------------------------------------------------------------------------------------------------
Allowance at end of year                                     $5,123         $5,242         $4,691          $4,219           $3,694
====================================================================================================================================
Ratio of net charge-offs
 to average total loans                                         .19%           .04%           .01%            .07%             .33%
====================================================================================================================================
</TABLE>


                                       16

<PAGE>

The  allocation of the  Allowance,  presented in the following  table,  is based
primarily  on the factors  discussed  above in  evaluating  the  adequacy of the
Allowance  as a whole.  Since all of those  factors are  subject to change,  the
allocation is not necessarily indicative of the category of future loan losses.
<TABLE>
<CAPTION>

Allocation of Allowance for Credit Losses

------------------------------------------------------------------------------------------------------------------------------------

December 31,                        1996  %(1)     1995     %(1)      1994      %(1)      1993     %(1)        1992     %(1)
------------------------------------------------------------------------------------------------------------------------------------
                                                                      (dollars in thousands)
<S>                               <C>      <C>     <C>        <C>   <C>           <C>   <C>          <C>     <C>          <C>
Real estate-construction          $1,059   11%     $  806       9%    $  743        7%    $  693       6%      $  532       5%
Real estate-mortgage               2,300   67       2,406      68      2,370       70      2,247      73        1,800      75
Commercial and agricultural          855   11       1,129      11        749       11        991      11        1,134      10
Consumer                             534   11         476      12        344       12        288      10          228      10
Unallocated                          375    -         425      --        485       --         --      --           --      --
------------------------------------------------------------------------------------------------------------------------------------
Total Allowance                   $5,123  100%     $5,242     100%    $4,691      100%    $4,219     100%      $3,694     100%
====================================================================================================================================
(1)  Percent of loans in each category to total loans, net of unearned income.
</TABLE>
<TABLE>
<CAPTION>

Deposits

Average Deposits and Average Rates
------------------------------------------------------------------------------------------------------------------------------------
Years ended December 31,                         1996                         1995                             1994
------------------------------------------------------------------------------------------------------------------------------------
                                        Average                       Average                        Average
                                         daily         Average          daily        Average           daily        Average
                                        balance         Rate          balance         Rate           balance         Rate
------------------------------------------------------------------------------------------------------------------------------------
                                                                (dollars in thousands)
<S>                                    <C>            <C>            <C>          <C>             <C>                <C>      
Noninterest-bearing
 demand deposits                       $ 66,111        -.   %         $ 58,789        -.   %       $ 55,503            -%
Interest-bearing
 demand deposits                        136,280        2.75            136,274        2.97          144,390             2.75
Savings  deposits                        84,294        3.08             81,128        3.08           85,102             2.89
Certificates of deposit
 and other time deposits                265,180        5.26            238,620        5.44          195,048             4.20
------------------------------------------------------------------------------------------------------------------------------------

     Total average deposits            $551,865        3.67%          $514,811        3.79%       $480,043             3.04%
====================================================================================================================================
</TABLE>

<TABLE>
<CAPTION>

Maturities of Time Deposits-$100,000 or More
------------------------------------------------------------------------------------------------------------------------------------
December 31,                                                     1996                       1995                    1994
------------------------------------------------------------------------------------------------------------------------------------
                                                                                 (dollars in thousands)
Maturing in:
<S>                                                             <C>                        <C>                     <C>    
   3 months or less                                             $23,025                    $13,218                 $13,651
   Over 3 months through 6 months                                 9,009                     13,268                  12,878
   Over 6 months though 12 months                                 6,226                      7,893                  13,539
   Over 12 months                                                11,991                     10,944                   7,932
------------------------------------------------------------------------------------------------------------------------------------
                                                                $50,251                    $45,323                 $48,000
====================================================================================================================================
</TABLE>

                                                                    17

<PAGE>
Short-term Borrowings

Federal Funds Purchased and Securities Sold Under Agreements to Repurchase
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------
December 31,                                                      1996                      1995                    1994
------------------------------------------------------------------------------------------------------------------------------------
                                                                                  (dollars in thousands)
<S>                          <C>                                <C>                        <C>                     <C>    
Total outstanding at year-end(1)                                $40,739                    $21,043                 $25,103
====================================================================================================================================
Average amount outstanding during the year                      $24,815                    $18,928                 $29,592
====================================================================================================================================
Maximum amount outstanding at any month-end                     $43,714                    $28,237                 $43,768
====================================================================================================================================
Weighted average interest rate at year-end                         5.43%                      5.65%                   5.93%
====================================================================================================================================
Weighted average interest rate during the year                     5.47%                      5.93%                   4.21%
====================================================================================================================================

(1)  Includes  securities  sold under  agreements to repurchase with the Federal
     Home Loan Bank of Atlanta,  totaling  $24.22  million at December 31, 1996.
     Securing this  arrangement  are investment  securities  with book values of
     $26.50  million and fair values of $26.24  million at  December  31,  1996.
     These repurchase agreements mature primarily within 30 days of December 31,
     1996.

Other Short-term Borrowings(2)
------------------------------------------------------------------------------------------------------------------------------------
December 31,                                                     1996                       1995                      1994
------------------------------------------------------------------------------------------------------------------------------------
                                                                                   (dollars in thousands)

Total outstanding at year-end                                   $76,516                    $32,426                 $26,089
====================================================================================================================================
Average amount outstanding during the year                      $46,626                    $32,246                 $19,059
====================================================================================================================================
Maximum amount outstanding at any month-end                     $76,516                    $50,382                 $29,887
====================================================================================================================================
Weighted average interest rate at year-end                         5.59%                      5.91%                   5.81%
====================================================================================================================================
Weighted average interest rate during the year                     5.85%                      5.84%                   4.44%
====================================================================================================================================
</TABLE>

(2) Primarily  reflects the amounts borrowed under secured lending  arrangements
with the Federal Home Loan Bank of Atlanta.


Long-term debt

On May 31, 1995, the Company entered into a secured lending  arrangement  with a
regional  national  bank to finance the cost of its new  corporate  headquarters
facility in Frederick,  Maryland (the "Facility").  The loan, secured by a first
lien security  interest on the Facility's  land,  improvements  and fixtures and
equipment, provided for interest at a fluctuating rate equal to the daily London
Interbank  Offered Rate for one-month U.S. Dollar deposits  (LIBOR),  plus 1.35%
was paid off on December  19, 1996.  A balance was  outstanding  on December 31,
1995 of $4.68 million, bearing interest at a rate of 7.32%.

At December 31, 1995, the Company had $1.0 million in advances totaling from the
Federal Home Loan Bank that were due in March 1997, bearing interest at the rate
of 7.35%.

Capital Resources

The Company and the Banks are subject to various regulatory capital requirements
administered  by the federal banking  agencies.  Failure to meet minimum capital
requirements   can  initiate   certain   mandatory,   and  possibly   additional
discretionary,  actions by regulators  that, if undertaken,  could have a direct
material effect on the Company's  financial  statements.  Under capital adequacy
guidelines  and the  regulatory  framework  for prompt  corrective  action,  the
Company  and  Banks  must  meet  specific   capital   guidelines   that  involve
quantitative measures of the Company's Banks' assets,  liabilities,  and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Company's  and Banks'  capital  amounts and  classification  are also subject to
qualitative judgments by the regulators about components,  risk weightings,  and
other factors.


                                       18

<PAGE>


Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Company  and Banks to maintain  minimum  amounts and ratios of total
and Tier I capital (as defined in the regulations) to  risk-weighted  assets (as
defined),  and of Tier I capital (as  defined) to average  assets (as  defined).
Management believes, as of December 31, 1996 and 1995 that the Company and Banks
meet all capital adequacy requirements to which they are subject. See Note 14 to
the  consolidated  financial  statements for a table  depicting  compliance with
regulatory capital requirements.

As of December 31, 1996, the most recent notification from the regulatory agency
categorized the Banks as adequately  capitalized under the regulatory  framework
for prompt corrective  action.  To be categorized as adequately  capitalized the
Banks must  maintain  minimum total risk- based,  Tier I risk-based,  and Tier I
leverage ratios as set forth in the table in Note 14. There are no conditions or
events since that notification which management believes have changed the Bank's
category.



                                       19

<PAGE>




Financial Analysis 1995-1994

Earnings Summary:

Net  income  was $7.00  million  in 1995  compared  to $6.77  million  for 1994.
Earnings per share were $1.31 in 1995 compared to $1.26 for 1994.

Return on average assets was 1.09% in 1995 compared to 1.14% for 1994. Return on
average shareholders' equity was 11.21% in 1995 compared to 11.79% in 1994.

Net Interest Income:  On a fully  taxable-equivalent  basis, net interest income
increased $866,000 or 3.1% in 1995 and $1.09 million or 4.1% in 1994.

In 1995, the net margin on average total  interest-earning  assets  decreased to
4.78% from 4.96% in 1994 and from 5.08% in 1993.  Changes in net interest income
between periods is affected principally by the volume of interest-earning assets
and the yield on those assets,  and by the volume of  interest-bearing  deposits
and other  liabilities  and the rates paid on those  deposits  and  liabilities.
Table 2 summarizes,  on a fully taxable-equivalent  basis, the impact of changes
in average  balances and average rates on the Company's net interest  income for
the periods indicated.

Noninterest  Income:  Noninterest income increased by $1.04 million, or 36.1% in
1995 but decreased by $436,000, or 13.2% in 1994.

The Company  utilized the secondary  mortgage  market to satisfy its  customers'
demand for long-term  fixed-rate mortgage financing and, in so doing,  generated
gains in the amount of $315,000 from the sale of conforming  mortgage  loans and
generated  $597,000 in related  servicing fees in 1995. During 1994, the Company
realized  losses  from loan  sales and  servicing  fee  income of  $260,000  and
$341,000, respectively, from its activity in this market.

The increased  service fees on deposit  accounts are  attributed to increases in
both account  volume and  activity,  since  service  charges per account and per
transaction remained relatively constant between the periods.

Noninterest Expenses:  Noninterest expenses increased $1.50 million, or 7.8.% in
1995 and $1.18 million, or 6.5% in 1994.

Increases in salaries and  employee  benefits of $1.33  million or 13.5% in 1995
and  $438,000 or 4.6% in 1994,  primarily  reflect the effects of an increase in
the number of Company personnel during these periods.

Other operating  expenses  decreased  $20,000 or 0.33% in 1995, but increased by
$365,000 or 6.3% in 1994. See Note 13 to the consolidated  financial  statements
for a schedule  showing a detailed  breakdown of the Company's more  significant
other operating expenses.

Income Taxes: Income tax expense increased to $3.89 million in 1995, compared to
$3.27 million in 1994,  reflecting the higher level of pretax income in 1995 and
the Company's  higher  effective tax rate of 35.7% in 1995 compared to 32.58% in
1994.


                                       20

<PAGE>
SELECTED FINANCIAL DATA

The following  table sets forth certain  selected  financial data concerning the
Company,  as restated  for the effects of its merger with Laurel  Bancorp,  Inc.
that was  accounted  for as a pooling  of  interests,  and is  qualified  in its
entirety by the detailed information and financial  statements,  including notes
thereto,   included  elsewhere  herein.  In  the  opinion  of  management,   all
adjustments  (consisting  of normal  recurring  accruals)  necessary  for a fair
presentation have been included.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
Years ended December 31,                             1996             1995            1994           1993           1992
------------------------------------------------------------------------------------------------------------------------------
                                                           (dollars in thousands, except per share data)

Summary of Operating Results:
<S>                                                <C>              <C>            <C>             <C>            <C>    
   Total interest income                           $54,653          $51,126        $43,892         $41,691        $43,616
   Total interest expense(1)                        25,014           22,759         17,010          16,054         19,783
------------------------------------------------------------------------------------------------------------------------------
   Net interest income                              29,639           28,367         26,882          25,637         23,833
   Provision for credit losses                         318              710            525             765          1,076
------------------------------------------------------------------------------------------------------------------------------
   Net interest income after
     provision for credit losses                    29,321           27,657         26,357          24,872         22,757
   Net securities gains (losses)                       193              123            375          (1,183)        (1,510)
   Noninterest income (excluding net
    securities gains (losses))                       4,068            3,795          2,503           4,497          3,418
   Noninterest expenses                             24,470           20,689         19,191          18,013         16,498
------------------------------------------------------------------------------------------------------------------------------
   Income before provision for income
     taxes and cumulative effect of
     changes in accounting principles                9,112           10,886         10,044          10,173          8,167
   Provision for income taxes                        3,245            3,888          3,272           3,301          2,346
------------------------------------------------------------------------------------------------------------------------------
   Income before cumulative effect of
     changes in accounting principles                5,867            6,998          6,772           6,872          5,821
   Cumulative effect on prior years of
     changes in accounting principles                   --               --             --              --           (129)
------------------------------------------------------------------------------------------------------------------------------
   Net income                                      $ 5,867          $ 6,998        $ 6,772         $ 6,872        $ 5,692
==============================================================================================================================
Per Share:
   Income before cumulative effect
     of changes in accounting principles             $1.09            $1.31          $1.26           $1.29          $1.11
   Cumulative effect on prior years of
     changes in accounting
     principles--                                       --               --             --           (0.03)
   Net income                                         1.09             1.31           1.26            1.29           1.08
   Cash dividends declared                            0.54             0.55           0.48            0.39           0.31
   Book value at year-end(2)                         12.88            12.50          11.20           10.96           9.79
   Average common shares
    outstanding                                  5,381,797        5,346,481      5,355,756       5,333,441      5,253,847

Other Data (At Year-End):
   Total loans, net of unearned income            $497,995         $439,794       $390,177        $336,916       $316,331
   Total assets                                    779,169          660,984        627,050         603,497        543,992
   Total deposits                                  587,074          529,988        505,202         485,543        446,748
   Federal funds purchased and securities


                                                       21

<PAGE>



   sold under agreements to repurchase              40,739           21,043         25,103          32,304          7,679
   Other short-term borrowings                      76,516           32,426         26,089          13,776         32,423
   Long-term debt                                       --            5,680          7,000          10,106          1,208
  Total shareholders' equity                        69,110           66,219         59,037          57,689         51,422

Consolidated Ratios:
   Return on average total assets(2)                  0.84%            1.09%          1.14%           1.23%          1.07%
   Return on average shareholders'
    equity(2)                                         8.92            11.21          11.79           12.73          11.56
   Average shareholders' equity
    to average total assets(2)                        9.39             9.73           9.63            9.67           9.24
  Cash dividends declared to
    net income                                       49.86            41.61          37.45           30.32          27.76
============================================================================================================================
</TABLE>

(1) Net of $108,000 and $300,000 of capitalized  construction period interest in
    1996 and 1995, respectively.
(2) The 1996,  1995,  1994 and 1993 amounts and ratios shown include the effects
    of the  December 31, 1993  adoption of  Statement  of  Financial  Accounting
    Standards No. 115,  "Accounting  for Certain  Investments in Debt and Equity
    Securities."


                                                                    22

<PAGE>
FCNB Corp and Subsidiaries
Consolidated Balance Sheets
December 31, 1996 and 1995
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------
   ASSETS                                                                          1996                          1995
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>                         <C>     
Cash and due from banks                                                          $ 31,023                    $ 24,085
Interest-bearing deposits in other banks                                            1,065                       2,261
Federal funds sold                                                                 12,438                      20,017
------------------------------------------------------------------------------------------------------------------------------------
   Cash and cash equivalents                                                       44,526                      46,363
------------------------------------------------------------------------------------------------------------------------------------
Loans held for sale                                                                 3,162                       2,362
------------------------------------------------------------------------------------------------------------------------------------
Investment securities held to maturity - fair value
 of $33,740 in 1996 and $59,192 in 1995                                            33,525                      58,511
------------------------------------------------------------------------------------------------------------------------------------
Investment securities available for sale - at fair value                          162,860                      83,987
------------------------------------------------------------------------------------------------------------------------------------
Loans                                                                             498,391                     440,724
Less: Allowance for credit losses                                                  (5,123)                     (5,242)
       Unearned income                                                               (396)                       (930)
------------------------------------------------------------------------------------------------------------------------------------
      Net loans                                                                   492,872                     434,552
------------------------------------------------------------------------------------------------------------------------------------
Bank premises and equipment                                                        22,691                      19,997
------------------------------------------------------------------------------------------------------------------------------------
Other assets                                                                       19,533                      15,212
------------------------------------------------------------------------------------------------------------------------------------
      Total assets                                                               $779,169                    $660,984
====================================================================================================================================

LIABILITIES AND Shareholders' EQUITY
------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Deposits:
 Noninterest-bearing deposits                                                    $ 76,365                    $ 66,558
 Interest-bearing deposits                                                        510,709                     463,430
------------------------------------------------------------------------------------------------------------------------------------
      Total deposits                                                              587,074                     529,988
Short-term borrowings:
 Federal funds purchased and securities
  sold under agreements to repurchase                                              40,739                      21,043
 Other short-term borrowings                                                       76,516                      32,426
Long-term debt                                                                         --                       5,680
Accrued interest and other liabilities                                              5,730                       5,628
------------------------------------------------------------------------------------------------------------------------------------
      Total liabilities                                                           710,059                     594,765
------------------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 10 & 17)
------------------------------------------------------------------------------------------------------------------------------------
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;
 20,000,000 shares authorized;  5,364,560 in 1996
 and 5,298,361 in 1995 shares issued
 and outstanding                                                                    5,365                       5,298
Surplus                                                                            26,652                      26,733
Retained earnings                                                                  36,589                      33,658
Net unrealized gain (loss) on securities
 available for sale                                                                   504                         530
------------------------------------------------------------------------------------------------------------------------------------
      Total shareholders' equity                                                   69,110                      66,219
------------------------------------------------------------------------------------------------------------------------------------
      Total liabilities and shareholders' equity                                 $779,169                    $660,984
------------------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.

                                                                    23

<PAGE>
FCNB Corp and Subsidiaries
Consolidated Statements of Income
For the Years Ended December 31, 1996, 1995 and 1994
------------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)                                     1996               1995            1994
------------------------------------------------------------------------------------------------------------------------------------
Interest income:
   Interest and fees on loans                                                     $42,948            $39,341         $31,088
   Interest and dividends on investment
    securities:
      Taxable                                                                       9,728              9,292          10,083
      Tax exempt                                                                      505              1,211           1,816
      Dividends                                                                       539                414             272
   Interest on federal funds sold                                                     759                457             439
   Other interest income                                                              174                411             194
------------------------------------------------------------------------------------------------------------------------------------
               Total interest income                                               54,653             51,126          43,892
------------------------------------------------------------------------------------------------------------------------------------
Interest expense:
  Interest on deposits                                                             20,549             19,361          14,626
  Interest on federal funds purchased and
    securities sold under agreements
    to repurchase                                                                   1,357              1,122           1,247
  Interest on other short-term
   borrowings                                                                       2,762              1,882             846
  Interest on long-term debt                                                          346                394             291
------------------------------------------------------------------------------------------------------------------------------------
               Total interest expense                                              25,014             22,759          17,010
------------------------------------------------------------------------------------------------------------------------------------
Net interest income                                                                29,639             28,367          26,882
Provision for credit losses                                                           318                710             525
------------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
  for credit losses                                                                29,321             27,657          26,357
------------------------------------------------------------------------------------------------------------------------------------
Noninterest income:
   Service fees                                                                     2,454              2,104           1,845
   Net securities gains                                                               193                123             375
   Gain (loss) on sale of loans                                                       305                315            (260)
   Servicing fees on loans sold                                                       490                597             341
   Other operating income                                                             819                779             577
------------------------------------------------------------------------------------------------------------------------------------
               Total noninterest income                                             4,261              3,918           2,878
------------------------------------------------------------------------------------------------------------------------------------
Noninterest expenses:
  Salaries and employee benefits                                                   11,621             11,193           9,860
  Occupancy expenses, net                                                           2,419              1,683           1,667
  Equipment expenses                                                                1,599              1,438           1,345
  Merger-related expenses                                                           2,865                303             227
  Other operating expenses                                                          5,966              6,072           6,092
------------------------------------------------------------------------------------------------------------------------------------
               Total noninterest expenses                                          24,470             20,689          19,191
------------------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes                                            9,112             10,886          10,044
Provision for income taxes                                                          3,245              3,888           3,272
------------------------------------------------------------------------------------------------------------------------------------
Net income                                                                        $ 5,867            $ 6,998         $ 6,772
====================================================================================================================================
Net income per share                                                                $1.09              $1.31           $1.26
====================================================================================================================================
See Notes to Consolidated Financial Statements.
</TABLE>

                                                                    24

<PAGE>
<TABLE>
<CAPTION>
FCNB Corp and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
For the Years Ended December 31, 1996, 1995 and 1994
------------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
                                                                                                             Net
                                                                                                         Unrealized
                                                                                                         Gain (loss)     Total
                                                                                                      on Securities      Share-
                                      Shares            Common                    Retained                Available     holders'
                                   Outstanding           Stock        Surplus     Earnings      Other      for Sale      Equity
------------------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>                <C>           <C>          <C>         <C>           <C>         <C>    
Balance at
 December 31, 1993                   2,595,118          $2,595        $19,717      $17,805     $    --       $1,135      $41,252

Effect of pooled entity              1,200,002           1,200          3,778       11,633        (175)          --       16,436

Net income                                  --              --             --        6,772          --           --        6,772

Shares issued under dividend
 reinvestment and stock purchase
 plan                                    3,764               4             51          (13)         --           --           42

Shares issued with
 stock dividend                        112,013             112          2,688       (2,800)         --           --           --

Stock option
 transactions                            2,652               3             79           --          --           --           82

Cash dividends declared
  ($0.48 per share)                         --              --             --       (2,480)         --           --       (2,480)

Other                                       --              --             56           22         140           --          218

Fair value adjustment for securities
 available for sale, net                    --              --             --           --          --       (3,285)      (3,285)
------------------------------------------------------------------------------------------------------------------------------------
Balance at
 December 31, 1994                   3,913,549           3,914         26,369       30,939         (35)      (2,150)      59,037

Net income                                  --              --             --        6,998          --           --        6,998

Dividend reinvestment
 and stock purchase plan                    --              --             --          (11)         --           --          (11)

Shares issued with stock
 split, effected in the form
 of a  stock dividend                1,356,332           1,356             --       (1,356)         --           --           --

Stock option transactions               28,480              28            182           --          --           --          210

Cash dividends declared
  ($0.55 per share)                         --              --             --       (2,912)         --           --       (2,912)

 Other                                      --              --            182           --          35           --          217

                                                                    25

<PAGE>
Fair value adjustment for securities
 available for sale, net                    --              --             --           --          --        2,680        2,680
------------------------------------------------------------------------------------------------------------------------------------
Balance at
 December 31, 1995                   5,298,361           5,298         26,733       33,658          --          530       66,219

Net income                                  --              --             --        5,867          --           --        5,867

Dividend reinvestment
 and stock purchase plan                    --              --             --          (11)         --           --          (11)

Repurchase of common stock             (30,000)            (30)          (550)          --          --           --         (580)

Stock option transactions               96,199              97            469           --          --           --          566

Cash dividends declared
  ($0.54 per share)                         --              --             --       (2,925)         --           --       (2,925)

Fair value adjustment for securities
 available for sale, net                    --              --             --           --          --          (26)         (26)
------------------------------------------------------------------------------------------------------------------------------------
Balance at
 December 31, 1996                   5,364,560          $5,365        $26,652      $36,589          --       $  504      $69,110
====================================================================================================================================
See Notes to Consolidated Financial Statements.
</TABLE>

                                                                    26

<PAGE>
FCNB Corp and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1996, 1995 and 1994
(Dollars in thousands)
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------
                                                                          1996                      1995                  1994
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>                      <C>                   <C>
Cash flows from operating activities:
 Net income                                                            $   5,867                $  6,998              $  6,772
    Adjustments to reconcile net income to
     net cash provided by (used in)
     operating activities:
      Depreciation and amortization                                        1,308                   1,029                 1,027
      Provision for credit losses                                            318                     710                   525
      Provision for foreclosed properties                                     --                     352                   261
      Provision for deferred income taxes (benefits)                        (125)                   (210)                   --
      Net premium amortization (discount accretion)
       on investment securities                                               (9)                    (87)                  116
      Noncash charitable contribution                                         64                      --                    31
      Federal Home Loan Bank stock dividend                                   --                      --                   (26)
      Accretion of net loan origination fees                                (496)                   (470)                 (207)
      Net securities gains                                                  (193)                   (123)                 (375)
      Net (gain) loss on sales of property                                    15                     (55)                   37
      Increase in other assets                                              (466)                   (997)               (1,086)
      Decrease (increase) in loans held for sale                            (800)                 (1,339)               13,648
      Increase (decrease) in accrued interest and other liabilities          503                     992                   496
      Other operating activities                                              --                     217                   114
------------------------------------------------------------------------------------------------------------------------------------
             Net cash provided by operating activities                     4,980                   7,017                21,333
------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
    Maturity of interest-bearing deposits in other banks                      --                      --                 1,088
    Proceeds from sales of investment securities
      available for sale                                                  33,434                  21,618                 4,080
    Proceeds from maturities of investment securities
      available for sale                                                  20,424                   6,820                26,160
    Proceeds from maturities of investment securities
      held to maturity                                                    25,286                  24,965                22,810
    Purchases of investment securities available for sale               (104,922)                 (6,457)              (26,484)
    Purchases of investment securities held to maturity                  (25,209)                 (9,520)              (13,054)
    Net increase in loans                                                (30,046)                (50,566)              (53,407)
    Purchases of bank premises and equipment                              (4,622)                 (8,778)               (1,806)
    Proceeds from dispositions of property                                   780                     568                   855
    Purchase of foreclosed properties                                        (76)                     --                    --
    Investments in other real estate owned                                    --                    (196)                  (66)
    Acquisition of business, net of cash acquired                         (2,981)                     --                    --
------------------------------------------------------------------------------------------------------------------------------------
             Net cash (used in) investing activities                     (87,932)                (21,546)              (39,824)
------------------------------------------------------------------------------------------------------------------------------------

                                                                    27

<PAGE>
FCNB Corp and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1996 1995, and 1994
(Dollars in thousands)

------------------------------------------------------------------------------------------------------------------------------------
                                                                         1996                     1995                  1994
------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
    Net increase in noninterest-
     bearing deposits, NOW accounts, money
     market accounts, and savings accounts                              $17,285               $  1,866               $ 9,387
    Net increase  in time deposits                                       10,791                 22,937                10,314
    Net increase in short-term borrowings                                61,786                  2,277                 5,111
    Proceeds from (repayment of) long-term debt                          (5,680)                (1,320)               (3,000)
    Dividend reinvestment and stock purchase plan                           (11)                   (11)                  (13)
    Proceeds from sale of common stock                                      449                    130                    96
    Repurchase of common stock                                             (580)                    --                    --
    Dividends paid                                                       (2,925)                (2,912)               (2,480)
------------------------------------------------------------------------------------------------------------------------------------
             Net cash provided by financing activities                   81,115                 22,967                19,415
------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease)in cash and cash equivalents                          (1,837)                 8,438                   924
Cash and cash equivalents-beginning of year                              46,363                 37,925                37,001
------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents-end of year                                   $44,526                $46,363               $37,925
====================================================================================================================================
Supplemental cash flow information: Noncash investing and financing activities:
    Foreclosed properties acquired  in settlement of loans                 $106                 $1,513                $1,318
====================================================================================================================================
    Transfers from foreclosed properties to loans                        $1,165                   $253                $1,012
====================================================================================================================================
    Bank premises transferred to other assets                            $1,190                     --                    --
====================================================================================================================================
    Surplus from stock option transactions                                 $117                    $80                   $41
====================================================================================================================================
    Book value of securities transferred to available
    for sale from held to maturity                                           --                $23,751                    --
====================================================================================================================================
Details of acquisition:
    Fair value of assets acquired                                       $35,130                     --                    --
    Fair value of liabilities assumed                                   (31,616)                    --                    --
    Purchase price in excess of the net assets acquired                   3,212                     --                    --
------------------------------------------------------------------------------------------------------------------------------------
    Cash paid                                                             6,726                     --                    --
    Less cash acquired                                                    3,745                     --                    --
------------------------------------------------------------------------------------------------------------------------------------
Net cash paid for acquisition                                            $2,981                     --                    --
====================================================================================================================================
The Company  paid  interest of  $25,182,  $22,870 and $16,802 in 1996,  1995 and
1994,  respectively.  Income taxes paid by the Company  were $4,315,  $3,216 and
$2,784 in 1996, 1995 and 1994 respectively.
====================================================================================================================================
See Notes to Consolidated Financial Statements.
</TABLE>

                                                                    28

<PAGE>



                           FCNB Corp and Subsidiaries

                   Notes to Consolidated Financial Statements

Note 1. Nature of banking activities and significant accounting policies:

FCNB Corp (the "Parent  Company") is a multi-bank  holding company that provides
its  customers  with banking and bank  related  financial  services  through its
wholly-owned  subsidiaries FCNB Bank and Elkridge Bank (the "Banks").  The Banks
offer  various  loan,  deposit  and other  financial  service  products to their
customers.  The Banks' customers include individuals and commercial  enterprises
located within the State of Maryland.  Their  principal  market areas  encompass
Frederick,  Carroll,  Howard,  Prince  George's,  Anne  Arundel  and  Montgomery
counties and portions of the adjacent  counties within the State.  Additionally,
the Banks  maintain  correspondent  banking  relationships  and  transact  daily
federal funds sales on an unsecured basis with regional correspondent banks.

The  accounting  and reporting  policies and practices of the Parent Company and
its subsidiaries  (collectively,  the "Company") conform with generally accepted
accounting  principles.  The following is a summary of the Company's significant
accounting policies:

Basis of presentation:

The consolidated financial statements include the accounts of the Parent Company
and its wholly-owned subsidiaries, presented on the accrual basis of accounting,
after elimination of all inter-company accounts and transactions.  In the Parent
Company's unconsolidated  financial statements,  investments in subsidiaries are
accounted for using the equity method of accounting.

Use of Estimates:

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ from these estimates.

Presentation of cash flows:

For purposes of reporting cash flows, cash and cash equivalents includes cash on
hand,  amounts due from banks (including cash items in process of clearing) with
a maturity of 90 days or less, and federal funds sold. Generally,  federal funds
are sold for one day periods.

Investment securities:

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
shareholders' equity, net of the related deferred tax effect.

Dividend and interest income, including amortization of premium and accretion of
discount  arising at acquisition,  from all categories of investment  securities
are included in interest income in the consolidated  statements of income. Gains
and losses  realized on sales of  investment  securities,  determined  using the
adjusted cost basis of the specific securities sold, are included in noninterest
income in the consolidated statements of income.  Additionally,  declines in the
fair value of individual  investment  securities below their cost that are other
than temporary are reflected as realized losses in the  consolidated  statements
of income.

Loans held for sale:

                                       29

<PAGE>



Loans held for sale are  generally  held for  periods of ninety days or less and
are carried at the lower of aggregate cost or fair value.

Loans and allowance for credit losses:

On January 1, 1995, the Company  adopted  Financial  Accounting  Standards Board
("FASB") Statement No. 114,  "Accounting by Creditors for Impairment of a Loan,"
(Statement  114) as amended by FASB Statement No. 118,  "Accounting by Creditors
for Impairment of a Loan Income Recognition and Disclosures."  Statement 114, as
amended,  requires that the  measurement of a loan's  impairment be based on the
present value of the loan's  expected future cash flows or,  alternatively,  the
observable  market  price of the loan or the fair value of the  collateral.  The
effect of adopting Statement 114 was not material.

Loans are carried at the amount of unpaid principal,  adjusted for deferred loan
fees and origination costs.  Interest on loans is accrued based on the principal
amounts  outstanding.  The Company  discontinues  the accrual of interest when a
loan is  specifically  determined to be impaired.  When principal or interest is
delinquent for ninety days or more the Company evaluates the loan for nonaccrual
status.  After a loan is placed on nonaccrual  status,  all interest  previously
accrued but not collected is reversed  against current period  interest  income.
Interest  income  generally is not recognized on specific  impaired loans unless
the  likelihood of further loss is remote.  Cash  collections  on such loans are
applied as reductions of the loan  principal  balance and no interest  income is
recognized  on those  loans  until the  principal  balance  has been  collected.
Interest  income on other  nonaccrual  loans is recognized only to the extent of
interest payments received.

Nonrefundable loan fees and related direct costs are deferred and the net amount
is amortized to income as a yield adjustment over the life of the loan using the
interest method.

The allowance  for credit losses is maintained at a level that, in  management's
judgment,  is adequate to absorb credit losses inherent in the credit  extension
process.  Management's  evaluation  of  the  loan  portfolio  considers  current
economic  conditions,  past loss  experience,  specific  impaired loans and such
other  factors  as,  in  management's  best  judgment,  deserve  recognition  in
estimating  credit losses.  Allowances for impaired loans are generally based on
collateral  values or the present value of estimated  cash flows.  Uncertainties
inherent in the estimation process,  might cause management's estimate of credit
losses in the loan  portfolio  and the related  allowance  to change in the near
term. The provisions for credit losses included in the  consolidated  statements
of income serve to maintain the allowance at a level which management  considers
adequate.

Bank premises and equipment:

Bank premises and equipment are stated at cost less accumulated depreciation and
amortization. The provision for depreciation is computed using straight-line and
accelerated  methods  based on the  estimated  useful  lives of the assets which
range  from 5 to 75 years for bank  premises  and 5 to 25 years  for  equipment.
Leasehold  improvements are amortized over the lesser of the terms of the leases
or their estimated useful lives.  Expenditures for improvements which extend the
life of an asset are  capitalized  and  depreciated  over the asset's  remaining
useful life.  Gains or losses  realized on the  disposition  of  properties  and
equipment are reflected in the consolidated  statements of income.  Expenditures
for repairs and maintenance are charged to operating expenses as incurred.

Foreclosed properties:

Foreclosed  properties include properties that have been acquired in complete or
partial  satisfaction of debt. These  properties are initially  recorded at fair
value on the date of acquisition, establishing a new cost basis. Any write-downs
at the time of  acquisition  are  charged to the  allowance  for credit  losses.
Subsequent to acquisition,  a valuation allowance is established,  if necessary,
to report these assets at the lower of (a) fair value minus  estimated  costs to
sell or (b) cost.  Gains and losses  realized on the sale,  and any  adjustments
resulting from periodic revaluation of this property are included in noninterest
income or expense,  as  appropriate.  Net costs of maintaining and operating the
properties are expensed as incurred.

Goodwill:

Goodwill  represents the excess of the cost of companies  acquired over the fair
value of their net assets at dates of acquisition  and is being amortized on the
straight-line method over 25 years.



                                       30

<PAGE>
Income taxes:

Provisions  for income taxes are based on taxes  payable or  refundable  for the
current year (after  exclusion of  non-taxable  income such as interest on state
and municipal  securities) and deferred taxes on temporary  differences  between
the amount of taxable  income and pretax  financial  income and  between the tax
bases of assets and  liabilities  and their  reported  amounts in the  financial
statements.  Deferred tax assets and  liabilities  are included in the financial
statements  at currently  enacted  income tax rates  applicable to the period in
which the  deferred  tax assets and  liabilities  are expected to be realized or
settled.  As changes in tax laws or rates are  enacted,  deferred tax assets and
liabilities are adjusted through the provision for income taxes.

Per share amounts:

Per share amounts are based on the weighted average number of shares outstanding
during each year or  5,381,797  shares for 1996,  5,346,481  shares for 1995 and
5,355,756 shares for 1994.

Fair value of financial instruments:

Fair value  estimates  are made at a specific  point in time,  based on relevant
market  information  and  information  about  the  financial  instrument.  These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the  Company's  entire  holdings of a particular  financial
instrument. When no market exists for the Company's financial instruments,  fair
value  estimates  are  based  on  judgments   regarding   future  expected  loss
experience,   current  economic  conditions,  risk  characteristics  of  various
financial  instruments,  and other  factors.  These  estimates are subjective in
nature and  involve  uncertainties  and  matters  of  significant  judgment  and
therefore  cannot be determined  with  precision.  Changes in assumptions  could
significantly affect the estimates.

Fair value  estimates are based on existing on-and  off-balance  sheet financial
instruments  without  attempting  to estimate  the value of  anticipated  future
business  and the  value of  assets  and  liabilities  that  are not  considered
financial   instruments.   Significant  assets  and  liabilities  that  are  not
considered   financial  assets  or  liabilities  include  the  mortgage  banking
operation, depositor relationships, deferred tax assets, and property, plant and
equipment.  In addition, the tax ramifications related to the realization of the
unrealized  gains  and  losses  can  have a  significant  effect  on fair  value
estimates and have not been  considered in many of the  estimates.  As a result,
the estimates are only indicative of individual  financial  instruments'  values
and should not be  considered  an  indication  of the fair value of the combined
Company taken as a whole.

Reclassifications:

Certain  reclassifications  to  prior  year  balances  have  been  made  in  the
accompanying  consolidated  financial statements to make disclosures  consistent
with those of the current year.

Note 2.  Acquisitions:

On March 24, 1995,  the Company  acquired ENB Financial  Corporation  ("ENB") in
exchange for approximately 526,000 shares of the Company's common stock. ENB was
the holding  company for Elkridge  Bank, a commercial  bank located in Elkridge,
Maryland.  The Company's  1995  consolidated  statements of income include total
income and net income of ENB for the period during 1995 prior to its acquisition
totaling $1,600,000 and $145,000, respectively.

On January 26, 1996, the Company  acquired  Laurel Bancorp,  Inc.  ("Laurel") in
exchange for  approximately  1,321,000  shares of the  Company's  common  stock.
Laurel was the holding company for Laurel Federal Savings Bank ("Laurel FSB"), a
thrift  institution  with  branch  offices  in Laurel  and  Monrovia,  Maryland.
Pursuant  to the  terms of this  merger,  Laurel  FSB was  merged  with and into
Elkridge  Bank and the branch of Laurel FSB located in  Monrovia,  Maryland  was
transferred to FCNB Bank.  Laurel's  fiscal year ended on November 30, 1995. The
Company's  1996  consolidated  statements of income include total income and net
income of Laurel for the period from  December  1, 1995  through the date of its
acquisition in 1996 totaling $1,510,000 and $261,000, respectively.

The  acquisitions of ENB and Laurel have been accounted for using the pooling of
interest method.  Accordingly,  the Company's  consolidated financial statements
for the  periods  presented  have been  restated  to include  the  accounts  and
operations of ENB and Laurel.  Certain  reclassifications  have been made to ENB
and Laurel's  historical  financial  statements  to conform  with the  Company's
presentation.

                                       31

<PAGE>
On April 30, 1996, the Company acquired all of the outstanding  shares of common
stock  of  Harbor  Investment   Corporation  ("Harbor")  for  a  cash  price  of
approximately  $6.7 million.  Harbor was the holding  company of Odenton Federal
Savings and Loan Association, a thrift institution located in Odenton, Maryland.
This  acquisition has been accounted for under the purchase method of accounting
and  the  results  of  the  operations  of  Harbor  have  been  included  in the
consolidated  financial statements since the date of acquisition.  The excess of
the purchase  price over the fair value of net assets  acquired of $3.2 million,
was recognized as goodwill and is being amortized on a straight-line  basis over
25 years.  Amortization expense charged to operations for 1996 was approximately
$85,000.

The following tables present the combined and separate results of operations for
ENB,  Laurel and the Company for the periods  preceding the  acquisitions of ENB
and Laurel  and,  additionally  reflect  the  unaudited  pro forma  consolidated
results  of  operations  of the  Company  and Harbor as if its  acquisition  had
occurred on January 1, 1995.
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------
                                                                        Total                   Net             Net Income
(dollars in thousands, except per share data)                           Income                 Income            Per Share
------------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1994

<S>                                                                     <C>                   <C>     
ENB                                                                     $ 5,683               $    136
Laurel                                                                    8,673                  1,479
Company                                                                  32,414                  5,157                 $1.45
------------------------------------------------------------------------------------------------------------------------------------
Combined                                                                $46,770                 $6,772                 $1.26
====================================================================================================================================
Year ended December 31, 1995

Laurel                                                                  $ 9,395                 $1,248
Company                                                                  45,649                  5,750                 $1.41
------------------------------------------------------------------------------------------------------------------------------------
Combined                                                                 55,044                  6,998                  1.31
Harbor                                                                    2,801                    255
------------------------------------------------------------------------------------------------------------------------------------
Pro forma  (unaudited)                                                  $57,845                 $7,253                 $1.36
====================================================================================================================================
Year ended December 31, 1996

Company                                                                 $58,914                 $5,867                 $1.09
Harbor                                                                    1,037                     81
------------------------------------------------------------------------------------------------------------------------------------
Pro forma (unaudited)                                                   $59,951                 $5,948                 $1.11
====================================================================================================================================
</TABLE>

The unaudited  pro forma results in the preceding  tables have been prepared for
comparative  purposes only and include certain  adjustments,  such as additional
depreciation  expense  as a result of a  step-up  in basis of fixed  assets  and
additional  amortization expense as a result of goodwill. They do not purport to
be indicative of the results of operations  which  actually  would have resulted
had the  combination  been in effect on January 1, 1995, or of future results of
operations of the consolidated entities.

Merger-related  expenses in the  consolidated  statements of income  principally
include costs for investment bankers,  professional fees,  severance payments to
terminated  employees,  assessments  to  recapitalize  the  Savings  Association
Insurance Fund and other conversion costs.

Note 3.  Compensating balances:

Compensating balance arrangements exist with various  correspondent banks. These
noninterest-bearing  deposits  are  maintained  in  lieu of  cash  payments  for
standard bank services.  The required  balances  amounted to $74,000 at December
31,  1996 and  $99,000 at  December  31,  1995.  In  addition,  for the  reserve
maintenance  period in effect at  December  31,  1996 and 1995,  the Banks  were
required to maintain average daily balances  totaling  $5,392,000 and $4,074,000
respectively, with the Federal Reserve Bank.

Note 4.  Investments:

The amortized cost and estimated fair value of securities being held to maturity
at December 31, 1996 and 1995 are as follows:


                                       32

<PAGE>
<TABLE>
<CAPTION>

Held-to-maturity portfolio
------------------------------------------------------------------------------------------------------------------------------------
                                                                         Gross               Gross        Estimated
                                                  Amortized         Unrealized          Unrealized             Fair
December 31, 1996                                      Cost              Gains              Losses            Value
------------------------------------------------------------------------------------------------------------------------------------
                                                                         (dollars in thousands)
<S>                                                <C>                    <C>               <C>            <C>     
U.S. Treasury and other U.S.
  government agencies and corporations             $  5,114               $ 17              $    5         $  5,126
State and political subdivisions                      5,138                480                  --            5,618
Mortgage-backed debt securities                      23,273                190                 467           22,996
------------------------------------------------------------------------------------------------------------------------------------
                                                    $33,525               $687                $472          $33,740
====================================================================================================================================
December 31, 1995
------------------------------------------------------------------------------------------------------------------------------------
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
====================================================================================================================================

The amortized cost and estimated fair value of securities  available for sale at
December 31, 1996 and 1995 are as follows:

Available-for-sale portfolio
------------------------------------------------------------------------------------------------------------------------------------
                                                                         Gross               Gross        Estimated
                                                  Amortized         Unrealized          Unrealized             Fair
December 31, 1996                                      Cost              Gains              Losses            Value
------------------------------------------------------------------------------------------------------------------------------------
                                                                        (dollars in thousands)
U.S. Treasury and other U.S.
  government agencies and corporations             $ 34,300             $  379                $ 42         $ 34,637
Mortgage-backed debt securities                     107,741                636                 628          107,749
Corporate Bonds                                       6,925                 56                  32            6,949
Equity securities                                    13,080                457                  12           13,525
------------------------------------------------------------------------------------------------------------------------------------
                                                   $162,046             $1,528                $714         $162,860
====================================================================================================================================
December 31, 1995
------------------------------------------------------------------------------------------------------------------------------------

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
====================================================================================================================================

The amortized cost and estimated fair value of securities being held to maturity
and those available for sale at December 31, 1996 by contractual  maturity,  are
as follows:



                                                                    33

<PAGE>
                                                                      Held-to-maturity                   Available-for-sale
------------------------------------------------------------------------------------------------------------------------------------
                                                                                    Estimated                         Estimated
                                                                   Amortized             Fair         Amortized            Fair
                                                                        Cost            Value              Cost           Value
------------------------------------------------------------------------------------------------------------------------------------
                                                                                        (dollars in thousands)
Due in one year or less                                             $    985          $ 1,017     $          --   $          --
Due after one through five years                                       4,081            4,169            27,623          27,834
Due after five years through ten years                                 4,835            5,194            13,602          13,752
Due after ten years                                                      352              364                --              --
Mortgage-backed debt securities                                       23,272           22,996           107,741         107,749
Equity securities                                                         --               --            13,080          13,525
------------------------------------------------------------------------------------------------------------------------------------
                                                                     $33,525          $33,740          $162,046        $162,860
====================================================================================================================================

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  affected  by  the
contractual  repayment terms of the underlying mortgages  collateralizing  these
obligations and the current level of interest rates.

Included  in the  investment  portfolio  at  December  31,  1996 and  1995,  are
securities  carried at  $96,718,000  and  $51,144,000,  respectively,  which are
pledged  to  secure  public  deposits,   securities  sold  under  agreements  to
repurchase and for other purposes as required and permitted by law.

On December 29, 1995,  the Company  transferred  $23,751,000  of  securities  at
amortized cost, having an unrealized gain of $336,000, from the held-to-maturity
portfolio into the available-for-sale  portfolio. This transfer has been handled
in accordance with the special  provisions  related to the one-time  transfer of
investment  securities as allowed by the Financial  Accounting  Standards Board.
The Company took  advantage of this  opportunity  to reposition  its  investment
portfolios to enhance its ability to react to changes in the  securities  market
and its liquidity needs.

Gross realized  gains and losses from the sale of securities  available for sale
were as follows:

------------------------------------------------------------------------------------------------------------------------------------
Years ended December 31,                                                1996             1995              1994
------------------------------------------------------------------------------------------------------------------------------------
                                                                                (dollars in thousands)
    Realized gains                                                     $ 523             $214              $471
====================================================================================================================================
    Realized (losses)                                                  $(330)            $(91)            $ (96)
====================================================================================================================================
</TABLE>

                                                                    34

<PAGE>
<TABLE>
<CAPTION>

Note 5.  Loans and allowance for credit losses:

Loans are as follows:
------------------------------------------------------------------------------------------------------------------------------------
December 31,                                                       1996                                        1995
------------------------------------------------------------------------------------------------------------------------------------
                                                                                     (dollars in thousands)
<S>                                                            <C>                                         <C>     
Real estate loans:
 Construction and land development                             $ 55,614                                    $ 38,043
------------------------------------------------------------------------------------------------------------------------------------
 Mortgage loans:
   Secured by farmland                                            3,154                                       4,129
   Secured by 1 to 4 family residential
      properties                                                182,907                                     177,912
   Secured by multi-family (5 or more)
      residential properties                                      6,935                                       8,214
   Secured by commercial properties                             142,788                                     108,859
------------------------------------------------------------------------------------------------------------------------------------
 Total mortgage loans                                           335,784                                     299,114
------------------------------------------------------------------------------------------------------------------------------------
Total loans secured by real estate                              391,398                                     337,157
Commercial and industrial loans                                  51,454                                      48,825
Industrial revenue bonds                                             36                                          81
Loans to farmers                                                  1,025                                         761
Loans to individuals for household, family
 and other personal expenditures                                 54,478                                      53,900
------------------------------------------------------------------------------------------------------------------------------------
                                                               $498,391                                    $440,724
====================================================================================================================================

Mortgage  loans  serviced  for  others  are  not  included  in the  accompanying
consolidated  balance sheets.  The unpaid  principal  balances of mortgage loans
serviced for others was  $123,621,000  and $141,887,000 at December 31, 1996 and
1995, respectively.

Transactions in the allowance for credit losses are summarized as follows:
------------------------------------------------------------------------------------------------------------------------------------

Years ended December 31,                                                       1996                 1995                  1994
------------------------------------------------------------------------------------------------------------------------------------
                                                                                           (dollars in thousands)

Balance at beginning of year                                                  $5,242               $4,691                $4,219
Provision for credit losses                                                      318                  710                   525
Recoveries                                                                       100                   50                   108
Other transfers and allowance on loans
   acquired with purchased entity                                                462                   --                    --
------------------------------------------------------------------------------------------------------------------------------------
                                                                               6,122                5,451                 4,852
Credits charged-off                                                             (999)                (209)                 (161)
------------------------------------------------------------------------------------------------------------------------------------
Balance at end of year                                                        $5,123               $5,242                $4,691
====================================================================================================================================

Selected  information  concerning the Company's recorded  investment in impaired
loans and related interest income are summarized as follows:

------------------------------------------------------------------------------------------------------------------------------------
Years ended December 31,                                                       1996                  1995
------------------------------------------------------------------------------------------------------------------------------------
                                                                                  (dollars in thousands)

Impaired loans with specific allocation of allowance for credit losses        $1,670               $1,650
Specific allocation of allowance for credit losses                               427                  296
Other impaired loans                                                           2,230                  218
Average recorded investment in impaired loans                                  5,540                2,270
Interest income recognized on impaired loans based on cash
    payments received                                                            205                  233
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                                                    35

<PAGE>
<TABLE>
<CAPTION>

Additional   information   concerning  the  Company's  recorded   investment  in
nonaccrual loans, for which impairment had not been recognized are as follows:
                                                                                             December 31,
------------------------------------------------------------------------------------------------------------------------------------
                                                                                   1996                        1995
------------------------------------------------------------------------------------------------------------------------------------
                                                                                          (dollars in thousands)

<S>                                                                                  <C>                          <C> 
Nonaccrual loans                                                                     $731                         $664
Interest income not recognized due to loans in nonaccrual status                       73                           12
------------------------------------------------------------------------------------------------------------------------------------
Note 6.  Bank premises and equipment:

Bank premises and equipment consist of the following:
------------------------------------------------------------------------------------------------------------------------------------
December 31,                                                                        1996                        1995
------------------------------------------------------------------------------------------------------------------------------------
                                                                                           (dollars in thousands)

Bank premises and leasehold improvements                                          $21,733                      $21,099
Equipment                                                                           8,879                        6,939
------------------------------------------------------------------------------------------------------------------------------------
                                                                                   30,612                       28,038

Less accumulated depreciation and amortization                                      7,921                        8,041
------------------------------------------------------------------------------------------------------------------------------------
                                                                                  $22,691                      $19,997
====================================================================================================================================

Depreciation and amortization  charged to operations  amounted to $1,369,000 for
1996, $1,029,000 for 1995 and $1,027,000 for 1994.

Note 7.  Deposits:

Certificates  of deposit  and other time  deposits  issued in  denominations  of
$100,000 or more totaled  $50,251,000  and  $45,323,000 at December 31, 1996 and
1995,  respectively,  and  are  included  in  interest-bearing  deposits  in the
consolidated balance sheets.

At December 31,  1996,  the amount  outstanding  and  maturity  distribution  of
certificates of deposit are presented in the following table:

------------------------------------------------------------------------------------------------------------------------------------

                                                                         Certificates of Deposit
------------------------------------------------------------------------------------------------------------------------------------

                                                                         (dollars in thousands)
Maturing:
    1997                                                                         $200,376
    1998                                                                           48,475
    1999                                                                           16,365
    2000                                                                           18,237
    2001                                                                            1,677
    Thereafter                                                                         33
------------------------------------------------------------------------------------------------------------------------------------

                                                                                 $285,163
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
                                                                    36

<PAGE>
<TABLE>
<CAPTION>

Interest on deposits consists of the following:
------------------------------------------------------------------------------------------------------------------------------------
Years ended December 31,                                                               1996            1995             1994
------------------------------------------------------------------------------------------------------------------------------------
                                                                                             (dollars in thousands)
<S>                                                                                   <C>             <C>             <C>    
NOW and SuperNOW accounts                                                             $ 1,180         $ 1,195         $ 1,124
Savings accounts                                                                        2,632           2,497           2,457
Money market accounts                                                                   2,625           2,852           2,848
Certificates of deposit and other time
 deposits less than $100,000                                                           11,887          10,135           6,583
Certificates of deposit and other time
 deposits of $100,000 or more                                                           2,267           2,846           1,614
------------------------------------------------------------------------------------------------------------------------------------
                                                                                       20,591          19,525          14,626
Less capitalized construction period interest                                              42             164              --
------------------------------------------------------------------------------------------------------------------------------------
                                                                                      $20,549         $19,361         $14,626
====================================================================================================================================

Note 8.  Short-term borrowings:

The Company  purchases  federal funds and enters into sales of securities  under
agreements to repurchase the same securities,  which generally mature within one
to ninety days from the transaction date.  Securities  pledged as collateral for
securities sold under  agreements to repurchase  include various debt securities
having an aggregate  amortized cost book value of $47,649,000 and $33,800,000 at
December 31, 1996 and 1995, respectively.

Other  short-term  borrowings  primarily  reflect  the amount  borrowed  under a
secured lending arrangement with the Federal Home Loan Bank of Atlanta, which is
secured by a blanket lien on all real estate  mortgage  loans  secured by 1 to 4
family residential properties.

The  Company's  unused  lines  of  credit  for  short-term   borrowings  totaled
$28,552,000 at December 31, 1996.

Selected information on short-term borrowings is as follows:
------------------------------------------------------------------------------------------------------------------------------------
December 31,                                                                           1996                               1995
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                (dollars in thousands)
Federal funds purchased and securities sold under agreement to repurchase:

Total outstanding at year-end                                                         $40,739                           $21,043
====================================================================================================================================
Average amount outstanding during year                                                $24,815                           $18,928
====================================================================================================================================
Maximum amount outstanding at any month-end                                           $43,714                           $28,237
====================================================================================================================================
Weighted average interest rate at year-end                                              5.43%                             5.65%
====================================================================================================================================
Weighted average interest rate for the year                                             5.47%                             5.93%
====================================================================================================================================

Other short-term borrowings:

Total outstanding at year-end                                                         $76,516                           $32,426
====================================================================================================================================
Average amount outstanding during year                                                $46,626                           $32,246
====================================================================================================================================
Maximum amount outstanding at any month-end                                           $76,516                           $50,382
-=================================================================================================================================--
Weighted average interest rate at year-end                                              5.59%                             5.91%
====================================================================================================================================
Weighted average interest rate for the year                                             5.85%                             5.84%
====================================================================================================================================
</TABLE>

                                                                    37

<PAGE>



Note 9.  Long-term debt:

On May 31, 1995, the Company entered into a secured lending  arrangement  with a
regional  national  bank to finance the cost of its new  corporate  headquarters
facility  in  Frederick,  Maryland  (the  "Facility").  The loan was secured and
provided for interest at a fluctuating  rate equal to the daily London Interbank
Offered Rate for one-month U.S. Dollar deposits (LIBOR), plus 1.35%. On December
19,  1996  this  loan was paid in full.  On  December  31,  1995 a  balance  was
outstanding of  $4,680,000,  bearing  interest at a rate of 7.32%.  The interest
paid on this loan  totaled  $394,000 in 1996 and  $136,000 in 1995.  In 1996 and
1995 $66,000 and $136,000,  respectively of the interest paid was capitalized as
part of the cost of the Facility.

At December 31, 1995, the Company had  $1,000,000 in  outstanding  advances from
the Federal Home Loan Bank that were due in March, 1997, bearing interest at the
rate of 7.35%.  These advances were  primarily  secured by a blanket lien on all
real estate mortgage loans secured by 1-4 family residential properties.

Note 10.  Leasing arrangements:

The Company leases branch office facilities under noncancellable operating lease
arrangements  whose  terms do not extend  beyond  November  2009.  These  leases
contain  options  which  enable the  Company to renew the leases at fair  rental
value for  periods of 3 to 10 years.  In addition  to minimum  rentals,  certain
leases have  escalation  clauses  based upon various  price  indices and include
provisions for additional  payments to cover taxes,  insurance and  maintenance.
The total  minimum  rental  commitment,  including  renewal  periods under these
leases at December 31, 1996 is outlined below:

--------------------------------------------------------------------------------

           Years ending December 31,                      (dollars in thousands)

                 1997                                             $   392
                 1998                                                 309
                 1999                                                 305
                 2000                                                 297
                 2001                                                 290
                 Later years                                        2,244
--------------------------------------------------------------------------------

                                                                   $3,837
================================================================================

Rent  expense  included in  occupancy  expenses  amounted to $555,000  for 1996,
$532,000 for 1995, and $492,000 for 1994.

Note 11.  Employee benefit plans:

401(k) profit sharing plan:

The Company has a Section 401(k) profit sharing plan covering  employees meeting
certain  eligibility  requirements  as to  minimum  age and  years  of  service.
Employees  may  make  voluntary   contributions  to  the  Plan  through  payroll
deductions  on  either  a  pre-tax  or  after-tax   basis.   The  Company  makes
discretionary  contributions  to the Plan based on the Company's  earnings.  The
Company's  contributions  are  subject  to  a  vesting  period  based  upon  the
completion  of five years of service  with the  Company,  at which time they are
fully vested. A participant's  account under the Plan,  together with investment
earnings  thereon,  is  normally  distributable,  following  retirement,  death,
disability or other termination of employment, in a single lump-sum payment.

The Company's annual contribution to the Plan totaled $357,000 in 1996, $300,000
in 1995 and $266,000 in 1994.

Deferred compensation plans:

The Company maintains deferred compensation plans for certain key executives and
its directors.  The Plans provide for a maximum ten year period of  supplemental
retirement income for the Plan's participants. Amounts to be paid by the Company
under this Plan will be recovered through life insurance  policies  purchased on
the lives of the participants.  The expense for the deferred  compensation plans
is  included in the  consolidated  statements  of income and  totaled  $175,000,
$149,000 and $128,000 for 1996, 1995, and 1994, respectively.

Stock option plan:

The Company has a stock option plan for key employees, which is accounted for in
accordance with Accounting  Principles  Board (APB) Opinion 25,  "Accounting for
Stock Issued to Employees," and related interpretations.  In connection with the
stock options granted under

                                       38

<PAGE>
this Plan,  additional restricted stock grants for 16,453 shares at December 31,
1996,  may  be  awarded  at no  additional  cost  to  the  Plan's  participants.
Restricted stock, subject to a a three year restriction period and certain other
conditions,  is awarded to the Plan's  participants  following their purchase of
the shares granted under the stock option plan. Compensation expense, reflecting
the fair  value of the  restricted  shares  on the date the stock  options  were
initially granted, is recognized ratably over a four year period,  commencing on
the date the stock  options were granted and ending with the  expiration  of the
three year restriction period.  Compensation  expense recognized under this Plan
for years ended December 31, 1996, 1995, and 1994 totaled $52,000,  $35,000, and
$19,000,  respectively.  Had  compensation  expense been determined based on the
fair value of each option  granted on the date of grant using an  option-pricing
model  as  prescribed  in  FASB  Statement  123,   "Accounting  for  Stock-Based
Compensation,"  the  Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------------------
Years ended December 31,                                           1996                1995
-----------------------------------------------------------------------------------------------
Net Income:
<S>                                                              <C>                   <C>   
    As reported                                                  $5,867                $6,998
    Pro forma                                                    $5,678                 6,998

Earnings per share:
    As reported                                                   $1.09                 $1.31
    Pro forma                                                     $1.06                 $1.31
-----------------------------------------------------------------------------------------------

The Plan  provides  that 413,438  shares of the  Company's  common stock will be
reserved  for  the  granting  of  both   incentive   stock   options  (ISO)  and
non-qualified  stock options  (NQSO) to purchase  these shares.  At December 31,
1996,  reserved  shares  remaining  for future  grants  under this plan  totaled
297,503.   The  exercise  price  per  share  for  incentive   stock  option  and
non-qualified  stock  options  shall be not less than the fair  market vale of a
share of commong stock on the date on which such ISO or NQSO is granted, subject
to adjustments for the effects of any stock splits or stock  dividends,  and may
be exercised commencing after one year from the date of grant.

The fair value of each option  grant is estimated on the date of grant using the
Black-Scholes   option-pricing   model  with  the  following   weighted  average
assumptions:

-----------------------------------------------------------------------------------------------
Years ended December 31,                                            1996                1995
-----------------------------------------------------------------------------------------------
Dividend Yield                                                      2.5%                  2.5%
Expected Volatility                                               49.66%                53.87%
Risk Free Interest Rate                                           5.585%                6.420%
Expected Life, in years                                              10                    10
-----------------------------------------------------------------------------------------------
Weighted-average fair value of
  options granted during the year                                $10.37                $10.87
===============================================================================================

The following is a summary of transactions during the three years ended December
31, 1996, 1995 and 1994.

----------------------------------------------------------------------------------------------------
                                                             Options Issued       Weighted-Average
                                                             and Outstanding       Exercise Price
----------------------------------------------------------------------------------------------------

Balance at December 31, 1993                                    169,459                 $6.70
----------------------------------------------------------------------------------------------------

Exercised                                                        (3,482)                11.49
Terminated                                                       (6,362)                13.15
Granted                                                          17,059                 18.22
----------------------------------------------------------------------------------------------------

Balance at December 31, 1994                                    176,674                  7.49
----------------------------------------------------------------------------------------------------

Exercised                                                       (28,480)                 4.57
Granted                                                          19,021                 21.00
----------------------------------------------------------------------------------------------------

Balance at December 31, 1995                                    167,215                  9.52
----------------------------------------------------------------------------------------------------

Exercise                                                        (96,199)                 4.65
Terminated                                                         (780)                17.02
Granted                                                          21,287                 20.50
----------------------------------------------------------------------------------------------------

Balance at December 31, 1996                                     91,523                $17.13
=====================================================================================================

At December 31, 1996,  the 91,523 options  issued and  outstanding  had exercise
prices  ranging  from  $6.58  to  $21.00  and had a  weighted-

                                       39

average  remaining  contractual  life of 68 months.  Of those options issued and
outstanding,   there  were  70.236  and   148,194   options   exercisable   with
weighted-average  exercise  prices of $16.11 and $8.05 at December  31, 1996 and
1995, respectively.

Note 12.  Income taxes:

Significant  components of the Company's deferred tax assets and liabilities are
as follows:
----------------------------------------------------------------------------------------------------
December 31,                                                       1996                  1995
----------------------------------------------------------------------------------------------------
                                                                      (dollars in thousands)

    Provision for credit losses                                  $1,612                $1,779
    Net securities losses                                           250                   250
    Income from CMO residual interests                               18                    46
    Deferred compensation                                           438                   393
    Postretirement benefits251                                      248
    Provision for foreclosed properties                             204                    86
    Deferred Fees                                                   704                   629
    Other                                                           280                   180
----------------------------------------------------------------------------------------------------
   Total deferred tax asset                                       3,757                 3,611
   Valuation allowance for deferred tax assets                       --                    --
----------------------------------------------------------------------------------------------------
Deferred tax assets after valuation allowance                     3,757                 3,611
----------------------------------------------------------------------------------------------------
Deferred tax liabilities:
    Unrealized gain on securities available for sale                308                   307
    Other                                                           178                   243
----------------------------------------------------------------------------------------------------
   Total deferred tax liabilities                                   486                   550
----------------------------------------------------------------------------------------------------
   Net deferred tax assets                                       $3,271                $3,061
====================================================================================================
</TABLE>

                                       40
<PAGE>


A reconciliation of the maximum statutory income tax to the provision for income
taxes  attributable  to  continuing  operations  included  in  the  consolidated
statements of income, is as follows:
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------
Years ended December 31,                                                                    1996           1995          1994
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                   (dollars in thousands)

<S>                                                                                       <C>           <C>           <C>    
Income before income tax                                                                  $9,112        $10,886       $10,044
Tax rate                                                                                     35%            35%           35%
------------------------------------------------------------------------------------------------------------------------------------
Income tax at statutory rate                                                               3,189          3,810         3,515
Increases (decreases)
 in tax resulting from:
    Tax-exempt interest income                                                              (160)          (394)         (605)
    State income taxes, net of federal
     income tax benefit                                                                      267            367           330
    Benefit of federal surtax exemption                                                      (82)           (92)          (80)
    Other                                                                                     31            197           112
------------------------------------------------------------------------------------------------------------------------------------
                                                                                          $3,245        $ 3,888       $ 3,272
====================================================================================================================================

Significant  components  of the  provision  for  income  taxes  attributable  to
continuing operations are as follows:

------------------------------------------------------------------------------------------------------------------------------------
Years ended December 31,                                                                    1996           1995          1994
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                  (dollars in thousands)
     Taxes currently payable:
      Federal                                                                             $2,923         $3,440        $2,734
      State                                                                                  447            658           538
------------------------------------------------------------------------------------------------------------------------------------
             Total taxes currently payable                                                 3,370          4,098         3,272
------------------------------------------------------------------------------------------------------------------------------------
     Deferred tax liabilities (benefits):
      Federal                                                                               (102)          (170)           15
      State                                                                                  (23)           (40)          (15)
------------------------------------------------------------------------------------------------------------------------------------
             Total deferred tax
              liabilities (benefits)                                                         125           (210)           --
------------------------------------------------------------------------------------------------------------------------------------
Total                                                                                     $3,245         $3,888        $3,272
====================================================================================================================================
Included in the above  amounts are income  taxes of $75,000 in 1996,  $48,000 in
1995, and $145,000 in 1994 related to net security gains.

Note 13.  Other operating expenses:

Other operating  expenses in the  consolidated  statements of income include the
following:
------------------------------------------------------------------------------------------------------------------------------------
Years ended December 31,                                                                   1996           1995           1994
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                 (dollars in thousands)

FDIC and general insurance                                                               $   410         $  897        $1,274
Professional and directors fees                                                            1,284          1,122         1,062
Advertising and public relations                                                             890            703           682
Credit and collection expense                                                                252            134           183
Postage and supplies                                                                       1,059            914           825
Net loss on foreclosed properties                                                             83            352           347
Other                                                                                      1,988          1,950         1,719
------------------------------------------------------------------------------------------------------------------------------------
                                                                                          $5,966         $6,072        $6,092
====================================================================================================================================

                                                                   41

<PAGE>



Changes in the allowance for foreclosed properties are summarized as follows:
------------------------------------------------------------------------------------------------------------------------------------
Years ended December 31,                                                                    1996           1995          1994
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                 (dollars in thousands)
Balance at beginning of year                                                                $536           $286          $325
Provision charged to income                                                                   --            352           261
Losses charged to the allowance                                                              (32)          (102)         (300)
Other transfers net of allowance on properties
    acquired with purchased entity                                                          (112)            --            --
------------------------------------------------------------------------------------------------------------------------------------
Balance at end of year                                                                      $392           $536          $286
====================================================================================================================================
Note 14.  Shareholders' equity:
</TABLE>

Dividends:

The amount of dividends  that the  Company's  affiliates  can pay to the Company
without  approval from the Federal Reserve Board during 1997 is limited to their
net profits for 1997, plus $5,596,000.

Preferred stock:

The Board of Directors has the authority to issue preferred stock in one or more
classes  or  series,  with  such  designations,   voting  powers,   preferences,
participation, redemption, sinking fund, conversion, dividend and other optional
or special rights, and such restrictions,  limitations and qualifications as the
Board of Directors may determine.

Repurchase plan:

On March 28, 1996, the Board of Directors authorized a stock repurchase program.
Pursuant to the terms of this program,  the Company may  repurchase up to 80,000
shares of its  common  stock in open  market  transactions  during  the two year
period ending March 27, 1998. Not more than 120,000  additional shares of common
stock can be  repurchased  between  March  28,  1998 and  March  27,  2001.  All
repurchases  are limited to an aggregate  maximum  expenditure of  approximately
$4,000,000.  Repurchases will be made in the open market,  from time to time, in
the discretion of management,  based upon market,  business,  legal, regulatory,
accounting  and other  factors.  There is no minimum  number of shares which the
Company is obligated to  repurchase.  The total number of shares  purchased  was
30,000 as of December 31, 1996.

Capital:

The  Company and Banks are subject to various  regulatory  capital  requirements
administered  by the federal banking  agencies.  Failure to meet minimum capital
requirements   can  initiate  certain   mandatory  -  and  possibly   additional
discretionary - actions by regulators  that, if undertaken,  could have a direct
material effect on the Company's  financial  statements.  Under capital adequacy
guidelines  and the  regulatory  framework  for prompt  corrective  action,  the
Company  and  Banks  must  meet  specific   capital   guidelines   that  involve
quantitative  measures of the  Company's  and Banks'  assets,  liabilities,  and
certain  off-balance-sheet  items  as  calculated  under  regulatory  accounting
practices.  The Company's and Banks' capital amounts and classification are also
subject to  qualitative  judgments  by the  regulators  about  components,  risk
weightings, and other factors.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Company and Banks to maintain  minimum amounts and ratios (set forth
in the  following  table)  of  total  and  Tier I  capital  (as  defined  in the
regulations)  to  risk-weighted  assets (as defined),  and of Tier I capital (as
defined) to average  assets (as defined).  Management  believes that the Company
and Banks meet all capital  adequacy  requirements  to which it is subject as of
December 31, 1996.

As of December 31, 1996, the most recent notification from the regulatory agency
categorized the Banks as adequately  capitalized under the regulatory  framework
for prompt corrective  action.  To be categorized as adequately  capitalized the
Banks must maintain  minimum  total  risk-based,  Tier I risk-based,  and Tier I
leverage  ratios as set forth in the table.  There are no  conditions  or events
since that  notification  which  management  believes  have  changed  the Bank's
category.

                                       42

<PAGE>

The Company and Banks' actual  capital  amounts and ratios are also presented in
the following table.
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------
                                                                                                          To Be Well
                                                                                                       Capitalized Under
                                                                           For Capital                 Prompt Corrective
                                                     Actual             Adequacy Purposes:             Action Provisions:
                                              Amount      Ratio         Amount        Ratio            Amount      Ratio
------------------------------------------------------------------------------------------------------------------------------------
As of December 31, 1996:                                              (dollars in thousands)
-----------------------
Total Capital
  (to Risk-Weighted Assets):
<S>                                           <C>         <C>            <C>           <C>             <C>         <C>     
    FCNB Corp                                 $70,221     13.57%         $41,384       8.0%             N/A           N/A
    FCNB Bank                                 $40,220     10.79%         $29,811       8.0%             $37,264      10.0%
    Elkridge Bank                             $21,728     15.24%         $11,405       8.0%             $14,257      10.0%

Tier I Capital
  (To Risk-Weighted Assets):
    FCNB Corp                                 $65,098     12.58%         $20,692       4.0%             N/A          N/A
    FCNB Bank                                 $37,007      9.93%         $14,906       4.0%             $22,359       6.0%
    Elkridge Bank                             $19,907     13.96%          $5,703       4.0%              $8,554       6.0%

Tier I Capital
  (To Average Assets):
    FCNB Corp                                 $65,098      8.74%         $22,351       3.0%              N/A          N/A
    FCNB Bank                                 $37,007      7.10%         $15,641       3.0%             $26,068       5.0%
    Elkridge Bank                             $19,907      9.16%          $6,516       3.0%             $10,861       5.0%

As of December 31, 1995:

Total Capital
  (to Risk-Weighted Assets):
    FCNB Corp                                 $64,087     14.12%         $36,309       8.0%              N/A         N/A
    FCNB Bank                                 $39,346     11.63%         $27,070       8.0%             $33,837      10.0%
    Elkridge Bank                             $25,955     22.71%          $9,144       8.0%             $11,431      10.0%

Tier I Capital
  (To Risk-Weighted Assets):
    FCNB Corp                                 $58,845     12.97%         $18,154       4.0%              N/A          N/A
    FCNB Bank                                 $35,838     10.59%         $13,535       4.0%             $20,302       6.0%
    Elkridge Bank                             $24,526     21.46%          $4,572       4.0%              $6,858       6.0%

Tier I Capital
  (To Average Assets):
    FCNB Corp                                 $58,845      8.91%         $19,811       3.0%             N/A           N/A
    FCNB Bank                                 $35,838      7.83%         $13,732       3.0%             $22,887       5.0%
    Elkridge Bank                             $24,526     12.56%          $5,857       3.0%              $9,762       5.0%
====================================================================================================================================
</TABLE>

N/A = Not applicable

Dividend reinvestment plan:

The Company  maintains a Dividend  Reinvestment  and Stock Purchase Plan for all
Shareholders  of the Company.  This Plan  provides  that  165,375  shares of the
Company's common stock will be reserved for issuance under the Plan. At December
31, 1996,  reserved shares remaining for future issuance under this plan totaled
81,821.  The terms of this Plan allow  participating  Shareholders  to  purchase
additional  shares of common stock in the Company by  reinvesting  the dividends
paid on shares  registered in their name, by making  optional cash payments,  or
both. Shares purchased under the Plan with reinvested  dividends can be acquired
at 97% of current market prices. Shares

                                       43

<PAGE>



purchased  under the optional  cash  payment  method can be purchased at current
market  prices.  Optional  cash  payments  to this Plan are  limited and may not
exceed $2,500 in any calendar quarter.

Contributions  to the Plan will be used by a designated  agent to acquire common
shares of the Company at current market prices.  The Company  reserves the right
to amend, modify, suspend or terminate this Plan at any time at its discretion.

Special Bad Debt Deduction:

The thrift  institutions  acquired by the Company were allowed  special bad debt
deductions  limited  generally  to 8% of otherwise  taxable  income for the year
beginning  December  1, 1987 and  thereafter.  If the amounts  which  qualify as
deductions  for income tax purposes  are later used for  purposes  other than to
absorb loan losses, including distributions in liquidation, they will be subject
to income tax at the applicable current rates. Retained earnings at December 31,
1996, 1995, and 1994 include  $4,136,000,  for which no provision for income tax
has been  provided.  The unrecorded  deferred  income tax liability on the above
amount was approximately $1,601,000.

Note 15. Fair value of financial instruments:

In  accordance  with the  disclosure  requirements  of  Statement  of  Financial
Accounting  Standards  No.  107,  the  estimated  fair  values of the  Company's
financial instruments are as follows:
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------
                                                                               December 31, 1996          December 31, 1995
------------------------------------------------------------------------------------------------------------------------------------
                                                                          Carrying             Fair     Carrying         Fair
                                                                            Amount            Value       Amount        Value
------------------------------------------------------------------------------------------------------------------------------------
                                                                                             (dollars in thousands)
FINANCIAL ASSETS
<S>                                                                        <C>              <C>         <C>          <C>     
Cash and cash equivalents                                                  $44,526          $44,526     $ 46,363     $ 46,363
Loans held for sale                                                          3,162            3,162        2,362        2,362
Investment securities                                                      196,385          196,600      142,498      143,179
Net loans                                                                  492,872          496,564      434,552      441,333
------------------------------------------------------------------------------------------------------------------------------------
  Total financial assets                                                  $736,945         $740,852     $625,775     $633,237
====================================================================================================================================

FINANCIAL LIABILITIES
Deposits                                                                  $587,074         $587,832     $529,988     $533,110
Short-term borrowings                                                      117,255          116,360       53,469       53,323
Long-term debt                                                                  --               --        5,680        5,680
------------------------------------------------------------------------------------------------------------------------------------
 Total financial liabilities                                              $704,329         $704,192     $589,137     $592,113
====================================================================================================================================
</TABLE>

The  following  methods and  assumptions  were used to  estimate  the fair value
disclosures for financial instruments as of December 31, 1996 and 1995:

Cash and cash equivalents:

The fair value of cash and cash  equivalents  is  estimated to  approximate  the
carrying amounts.

Loans held for sale:

Fair value is estimated to equal the carrying  amount due to their short holding
period.

Investment securities:

Fair values are based on quoted market prices.

Loans:

Fair  values  are  estimated  for  portfolios  of loans with  similar  financial
characteristics.  Each portfolio is further  segmented into fixed and adjustable
rate interest terms by performing and nonperforming categories.


                                       44

<PAGE>
The fair value of  performing  loans with original  maturities  greater than one
year is calculated by  discounting  estimated  cash flows using current rates at
which similar loans would be made to borrowers  with similar  credit ratings and
for the same  remaining  maturities.  The estimated cash flows do not anticipate
prepayments.  The fair value of performing loans with original maturities of one
year or less is considered equal to the carrying amount.

Fair value for  nonperforming  loans is based on estimated  cash flows which are
discounted using a rate commensurate with the risk associated with the estimated
cash flows.  Assumptions  regarding  credit risk, cash flows, and discount rates
are  judgmentally  determined  using available  market  information and specific
borrower information.

Management  has made  estimates of fair value discount rates that it believes to
be reasonable.  However,  because there is no market for many of these financial
instruments,  management  has no  basis to  determine  whether  the  fair  value
presented  for loans would be  indicative  of the value  negotiated in an actual
sale.

Deposits:

The fair value of deposits with no stated maturity,  such as noninterest-bearing
demand deposits,  savings,  NOW accounts and money market accounts,  is equal to
the amount  payable on demand at the  reporting  date (that is,  their  carrying
amounts).  The fair value of  certificates of deposit is based on the discounted
value of contractual  cash flows. The discount rate is estimated using the rates
currently offered for deposits of similar remaining  maturities.  The fair value
estimates do not include the benefit  that  results  from the  low-cost  funding
provided by the deposit  liabilities  compared to the cost of borrowing funds in
the market.

Short-term borrowings:

The fair value of  short-term  borrowings is  determined  using rates  currently
available to the Company for debt with similar terms and remaining maturities.

Long-term debt:

The fair value of long-term  debt is  considered  to be the same as the carrying
amount since it is an adjustable interest rate instrument.

Note 16.  Transactions with related parties:

In the  normal  course  of  banking  business,  loans are made to  officers  and
directors of the Company, as well as to their associates. Such loans are made in
the ordinary  course of business with  substantially  the same terms  (including
interest rates and  collateral)  as those  prevailing at the time for comparable
transactions  with other  persons.  They do not involve more than normal risk of
collectability  or  present  other  unfavorable  features.  An  analysis  of the
activity during 1996 is as follows:

--------------------------------------------------------------------------------
                                                 (dollars in thousands)
    Balance at December 31, 1995                       $ 8,779
--------------------------------------------------------------------------------
    New loans                                            6,565
    Repayments                                          (6,790)
--------------------------------------------------------------------------------
    Balance at December 31, 1996                       $ 8,554
================================================================================

A  Director  of the  Company  is  president  and a  principal  stockholder  of a
construction  firm which served as  construction  manager in connection with the
development  of the  Company's  new  headquarters  facility.  This firm was paid
approximately $300,000 to $400,000 in total compensation for its services on the
project, which had a total cost of $8.2 million.

Note 17.  Commitments and Contingencies:

Financial instruments:

The Company is a party to financial instruments in the normal course of business
to meet  the  financing  needs of its  customers.  These  financial  instruments
include  commitments  to extend  credit and  standby  letters  of credit,  which
involve, to varying degrees, elements of credit and interest rate risk in excess
of the amounts recognized in the consolidated financial statements.

                                       45

<PAGE>




The  Company's  exposure  to credit loss in the event of  nonperformance  by the
other party to the financial  instrument  for  commitments  to extend credit and
standby  letters of credit is  represented  by the  contractual  amount of those
instruments. The Company uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.

A summary of the contract amounts of the Company's exposure under commitments to
extend credit, and standby letters of credit are as follows:

--------------------------------------------------------------------------------
December 31,                                1996                     1995
--------------------------------------------------------------------------------
                                           (dollars in thousands)
Financial instruments whose 
 amounts represent credit risk:
  Commitments to extend credit                    $104,047         $73,406
  Standby letters of credit                          7,790           8,648
================================================================================


Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any  condition  established  in the  contract.  Certain
commitments have fixed expiration dates, or other termination  clauses,  and may
require payment of a fee. Many of the commitments are expected to expire without
being drawn upon,  accordingly,  the total commitment amounts do not necessarily
represent  future cash  requirements.  The  Company  evaluates  each  customer's
creditworthiness  on a  case-by-case  basis.  The amount of  collateral or other
security obtained,  if deemed necessary by the Company upon extension of credit,
is based on  management's  credit  evaluation.  Collateral  held  varies but may
include deposits held in financial institutions; U.S. Treasury securities; other
marketable securities;  accounts receivable;  inventory; property and equipment;
personal  residences;  income-producing  commercial  properties  and land  under
development.
Personal  guarantees  are also  obtained to provide  added  security for certain
commitments.

Standby letters of credit are conditional  commitments  issued by the Company to
guarantee the performance of a customer to a third party.  Those  guarantees are
primarily issued to guarantee the installation of real property improvements and
similar  transactions.  The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
The Company holds  collateral and obtains personal  guarantees  supporting those
commitments for which collateral or other security is deemed necessary.

Legal Proceedings:
The Company is subject to various legal  proceedings which are incidental to the
ordinary  course of business.  In the opinion of the  management of the Company,
there are no material pending legal  proceedings to which the Company is a party
or which involves any of its property.


                                       46

<PAGE>

Note 18. FCNB Corp (Parent Company) condensed financial information:
FCNB Corp (Parent Company)
Balance Sheets
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------
December 31,                                                                                         1996                1995
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                       (dollars in thousands)
ASSETS
<S>                                                                                               <C>                 <C>    
Cash                                                                                              $ 6,488             $ 1,557
Receivable from subsidiary banks                                                                      357                 450
Investment securities available for sale-at fair value                                              2,034                 855
Investment in subsidiaries                                                                         60,861              63,699
Other assets                                                                                          187                 190
------------------------------------------------------------------------------------------------------------------------------------
             Total assets                                                                         $69,927             $66,751
====================================================================================================================================
LIABILITIES AND Shareholders' EQUITY

Liabilities                                                                                       $   817             $   532
------------------------------------------------------------------------------------------------------------------------------------
Common stock                                                                                        5,365               5,298
Surplus                                                                                            26,652              26,733
Retained earnings                                                                                  36,589              33,658
Net unrealized gain (loss) on securities available for sale                                           504                 530
------------------------------------------------------------------------------------------------------------------------------------
             Total Shareholders' equity                                                            69,110              66,219
------------------------------------------------------------------------------------------------------------------------------------

             Total liabilities and Shareholders' equity                                           $69,927             $66,751
====================================================================================================================================
</TABLE>

FCNB Corp (Parent Company)
Statements of Income
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------
For the Years ended December 31,                                                          1996          1995            1994
------------------------------------------------------------------------------------------------------------------------------------
                                                                                               (dollars in thousands)
Income:
<S>                                                                                     <C>            <C>             <C>   
    Dividends from subsidiary banks                                                     $10,638        $3,382          $5,317
    Net securities gains                                                                     82            47             308
    Other income, principally interest                                                      189            53              53
------------------------------------------------------------------------------------------------------------------------------------
             Total income                                                                10,909         3,482           5,678
Expenses                                                                                    843           634             573
------------------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes
 and equity in undistributed
 (excess distributions of) earnings of subsidiaries                                      10,066         2,848           5,105
Provision for income taxes (benefits)                                                      (141)          (92)            (32)
------------------------------------------------------------------------------------------------------------------------------------
Income before equity in  undistributed
  (excess distributions of) earnings of subsidiaries                                     10,207         2,940           5,137
Equity in undistributed (excess distributions of) earnings
 of subsidiaries                                                                         (4,340)        4,058           1,635
------------------------------------------------------------------------------------------------------------------------------------
Net income                                                                              $ 5,867        $6,998          $6,772
====================================================================================================================================
</TABLE>

                                                                    47

<PAGE>
FCNB Corp (Parent Company)
Statements of Cash Flows
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------
For the Years ended December 31,                                                              1996         1995         1994
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                   (dollars in thousands)

Cash flows from operating activities:
<S>                                                                                          <C>          <C>          <C>   
    Net income                                                                               $5,867       $6,998       $6,772
    Adjustments to reconcile net income to
     net cash provided by operating activities:
      (Equity in undistributed) excess distribution of
         earnings of subsidiaries                                                             4,340       (4,058)      (1,635)
      Noncash charitable contribution                                                            64           --           31
      Net securities gains                                                                      (82)         (47)        (308)
      Decrease (increase) in receivable from
       subsidiary banks                                                                          93        1,258       (1,525)
      Decrease in other assets                                                                  120          177          355
      Increase in other liabilities                                                             306          269          116
             Other                                                                               --           --           10
------------------------------------------------------------------------------------------------------------------------------------
             Net cash provided by operating activities                                       10,708        4,597        3,816
------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
    Proceeds from sale of investment securities
     available for sale                                                                         140           68          414
    Purchase of investment securities
     available for sale                                                                      (1,360)        (173)        (310)
    Investment in subsidiary                                                                 (1,490)      (2,284)        (500)
------------------------------------------------------------------------------------------------------------------------------------
             Net cash (used in) investing activities                                         (2,710)      (2,389)        (396)
------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
    Increase in short-term borrowings                                                            --           --            6
    Dividend reinvestment plan                                                                  (11)         (11)         (13)
    Proceeds from issuance of common stock                                                      449          130           96
    Repurchase of common stock                                                                 (580)          --           --
    Cash dividends paid                                                                      (2,925)      (2,912)      (2,480)
------------------------------------------------------------------------------------------------------------------------------------
             Net cash (used in) financing activities                                         (3,067)      (2,793)      (2,391)
------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash                                                                   4,931         (585)       1,029
Beginning cash                                                                                1,557        2,142        1,113
------------------------------------------------------------------------------------------------------------------------------------
Ending cash                                                                                  $6,488       $1,557       $2,142
====================================================================================================================================
Supplemental schedule of noncash investing and financing activities:
    Surplus from stock options granted                                                         $117          $80          $41
====================================================================================================================================
    Fair value adjustment for securities available
     for sale, net of applicable deferred income tax effects                                   $(36)        $(58)       $(293)
------------------------------------------------------------------------------------------------------------------------------------
    Fair value adjustment for securities available
     for sale held in subsidiary banks,
     net of deferred income tax effects                                                         $10       $2,738      $(2,992)
====================================================================================================================================
</TABLE>


                                                                    48

<PAGE>
Note 19.  Quarterly results of operations (unaudited):

The  following  is a summary of the  Company's  unaudited  quarterly  results of
operations.
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------
1996                                                                December 31       September 30(2)      June 30      March 31(1)
------------------------------------------------------------------------------------------------------------------------------------
                                                                             (dollars in thousands, except per share amounts)
<S>                                                                     <C>                 <C>             <C>            <C>    
    Interest income                                                     $14,243             $13,832         $13,079         $13,499
    Net interest income                                                   7,501               7,424           7,209           7,505
    Provision for credit losses                                             102                  72              72              72
    Net securities gains                                                     22                  10              96              65
    Income before income taxes                                            2,939               1,950           2,855           1,368
    Net income (loss)                                                     1,902               2,921           1,853            (809)
    Earnings (loss) per share                                               .35                 .55             .34            (.15)
------------------------------------------------------------------------------------------------------------------------------------
1995                                                                December 31       September 30(2)        June 30    March 31(1)
------------------------------------------------------------------------------------------------------------------------------------
                                                                             (dollars in thousands, except per share amounts)

    Interest income                                                     $12,864             $13,146         $12,894         $12,222
    Net interest income                                                   7,149               7,393           6,897           6,928
    Provision for credit losses                                             432                  23             112             143
    Net securities gains                                                     59                   8              42              14
    Income before income taxes                                            2,432               3,347           2,587           2,520
    Net income                                                            1,486               2,113           1,718           1,681
    Earnings per share                                                      .28                 .39             .32             .32
------------------------------------------------------------------------------------------------------------------------------------

(1) During the quarter ended March 31, 1996, the Company recognized a current period income tax provision totaling  $1,601,000,  for
    the tax effects of certain pre-1988 tax reserves for bad debts originally deducted by Laurel.

(2) During the quarter ended September 30, 1996, certain tax laws were enacted that allowed the Company to reverse the provision for
    income taxes  recognized on certain pre-1988 tax reserves in the first quarter of 1996.  Additionally,  the Company was assessed
    approximately  $813,000 to  recapitalize  the Savings  Association  Insurance Fund (SAIF).  The combined effect of these matters
    served to increase net income in the third quarter of 1996 by approximately $1.1 million.

Market For Registrant's Common Equity And Related Stockholder Matters
</TABLE>
<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------------------------------
                                                                                      1996
------------------------------------------------------------------------------------------------------------------------------------
Quarterly stock prices and dividends                                       Price Range            Dividend
                                                                       High            Low        Declared
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>            <C>               <C> 
First Quarter                                                        $22.00         $17.75            $.12
Second Quarter                                                        19.50          17.25             .14
Third Quarter                                                         20.00          17.00             .14
Fourth Quarter                                                        20.75          19.25             .14
------------------------------------------------------------------------------------------------------------------------------------


                                                                                     1995
------------------------------------------------------------------------------------------------------------------------------------
Quarterly stock prices and dividends                                       Price Range            Dividend
                                                                       High            Low        Declared
------------------------------------------------------------------------------------------------------------------------------------
First Quarter                                                        $20.50         $18.77            $.20
Second Quarter                                                        21.00          18.50             .12
Third Quarter                                                         21.50          19.50             .11
Fourth Quarter                                                        22.00          19.75             .12
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

The stock  prices  are the high and low sale  prices as  recorded  on the NASDAQ
National  Market.  The Company  trades on the NASDAQ  National  Market under the
symbol FCNB.

                                                                    49

<PAGE>
<TABLE>
<CAPTION>

Number of shareholders of record, December 31, 1996  3,336

PRINCIPAL AFFILIATES

Balance Sheet
------------------------------------------------------------------------------------------------------------------------------------
                                                      December 31, 1996
(Dollars in thousands)                             Assets                  Liabilities and Equity
------------------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>                                 <C>         <C>                           <C>
FCNB Bank                             Cash and due from banks             $ 21,273    Total deposits                $416,404
7200 FCNB Court                       Earning assets                       505,262    Short-term borrowings           96,282
Frederick, MD 21703                                                                   Accrued interest and
(301) 662-2191                                                                         other liabilities

16 Offices                            Allowance for credit losses           (3,213)
                                      Other Assets                          31,613    Shareholders' equity            37,747
                                      --------------------------------------------------------------------------------------


                                                                                      Total liabilities
                                      Other assets                        $554,935      and equity                  $554,935
                                      --------------------------------------------------------------------------------------


                                      Net income                            $5,435
------------------------------------------------------------------------------------------------------------------------------------


Elkridge Bank                         Cash and due from banks             $  9,750    Total deposits                $177,159
6810 Deerpath Road                    Earning assets                       203,749    Short-term borrowings           20,973
Suite #325                                                                            Accrued interest and
Elkridge, MD 21227                                                                      other liabilities                839
(410) 579-5800

5 Offices                             Allowance for credit losses           (1,910)
                                      Other Assets                          10,500    Shareholders' equity            23,118
                                      --------------------------------------------------------------------------------------


                                                                                      Total liabilities
                                      Other assets                        $222,089      and equity                  $222,089
                                      --------------------------------------------------------------------------------------


                                      Net income                             $863
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Annual Meeting of Shareholders

Tuesday, April 15, 1997 - 7:00 p.m.
7200 FCNB Court
Frederick, Maryland 21703

Transfer Agent
American Stock Transfer & Trust Company
40 Wall Street
New York, NY 10005
Phone (800) 937-5449

                                                                    50

<PAGE>
Analyst Contact
Mark A. Severson
Senior Vice President and Treasurer
Phone (301 or 800) 662-2191

Shareholder Contact
Kristen Howes
Senior Shareholders Relations Officer
Phone (301 or 800) 662-2191

Availability of 10-K Report
The annual report on Form 10-K filed with the Securities and Exchange Commission
is available  without  charge upon written  request to: Mark A.  Severson,  Vice
President and Treasurer, FCNB CORP, 7200 FCNB Court, Frederick, Maryland 21703.

Profile

FCNB CORP is a two bank holding company organized under the laws of the State of
Maryland.  FCNB Bank, a  state-chartered  commercial  bank under the laws of the
State of  Maryland  was  converted  from a national  bank in June 1993,  and was
originally  chartered in 1818. Elkridge Bank, a state-chartered  commercial bank
under the laws of the State of Maryland was  converted  from a national  bank in
March 1995,  and was  originally  chartered in 1961.  The Banks are engaged in a
general   commercial  and  retail  banking  business  serving   individuals  and
businesses in Frederick,  Carroll,  Howard,  Prince  George's,  Anne Arundel and
Montgomery  counties located in Maryland.  The deposits of the Banks are insured
by the FDIC.  FCNB Corp  trades on the  NASDAQ  Stock  market  under the  symbol
"FCNB".



The following brokers are registered as market makers of FCNB Corp Common Stock:

Ferris, Baker, Watts & Co.                    Ryan, Beck & Co.       
365 West Patrick Street                       3 Parkway              
Frederick, MD 21701                           Philadelphia, PA 19102 
(301) 662-6488                                (800) 342-2325         
                                              
Legg Mason Wood Walker, Inc.                  Wheat First Securities, Inc.
30 West Patrick Street                        18 West Patrick Street      
Frederick, MD 21701                           Frederick, MD 21701         
(301) 663-8833                                (301) 662-0002              
                                              (800) 456-7801              
F.J. Morrisey & Co., Inc.                     
1700 Market Street, Suite 1420                Janney Montgomery Scott, Inc. 
Philadelphia, PA 19102                        1801 Market Street            
(215) 563-8500                                Philadelphia, PA 19103        
                                              (215) 665-6000                
Sandler O'Neill & Partners, L.P.              
Two World Trade Center                        Herzog, Heine, Geduld, Inc.  
104th Floor                                   26 Broadway, 2nd Floor       
New York, NY 10048                            New York, NY 10004           
(800) 635-6860                                (212) 908-4000               
                                              
                                       51
 
<PAGE>
Corporate Headquarters
----------------------
                                              Subsidiaries 
                                              ------------ 
FCNB Corp (MD)                                FCNB Bank (MD)*           
7200 FCNB Court                               7200 FCNB Court             
Frederick, Maryland 21703                     Frederick, Maryland 21703   
(301) 662-2191                                (301) 662-2191              
                                                                          
                                              Elkridge Bank (MD)*         
                                              6810 Deerpath Road          
                                              Suite #325                  
                                              Elkridge, Maryland 21227    
                                              (410) 579-5800              
                                                
 
* The Banks are the principal subsidiaries of FCNB Corp as of December 31, 1996.
The voting securities of the Banks are owned entirely by FCNB Corp.

                                       52