<PAGE>

Exhibit 13

THE YEAR IN SUMMARY
FCNB CORP

<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------------
Years Ended December 31,                                               1997             1996             1995
----------------------------------------------------------------------------------------------------------------
                                                          (dollars in thousands, except per share data)
<S>                                                                 <C>              <C>              <C>      
Net income                                                              $8,803          $5,867           $6,998
Net income before merger-related expenses                                9,088           7,778            7,301
Per share data(1):
     Basic and diluted earnings                                          1.49             0.99             1.19
     Basic and diluted earnings before merger-related expenses           1.54             1.31             1.24
     Cash dividends declared                                              .57              .49              .50
     Book value at period-end                                           13.11            11.71            11.36


     Shares outstanding at period-end                               5,912,284        5,901,016        5,828,197
     Weighted average shares outstanding:
       Basic                                                        5,903,868        5,919,977        5,881,129
       Diluted                                                      5,918,571        5,933,411        5,895,803

Return on average assets                                                 1.07%            0.84%            1.09% 
Return on average assets before merger-related expenses                  1.09             1.11             1.14
Return on average shareholders' equity                                  12.25             8.92            11.21
Return on average shareholders' equity before
  merger-related expenses                                               12.65            11.82            11.70
</TABLE>

<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------------
December 31,                                        1997           1996             1995
---------------------------------------------------------------------------------------------------------------------
                                                             (dollars in thousands)
<S>      <C>                                    <C>             <C>              <C> 
Total Assets                                    $918,084        $779,169         $660,984
Loans, net of unearned income                    574,105         497,995          439,794
Deposits                                         616,512         587,074          529,988
Federal funds purchased and securities sold
 under agreements to repurchase                   65,163          40,739           21,043
Other short-term borrowings                      152,138          76,516           32,426
Long-term debt                                        --              --            5,680
Shareholders' equity                              77,518          69,110           66,219

Banking facilities                                    21              21               19

</TABLE>


(1) Per share data for 1996 and 1995 has been restated for the effects of a 10%
stock dividend declared and paid in October 1997.


<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 FCNB Corp and its wholly-owned subsidiary FCNB Bank's
(collectively, the "Company") beliefs, expectations, anticipations and plans
regarding, among other things, general economic trends, interest rates, product
expansions and other matters. Such statements are subject to numerous
uncertainties, such as federal monetary policy, inflation, employment,
profitability and consumer confidence levels, both nationally and in the
Company's market area, the health of the real estate and construction market in
the Company's market area, the Company's ability to develop and market new
products and to enter new markets, competitive challenges in the Company's
market, legislative changes and other factors, and as such, there can be no
assurance that future events will develop in accordance with the forward looking
statements contained herein

On March 7, 1997, the Company merged its subsidiary banks, Elkridge Bank and
FCNB Bank, with FCNB Bank surviving the merger. The following paragraphs provide
an overview of the financial condition and results of operations of the Company.
This discussion is intended to assist the readers in their analysis of the
accompanying consolidated financial statements and notes thereto.

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 Financial Accounting Standards Board ("FASB") Statement 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 adopting this pronouncement.

The following analysis of the Company's operating results is presented on a
consolidated basis. Net income was $8.80 million in 1997 compared to $5.87
million in 1996. Basic and diluted earnings per share were $1.49 in 1997
compared to $0.99 in 1996. In connection with the Elkridge Bank merger in 1997,
the Company incurred $460,000 of merger related expenses. Net income before the
one-time merger-related costs was $9.01 million, or $1.54 per share. In
connection with the acquisition of Laurel Bancorp, Inc. ("Laurel") in 1996,
accounted for as a pooling of interests, certain costs incurred to effect the
combination were 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 included: (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, while earnings per share were $1.31 for 1996.

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 1.07%in 1997 and 0.84% in 1996. Return on average shareholders' equity,
which measures the income earned on the capital invested, was 12.25% in 1997
compared to 8.92% in 1996. However, before specific one-time merger-related
costs the return on average assets was 1.09% in 1997 and 1.11% in 1996, and the
return on average shareholders' equity was 12.65% in 1997 and 11.82% in 1996.

During 1997, the Company experienced strong loan demand that resulted in a
$76.11 million increase in loans, net of unearned income, or 15.3% over the
level at the end of 1996.

Noninterest income increased $1.86 million (43.6%) from the level in 1996 while
noninterest expenses decreased $521,000 (2.1%) during the same period. Included
in the noninterest expenses are merger-related costs of $460,000 in 1997 and
$2.87 million in 1996. If these amounts were excluded, noninterest expenses
would have risen in 1997 by $1.88 million (8.7%).


<PAGE>

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.

Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rates and
Interest Differential

Table 1, "Comparative Statement Analysis," 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
35% in 1997 and 1996, 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, "Rate/Volume Analysis," 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 $32.42 million in 1997,
increasing 10.3% from the $29.39 million in 1996. The Company's average
interest-earning assets increased 17.7% to $764.85 million during 1997. This
increase was primarily funded by a 20.6% increase in the Company's average
interest-bearing liabilities and by an 11.5% 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 4.24% in 1997, as compared to
4.52% in 1996. 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
1997. This spread decreased by 21 basis points in 1997. During the year, the
rate paid on average interest-bearing liabilities increased 17 basis points,
while the yield on average interest earning assets decreased 4 basis points.

The yield on the average investment portfolio fell 11 basis points during 1997
compared to 1996, as investments in high yielding tax-exempt securities matured
in 1997. The yield on the average loan portfolio remained relatively constant,
reflecting the impact of competitive pressures. The rates paid on federal funds
purchased and securities sold under agreements to repurchase increased by 15
basis points, while the rates paid on other short-term borrowings decreased by
37 basis points. The rate of interest earned on interest-earning assets and the
rate paid on interest-bearing liabilities, while significantly affected by the
actions taken by the Federal Reserve to control economic growth, are influenced
by competitive factors within the Company's market. Competitive pressures during
1997 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. There can be no assurance that these benefits will be realized.


<PAGE>


Table 1: Comparative Statement Analysis

<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------------------------
                                               Years ended December 31,
---------------------------------------------------------------------------------------------------------------------------------
                                           1997                        1996                             1995
---------------------------------------------------------------------------------------------------------------------------------
                               Average   Interest   Average   Average     Interest    Average  Average     Interest     Average
                                 daily   income(2)   yield/    daily      income(2)   yield/    daily      income(2)    yield/
                             balance(1)   /paid(2)    rate   balance(1)  /paid(2)(4)   rate    balance(1)  /paid(2)(4)   rate
                             ----------  ---------  -------  -----------  ----------  -------  ----------  -----------  ------
                                                              (dollars in thousands)
<S>                          <C>         <C>        <C>      <C>          <C>         <C>      <C>         <C>          <C>
Assets

Interest-earning assets:

  Interest-bearing                                                                                              
   deposits in                                                                                                  
   other banks               $  1,960     $    100     5.10%  $  2,763     $    174     6.30    $  5,966    $     411        6.89%
                              -------       ------     ----    -------       ------     ----    -------       ------        ----
  Federal funds sold            7,072          389     5.50     14,710          739     5.02      7,460          457        6.13
                              -------       ------     ----    -------       ------     ----    -------       ------        ----
  Loans held for sale           1,105           72     6.52      3,287          237     7.21      1,252           82        6.55
                              -------       ------     ----    -------       ------     ----    -------       ------        ----
  Investment securities:                                                                                      
   Taxable                    214,089       13,799     6.45    158,055       10,193     6.45    147,597        9,706        6.58
   Nontaxable                   4,698          517    11.00      6,664          765    11.48     14,435        1,835       12.71
                              -------       ------     ----    -------       ------     ----    -------       ------        ----
     Total invest-                                                                                            
      ment securities         218,787       14,316     6.54    164,719       10,958     6.65    162,032       11,541        7.12
                              -------       ------     ----    -------       ------     ----    -------       ------        ----
  Loans(3), net of                                                                                            
    unearned income           535,921       48,557     9.06    464,440       42,050     9.05    423,722       39,261        9.27
                              -------       ------     ----    -------       ------     ----    -------       ------        ----
     Total interest-earning                                                                                   
      assets                  764,845       63,434     8.29    649,919       54,158     8.33    600,432       51,752        8.62
                              -------       ------     ----    -------       ------     ----    -------       ------        ----
Noninterest-earning                                                                                           
 assets                        64,791                           50,975                           41,616
Net effect of unrealized                                                                                      
 gain (loss) on securities                                                                                    
 available for sale             1,288                               27                             (529)
                              -------       ------     ----    -------       ------     ----    -------       ------        ----
  Total assets               $830,924                         $700,921                         $641,519
                              -------       ------     ----    -------       ------     ----    -------       ------        ----
                              -------       ------     ----    -------       ------     ----    -------       ------        ----
Liabilities and
 Shareholders' Equity
Interest-bearing
liabilities
   NOW/SuperNOW accounts     $ 52,607     $    952     1.81%  $ 55,626     $  1,153    2.07%    $51,370       $ 1,195       2.33%
                                                                                                              
   Savings accounts            80,812        2,082     2.58     84,294        2,596     3.08     81,128         2,497       3.08
                                                                                                              
  Money market accounts        77,780        2,357     3.03     80,654        2,589     3.21     84,904        2,852        3.36
   Certificates of deposit                                                                                    
    and other time deposits                                                                                   
    less than $100,000        257,589       13,966     5.42    221,471       11,704     5.28    188,243       10,135        5.38
                                                                                                              
   Certificates of deposit                                                                                    
    and other time deposits                                                                                   
    of $100,000 or more        49,893        2,786     5.58     43,709        2,232     5.11     50,377        2,846        5.65
                                                                                                              
   Federal funds purchased                                                                                    
    and securities sold                                                                                       
    under agreements to                                                                                       
    repurchase                 50,141        2,819     5.62     24,815        1,357     5.47     18,928        1,122        5.93
                                                                                                              
   Other short-term                                                                                           
    borrowings                110,462        6,050     5.48     46,626        2,727     5.85     32,246        1,882        5.84
                                                                                                              
  Long-term debt                 --           --         --      5,901          406     6.88      7,087          530        7.48
                              -------       ------     ----    -------       ------     ----    -------       ------        ----
Total interest-bearing                                                                                       
 liabilities                  679,284       31,012     4.57    563,096       24,764     4.40    514,283       23,059        4.48
                                                                                                           
                              -------       ------     ----    -------       ------     ----    -------       ------        ----
</TABLE>



<PAGE>

<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------------------------------------
                                               Years ended December 31,
---------------------------------------------------------------------------------------------------------------------------------
                                           1997                        1996                             1995
---------------------------------------------------------------------------------------------------------------------------------

                               Average   Interest   Average   Average     Interest    Average  Average     Interest     Average
                                 daily   income(2)   yield/    daily      income(2)   yield/    daily      income(2)    yield/
                             balance(1)   /paid(2)    rate   balance(1)  /paid(2)(4)   rate    balance(1)  /paid(2)(4)   rate
                             ----------  ---------  -------  -----------  ----------  -------  ----------  -----------  ------
                                                              (dollars in thousands)
<S>                          <C>         <C>        <C>      <C>          <C>         <C>      <C>         <C>          <C>

Noninterest-bearing
 deposits                      73,710                          66,111                            58,789
Noninterest-bearing
 liabilities                    6,063                           5,929                             6,034

                             --------                        --------                          --------
     Total liabilities        759,057                         635,136                           579,106
                             --------                        --------                          --------

Shareholders' equity           70,579                          65,758                            62,942
Net effect of unrealized
 gain (loss) on 
 securities available
 for sale                       1,288                              27                              (529)
                             --------                        --------                          --------
     Total shareholders'
      equity                   71,867                          65,785                            62,413
                             --------                        --------                          --------
     Total liabilities
      and shareholders'
      equity                 $830,924                        $700,921                          $641,519
                             --------                        --------                          --------
Net interest income                      $32,422                          $29,394                          $28,693
                             --------    -------    ----     --------     -------     ----     --------    -------      ----
                             --------    -------    ----     --------     -------     ----     --------    -------      ----
Net interest spread                                 3.72%                             3.93%                             4.14%
Net interest margin                                 4.24%                             4.52%                             4.78%
                             --------    -------    ----     --------     -------     ----     --------    -------      ----
                             --------    -------    ----     --------     -------     ----     --------    -------      ----

</TABLE>


(1)      The average daily balances for investment securities exclude the
         effects of the fair value adjustments under FASB Statement 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 35%. 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 for 1996, 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
         $1,437,000, $1,149,000 and $1,051,000 for 1997, 1996 and 1995,
         respectively.

(4)      The interest paid in 1996 and 1995 includes $108,000 and $300,000,
         respectively, of capitalized construction period interest.




<PAGE>

Table 2: Rate/Volume Analysis

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
                  1997 compared to 1996          1996 compared to 1995              1995 compared to 1994
---------------------------------------------------------------------------------------------------------------------------------
                                           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              $   (51)     $  (23)     $   (74)    $ (221)   $  (16)    $  (237)   $   161    $   56       $   217
   Federal funds sold           (384)         34          (350)      444      (162)         282      (136)      154            18
   Loans held for sale          (157)         (8)         (165)      133        22          155      (159)      (10)         (169)
   Investment securities:
     Taxable                   3,612          (6)        3,606       689      (202)         487    (1,051)      404          (647)
     Nontaxable(2)              (226)        (22)         (248)     (988)      (82)      (1,070)     (891)      (26)         (917)
Loans(3)                       6,472          35         6,507     3,773      (984)       2,789     5,658     2,755         8,413
                             --------      ------     ---------   -------   -------     --------   --------  -------        ------
Total interest
 income(6)                     9,266          10         9,276     3,830    (1,424)       2,406     3,582     3,333         6,915
                             --------      ------     ---------   -------   -------     --------   --------  -------        ------
                             --------      ------     ---------   -------   -------     --------   --------  -------        ------
Interest Paid
Interest-bearing
 liabilities:
   Savings deposits(4)          (269)       (675)        (944)        95      (301)        (206)     (339)      454           115
   Time deposits               2,223         593         2,816     1,445      (490)         955     1,831     2,953         4,784
   Federal funds purchased 
    and securities sold 
    under agreements 
    to repurchase              1,385          77         1,462       349      (114)         235      (449       324          (125)
   Other short-term
    borrowings                 3,734        (411)        3,323       839         6          845       585       451         1,036
   Long-term debt               (406)        --           (406)      (89)      (35)        (124)       --       239           239
                             --------      ------     ---------   -------   -------     --------   --------  -------        ------
      Total interest
        paid(5) (6)            6,667        (416)        6,251     2,639      (934)       1,705     1,628     4,421         6,049
                             --------      ------     ---------   -------   -------     --------   --------  -------        ------

Net interest income           $2,599      $  426        $3,025    $1,191     $(490)       $ 701    $1,954   $(1,088)       $  866
                             --------      ------     ---------   -------   -------     --------   --------  -------        ------
                             --------      ------     ---------   -------   -------     --------   --------  -------        ------

</TABLE>


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

(2)      Taxable-equivalent adjustments of $176,000 for 1997, $260,000 for 1996,
         and $624,000 for 1995 are included in the calculation of nontaxable
         investment securities rate variances.

(3)      Taxable-equivalent adjustments of $67,000 for 1997 and $2,000 for 1995
         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 for 1996, Laurel's
         interest income and interest expense, totaling $755,000 and $358,000,
         respectively, for the month of December 1995, have been eliminated.



<PAGE>



Noninterest Income

Noninterest income increased by $1.86 million or 43.6% in 1997. Gains realized
from loan sales in the secondary market were $407,000 in 1997 and $305,000 in
1996. 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 1997
and 1996, servicing fee income totaled $374,000 and $490,000, respectively.
Servicing income on mortgage loans originated and sold however, is expected to
make a smaller contribution to noninterest income since the Company is currently
not retaining servicing rights on mortgages sold. The increase in other
operating income includes approximately $600,000 attributable to the
implementation of a bank-owned life insurance program that generated tax-exempt
income to partially offset the cost of employee benefit programs.

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 strengthen the ratio of
noninterest income to total revenue 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. In January 1997, the
Company began operation of an Asset Management and Trust Division to meet the
needs of its affluent market place. This division will enable the Company to
earn fees through various levels of asset management, trust and custody
services. The Company is actively promoting new commercial cash management
services to increase noninterest income. 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. However, the future results of any of these products or
services cannot be predicted at this time.

Noninterest Expenses

Noninterest expenses decreased $521,000. However if the merger related costs of
$460,000 in 1997 and $2.87 million in 1996 are excluded from this comparison,
noninterest expenses for 1997 increased $1.88 million. Total salaries and
employee benefits increased $1.12 million or 9.7% in 1997. The increase in
salaries and benefits reflects general merit and cost-of-living adjustments,
plus the cost of additional staffing for the Odenton branch acquired in April
1996, the opening of the Headquarters branch in March 1996 and the opening of
the Asset Management and Trust Division in January 1997. The average number of
full-time equivalent employees increased by 21 to 354 in 1997.

Net occupancy and equipment expenses increased $44,000 (1.8%) and $428,000
(26.8%), respectively, compared to those incurred during 1996. The increase in
equipment expenses is primarily associated with increased depreciation and
higher ATM and communication expenses.

Other operating expenses increased $288,000 (4.8%) compared to the prior year.
See Note 12 to the consolidated financial statements for a schedule showing a
detailed breakdown of the Company's more significant other operating expenses.
The increase in other operating expenses is primarily attributable to the new
data processing outsourcing arrangement, which was put into place in November
1996. The Company's arrangement with this service provider allows substantial
growth over the next four years with little increase in data processing costs.

Income Taxes

Income tax expense increased to $4.22 million in 1997, compared to $3.25 million
in 1996, reflecting the higher level of pre-tax income in 1997. The Company's
effective tax rate was 32.4% in 1997, compared to 35.6% in 1996. The Company's
income tax expense differs from the amount computed at statutory rates primarily
due to tax-exempt income from certain loans, investment securities and the
bank-owned life insurance program. Additionally, the Company derives income tax
benefits from a subsidiary located in the state of Delaware that holds and
manages a portion of its investment portfolio. Note 11 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.

Market Risk, Liquidity and Interest Rate Sensitivity



<PAGE>



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.




<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. Management 
considers the current liquidity position to be adequate to meet the needs of 
the Company's customers.

   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 current 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 $(321.47) 
million or 35.02% 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.

   As noted, the Company assumes a degree of interest rate risk as a provider 
of banking services to its customers. This risk can be reduced through 
derivative interest rate contracts, such as interest rate swaps. The 
Company's outstanding interest rate swap instrument at December 31, 1997 is 
utilized to convert certain fixed rate assets to variable rates as part of 
its interest rate risk management strategy. Because financial derivatives 
typically do not have actual principal dollars transferred between the 
parties, notional principal amounts are used to express the volume of such 
transactions. However, the notional amount of derivative contracts does not 
represent direct credit exposure, which the Company believes is a combination 
of current replacement cost of those instruments with a positive market value 
plus an amount for prospective market movement. The Company has established 
policies governing derivative activities, and the counterparties used by the 
Company are considered high quality credit risks. There were no past due 
amounts or reserves for possible derivative credit losses at December 31, 
1997, nor has the Company experienced any charge-offs related to the credit 
risk of derivative transactions.

   The notional amount of the Company's interest rate swap was $10.0 million 
at December 31, 1997. This instrument matures in November 2004.

   The following table, "Interest Rate Sensitivity Analysis," summarizes, as 
of December 31, 1997, 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 re-price 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 

 <PAGE>

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.

Interest Rate Sensitivity Analysis - December 31, 1997

<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 ......................   $     755     $    --       $    --      $    --      $     755 
Federal funds sold ...................      14,231          --            --           --         14,231 
Loans held for sale:
   Fixed rate ........................         909          --            --           --            909 

Investment securities:(1)                                                       
   Fixed rate ........................       1,565         4,136        94,569       79,466      179,736 
   Variable rate .....................      48,614          --            --           --         48,614 

Loans:(2)                                                                       
   Fixed rate ........................      36,074        73,580       210,903       84,506      405,063 
   Variable rate .....................     165,405          --            --           --        165,405 
                                         ---------     ---------     ---------    ---------    --------- 
    Total interest-earning
       assets ........................   $ 267,553     $  77,716     $ 305,472    $ 163,972    $ 814,713 
                                         ---------     ---------     ---------    ---------    --------- 
                                         ---------     ---------     ---------    ---------    --------- 
INTEREST-BEARING LIABILITIES
Deposits:

   NOW/SuperNOW accounts
    and savings ......................   $   1,663     $   4,989     $  26,610    $  99,786    $ 133,048 

   Money market accounts .............      75,493          --            --           --         75,493 

   Certificates of deposit and
    other time deposits:
     Fixed rate ......................      86,444       135,382        81,137           31      302,994 
     Variable rate ...................      19,075          --            --           --         19,075 

Federal funds purchased and securities                                          
 sold under agreements to repurchase .      65,163          --            --           --         65,163 

Other short-term borrowings:
     Fixed rate ......................     104,138        48,000          --           --        152,138 
                                         ---------     ---------     ---------    ---------    --------- 
       Total interest-bearing
             liabilities .............   $ 351,976     $ 188,371     $ 107,747    $  99,817    $ 747,911 
                                         ---------     ---------     ---------    ---------    --------- 
                                         ---------     ---------     ---------    ---------    --------- 

Interest-earning assets less 
 interest-bearing liabilities ("Gap")    $ (84,423)    $(110,655)    $ 197,725    $  64,155    $  66,802 

Cumulative Gap .......................   $ (84,423)    $(195,078)    $   2,647    $  66,802    $  66,802 

Cumulative Gap as a percentage of
</TABLE>


 <PAGE>

<TABLE>
<S>                                      <C>           <C>           <C>          <C>          <C>       
 total assets ........................       (9.20)%      (21.25)%         .29%        7.28%        7.28%
</TABLE>
------------------------------------

(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.

   In addition to the gap method of monitoring interest rate sensitivity, the 
Company also employs computer model simulations. Interest rate risk ("IRR") 
management has various sources and it is not simply the risk from rates 
rising and falling. In fact, there are four sources of IRR: repricing risk, 
basis risk, yield curve risk, and option risk. Gap modeling only focuses on 
repricing risk. Income simulations that incorporate cash flow analyses: (1) 
measure the size and direction of interest rate exposure under a variety of 
interest rate and yield curve shape scenarios; (2) provides the opportunity 
to capture all critical elements such as volume, maturity dates, repricing 
dates, prepayment volumes, and hidden options such as caps, floors, puts, and 
calls; (3) utilizes the data to clearly focus attention on critical 
variables; (4) are dynamic; and (5) reflect changes in prevailing interest 
rates which affect different assets and liabilities in different ways. These 
simulations are run on a monthly basis using an interest rate shock technique 
to determine the effects on the Company's net income and the Market Value of 
Portfolio Equity ("MVPE"), assuming an immediate increase or decrease in 
interest rates. The MPVE simulation is the process of generating multiple 
forecasts for future interest rate scenarios and then discounting the 
estimated cash flows anticipated under those scenarios. The MVPE is the 
estimated economic value of the Company based on the net difference between 
the value of the interest-earning assets ("IEA") and the value of the 
interest-bearing liabilities ("IBL"), using the current characteristics of 
each. Some factors that influence the value of the IEA and the IBL are the 
rate, maturity, repricing frequency, and prepayment options. 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. The model results as of December 31, 
1997 are as follows:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
Change in Interest Rate Assumption             +100bp     +200bp         -100bp      -200bp
--------------------------------------------------------------------------------------------
                                                          (dollars in thousands)
<S>                                         <C>          <C>           <C>         <C>      
Net income--increase (decrease) .........   $    (846)   $   (1,775)   $     375   $     665
MVPE--increase (decrease) ...............   $  (4,309)   $  (13,794)   $   1,551   $   2,663
Net income--% change ....................       (8.14)       (17.09)        3.61        6.41
MVPE--% change ..........................       (5.70)       (18.20)        2.05        3.52
</TABLE>

Investment Portfolio

   Investment securities represent the second largest component of earning 
assets, at 29% of average earning assets in 1997 and 25% in 1996. 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, repurchase agreements and other 
short-term borrowings. The investment portfolio averaged $218.79 million in 
1997, compared to $164.72 million in 1996. The average taxequivalent yield on 
the portfolio decreased 11 basis points to 6.54% in 1997.

   As of December 31, 1997, the gross unrealized losses in the Company's 
investment portfolio were $212,000 in the held-to-maturity investment 
portfolio and $234,000 in the available-for-sale investment portfolio 
compared to $472,000 and $714,000, respectively, as of December 31, 1996. As 
of December 31, 1997, the gross unrealized gains in the Company's investment 
portfolio were $552,000 in the held-to-maturity investment portfolio and 
$5.75 million in the available-for-sale investment portfolio compared to 
$687,000 and $1.53 million, respectively, as of December 31, 1996. The 
investment portfolio had an average life of less than five years, with an 
estimated average tax-equivalent yield of 6.45%, at December 31, 1997. 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 because the cost of funding the Company's operations increases, while 
the income earned on the held-to-maturity portfolio remains constant.

Investment Portfolio Distribution-Book Value (Amortized cost)


<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
December 31,                               1997(1)    1996(1)    1995(1)
-------------------------------------------------------------------------------
<S>                                       <C>        <C>        <C>     
</TABLE>
 <PAGE>

<TABLE>
                                              (dollars in thousands)
<S>                                       <C>        <C>        <C>     
U.S. Treasury and other U.S. government
 agencies and corporations ............   $207,475   $166,801   $125,596
State and political subdivisions ......      3,690      5,138      8,929
Other securities ......................     34,556     23,632      7,135
                                          --------   --------   --------
     Total ............................   $245,721   $195,571   $141,660
                                          --------   --------   --------
                                          --------   --------   --------
</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.

Analysis of Investment Portfolio (Held-to-Maturity) - December 31, 1997

<TABLE>
<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 .......   $ 3,455       3.87   $41,244       6.44%   $  --         --  %       --         -- %

State and political
 subdivisions (1) .......        29      14.65     2,640      11.52       669      11.16     $   352      7.93
                            -------       ----   -------       ----    ------      -----     -------      ---- 
     Total ..............   $ 3,484       3.96   $43,884       6.74%   $  669      11.16%    $   352      7.93%
                            -------       ----   -------       ----    ------      -----     -------      ---- 
                            -------       ----   -------       ----    ------      -----     -------      ---- 

</TABLE>

(1) Yields, calculated using amortized cost book values, are presented on a
    fully taxable equivalent basis using the federal statutory rate of 35%. 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.


 <PAGE>

Analysis of Investment Portfolio (Available-for-Sale) - December 31, 1997

<TABLE>
<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(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 .......       $ --         --%        $115,842      6.56%       $ 25,472      6.75%       $ 21,213      6.99%
                                                                                                         
Other securities ........         --         --            6,500      6.83           8,823      6.89          19,482      4.09
                                ----                    --------      ----        --------      ----        --------      ---- 
     Total ..............       $ --         --%        $122,342      6.58%       $ 34,295      6.79%       $ 40,695      5.59%
                                ----         ----       --------      ----        --------      ----        --------      ---- 
                                ----         ----       --------      ----        --------      ----        --------      ---- 
</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, 1997.

Loan Portfolio

   During 1997, the Company sold $15.10 million of conforming residential 
mortgage loans to Countrywide Mortgage (Countrywide) and other private 
investors, and held additional loans totaling $909,000 at December 31, 1997, 
whereas in 1996, the Company sold loans totaling $28.99 million and held 
additional loans for sale totaling $3.16 million at December 31, 1996. The 
average balance of loans held for sale for 1997 was $1.10 million, and in 
1996 was $3.29 million, which generated average yields of 6.52% and 7.21%, 
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 
generally a term of one to five years. The commercial and agricultural loans 
consist of secured and unsecured loans. The unsecured commercial loans are 
made based on the financial strength of the borrower and usually require 
personal guarantees from the principals of the business. The collateral for 
the secured commercial loans may be equipment, accounts receivable, 
marketable securities or deposits in the subsidiary bank of the Company. 
These loans have a maximum loan to value ratio of 75% and a term of one to 
five years. The consumer loan category consists of secured and unsecured 
loans. The unsecured consumer loans are made 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 bank. The usual term for these loans is three to five 
years.

Loan Distribution

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
December 31,                            1997         %       1996         %       1995       %        1994     %        1993     %
-----------------------------------------------------------------------------------------------------------------------------------
                                                                            (dollars in thousands)
<S>                                  <C>         <C>       <C>        <C>      <C>         <C>    <C>       <C>    <C>         <C>
Real estate-construction .......     $  77,701       14%   $ 55,614       11%  $  38,043      9%  $ 25,988     7%  $   18,678     6%
Real estate-mortgage ...........       373,060       65     335,784       67     299,114     68    273,485    70      245,209    73
Commercial and agricultural ....        64,111       11      52,515       11      49,667     11     44,164    11       38,843    11
Consumer .......................        59,233       10      54,082       11      52,970     12     46,540    12       34,186    10
                                     ---------   ------   ---------   ------   ---------   ----   --------  -----   ---------  -----
Total loans, net of
    unearned income ............       574,105      100%    497,995      100%    439,794    100%   390,177   100%     336,916   100%
Less: Allowance for
   credit losses ...............        (5,713)              (5,123)              (5,242)           (4,691)            (4,219)
                                     ---------   ------   ---------   ------   ---------   ----   --------  -----   ---------  -----
Net loans ......................     $ 568,392            $ 492,872            $ 434,552          $385,486         $ 332,697
                                     ---------   ------   ---------   ------   ---------   ----   --------  -----  ----------  -----
                                     ---------   ------   ---------   ------   ---------   ----   --------  -----  ----------  -----
</TABLE>

 <PAGE>

Maturity and Interest Rate Sensitivity of Loans-December 31, 1997

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
                                                                             After 1
Maturing in:                                              1 year             through             After 5
                                                          or less            5 years             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 ...................  $ 35,054  $ 24,354  $ 16,328  $   585   $ 1,380   $ --     $ 77,701
Real estate--mortgage(1) ....................    62,116    54,586   116,708   62,861    75,799     990     373,060
Commercial and agricultural .................     7,868    23,098    27,663      366     5,052      64      64,111
Consumer ....................................     2,750     4,300    49,908     --       2,275     --       59,233
                                               --------  --------  --------  -------   -------   ------   --------
Total loans, net of unearned income .........  $107,788  $106,338  $210,607  $63,812   $84,506   $1,054   $574,105
                                               --------  --------  --------  -------   -------   ------   --------
                                               --------  --------  --------  -------   -------   ------   --------
</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 five 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. In recent years, 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, 1997.

Allowance for Credit Losses

   The Company follows the guidance of FASB Statement No. 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.

 
<PAGE>

   The allowance for credit losses was $5.71 million, or 1.00% of total 
loans, net of unearned income, at December 31, 1997, compared to $5.12 
million, or 1.03% as of December 31, 1996. The allowance for credit losses to 
nonperforming loans was 123.7% and 71.5% as of December 31, 1997 and 1996, 
respectively.

   The Company's provision for credit losses in 1997 was $1.33 million 
compared to $318,000 in 1996. Net credit losses in 1997 were less than the 
provision for credit losses by $590,000. Net credit losses in 1996 exceeded 
the provision for credit losses by $581,000.

   Total nonperforming assets as of December 31, 1997 totaled $8.12 million, 
reflecting a $2.18 million decrease from the $10.29 million in nonperforming 
assets as of December 31, 1996. During 1997, the Company created a "Special 
Assets" department whose primary responsibility is to enhance recovery of 
nonperforming assets. The decrease in the level of nonperforming assets at 
1997's year-end reflects the efforts of this department. Total nonperforming 
assets, including properties acquired through foreclosure, represent .88% and 
1.32% of total assets as of December 31, 1997 and 1996 respectively.

   Nonperforming assets at December 31, 1997, include $3.64 million of 
nonaccrual loans, $982,000 of loans past due 90 days or more, $2.31 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.

   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.

Problem Assets

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
December 31,                            1997     1996      1995     1994     1993
-----------------------------------------------------------------------------------
                                                 (dollars in thousands)
<S>                                    <C>      <C>       <C>      <C>      <C>   
Nonperforming loans:

  Nonaccrual loans(1) ...............  $3,637   $ 4,631   $2,532   $3,445   $3,282
  Restructured loans(2) .............    --        --       --       --       --
  Past due loans(3) .................     982     2,531      122      153       89
                                       ------   -------   ------   ------   ------
    Total nonperforming loans .......   4,619     7,162    2,654    3,598    3,371
Foreclosed properties(4) ............   3,496     3,131    2,262    2,212    2,665
                                       ------   -------   ------   ------   ------
   Total nonperforming
    assets ..........................  $8,115   $10,293   $4,916   $5,810   $6,036
                                       ------   -------   ------   ------   ------
                                       ------   -------   ------   ------   ------
Nonperforming assets to
 total loans (net of
 unearned income) and foreclosed
 properties at period-end ...........    1.40%     2.05%    1.11%    1.48%    1.78%

Nonperforming assets to total
 assets at period-end ...............     .88%     1.32%     .74%     .93%    1.00%

Allowance for credit losses
 to nonperforming loans at
 period-end .........................   123.7%     71.5%   197.5%   130.4%   125.2%
</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.



<PAGE>

(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.


   The Company has loans totaling $15.35 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, 1997, 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, 1997, 
classifiable as nonaccrual, past due, restructured or problem assets.

Allowance for Credit Losses

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Years ended December 31,                1997         1996      1995      1994      1993
------------------------------------------------------------------------------------------
                                                     (dollars in thousands)
<S>                                     <C>        <C>        <C>      <C>        <C>     
Average total loans out-
 standing during year ................  $535,921   $464,440   $423,72  $358,051   $321,539
                                        --------   --------   -------  --------   --------
                                        --------   --------   -------  --------   --------
Allowance at beginning
 of year .............................  $  5,123   $  5,242   $4,691   $  4,219   $  3,694
                                        --------   --------   -------  --------   --------
Charge-offs:

  Real estate-construction ...........       588       --       --         --         --
  Real estate-mortgage ...............        12        136       22         32       --
  Commercial and agricultural ........       306        570       19       --          140
  Consumer ...........................       288        293      168        129        127
                                        --------   --------   -------  --------   --------
     Total charge-offs ...............     1,194        999      209        161        267
                                        --------   --------   -------  --------   --------
Recoveries:

   Real estate-construction ..........        24       --       --         --         --
   Real estate-mortgage ..............         4       --          1       --            2
   Commercial and agricultural .......       369         20     --           38          8
   Consumer ..........................        58         80       49         70         17
                                        --------   --------   -------  --------   --------
     Total recoveries ................       455        100       50        108         27
                                        --------   --------   -------  --------   --------
Net charge-offs ......................       739        899      159         53        240
                                        --------   --------   -------  --------   --------
Additions to allowance charged
 to operating expenses ...............     1,329        318      710        525        765
                                        --------   --------   -------  --------   --------
Other transfers and allowance on loans
  acquired with purchased entity .....      --          462     --         --         --
                                        --------   --------   -------  --------   --------
Allowance at end of year .............  $  5,713   $  5,123   $5,242   $  4,691   $  4,219
                                        --------   --------   -------  --------   --------
                                        --------   --------   -------  --------   --------
Ratio of net charge-offs
 to average total loans ..............       .14%       .19%     .04%       .01%       .07%
                                        --------   --------   -------  --------   --------
                                        --------   --------   -------  --------   --------
</TABLE>


 
<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.

Allocation of Allowance for Credit Losses

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

December 31,                        1997    %(1)       1996   %(1)      1995      %(1)      1994     %(1)        1993     %(1)
------------------------------------------------------------------------------------------------------------------------------
                                                                (dollars in thousands)
<S>                              <C>        <C>      <C>      <C>     <C>        <C>       <C>       <C>        <C>       <C>
Real estate-construction         $   557    14%      $1,059   11%     $   806        9%    $  743       7%      $  693      6%
Real estate-mortgage               2,703     65       2,300   67        2,406       68      2,370      70        2,247      73
Commercial and agricultural          993     11         855   11        1,129       11        749      11          991      11
Consumer                             380     10         534   11          476       12        344      12          288      10
Unallocated                        1,080     --         375   --          425       --        485      --           --      --
-------------------------------------------------------------------------------------------------------------------------------
Total Allowance                   $5,713    100%     $5,123  100%      $5,242      100%    $4,691      100%     $4,219     100%
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>


(1) Percent of loans in each category to total loans, net of unearned income.

Deposits

Average Deposits and Average Rates

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
Years ended December 31,               1997             1996           1995
-------------------------------------------------------------------------------------------
                                 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 ..............  $ 73,710   --%      $ 66,111   --%      $ 58,789    --%
Interest-bearing                                                                   
 demand deposits ..............   130,387  2.5        136,280  2.75       136,274  2.97
Savings  deposits .............    80,812  2.5         84,294  3.08        81,128  3.08
Certificates of deposit                                                            
 and other time deposits ......   307,482  5.4        265,180  5.26       238,620  5.44
                                 --------  ---       --------  ----      --------  ----
     Total average deposits ...  $592,391  3.7       $551,865  3.67      $514,811  3.79%
                                 --------  ---       --------  ----      --------  ---- 
                                 --------  ---       --------  ----      --------  ---- 
</TABLE>

Maturities of Time Deposits--$100,000 or More

<TABLE>
<CAPTION>
December 31,                              1997     1996      1995
------------------------------------------------------------------
                                          (dollars in thousands)
<S>                                      <C>      <C>      <C>
Maturing in:

   3 months or less ...................  $18,119  $23,025  $13,218
   Over 3 months through 6 months .....   13,983    9,009   13,268
   Over 6 months through 12 months ....    9,777    6,226    7,893
   Over 12 months .....................   16,966   11,991   10,944
                                         -------  -------  -------
                                         $58,845  $50,251  $45,323
                                         -------  -------  -------
                                         -------  -------  -------
</TABLE>

 <PAGE>

Short-term Borrowings

Federal Funds Purchased and Securities Sold Under Agreements to Repurchase(1)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
December 31,                                         1997      1996      1995
--------------------------------------------------------------------------------
                                                       (dollars in thousands)
<S>                                                 <C>       <C>       <C>    
Total outstanding at year-end ....................  $65,163   $40,739   $21,043
                                                    -------   -------   -------
Average amount outstanding during the year .......  $50,141   $24,815   $18,928
                                                    -------   -------   -------
Maximum amount outstanding at any month-end ......  $66,143   $43,714   $28,237
                                                    -------   -------   -------
Weighted-average interest rate at year-end .......     5.76%     5.43%     5.65%
                                                    -------   -------   -------
Weighted-average interest rate during the year ...     5.62%     5.47%     5.93%
                                                    -------   -------   -------
</TABLE>

(1) Includes securities sold under agreements to repurchase with various
    counterparties. Repurchase agreements mature primarily within 60 days and
    are collateralized with certain debt securities.

Other Short-term Borrowings(2)

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
December 31,                                         1997      1996       1995
--------------------------------------------------------------------------------
                                                      (dollars in thousands)
<S>                                                <C>        <C>       <C>    
Total outstanding at year-end ...................  $152,138   $76,516   $32,426
                                                   --------   -------   -------
Average amount outstanding during the year ......  $110,462   $46,626   $32,246
                                                   --------   -------   -------
Maximum amount outstanding at any month-end .....  $152,138   $76,516   $50,382
                                                   --------   -------   -------
Weighted-average interest rate at year-end ......      5.36%     5.59%     5.91%
                                                   --------   -------   -------
Weighted-average interest rate during the year ..      5.48%     5.85%     5.84%
                                                   --------   -------   -------
</TABLE>

(2) Primarily reflects borrowings under a secured lending arrangement with the
    Federal Home Loan Bank of Atlanta.

   Included in other short-term borrowings at December 31, 1997 are the 
following borrowings from the Federal Home Loan Bank of Atlanta. These 
borrowings have scheduled maturity dates but are all callable at the sole 
discretion of the Federal Home Loan Bank of Atlanta, within one year from the 
date of their initial funding. All of these borrowings reprice monthly, 
quarterly, semi-annually, or annually, until the first call date and then are 
repriced quarterly, thereafter.

<TABLE>
<CAPTION>

   December 31, 1997           Due in    Interest rate range              Amount
----------------------------------------------------------------------------------------
                                                                  (dollars in thousands)
<S>                            <C>       <C>                      <C>     
                               1998      5.30%-5.89%                     $  15,000
                               1999         5.74                            10,000
                               2000         5.66                            16,000
                               2002         5.30                            29,000
                               2004         5.36                            10,000
                               2007      5.03%-5.27%                        72,000
                              -----      ----------                      ---------
                              Total                                      $ 152,000
                              -----      ----------                      ---------
</TABLE>

 <PAGE>

Capital Resources

   The Company and the Bank 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 the Bank must meet specific capital 
guidelines that involve quantitative measures of the Company's and the Bank's 
assets, liabilities, and certain off-balance-sheet items as calculated under 
regulatory accounting practices. The Company's and the Bank's 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 the Bank 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, 1997 and 1996 that the 
Company and the Bank meet all capital adequacy requirements to which they are 
subject. See Note 13 to the consolidated financial statements for a table 
depicting compliance with regulatory capital requirements.

   As of December 31, 1997, the most recent notification from the regulatory 
agency categorized the Bank as adequately capitalized under the regulatory 
framework for prompt corrective action. To be categorized as adequately 
capitalized the Bank must maintain minimum total risk-based, Tier I 
risk-based, and Tier I leverage ratios as set forth in the table in Note 13. 
There are no conditions or events since that notification which management 
believes have changed the Bank's category.

   The Company repurchased 10,000 and 30,000 shares of its outstanding common 
shares under the stock repurchase program in 1997 and 1996, respectively. The 
total number of shares repurchased was 40,000 as of December 31, 1997.

Inflation

   The effect of changing prices on financial institutions is typically 
different than on non-banking companies since virtually all of a bank's 
assets and liabilities are monetary in nature. In particular, interest rates 
are significantly affected by inflation, but neither the timing nor magnitude 
of the changes are directly related to price level indices; therefore, the 
Company can best counter inflation over the long term by managing net 
interest income and controlling net increases in noninterest income and 
expenses.

Year 2000

   The Company is currently addressing the many areas affected by the Year 
2000 computer issue. A Year 2000 plan has been prepared which includes 
contacting all of the software vendors that maintain the computer programs 
that the Company relies upon. This plan provides that the Company will obtain 
assurances from these software vendors that their product will be Year 2000 
compliant. All systems potentially affected will be evaluated. The plan also 
includes contacting large commercial loan customers to determine their 
readiness for this issue. At this time, it is anticipated that many, if not 
all of these changes, should be ready for testing by December 31, 1998. Since 
many of the programs used by the Company are "off-the-shelf" as compared to 
"highly customized," the cost to address these matters is not expected to 
have a material impact on future operating results or financial condition. 
This area is changing very rapidly and the actual results may differ from 
what has been anticipated.

Web Site

   The Securities and Exchange Commission maintains a web site that contains 
reports, proxy and information statements and other information regarding 
registrants that file electronically with the Commission, including the 
Company; that address is: http:\\www.sec.gov.

 <PAGE>

Financial Analysis 1996-1995

Earnings Summary:

   Net income was $5.87 million in 1996 compared to $7.00 million for 1995. 
Basic and diluted earnings per share were $0.99 in 1996 compared to $1.19 for 
1995. Net income before merger-related expenses was $7.78 million in 1996 and 
$7.30 million in 1995, while basic and diluted earnings per share were $1.31 
and $1.24 for 1996 and 1995, respectively.

   Return on average assets was 0.84% in 1996 compared to 1.09% for 1995. 
Return on average shareholders' equity was 8.92% in 1996 compared to 11.21% 
in 1995. However, before merger-related expenses 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.

   Net Interest Income: On a fully taxable-equivalent basis, net interest 
income increased $701,000 or 2.4% in 1996 and $866,000 or 3.1% in 1995.

   In 1996, the net interest margin on average total interest-earning assets 
decreased to 4.52% from 4.78% in 1995 and from 4.96% in 1994. Changes in net 
interest income between periods are 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, "Rate/Volume Analysis," 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 $343,000, or 8.8% in 
1996 and by $1.04 million, or 36.1% in 1995.

   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 $305,000 from the sale of conforming 
mortgage loans and generated $490,000 in related servicing fees in 1996. 
During 1995, the Company realized gains from loan sales and servicing fee 
income of $315,000 and $597,000, 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 $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.

   Increases in salaries and employee benefits of $428,000 or 3.8% in 1996 
and $1.33 million or 13.5% in 1995, primarily reflect the effects of an 
increase in the number of Company personnel during these periods.

   Net occupancy and equipment expenses increased $736,000 (43.7%) and 
$161,000 (11.2%), respectively, compared to those incurred in 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 or 1.7% in 1996, and by 
$20,000 or 0.33% in 1995. See Note 12 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 pretax 
income in 1996.


<PAGE>

                            SELECTED FINANCIAL DATA

The following table sets forth certain selected financial data concerning the 
Company, and is qualified in its entirety by the detailed information and 
financial statements, including notes thereto, included elsewhere herein.
 
<TABLE>
<CAPTION>

Years ended December 31,                                        1997        1996        1995        1994        1993
-----------------------------------------------------------  ----------  ----------  ----------  ----------  ----------
                                                                   (dollars in thousands, except per share data)
<S>                                                          <C>         <C>         <C>         <C>         <C>
Summary of Operating Results:
  Total interest income....................................  $   63,191  $   54,653  $   51,126  $   43,892  $   41,691
  Total interest expense(1)................................      31,012      25,014      22,759      17,010      16,054
                                                             ----------  ----------  ----------  ----------  ----------
  Net interest income......................................      32,179      29,639      28,367      26,882      25,637
  Provision for credit losses..............................       1,329         318         710         525         765
                                                             ----------  ----------  ----------  ----------  ----------
  Net interest income after provision for credit losses....      30,850      29,321      27,657      26,357      24,872
  Net securities gains (losses)............................         580         193         123         375      (1,183)
  Noninterest income (excluding net securities gains
    (losses))..............................................       5,540       4,068       3,795       2,503       4,497
  Noninterest expenses.....................................      23,949      24,470      20,689      19,191      18,013
                                                             ----------  ----------  ----------  ----------  ----------
  Income before provision for income taxes.................      13,021       9,112      10,886      10,044      10,173
  Provision for income taxes...............................       4,218       3,245       3,888       3,272       3,301
                                                             ----------  ----------  ----------  ----------  ----------
  Net income...............................................  $    8,803  $    5,867  $    6,998  $    6,772  $    6,872
                                                             ----------  ----------  ----------  ----------  ----------
                                                             ----------  ----------  ----------  ----------  ----------
Per Share(2):
  Basic and diluted earnings...............................  $     1.49  $     0.99  $     1.19  $     1.15  $     1.17
  Cash dividends declared..................................  $     0.57  $     0.49  $     0.50  $     0.44  $     0.35
  Book value at year-end...................................  $    13.11  $    11.71  $    11.36  $    10.18  $     9.96
  Shares outstanding at year end...........................   5,912,284   5,901,016   5,828,197   5,796,869   5,789,812
  Weighted average shares outstanding:
    Basic..................................................   5,903,868   5,919,977   5,881,129   5,891,332   5,866,785
    Diluted................................................   5,918,571   5,933,411   5,895,803   5,905,186   5,873,288

Other Data (At Year-End):
  Total loans, net of unearned income......................  $  574,105  $  497,995  $  439,794  $  390,177  $  336,916
  Total assets                                                  918,084     779,169     660,984     627,050     603,497
  Total deposits...........................................     616,512     587,074     529,988     505,202     485,543

Federal funds purchased and securities
  sold under agreements to repurchase....................        65,163      40,739      21,043      25,103      32,304
  Other short-term borrowings..............................     152,138      76,516      32,426      26,089      13,776
  Long-term debt...........................................      --          --           5,680       7,000      10,106
  Total shareholders' equity...............................      77,518      69,110      66,219      59,037      57,689
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

Years ended December 31,                                        1997        1996        1995        1994        1993
-----------------------------------------------------------  ----------  ----------  ----------  ----------  ----------
                                                                   (dollars in thousands, except per share data)
<S>                                                          <C>         <C>         <C>         <C>         <C>
Consolidated Ratios:
  Return on average total assets...........................        1.07%      0.84%      1.09%      1.14%        1.23%
  Return on average shareholders' equity...................       12.25       8.92      11.21      11.79        12.73
  Average shareholders' equity to average total assets.....        8.65       9.39       9.73       9.63         9.67
  Cash dividends declared to net income....................       38.77      49.86      41.61      36.62        30.32
</TABLE>

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

(1) Net of $108,000 and $300,000 of capitalized construction period interest in
    1996 and 1995, respectively.

(2) Per share data for 1996, 1995, 1994 and 1993 has been restated for the
    effects of a 10% stock dividend declared and paid in October 1997.






<PAGE>

FCNB Corp and Subsidiary
Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                                     December 31,
                                                                                  ------------------
(dollars in thousands, except per share amounts)                                    1997      1996
--------------------------------------------------------------------------------  --------  --------
<S>                                                                               <C>       <C>

    ASSETS
Cash and due from banks.........................................................  $ 27,329  $  31,023
Interest-bearing deposits in other banks........................................       755      1,065
Federal funds sold..............................................................    14,231     12,438
                                                                                  --------- ---------
  Cash and cash equivalents.....................................................    42,315     44,526
                                                                                  --------- ---------
Loans held for sale.............................................................       909      3,162
                                                                                  --------- ---------
Investment securities held to maturity--fair value of $48,729 in 1997 and
  $33,740 in 1996...............................................................    48,389     33,525
                                                                                  --------- ---------
Investment securities available for sale--at fair value.........................   202,850    162,860
                                                                                  --------- ---------
Loans...........................................................................   574,205    498,391
Less: Allowance for credit losses...............................................    (5,713)    (5,123)
    Unearned income.............................................................      (100)      (396)
                                                                                  --------- ---------
    Net loans...................................................................   568,392    492,872
                                                                                  --------- ---------
Bank premises and equipment.....................................................    22,705     22,691
                                                                                  --------  ---------
Other assets....................................................................    32,524     19,533
                                                                                  --------- ---------
    Total assets................................................................  $918,084   $779,169
                                                                                  --------- ---------
                                                                                  --------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES
Deposits:
Noninterest-bearing deposits....................................................  $ 85,902  $  76,365
Interest-bearing deposits.......................................................   530,610    510,709
                                                                                  --------- ---------
    Total deposits..............................................................   616,512    587,074
Short-term borrowings:
Federal funds purchased and securities
  sold under agreements to repurchase...........................................    65,163     40,739
Other short-term borrowings.....................................................   152,138     76,516
Accrued interest and other liabilities..........................................     6,753      5,730
                                                                                  --------- ---------
    Total liabilities...........................................................   840,566    710,059
                                                                                  --------  ---------
COMMITMENTS AND CONTINGENCIES (Notes 9 & 16)

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;
  5,912,284 in 1997
  and 5,364,560 in 1996 shares issued and outstanding...........................     5,912      5,365
Surplus.........................................................................    43,398     26,652
Retained earnings...............................................................    24,792     36,589
Net unrealized gain on securities available for sale............................     3,416        504
                                                                                  --------- ---------
    Total shareholders' equity..................................................    77,518     69,110
                                                                                  --------- ---------
    Total liabilities and shareholders' equity..................................  $918,084  $ 779,169
                                                                                  --------- ---------
                                                                                  --------- ---------
See Notes to Consolidated Financial Statements.
</TABLE>



<PAGE>

FCNB Corp and Subsidiary
Consolidated Statements of Income

<TABLE>
<CAPTION>
                                                                             For the years ended December 31,
                                                                             --------------------------------
(dollars in thousands, except per share amounts)                                1997       1996       1995
----------------------------------------------------------------------------  ---------  ---------  ---------
<S>                                                                           <C>        <C>        <C>
Interest income:
  Interest and fees on loans................................................  $  48,562  $  42,948  $  39,341
  Interest and dividends on investment securities:
    Taxable.................................................................     13,181      9,728      9,292
    Tax exempt..............................................................        341        505      1,211
    Dividends...............................................................        618        539        414
  Interest on federal funds sold............................................        389        759        457
  Other interest income.....................................................        100        174        411
                                                                              ---------  ---------  ---------
      Total interest income.................................................     63,191     54,653     51,126
                                                                              ---------  ---------  ---------
Interest expense:
  Interest on deposits......................................................     22,143     20,549     19,361
  Interest on federal funds purchased and securities sold under agreements
    to repurchase...........................................................      2,819      1,357      1,122
  Interest on other short-term borrowings...................................      6,050      2,762      1,882
  Interest on long-term debt................................................     --            346        394
                                                                              ---------  ---------  ---------
      Total interest expense................................................     31,012     25,014     22,759
                                                                              ---------  ---------  ---------
Net interest income.........................................................     32,179     29,639     28,367
Provision for credit losses.................................................      1,329        318        710
                                                                              ---------  ---------  ---------
Net interest income after provision for credit losses.......................     30,850     29,321     27,657
                                                                              ---------  ---------  ---------
Noninterest income:
  Service fees..............................................................      2,855      2,454      2,104
  Net securities gains......................................................        580        193        123
  Gain (loss) on sale of loans..............................................        407        305        315
  Servicing fees on loans sold..............................................        374        490        597
  Other operating income....................................................      1,904        819        779
                                                                              ---------  ---------  ---------
      Total noninterest income..............................................      6,120      4,261      3,918
                                                                              ---------  ---------  ---------
Noninterest expenses:
  Salaries and employee benefits............................................     12,745     11,621     11,193
  Occupancy expenses, net...................................................      2,463      2,419      1,683
  Equipment expenses........................................................      2,027      1,599      1,438
  Merger-related expenses...................................................        460      2,865        303
  Other operating expenses..................................................      6,254      5,966      6,072
                                                                              ---------  ---------  ---------
      Total noninterest expenses............................................     23,949     24,470     20,689
                                                                              ---------  ---------  ---------
Income before provision for income taxes....................................     13,021      9,112     10,886
Provision for income taxes..................................................      4,218      3,245      3,888
                                                                              ---------  ---------  ---------
Net income..................................................................  $   8,803  $   5,867  $   6,998
                                                                              ---------  ---------  ---------
                                                                              ---------  ---------  ---------
Basic and diluted earnings per share........................................  $    1.49  $    0.99  $    1.19
                                                                              ---------  ---------  ---------
                                                                              ---------  ---------  ---------
</TABLE>

See Notes to Consolidated Financial Statements.
 

<PAGE>

FCNB Corp and Subsidiary
Consolidated Statements of Changes in Shareholders' Equity
For the years ended December 31, 1997, 1996 and 1995
 
<TABLE>
<CAPTION>
                                                                                                                Net
                                                                                                             Unrealized
                                                                                                            Gain (loss)
     (dollars in thousands, except per share amounts)                                                            on         Total
----------------------------------------------------------                                                   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, 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 ($0.50 per share)....      --           --          --         (2,912)     --            --          (2,912)
Other........................................      --           --             182     --              35        --             217
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 ($0.49 per share)....      --           --          --         (2,925)     --            --          (2,925)
Fair value adjustment for securities
  available for sale, net....................      --           --          --         --          --               (26)        (26)
                                               -----------  -----------  ---------  ---------         ---   ------------  ---------
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                                                                              Net
                                                                                                           Unrealized
                                                                                                          Gain (loss)
     (dollars in thousands, except per share amounts)                                                          on         Total
----------------------------------------------------------                                                 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, 1996..............   5,364,560        5,365      26,652     36,589      --               504     69,110
                                            -----------  -----------  ---------  ---------  -----------  ------------  ---------
Net income................................      --           --          --          8,803      --            --          8,803
Dividend reinvestment and stock purchase
  plan....................................      --           --          --            (18)     --            --            (18)
Shares issued with 10% stock dividend.....     536,503          536      16,634    (17,170)     --            --         --
Repurchase of common stock................     (10,000)         (10)       (203)    --          --            --           (213)
Stock option transactions.................      21,221           21         315     --          --            --            336
Cash dividends declared ($0.57 per share).      --           --          --         (3,412)     --            --         (3,412)
Fair value adjustment for securities
  available for sale, net.................      --           --          --         --          --             2,912      2,912
                                            -----------  -----------  ---------  ---------  -----------  ------------  ---------
Balance at December 31, 1997..............   5,912,284    $   5,912   $  43,398  $  24,792      --         $   3,416    $77,518
                                            -----------  -----------  ---------  ---------  -----------  ------------  ---------
                                            -----------  -----------  ---------  ---------  -----------  ------------  ---------
</TABLE>
 
See Notes to Consolidated Financial Statements.
 

<PAGE>

FCNB Corp and Subsidiary
Consolidated Statements of Cash Flows
 
<TABLE>
<CAPTION>
                                                                  For the years ended December 31,
                                                                  --------------------------------
(dollars in thousands)                                              1997       1996       1995
----------------------------------------------------------------  ---------  ---------  ---------
<S>                                                               <C>        <C>        <C>
Cash flows from operating activities:
Net income......................................................  $   8,803  $   5,867  $   6,998
  Adjustments to reconcile net income to net cash provided by
    (used in) operating activities:
  Depreciation and amortization.................................      1,688      1,308      1,029
  Provisions for credit losses and foreclosed properties........      1,354        318      1,062
  Deferred income taxes (benefits)..............................        561       (125)      (210)
  Net discount accretion on investment securities...............       (123)        (9)       (87)
  Noncash charitable contribution...............................         98         64     --
  Accretion of net loan origination fees........................       (781)      (496)      (470)
  Net securities gains..........................................       (580)      (193)      (123)
  Net (gain) loss on sales of property..........................         18         15        (55)
  Increase in other assets......................................     (1,460)      (466)      (997)
  Decrease (increase) in loans held for sale....................      2,253       (800)    (1,339)
  Increase (decrease) in accrued interest and other liabilities.      1,023       (503)       992
  Other operating activities....................................     --         --            217
                                                                  ---------  ---------  ---------
      Net cash provided by operating activities.................     12,854      4,980      7,017
                                                                  ---------  ---------  ---------
Cash flows from investing activities:
  Proceeds from sales of investment securities available for
    sale........................................................     60,351     33,434     21,618
  Proceeds from maturities of investment securities available for
    sale........................................................     61,178     20,424      6,820
  Proceeds from maturities of investment securities held to
    maturity....................................................     12,257     25,286     24,965
  Purchases of investment securities available for sale.........   (162,294)  (104,922)    (6,457)
  Purchases of investment securities held to maturity...........    (21,031)   (25,209)    (9,520)
  Net increase in loans.........................................    (76,657)   (30,046)   (50,566)
  Purchases of bank premises and equipment......................     (1,612)    (4,622)    (8,778)
  Proceeds from dispositions of property........................        375        780        568
  Purchase of foreclosed properties.............................       (158)       (76)    --
  Investments in other real estate owned........................     --         --           (196)
  Purchases of investments in bank-owned life insurance.........    (13,500)    --         --
  Acquisition of business, net of cash acquired.................     --         (2,981)    --
                                                                  ---------  ---------  ---------
      Net cash (used in) investing activities...................   (141,091)   (87,932)   (21,546)
                                                                  ---------  ---------  ---------
                                                                  ---------  ---------  ---------
</TABLE>
 

<PAGE>

FCNB Corp and Subsidiary
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
                                                                                   For the years ended December 31,
                                                                                   -------------------------------
                                                                                     1997       1996       1995
                                                                                   ---------  ---------  ---------
(dollars in thousands)
<S>                                                                                <C>        <C>        <C>
Cash flows from financing activities:
  Net increase (decrease) in noninterest-bearing deposits, NOW accounts, money
    market accounts, and savings accounts........................................  $  (7,468) $  17,285  $   1,866
  Net increase in time deposits..................................................     36,906     10,791     22,937
  Net increase in short-term borrowings..........................................    100,046     61,786      2,277
  Payments on long-term debt.....................................................     --         (5,680)    (1,320)
  Dividend reinvestment and stock purchase plan..................................        (18)       (11)       (11)
  Proceeds from sale of common stock.............................................        185        449        130
  Repurchase of common stock.....................................................       (213)      (580)    --
  Dividends paid.................................................................     (3,412)    (2,925)    (2,912)
                                                                                   ---------  ---------  ---------
      Net cash provided by financing activities..................................    126,026     81,115     22,967
                                                                                   ---------  ---------  ---------
Increase (decrease)in cash and cash equivalents..................................     (2,211)    (1,837)     8,438
Cash and cash equivalents-beginning of year......................................     44,526     46,363     37,925
                                                                                   ---------  ---------  ---------
Cash and cash equivalents-end of year............................................  $  42,315  $  44,526  $  46,363
                                                                                   ---------  ---------  ---------
                                                                                   ---------  ---------  ---------
Supplemental cash flow information:

Noncash investing and financing activities:
  Foreclosed properties acquired in settlement of loans.........................   $     589  $     106  $   1,513
                                                                                   ---------  ---------  ---------
                                                                                   ---------  ---------  ---------
  Transfers from foreclosed properties to loans..................................     --      $   1,165  $     253
                                                                                   ---------  ---------  ---------
                                                                                   ---------  ---------  ---------
  Bank premises transferred to other assets......................................     --      $   1,190     --
                                                                                   ---------  ---------  ---------
                                                                                   ---------  ---------  ---------
  Surplus from stock option transactions.........................................  $     151  $     117  $      80
                                                                                   ---------  ---------  ---------
                                                                                   ---------  ---------  ---------
  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     --
                                                                                   ---------  ---------  ---------
                                                                                   ---------  ---------  ---------
</TABLE>
 
------------------------
 
The Company paid interest of $30,138, $25,182 and $22,870 in 1997, 1996 and
1995, respectively. Income taxes paid by the Company were $2,662, $4,315 and
$3,216 in 1997, 1996 and 1995 respectively.
 
See Notes to Consolidated Financial Statements.
 
<PAGE>


                            FCNB Corp and Subsidiary
                   Notes to Consolidated Financial Statements
 
Note 1.  Nature of operations and significant accounting policies:
 
FCNB Corp (the "Parent Company") is a one bank holding company (following the
merger of Elkridge Bank with FCNB Bank) that provides its customers with banking
and non-banking financial services through its wholly-owned subsidiary FCNB Bank
(the "Bank"). The Bank offers various loan, deposit and other financial service
products to their customers. The Bank's customers include individuals and
commercial enterprises located within the State of Maryland. Its 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 Bank maintains correspondent banking relationships and
transacts 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 subsidiary (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 the Bank, presented on the accrual basis of accounting, after elimination of
all intercompany accounts and transactions. In the Parent Company's
unconsolidated financial statements, the investment in subsidiary is 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 estimated 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
estimated 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.
 
<PAGE>
*******************
 
Loans held for sale:
 
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.
 
Impaired loans:
 
The Company accounts for impaired loans following 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. Statement 114 does not apply to large groups of homogeneous loans
such as consumer, credit card and residential mortgage loans. Impaired loans are
therefore primarily business loans, which include commercial loans, commercial
mortgages and construction real estate loans. The Company discontinues the
accrual of interest when a loan is specifically determined to be impaired.
Interest receipts on impaired loans are recognized as interest income or are
applied to principal when management believes ultimate collectability of
principal is in doubt.
 
Loans and allowance for credit losses:
 
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. 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. Consistent with the
Company's policy for impaired loans, interest receipts on nonaccrual loans are
recognized as interest income unless ultimate collectability is in doubt. Cash
collections on such loans are applied as reductions of the loan principal
balance and no interest income is recognized until the principal balance has
been collected.
 
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.
 
<PAGE>
**********************
 
Income taxes:
 
Provisions for income taxes are based on taxes payable or refundable for the
current year 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:
 
On December 31, 1997, the Company adopted FASB Statement No. 128, "Earnings per
Share." Statement 128 establishes standards for computing and presenting
earnings per share ("EPS") that simplify the standards previously followed in
Accounting Principals Board Opinion No. 15. It replaces the former presentation
of primary EPS with a presentation of basic EPS and, where applicable, requires
the dual presentation of basic and diluted EPS on the face of the income
statement. Basic EPS is generally computed by dividing net income by the
weighted-average number of common shares outstanding for the period, whereas
diluted EPS essentially reflects the potential dilution in basic EPS that could
occur if other contracts to issue common stock were exercised. Per share amounts
are based on the weighted-average number of shares outstanding during each year
as follows:
 
<TABLE>
<CAPTION>
                                                                                1997        1996        1995
                                                                             ----------  ----------  ----------
<S>                                                                          <C>         <C>         <C>
Basic EPS weighted-average shares outstanding..............................   5,903,868   5,919,977   5,881,129
Effect of dilutive securities-stock options................................      14,703      13,434      14,674
                                                                             ----------  ----------  ----------
Diluted EPS weighted-average shares outstanding............................   5,918,571   5,933,411   5,895,803
                                                                             ----------  ----------  ----------
                                                                             ----------  ----------  ----------
</TABLE>
 
Risk management instruments:
 
Interest rate swaps used to achieve interest rate risk management objectives 
are accounted for in a manner consistent with the accounting basis of the 
related asset or liability. An instrument designed to hedge an asset or 
liability carried at historical cost is accounted for on an accrual basis, 
whereby the interest income or expense of the related asset or liability is 
adjusted for the net amount of any interest receivable or payable generated 
by the hedging instrument during the reporting period. For such instruments, 
no amounts other than any accrued interest receivable or payable are included 
in the accompanying consolidated balance sheets.
 
Interest rate swaps involve the exchange of payments between counterparties 
based on the interest differential between a fixed and a variable interest 
rate applied to a notional balance. Under accrual accounting, this interest 
differential is recognized as an adjustment to the interest income or expense 
of the related asset or liability in the accompanying statements of income.
 
Upon early termination of derivative instruments accounted for under the 
accrual method, the net proceeds received or paid are deferred, if material, 
in the accompanying consolidated balance sheets and amortized to the interest 
income or expense of the related asset or liability over the lesser of the 
remaining contractual life of the instrument or the maturity of the related 
asset or liability. At December 31, 1997 and 1996, there were no deferred 
gains or losses in the accompanying consolidated balance sheets arising from 
the termination of instruments qualifying for accrual accounting prior to 
maturity.
 
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 any of the estimates. As a result, the
estimates are only
 
<PAGE>
**********************
 
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 January 26, 1996, the Company acquired Laurel Bancorp, Inc. ("Laurel") in
exchange for approximately 1,453,000 shares of the Company's common stock
(adjusted for the 10% stock dividend declared in October 1997) in a transaction
accounted for using the pooling-of-interests method. 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 acquisition and the 1997 merger of Elkridge Bank with FCNB Bank, the branch
offices of Laurel FSB became part of 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.
 
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 1997 and 1996 was
approximately $125,000 and $85,000 respectively.
 
The following tables present the combined and separate results of operations for
Laurel and the Company for the periods preceding the acquisition of 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>
                                                                                                 Basic and diluted
                                                                           Total         Net       earnings per
(dollars in thousands, except per share data)                              income      income          share
----------------------------------------------------------------------  ------------  ---------  -----------------
<S>                                                                     <C>           <C>        <C>
Year ended December 31, 1995
Laurel................................................................  $      9,395  $   1,248
Company...............................................................        45,649      5,750      $    1.28
                                                                        ------------  ---------         ------
Combined..............................................................        55,044      6,998           1.19
Harbor................................................................         2,801        255
                                                                        ------------  ---------         ------
Pro forma (unaudited).................................................  $     57,845  $   7,253      $    1.23
                                                                        ------------  ---------         ------
                                                                        ------------  ---------         ------
Year ended December 31, 1996
Company...............................................................  $     58,914  $   5,867      $    0.99
Harbor................................................................         1,037         81
                                                                        ------------  ---------         ------
Pro forma (unaudited).................................................  $     59,951  $   5,948      $    1.00
                                                                        ------------  ---------         ------
                                                                        ------------  ---------         ------
</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:
 
<PAGE>

 
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 $40,000 at 
December 31, 1997 and $74,000 at December 31, 1996. In addition, for the 
reserve maintenance period in effect at December 31, 1997 and 1996, the Bank 
was required to maintain average daily balances totaling $7,323,000 and 
$5,392,000, respectively, consisting of vault cash and noninterest-bearing 
deposits with the Federal Reserve Bank.
 
Note 4. Investments:
 
The amortized cost and estimated fair value of securities being held to 
maturity at December 31, 1997 and 1996 are as follows:
 
HELD-TO-MATURITY PORTFOLIO

<TABLE>
<CAPTION>
                                                                    Gross          Gross       Estimated
                                                    Amortized    Unrealized     Unrealized       Fair
December 31, 1997                                     Cost          Gains         Losses         Value
-------------------------------------------------  -----------  -------------  -------------  -----------
<S>                                                <C>          <C>            <C>            <C>
                                                                   (dollars in thousands)
U.S. Treasury and other U.S. government 
  agencies and corporations......................   $  25,523       $    15        $    29     $  25,509
State and political subdivisions.................       3,690           387           --           4,077
Mortgage-backed debt securities..................      19,176           150            183        19,143
                                                   -----------      -------        -------    -----------
                                                    $  48,389       $   552        $   212     $  48,729
                                                   -----------      -------        -------    -----------
                                                   -----------      -------        -------    -----------
December 31, 1996
------------------------------------------------
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
                                                  -----------      -------        -------    -----------
                                                  -----------      -------        -------    -----------
</TABLE>
 
The amortized cost and estimated fair value of securities available for sale at
December 31, 1997 and 1996 are as follows:
 

<PAGE>


Available-for-sale portfolio
 
<TABLE>
<CAPTION>
                                                                  Gross         Gross      Estimated
                                                   Amortized   Unrealized    Unrealized       Fair
December 31, 1997                                     Cost        Gains        Losses        Value
-------------------------------------------------  ----------  -----------  -------------  ----------
<S>                                                <C>         <C>          <C>            <C>
                                                                 (dollars in thousands)
U.S. Treasury and other U.S. government 
  agencies and corporations......................  $   69,713    $    570        $   10    $   70,273
Mortgage-backed debt securities..................      93,063       1,532           216        94,379
Corporate bonds..................................      15,074         238             3        15,309
Equity securities................................      19,482       3,412             5        22,889
                                                   ----------    ---------       ------    ----------
                                                   $  197,332    $  5,752        $  234    $  202,850
                                                   ----------    ---------       ------    ----------
                                                   ----------    ---------       ------    ----------
December 31, 1996
-------------------------------------------------
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
                                                   ----------    ---------       ------    ----------
                                                   ----------    ---------       ------    ----------
</TABLE>
 
The amortized cost and estimated fair value of securities being held to maturity
and those available for sale at December 31, 1997 by contractual maturity, are
as follows:
 
<PAGE>


<TABLE>
<CAPTION>
                                                                        Held-to-maturity        Available-for-sale
                                                                    ------------------------  ----------------------
                                                                                  Estimated               Estimated
                                                                     Amortized      Fair      Amortized      Fair
                                                                       Cost         Value        Cost       Value
                                                                    -----------  -----------  ----------  ----------
                                                                                 (dollars in thousands)
<S>                                                                 <C>          <C>          <C>         <C>
Due in one year or less...........................................   $      28    $      28   $   --      $   --
Due after one through five years..................................      28,369       28,634       48,598      48,918
Due after five years through ten years............................         464          559       36,189      36,664
Due after ten years...............................................         352          365       --          --
Mortgage-backed debt securities...................................      19,176       19,143       93,063      94,379
Equity securities.................................................      --           --           19,482      22,889
                                                                    -----------  -----------  ----------  ----------
                                                                     $  48,389    $  48,729   $  197,332  $  202,850
                                                                    -----------  -----------  ----------  ----------
                                                                    -----------  -----------  ----------  ----------
</TABLE>
 
Actual maturities may differ from the contractual maturities reflected in the
preceding table because borrowers may have the right to call or prepay
obligations with or without prepayment penalties. Mortgage-backed securities
have no stated maturity and primarily reflect investments in various Pass-
through and Participation Certificates issued by the Federal National Mortgage
Association, the Federal Home Loan Mortgage Corporation and the Government
National Mortgage Association. 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, 1997 and 1996, are
securities carried at $124,721,000 and $96,718,000, respectively, which are
pledged to secure public deposits, securities sold under agreements to
repurchase and for other purposes as required and permitted by law.
 
Gross realized gains and losses from the sale of securities available for sale
were as follows:
 
<TABLE>
<CAPTION>
Years ended December 31,                    1997       1996       1995
----------------------------------------  ---------  ---------  ---------
                                              (dollars in thousands)
<S>                                       <C>        <C>        <C>
Realized gains..........................  $     765  $     523  $     214
                                          ---------  ---------  ---------
                                          ---------  ---------  ---------
Realized (losses).......................  $    (185) $    (330) $     (91)
</TABLE>
 
Note 5.  Loans and allowance for credit losses:
 
Loans are as follows:
 
<TABLE>
<CAPTION>
December 31,                                1997       1996
----------------------------------------  ---------  ---------
<S>                                       <C>        <C>
                                              (dollars in
                                               thousands)
Real estate loans:
Construction and land development.......  $  77,701  $  55,614
                                          ---------  ---------
Mortgage loans:
Secured by farmland.....................      2,752      3,154
Secured by 1 to 4 family residential 
  properties............................    203,052    182,907
Secured by multi-family (5 or more) 
  residential properties................      5,859      6,935
Secured by commercial properties........    161,397    142,788
                                          ---------  ---------
Total mortgage loans....................    373,060    335,784
                                          ---------  ---------
Total loans secured by real estate......    450,761    391,398
Commercial and industrial loans.........     58,844     51,454
Industrial revenue bonds................      4,457         36
Loans to farmers........................        810      1,025
</TABLE>
 
<PAGE>

 
<TABLE>
<CAPTION>
December 31,                                               1997        1996
----------------------------------------------------    ----------  ----------
<S>                                                      <C>         <C>
                                                         (dollars in thousands)
Loans to individuals for household, 
  family and other personal expenditures............       59,333      54,478
                                                        ----------  ----------
                                                        $ 574,205   $ 498,391
                                                        ----------  ----------
                                                        ----------  ----------
</TABLE>
 
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 $94,000,000 and $123,621,000 at December 31, 1997 and
1996, respectively.
 
Transactions in the allowance for credit losses are summarized as follows:
 
<TABLE>
<CAPTION>
Years ended December 31,                            1997       1996       1995
------------------------------------------------  ---------  ---------  ---------
                                                      (dollars in thousands)
<S>                                               <C>        <C>        <C>
Balance at beginning of year....................  $   5,123  $   5,242  $   4,691
Provision for credit losses.....................      1,329        318        710
Recoveries......................................        455        100         50
Other transfers and allowance on 
  loans acquired with purchased entity..........     --            462     --
                                                  ---------  ---------  ---------
                                                      6,907      6,122      5,451
Credits charged-off.............................     (1,194)      (999)      (209)
                                                  ---------  ---------  ---------
Balance at end of year..........................  $   5,713  $   5,123  $   5,242
                                                  ---------  ---------  ---------
                                                  ---------  ---------  ---------
</TABLE>
 
Selected information concerning the Company's recorded investment in impaired
loans and related interest income are summarized as follows:
 
<TABLE>
<CAPTION>
December 31,                                          1997         1996
--------------------------------------------------  ---------    ---------
<S>                                                   <C>          <C>
                                                     (dollars in thousands)
Impaired loans with specific 
 allocation of allowance for credit losses..........  $   1,480   $  1,670
Specific allocation of allowance for credit losses..        638        427
Other impaired loans.................................     1,460      2,230
</TABLE>
 
<TABLE>
<CAPTION>
Years ended December 31,                                 1997         1996
-----------------------------------------------------    ---------    ---------
<S>                                                      <C>          <C>
                                                         (dollars in thousands)
Average recorded investment in impaired loans........    $   3,030  $   5,540
Interest income recognized on impaired loans 
  based on cash payments received....................           33        205
</TABLE>
 
<PAGE>

 
Additional information concerning the Company's recorded investment in
nonaccrual loans, for which impairment had not been recognized are as follows:


<TABLE>
<CAPTION>
                                                                December 31,
                                                         --------------------------
                                                          1997       1996     1995
                                                         ------     ------   ------
                                                           (dollars in thousands)
<S>                                                       <C>       <C>      <C>
Nonaccrual loans......................................    $ 697    $ 731     $ 664
Interest income not recognized due to 
  loans in nonaccrual status..........................       94       73        12
                                                          -----    -----     -----
</TABLE>
 
Note 6.  Bank premises and equipment:
 
Bank premises and equipment consist of the following:
 
<TABLE>
<CAPTION>
December 31,                                                   1997       1996
-----------------------------------------------------------  ---------  ---------
                                                            (dollars in thousands)
<S>                                                          <C>        <C>
Bank premises and leasehold improvements...................  $  22,742  $  21,733
Equipment..................................................      8,476      8,879
                                                             ---------  ---------
                                                                31,218     30,612
Less accumulated depreciation and amortization.............      8,513      7,921
                                                             ---------  ---------
                                                             $  22,705  $  22,691
                                                             ---------  ---------
                                                             ---------  ---------
</TABLE>
 
Depreciation and amortization charged to operations amounted to $1,568,000 for
1997, $1,369,000 for 1996 and $1,029,000 for 1995.
 
Note 7.  Deposits:
 
Certificates of deposit and other time deposits issued in denominations of
$100,000 or more totaled $58,845,000 and $50,251,000 at December 31, 1997 and
1996, respectively, and are included in interest-bearing deposits in the
consolidated balance sheets.
 
At December 31, 1997, the maturity distribution of certificates of deposit are
as follows:
 
<TABLE>
<CAPTION>
                                         Certificates of
                                              Deposit
                                       (dollars in thousands)
                                       ----------------------
<S>                                    <C>
Maturing:
1998.................................       $  222,841
1999.................................           53,930
2000.................................           39,822
2001.................................            3,012
2002.................................            2,345
Thereafter...........................           --
                                              --------
                                            $  321,950
                                              --------
                                              --------
</TABLE>


<PAGE>
 
Interest on deposits consists of the following:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
Years ended December 31,                                                             1997       1996       1995
------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>        <C>        <C>
                                                                                       (dollars in thousands)
NOW and Super NOW accounts.......................................................  $     952  $   1,180  $   1,195
Savings accounts.................................................................      2,082      2,632      2,497
Money market accounts............................................................      2,357      2,625      2,852
Certificates of deposit and other time deposits less than $100,000...............     13,966     11,887     10,135
Certificates of deposit and other time deposits of $100,000 or more..............      2,786      2,267      2,846
                                                                                   ---------  ---------  ---------
                                                                                      22,143     20,591     19,525
Less capitalized construction period interest....................................         --         42        164
                                                                                   ---------  ---------  ---------
                                                                                   $  22,143  $  20,549  $  19,361
                                                                                   ---------  ---------  ---------
                                                                                   ---------  ---------  ---------
</TABLE>
 
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 aggregate amortized cost book values of $52,750,000 and $47,649,000 at
December 31, 1997 and 1996, respectively.
 
Other short-term borrowings primarily reflect the amount borrowed under a
secured lending arrangement with the Federal Home Loan Bank of Atlanta. These
borrowings are secured by a blanket lien on real estate mortgages secured by 1
to 4 family residential properties. In addition, at December 31, 1997 various
debt securities having aggregate amortized cost book values of $52,670,000 were
pledged to secure these borrowings.
 
The Company's unused lines of credit for short-term borrowings totaled
$4,289,000 at December 31, 1997.
 
Selected information on short-term borrowings is as follows:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
December 31,                                                                                    1997       1996
------------------------------------------------------------------------------------------------------------------
<S>                                                                                          <C>         <C>
                                                                                                  (dollars in
                                                                                                  thousands)
Federal funds purchased and securities sold under agreement to repurchase:
Total outstanding at year-end..............................................................  $   65,163  $  40,739
                                                                                             ----------  ---------
Average amount outstanding during year.....................................................      50,141  $  24,815
                                                                                             ----------  ---------
Maximum amount outstanding at any month-end................................................      66,143  $  43,714
                                                                                             ----------  ---------
Weighted-average interest rate at year-end.................................................        5.76%      5.43%
                                                                                             ----------  ---------
Weighted-average interest rate for the year................................................        5.62%      5.47%
                                                                                             ----------  ---------
Other short-term borrowings:
Total outstanding at year-end..............................................................  $  152,138  $  76,516
                                                                                             ----------  ---------
Average amount outstanding during year.....................................................     110,462  $  46,626
                                                                                             ----------  ---------
Maximum amount outstanding at any month-end................................................     152,138  $  76,516
                                                                                             ----------  ---------
Weighted-average interest rate at year-end.................................................        5.36%      5.59%
                                                                                             ----------  ---------
Weighted-average interest rate for the year................................................        5.48%      5.85%
                                                                                             ----------  ---------
</TABLE>

Included in the other short-term borrowings schedule above at December 31, 1997
are the following borrowings from the Federal Home Loan Bank of Atlanta. These
borrowings have scheduled maturity dates but are callable at the sole discretion
of the Federal Home Loan 

<PAGE>

Bank of Atlanta, one year from the date of the initial funding. All of these
borrowings re-price monthly, quarterly, semi-annually, or annually, until the
first call date and then are repriced quarterly, thereafter.
 
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
December 31, 1997                  Due in            Interest rate range              Amount
------------------------------------------------------------------------------------------------------------------

                                                                              (dollars in thousands)

<S>                                <C>               <C>                       <C>
                                   1998              5.30% - 5.89%                   $ 15,000
                                   1999                   5.74%                        10,000
                                   2000                   5.66%                        16,000
                                   2002                   5.30%                        29,000
                                   2004                   5.36%                        10,000
                                   2007              5.03% - 5.27%                     72,000
                                  -----                                              --------
                                  Total                                              $152,000
                                  -----                                              --------
                                  -----                                              --------
</TABLE>
 
Note 9.  Leasing arrangements:
 
The Company leases branch office facilities under noncancellable operating lease
arrangements whose terms do not extend beyond November 2039. 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, 1997 is outlined below:
 
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
   Years ending December 31,                                                    (dollars in thousands)
------------------------------------------------------------------------------------------------------------------
   <S>                                                                          <C>
           1998.................................................................        $  354
           1999.................................................................           350
           2000.................................................................           343
           2001.................................................................           338
           2002.................................................................           315
           Later years..........................................................         4,667
                                                                                        ------
                                                                                        $6,367
                                                                                        ------
                                                                                        ------
</TABLE>
 
Rent expense included in occupancy expenses amounted to $480,000 for 1997,
$555,000 for 1996, and $532,000 for 1995.
 
Note 10.  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 a pre-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 schedule (20 percent per year) requiring the completion of
five years of service with the Company, before these benefits 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 $466,000 in 1997, $357,000
in 1996 and $300,000 in 1995.
 
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 these Plans 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 $211,000,
$175,000 and $149,000 for 1997, 1996, and 1995, respectively.
 
Stock option plan:


<PAGE>

On December 31, 1997, the Company had two stock-based compensation plans, the
1992 Employee Stock Option Plan ("1992 Plan") and the 1997 Stock Option Plan for
Directors ("1997 Plan"). Both Plans are accounted for in accordance with
Accounting Principles Board (APB) Opinion 25, "Accounting for Stock Issued to
Employees", and related interpretations.
 
During 1997, an amendment to the 1992 Plan and adoption of the 1997 Plan were
approved by the Company's Board of Directors, and options were granted under
both Plans. These Plans, however, require the formal approval of the
shareholders. Significant amendments to the 1992 Plan are prospective only and
include, but are not limited to, elimination of the vesting period for options
granted and addition of "reload" options. A reload feature is one that provides
for grants of additional options whenever a participant exercises previously
granted options. The terms of the Plans provide that the number of reload
options granted is the same as the number of original options exercised, and the
exercise price of the reload is the market price of the stock on the date the
reload option is granted. The following information is presented based on the
anticipated shareholder approval of these Plans.
 
In connection with the stock options granted under the 1992 Plan, additional
restricted stock grants for 17,328 shares at December 31, 1997 may be awarded at
no additional cost to the Plan's participants. Restricted stock, subject to 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
1992 Plan. In addition, participants under the 1992 Plan, as amended, may
receive additional reload options upon the exercise of options issued under the
Plan, if the exercise occurs within three years from the date of the original
grant and certain other conditions. 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, 1997, 1996, and 1995 totaled $65,000, $52,000, and $35,000,
respectively.
 
The 1997 Plan requires the Company to issue options to each non-employee
Director on the day after each annual meeting of the Company's shareholders.
Participants under this Plan will receive reload options upon the exercise of
options issued under this Plan, provided the options are exercised within three
years from the date of the original grant and certain other conditions.
 
Had compensation expense for both Plans 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 basic and diluted earnings per share would have been
reduced to the pro forma amounts indicated below:
 
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
Years ended December 31,                                                              1997       1996       1995
------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>        <C>        <C>
Net income:
  As reported...................................................................    $8,803     $5,867     $6,998
  Pro forma.....................................................................    $8,121     $5,678     $6,998

Basic and diluted earnings per share:
  As reported...................................................................    $ 1.49     $ 0.99     $ 1.19
  Pro forma.....................................................................    $ 1.37     $ 0.96     $ 1.19
                                                                                    ------     ------     ------
</TABLE>
 
The 1992 Plan provides that 454,782 shares of the Company's common stock
(adjusted for stock splits and stock dividends) 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, 1997, reserved shares remaining
for future grants under this plan totaled 294,989. The 1997 Plan provides that
250,000 shares of the Company's common stock will be reserved for the granting
of NQSO's to purchase these shares. At December 31, 1997, reserved shares
remaining for future grants under this plan totaled 228,562. Under both Plans,
the exercise price per share shall not be less than the fair market value of a 
share of common stock on the date on which such options were granted, subject to
adjustments for the effects of any stock splits or stock dividends, and may be
exercised immediately upon being granted.
 
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:
 
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
Years ended December 31,                                                              1997       1996       1995
------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>        <C>        <C>
Dividend yield..................................................................       2.5%       2.5%       2.5%
Expected volatility.............................................................      40.71%     49.66%     53.87%
Risk free interest rate.........................................................      5.740%     6.420%     5.585%
Expected life, in years.........................................................         10         10         10
                                                                                      ------     ------     ------
</TABLE>
 
<PAGE>

<TABLE>

<S>                                                                                 <C>        <C>        <C>
Weighted-average fair value of options granted during the year..................    $12.56      $9.43      $9.88
                                                                                    ------      -----      -----
                                                                                    ------      -----      -----

</TABLE>
 
The following is a summary of transactions for both Plans during the three years
ended December 31, 1997, 1996 and 1995.

<TABLE>
<CAPTION>
                                                                                Options Issued   Weighted-Average
                                                                                and Outstanding   Exercise Price
------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>              <C>
Balance at December 31, 1994..................................................        194,341         $ 6.81
                                                                                      -------         ------
Exercised.....................................................................        (31,328)          4.15
Granted.......................................................................         20,923          19.09
                                                                                      -------         ------
Balance at December 31, 1995..................................................        183,936           8.65
                                                                                      -------         ------
Exercised.....................................................................       (105,819)          4.23
Terminated....................................................................           (858)         15.47
Granted.......................................................................         23,421          18.64
                                                                                      -------         ------
Balance at December 31, 1996..................................................        100,680          15.57
                                                                                      -------         ------
Exercise......................................................................        (20,639)          9.73
Terminated....................................................................         (1,594)         18.84
Granted.......................................................................         52,935          28.57
                                                                                      -------         ------
Balance at December 31, 1997..................................................        131,382         $21.69
                                                                                      -------         ------
                                                                                      -------         ------
</TABLE>

At December 31, 1997, the 131,382 options issued and outstanding had exercise
prices ranging from $5.98 to $28.63 and had a weighted-average remaining
contractual life of 82 months.
 
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
December 31,                                                                          1997       1996       1995
------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>        <C>        <C>
Exercisable options:
  Options outstanding...........................................................    131,382    77,260     163,013
  Weighted-average price........................................................    $ 21.69    $14.65       $7.32
</TABLE>
 
<PAGE>
 
Note 11. Income taxes:
 
Significant components of the Company's deferred tax assets and liabilities are
as follows:
 
<TABLE>
<CAPTION>
December 31,                                                                                 1997             1996
-----------------------------------------------------------------------------------  ---------------------  ---------
<S>                                                                                  <C>                    <C>
                                                                                          (dollars in thousands)
Deferred tax assets:
    Provision for credit losses....................................................        $   2,012        $   1,612
    Net securities losses..........................................................              169              250
    Deferred compensation..........................................................              459              438
    Postretirement benefits........................................................              253              251
    Provision for foreclosed properties............................................              149              204
    Deferred Fees..................................................................              317              704
    Depreciation...................................................................           --                   38
    Other..........................................................................              312              260
---------------------------------------------------------------------------------------------------------------------
  Total deferred tax assets........................................................            3,671            3,757
  Valuation allowance for deferred tax assets......................................           --               --
---------------------------------------------------------------------------------------------------------------------
Deferred tax assets after valuation allowance......................................            3,671            3,757
---------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
    Unrealized gain on securities available for sale...............................            2,105              308
    Depreciation...................................................................              444           --
    Other..........................................................................              209              178
---------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities.....................................................            2,758              486
---------------------------------------------------------------------------------------------------------------------
Net deferred tax assets............................................................        $     913        $   3,271
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

</TABLE>

<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,                                                              1997       1996       1995
---------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>        <C>        <C>
                                                                                        (dollars in thousands)
Income before income tax..........................................................  $  13,021  $   9,112  $  10,886
Tax rate..........................................................................         35%        35%        35%
---------------------------------------------------------------------------------------------------------------------
Income tax at statutory rate......................................................      4,557      3,189      3,810
Increases (decreases) in tax resulting from:
  Tax-exempt interest income......................................................       (149)      (160)      (394)
  Insurance cash values...........................................................       (217)        (3)        (2)
  State income taxes, net of federal income tax benefit...........................        299        267        367
  Benefit of federal surtax exemption.............................................       (100)       (82)       (92)
  Other...........................................................................       (172)        34        199
---------------------------------------------------------------------------------------------------------------------
                                                                                    $   4,218  $   3,245  $   3,888
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
</TABLE>
 
Significant components of the provision for income taxes attributable to
continuing operations are as follows:
 
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Years ended December 31,                                                                 1997       1996       1995
---------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>        <C>        <C>
                                                                                           (dollars in thousands)
  Taxes currently payable:
  Federal............................................................................  $   3,332  $   2,923  $   3,440
  State..............................................................................        325        447        658
---------------------------------------------------------------------------------------------------------------------
    Total taxes currently payable....................................................      3,657      3,370      4,098
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
  Deferred tax liabilities (benefits):
  Federal............................................................................        459       (102)      (170)
  State..............................................................................        102        (23)       (40)
---------------------------------------------------------------------------------------------------------------------
    Total deferred tax liabilities (benefits)........................................        561       (125)      (210)
---------------------------------------------------------------------------------------------------------------------
Total................................................................................  $   4,218  $   3,245  $   3,888
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
</TABLE>
 
Included in the above amounts are income taxes of $224,000 in 1997, $75,000 in
1996, and $48,000 in 1995 related to net security gains.
 
Note 12.  Other operating expenses:
 
Other operating expenses in the consolidated statements of income include the
following:

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Years ended December 31,                                                                 1997       1996       1995
---------------------------------------------------------------------------------------------------------------------
<S>                                                                                    <C>        <C>        <C>
                                                                                           (dollars in thousands)
FDIC and general insurance...........................................................  $     201  $     410  $     897
Professional and directors fees......................................................      2,301      1,284      1,122
Advertising and public relations.....................................................        980        890        703
Credit and collection expense........................................................        266        252        134
Postage and supplies.................................................................      1,050      1,059        914
Net loss on foreclosed properties....................................................        131         83        352
Other................................................................................      1,325      1,988      1,950
---------------------------------------------------------------------------------------------------------------------
                                                                                       $   6,254  $   5,966  $   6,072
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
</TABLE>
 
<PAGE>
 
Changes in the allowance for foreclosed properties are summarized as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Years ended December 31,                                                                      1997       1996       1995
---------------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>        <C>        <C>
                                                                                                (dollars in thousands)
Balance at beginning of year..............................................................  $     392  $     536  $     286
Provision charged to income...............................................................         25     --            352
Losses charged to the allowance...........................................................       (112)       (32)      (102)
Other transfers net of allowance on properties acquired with purchased entity.............     --           (112)    --
---------------------------------------------------------------------------------------------------------------------
Balance at end of year....................................................................  $     305  $     392  $     536
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
</TABLE>
 
Note 13.  Shareholders' equity:
 
Restrictions on dividends:
 
The amount of dividends that the Bank can pay to the Parent Company without 
approval from the Federal Reserve Board is limited to its net profits for the 
current year plus its retained net profits for the preceding two years. 
Amounts available for the payment of dividends during 1997 aggregated 
$14,285,000.
 
Restrictions on lending from subsidiary to parent:
 
Federal law imposes certain restrictions limiting the ability of the Bank to 
transfer funds to the Parent Company in the forms of loans or advances. 
Section 23A of the Federal Reserve Act prohibits the Bank from making loans 
or advances to the Parent Company in excess of 10 percent of its capital 
stock and surplus, as defined therein. There were not material loans or 
advances outstanding at December 31, 1997.
 
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 40,000 as of December 31, 1997.
 
Capital:
 
The Company and the Bank 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 the Bank must meet specific capital 
guidelines that involve quantitative measures of the Company's and Bank's 
assets, liabilities, and certain off-balance-sheet items as calculated under 
regulatory accounting practices. The Company's and Bank's 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 the Bank 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 the Bank meet all capital adequacy requirements to which it is subject as of
December 31, 1997.
 

<PAGE>
 
As of December 31, 1997, the most recent notification from the regulatory agency
categorized the Bank as adequately capitalized under the regulatory framework
for prompt corrective action. To be categorized as adequately capitalized the
Bank 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.
 
The Company and the Bank's actual capital amounts and ratios are 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
                                                                    ---------  ---------  ---------     -----     ---------
<S>                                                                 <C>        <C>        <C>        <C>          <C>
-----------------------------------------------------------------------------------------------------------------------------------
As of December 31, 1997:                                                                  (dollars in thousands)
<S>                                                                 <C>        <C>        <C>        <C>          <C>
Total Capital (to Risk-Weighted Assets):
  FCNB Corp.......................................................  $  76,450      11.92% $  51,328         8.0%        N/A
  FCNB Bank.......................................................  $  62,230       9.84% $  50,601         8.0%  $  63,252

Tier I Capital (To Risk-Weighted Assets):
  FCNB Corp.......................................................  $  70,737      11.03% $  25,664         4.0%        N/A
  FCNB Bank.......................................................  $  56,517       8.94% $  25,301         4.0%  $  37,951

Tier I Capital (To Average Assets):
  FCNB Corp.......................................................  $  70,737       8.10% $  26,193         3.0%        N/A
  FCNB Bank.......................................................  $  56,517       6.52% $  26,005         3.0%  $  43,341

As of December 31, 1996:

Total Capital (to Risk-Weighted Assets):
  FCNB Corp.......................................................  $  70,221      13.57% $  41,384         8.0%        N/A
  FCNB Bank(1)....................................................  $  62,033      12.04% $  41,217         8.0%  $  51,521

Tier I Capital (To Risk-Weighted Assets):
  FCNB Corp.......................................................  $  65,098      12.58% $  20,692         4.0%        N/A
  FCNB Bank(1)....................................................  $  56,910      11.05% $  20,608         4.0%  $  30,913

Tier I Capital (To Average Assets):
  FCNB Corp.......................................................  $  65,098       8.74% $  22,351         3.0%        N/A
  FCNB Bank(1)....................................................  $  56,910       7.74% $  22,064         3.0%  $  36,774
 
<CAPTION>
 
                                                                       Ratio
                                                                       -----
<S>                                                                 <C>
As of December 31, 1997:
----------------------------------------------------------------------------
Total Capital (to Risk-Weighted Assets):
  FCNB Corp.......................................................        N/ A
  FCNB Bank.......................................................        10.0%

Tier I Capital (To Risk-Weighted Assets):
  FCNB Corp.......................................................        N/ A
  FCNB Bank.......................................................         6.0%

Tier I Capital (To Average Assets):
  FCNB Corp.......................................................        N/ A
  FCNB Bank.......................................................         5.0%

As of December 31, 1996:

Total Capital (to Risk-Weighted Assets):
  FCNB Corp.......................................................        N/ A
  FCNB Bank(1)....................................................        10.0%

Tier I Capital (To Risk-Weighted Assets):
  FCNB Corp.......................................................        N/ A
  FCNB Bank(1)....................................................         6.0%

Tier I Capital (To Average Assets):
  FCNB Corp.......................................................        N/ A
  FCNB Bank(1)....................................................         5.0%
 
-------------------------------------------------------------------------------
</TABLE>
N/A = Not applicable
 
(1) During 1997, the two banking affiliates of the Company were merged into one
    banking entity, named FCNB Bank. All data as of December 31, 1996 for FCNB
    Bank reflects the pro forma balance of the two affiliates (FCNB Bank and
    Elkridge Bank) as if the merger had taken place on December 31, 1996. Each
    individual affiliate was "well capitalized" as of year-end 1996 under the
    applicable regulatory guidelines.
 
Dividend reinvestment plan:
 
The Company maintains a Dividend Reinvestment and Stock Purchase Plan for all
Shareholders of the Company. This Plan provides that 181,913 shares, as adjusted
for stock splits and stock dividends, of the Company's common stock will be
reserved for issuance under the Plan. At December 31, 1997, reserved shares
remaining for future issuance under this plan totaled 20,060. The terms of this
Plan allow
 
<PAGE>                                    

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 or optional cash payments can be acquired at 
97% of 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,
1997, 1996, and 1995 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 14.  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, 1997          December 31, 1996
                                                            -----------------  ----------------------------------
                                                                Carrying          Fair      Carrying      Fair
                                                                 Amount          Value       Amount      Value
----------------------------------------------------------  -----------------  ----------  ----------  ----------
<S>                                                         <C>                <C>         <C>         <C>
                                                                             (dollars in thousands)
FINANCIAL ASSETS
Cash and cash equivalents.................................     $    42,315     $   42,315  $   44,526  $   44,526
Loans held for sale.......................................             909            909       3,162       3,162
Investment securities.....................................         251,239        251,579     196,385     196,600
Net loans.................................................         568,392        571,689     492,872     496,564
                                                                  --------     ----------  ----------  ----------
Total financial assets....................................     $   862,855     $  866,492  $  736,945  $  740,852
                                                                  --------     ----------  ----------  ----------
                                                                  --------     ----------  ----------  ----------
FINANCIAL LIABILITIES
Deposits..................................................     $   616,512     $  617,929  $  587,074  $  587,832
Short-term borrowings.....................................         217,301        217,384     117,255     116,360
                                                                  --------     ----------  ----------  ----------
Total financial liabilities...............................     $   833,813     $  835,313  $  704,329  $  704,192
                                                                  --------     ----------  ----------  ----------
                                                                  --------     ----------  ----------  ----------
</TABLE>
 
The following methods and assumptions were used to estimate the fair value
disclosures for financial instruments as of December 31, 1997 and 1996:
 
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.
 
<PAGE>
 
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 non-performing categories.
 
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 non-performing 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.
 
Interest rate swaps:
 
The fair values of interest rate swaps are estimated based on the amount the
Company would receive or pay to terminate the contracts or agreements. The
carrying value of interest rate swaps related to interest rate risk management
activities was immaterial at December 31, 1997 and 1996. The carrying value of
such instruments, if any, includes any accrued interest receivable and/or
payable balances
 
Note 15.  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 1997 is as follows:
 
<TABLE>
<CAPTION>
                                                                                                   (dollars in
                                                                                                   thousands)
                                                                                              ---------------------
<S>                                                                                           <C>
Balance at December 31, 1996................................................................        $   8,554
                                                                                                       ------
New loans...................................................................................            1,266
Repayments..................................................................................             (590)
                                                                                                       ------
Balance at December 31, 1997................................................................        $   9,230
                                                                                                       ------
                                                                                                       ------
</TABLE>
 
<PAGE>

Note 16.  Commitments and contingencies:

Financial instruments:

In the normal course of business, there are outstanding commitments, contingent
liabilities and other financial instruments that are not reflected in the
accompanying consolidated financial statements. These include commitments to
extend credit, standby letters of credit and interest rate swaps, which are some
of the instruments used by the Company to meet the financing needs of its
customers and to manage its own interest rate risk. These instruments involve,
to varying degrees elements of credit and interest rate risk in excess of the
amounts recognized in the consolidated balance sheets. Any losses which may
result from these transactions are not expected to have a material effect on the
accompanying consolidated financial statements. Notional principal amounts often
are used to express the volume of the transaction, but the amounts potentially
subject to credit risk are much smaller. The contract or notional amount of each
class of such instruments at December 31 was:

<TABLE>
<CAPTION>



------------------------------------------------------------------------------------------  ----------  ----------
December 31,                                                                                   1997        1996   
------------------------------------------------------------------------------------------  ----------  ----------
                                                                                             Contract/   Contract/
                                                                                             Notional    Notional
(dollars in thousands)                                                                        Amount      Amount
------------------------------------------------------------------------------------------  ----------  ----------
<S>                                                                                         <C>         <C>
Financial instruments whose notional or contract amounts represent credit risk:
  Commitments to extend credit............................................................  $  130,578  $  104,047
  Standby letters of credit...............................................................       9,790       7,790
                                                                                            ----------  ----------
                                                                                            ----------  ----------
Total.....................................................................................  $  140,368  $  111,837
                                                                                            ----------  ----------
                                                                                            ----------  ----------
Financial instruments whose notional or contract amounts exceeded maximum credit risk:
  For interest rate risk management
  Interest rate swaps.....................................................................  $   10,000      --
                                                                                            ----------  ----------
Total.....................................................................................  $   10,000      --
                                                                                            ----------  ----------
</TABLE>
 
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.
 
As a financial institution, the Company assumes interest rate risk as a 
provider of banking services to its customers. This risk can be managed 
through derivative interest rate contracts, such as interest rate swaps. 
Changes in the fair value of such derivatives are generally offset by changes 
in the fair value of the underlying hedged asset or liability. For interest 
rate risk management purposes, the Company was using interest rate 
(pay-fixed) swaps with notional balances of $10,000,000 at December 31, 1997 
to convert fixed rate loans to variable rates.
 
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.

<PAGE>

Note 17.  FCNB Corp (Parent Company) condensed financial information:
FCNB Corp (Parent Company)

<TABLE>
<CAPTION>

Balance Sheets
--------------------------------------------------------------------------------------------  ---------  ---------
December 31,                                                                                    1997       1996
--------------------------------------------------------------------------------------------  ---------  ---------
                                                                                                  (dollars in
                                                                                                   thousands)
<S>                                                                                           <C>        <C>
ASSETS
Cash........................................................................................  $   4,042  $   6,488
Receivable from subsidiary banks............................................................      1,103        357
Investment securities available for sale-at fair value......................................     10,845      2,034
Investment in subsidiaries..................................................................     61,384     60,861
Other assets................................................................................      1,346        187
                                                                                              ---------  ---------
  Total assets..............................................................................  $  78,720  $  69,927
                                                                                              ---------  ---------
                                                                                              ---------  ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities.................................................................................  $   1,202  $     817
                                                                                              ---------  ---------
Common stock................................................................................      5,912      5,365
Surplus.....................................................................................     43,398     26,652
Retained earnings...........................................................................     24,792     36,589
Net unrealized gain on securities available for sale........................................      3,416        504
                                                                                              ---------  ---------
  Total shareholders' equity................................................................     77,518     69,110
                                                                                              ---------  ---------
  Total liabilities and shareholders' equity................................................  $  78,720  $  69,927
                                                                                              ---------  ---------
                                                                                              ---------  ---------
</TABLE>

FCNB Corp (Parent Company)
Statements of Income

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------  ---------  ---------  ---------
For the years ended December 31,                                                        1997       1996       1995
------------------------------------------------------------------------------------  ---------  ---------  ---------
                                                                                          (dollars in thousands)
<S>                                                                                   <C>        <C>        <C>
Income:
  Dividends from subsidiary banks...................................................  $   3,792  $  10,638  $   3,382
  Net securities gains..............................................................        173         82         47
  Other income, principally interest................................................        278        189         53
                                                                                      ---------  ---------  ---------
Total income........................................................................      4,243     10,909      3,482
Expenses............................................................................        344        843        634
                                                                                      ---------  ---------  ---------
Income before provision for income taxes and equity in undistributed (excess
  distributions of) earnings of subsidiaries........................................      3,899     10,066      2,848
Provision for income taxes (benefits)...............................................         (7)      (141)       (92)
                                                                                      ---------  ---------  ---------
Income before equity in undistributed (excess distributions of) earnings of
  subsidiaries......................................................................      3,906     10,207      2,940
Equity in undistributed (excess distributions of) earnings of subsidiaries..........      4,897     (4,340)     4,058
                                                                                      ---------  ---------  ---------
Net income..........................................................................  $   8,803  $   5,867  $   6,998
                                                                                      ---------  ---------  ---------
                                                                                      ---------  ---------  ---------
</TABLE>

<PAGE>
FCNB Corp (Parent Company)
<TABLE>
<CAPTION>
Statements of Cash Flows
-------------------------------------------------------------------------------------  ---------  ---------  ---------
For the years ended December 31,                                                         1997       1996       1995
-------------------------------------------------------------------------------------  ---------  ---------  ---------
                                                                                           (dollars in thousands)
<S>                                                                                    <C>        <C>        <C>
Cash flows from operating activities:
  Net income.........................................................................  $   8,803  $   5,867  $   6,998
  Adjustments to reconcile net income to net cash provided by operating activities:
  (Equity in undistributed) excess distribution of earnings of subsidiary............     (4,897)     4,340     (4,058)
  Noncash charitable contribution....................................................         98         64     --
  Net securities gains...............................................................       (173)       (82)       (47)
  Decrease (increase) in receivable from subsidiary bank.............................       (746)        93      1,258
  Decrease (increase) in other assets................................................     (1,159)       120        177
  Increase (decrease) in other liabilities...........................................       (590)       306        269
                                                                                       ---------  ---------  ---------
    Net cash provided by operating activities........................................      1,336     10,708      4,597
                                                                                       ---------  ---------  ---------
Cash flows from investing activities:
  Proceeds from sale of investment securities available for sale.....................        510        140         68
  Purchase of investment securities available for sale...............................     (6,330)    (1,360)      (173)
  Investment in subsidiary...........................................................      5,496     (1,490)    (2,284)
                                                                                       ---------  ---------  ---------
    Net cash (used in) investing activities..........................................       (324)    (2,710)    (2,389)
                                                                                       ---------  ---------  ---------
Cash flows from financing activities:
  Dividend reinvestment plan.........................................................        (18)       (11)       (11)
  Proceeds from issuance of common stock.............................................        185        449        130
  Repurchase of common stock.........................................................       (213)      (580)    --
  Cash dividends paid................................................................     (3,412)    (2,925)    (2,912)
                                                                                       ---------  ---------  ---------
    Net cash (used in) financing activities..........................................     (3,458)    (3,067)    (2,793)
                                                                                       ---------  ---------  ---------
Increase (decrease) in cash..........................................................     (2,446)     4,931       (585)
Beginning cash.......................................................................      6,488      1,557      2,142
                                                                                       ---------  ---------  ---------
Ending cash..........................................................................  $   4,042  $   6,488  $   1,557
                                                                                       ---------  ---------  ---------
                                                                                       ---------  ---------  ---------
Supplemental schedule of noncash investing and financing activities:
  Surplus from stock options granted.................................................  $     151  $     117  $      80
                                                                                       ---------  ---------  ---------
                                                                                       ---------  ---------  ---------
  Fair value adjustment for securities available for sale,
    net of applicable deferred income tax effects....................................  $   1,790  $     (36) $     (58)
                                                                                       ---------  ---------  ---------
                                                                                       ---------  ---------  ---------
  Fair value adjustment for securities available for sale held in 
    subsidiary bank, net of deferred income tax effects..............................  $   1,122  $      10  $   2,738
                                                                                       ---------  ---------  ---------
                                                                                       ---------  ---------  ---------
</TABLE>

<PAGE>

Note 18.  Current accounting developments:
 
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income," which will become effective for fiscal
years beginning after December 15, 1997. Comprehensive income, as defined by
Statement 130, is the change in equity of a business enterprise during a
reporting period from transactions and other events and circumstances from
non-owner sources. In addition to an enterprise's net income, change in equity
components under comprehensive income reporting would also include such items as
the net change in unrealized gain or loss on available-for-sale securities and
foreign currency translation adjustments. Statement 130 requires disclosure of
comprehensive income and its components with the same prominence as the
Company's other financial statements. The Company is currently evaluating the
alternative formats for reporting comprehensive income in 1998.
 
In June 1997, the FASB issued Statement No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which will become effective for fiscal
years beginning after December 15, 1997. Statement 131 establishes standards for
the manner in which a publicly-held enterprise reports certain information about
operating segments of their business in both their annual and interim financial
reports provided to shareholders. The information required to be disclosed for
an entity's operating segments not only consists of financial information, but
also certain related disclosures of the segment's products and services,
geographic areas, and major customers. The requirements of this new standard are
being evaluated but the Company, currently believes that it will not have any
segment reporting requirements related to this pronouncement.
 
Note 19.  Quarterly results of operations (unaudited):
 
The following is a summary of the Company's unaudited quarterly results of
operations:
 
<TABLE>
<CAPTION>
1997                                                            December 31   September 30   June 30    March 31
--------------------------------------------------------------  ------------  ------------  ---------  -----------
<S>                                                             <C>           <C>           <C>        <C>
                                                                 (dollars in thousands, except per share amounts)
Interest income...............................................   $   16,728    $   16,282   $  15,447   $  14,734
Net interest income...........................................        8,208         8,132       8,061       7,778
Provision for credit losses...................................          415           452         231         231
Net securities gains..........................................          222           214          57          87
Income before income taxes....................................        3,454         3,527       3,418       2,622
Net income....................................................        2,379         2,367       2,207       1,850
Basic and diluted earnings per share..........................          .40           .40         .38         .31
                                                                ------------  ------------  ---------  -----------
</TABLE>
 
<TABLE>
<CAPTION>
1996                                                       December 31   September 30(2)   June 30   March 31(1)
---------------------------------------------------------  ------------  ---------------  ---------  -----------
<S>                                                        <C>           <C>              <C>        <C>
                                                             (dollars in thousands, except per share amounts)
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)
Basic and diluted earnings (loss) per share..............          .32            .50           .31        (.14)
                                                           ------------       -------     ---------  -----------
</TABLE>
 
------------------------
 
(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 $1,100,000.
 
Market For Registrant's Common Equity And Related Stockholder Matters
 
<TABLE>
<CAPTION>
                                                                                                 1997
                                                                                  -----------------------------------
<S>                                                                               <C>          <C>        <C>
                                                                                  Price Range         Dividend
Quarterly stock prices and dividends(1)                                              High         Low      Declared
--------------------------------------------------------------------------------  -----------  ---------  -----------
First Quarter...................................................................   $   20.45   $   18.18   $     .13
Second Quarter..................................................................       20.00       18.18         .14
</TABLE>
 
<PAGE>
 
<TABLE>
<CAPTION>
                                                                                                    1997
                                                                                   ---------------------------------------
<S>                                                                                <C>            <C>        <C>
                                                                                    Price Range         Dividend
Quarterly stock prices and dividends(1)                                                High          Low       Declared
---------------------------------------------------------------------------------  -------------  ---------  -------------
Third Quarter....................................................................        31.82        18.64          .15
Fourth Quarter...................................................................        31.59        27.73          .15
                                                                                                                      --
                                                                                                                      --
                                                                                         -----    ---------
                                                                                         -----    ---------
</TABLE>
 
<TABLE>
<CAPTION>
                                                                                                1996
                                                                                 ------------------------------------
                                                                                  Price Range        Dividend
Quarterly stock prices and dividends(1)                                              High         Low      Declared
--------------------------------------------------------------------------------  -----------  ---------  -----------
<S>                                                                               <C>          <C>        <C>
First Quarter...................................................................   $   20.00   $   16.14   $     .11
Second Quarter..................................................................       17.73       15.68         .12
Third Quarter...................................................................       18.18       15.45         .13
Fourth Quarter..................................................................       18.86       17.50         .13
</TABLE>
 
------------------------
 
(1) The quarterly stock prices and dividends have been restated for the effects
    of a 10% stock dividend declared and paid in October 1997.
 
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.
 
Number of shareholders of record, December 31,1997 3,575
 
PRINCIPAL AFFILIATE
 
BALANCE SHEET
 
<TABLE>
<CAPTION>
                                         December 31, 1997
                              ----------------------------------------
<S>                           <C>                           <C>         <C>                           <C>
(Dollars in thousands)                   Assets             Liabilities and Equity
----------------------------  ----------------------------  ----------------------------------------------------
FCNB Bank                     Cash and due from banks       $27,329     Total deposits                $  620,554
7200 FCNB Court               Earning assets                830,394     Short-term borrowings            217,301
Frederick, MD 21703                                                     Accrued interest and               7,856
(301) 662-2191                                                          other liabilities

21 Offices                    Allowance for credit losses   (5,713)     Shareholders' equity              61,384
                              Other Assets                  55,085
                                                            ------                                    ----------
                                                                        Total liabilities
                              Total assets                  $907,095    and equity                    $  907,095
                                                            ------                                    ----------
                              Net income                    $8,689
</TABLE>
 
Annual Meeting of Shareholders
 
Tuesday, April 21, 1998--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
 

<PAGE>
 
Analyst Contact
Alex C. Hart
Vice President, Investor Relations
Phone (301 or 800) 662-2191 or (301) 624-2340 Direct
 
Shareholder Contact
Kristen Howes
Senior Shareholders Relations Officer
Phone (301 or 800) 662-2191 or (301) 624-2306 Direct
 
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, Senior
Vice President and Treasurer, FCNB CORP, 7200 FCNB Court, Frederick, Maryland
21703.

Profile
 
FCNB CORP is a one 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. The Bank is 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 Bank 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:
 
<TABLE>
<S>                                            <C>
Ferris, Baker, Watts & Co.                     Legg Mason Wood Walker, Inc.
365 West Patrick Street                        30 West Patrick Street
Frederick, MD 21701                            Frederick, MD 21701
(301) 662-6488                                 (301) 663-8833

F.J. Morrisey & Co., Inc.                      Ryan, Beck & Co.
1700 Market Street, Suite 1420                 3 Parkway
Philadelphia, PA 19102                         Philadelphia, PA 19102
(215) 563-8500                                 (800) 342-2325

Herzog, Heine, Geduld, Inc.                    Sandler O'Neill & Partners, L.P.
26 Broadway, 2nd Floor                         Two World Trade Center
New York, NY 10004                             104th Floor
(212) 908-4000                                 New York, NY 10048
                                               (800) 635-6860

Janney Montgomery Scott, Inc.                  Wheat First Securities, Inc.
1801 Market Street                             18 West Patrick Street
Philadelphia, PA 19103                         Frederick, MD 21701
(215) 665-6000                                 (301) 662-0002
</TABLE>
 

<PAGE>

<TABLE>
<S>                                            <C>
Corporate Headquarters                         Subsidiary

FCNB Corp (MD)                                 FCNB Bank (MD)*
7200 FCNB Court                                7200 FCNB Court
Frederick, Maryland 21703                      Frederick, Maryland 21703
(301) 662-2191                                 (301) 662-2191
</TABLE>

 
<PAGE>
 
*   The Bank is the principal subsidiary of FCNB Corp as of December 31, 1997.
    The voting securities of the Bank are owned entirely by FCNB Corp.