SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1999 Commission File Number 0-22961
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ANNAPOLIS NATIONAL BANCORP, INC.
(Exact name of small business issuer as specified in its charter)
Maryland 52-1648903
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(State or other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
180 Admiral Cochrane Drive, Suite 300, Annapolis, Maryland 21401
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(Address of principal executive offices)
(410) 224-4455
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(Issuer's telephone number, including area code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
(1) YES X NO
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Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
At June 30, 1999, the Registrant had 2,323,506 shares of Common Stock
outstanding.
Transitional Small Business Disclosure Format
YES NO X
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TABLE OF CONTENTS
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PART I - FINANCIAL INFORMATION PAGE
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<S> <C>
Item 1 - Financial Statements
Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998 3
Consolidated Income Statements for the Three Months Ended
June 30, 1999 and 1998 and for the Six Months Ended June 30, 1999 and 1998 4
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1999 and 1998 5 - 6
Consolidated Statement of Changes in Stockholders' Equity as of
June 30, 1999 and December 31, 1998 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 14
PART II - OTHER INFORMATION
- ---------------------------
Item 1 - Legal Proceedings 15
Item 2 - Changes in Securities 15
Item 3 - Defaults Upon Senior Securities 15
Item 4 - Submission of Matters to a Vote of Security Holders 15
Item 5 - Other Information 15
Item 6 - Exhibits and Reports on Form 8-K 15-16
SIGNATURES........................................................................ 17
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ANNAPOLIS NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1999 AND DECEMBER 31, 1998
(In thousands)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
June 30, December 31,
1999 1998
------------------- -------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 4,280 $ 3,846
Federal funds sold and other overnight investments 17,839 10,284
Investment securities available-for-sale 17,630 15,191
Loans, less allowance for credit losses 88,464 86,924
Premises and equipment 2,777 2,679
Core deposits and other intangible assets
acquired 87 130
Accrued interest receivable 580 590
Deferred income taxes 331 320
Other real estate owned 57 91
Other assets 597 402
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Total assets $132,642 $120,457
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LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing 13,338 11,304
Interest-bearing 93,430 89,438
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Total deposits 106,768 100,742
Securities sold under agreements to
repurchase 12,911 7,174
Accrued interest and other liabilities 588 450
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Total liabilities 120,267 108,366
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Stockholders' equity
Preferred stock - $.01 par value $ -- $ --
Common stock - $.01 par value 23 23
Capital surplus 13,193 13,143
Accumulated deficit (820) (1,075)
Accumulated other comprehensive income (21) 0
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Total stockholders' equity 12,375 12,091
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Total liabilities and stockholders' equity $ 132,642 $ 120,457
========= =========
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ANNAPOLIS NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
AND THE SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
(Unaudited and in thousands)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months
June 30, Ended
June 30,
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1999 1998 1999 1998
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<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $2,110 $1,889 $4,169 $3,711
Investment securities 181 228 343 518
Federal funds sold and securities purchased 116 356 227 653
----- ----- ----- -----
Total interest income 2,407 2,473 4,739 4,882
----- ----- ----- -----
INTEREST EXPENSE
Interest bearing deposits 778 917 1,497 1,802
Securities sold under agreements to repurchase 83 88 153 190
Other borrowed money 12 --- 12 ---
----- ----- ----- -----
Total interest expense 873 1,005 1,662 1,992
----- ----- ----- -----
Net interest income 1,534 1,468 3,077 2,890
Provision for credit losses 27 75 432 150
----- ----- ----- -----
Net interest income after provision
for credit losses 1,507 1,393 2,645 2,740
----- ----- ----- -----
NON-INTEREST INCOME
Service charges and fees 98 111 233 226
Mortgage banking fees 21 21 54 35
Other income 95 69 151 110
----- ----- ----- -----
Total non-interest income 214 201 438 371
----- ----- ----- -----
NON-INTEREST EXPENSE
Personnel 632 582 1,252 1,164
Occupancy and equipment 141 138 278 278
Other operating expenses 595 397 1,089 787
Amortization of intangible assets
acquired 22 22 43 43
----- ----- ----- -----
Total non-interest expense 1,390 1,139 2,662 2,272
----- ----- ----- -----
INCOME (LOSS) BEFORE INCOME TAXES 331 455 421 839
INCOME TAX EXPENSE 113 155 143 285
----- ----- ----- -----
NET INCOME $ 218 $ 300 $ 278 $ 554
===== ===== ===== =====
Basic earnings Per Share $ 0.09 $ 0.13 $0.12 $0.24
==== ==== ==== =====
Diluted earnings per share $ 0.09 $ 0.13 $0.12 $0.24
==== ==== ==== =====
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ANNAPOLIS NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1999 AND 1998
(Unaudited and in thousands)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
--------------------------------
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $278 $554
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
Deferred income taxes 269
Depreciation and amortization of furniture, equipment,
and leasehold improvements 125 94
Amortization of premiums and accretion of discounts, net (165) ---
Amortization of intangible assets acquired 43 43
Decrease (increase) in accrued interest receivable 10 (90)
Net loss (gain) on sale of loans, equipment, and other real estate owned 30 (3)
Provision for credit losses 432 150
Other 58 (218)
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Net cash provided by operating activities $811 $799
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CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans (1,783) (3,123)
Purchase of investment in securities - available-for-sale (45,790) (24,585)
Proceeds from redemption of securities
and principal repayments 43,186 30,970
Net decrease (increase) in federal funds sold (7,555) (10,737)
Proceeds from sale of equipment 5 13
Purchase of furniture, equipment, and leasehold improvements (253) (35)
---- ----
Net cash used in investing activities $ (12,190) $ (7,497)
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(CONTINUED)
</TABLE>
5
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<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
-----------------------------------
1999 1998
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<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from employee stock options 50
Net increase (decrease) in deposits $6,026 $7,837
Net increase (decrease) in securities sold
under agreements to repurchase 5,737 (2,872)
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Net cash provided by financing activities 11,813 4,965
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Net increase (decrease) in cash 434 (1,733)
Cash, beginning of period 3,846 5,611
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Cash, end of period $4,280 $3,878
====== ======
Supplemental cash flow information:
Interest paid on deposits and repurchase agreements $ 1,475 $ 1,578
Income taxes paid $ 39 ---
</TABLE>
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ANNAPOLIS NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
THE SIX MONTH PERIOD ENDED JUNE 30, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
Accumulated
Common Stock Other
------------------------------------------ Accumulated Comprehensive
Shares Par Value Surplus Deficit Income Total
--------------- ------------ ------------- -------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1998 2,313,506 $ 23 $ 13,143 $ (1,075) $ 0 $ 12,091
Net income --- -- -- 278 -- 278
Cash dividend (23) (23)
Stock options exercised 10,000 50 50
Unrealized loss on investment securities
Available for sale, net of income tax --- -- -- -- (21) (21)
----
BALANCE, JUNE 30, 1999 (UNAUDITED) 2,323,506 $ 23 $ 13,193 $ (820) $ (21) $ 12,375
========= === ====== ===== ========= ======
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1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of regulation S-B of the Securities and Exchange Commission. Accordingly, they
do not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal and recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the six months ended June 30, 1999, are not necessarily indicative
of the results that may be expected for the year ended December 31, 1999. For
further information, refer to the consolidated financial statements and
footnotes thereto for the Company's fiscal year ended December 31, 1998,
included in the Company's Form 10-KSB for the year ended December 31, 1998.
2. Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, unrestricted amounts due from banks, overnight investments in
repurchase agreements, and federal funds sold.
ITEM 2 - MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1999 AND DECEMBER 31, 1998
Total assets at June 30, 1999 were $132.6 million an increase of $12.2
million or 10.1% from total assets at December 31, 1998 of $120.4 million. The
increase was due to an increase in federal funds sold and other overnight
investments of $7.6 million or 73.5%. In addition, net loans grew $1.5 million
or 1.8% of total assets, and investment securities increased $2.4 million or
16.1%.
Following the recent appointment of a new interim chief executive
officer on May 7, 1999, the Bank undertook a thorough and comprehensive review
of its allowance for credit losses. The purpose of the review was to evaluate
the adequacy of the allowance for credit losses and the methodology employed in
determining it. As a result of the review and with input received during the
course of a regularly scheduled safety and soundness examination, the Bank
developed a revised methodology to estimate the inherent losses in its loan
portfolio. Adoption of this methodology has resulted in a net increase in the
allowance for credit losses of $265,000 or 22.9% to $1,424,000 at June 30, 1999
from $1,159,000 at December 31, 1998.
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While management believes that, based on information currently available, the
Bank's allowance for credit losses is sufficient to absorb estimated losses
inherent in its loan portfolio at this time, no assurances can be given that the
Bank's level of allowance for credit losses will be sufficient to absorb future
losses incurred by the Bank or that future adjustments to the allowance for
credit losses will not be necessary if economic and other conditions differ
substantially from the time management determined the current level of the
allowance for credit losses. At June 30, 1999 and December 31, 1998, the
allowance for credit losses to total loans was 1.58% and 1.32%, respectively.
At June 30, 1999, the Bank had $2,187,000 in non-performing assets
(consisting of $2,130,000 in non-accrual loans and $57,000 in "other real estate
owned"), a net increase of $1,378,000 over December 31, 1998 non-performing
assets of $808,000. The increase in non-performing assets resulted from a review
of the loan portfolio following the recent change in management and the
subsequent decision to place certain loans on non-accrual status. Loans on
non-accrual status at June 30, 1999 include commercial loans with principal
balances totaling $1,312,000 (of which $772,000 is subject to U.S. Small
Business Administration guaranties), three acquisition, development and
construction loans with principal balances totaling $502,000, a commercial real
estate loan in the amount of $295,000, and one $21,000 consumer loan. The
largest of the loans placed on non-accrual status is an $849,000 commercial loan
to a technology company that is subject to a 75% SBA guaranty. Although this
loan is current in its principal and interest payments, repayment is contingent
on future cash flows that may be in doubt due to depletion of capital from prior
losses and a deterioration in the quality of the borrower's accounts receivable.
One of the three acquisition development and construction loans in the amount of
$152,000 has been paid off since June 30, 1999.
Federal funds and other overnight investments were $17.8 million, at
June 30, 1999, an increase of $7.6 million or 73.5% from $10.3 million at
December 31, 1998. The increase in federal funds and other overnight investments
was due in part to an increase in deposits and repurchase agreements as the
company focused its efforts in its market area to develop additional core
deposit relationships.
Investment securities available for sale were $17.6 million, at June
30, 1999, an increase of $2.4 million or 16.1% from $15.2 million at December
31, 1998. The increase in investment securities reflected additional purchases
of state tax exempt U.S. government agency securities with maturity ranges of
two years or less.
Deposits of $106.8 million at June 30, 1999 represent a $6.0 million or
6.0% increase from December 31, 1998 deposits of $100.7 million. The increase
was due to a $2.0 million or 18.0% increase in non-interest-bearing accounts and
a $4.0 million or 4.5% increase in interest bearing deposits.
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Stockholders' equity increased $284,000 for the six months ended June
30, 1999 due to an increase in net retained earnings of $255,000, offset by a
decrease of $21,000 in accumulated other comprehensive income. Equity was
further increased by $50,000 from the exercise of 10,000 employee stock options.
The company paid its first dividend of $23, 000 or $.01 per share to
stockholders of record on April 29, 1999.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998.
GENERAL. Net income for the six months ended June 30, 1999 totaled
$278,000 or $0.12 per basic and diluted share as compared to $554,000 or $0.24
per basic and diluted share for the six months ended June 30, 1998. The decrease
in net income can be attributed mainly to additions to the provision for credit
losses of $282,000 and increased operating expenses of $390,000. The increase in
the provision for credit losses was due to management's reassessment of the
adequacy of the allowance for credit losses following, the change in management
on May 7, 1999. The increase in operating expenses was due primarily to
increased compensation and benefits of $88,000, data processing expense of
$50,000, and $87,000 in legal and consulting expense related to continuing year
2000 preparations, regulatory issues and the change in management on May 7,
1999.
NET INTEREST INCOME. Net interest income increased $187,000 or 6.5% for
the six months ended June 30, 1999 to $3.1 million from $2.9 million for the six
months ended June 30, 1998, due primarily to a decrease in interest expense of
$330,000, offset by a decrease in interest income of $143,000. The change in net
interest income reflects an increase in the net interest margin to 5.38% at June
30, 1999 from 5.09% at June 30, 1998. The increase was the result of a decline
in the cost of average interest bearing liabilities to 3.40% at June 30, 1999
from 4.08% at June 30, 1998, and was partially offset by a decrease in the yield
on interest earning assets to 8.29% at June 30, 1999 from 8.60% at June 30,
1998.
The decrease in interest income was due to reductions in interest and
earned on investment securities which reductions were partially offset by
increased interest income on net loans receivable. Interest earned on investment
securities fell by $175,000 or 33.8% from $518,000 for the six months ended June
30, 1998 to $343,000 for the six months ended June 30, 1999. This was
attributable to a decline in the average balance of investment securities from
$17.8 million for the six month period ended June 30, 1998 to $13.0 million for
the same period this year. Interest earned on federal funds sold and other
overnight investments also fell from period to period, down $426,000 or 65.4%
from $653,000 in 1998 to $227,000 in 1999. Average balances declined from $23.8
million in the first six months of 1998 to $10.4 million in the first six months
of 1999. Interest income on net loans receivable grew by $458,000 or 12.3% from
$3,711,000 for the six months ended June 30, 1998 to $4,169,000 for the six
months ended June 31, 1999. The average balance of net loans receivable jumped
$19.1 million or 26.3% from 72.8 million for the first six months of 1998 to
$91.9 million for the same period this year. Loan growth occurred in the
commercial real estate and construction portfolios, and was offset in part by
lower commercial loan originations and payoffs during the period.
Interest expense decreased $330,000 or 16.6% to $1.7 million for the
six months ended June 30, 1999 from $2.0 million for the six months ended June
30, 1998, due primarily to a decrease in the average cost of interest bearing
deposits to 3.40% at June 30, 1999 from 4.08% at June 30, 1998.
10
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PROVISION FOR CREDIT LOSSES. The provision for credit losses for the
six months ended June 30, 1999 and 1998 totaled $432,000 and $150,000
respectively. The increase in the provision for credit losses at June 30, 1999
was primarily attributable to management's reassessment of the adequacy of the
allowance for credit losses following the change in management on May 7, 1999.
NON-INTEREST INCOME. Non-interest income, which is comprised primarily
of fees and charges on deposit accounts, increased $67,000 or 18.1% to $438,000
at June 30, 1999 from $371,000 at June 30, 1998. The increase in non-interest
income was primarily due to fees generated by the bank's new Visa debit card,
and increased fees related to ATM usage and mortgage banking activity.
NON-INTEREST EXPENSE. Non-Interest expense increased $390,000 or 17.2%
for the six months ended June 30, 1999 to $2.7 million from $2.3 million for the
six months ended June 30, 1998. The increase in non-interest expense was due
primarily to increased compensation and benefits of $88,000, data processing
expense of $50,000, and $87,000 in legal and consulting expense related to
regulatory issues and the change in management that became effective on May 7,
1999.
INCOME TAX EXPENSE. The Company recorded income tax expense for the
six-month period ended June 30, 1999 of $143,000. The Company's federal tax rate
is approximately 34%.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND
1998.
GENERAL. Net income for the three months ended June 30, 1999 totaled
$218,000 or $0.09 per basic and diluted share compared to $300,000 or $0.13 per
basic and diluted share for the three months ended June 30, 1998. The decrease
in net income can be attributed mainly to an increase in operating expenses of
$251,000 or 22.0% which was partially offset by an increase in net interest
income of $66,000 or 4.5% and an increase in non-interest income of $13,000 or
6.5%.
INTEREST INCOME. Interest income fell $66,000 or 2.7% to $2,407,000 for
the three months ended June 30, 1999 from $2,473,000 for the same period in
1998. Interest earned on investment securities dropped by $47,000 or 20.6% to
$181,000 in the second quarter of 1999 from $228,000 in the second quarter of
1998. This was due to a decline in the average balance of investment securities
of $1.7 million or 10.5% to $14.0 million for the three months ended June 30,
1999 from $15.7 million over the three months ended June 30, 1998. Interest
earned on federal funds sold and other overnight investments also fell from
period to period, down $240,000 or 67.4% to $116,000 in 1999 from $356,000 in
1998. Average balances declined by $16.0 million to $9.8 million in the second
quarter of 1999 from $25.8 million in the same quarter last year. Interest
income on net loans receivable grew by $221,000 or 11.7% to $2,110,000 for the
three months ended June 30, 1999 from $1,889,000 for the same three months last
year.
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INTEREST EXPENSE. Interest expense decreased $132,000 or 13.1% to
$873,000 for the three months ended June 30, 1999 from $1,005,000 for the three
months ended June 30, 1998, due primarily to a decrease in the cost of interest
bearing liabilities to 3.49% for the three months ended June 30, 1999 from 4.15%
for the three months ended June 30, 1998. This decrease was partially offset by
additional interest expense resulting from an increase of $2.1 million or 2.1%
in the average balances of interest bearing deposits to $100.3 million for the
three months ended June 30, 1999 from $98.2 million for the three months ended
June 30, 1998.
PROVISION FOR CREDIT LOSSES. The provision for credit losses for the
three months ended June 30, 1999 and 1998 totalled $27,000 and $75,000
respectively. The decrease in the provision for credit losses at June 30, 1999
reflected negative loan growth of $3.8 million for the quarter and management's
assessment of the credit risk in the loan portfolio.
NON-INTEREST INCOME. Non-interest income increased $13,000 or 6.5% to
$214,000 for the three months ended June 30, 1999 from $201,000 for the three
months ended June 30, 1999. The increase in non-interest income was primarily
due to fees generated by the bank's new Visa debit card and additional ATM
service fees.
NON-INTEREST EXPENSE. Non-interest expense increased $251,000 or 22.0%
to $1.4 million for the three months ended June 30, 1999 from $1.1 million at
June 30, 1998. The increase in non-interest expenses was primarily due to a
$50,000 increase in compensation and related expenses, $72,000 in legal and
consulting fees relating to regulatory issues and the change in management and a
$30,000 increase in depreciation expense resulting from the installation of new
computer equipment related to the bank's data processing conversion and Year
2000 compliance.
INCOME TAX EXPENSE. The Company recorded income tax expense for the
three month period ended June 30, 1999 of $113,000 based on a federal tax rate
of 34%.
YEAR 2000 COMPLIANCE. As a financial institution, the Bank is highly
dependent on computer systems and applications to conduct its business. The Year
2000 (Y2K) issue arises from the use of two digits rather than four to signify
the calendar year in date-sensitive computer programs. Many of the Bank's
computer applications may recognize the date "00" as the year 1900 rather than
the year 2000. This could result in a system failure or miscalculation causing
disruption of operations, including, among other things, a temporary inability
to process transactions or engage in normal business activities for both the
Bank and its customers who rely on its financial products and services.
The Bank is actively engaged in an ongoing program designed to make its
computer systems, applications, and facilities Y2K compliant. This program
consists of the following phases: (i) awareness; (ii) assessment; (iii)
renovation; (iv) validation, and; (v) implementation. During the awareness
phase, the Bank identified its project team and responsibilities, prepared and
allocated the project budget, defined the project scope, and established program
and management policies.
12
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Although complete, the awareness phase continues to be reviewed and updated. The
assessment phase-- requiring an inventory of software, hardware, vendors,
material customers, and facilities-- has also been completed. The renovation
phase relating to the Bank's new internal systems was completed by January 31,
1999.
The Bank converted its mission critical systems to a new service bureau
on January 25, 1999. The new service bureau completed its Y2K testing phase by
March 31, 1999. The Bank participated in this process, utilizing the proxy test
method. The Bank used internal resources to validate the test results of all
mission critical systems (deposits, loans, and general ledger). The validation
phase also included testing of internal systems as they relate to each other,
and testing of external interfaces with business partners. The implementation
phase, which involved either updating or replacing software and hardware that is
non-compliant, has also been completed.
An institution-wide contingency plan has recently been developed to
establish policies and procedures to be followed in the event of a business
disruption caused by Y2K or other disasters. The plan's objective is to enable
the continued safe operation of the Bank for a reasonable period of time until
impacted systems can be restored. Elements of the plan include performing
certain processes manually, repairing systems or obtaining replacements, and
changing suppliers. The Bank strongly believes that the contingency planning
process must be continuous and ongoing. Modifications to the plan will be made
as additional information is obtained.
The Bank budgeted $675,000 for conversion of its data processing system
and for expenses related to the Y2K effort. To date, the Bank has spent the
amount budgeted towards these projects. All costs to date and any remaining
costs related to Y2K will be funded through operating cash flows. Any additional
expenses are not expected to have a material effect on the Bank's operations.
The Bank believes that conversions, renovations and modifications of
its systems and equipment has enabled the Bank to be in a position to be Y2K
ready. There can be no assurances, however, that the Bank's internal systems or
equipment, or those of third parties upon which the Bank relies, will be Y2K
ready. There also can be no assurances that the Bank's contingency plans, or
those of third parties, will mitigate the effects of Y2K non-compliance. The
Bank is part of a regulated industry that has issued standards for Y2K and is
conducting audits of financial institutions, including the Bank, to ensure
compliance. In the most likely worst case scenario, the Bank believes that its
customers could experience some manual processes or an inability to access their
cash immediately. Such events could have a material adverse effect on the Bank's
financial position, liquidity and results of operations.
The preceding Y2K discussion contains various forward-looking
statements, which represent the Company's beliefs or expectations regarding
future events. When used in the Y2K discussion, the words "believes," "expects,"
"estimates" and similar expressions are intended to identify forward-looking
statements. Forward looking statements include, without limitation, the
Company's: (i) expectations as to when it will complete the renovation and
testing phase of its Y2K program and its Y2K contingency plans; (ii) estimated
cost of achieving Y2K readiness,
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and; (iii) expressed belief that its internal systems and equipment will be Y2K
compliant in a timely fashion.
All forward-looking statements involve a number of risks and
uncertainties that could cause the actual results to differ materially from the
projected results. Factors that may cause these differences include, but are not
limited to: (i) the availability of qualified personnel and other information
technology resources; (ii) the ability to identify and renovate all data
sensitive lines of computer code or to replace imbedded computer chips in
affected systems and equipment, and; (iii) the actions of government agencies
and other third parties with respect to Y2K problems.
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PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None
ITEM 2 - CHANGES IN SECURITIES
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting on April 29, 1999 at the
Annapolis Holiday Inn, 210 Holiday Court, Annapolis, Md. 21401
at 6:00 p.m. The Company received the following shares voted
for the election of directors:
For Percentage Withheld
Ronald E. Gardner 1,974,631 99.5% 9,350
Lawrence E. Lerner 1,974,631 99.5% 9,350
Lawrence W. Schwartz 1,974,631 99.5% 9,350
The Company received the following shares voted for the
nomination of Rowles & Company, LLP, to perform the annual
audit for the year ending December 31, 1999.
For Percentage Against Abstain
1,977,231 99.7% 5,900 850
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Certificate of Incorporation of Annapolis National
Bancorp, Inc.*
3.2 Bylaws of Annapolis National Bancorp, Inc.*
11 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule
15
<PAGE>
(b) Reports on Form 8-K
The Company filed a Form 8-K on May 10, 1999,
announcing that the Company had accepted the
resignation of John W. Marhefka, Jr. as Chief
Executive Officer, Vice President and Director of the
Company, and as President, Chief Executive Officer
and Director of the Company's wholly owned
subsidiary, Annapolis National Bank. The Company also
announced that Richard M. Lerner, Chairman of the
Board of Directors of the Bank and a member of the
Board of the Company and Bank since 1990, was
appointed on an interim basis President and Chief
Executive Officer of the Bank.
*Incorporated by reference to Registration Statement on Form SB-2, as
amended, Commission File Number 333-29841, originally filed with the
Securities and Exchange Commission on June 23, 1998.
16
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ANNAPOLIS NATIONAL BANCORP, INC.
(Registrant)
Date: 8/16/99 /s/ Richard M. Lerner
------- ---------------------------
Richard M. Lerner
Chief Executive Officer
Date: 8/16/99 /s/ Russell J. Grimes Jr.
------- ------------------------------
Russell J.Grimes Jr.
Chief Financial Officer
17
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(In thousands, except Earnings per Share)
Three Months Ended
June 30, 1999 June 30, 1998
-------------------- --------------------
Net income $218 $300
Average Shares Outstanding 2,318 2,312
Basic Earnings Per Share $0.09 $0.13
Diluted Earnings Per Share $0.09 $0.13
Six Months Ended
June 30, 1999 June 30, 1998
---------------- -----------------
Net Income $278 $554
Average Shares Outstanding 2,316 (1) 2,332
Basic Earnings Per Share $0.12 $0.24
Diluted Earnings Per Share $0.12 $0.24
(1) includes the dilutive effect of 19,375 incentive stock options.
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
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<INT-BEARING-DEPOSITS> 0
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