[FCNB LOGO OMITTED]

                                 7200 FCNB Court
                            Frederick, Maryland 21703
                              (301 or 800) 662-2191




<PAGE>





                               [GRAPHIC OMITTED]





<PAGE>


Financial Review
Table of Contents

Management's Discussion                                                  page 2
Selected Financial Data                                                  page 15
Consolidated Balance Sheets                                              page 16
Consolidated Statements of Income                                        page 17
Consolidated Statements of Changes in Shareholders' Equity               page 18
Consolidated Statements of Cash Flows                                    page 19
Notes to Consolidated Financial Statements                               page 21
Independent Auditor's Report                                             page 36


<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  ("FCNB")  and its  principal  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 rea estate and construction  market
in the Company's  market area,  the Company's  ability to develop and market new
products  and to enter new  markets,  competitive  challenges  in the  Company's
market,  legislative  changes and other  factors,  and as such,  there can be no
assurance that future events will develop in accordance with the forward looking
statements contained herein.

         The following 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.

         On August 19, 1999, the Company  consummated  the previously  announced
merger of First  Frederick  Financial Corp  ("First"),  the holding  company for
First Bank of  Frederick,  with and into  FCNB,  and the merger of First Bank of
Frederick with and into FCNB's wholly-owned subsidiary,  FCNB Bank ("the Bank"),
all headquartered in Frederick,  Maryland.  FCNB and First executed a definitive
agreement on March 12, 1999.

         As a  result  of  the  Merger,  each  share  of  the  $1.00  par  value
outstanding  common  stock of First  was  converted  into  1.0434  shares of the
Company's,   $1.00  par  value  common  stock;  resulting  in  the  issuance  of
approximately  1,543,012  shares of FCNB common stock,  subject to adjustment to
account for the elimination of fractional  shares.  The merger was accounted for
using the pooling-of-interests method.

         As of August 19, 1999, the effective date of the transaction, First had
approximately $110 million of total assets,  deposits of $97 million,  and total
shareholders' equity of $9 million.

         Merger   related   expenses  of  $4.05  million  are  included  in  the
consolidated  statements  of income and  consist  principally  of  $306,000  for
severance payments to terminated  employees,  $99,000 for professional fees, and
other conversion related costs of $744,000.  The allowance for credit losses was
increased  an  additional   $2.9  million  in  order  to  align  the  accounting
assumptions in analyzing the allowance for credit losses.

         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  applicable  fair value  adjustments  to the  investment  securities
portfolio.  However, the return on average assets, the return on average equity,
and the book value per share at  period-end  include  the  effects of these fair
value adjustments.

         The following analysis of the Company's  operating results is presented
on a consolidated  basis. Net income before  merger-related  expenses was $13.50
million in 1999  compared to $12.59  million in 1998.  Basic  earnings per share
before  merger-related  expenses  were $1.15 in 1999  compared to $1.09 in 1998.
Diluted  earnings per share before  merger-related  expenses  were $1.13 in 1999
compared to $1.06 in 1998.

         Net income was $10.43  million  in 1999  compared  to $9.43  million in
1998.  Basic  earnings  per share  were $.89 in 1999  compared  to $.82 in 1998.
Diluted earnings per share were $.87 in 1999 compared to $.79 in 1998.

         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 0.73% in 1999 and 0.75% in 1998.  Return  on  average  shareholders'
equity, which measures the income earned on the capital invested,  was 11.15% in
1999  compared  to  9.48%  in  1998.  However,   before  the  specific  one-time
merger-related costs the return on average assets was 0.95% in 1999 and 1.00% in
1998,  and the  return on  average  shareholders'  equity was 14.45% in 1999 and
12.66% in 1998.

         During 1999, the Company  experienced  modest loan growth that resulted
in an $85.01 million increase in loans,  net of unearned income,  or 10.39% over
the level at the end of 1998.

         Noninterest  income increased $1.99 million or 11.65% from the level in
1998 while noninterest expenses increased $3.61 million or 8.03% during the same
period.  Included in the noninterest  expenses are merger-related costs of $1.87
million  in 1999 and $1.94  million in 1998.  If these  amounts  were  excluded,
noninterest expenses would have risen in 1999 by $3.68 million or 8.54%.

                                        2


<PAGE>


         The Company routinely explores  opportunities for additional growth and
expansion of its core banking  business and related  activities,  including  the
acquisition  of companies  engaged in banking or other related  activities,  and
internally  generated  growth.  There  can be no  assurance,  however,  that the
Company  will be able to grow,  or if it does that any such growth or  expansion
will result in an increase in the Company's earnings,  dividends,  book value or
market value of its securities.


         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  interest  paid  on  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 1999  and  1998,  increases  the
tax-exempt income to an amount  representing an estimate of what would have been
earned if that income were fully taxable.

         Taxable-equivalent  net  interest  income was  $50.24  million in 1999,
increasing  6.51%  from the  $47.17  million  in  1998.  The  Company's  average
interest-earning  assets  increased  14.67% to $1.32 billion  during 1999.  This
increase was funded  primarily  by a 15.00%  increase in the  Company's  average
interest-bearing  liabilities and by an 18.90% 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 3.79% in 1999,  as
compared to 4.09% in 1998.  This  decrease in net  interest  margin  principally
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 1999. This spread  decreased by 26 basis points in 1999.  During
the year,  the rate paid on average  interest-bearing  liabilities  decreased 10
basis points,  while the yield on average  interest-earning  assets decreased 36
basis points.

         The average  yield on the  investment  portfolio  fell 18 basis  points
during 1999 compared to 1998. The average yield on the loan portfolio  decreased
by 36 basis points,  reflecting the impact of competitive  pressures.  The rates
paid on short-term borrowings decreased by 18 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 1999 in the Company's market
area for both loans and the funding sources needed to satisfy loan demand caused
its  net  interest  spread  to  narrow.  The  Company's  management  feels  that
competitive pressures 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.

         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.

NONINTEREST INCOME

         Noninterest  income increased by $1.99 million or 11.65% in 1999. Gains
realized from the sale of mortgage  loans in the secondary  market were $872,000
in 1999 and $751,000 million in 1998.  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 will be highly  influenced by the level and direction of future  interest
rate changes.  Insurance  commissions  increased $667,000 or 12.51% in 1999. The
increase is  attributable  to Frederick  Underwriters'  strong  insurance  sales
activity.  Other operating income includes  approximately  $1.56 million in 1999
and $1.22 million in 1998  attributable  to the  implementation  of a bank-owned
life insurance  program that generates  tax-exempt  income intended to partially
offset the cost of employee benefit programs.

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

         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 the
products or services cannot be predicted at this time.

NONINTEREST EXPENSES

         Noninterest  expenses increased $3.61 million in 1999.  However, if the
merger  related  costs of $1.87  million  in 1999 and $1.94  million in 1998 are
excluded from this  comparison,  noninterest  expenses for 1999 increased  $3.68
million.  Total salaries and employee benefits  increased $2.05 million or 8.70%
in 1999.  The  increase in salaries  and  benefits  reflects  general  merit and
cost-of-living adjustments.

 Net occupancy and equipment  expenses increased $766,000 or 15.65% and $512,000
or 13.92%, respectively, compared to those incurred during 1999. The increase in
these two areas is directly attributable to the acquisition activity surrounding
the  purchase  of First  Virginia  Bank,  Capital  Bank and First  Bank.  Branch
upgrading,  signage,  computer and  equipment  upgrades in addition to extensive
leasehold improvements have resulted in increased depreciation,  maintenance and
utilities expenses.


                                        3


<PAGE>

Table 1: Comparative Statement Analysis
<TABLE>
<S>                              <C>          <C>       <C>      <C>          <C>     <C>              <C>        <C>        <C>

                                                              Years ended December 31,
------------------------------------------------------------------------------------------------------------------------------------
                                               1999                             1998                                1997
------------------------------------------------------------------------------------------------------------------------------------
                                    Average  Interest  Average        Average  Interest  Average          Average  Interest  Average
                                    daily   income(2)  yield/          daily  income(2)  yield/            daily  income(2)   yield/
(dollars in thousands)          balance(1)     /paid    rate      balance(1)     /paid    rate        balance(1)   /paid(3)     rate
====================================================================================================================================
ASSETS
Interest-earning assets:
  Interest-bearing
    deposits in other banks   $   6,282    $     313    4.98%    $    3,341  $    212   6.35%             2,555   $    136    5.32%
------------------------------------------------------------------------------------------------------------------------------------
  Federal funds sold             20,402        1,085    5.32         28,637     1,590   5.55             22,180      1,196    5.40
------------------------------------------------------------------------------------------------------------------------------------
  Loans held for sale             3,918          286    7.30          3,082       168   5.45              1,105        118   10.68
------------------------------------------------------------------------------------------------------------------------------------
  Investment securities:
    Taxable                     431,556       26,767    6.20        335,563    21,421   6.38            255,223     16,373    6.42
    Nontaxable                   10,265          849    8.27          7,798       671   8.60              5,872        604   10.29
------------------------------------------------------------------------------------------------------------------------------------
  Total investment securities   441,821       27,616    6.25        343,361    22,092   6.43            261,095     16,977    6.50
------------------------------------------------------------------------------------------------------------------------------------
Loans(3), net of unearned
  income                        851,705       74,814    8.78        776,307    70,963   9.14            697,861     64,706    9.27
------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 1,324,128      104,114    7.86      1,154,728    95,025   8.22            984,796     83,133    8.44
------------------------------------------------------------------------------------------------------------------------------------
Noninterest-earning assets      107,684                              96,885                              78,285
Net effect of unrealized gain
  (loss) on securities
  available for sale            (1,960)                               4,004                               1,262
------------------------------------------------------------------------------------------------------------------------------------
    Total assets             $1,429,852                          $1,255,617                          $1,064,343
------------------------------------------------------------------------------------------------------------------------------------


LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
  NOW/SuperNOW accounts     $    83,294    $  1,523     1.83%   $    83,072  $  1,718   2.07%        $   70,019   $  1,354    1.93%
  Savings accounts              111,850       3,120     2.79         92,874     2,308   2.49             93,827      2,434    2.59
  Money market accounts         172,507       6,061     3.51        140,693     4,944   3.51            115,677      3,664    3.17
  Certificates of deposit
   and other time deposits
   less than $100,000           341,946      17,568     5.14        334,069    18,301   5.48            321,001     17,489    5.45
  Certificates of deposit
   and other time deposits
   of $100,000 or more          111,279       6,246     5.61        102,214     5,904   5.78             78,167      4,483    5.74
  Federal funds purchased and
   securities sold under
   agreements to repurchase      65,282       3,077     4.71         60,939     2,983   4.90             64,753      3,466    5.35
  Other short-term borrowings   243,936      12,897     5.29        185,833    10,168   5.47            114,248      6,548    5.73
  Long-term debt                 40,250       3,378     8.39         18,069     1,527   8.45                  -          -       -
------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing
  liabilities                 1,170,344      53,870     4.60       1,017,763   47,853   4.70            857,692      39,438   4.59
------------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing
  deposits                      151,229                              127,193                            108,417
Noninterest-bearing
  liabilities                    14,705                               11,213                              8,622
------------------------------------------------------------------------------------------------------------------------------------
  Total liabilities           1,336,278                            1,156,169                            974,731
------------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity             95,534                               95,444                             88,350
Net effect of unrealized gain
  (loss) on securities
  available for sale            (1,960)                                4,004                              1,262
------------------------------------------------------------------------------------------------------------------------------------
  Total shareholders' equity     93,574                               99,448                             89,612
  Total liabilities and
   shareholders' equity      $1,429,852                           $1,255,617                         $1,064,343
------------------------------------------------------------------------------------------------------------------------------------
Net interest income                         $50,244                           $47,172                             $43,695
------------------------------------------------------------------------------------------------------------------------------------
Net interest spread                                     3.26%                           3.52%                                  3.85%
------------------------------------------------------------------------------------------------------------------------------------
Net interest margin                                     3.79%                           4.09%                                  4.44%
------------------------------------------------------------------------------------------------------------------------------------

(1)     The average daily balances for investment securities exclude the effects of applicable fair value adjustments.
(2)     Presented on a taxable-equivalent basis using the statutory federal income tax rate of 35%
(3)     Nonaccruing  loans,  which include impaired loans, are included in the average balances.  Net loan fees included in interest
        income totaled $3,250,000, $1,895,000 and $1,777,000 for 1999, 1998 and 1997, respectively.
</TABLE>


                                        4


<PAGE>


TABLE 2: RATE/VOLUME ANALYSIS
<TABLE>
<S>                                     <C>       <C>       <C>       <C>        <C>        <C>         <C>       <C>       <C>


                                                       1999 compared to 1998     1998 compared to 1997     1997 compared to 1996
------------------------------------------------------------------------------------------------------------------------------------
                                                   Increase                  Increase                      Increase
                                                   (decrease)      Net      (decrease)      Net           (decrease)         Net
                                                     due to      increase     due to       increase         due to         increase
                                                  -----------               -----------                   -----------
(dollars in thousands)                  Volume     Rate(1)  (decrease) Volume     Rate(1)  (decrease) Volume     Rate(1)  (decrease)
====================================================================================================================================
INTEREST INCOME Interest-earning assets:
   Interest-bearing deposits in
   other banks                         $   187   $    (86)  $   101   $    42    $      34  $    76    $   (137)  $   (18)  $  (155)
   Federal funds sold                    (457)        (48)    (505)       372          (9)      363        (101)       100       (1)
   Loans held for sale                      46          72      118       129         (48)       81        (157)       (8)     (165)
   Investment securities:
     Taxable                             6,128       (782)    5,346     5,213        (165)    5,048        3,535       241     3,776
     Nontaxable(2)                         212        (34)      178       123         (56)       67         (91)      (70)     (161)
   Loans(3)                              6,891     (3,040)    3,851     7,164        (907)    6,257        9,636       141     9,777
------------------------------------------------------------------------------------------------------------------------------------
     Total interest income              13,007     (3,918)    9,089    13,043      (1,151)   11,892       12,685       386    13,071
------------------------------------------------------------------------------------------------------------------------------------


INTEREST PAID Interest-bearing liabilities:
   Savings deposits(4)                $  1,444   $    290   $ 1,734   $ 1,020    $    498   $ 1,518    $       3  $  (584)  $  (581)
   Time deposits                           936    (1,327)     (391)     2,091         141     2,232        3,325       637     3,962
    Federal funds purchased
     and securities sold under
     agreements to repurchase              159       (65)        94     (204)       (279)     (483)        1,374       199     1,573
   Other short-term borrowings           3,256      (527)     2,729     3,918         (8)     3,910        3,796      (573)    3,223
   Long-term debt                        1,875       (24)     1,851         -       1,527     1,527            -      (406)    (406)
------------------------------------------------------------------------------------------------------------------------------------
    Total interest paid                  7,670    (1,653)     6,017     6,825       1,879     8,704        8,498      (727)    7,771
------------------------------------------------------------------------------------------------------------------------------------
 Net interest income                  $  5,337   $(2,265)   $ 3,072   $ 6,218    $(3,030)   $ 3,188     $  4,187   $  1,113  $ 5,300
------------------------------------------------------------------------------------------------------------------------------------

(1)     The volume/rate variance is allocated entirely to changes in rates.
(2)     Taxable-equivalent  adjustments  of  $297,000  for 1999,  $235,000  for 1998,  and  $206,000  for 1997 are  included  in the
        calculation of nontaxable investment securities rate variances.
(3)     Taxable-equivalent  adjustments of $94,000 for 1999, $150,000 for 1998, and $67,000 for 1997 are included in the calculation
        of loan rate variances.
(4)     Savings deposits include NOW/SuperNOW, savings and money market accounts.
</TABLE>

         Other operating  expenses  increased $349,000 or 3.20% in 1999 compared
to the prior year. See Note 13 to the  consolidated  financial  statements for a
schedule showing a detailed  breakdown of the Company's more  significant  other
operating expenses.

INCOME TAXES

         Income tax expense from operating activities decreased to $4.90 million
in 1999,  compared  to $5.62  million  in 1998,  reflecting  the lower  level of
pre-tax  income  in  1999.  The  Company's  effective  tax rate  from  operating
activities was 31.97% in 1999,  compared to 33.46% in 1998. 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 its  subsidiary  located in the state of Delaware  that holds and manages a
portion  of its  investment  portfolio.  Note 12 to the  consolidated  financial
statements  reconciles  expected  income taxes at  statutory  rates for the past
three years with income tax expense included in the  consolidated  statements of
income. Net income in 1998 was reduced by one-time  merger-related  charges. The
Company has been notified by the Internal Revenue Service (the Service) that the
Service has taken under review the Company's  treatment of an income tax reserve
for bad debts relating to the Company's 1996 acquisition of Laurel Bancorp, Inc.
("Laurel") and its subsidiary  thrift.  As a part of its  acquisition of Laurel,
the Company assumed an unrecorded  deferred tax liability of approximately  $1.6
million  related to the special bad debt deduction for years before  December 1,
1988 which thrifts were allowed.  The Company determined that recognition of the
deferred tax  liability was not required as a result of the merger of Laurel and
its subsidiary into the Company and its subsidiary  bank. The Service has raised
issues  related to the  availability  of an exemption  from recapture of the bad
debt  reserve.  The Company is reviewing  the  Service's  position.  The Company
intends to vigorously contest the additional  assessment,  but has accrued $1.75
million  as a  reserve  against  such  liability,  which has been  considered  a
merger-related expense for financial reporting purposes.


                                        5


<PAGE>


MARKET RISK, LIQUIDITY AND INTEREST RATE SENSITIVITY

         Asset/liability   management   involves  the  funding  and   investment
strategies  necessary  to  maintain  an  appropriate  balance  between  interest
sensitive assets and liabilities.  It also involves providing adequate liquidity
while  sustaining  stable  growth in net  interest  income.  Regular  review and
analysis of deposit and loan trends,  cash flows in various categories of loans,
and monitoring of interest spread relationships are vital to this process.

         The conduct of our banking business  requires that we maintain adequate
liquidity  to  meet  changes  in  the  composition  and  volume  of  assets  and
liabilities due to seasonal,  cyclical or other reasons. Liquidity describes the
ability  of the  Company to meet  financial  obligations  that arise  during the
normal course of business.  Liquidity is primarily  needed to meet the borrowing
and deposit withdrawal  requirements of the customers of the Company, as well as
for meeting current and future planned expenditures. This liquidity is typically
provided by the funds received through customer deposits, investment maturities,
loan  repayments,  borrowings,  and  income.  Management  considers  the current
liquidity  position  to be  adequate  to meet the needs of the  Company  and its
customers.

         The Company  seeks to limit the risks  associated  with  interest  rate
fluctuations  by managing  the balance  between  interest  sensitive  assets and
liabilities.  Managing to mitigate interest rate risk is, however,  not an exact
science.  Not only does the interval until repricing of interest rates on assets
and liabilities change from day to day as the assets and liabilities change, but
for some assets and  liabilities,  contractual  maturity and the actual maturity
experienced are not the same. For example,  mortgage-backed  securities may have
contractual  maturities  well in excess of five  years but,  depending  upon the
interest  rate  carried by the  specific  underlying  mortgages  and the current
prevailing  rate of interest,  these  securities may be repaid in a shorter time
period.  Accordingly,  mortgage-backed  securities and  collateralized  mortgage
obligations  that have  average  stated  maturities  in excess of five years are
evaluated as part of the asset/liability management process using their expected
average  lives due their  entirety  upon  demand  and  savings  deposits  may be
withdrawn on seven days notice. While these contracts are extremely short, it is
the Company's  belief that these  accounts turn over at the rate of five percent
(5%) per year. The Company therefore treats them as having maturities  staggered
over all periods. 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 $501.40  million or 33.30% 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 ANALYSIS - DECEMBER 31, 1999
<TABLE>
<S>                                                     <C>               <C>             <C>             <C>            <C>

                                                                                                         Interest sensitivity period
------------------------------------------------------------------------------------------------------------------------------------
                                                                                           After 1
                                                         3 or less         4 to 12         through         After 5
(dollars in thousands)                                     months           months         5 years          years          Total
====================================================================================================================================
INTEREST-EARNING ASSETS
Interest-bearing deposits in other banks                $   28,737        $       -        $       -      $        -     $    28,737
Federal funds sold                                           8,317                -                -               -           8,317
Loans held for sale:
  Fixed rate                                                   878                -                -               -             878
Investment securities:(1)
  Fixed rate                                                20,022           37,878           94,958         194,730         347,588
  Variable rate                                             60,020                -                -               -          60,020
Loans:(2)
  Fixed rate                                                66,461           67,562          361,231         159,812         655,066
  Variable rate                                            237,401                -                -               -         237,401
------------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets                           $  421,836        $ 105,440        $ 456,189        $ 354,542    $ 1,338,007
------------------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
Deposits:
NOW/SuperNOW accounts and savings                       $    2,472        $    7,415       $  39,550        $ 148,311    $   197,748
Money market accounts                                      197,046                 -               -                -        197,046
Certificates of deposit and
 other time deposits:
 Fixed rate                                                 86,075           284,151          87,075             518         457,819
 Variable rate                                              12,665                 -               -               -          12,665
Federal funds purchased and securities
 sold under agreements to repurchase                        59,995                 -               -               -          59,995
Other short-term borrowings:
 Fixed rate                                                 75,000           116,000          25,000          53,268         269,268
Long-term debt:
 Fixed rate                                                      -                 -               -          40,250          40,250
------------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities                      $  433,253        $  407,566       $ 151,625        $242,347     $ 1,234,791
------------------------------------------------------------------------------------------------------------------------------------
Interest-earning assets less
 interest-bearing liabilities ("Gap")                   $ (11,417)        $(302,126)       $ 304,564        $112,195     $   103,216
Cumulative Gap                                          $ (11,417)        $(313,543)       $ (8,979)        $103,216     $   103,216
Cumulative Gap as a percentage of total assets             (0.76)%          (20.82)%         (0.60)%           6.85%          6.85%
------------------------------------------------------------------------------------------------------------------------------------


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

                                    6


<PAGE>


         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. At December 31,
1999, the Company had one  outstanding  interest rate swap  instrument  which is
used 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,  1999,  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, 1999. This instrument matures in November 2004.

         The preceding table,  "Interest Rate Sensitivity Analysis," summarizes,
as of  December  31,  1999,  the  anticipated  maturities  or  repricing  of the
Company's   interest-earning  assets  and  interest-bearing   liabilities,   the
Company's   interest  rate   sensitivity  gap   (interest-earning   assets  less
interest-bearing   liabilities),   the   Company's   cumulative   interest  rate
sensitivity  gap, and the Company's  cumulative  interest  sensitivity gap ratio
(cumulative  interest rate sensitivity gap divided by total assets).  A negative
gap for any time  period  means  that  more  interest-bearing  liabilities  will
reprice or mature during that time period than  interest-earning  assets. During
periods of rising  interest  rates,  a negative  gap  position  would  generally
decrease  earnings,  and during periods of declining  interest rates, a negative
gap position would generally increase earnings. The converse would be true for a
positive gap position.  Therefore, a positive gap for any time period means that
more interest-earning assets will reprice or mature during that time period than
interest-bearing  liabilities.  During  periods  of  rising  interest  rates,  a
positive gap position would generally increase  earnings,  and during periods of
declining  interest  rates,  a positive gap position  would  generally  decrease
earnings.

         In addition to the gap method of monitoring  interest rate sensitivity,
the Company also employs computer model simulations.  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 analyzes: (1) measure the size and
direction of interest rate  exposure  under a variety of interest rate and yield
curve shape  scenarios;  (2)  provides the  opportunity  to capture all critical
elements such as volume,  maturity dates,  repricing dates,  prepayment volumes,
and hidden options such as caps, floors,  puts, and calls; (3) utilizes the data
to clearly  focus  attention on critical  variables;  (4) are  dynamic;  and (5)
reflect changes in prevailing  interest rates which affect  different assets and
liabilities  in different  ways.  These  simulations  are run on a monthly basis
using an  interest  rate  ramping  technique  to  determine  the  effects on the
Company's  net  interest  income,  assuming a gradual  increase  or  decrease in
interest  rates.  The Company has an interest rate risk  management  policy that
limits the amount of deterioration  in net interest  income,  associated with an
assumed interest rate shock of +/-100, +/-200, and +/-300 basis points change in
interest  rates,  to no more  than  7.5%  (+/-100),  10.0%  (+/-200),  and 12.5%
(+/-300) of net interest  income.  The model results as of December 31, 1999 are
as follows:

<TABLE>
<S>                                         <C>           <C>            <C>            <C>           <C>            <C>

                                                                                                  Change in Interest Rate Assumption
------------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)                     +100bp         +200bp         +300bp         -100bp         -200bp         -300bp
====================================================================================================================================
Net interest income-increase (decrease)    ($48,581)      ($46,928)      ($45,974)      $51,617        $53,015        $53,588
Net interest income -- % change               (3.08)         (6.38)         (8.28)         2.97           5.76           6.90
</TABLE>


                                       7


<PAGE>


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, 1999 and 1998, there were no deferred gains
or losses arising from the  termination  of  instruments  qualifying for accrual
accounting prior to maturity.

INVESTMENT PORTFOLIO

         Investment securities represent the second largest component of earning
assets, at 33% of average earning assets in 1999 and 30% in 1998. 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  $441.82  million in 1999,  compared  to $343.36
million in 1998. The average  tax-equivalent yield on the portfolio decreased 18
basis points to 6.25% in 1999. During 1999, the Company increased the investment
portfolio  by  approximately  $29.49  million  in  arbitrage  transactions.   An
arbitrage  transaction is one in which the Company  borrows funds primarily from
the Federal Home Loan Bank of Atlanta and purchases investment  securities.  The
Company will  recognize the spread  between the yield earned from the investment
securities and the rate paid on the borrowed funds.

         As of December 31, 1999, the gross  unrealized  losses in the Company's
investment portfolio were $279,000 in the held-to-maturity  investment portfolio
and $16.37 million in the  available-for-sale  investment  portfolio compared to
$46,000 and $2.18 million, respectively, as of December 31, 1998. As of December
31, 1999, the gross unrealized gains in the Company's  investment portfolio were
$180,000 in the  held-to-maturity  investment portfolio and $1.54 million in the
available-for-sale  investment portfolio compared to $470,000 and $8.53 million,
respectively,  as of December  31, 1998.  The  increase in the gross  unrealized
losses in the Company's  investment portfolio as of December 31, 1999 was caused
by an  increase  in market  interest  rates  during  the last  half of 1999.  As
interest  rates rise, the value of the investment  portfolio  decreases,  and as
interest  rates  fall,  the value of the  investment  portfolio  will  increase.
Restricted stock consists of Federal Reserve Stock, Federal Home Loan Bank Stock
and Atlantic  Central Bankers Bank Stock.  The balance of restricted stock as of
December 31, 1999 and 1998 was $16.06 million and $23.29 million,  respectively.
The  investment  portfolio  had an average life of 5.6 years,  with an estimated
average tax-equivalent yield of 6.25%, at December 31, 1999. 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.

         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, 1999.


                                       8


<PAGE>


Investment Portfolio Distribution-Book Value (Amortized cost)
<TABLE>
<S>                                    <C>                     <C>                      <C>

                                                               December 31,
------------------------------------------------------------------------------------------------------
(dollars in thousands)                   1999(1)                  1998(1)                  1997(1)
======================================================================================================
U.S. Treasury and other U.S.
government agencies and corporations  $ 205,699                $ 165,444                $ 128,039
State and political  subdivisions         9,836                    4,021                    1,198
Other securities                        225,380                  280,232                  160,356
------------------------------------------------------------------------------------------------------
Total                                 $ 440,915                $ 449,697                $ 289,593
------------------------------------------------------------------------------------------------------

(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.
</TABLE>

<PAGE>


Analysis of Investment Portfolio (Held-to-Maturity) - December 31,1999
<TABLE>
<CAPTION>
                                                                             Maturing in:
--------------------------------------------------------------------------------------------------------------------------------
                                                                     After 1             After 5
                                                1 year               through             through               After 10
                                                or less              5 years             10 years                years
--------------------------------------------------------------------------------------------------------------------------------
                                                  Average               Average              Average               Average
(dollars in thousands)                      Amount      Yield     Amount      Yield    Amount      Yield     Amount     Yield
--------------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>         <C>     <C>           <C>        <C>        <C>      <C>           <C>
U.S. Treasury and other
U.S. government agencies and corporations   $3,536      5.12%   $12,647       6.23%      $ 26      12.67%        --          --%
State and political subdivisions(1)            355       6.62     2,278       12.01       350       8.06       2,071       7.34
--------------------------------------------------------------------------------------------------------------------------------
   Total                                    $3,891       5.25%   $14,925        7.11%     $376       8.37%    $2,071       7.34%
--------------------------------------------------------------------------------------------------------------------------------
</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, 1999
<TABLE>
<CAPTION>
                                                                                 Maturing in:
----------------------------------------------------------------------------------------------------------------------------------
                                                                       After 1             After 5
                                                  1 year               through             through               After 10
                                                  or less              5 years             10 years                years
----------------------------------------------------------------------------------------------------------------------------------
                                                        Average               Average               Average                Average
(dollars in thousands)                     Amount(1)     Yield  Amount(1)(2)   Yield  Amount(1)(2)   Yield   Amount(1)(2)   Yield
----------------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>          <C>     <C>           <C>    <C>            <C>    <C>           <C>
U.S. Treasury and other
  U.S. government agencies and corporations   $8,015       6.27%   $84,248       6.59%   $96,649       5.41%  $143,407      6.56%
State and political subdivisions                  --         --         --         --         --        --       4,782      6.91
Other securities                                  --         --      9,332       7.45      9,658       7.61     63,561      5.70
----------------------------------------------------------------------------------------------------------------------------------
   Total                                      $8,015       6.27%   $93,580       6.68%  $106,307       5.64%  $211,750      6.30%
----------------------------------------------------------------------------------------------------------------------------------
</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.

(2)  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 state  and  political  subdivisions  are rated A or
     higher by either  Moody's  Investors  Service,  Inc.  or  Standard & Poor's
     Corporation.

LOAN PORTFOLIO

During 1999, the Company sold $28.99 million of conforming  residential mortgage
loans to Countrywide  Mortgage  (Countrywide) and other private  investors,  and
held additional loans for sale totaling  $878,000 at December 31, 1999,  whereas
in 1998,  the Company sold loans  totaling  $49.54  million and held  additional
loans for sale totaling $5.24 million at December 31, 1998. The average  balance
of  loans  held for sale for  1999  was  $3.92  million,  and in 1998 was  $3.08
million, which generated average yields of 7.30% and 5.45%, 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  typically  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,
----------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)           1999      %         1998      %         1997      %         1996     %          1995%
----------------------------------------------------------------------------------------------------------------------------
<S>                          <C>         <C>     <C>         <C>     <C>         <C>    <C>         <C>     <C>         <C>
Real estate-construction     $128,993     14%    $122,445     15%    $ 85,497     11%   $  64,159    10%    $  43,279     8%
Real estate-mortgage          530,255     59      466,724     57      460,210     61      415,586    64       360,019    65
Commercial and agricultural   160,047     18      147,995     18      129,307     18      102,895    16        84,426    15
Consumer                       83,777      9       80,897     10       74,259     10       67,901    10        66,748    12
----------------------------------------------------------------------------------------------------------------------------
   Total loans, net of
      unearned income         903,072    100%     818,061    100%     749,273    100%     650,541   100%       554,472  100%
   Less: Allowance for
      credit losses           (10,043)             (8,237)             (7,611)             (6,816)             (7,102)
----------------------------------------------------------------------------------------------------------------------------
Net loans                    $893,029            $809,824            $741,662            $643,725            $547,370
----------------------------------------------------------------------------------------------------------------------------
</TABLE>


<PAGE>

Maturity and Interest Rate Sensitivity of Loans-December 31, 1999

<TABLE>
<CAPTION>
                                                                       Maturing in:
-----------------------------------------------------------------------------------------------------------------------------
                                        One year or less       After 1 thru 5 years           After 5 years
                                      Fixed       Variable        Fixed     Variable        Fixed     Variable
                                    interest      interest     interest     interest     interest     interest
(dollars in thousands)                 rates         rates        rates        rates        rates        rates        Total
-----------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>           <C>           <C>          <C>        <C>             <C>      <C>
Real estate - construction            $ 75,758      $ 29,821     $ 18,683      $ 2,000    $   9,216       $ --     $135,478
Real estate - mortgage(1)               38,873        83,189      222,327       54,256      126,105        693      525,443
Commercial and agricultural              9,177        70,626       55,915        8,071       13,536        302      157,627
Consumer                                 3,263         7,846       62,422           --       10,993         --       84,524
-----------------------------------------------------------------------------------------------------------------------------
 Total loans, net of unearned income  $127,071      $191,482     $359,347      $64,327     $159,850       $995     $903,072
</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 as of
     December 31, 1999.

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.

The allowance for credit losses was $10.04 million, or 1.11% of total loans, net
of unearned income, at December 31, 1999, compared to $8.27 million, or 1.01% as
of December 31, 1998. The allowance for credit losses to nonperforming loans was
89.04% and 87.5% as of December 31, 1999 and 1998, respectively.

The Company's  provision for credit losses in 1999 was $5.01 million compared to
$2.10  million in 1998.  Included in the  provision  for 1999 is $2.90  million,
which  is  attributable   to  the  acquisition  of  First  Frederick   Financial
Corporation  and was recorded in order to align the  accounting  assumptions  in
analyzing  the  allowance  for  credit  losses.  Also  included  in the 1999 net
charge-offs  amount of $3.20 million are $1.50 million of  charge-offs  that are
attributable  to First  Frederick  Financial  Corporation.  If the $2.90 million
provision and the $1.50 million charge-off were excluded from the 1999 allowance
for credit losses, net credit losses would have been less than the provision for
credit losses by $406,000 and $626,000 in 1999 and 1998, respectively.

Total  nonperforming  assets as of December  31, 1999  totaled  $12.24  million,
reflecting a $993,000  increase from the $11.25 million in nonperforming  assets
as of December  31,  1998.  Total  nonperforming  assets,  including  properties
acquired  through  foreclosure,  represent  .81% and .77% of total  assets as of
December 31, 1999 and 1998 respectively.

Nonperforming assets at December 31, 1999, include $10.61
million  of  nonaccrual  loans,  $674,000  of  loans  past  due 90 days or more,
$962,000  of  foreclosed   properties,   consisting  principally  of  commercial
properties.

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.
                                       9
<PAGE>

Problem Assets

December 31,
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)                           1999              1998            1997               1996             1995
----------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>               <C>              <C>               <C>              <C>
Nonperforming loans:
 Nonaccrual loans(1)                          $10,605           $ 7,828          $ 4,698          $  6,382          $ 4,677
 Restructured loans(2)                             --                --              128                31              505
 Past due loans(3)                                674             1,585            2,316             3,920            2,302
----------------------------------------------------------------------------------------------------------------------------
   Total nonperforming loans                   11,279             9,413            7,142            10,333            7,484
Foreclosed properties(4)                          962             1,835            3,601             3,833            3,276
----------------------------------------------------------------------------------------------------------------------------
   Total nonperforming assets                 $12,241           $11,248          $10,743           $14,166          $10,760
Nonperforming assets to total loans (net of
 unearned income) and foreclosed
 properties at period-end                        1.35%            1.37%             1.43%            2.17%             1.93%
Nonperforming assets to total
 assets at period-end                            0.81%            0.77%             0.91%            1.41%             1.27%
Allowance for credit losses to
 nonperforming loans at period-end              89.04%            87.5%            106.6%            66.0%             94.9%
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

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

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

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

The Company has loans  totaling  $32.41  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.

As of December 31, 1999, the Company had a significant  concentration  of credit
risk in the real estate  loan  portfolio  of 14%.  While this  exceeded  the 10%
threshold,  we do not consider  this to be an adverse risk. An industry for this
purpose  is  defined as a group of  counterparties  that are  engaged in similar
activities  and have  similar  economic  characteristics  that would cause their
ability to meet contractual  obligations to be similarly  affected by changes in
economic or other conditions.

There were no other interest-bearing  assets at December 31, 1999,  classifiable
as nonaccrual, past due, restructured or problem assets.

Allowance for Credit Losses

<TABLE>
<CAPTION>
                                                                      Years ended December 31,
-----------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)                                  1999              1998             1997              1996             1995
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>               <C>              <C>               <C>              <C>
Average total loans outstanding during year         $851,705          $776,307         $697,861          $601,023         $531,312
-----------------------------------------------------------------------------------------------------------------------------------
Allowance at beginning of year                      $  8,237          $  7,611         $  6,816          $  7,102         $  6,486
Charge-offs:
 Real estate-construction                                 --                --              588                --               --
 Real estate-mortgage                                    702               177              213               299              467
 Commercial and agricultural                           2,619               786              472               969              304
 Consumer                                                519               947              356               379              231
-----------------------------------------------------------------------------------------------------------------------------------
   Total charge-offs                                   3,840             1,910            1,629             1,647            1,002
Recoveries:
 Real estate-construction                                 --                --               24                --               --
 Real estate-mortgage                                    179                50               24                49                6
 Commercial and agricultural                             318               130              475                70              202
 Consumer                                                141               259               92                97               85
-----------------------------------------------------------------------------------------------------------------------------------
   Total recoveries                                      638               439              615               216              293
Net charge-offs                                        3,202             1,471            1,014             1,431              709
Additions to allowance charged to operating expenses   5,008             2,097            1,809               683            1,325
Other transfers and allowance on loans
 acquired with purchased entity                           --                --               --               462               --
Allowance at end of year                            $ 10,043          $  8,237         $  7,611          $  6,816         $  7,102
Ratio of net charge-offs to average total loans         0.38%             0.19%            0.15%             0.24%            0.13%
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


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.

                                       10
<PAGE>

Allocation of Allowance for Credit Losses

<TABLE>
<CAPTION>
                                                                                December 31,
-------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)          1999      %(1)     1998       %(1)     1997     %(1)         1996       %(1)     1995      %(1)
-------------------------------------------------------------------------------------------------------------------------------
<S>                          <C>        <C>      <C>        <C>      <C>       <C>         <C>        <C>      <C>        <C>
Real estate-construction     $ 1,145    14%      $  949     15%      $  586    11%         $1,116     10%      $  858     8%
Real estate-mortgage           3,583    59        3,920     57        3,603    61           3,113     64        3,275    65
Commercial and agricultural    3,440    18        2,122     18        1,720    18           1,277     16        1,731    15
Consumer                       1,412     9          396     10          488    10             695     10          586    12
Unallocated                      463    --          850     --        1,214    --             615     --          652    --
-------------------------------------------------------------------------------------------------------------------------------
   Total Allowance           $10,043             $8,237              $7,611                $6,816              $7,102
</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,
----------------------------------------------------------------------------------------------------------------------------
                                                    1999                          1998                           1997
----------------------------------------------------------------------------------------------------------------------------
                                            Average                        Average                       Average
                                             daily     Average              daily     Average             daily     Average
(dollars in thousands)                      balance      Rate              balance      Rate             balanceRate
----------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>            <C>             <C>            <C>            <C>            <C>
Noninterest-bearing demand deposits        $151,229         --%           $127,193         --%          $108,417         --%
Interest-bearing demand deposits:
 NOW/SuperNOW                                83,294       1.83              83,072       2.07             70,019       1.93
 Money Market                               172,507       3.51             140,693       3.51            115,677       3.17
Savings  deposits                           111,850       2.79              92,874       2.49             93,827       2.59
Certificates of deposits:
 Less than $100,000                         341,946       5.14             334,069       5.48            321,001       5.45
 Greater than $100,000                      111,279       5.61             102,214       5.78             78,167       5.74
   Total average deposits                  $972,105       3.55%           $880,115       3.77%          $787,108       3.74%
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

Maturities of Time Deposits-$100,000 or More

<TABLE>
<CAPTION>
                                                                                     December 31,
(dollars in thousands)                                         1999                     1998                      1997
----------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                      <C>                       <C>
Maturing in:
 3 months or less                                          $  5,972                 $ 50,028                  $ 30,625
 Over 3 months through 6 months                              21,049                   18,803                    24,167
 Over 6 months through 12 months                             69,483                   15,440                    23,809
 Over 12 months                                              25,328                   20,096                    25,513
----------------------------------------------------------------------------------------------------------------------
                                                           $121,832                 $104,367                  $104,114
</TABLE>

                                       11
<PAGE>

SHORT-TERM BORROWINGS

Federal Funds Purchased and Securities Sold Under Agreements to Repurchase(1)
<TABLE>
<CAPTION>
                                                                                     December 31,
(dollars in thousands)                                         1999                     1998                      1997
-----------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                      <C>                       <C>
Total outstanding at year-end                              $ 59,995                 $ 94,117                  $ 86,035
-----------------------------------------------------------------------------------------------------------------------
Average amount outstanding during the year                 $ 65,282                 $ 60,939                  $ 64,753
Maximum amount outstanding at any month-end                $ 80,141                 $110,779                  $ 88,494
Weighted-average interest rate at year-end                     4.66%                    4.61%                     5.43%
-----------------------------------------------------------------------------------------------------------------------
Weighted-average interest rate during the year                 4.71%                    4.90%                     5.35%
</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,
(dollars in thousands)                                         1999                     1998                      1997
-----------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                      <C>                       <C>
Total outstanding at year-end                              $269,268                 $248,719                  $155,767
-----------------------------------------------------------------------------------------------------------------------
Average amount outstanding during the year                 $243,936                 $185,833                  $114,248
-----------------------------------------------------------------------------------------------------------------------
Maximum amount outstanding at any month-end                $269,268                 $252,855                  $162,126
-----------------------------------------------------------------------------------------------------------------------
Weighted-average interest rate at year-end                      5.55%                   5.17%                     5.36%
-----------------------------------------------------------------------------------------------------------------------
Weighted-average interest rate during the year                  5.29%                   5.47%                     5.48%
</TABLE>

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


A portion of the increase in other  short-term  borrowings  is  attributable  to
arbitrage  transactions.  For a discussion  about these arbitrage  transactions,
please see the "Investment Portfolio" section above.

Included in other short-term  borrowings at December 31, 1999, are the following
borrowings  from the Federal Home Loan Bank of Atlanta.  These  borrowings  have
scheduled maturity dates but the majority are callable at the sole discretion of
the  Federal  Home Loan Bank of  Atlanta  within one year from the date of their
initial funding.  The Company has the option to terminate the remainder of these
agreements upon the repricing  date. 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, 1999   Due in   Interest rate range     Amount
-----------------------------------------------------------
                                                  (dollars
                                              in thousands)
<S>                             <C>                <C>
                      2000      5.35 - 6.19%       $191,000
                      2003          5.37%            25,000
                      2006          5.17%            10,000
                      2007          5.27%            24,000
                      2009          4.96%            19,000
                Thereafter          2.00%               268
-----------------------------------------------------------
                     Total                         $269,268
</TABLE>

                                       12


<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 to  average  assets  (as  defined).  Management
believes as of December 31, 1999 and 1998 that the Company and the Bank meet all
capital  adequacy  requirements  to which they are  subject.  See Note 14 to the
consolidated   financial  statements  for  a  table  depicting  compliance  with
regulatory capital requirements.

As of December 31, 1999, the most recent notification from the regulatory agency
categorized  the Bank as well  capitalized  under the  regulatory  framework for
prompt  corrective  action.  To be categorized as well 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 14.  There are no  conditions  or events since
that notifications which management believes have changed the Bank's category.

For a discussion related to the Trust Preferred Securities see Note 9, Long-term
Debt.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required for this section can be located in the "Risk Management
Instructions"   section  the  "Market  Risk"  section,  and  the  Notes  to  the
Consolidated Financial Statements.

INFLATION

The effect of changing prices on financial  instructions 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.

                                       13

<PAGE>

YEAR 2000

The Company successfully  processed  transactions affecting all mission critical
and non-mission  critical  systems.  All systems  functioned as expected with no
adverse impact to overall bank operations. The company expended $171,000 for the
year end  December 31, 1999 and expects to incur  another  $169,000 in costs for
the year ended December 31, 2000 to address Year 2000 related issues.

CONTINGENCY PLANNING

The Company has in place a Disaster  Recovery  Plan for its computer  operations
facility  and a  business  resumption  plan for its  various  departments.  This
Disaster Recovery Plan provides for  mission-critical  and support operations to
be conducted at our off-site disaster recovery  facility.  The  mission-critical
systems will have been tested at the Disaster Recovery site;  therefore,  in the
event the Company cannot perform its own core business  processes,  the existing
FCNB  Bank  Disaster  Recovery  Plan  would be  followed  in  order to  continue
operations.

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.

FINANCIAL ANALYSIS 1998-1997
Earnings Summary

Net income was $9.43 million in 1998 compared to $11.17 million for 1997.  Basic
and diluted  earnings  per share were $0.82 and $.079 in 1998  compared to $0.97
and $0.95 for 1997. Net income before merger-related expenses was $12.59 million
in 1998 and $11.45 million in 1997, while basic earnings per share were $1.09 in
1998,  diluted  earnings  per share  were  $1.06 in 1998 and  basic and  diluted
earnings per share were $0.97 and $0.95, respectively for 1997.

Return on average assets was  75% in 1998 compared to 1.05% for 1997.  Return on
average  shareholders'  equity  was  9.48% in 1998  compared  to 12.46% in 1997.
However,  before merger-related  expenses the return on average assets was 1.00%
in 1998 and 1.08% in 1997,  and the  return on average  shareholders  equity was
12.66% and 12.78% and 1977, respectively.

Net Interest Income

On a Fully taxable-equivalent basis, net interest income increased $5.48 million
or 7.96% in 1998 and $4.26 million or 10.89% in 1997.

In 1998,  the net  interest  margin on  average  total  interest-earning  assets
decreased to 4.09% from 4.44% in 1997.  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 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 $4.11  million  or 31/69% in 1998 and by 1.60
million or 14.10% in 1997.

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 $7.27 million, but excluding merger-related costs
of 1.94 million in 1998 and $460,000 in 1997 would have increased $5.79 million.

Income Taxes:
Income tax expense from operating activities decreased to $5.62 million in 1998,
compared to $5.71 million in 1997.

                                       14

<PAGE>


FINANCIAL ANALYSIS 1998-1997

Earnings Summary:
Net income was $9.43 million in 1998 compared to $11.17
million for 1997.  Basic and diluted  earnings per share were $0.82 and $0.79 in
1998  compared  to $0.97 and $0.95 for 1997.  Net income  before  merger-related
expenses  was $12.59  million in 1998 and $11.45  million in 1997,  while  basic
earnings per share were $1.09 in 1998,  diluted earnings per share were $1.06 in
1998  and  basic  and  diluted   earnings   per  share  were  $0.97  and  $0.95,
respectively, for 1997.

Return on average assets was .75% in 1998 compared to 1.05% for 1997.  Return on
average  shareholders'  equity  was  9.48% in 1998  compared  to 12.46% in 1997.
However,  before merger-related  expenses the return on average assets was 1.00%
in 1998 and 1.08% in 1997,  and the  return on average  shareholders  equity was
12.66% and 12.78% in 1998 and 1997, respectively.

Net Interest Income:
On a fully taxable-equivalent basis, net interest income increased $3.48 million
or 7.96% in 1998 and $4.26 million or 10.89% in 1997.

In 1998,  the net  interest  margin on  average  total  interest-earning  assets
decreased to 4.09% from 4.44% in 1997.  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 $4.11  million or 31.69% in 1998 and by $1.60
million or 14.10% in 1997.

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 $7.27 million, but excluding merger-related costs
of $1.94  million  in 1998 and  $460,000  in 1997  would  have  increased  $5.79
million.

Income Taxes:
Income tax expense from operating activities decreased to $5.62 million in 1998,
compared to $5.71 million in 1997.

                                       15

<PAGE>

SELECTED FINANCIAL DATA

The following table for the years 1998,  1997,  1996, and 1995 has been restated
to  include  the  effects  of  the  acquisition  of  First  Frederick  Financial
Corporation  in 1999,  accounted  for as a pooling of  interests  and 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>
                                                                                    Year ended December 31,
---------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data)                  1999            1998            1997            1996          1995
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                     <C>             <C>             <C>             <C>          <C>
Summary of Operating Results:
  Total interest income                                 $   103,723     $    94,640     $    82,860     $    70,808  $     64,479
  Total interest expense (1)                                 53,870          47,853          39,438          31,649        28,480
---------------------------------------------------------------------------------------------------------------------------------
  Net interest income                                        49,853          46,787          43,422          39,159        35,999
  Provision for credit losses                                 5,008           2,097           1,809             683         1,325
---------------------------------------------------------------------------------------------------------------------------------
  Net interest income after provision for credit losses      44,845          44,690          41,613          38,476        34,674
  Net securities gains (losses)                                 926           1,520             669             420           109
  Noninterest income (excluding net securities
   gains (losses))                                           18,158          15,572          12,310          10,955        10,869
  Noninterest expenses                                       48,598          44,986          37,717          37,762        33,196
---------------------------------------------------------------------------------------------------------------------------------
  Income before provision for income taxes                   15,331          16,796          16,875          12,089        12,456
  Provision for income taxes:
  Operating activities                                        4,902           5,620           5,707           4,356         3,508
  Thrift bad debt reserve recapture                              --           1,750              --              --            --
---------------------------------------------------------------------------------------------------------------------------------
  Income tax expense                                          4,902           7,370           5,707           4,356         3,508
---------------------------------------------------------------------------------------------------------------------------------
  Net income                                                 10,429           9,426          11,168           7,733         8,948
  Other comprehensive income (loss), net of taxes           (12,961)            240           3,058             (47)        3,182
---------------------------------------------------------------------------------------------------------------------------------
  Comprehensive income                                  $    (2,532)   $      9,666     $    14,226     $     7,686   $    12,130
---------------------------------------------------------------------------------------------------------------------------------
  Net income before merger-related expenses                 $13,520    $     12,587     $    11,453     $     9,644   $     9,251
---------------------------------------------------------------------------------------------------------------------------------
Per Share Data:
  Basic earnings                                        $      0.89    $       0.82     $      0.97     $      0.67   $      0.79
  Diluted earnings                                      $      0.87    $       0.79     $      0.95     $      0.66   $      0.78
  Basic earnings before merger-related expenses         $      1.15    $       1.09     $      0.99     $      0.84   $      0.81
  Diluted earnings before merger-related expenses       $      1.13    $       1.06     $      0.97     $      0.82   $      0.80
  Cash dividends declared                               $     0.598    $      0.427     $     0.330     $     0.269   $     0.259
  Book value at period-end                              $      7.53    $       8.52     $      8.32     $      7.43   $      7.11
  Shares outstanding at period-end                       11,923,775      11,598,626      11,571,907      11,522,063    11,388,074
  Weighted average shares outstanding:
   Basic                                                 11,719,983      11,561,232      11,496,668      11,544,004    11,386,558
   Diluted                                               11,953,912      11,870,963      11,737,712      11,729,575    11,539,881

Other Data (At Year-End):
  Total loans, net of unearned  income                  $   903,072    $    818,061     $   749,273        $649,639   $   553,357
  Total assets                                            1,505,796       1,459,720       1,179,435       1,002,010       849,928
  Total deposits                                          1,028,859         962,799         830,326         766,911       686,309
  Federal funds purchased and securities
   sold under agreement to repurchase                        59,995          94,117          86,035          55,446        32,796
  Other short-term borrowings                               269,268         248,719         155,767          84,416        34,328
  Long-term debt                                             40,250          40,250              --              --         5,680
  Total shareholders' equity                                 89,765          98,855          96,236          85,612        80,917

Consolidated Ratios:
  Return on average total assets                               0.73%           0.75%          1.05%           0.86%         1.10%
  Return on average total assets before
   merger-related expenses                                     0.95%           1.00%          1.08%           1.07%         1.13%
  Return on average shareholders' equity                      11.15%           9.48%         12.46%           9.51%        11.82%
  Return on average shareholders' equity
   before merger-related expenses                             14.45%          12.66%         12.78%          11.87%        12.22%
  Average equity to average assets                             6.54%           7.92%          8.42%           9.01%         9.25%
  Cash dividends declared to net income                       67.09%          51.79%         34.13%          40.17%        33.00%
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

                                       16
<PAGE>

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                             December 31,
-------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share amounts)                                         1999                  1998
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>                   <C>
Assets
-------------------------------------------------------------------------------------------------------------------
Cash and due from banks                                                            $   39,323            $   35,518
Interest-bearing deposits in other banks                                               28,737                 9,358
Federal funds sold                                                                      8,317                47,262
-------------------------------------------------------------------------------------------------------------------
  Cash and cash equivalents                                                            76,377                92,138
Loans held for sale                                                                       878                 5,236
Investment securities held to maturity-- fair value
  of $21,164 in 1999 and $30,469 in 1998                                               21,263                30,045
Investment securities available for sale-- at fair value                              404,818               414,386
Restricted stock, at cost                                                              16,061                23,298
Loans                                                                                 903,080               818,084
Less: Allowance for credit losses                                                     (10,043)              (8,237)
      Unearned income                                                                      (8)                 (23)
-------------------------------------------------------------------------------------------------------------------
      Net loans                                                                       893,029               809,824
-------------------------------------------------------------------------------------------------------------------
Bank premises and equipment                                                            25,543                26,902
Other assets                                                                           67,827                57,891
-------------------------------------------------------------------------------------------------------------------
      Total assets                                                                 $1,505,796            $1,459,720


Liabilities and Shareholders' Equity
-------------------------------------------------------------------------------------------------------------------
Liabilities
Deposits:

  Noninterest-bearing deposits                                                     $  163,581            $  154,774
  Interest-bearing deposits                                                           865,278               808,025
-------------------------------------------------------------------------------------------------------------------
      Total deposits                                                                1,028,859               962,799
Short-term borrowings:
  Federal funds purchased and securities sold under agreements to repurchase           59,995                94,117
  Other short-term borrowings                                                         269,268               248,719
Long term debt:
  Guaranteed preferred beneficial interests in the Company's
  subordinated debentures                                                              40,250                40,250
Accrued interest and other liabilities                                                 17,659                14,980
-------------------------------------------------------------------------------------------------------------------
      Total liabilities                                                             1,416,031             1,360,865

Commitments and Contingencies (Notes 10 & 17)
-------------------------------------------------------------------------------------------------------------------

Shareholders' Equity

Preferred stock, per share par value $1.00;
  1,000,000 shares authorized; none outstanding                                            --                    --
Common stock, per share par value $1.00;
  50,000,000 shares authorized; 11,923,775 in 1999
  and 11,598,626 in 1998 shares issued and outstanding                                 11,924                11,599
Capital surplus                                                                        54,316                54,147
Retained earnings                                                                      32,581                29,204
Accumulated other comprehensive income (loss)                                          (9,056)                3,905
-------------------------------------------------------------------------------------------------------------------
      Total shareholders' equity                                                       89,765                98,855
-------------------------------------------------------------------------------------------------------------------
      Total liabilities and shareholders' equity                                   $1,505,796            $1,459,720
-------------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Consolidated Financial Statements.

                                       17
<PAGE>

FCNB Corp and Subsidiary

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
For the years ended December 31,
---------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share amounts)                       1999                    1998                    1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>                      <C>                     <C>
Interest income:
  Interest and fees on loans                                       $ 75,006                 $70,981                 $64,757
  Interest and dividends on investment securities:
   Taxable                                                           25,217                  20,352                  15,755
   Tax exempt                                                           552                     436                     398
   Dividends                                                          1,550                   1,069                     618
  Interest on federal funds sold                                      1,085                   1,590                   1,196
  Other interest income                                                 313                     212                     136
---------------------------------------------------------------------------------------------------------------------------
      Total interest income                                         103,723                  94,640                  82,860
Interest expense:
  Interest on deposits                                               34,518                  33,175                  29,424
  Interest on federal funds purchased and
   securities sold under agreements to repurchase                     3,077                   2,983                   3,466
  Interest on other short-term borrowings                            12,897                  10,168                   6,291
  Interest on long-term debt                                          3,378                   1,527                     257
---------------------------------------------------------------------------------------------------------------------------
      Total interest expense                                         53,870                  47,853                  39,438
Net interest income                                                  49,853                  46,787                  43,422
Provision for credit losses                                           5,008                   2,097                   1,809
---------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for credit losses                44,845                  44,690                  41,613
Noninterest income:
  Service fees                                                        5,544                   4,617                   3,763
  Insurance commissions                                               5,999                   5,332                   5,668
  Net securities gains                                                  926                   1,520                     669
  Gain on sale of loans                                                 872                     751                     407
  Income from bank-owned life insurance                               1,562                   1,222                     605
  Other operating income                                              4,181                   3,650                   1,867
---------------------------------------------------------------------------------------------------------------------------
      Total noninterest income                                       19,084                  17,092                  12,979
Noninterest expenses:
  Salaries and employee benefits                                     25,603                  23,553                  20,353
  Occupancy expenses                                                  5,661                   4,895                   4,117
  Equipment expenses                                                  4,191                   3,679                   2,855
  Merger-related expenses                                             1,871                   1,936                     460
  Other operating expenses                                           11,272                  10,923                   9,932
---------------------------------------------------------------------------------------------------------------------------
      Total noninterest expenses                                     48,598                  44,986                  37,717
Income before provision for income taxes                             15,331                  16,796                  16,875
Provision for income taxes:
  Operating activities                                                4,902                   5,620                   5,707
  Thrift bad debt reserve recapture                                      --                   1,750                      --
---------------------------------------------------------------------------------------------------------------------------
Income tax expense                                                    4,902                   7,370                   5,707
Net income                                                           10,429                   9,426                  11,168
Basic earnings per share                                           $   0.89                 $  0.82                 $  0.97
Diluted earnings per share                                         $   0.87                 $  0.79                 $  0.95
</TABLE>

See Notes to Consolidated Financial Statements.

                                       18
<PAGE>

FCNB Corp and Subsidiary

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
For the years ended December 31, 1999, 1998 and 1997
----------------------------------------------------------------------------------------------------------------------------------
                                                                                                        Accumulated
                                                                                                              Other
                                                                                                            Compre-          Total
(dollars in thousands,                               Shares        Common       Capital      Retained       hensive  Shareholders'
except per share amounts)                       Outstanding         Stock       Surplus      Earnings        Income         Equity
----------------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>              <C>           <C>           <C>            <C>           <C>
Balance at December 31, 1996                      7,465,700       $ 7,466       $33,183       $36,944       $   739       $ 78,332
----------------------------------------------------------------------------------------------------------------------------------
Effects of pooled entities                          499,744           500         5,428           923          (132)         6,719
----------------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME
----------------------------------------------------------------------------------------------------------------------------------
  Net income                                             --            --            --        11,168            --         11,168
----------------------------------------------------------------------------------------------------------------------------------
Changes in net unrealized gains (losses)
  on securities, net of reclassification
  adjustment and tax effects                             --            --            --            --         3,058          3,058
----------------------------------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME                                                                                                  14,226
----------------------------------------------------------------------------------------------------------------------------------
Dividend reinvestment and stock purchase plan            --            --            --           (18)           --            (18)
----------------------------------------------------------------------------------------------------------------------------------
Issuance of common stock                              3,954             4            22            --            --             26
----------------------------------------------------------------------------------------------------------------------------------
Shares issued with stock dividend                   536,503           536        16,633       (17,169)           --             --
----------------------------------------------------------------------------------------------------------------------------------
Shares issued with stock split effected in the
  form of a stock dividend                          249,085           249            --          (249)           --             --
Repurchase of common stock                          (15,217)          (15)         (273)          (60)           --           (348)
----------------------------------------------------------------------------------------------------------------------------------
Stock option and warrants transactions               42,657            43           508            --            --            551
----------------------------------------------------------------------------------------------------------------------------------
Cash dividends declared                                  --            --            --        (3,812)           --         (3,812)
----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997                      8,782,426         8,783        55,501        27,727         3,665         95,676
----------------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME
----------------------------------------------------------------------------------------------------------------------------------
  Net income                                             --            --            --         9,426            --          9,426
----------------------------------------------------------------------------------------------------------------------------------
Changes in net unrealized gains (losses)
  on securities, net of reclassification
  adjustment and tax effects                             --            --            --            --           240            240
----------------------------------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME                                                                                                   9,666
----------------------------------------------------------------------------------------------------------------------------------
Dividend reinvestment and stock purchase plan            --            --            --           (29)           --            (29)
----------------------------------------------------------------------------------------------------------------------------------
Issuance of common stock                              3,898             4            81            --            --             85
----------------------------------------------------------------------------------------------------------------------------------
Shares issued with stock split effected in the
  form of a stock dividend                        2,741,549         2,741            --        (2,741)           --             --
----------------------------------------------------------------------------------------------------------------------------------
Repurchase of common stock                        (129,620)          (130)       (2,501)         (297)           --         (2,928)
----------------------------------------------------------------------------------------------------------------------------------
Stock option and warrants transactions              200,373           201         1,066            --            --          1,267
----------------------------------------------------------------------------------------------------------------------------------
Cash dividends declared                                  --            --            --        (4,882)           --         (4,882)
----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998                     11,598,626        11,599        54,147        29,204         3,905         98,855
----------------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME (LOSS):
----------------------------------------------------------------------------------------------------------------------------------
  Net income                                             --            --            --        10,429            --         10,429
----------------------------------------------------------------------------------------------------------------------------------
Changes in net unrealized gains (losses)
  on securities, net of reclassification
  adjustment and tax effects                             --            --            --            --       (12,961)       (12,961)
----------------------------------------------------------------------------------------------------------------------------------
TOTAL COMPREHENSIVE INCOME (LOSS):                                                                                          (2,532)
----------------------------------------------------------------------------------------------------------------------------------
Dividend reinvestment and stock purchase plan            --            --            --           (56)           --            (56)
----------------------------------------------------------------------------------------------------------------------------------
Issuance of common stock                             13,100            13           223            --            --            236
----------------------------------------------------------------------------------------------------------------------------------
Stock option transactions                           312,049           312           (54)           --            --            258
----------------------------------------------------------------------------------------------------------------------------------
Cash dividends declared                                  --            --            --        (6,996)           --         (6,996)
----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999                     11,923,775       $11,924       $54,316       $32,581       $(9,056)      $ 89,765
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Consolidated Financial Statements.

                                       19
<PAGE>

FCNB Corp and Subsidiary

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                 For the years ended December 31,
----------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)                                                 1999                    1998                    1997
----------------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>                      <C>                     <C>
Cash flows from operating activities:
  Net income                                                     $   10,429               $   9,426               $  11,168
   Adjustments to reconcile net income to
    net cash provided by operating activities:
      Depreciation and amortization                                   3,591                   3,241                   2,582
      Provisions for credit losses and foreclosed properties          5,083                   2,149                   1,844
      Deferred income taxes (benefits)                                 (982)                   (106)                  1,092
      Net discount accretion/premium amortization
        on investment securities                                        278                      85                    (109)
      Noncash charitable contribution                                    --                      --                      98
      Accretion of net loan origination fees                         (1,445)                 (1,149)                   (775)
      Net securities gains                                             (926)                 (1,520)                   (669)
      Net (gain) loss on sales of property                               (9)                    107                     193
      Decrease (increase) in other assets                            (1,751)                 (1,514)                 (1,490)
      Decrease (increase) in loans held for sale                      4,358                  (4,093)                  2,410
      Increase (decrease) in accrued interest and other liabilities    2,679                  2,489                   1,843
      Other operating activities                                         --                     525                    (234)
----------------------------------------------------------------------------------------------------------------------------
      Net cash provided by operating activities                      21,305                   9,640                  17,953
----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
  Proceeds from sales of investment securities
   available for sale                                                76,263                  65,757                  72,617
  Proceeds from maturities of investment securities
   available for sale                                               130,246                 146,240                  67,829
  Proceeds from maturities of investment securities
   held to maturity                                                   7,316                   9,991                  12,257
  Purchases of investment securities available for sale            (208,772)               (390,767)               (187,013)
  Purchases of investment securities held to maturity                    --                  (2,070)                (18,031)
  Net increase in loans                                             (86,768)                (69,425)                (99,970)
  Decrease (increase) in interest-bearing deposits in other banks        --                     (93)                    273
  Purchases of bank premises and equipment                           (1,749)                 (2,823)                 (2,583)
  Proceeds from dispositions of property                                795                   1,444                     939
  Purchase of foreclosed properties                                     (60)                    (26)                   (159)
  Purchases of investments in bank-owned life insurance                  --                 (15,000)                (13,540)
  Acquisition of business, net of cash acquired                          --                  41,836                      --
----------------------------------------------------------------------------------------------------------------------------
      Net cash (used in) investing activities                       (82,729)               (214,936)               (167,381)
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                   (continued)

                                       20
<PAGE>

FCNB Corp and Subsidiary

CONSOLIDATED STATEMENTS OF CASH FLOWS, continued

<TABLE>
<CAPTION>
                                                                                 For the years ended December 31,
----------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)                                                 1999                    1998                    1997
----------------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>                     <C>                     <C>
Cash flows from financing activities:
  Net increase in NOW, money market accounts,
   and savings accounts in noninterest-bearing deposits           $  37,134               $  67,674               $   7,503
  Net increase in time deposits                                      28,926                  19,998                  55,913
  Net increase (decrease) in short-term borrowings                  (13,573)                101,034                 102,179
  Proceeds from long-term debt                                           --                  40,250                   1,833
  Repayments of long-term debt                                           --                      --                  (2,181)
  Debt issuance costs                                                    --                  (1,710)                     --
  Dividend reinvestment and stock purchase plan                         (56)                    (29)                    (18)
  Proceeds from issuance of common stock                                228                   1,218                     425
  Repurchase of common stock                                             --                  (2,928)                   (348)
  Dividend paid                                                      (6,996)                 (4,882)                 (3,812)
----------------------------------------------------------------------------------------------------------------------------
      Net cash provided by financing activities                      45,663                 220,625               $ 161,494
----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                (15,761)                 15,329                  12,066
Cash and cash equivalents-- beginning of year                        92,138                  76,809                  64,743
----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents-- end of year                           $  76,377               $  92,138               $  76,809
----------------------------------------------------------------------------------------------------------------------------
Supplemental cash flow disclosures:
  Interest paid                                                   $ 53,384                $  43,181               $  35,125
  Income taxes paid                                               $  5,545                $   7,309               $   3,365
----------------------------------------------------------------------------------------------------------------------------
Supplemental schedule of noncash investing and
  financing activities:
   Foreclosed properties acquired in settlement of loans                 --               $     440               $     589
   Surplus from stock options transactions                        $      30                     135                     152
   Acquisition of entity through issuance of common stock         $     236                      --                      --
----------------------------------------------------------------------------------------------------------------------------
Details of acquisitions:
  Fair value of assets acquired                                          --               $   2,096                       --
  Fair value of liabilities assumed                                      --                 (45,090)                      --
  Purchase price in excess of the net assets acquired                    --                   2,273                       --
----------------------------------------------------------------------------------------------------------------------------
  Cash paid (received)                                                   --                 (40,721)                      --
  Less cash acquired                                                     --                   1,115                       --
----------------------------------------------------------------------------------------------------------------------------
Net cash paid (received) for acquisition                                 --               $ (41,836)                      --
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Consolidated Financial Statements.

                                       21
<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 that provides its
customers with banking and non-banking  financial services through its principal
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.  Its principal market
areas encompass Frederick,  Baltimore,  Carroll,  Howard, Prince George's,  Anne
Arundel and  Montgomery  counties in  Maryland,  Washington,  D.C.,  and Fairfax
County,  Virginia.   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.

COMPREHENSIVE INCOME:

The Company follows Financial  Accounting Standards Board ("FASB") Statement No.
130,   "Reporting   Comprehensive   Income"   (Statement   130)  for   reporting
comprehensive income.  Comprehensive income, as defined by Statement 130, is the
change  in  equity of a  business  enterprise  during a  reporting  period  from
transactions  and other events and  circumstances  from  non-owner  sources.  In
addition  to the  Company's  net  income,  change  in  equity  components  under
comprehensive income reporting include the net change in unrealized gain or loss
on securities available-for-sale.

The   following   table   summarizes   the  related  tax  effect  of  unrealized
gains(losses) on securities  available-for-sale  included in other comprehensive
income shown in the consolidated statements of changes in shareholders' equity.

For the year ended December 31, 1999:

<TABLE>
<CAPTION>
                                                       Tax
                                       Pre-tax     Expense         Net
                                       Amounts  (Benefits)      Amount
-----------------------------------------------------------------------
<S>                                   <C>           <C>       <C>
Unrealized holding gains (losses)
 arising during period                $(20,959)     $(8,564)  $(12,395)
Less: reclassification adjustment
 for gains (losses) included in
 net income                                926          360        566
-----------------------------------------------------------------------
Net unrealized gains (losses)
 on securities                        $(21,885)     $(8,924)  $(12,961)
-----------------------------------------------------------------------
</TABLE>

For the year ended December 31, 1998:

<TABLE>
<CAPTION>
                                                       Tax
                                       Pre-tax     Expense         Net
                                       Amounts  (Benefits)      Amount
-----------------------------------------------------------------------
<S>                                     <C>           <C>       <C>
Unrealized holding gains (losses)
 arising during period                  $1,911        $743      $1,168
Less: reclassification adjustment
 for gains (losses) included in
 net income                              1,520         592         928
-----------------------------------------------------------------------
Net unrealized gains (losses)
 on securities                          $  391        $151      $  240
-----------------------------------------------------------------------
</TABLE>

For the year ended December 31, 1997:

<TABLE>
<CAPTION>
                                                       Tax
                                       Pre-tax     Expense         Net
                                       Amounts  (Benefits)      Amount
-----------------------------------------------------------------------
<S>                                     <C>         <C>         <C>
Unrealized holding gains (losses)
 arising during period                  $5,650      $2,181      $3,469
Less: reclassification adjustment
 for gains (losses) included in
 net income                                669         258         411
-----------------------------------------------------------------------
Net unrealized gains (losses)
 on securities                          $4,981      $1,923      $3,058
-----------------------------------------------------------------------
</TABLE>

                                       22
<PAGE>

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.

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  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 real estate  construction
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.

                                       23
<PAGE>

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. 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.

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:

Earnings per share  ("EPS") are  disclosed  as basic and  diluted.  Basic EPS is
generally  computed by  dividing  net income by the  weighted-average  number of
common  shares  outstanding  for the period,  whereas  diluted  EPS  essentially
reflects the potential dilution in basic EPS that could occur if other contracts
to issue  common  stock  were  exercised.  Per  share  amounts  are based on the
weighted-average number of shares outstanding during each year as follows:

<TABLE>
<CAPTION>
                                       1999        1998       1997
------------------------------------------------------------------
<S>                                   <C>         <C>        <C>
Basic earnings per share              $0.89       $0.82      $0.97
Diluted earnings per share            $0.87       $0.79      $0.95
Basic earnings per share--
 before merger-related expenses       $1.15       $1.09      $0.99
Diluted earnings per share--
 before merger-related expenses       $1.13       $1.06      $0.97
------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                       1999        1998       1997
------------------------------------------------------------------
<S>                              <C>         <C>        <C>
Basic EPS weighted-average
 shares outstanding              11,719,983  11,561,232 11,496,668
Effect of dilutive
 securities-stock options           233,929     309,731    241,044
------------------------------------------------------------------
Diluted EPS weighted-average
 shares outstanding              11,953,912  11,870,963 11,737,712
------------------------------------------------------------------
</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  consolidated  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, 1999 and 1998, 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 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.

                                       24
<PAGE>

NOTE 2. ACQUISITIONS:

On August 19, 1999, the Parent  Company  consummated  the  previously  announced
merger of First  Frederick  Financial Corp  ("First"),  the holding  company for
First Bank of  Frederick,  with and into the Parent  Company,  and the merger of
First  Bank of  Frederick  with  and  into  the  Parent  Company's  wholly-owned
subsidiary, FCNB Bank, all headquartered in Frederick, Maryland.

As a result of the Merger,  each share of the $1.00 par value outstanding common
stock of First was  converted  into 1.0434  shares of the  Company's,  $1.00 par
value  common  stock  of  the  Parent  Company  resulting  in  the  issuance  of
approximately  1,543,012 shares of FCNB Corp common stock, subject to adjustment
to account for the  elimination of fractional  shares.  The merger was accounted
for using the pooling-of-interests method.

As of  August  19,  1999,  the  effective  date of the  transaction,  First  had
approximately $110 million of total assets,  deposits of $97 million,  and total
shareholders' equity of $9 million.  The Company's 1999 consolidated  statements
of income  include  total  income and net income of First for the period  during
1999 prior to its acquisition totalling $7.16 million and $260,000 respectively.

Merger  related  expenses  of $4.05  million are  included  in the  consolidated
statements of income and consist  principally of $306,000 for severance payments
to terminated  employees,  $99,000 for  professional  fees, and other conversion
related  costs of $744,000.  Additionally,  the  allowance for credit losses was
increased  an  additional   $2.9  million  in  order  to  align  the  accounting
assumptions in analyzing the allowance for credit losses.

In June 1998, the Company  assumed $44.80  million of deposit  liabilities,  and
purchased  $126,000  of loans,  $849,000 of fixed  assets,  and  recorded  $2.30
million of  intangible  assets,  relating  to four  branches  of First  Virginia
Bank-Maryland  located  in  Gaithersburg,  Germantown,  Poolesville  and  Silver
Spring,  Maryland,  and three  branches  of its sister  bank,  Farmers'  Bank of
Maryland,  located in Catonsville,  Pikesville and Reisterstown,  Maryland.  The
acquisition of these  branches has been accounted for under the purchase  method
of accounting.

In November  1998,  the Company  consummated  the  acquisition  of Capital Bank,
National  Association,  Rockville,  Maryland  ("Capital"),  in which Capital was
merged with and into FCNB Bank, Frederick,  Maryland, the Company's wholly-owned
subsidiary  bank (the "Bank"),  with the Bank surviving the Merger.  The Company
issued  1,776,966 shares of FCNB Common Stock in a tax-free  transaction,  which
was  accounted  for as a pooling of  interests.  As of November  19,  1998,  the
effective  date of the  transaction,  Capital had total assets of  approximately
$165.96 million,  deposits of $136.07 million, and total shareholders' equity of
$12.36  million.  The Company's 1998  consolidated  statements of income include
total  income and net income of Capital for the period  during 1998 prior to its
acquisition totaling $12.17 million and $1.08 million, respectively. The Company
incurred pretax one-time  charges of  approximately  $1.66 million.  Capital has
branches located in Rockville,  Maryland,  Tysons Corner,  Virginia,  Friendship
Heights and Farragut Square in the District of Columbia.

In  December  1998,  the  Company   consummated  the  acquisition  of  Frederick
Underwriters,  Inc.  headquartered  in  Frederick,  Maryland and its  affiliated
agencies -- Phillips Insurance Agency, Inc. and Carroll County Insurance Agency,
Inc. (collectively,  "Frederick Underwriters"). The Company issued approximately
413,317  shares  of FCNB  Common  Stock in a  tax-free  transaction,  which  was
accounted  for as a  pooling  of  interests.  The  Company's  1998  consolidated
statements  of  income   include  total  income  and  net  (loss)  of  Frederick
Underwriters  for the  period  during  1998  prior to its  acquisition  totaling
$5,850,000 and ($88,200), respectively.

The following  tables  represent the combined and separate  results of First and
the Company for the periods preceeding the acquisitions.

<TABLE>
<CAPTION>
                                                       Basic   Diluted
(dollars in thousands,             Total       Net  earnings  earnings
except per share data)            income    income per share per share
----------------------------------------------------------------------
<S>                              <C>       <C>         <C>       <C>
Year ended December 31, 1997
Company                          $87,205   $10,096     $1.01     $1.01
First                              8,634     1,072        --        --
----------------------------------------------------------------------
Combined                         $95,839   $11,168     $0.97     $0.95
----------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                                       Basic   Diluted
(dollars in thousands,             Total       Net  earnings  earnings
except per share data)            income    income per share per share
----------------------------------------------------------------------
<S>                              <C>       <C>         <C>       <C>
Year ended December 31, 1998
Company                         $101,086    $8,061     $0.80     $0.80
First                             10,646     1,365        --        --
----------------------------------------------------------------------
Combined                        $111,732    $9,426     $0.82     $0.79
----------------------------------------------------------------------
</TABLE>

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

                                       25
<PAGE>

NOTE 3. COMPENSATING BALANCES:

Compensating balance arrangements exist with various  correspondent banks. These
noninterest-bearing  deposits  are  maintained  in  lieu of  cash  payments  for
standard bank services.  The required  balances  amounted to $45,000 at December
31,  1999 and  $173,000 at  December  31,  1998.  In  addition,  for the reserve
maintenance  period in  effect  at  December  31,  1999 and  1998,  the Bank was
required to maintain average daily balances totaling  $1,287,000 and $2,341,000,
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, 1999 and 1998 are as follows:

Held-to-maturity portfolio

<TABLE>
<CAPTION>
                                                Gross        Gross    Estimated
                               Amortized   Unrealized   Unrealized         Fair
(dollars in thousands)              Cost        Gains       Losses        Value
-------------------------------------------------------------------------------
<S>                              <C>             <C>       <C>          <C>
December 31, 1999

U.S. Treasury and other U.S.
 government agencies and
 corporations                    $11,000         $ --      $   41       $10,959
State and political
 subdivisions                      5,054          178         149         5,083
Mortgage-backed debt
 securities                        5,209            2          89         5,122
-------------------------------------------------------------------------------
                                 $21,263         $180        $279       $21,164
-------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                               Gross        Gross     Estimated
                              Amortized   Unrealized   Unrealized          Fair
(dollars in thousands)             Cost        Gains       Losses         Value
-------------------------------------------------------------------------------
<S>                              <C>           <C>          <C>         <C>
December 31, 1998

U.S. Treasury and other U.S.
 government agencies and
 corporations                    $16,006       $  48        $--         $16,054
State and political
 subdivisions                      5,670         357         --           6,027
Mortgage-backed debt
 securities                        8,369          65         46           8,388
-------------------------------------------------------------------------------
                                 $30,045        $470        $46         $30,469
-------------------------------------------------------------------------------
</TABLE>

The amortized cost and estimated fair value of securities  available for sale at
December 31, 1999 and 1998 are as follows:

Available-for-sale portfolio

<TABLE>
<CAPTION>
                                                  Gross        Gross  Estimated
                                 Amortized   Unrealized   Unrealized       Fair
(dollars in thousands)                Cost        Gains       Losses      Value
-------------------------------------------------------------------------------
<S>                               <C>           <C>         <C>        <C>
December 31, 1999

U.S. Treasury and other U.S.
 government agencies and
 corporations                     $194,699      $    94     $  6,745   $188,048
Mortgage-backed debt
 securities                        137,620           28        3,700    133,948
Corporate bonds                     63,714           81        3,942     59,853
State and political subdivisions     4,782           --          286      4,496
Equity securities                   18,837        1,333        1,697     18,473
-------------------------------------------------------------------------------
                                  $419,652       $1,536      $16,370   $404,818
-------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                                  Gross        Gross  Estimated
                                 Amortized   Unrealized   Unrealized       Fair
(dollars in thousands)                Cost        Gains       Losses      Value
-------------------------------------------------------------------------------
<S>                               <C>            <C>          <C>      <C>
December 31, 1998

U.S. Treasury and other U.S.
 government agencies and
 corporations                     $149,438      $ 1,144       $  252   $150,330
Mortgage-backed debt
 securities                        177,138        1,203          414    177,927
Corporate bonds                     69,398        1,377        1,102     69,673
State and political subdivisions     4,021           39            5      4,055
Equity securities                    8,041        4,771          411     12,401
-------------------------------------------------------------------------------
                                  $408,036       $8,534       $2,184   $414,386
-------------------------------------------------------------------------------
</TABLE>

The amortized cost and estimated fair value of securities being held to maturity
and those available for sale at December 31, 1999 by contractual  maturity,  are
as follows:

<TABLE>
<CAPTION>
                               Held-to-maturity    Available-for-sale
-------------------------------------------------------------------------------
                                       Estimated             Estimated
                             Amortized      Fair  Amortized       Fair
(dollars in thousands)            Cost     Value      Costs      Value
-------------------------------------------------------------------------------
<S>                            <C>       <C>       <C>        <C>
Due in one year or less        $   355   $   355   $  5,976   $  5,968
Due after one through
 five years                     13,278    13,413     85,925     85,470
Due after five years
 through ten years                 350       352    103,541     97,686
Due after ten years              2,071     1,922     67,753     63,273
Mortgage-backed
 debt securities                 5,209     5,122    137,620    133,948
Equity securities                   --        --     18,837     18,473
-------------------------------------------------------------------------------
                               $21,263   $21,164   $419,652   $404,818
-------------------------------------------------------------------------------
</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,  1999 and  1998,  are
securities  carried at $315,255,000  and  $278,177,000  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,
-------------------------------------------------------------
(dollars in thousands)           1999        1998       1997
-------------------------------------------------------------
<S>                            <C>         <C>         <C>
Realized gains                 $1,201      $1,559      $ 918
-------------------------------------------------------------
Realized (losses)              $(275)      $  (39)     $(249)
-------------------------------------------------------------
</TABLE>

                                       26
<PAGE>

NOTE 5. LOANS AND ALLOWANCE FOR CREDIT LOSSES:

Loans are as follows:

<TABLE>
<CAPTION>
                                                  December 31,
--------------------------------------------------------------------
(dollars in thousands)                           1999         1998
--------------------------------------------------------------------
<S>                                          <C>         <C>
 Real estate loans:
 Construction and land development           $128,993    $ 122,445
--------------------------------------------------------------------
 Mortgage loans:
   Secured by farmland                          3,044        3,874
   Secured by 1 to 4 family residential
     properties                               233,946      230,271
   Secured by multi-family (5 or more)
      residential properties                    2,517        4,817
   Secured by commercial properties           290,748      227,762
--------------------------------------------------------------------
 Total mortgage loans                         530,255      466,724
--------------------------------------------------------------------
Total loans secured by real estate            659,248      589,169
Commercial and industrial loans               153,959      140,765
Industrial revenue bonds                        5,518        6,667
Loans to farmers                                  570          563
Loans to individuals for household, family
 and other personal expenditures               83,785       80,920
--------------------------------------------------------------------
                                             $903,080     $818,084
--------------------------------------------------------------------
</TABLE>

As of December 31, 1999, the Company had a significant  concentration  of credit
risk  in the  real  estate  loan  portfolio  of  14%.  This  consists  of a loan
concentration in real estate loans with SIC codes 6512 through 6553 with a total
loan value of  $208,800,000.  While this exceeded the 10%  threshold,  we do not
consider this to be an adverse risk.

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  $54,201,000  and  $70,000,000  at December 31, 1999 and
1998, respectively.

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

<TABLE>
<CAPTION>
                                 Years ended December 31,
--------------------------------------------------------------
(dollars in thousands)           1999        1998        1997
--------------------------------------------------------------
<S>                           <C>         <C>         <C>
Balance at beginning of year  $ 8,237     $ 7,611     $ 6,816
Provision for credit losses     5,008       2,097       1,809
Recoveries                        638         439         615
Total                          13,883      10,147       9,240
--------------------------------------------------------------
Credits charged-off            (3,840)     (1,910)     (1,629)
--------------------------------------------------------------
Balance at end of year        $10,043     $ 8,237     $ 7,611
--------------------------------------------------------------
</TABLE>

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

<TABLE>
<CAPTION>
                                        Years ended December 31,
-----------------------------------------------------------------
(dollars in thousands)                         1999         1998
-----------------------------------------------------------------
<S>                                          <C>          <C>
Impaired loans with specific allocation
 of allowance for credit losses              $6,918       $2,239
Specific allocation of allowance
 for credit losses                            1,976          793
Other impaired loans                          3,687        5,022
-----------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                               Years ended December 31,
------------------------------------------------------------------------
(dollars in thousands)                                   1999      1998
------------------------------------------------------------------------
<S>                                                   <C>        <C>
Average recorded investment in impaired loans         $10,966    $6,034
Interest income recognized on impaired
 loans based on cash payments received                    169       103
------------------------------------------------------------------------
</TABLE>

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

<TABLE>
<CAPTION>
                                            Years ended December 31,
-----------------------------------------------------------------------
(dollars in thousands)                    1999        1998        1997
-----------------------------------------------------------------------
<S>                                     <C>         <C>           <C>
Nonaccrual loans                        $3,582      $1,976        $749
Interest income not recognized due
 to loans in nonaccrual status              60         219         100
-----------------------------------------------------------------------
</TABLE>

NOTE 6. BANK PREMISES AND EQUIPMENT:

Bank premises and equipment consist of the following:

<TABLE>
<CAPTION>
                                         Years ended December 31,
------------------------------------------------------------------
(dollars in thousands)                          1999         1998
------------------------------------------------------------------
<S>                                          <C>          <C>
Bank premises and leasehold improvements     $25,656      $25,588
Equipment                                     16,913       15,431
                                              42,569       41,019
Less accumulated depreciation and
 amortization                                 17,026       14,117
------------------------------------------------------------------
                                             $25,543      $26,902
------------------------------------------------------------------
</TABLE>

Depreciation and amortization  charged to operations  amounted to $3,638,000 for
1999, $2,829,000 for 1998 and $2,300,000 for 1997.

                                       27
<PAGE>

NOTE 7. DEPOSITS:

Certificates  of deposit  and other time  deposits  issued in  denominations  of
$100,000 or more totaled  $121,832,000 and $104,367,000 at December 31, 1999 and
1998,  respectively,  and  are  included  in  interest-bearing  deposits  in the
consolidated balance sheets.

At December 31, 1999, the maturity  distribution  of certificates of deposit are
as follows:

<TABLE>
<CAPTION>
(dollars in thousands)              Certificates of Deposit
-------------------------------------------------------------
<S>                                                <C>
Maturing:
     2000                                          $444,153
     2001                                            15,252
     2002                                             5,960
     2003                                             4,603
     2004                                                 8
     Thereafter                                         508
-------------------------------------------------------------
                                                   $470,484
-------------------------------------------------------------
</TABLE>

Interest on deposits consists of the following:

<TABLE>
<CAPTION>
                                                                                Years ended December 31,
-----------------------------------------------------------------------------------------------------------------------
(dollars in thousands)                                                   1999                1998                 1997
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>                 <C>                  <C>
NOW and Super NOW accounts                                            $ 1,523             $ 1,718              $ 1,354
Savings accounts                                                        3,120               2,308                2,434
Money market accounts                                                   6,061               4,944                3,663
Certificates of deposit and other time deposits less than $100,000     17,568              18,301               17,489
Certificates of deposit and other time deposits of $100,000 or more     6,246               5,904                4,484
-----------------------------------------------------------------------------------------------------------------------
                                                                      $34,518             $33,175              $29,424
-----------------------------------------------------------------------------------------------------------------------
</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 $71,850,000  and $54,121,000 at
December 31, 1999 and 1998, respectively.

Other short-term borrowings primarily reflect amounts
borrowed under secured lending  arrangements  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,
1999 various debt  securities  having  aggregate  amortized  cost book values of
$211,396,000 were pledged to secure these borrowings.

The  Company's  unused  lines  of  credit  for  short-term   borrowings  totaled
$247,858,314 at December 31, 1999.

Selected information on short-term borrowings is as follows:

<TABLE>
<CAPTION>
                                                                                               December 31,
-------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)                                                              1999                           1998
-------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>                            <C>
Federal funds purchased and securities sold under agreement to repurchase:
Total outstanding at year-end                                                    $ 59,995                       $ 94,117
-------------------------------------------------------------------------------------------------------------------------
Average amount outstanding during year                                           $ 65,282                       $ 60,939
Maximum amount outstanding at any month-end                                      $ 80,141                       $110,779
Weighted-average interest rate at year-end                                          4.66%                           4.61%
-------------------------------------------------------------------------------------------------------------------------
Weighted-average interest rate for the year                                         4.71%                           4.90%

Other short-term borrowings:
Total outstanding at year-end                                                    $269,268                       $248,719
-------------------------------------------------------------------------------------------------------------------------
Average amount outstanding during year                                           $243,936                       $185,833
-------------------------------------------------------------------------------------------------------------------------
Maximum amount outstanding at any month-end                                      $269,268                       $252,855
-------------------------------------------------------------------------------------------------------------------------
Weighted-average interest rate at year-end                                           5.55%                          5.17%
-------------------------------------------------------------------------------------------------------------------------
Weighted-average interest rate for the year                                          5.29%                          5.47%
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

Included in the other short-term  borrowings schedule above at December 31, 1999
are the following  borrowings from the Federal Home Loan Bank of Atlanta.  These
borrowings  have  scheduled  maturity dates but the majority are callable at the
sole discretion of the Federal Home Loan Bank of Atlanta, one year from the date
of their initial funding.  The Company has the option to terminate the remainder
of these  agreements upon the repricing date. All of these  borrowings  re-price
either monthly, quarterly, semi-annually, or annually, until the first call date
and then are repriced quarterly, thereafter.

<TABLE>
<CAPTION>
December 31, 1999   Due in   Interest rate range            Amount
--------------------------------------------------------------------
<S>                               <C>                  <C>
                                                           (dollars
                                                       in thousands)
                      2000         5.35% - 6.19%           $191,000
                      2003             5.37%                 25,000
                      2006             5.17%                 10,000
                      2007             5.27%                 24,000
                      2009             4.96%                 19,000
                Thereafter             2.00%                    268
--------------------------------------------------------------------
                     Total                                 $269,268
</TABLE>

                                       28
<PAGE>

NOTE 9. LONG-TERM DEBT:

On July 20, 1998, FCNB Capital Trust, a newly-formed  subsidiary of the Company,
issued 1,610,000 shares of its 8.25% Cumulative Trust Preferred  Securities (the
"Preferred  Securities")  in an  underwritten  public  offering for an aggregate
price of $40,250,000.  Proceeds of the Preferred Securities were invested in the
8.25% Subordinated  Debentures (the  "Subordinated  Debentures") of the Company.
After deducting  underwriter's  compensation and other expenses of the offering,
the net  proceeds  were  available  to the Company to  increase  capital and for
general  corporate  purposes,  including  use in investment  activities  and the
Bank's lending activities.

The Preferred Securities and the Subordinated Debentures each mature on July 31,
2028.  If  certain  conditions  are met,  the  maturity  dates of the  Preferred
Securities  and the  subordinated  Debentures  may be  shortened  to a date  not
earlier than July 31, 2003. The Preferred Securities and Subordinated Debentures
also may be redeemed  prior to maturity if certain  events occur.  The Preferred
Securities  are  subject  to  mandatory  redemption,  in whole or in part,  upon
repayment  of the  Subordinated  Debentures  at  maturity,  or the  deferral  of
dividend payments on the Preferred Securities, at any time or from time to time,
for a period not to exceed 20 consecutive quarters in a deferral period.

The Company and FCNB Capital Trust believe that, taken together, the obligations
of the Company under the Preferred Securities  Guarantee Agreement,  the Amended
and Restated Trust Agreement, the Subordinated Debentures, the Indenture and the
Agreement As To Expenses and  Liabilities,  entered into in connection  with the
offering of the Preferred  Securities and the  Subordinated  Debentures,  in the
aggregate  constitute a full and  unconditional  guarantee by the Company of the
obligations of FCNB Capital Trust under the Preferred Securities.

FCNB  Capital  Trust is a Delaware  business  trust  created  for the purpose of
issuing the Preferred  Securities and purchasing  the  Subordinated  Debentures,
which are its sole assets. The Company owns all of the 49,800 outstanding common
securities,  liquidation value $25 per share, (the "Common  Securities") of FCNB
Capital Trust.

The  Preferred  Securities  meet the  regulatory  criteria  for Tier I  capital,
subject to Federal  Reserve  guidelines  that limit the amount of the  Preferred
Securities and cumulative  perpetual  preferred  stock to an aggregate of 25% of
Tier I capital.  At December 31, 1999,  $27,136,000 of the Preferred  Securities
were included in Tier I Capital.

For financial statement purposes,  the Preferred Securities are presented on the
Consolidated  Balance  Sheets as a separate  category of long-term debt entitled
"Guaranteed  Preferred  Beneficial  Interests  in  the  Company's   Subordinated
Debentures".

NOTE 10.  LEASING ARRANGEMENTS:

The Company leases branch office facilities under noncancelable  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, 1999 is outlined below:

<TABLE>
<CAPTION>
Years ending December 31               (dollars in thousands)
-----------------------------------------------------------------
<S>                                          <C>
        2000                                 $   1,711
        2001                                     1,612
        2002                                     1,582
        2003                                     1,519
        2004                                     1,508
        Later years                             12,192
-----------------------------------------------------------------
                                                20,124
        Less:  Sublease income                     843
-----------------------------------------------------------------
                                               $19,281
-----------------------------------------------------------------
</TABLE>

Rent expense  included in occupancy  expenses  amounted to $2,225,000  for 1999,
$1,889,000 for 1998, and $1,469,000 for 1997.

Sublease income amounted to $181,000,  $89,000,  and $79,000 for 1999, 1998, and
1997, respectively.

                                       29
<PAGE>

NOTE 11. EMPLOYEE BENEFIT PLANS:

401(K) PROFIT SHARING PLAN:

The Company has a Section 401(k) profit sharing plan covering  employees meeting
certain  eligibility  requirements  as to  minimum  age and  years  of  service.
Employees  may  make  voluntary   contributions  to  the  Plan  through  payroll
deductions on 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 $871,000 in 1999, $704,000
in 1998 and $619,000 in 1997.

DEFERRED COMPENSATION PLANS:

The Company maintains deferred compensation plans for
certain  key  executives  and  its  directors,   and  a  supplemental  executive
retirement  plan  (SERP),  for  certain  key  officers.  The Plans  provide  for
supplemental  retirement income for the Plan's participants.  Amounts to be paid
by the Company under the deferred  compensation  plans will be recovered through
life insurance policies  purchased on the lives of the participants.  Amounts to
be paid by the Company  under the SERP will be funded by the  general  assets of
the  Company.  The  expense  for these  plans is  included  in the  consolidated
statements of income and totaled $412,000, $355,000 and $211,000 for 1999, 1998,
and 1997, respectively.

STOCK OPTION PLAN:

On December 31, 1999, 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.

In  connection  with the stock options  granted under the 1992 Plan,  additional
restricted stock grants for 21,077 shares at December 31, 1999 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,  certain  participants  under the 1992 Plan 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 are  satisfied.  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. 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, 1999,  1998, and 1997 totaled  $63,000,  $68,000 and $65,000,
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  are
satisfied.

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,
---------------------------------------------------------------
                                 1999        1998        1997
---------------------------------------------------------------
<S>                           <C>          <C>        <C>
Net income:
   As reported                $10,429      $9,426     $11,168
   Pro forma                    9,783       8,751      10,457
Basic earnings per share:
   As reported                  $0.89       $0.82       $0.97
   Pro forma                     0.83        0.76        0.91
Diluted earnings per share:
   As reported                  $0.87       $0.79       $0.95
   Pro forma                     0.82        0.74        0.89
---------------------------------------------------------------
</TABLE>


The 1992 Plan  provides  that  606,376  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,  1999,  there were no shares
reserved  for  future  grants  under this Plan.  The  Company  intends to obtain
shareholder  approval at the annual  shareholders  meeting, to be held April 18,
2000,  for  additional  shares to be  reserved  under  the  Plan.  The 1997 Plan
provides that 333,333 shares of the Company's  common stock will be reserved for
the granting of NQSO's to purchase  these shares.  Future grants under this Plan
will be approved by the Board of Directors. 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,
-------------------------------------------------------------------
                                1999        1998       1997
-------------------------------------------------------------------
<S>                                  <C>         <C>         <C>
Dividend yield                        4.34%        2.5%        2.5%
Expected volatility                  33.18%      36.53%      40.71%
Risk free interest rate              6.435%      4.650%      5.740%
Expected life, in years                 10          10          10
-------------------------------------------------------------------
Weighted-average fair value of
 options granted during the year     $4.48       $9.47       $9.42
-------------------------------------------------------------------
</TABLE>

                                       30
<PAGE>

The following is a summary of transactions for both Plans during the three years
ended December 31, 1999, 1998 and 1997.

<TABLE>
<CAPTION>
                                 Options Issued     Weighted-Average
                                and Outstanding       Exercise Price
----------------------------------------------------------------------
<S>                                    <C>                    <C>
Balance at December 31, 1996            396,152               $ 6.91
----------------------------------------------------------------------
Exercised                               (38,792)                6.42
Terminated                               (4,037)                7.44
Granted                                 139,258                14.32
----------------------------------------------------------------------
Balance at December 31, 1997            492,581                 9.03
----------------------------------------------------------------------
Exercised                              (240,511)                6.75
Terminated                              (34,466)                6.55
Granted                                 162,078                19.90
----------------------------------------------------------------------
Balance at December 31, 1998            379,682                15.55
----------------------------------------------------------------------
Exercised                              (122,694)               10.39
Terminated                               (7,093)               21.25
Granted                                 208,604                15.08
----------------------------------------------------------------------
Balance at December 31, 1999            458,499               $17.18
----------------------------------------------------------------------
</TABLE>

At December 31, 1999, the 458,499  options issued and  outstanding  had exercise
prices  ranging  from  $4.75  to  $22.86  and had a  weighted-average  remaining
contractual life of 106 months.

<TABLE>
<CAPTION>
                                       December 31,
--------------------------------------------------------------
                                 1999       1998        1997
--------------------------------------------------------------
<S>                          <C>        <C>         <C>
Exercisable options:
 Options outstanding          458,499    272,201     297,198
 Weighted-average price      $  17.18   $  19.34    $  11.52
--------------------------------------------------------------
</TABLE>

NOTE: 12. INCOME TAXES:

Significant  components of the Company's deferred tax assets and liabilities are
as follows:

<TABLE>
<CAPTION>
                                                           December 31,
----------------------------------------------------------------------------
(dollars in thousands)                                   1999         1998
----------------------------------------------------------------------------
<S>                                                  <C>            <C>
Deferred tax assets:
 Provision for credit losses                         $ 3,640        $2,378
 Net securities losses                                    --           173
 Unrealized loss on securities available for sale      5,779            --
 Deferred compensation                                   745           570
 Postretirement benefits                                 256           257
 Provision for foreclosed properties                      20            21
 Deferred Fees                                           253           276
 Other                                                   808           983
----------------------------------------------------------------------------
   Total deferred tax assets                          11,501         4,658
----------------------------------------------------------------------------
Deferred tax liabilities:
 Unrealized gain on securities available for sale         --         2,446
 Depreciation                                            691           629
 Other                                                   352           331
----------------------------------------------------------------------------
     Total deferred tax liabilities                    1,043         3,406
----------------------------------------------------------------------------
     Net deferred tax assets                         $10,458        $1,252
----------------------------------------------------------------------------
</TABLE>

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,
-------------------------------------------------------------------
(dollars in thousands)                 1999       1998       1997
-------------------------------------------------------------------
<S>                                 <C>        <C>        <C>
Income before income tax            $15,331    $16,796    $16,875
Tax rate                                 35%        35%        35%
-------------------------------------------------------------------
Income tax at statutory rate          5,366      5,879      5,906
Increase (decrease)
 in tax resulting from:
   Tax-exempt interest income          (220)      (219)      (166)
   Insurance cash values               (531)      (429)      (217)
   Thrift bad debt reserve recapture     --      1,750         --
   State income taxes, net
     federal benefit                    116        251        502
Benefit of federal surtax exemption    (100)      (100)      (100)
Other                                   271        238       (218)
-------------------------------------------------------------------
                                    $ 4,902    $ 7,370    $ 5,707
-------------------------------------------------------------------
</TABLE>

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

<TABLE>
<CAPTION>
                                        Years ended December 31,
-------------------------------------------------------------------
(dollars in thousands)                  1999        1998       1997
-------------------------------------------------------------------
<S>                                   <C>         <C>        <C>
Taxes currently payable               $5,884      $5,726     $4,615
Deferred tax liabilities (benefits)     (982)       (106)     1,092
-------------------------------------------------------------------
Operating activities                   4,902       5,620      5,707
Thrift bad debt reserve recapture         --       1,750         --
-------------------------------------------------------------------
Total                                 $4,902      $7,370     $5,707
-------------------------------------------------------------------
</TABLE>

Included in the above amounts are income taxes of $361,000 in 1999,  $591,000 in
1998, and $258,000 in 1997 related to net security gains.

NOTE 13. OTHER OPERATING EXPENSES:

Other operating  expenses in the  consolidated  statements of income include the
following:

<TABLE>
<CAPTION>
                                 Years ended December 31,
-------------------------------------------------------------------
(dollars in thousands)                   1999       1998       1997
-------------------------------------------------------------------
<S>                                   <C>        <C>         <C>
FDIC and general insurance            $   387    $   690     $  403
Professional and directors fees         2,761      3,152      3,343
Advertising and public relations        2,053      1,818      1,372
Credit and collection expense             732        314        320
Postage and supplies                    1,727      1,644      1,364
Net loss on foreclosed properties         181        187        195
Other                                   3,431      3,118      2,935
-------------------------------------------------------------------
                                      $11,272    $10,923     $9,932
</TABLE>

Changes in the allowance for foreclosed properties are summarized as follows:

<TABLE>
<CAPTION>
                                        Years ended December 31,
-------------------------------------------------------------------
(dollars in thousands)                  1999       1998        1997
-------------------------------------------------------------------
<S>                                    <C>        <C>         <C>
Balance at beginning of year           $ 196      $ 410       $ 533
Provision charged to income               75         52          35
Losses charged to the allowance         (116)      (266)       (158)
-------------------------------------------------------------------
Balance at end of year                 $ 155      $ 196       $ 410
-------------------------------------------------------------------
</TABLE>

                                       31
<PAGE>

NOTE 14. 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 1999 aggregated $15,990,000.

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 no material  loans or advances  outstanding  at
December 31, 1999.

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.

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 Tier I capital  (as
defined) to average  assets (as defined).  Management  believes that the Company
and the Bank met all capital adequacy  requirements to which it is subject as of
December 31, 1999.

As of December 31, 1999, 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>

Capitalized Under
Action Provisions:                                 For Capital Prompt           Corrective Actual          Adequacy Purposes:
------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)                              Amount      Ratio            Amount     Ratio           Amount     Ratio
------------------------------------------------------------------------------------------------------------------------------
As of December 31, 1999:
------------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>          <C>              <C>        <C>            <C>         <C>
Total Capital
  (to Risk-Weighted Assets):
  FCNB Corp                                        $143,684     13.04%           $88,136    8.00%               N/A       N/A
  FCNB Bank                                        $116,787     10.79%           $86,566    8.00%          $108,207    10.00%

Tier I Capital
  (To Risk-Weighted Assets):
  FCNB Corp                                        $126,331     11.47%           $44,068    4.00%               N/A       N/A
  FCNB Bank                                        $106,683      9.86%           $43,283    4.00%          $ 64,924     6.00%

Tier I Capital
  (To Average Assets):

  FCNB Corp                                        $126,331      8.59%           $58,846    4.00%               N/A       N/A
  FCNB Bank                                        $106,683      7.35%           $58,053    4.00%          $ 72,567     5.00%

As of December 31, 1998:
------------------------------------------------------------------------------------------------------------------------------
Total Capital
  (to Risk-Weighted Assets):
  FCNB Corp                                        $140,659     13.91%           $81,327    8.00%               N/A       N/A
  FCNB Bank                                        $109,402     10.96%           $80,025    8.00%          $100,032    10.00%

Tier I Capital
  (To Risk-Weighted Assets):
  FCNB Corp                                        $117,351     11.58%           $40,663    4.00%               N/A       N/A
  FCNB Bank                                        $100,976     10.13%           $40,012    4.00%          $ 60,019     6.00%

Tier I Capital
  (To Average Assets):
  FCNB Corp                                        $117,351      8.61%           $42,127    4.00%               N/A       N/A
  FCNB Bank                                        $100,976      7.51%           $41,541    4.00%          $ 67,290     5.00%
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

N/A = Not applicable

DIVIDEND REINVESTMENT PLAN:

The Company  maintains a Dividend  Reinvestment  and Stock Purchase Plan for all
shareholders of the Company. This Plan provides that 509,217 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, 1999,  reserved  shares
remaining for future issuance under this Plan totaled 165,052. The terms of this
Plan allow  participating  shareholders to purchase  additional shares of common
stock in the Company by reinvesting  the dividends paid on shares  registered in
their name, by making optional cash payments,  or both.  Shares  purchased under
the Plan with reinvested dividends or optional cash payments are 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.

                                       32
<PAGE>

NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS:

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

<TABLE>
<CAPTION>
                                                         December 31, 1999                             December31, 1998
----------------------------------------------------------------------------------------------------------------------------
                                                     Carrying               Fair                  Carrying             Fair
(dollars in thousands)                                 Amount              Value                    Amount            Value
----------------------------------------------------------------------------------------------------------------------------
<S>                                                <C>                <C>                       <C>              <C>
Financial Assets
Cash and cash equivalents                          $   76,377         $   76,377                $   92,138       $   92,138
Loans held for sale                                       878                878                     5,236            5,236
Investment securities                                 442,142            442,043                   467,729          468,153
Net loans                                             893,029            890,927                   809,824          815,020
----------------------------------------------------------------------------------------------------------------------------
  Total financial assets                           $1,412,426         $1,410,225                $1,374,927       $1,380,547
----------------------------------------------------------------------------------------------------------------------------
Financial Liabilities
Deposits                                           $1,028,859         $1,032,009                $  962,799       $  966,164
Short-term borrowings                                 329,263            321,826                   342,836          342,668
Long-term debt                                         40,250             35,319                    40,250           39,165
----------------------------------------------------------------------------------------------------------------------------
  Total financial liabilities                      $1,398,372         $1,389,154                $1,345,885       $1,347,997
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

The  following  methods and  assumptions  were used to  estimate  the fair value
disclosures for financial instruments as of December 31, 1999 and 1998:

CASH AND CASH EQUIVALENTS:

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

LOANS HELD FOR SALE:

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

INVESTMENT SECURITIES:

Fair values are based on quoted market prices.

LOANS:

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

LONG-TERM BORROWINGS:

The fair value of long-term debt 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, 1999 and 1998. The carrying value of
such  instruments,  if any,  includes  any accrued  interest  receivable  and/or
payable balances.

                                       33
<PAGE>

NOTE 16. TRANSACTIONS WITH RELATED PARTIES:

In the  normal  course  of  banking  business,  loans are made to  officers  and
directors of the Company, as well as to their associates. Such loans are made in
the ordinary  course of business with  substantially  the same terms  (including
interest rates and  collateral)  as those  prevailing at the time for comparable
transactions  with other  persons.  They do not involve more than normal risk of
collectability  or  present  other  unfavorable  features.  An  analysis  of the
activity during 1999 is as follows:

<TABLE>
<CAPTION>
                                 (dollars in thousands)
---------------------------------------------------------
<S>                                            <C>
Balance at December 31, 1998                   $ 11,277
---------------------------------------------------------
New loans                                        13,618
Repayments                                      (10,898)
---------------------------------------------------------
Balance at December 31, 1999                   $ 13,997
---------------------------------------------------------
</TABLE>

In addition, Note 2 contains detailed information relating to the acquisition of
Frederick  Underwriters  during  1998.  Prior to the  merger,  a director of the
Company was the principal shareholder of Frederick Underwriters.

NOTE 17.  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 a 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,                                     1999         1998
--------------------------------------------------------------------
                                            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               $240,063     $222,833
  Standby letters of credit                    17,202       15,006
--------------------------------------------------------------------
  Total                                      $257,265     $237,839
--------------------------------------------------------------------
Financial instruments whose notional
 or contract amounts exceeded
 maximum credit risk:
  For interest rate risk management:
  Interest rate swaps                        $ 10,000     $ 10,000
--------------------------------------------------------------------
  Total                                      $ 10,000     $ 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, 1999 and 1998 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.

TAX LIABILITY:

The Company has been notified by the Internal Revenue Service (the Service) that
the Service  has taken under  review the  Company's  treatment  of an income tax
reserve for bad debts relating to the Company's  1996  acquisition of Laurel and
its subsidiary thrift. As a part of its acquisition of Laurel Bancorp, Inc., the
Company  assumed an  unrecorded  deferred tax  liability of  approximately  $1.6
million  related to the special bad debt deduction for years before  December 1,
1988, which thrifts were allowed. The Company determined that recognition of the
deferred tax  liability was not required as a result of the merger of Laurel and
its subsidiary into the Company and its subsidiary  bank. The Service has raised
issues  related to the  availability  of an exemption  from recapture of the bad
debt  reserve.  The Company is reviewing  the  Service's  position.  The Company
intends to vigorously contest the additional  assessment,  but has accrued $1.75
million  as a  reserve  against  such  liability,  which has been  considered  a
merger-related expense for financial reporting purposes.

                                       34
<PAGE>

NOTE 18. FCNB CORP (PARENT COMPANY) CONDENSED FINANCIAL INFORMATION:

Balance Sheets

<TABLE>
<CAPTION>
                                             December 31,
------------------------------------------------------------
(dollars in thousands)                     1999        1998
------------------------------------------------------------
<S>                                    <C>         <C>
Assets

Cash                                   $  7,080    $ 11,716
Receivable from subsidiaries                641       1,838
Investment securities available
 for sale-at fair value                  16,036      15,989
Investment in subsidiaries              104,604     109,468
Other assets                              3,092       3,722
------------------------------------------------------------
   Total assets                        $131,453    $142,733
------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                             December 31,
------------------------------------------------------------
(dollars in thousands)                     1999        1998
------------------------------------------------------------
<S>                                    <C>         <C>
Liabilities and Shareholders' Equity
Liabilities
------------------------------------------------------------
Long-term debt                         $ 41,495    $ 41,915
Other liabilities                           193       1,963
------------------------------------------------------------
   Total liabilities                     41,688      43,878
Common stock                             11,924      11,599
Surplus                                  54,316      54,147
Retained earnings                        32,581      29,204
Accumulated other comprehensive
  income (loss)                          (9,056)      3,905
------------------------------------------------------------
   Total shareholders' equity            89,765      98,855
------------------------------------------------------------
   Total liabilities and
    shareholders' equity               $131,453    $142,733
------------------------------------------------------------
</TABLE>

Statements of Income

<TABLE>
<CAPTION>
                                                                                        For the years ended December 31,
-----------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)                                                             1999              1998              1997
-----------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>                <C>             <C>
Income:
 Dividends from subsidiary banks                                                 $ 7,913            $4,842          $ 4,328
 Net securities gains                                                                627               554              173
 Other income, principally interest                                                  882               695              301
-----------------------------------------------------------------------------------------------------------------------------
   Total income                                                                    9,422             6,091            4,802
Expenses                                                                           4,024             2,040              399
-----------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes and equity in undistributed
 earnings of subsidiaries                                                          5,398             4,051            4,403
Provision for income taxes (benefits)                                               (876)             (283)             (18)
-----------------------------------------------------------------------------------------------------------------------------
Income before equity in undistributed earnings of subsidiaries                     6,274             4,334            4,421
Equity in undistributed earnings of subsidiaries                                   4,155             5,092            6,747
-----------------------------------------------------------------------------------------------------------------------------
Net income                                                                       $10,429            $9,426          $11,168
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                            For the years ended December 31,
---------------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)                                                                  1999              1998              1997
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>              <C>               <C>
Cash flows from operating activities:

 Net income                                                                           $10,429          $  9,426          $11,168
 Adjustments to reconcile net income to net cash provided by operating activities:
   Equity in undistributed earnings of subsidiary                                      (4,155)           (5,092)          (6,747)
   Noncash charitable contribution                                                         --                --               98
   Net securities gains                                                                  (627)            (554)             (173)
   Decrease (increase) in receivable from subsidiaries                                  1,225             (469)             (906)
   Decrease (increase) in other assets                                                    829           (2,104)             (579)
   Increase (decrease) in other liabilities                                              (209)              402             (590)
---------------------------------------------------------------------------------------------------------------------------------
      Net cash provided by operating activities                                         7,492             1,609            2,271
---------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:

 Proceeds from sale of investment securities available for sale                         2,005             1,612              510
 Purchase of investment securities available for sale                                  (5,872)           (5,856)          (6,330)
 Investment in subsidiary                                                              (1,017)          (24,916)           4,726
---------------------------------------------------------------------------------------------------------------------------------
      Net cash (used in) investing activities                                          (4,884)          (29,160)          (1,094)
---------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:

 Proceeds from (repayment of) long-term debt                                             (420)           41,915               --
 Dividend reinvestment plan                                                               (56)              (29)             (18)
 Proceeds from issuance of common stock                                                   228               664              210
 Repurchase of common stock                                                                --            (2,910)            (599)
 Cash dividends paid                                                                   (6,996)           (4,583)          (3,048)
---------------------------------------------------------------------------------------------------------------------------------
      Net cash provided by (used in) financing activities                              (7,244)           35,057           (3,455)
---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash                                                        (4,636)            7,506           (2,278)
Beginning cash                                                                         11,716             4,210            6,488
---------------------------------------------------------------------------------------------------------------------------------
Ending cash                                                                           $ 7,080          $ 11,716          $ 4,210
Supplemental schedule of noncash investing and financing activities:
 Surplus from stock options granted                                                        --          $    135          $   152
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       35
<PAGE>

NOTE 19. CURRENT ACCOUNTING DEVELOPMENTS:

In June 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards No. 133 "Accounting for Derivative  Instruments
and Hedging  Activities."  This Statement  establishes  accounting and reporting
standards for derivative  instruments,  including certain derivative instruments
embedded in other contracts,  (collectively  referred to as derivatives) and for
hedging  activities.  It requires that an entity  recognizes all  derivatives as
either assets or liabilities in the statement of financial  position and measure
those  instruments  at fair value.  This  Statement is effective  for all fiscal
quarters of fiscal years beginning after June 15, 2000. In management's opinion,
the adoption of this Statement will not have a material  impact on the financial
position or the results of operations of the Company.

NOTE 20. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):

The  following  is a summary of the  Company's  unaudited  quarterly  results of
operations:

1999
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share amounts)            December 31     September 30        June 30(1)      March 31(1)
---------------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>              <C>               <C>              <C>
Interest income                                                 $27,045          $26,036           $25,460          $25,182
Net interest income                                              12,846           12,330            12,548           12,129
Provision for credit losses                                         830            3,290               390              498
Net securities gains                                                121              159               264              382
Income before income taxes                                        5,105              658             4,699            4,869
Net income (loss)                                                 3,460              598             3,095            3,276
Net income before merger-related expense                          3,577            3,355             3,227            3,361
Basic earnings per share                                           0.29             0.06              0.26             0.28
Diluted earnings per share                                         0.29             0.05              0.26             0.27
Basic earnings per share before merger-related expenses            0.30             0.29              0.28             0.28
Diluted earnings per share before merger-related expenses          0.30             0.28              0.27             0.28
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

1998(1)

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share amounts)         December 31(2)     September 30           June 30         March 31
---------------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>              <C>               <C>              <C>
Interest income                                                 $25,266          $24,306           $22,964          $22,104
Net interest income                                              12,092           11,889            11,663           11,143
Provision for credit losses                                       1,024              450               428              195
Net securities gains                                                528              282               184              526
Income before income taxes                                        2,780            4,701             4,781            4,534
Net income                                                          115            3,116             3,175            3,020
Net income before merger-related expenses                         3,202            3,156             3,209            3,020
Basic earnings per share                                           0.02             0.27              0.27             0.26
Diluted earnings per share                                         0.01             0.26              0.26             0.26
Basic earnings per share before merger-related expenses            0.29             0.27              0.27             0.26
Diluted earnings per share before merger-related expenses          0.27             0.27              0.26             0.26
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  The  financial  data for the first two quarters of 1999 and for all of 1998
     has been  restated  to  include  the  effect  of the  acquisition  of First
     Frederick  Financial  Corporation  in 1999,  accounted  for as a pooling of
     interests..

(2)  During the quarter  ended  December  31,  1998,  the Company  recognized  a
     current  period  income tax  provision,  totaling  $1,750,000,  for the tax
     effects of certain  pre-1988  tax  reserves  for bad debts  required  to be
     recaptured.

MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

1999
<TABLE>
<CAPTION>
                                                                              Price Range
                                                                              -----------                      Dividend
Quarterly stock prices and dividends                                   High                   Low              Declared
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>                   <C>                   <C>
First Quarter                                                        $22.50                $18.88                $0.147
Second Quarter                                                        22.44                 18.50                 0.152
Third Quarter                                                         21.88                 17.63                 0.139
Fourth Quarter                                                        20.00                 14.50                 0.160
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
1998
<TABLE>
<CAPTION>
                                                                              Price Range
                                                                              -----------                      Dividend
Quarterly stock prices and dividends                                   High                   Low              Declared
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>                   <C>                   <C>
First Quarter                                                        $24.38                $20.81                $0.101
Second Quarter                                                        24.94                 24.44                 0.103
Third Quarter                                                         26.81                 23.88                 0.108
Fourth Quarter                                                        24.50                 23.00                 0.115
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

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

-----------------------------------------------------------------
NUMBER OF SHAREHOLDERS OF RECORD, AS OF DECEMBER 31, 1999:  3,073

PRINCIPAL AFFILIATE

Balance Sheet

<TABLE>
<CAPTION>
                                                                         December 31, 1999
-------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)                     Assets                                                        Liabilities and Equity
-------------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>                         <C>                        <C>                      <C>
FCNB Bank                           Cash and due from banks     $   47,640                 Total deposits           $1,035,939
7200 FCNB Court                     Earning assets               1,358,793                 Short-term borrowings       329,263
Frederick, MD 21703                                                                        Accrued interest and
(301) 662-2191                                                                              other liabilities           17,909
34 Offices                          Allowance for credit losses   (10,043)
                                    Other assets                    90,080                 Shareholders' equity        103,359
-------------------------------------------------------------------------------------------------------------------------------
                                                                                           Total liabilities and
                                    Total assets                $1,486,470                 shareholders' equity     $1,486,470
-------------------------------------------------------------------------------------------------------------------------------
                                    Net income                  $   12,067
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
                                       36