Shares of FCNB Corp. surged Wednesday, extending a recent rally that analysts said reflects speculation that the Frederick, Md., community bank could soon be bought.

FCNB's stock rose $1.375, or 7.43% to $19.875 on a day when most bank stocks were down. "I don't gamble, and I don't bet," said Collyn Bement Gilbert, an analyst at Ferris Baker Watts. "But given that FCNB has been a takeover target for some time now, and considering the movement in its stock recently, I would suspect that there is something going on."

Shares of $1.5 billion-asset FCNB have gained 21% in the last two weeks. On Tuesday the stock was up 3.5%.

"This company certainly is not trading on fundamentals here," said John Kline, an analyst at Sandler O'Neill. "Obviously there is some kind of merger speculation out there."

FCNB, which reported second-quarter earnings last week, met expectations, analysts said.

Mr. Kline said most of the community banks that he covers trade at 10 or 11 times this year's earnings; FCNB, on the other hand, trades at just under 17 times its earnings this year.

The company is an ideal takeover candidate, said Derek J. Statkevicus of Keefe, Bruyette & Woods Inc. "It is in a great market. It is located in the greater D.C. and Baltimore area, which is second only to Silicon Valley as far as new economy companies."

The company, like other community banks, is also grappling with margin pressure, Mr. Statkevicus said.

The company's second-quarter net interest margin was 3.54%, down from 3.84% a year ago, as a result of higher interest rates and problems with merger integration.

Market experts suggested two Winston-Salem, N.C., companies as potential buyers - BB&T Corp., which acquired Mason-Dixon Bancshares of Westminster, Md., last year, and Wachovia Corp. Other companies that could be interested include Mercantile Bancshares, an $8 billion-asset Baltimore company, and Susequehanna Bancshares of Lititz, Pa., which has $4.3 billion in assets.

FCNB did not return phone calls. Elsewhere, shares of other banks were generally lower as concerns about higher interest rates worked their way back into the market. American Banker's index of 50 largest banks fell 2.90%, while its index of 225 banks, fell 2.06%.

"There is a little bit of nervousness coming back into the market," said Scott J. Brown, chief economist at Raymond James & Associates of St. Petersburg, Fla. "There is a fear that the [employment cost index] could be stronger than expected."

The index, the broadest measure of employment-level inflation, is expected to be released today by the Bureau of Labor Statistics. It measures wages, salaries, and benefits.

Sung Won Sohn, chief economist at Wells Fargo & Co., said investors are also concerned about earnings. Many technology companies have announced disappointing earnings, which has brought down the entire market, he said. BMC Software Inc. and Xerox predicted slower earnings growth Wednesday.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.