<PAGE>
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 March 31, 2000 Commission File Number 0-22961
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ANNAPOLIS NATIONAL BANCORP, INC.
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(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 May 9, 2000, the Registrant had 2,323,506 shares of Common Stock
outstanding.
Transitional Small Business Disclosure Format
YES NO X
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<PAGE>
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
- ------------------------------ ----
Item 1 - Financial Statements
Consolidated Balance Sheets as of March 31, 2000 and
December 31, 1999 1
Consolidated Statements of Income for the Three Month Periods Ended
March 31, 2000 and 1999 2
Consolidated Statements of Cash Flows for the Three Month Periods Ended
March 31, 2000 and 1999 3
Consolidated Statement of Changes in Equity for the Three Month
Periods Ended March 31, 2000 and 1999 4
Notes to Financial Statements 5
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 6 - 8
PART II - OTHER INFORMATION
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Item 1 - Legal Proceedings 9
Item 2 - Changes in Securities 9
Item 3 - Defaults Upon Senior Securities 9
Item 4 - Submission of Matters to a Vote of Security Holders 9
Item 5 - Other Information 9
Item 6 - Exhibits and Reports on Form 8-K 9 - 12
SIGNATURES 13
This Report contains statements, which constitute forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the securities exchange Act of 1934. These statements appear in a number of
places in this Report and include all statements regarding the intent, belief or
current expectations of the Company, its directors or its officers with respect
to, among other things: (i) the Company's financing plans; (ii) trends affecting
the Company's financial condition or results of operations; (iii) the Company's
growth strategy; and (iv) the declaration and payment of dividends. Investors
are cautioned that any such forward-looking statements are not guarantees of
future performance and involve risks and uncertainties, and that actual results
may differ materially from those projected in the forward-looking statements as
a result of various factors discussed herein and those factors discussed in the
Company's filings with the Securities and Exchange Commission.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Annapolis National Bancorp, Inc. and Subsidiary
Consolidated Balance Sheets
as of March 31, 2000 and December 31, 1999
(In thousands)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
March 31, December 31,
2000 1999
----------- ------------
<S> <C> <C>
Assets
Cash and due from banks $ 4,319 $ 5,665
Federal funds sold and other overnight investments 13,030 11,432
Investment securities available for sale 30,281 23,408
Federal Reserve Bank stock, at cost 361 361
Loans, less allowance for credit losses of $1,521 and $1,543 79,800 81,198
Premises and equipment 2,725 2,741
Core deposit premium and other intangibles 22 43
Accrued interest receivable 815 822
Deferred income taxes 351 341
Other real estate owned 57 57
Other assets 738 665
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Total assets $132,499 $126,733
======== ========
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing $ 11,960 $ 13,321
Interest-bearing 95,645 91,773
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Total deposits 107,605 105,094
Securities sold under agreements to repurchase 11,451 8,497
Accrued interest and other liabilities 613 415
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Total liabilities 119,669 114,006
Stockholders' Equity
Common stock - $0.01 par value 23 23
Capital surplus 13,192 13,192
Accumulated deficit (335) (454)
Accumulated other comprehensive income (loss) (50) (34)
-------- --------
Stockholders' equity 12,830 12,727
Total liabilities and stockholders' equity $132,499 $126,733
======== ========
</TABLE>
<PAGE>
Annapolis National Bancorp, Inc. and Subsidiary
Consolidated Statements of Income
for The Three Month Periods Ended March 31, 2000 and 1999
(Unaudited)
(In thousands, except Per Share data)
<TABLE>
<CAPTION>
For the Three Month Periods
Ended
March 31,
2000 1999
------ ------
<S> <C> <C>
Interest income:
Loans $1,891 $2,060
Investment securities 377 162
Federal funds sold and securities purchased 163 110
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Total interest income 2,431 2,332
Interest expense:
Interest-bearing deposits 822 719
Securities sold under agreements to repurchase 78 70
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Total interest expense 900 789
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Net interest income 1,531 1,543
Provision for credit losses 36 405
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Net interest income after provision for
credit losses 1,495 1,138
Noninterest income
Service charges and fees 143 119
Mortgage banking fees 40 33
Other fee income 40 70
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Total noninterest income 223 222
Noninterest expense
Personnel 746 589
Occupancy and equipment 236 234
Other operating expenses 486 424
Amortization of intangibles 22 22
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Total noninterest expense 1,490 1,269
Income before income taxes 228 91
Income tax expense 86 31
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Net income $ 142 $ 60
====== ======
Basic Earnings Per Share $ 0.06 $ 0.03
====== ======
Diluted Earnings Per Share $ 0.06 $ 0.03
====== ======
</TABLE>
<PAGE>
Annapolis National Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows
for the Three Month Periods Ended March 31, 2000 and 1999
(Unaudited and in thousands)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
--------------------------
2000 1999
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<S> <C> <C>
Cash flows from operating activities
Net income $ 142 $ 60
Adjustments to reconcile net income to net cash
provided by operating activities
Deferred income taxes (10) (9)
Depreciation and amortization of furniture,
equipment and leasehold improvements 77 51
Amortization of premiums and accretions of discounts, net (68) (41)
Amortization of intangible assets acquired 22 22
Decrease (increase) in accrued interest receivable 7 (65)
Net loss on sale of loans, equipment and other real estate owned - (5)
Provision for credit losses 36 405
Other, net 123 435
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Net cash provided by operating activities 329 853
Cash flows from investing activities
Net decrease (increase) in loans 1,362 (6,270)
Investment in securities - available-for-sale (14,659) (12,844)
Proceeds from redemption of securities and principal repayments 7,838 16,925
Net (increase) decrease in federal funds sold (1,598) 3,776
Proceeds from sale of equipment - 5
Purchase of furniture, equipment and leasehold improvements (61) (228)
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Net cash (used) provided in investing activities (7,118) 1,364
Cash flows from financing activities
Net increase in borrowings - 1,500
Net increase (decrease) in deposits 2,512 (4,133)
Net increase in securities sold under agreements to repurchase 2,954 603
Payment of dividends (23) -
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Net cash provided by financing 5,443 (2,030)
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Net (decrease) increase in cash (1,346) 187
Cash, beginning of period 5,665 3,846
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Cash, end of period $ 4,319 $ 4,033
======== ========
Supplemental cash flow information
Interest paid on deposits and repurchase agreements $ 900 $ 803
Income taxes paid $ 130 $ 15
</TABLE>
<PAGE>
Annapolis National Bancorp, Inc. and Subsidiary
Consolidated Statement of Equity
for the Three Month Periods Ended March 31, 2000 and 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, Dcember 31, 1999 2,323,506 $23 $13,192 $ (454) $(34) $12,727
Net income --- --- --- 142 --- 142
Unrealized loss on investment securities
available for sale, net of tax --- --- --- --- (16) (16)
Dividends paid --- --- --- (23) --- (23)
--------- --- ------- ------- ---- -------
Balances, March 31, 2000 (unaudited) 2,323,506 $23 $13,192 $ (335) $(50) $12,830
========= === ======= ======= ==== =======
<CAPTION>
Accumulated
Common Stock Other
--------------------------------------- Accumulated Comprehensive
Shares Par Value Surplus Deficit Income Total
--------- --------- ------- ----------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, Dcember 31, 1998 2,313,506 $23 $13,143 $(1,075) $ $12,091
---
Net income --- --- --- 60 --- 60
Unrealized loss on investment securities
available for sale, net of tax --- --- --- --- (18) (18)
Dividends paid --- --- --- --- --- ---
--------- --- ------- ------- ---- -------
Balances, March 31, 1999 (unaudited) 2,313,506 $23 $13,143 $(1,015) $(18) $12,133
========= === ======= ======= ==== =======
</TABLE>
<PAGE>
Annapolis National Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Annapolis
National Bancorp, Inc. (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB. Accordingly, they do not include all the
information and footnotes required for complete financial statements. In the
opinion of management, all adjustments and reclassifications consistently, of a
normal and recurring nature, considered necessary for fair presentation have
been included. Operating results for the three month period ended March 31,
2000, are not necessarily indicative of the results that may be expected for the
year ended December 31, 2000. The unaudited consolidated financial statements
should be read in conjunction with the consolidated financial statements and
footnotes for the year-ended December 31, 1999.
Note B - New Accounting Pronouncement
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended by SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement 133, requires derivative instruments be carried at fair value
on the balance sheet. The statement continues to allow derivative instruments
to be used to hedge various risks and sets forth specific criteria to be used to
determine when hedge accounting can be used. The statement also provides for
offsetting changes in fair value or cash flows of both the derivative and the
hedged asset or liability to be recognized in earnings in the same period;
however, any changes in fair value or cash flow that represent the ineffective
portion of a hedge are required to be recognized in earnings and cannot be
deferred. For derivative instruments not accounted for as hedges, changes in
fair value are required to be recognized in earnings.
The Company plans to adopt the provisions of this statement, as amended for its
quarterly and annual reporting beginning January 1, 2001, the statement's
effective date. The impact of adopting the provisions of this statement on the
Company's financial position, results of operations and cash flows subsequent to
the effective date is not currently estimable and will depend on the financial
position of the Company and the nature and purpose of any derivative instrument
in use at the time.
<PAGE>
Item 2 - Management Discussion and Analyses of Financial Condition and Results
of Operations
Comparison of Financial Condition at March 31, 2000 and December 31, 1999
Total assets at March 31, 2000 were $132.5 million, an increase of $5.8
million or 4.6% from total assets at December 31, 1999 of $126.7 million.
Federal funds sold and other overnight investments increased $1.6 million or
14.0%, investment securities-available for sale increased $6.9 million or 29.4%.
Net loans receivable at March 31, 2000 were $79.8 million, down from $81.2
million at December 31, 1999, a decrease of $1.4 million or 1.7%. The decrease
was due to a $0.4 million decrease in real estate and construction loans and a
$1.0 million decrease in commercial loans.
The allowance for credit losses increased $38,000 to $1,521,000 at March
31, 2000 from $1,483,000 at December 31, 1999. The increase in the allowance for
loan losses includes general reserves of $36,000 and recoveries on loans
previously charged off of $2,000. Management makes periodic provisions to the
allowance for credit losses to maintain the allowance at an acceptable level
commensurate with management's assessment of the credit risk inherent in the
loan portfolio. At March 31, 2000 and December 31, 1999 the allowance for credit
losses to total loans was 1.87% and 1.64% respectively.
Deposits of $107.6 million at March 31, 2000 represent a $2.5 million or
2.4% increase from December 31, 1999 deposits of $105.1 million. The increase
was due to a $3.1 million or 5.2% increase in core deposits offset by a $0.6
million or 1.4% decrease in IRAs and certificates of deposit.
Stockholders' equity increased $103,000 or 0.8% to $12.8 million at March
31, 2000 from $12.7 million at December 31, 1999, due to an increase in net
retained earnings of $119,000, offset by an increase of $16,000 in the
unrealized loss on investments in available for sale securities, a component of
accumulated other comprehensive income.
Comparison of Operating Results for the Three Months Ended March 31, 2000 and
1999.
General. Net income for the three months ended March 31, 1999 totaled
$142,000 or $0.06 per basic and diluted share as compared to $60,000 or $0.03
per basic and diluted share for the three months ended March 31, 1999. The
increase in net income can be attributed mainly to a reduction in the provision
for credit losses of $369,000 offset by higher noninterest expenses of $221,000.
For the first quarter of 1999 the Bank recorded a provision for credit losses of
$405,000 that included a special provision of $330,000. A provision of $36,000
was recorded for the same period in 2000.
<PAGE>
Net Interest Income. Net interest income decreased $12,000 or 0.8% for the
three months ended March 31, 2000 compared to the three months ended March 31,
1999, due primarily to a decrease in interest income on commercial and
construction loans and an increase in interest expense on deposits offset by an
increase in income on federal funds sold and investment securities.
At March 31, 2000, the net interest margin decreased to 5.26% from 5.65% at
March 31, 1999. The decrease in the net interest margin was the result of a
change in the mix of earning assets from higher yielding loans receivable to
lower yielding federal funds sold and investment securities. Average loan
volumes decreased while average investment volumes for the same period
increased. The yield on earning assets decreased to 8.31% at March 31, 2000 from
8.55% at March 31, 1999 while the cost of interest bearing liabilities increased
to 3.57% at March 31, 2000 from 3.38% at March 31, 1999.
Interest Income. Interest income increased $99,000 as a result of higher
average levels of investment securities, up $14.5 million to $25.7 million
during the three months ended March 31, 2000. The average balance of federal
funds and other overnight investments also increased from $10.3 million to $11.6
million. Offsetting the increase in interest income from overnight and other
investments was the decrease of $8.9 million in the average level of net loans
receivable down to $80.3 million at March 31, 2000 from $89.2 million at March
31, 1999.
Interest Expense. Interest expense increased by $111,000 or 14.0% for the
three months ended March 31, 2000 compared to the three months ended March 31,
1999. This increase was due primarily to a rise in the average level of
certificates of deposit from $36.8 million to $45.4 million, an $8.6 million or
23.2% increase. The yield on interest bearing liabilities was 3.57% for the
three months ended March 31, 2000 compared to 3.38% for the same period in 1999.
Provision for Credit Losses. The provision for credit losses for the three
months ended March 31, 2000 and 1999 totaled $36,000 and $405,000, respectively.
The 1999 provision for credit losses included a special provision of $330,000
provision related to management's reassessment of the loan loss reserve
methodology.
Noninterest Income. Noninterest income, which is comprised primarily of
fees and charges on deposit accounts, increased by $1,000 or 0.5% to $223,000 at
March 31, 2000 from $222,000 at March 31, 1999. The increase in non-interest
income was primarily due to an increase in fees generated by the Bank's new VISA
debit card offset by the impact of January weather closings on deposit related
service charges.
Noninterest Expense. Noninterest expense increased by $221,000 or 17.4%
for the three months ended March 31, 2000 to $1.5 million from $1.3 million for
the three months ended March 31, 1999. The increase in noninterest expense was
due to increased compensation and benefits expense of $156,000, due to filling
positions that had been vacant at March 31, 1999; legal and professional fees of
$52,000 related to regulatory issues and the outsourcing of internal audit and
collection functions; and other expense of $12,000 related to a robbery at a
<PAGE>
branch location. Lower data processing expenses of $35,000 offset these
increases in noninterest expense.
Income Tax Expense. The Company recorded income tax expense for the three-
month period ended March 31, 2000 of $86,000. This amount includes $94,000 of
federal income taxes and approximately $8,000 of state income tax benefits. The
Company's combined effective federal and state income tax rate is approximately
37.7%.
Financial Modernization Legislation
On November 12, 1999, the Gramm-Leach-Bliley Financial Modernization Act of
1999 became law. The Modernization Act contains new financial privacy provisions
that will generally prohibit financial institutions, including the Company, from
disclosing nonpublic personal financial information to third parties unless
customers have the opportunity to "opt out" of the disclosure. The Modernization
Act also allows, among other things, for bank holding companies meeting certain
management, capital and CRA standards to engage in a substantially broader range
of nonbanking activities than were previously permissible, including insurance
underwriting and merchant banking investment in commercial and financial
companies. The Modernization Act further allows insurers and other financial
services companies to acquire banks; removes various restrictions that currently
apply to bank holding company ownership of securities firms and mutual fund
advisory companies; and establishes the overall regulatory structure applicable
to bank holding companies that also engage in insurance and securities
operations.
Because the Modernization Act permits banks, securities firms and insurers
to combine and to offer a wide variety of financial products and services, many
of these resulting companies will be larger and have more resources than the
Company. Should these companies choose to compete directly with the Company in
its target markets, the Company's results of operations could be adversely
impacted.
Regulatory Matters
The Bank has entered into a formal agreement with the Office of the
Comptroller of the Currency ("OCC") whereby the Bank is required to improve the
Bank's management and policies and procedures. This agreement in no way
restricts or impedes the Bank's ability to conduct normal banking and business
transactions. The Bank is committed to complying with the provisions of the
agreement.
<PAGE>
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
None
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 Earnings Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Form 8-K on March 16, 2000 announcing its
dismissal of Rowles and Company, LLC as its independent accountant and
the engagement of Stegman and Company as registrant's new independent
accountant.
*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 September 23, 1997.
<PAGE>
SIGNATURES
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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: 5/9/00 /s/ Richard M. Lerner
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Richard M. Lerner
Chief Executive Officer
Date: 5/9/00 /s/ Margaret Theiss Faison
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Margaret Theiss Faison
Chief Financial Officer
<PAGE>
EXHIBIT 11
Statement re: Computation of Earnings Per Share
(In thousands, except Earnings per Share)
Three Months Ended
March 31, 2000 March 31, 1999
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Net income $ 142 $ 60
Average Shares Outstanding 2,323 2,313
Basic Earnings Per Share $ 0.06 $ 0.03
Net income $ 142 $ 60
Average Shares Outstanding before the
effect of options 2,323 2,313
Effect of Options -- --
Average Shares Outstanding including
options 2,323 2,313
Diluted Earnings Per Share $ 0.06 $ 0.03
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 4,319
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 13,030
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 30,642
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 81,320
<ALLOWANCE> 1,521
<TOTAL-ASSETS> 132,499
<DEPOSITS> 107,606
<SHORT-TERM> 11,451
<LIABILITIES-OTHER> 612
<LONG-TERM> 0
0
0
<COMMON> 23
<OTHER-SE> 12,807
<TOTAL-LIABILITIES-AND-EQUITY> 132,499
<INTEREST-LOAN> 1,891
<INTEREST-INVEST> 377
<INTEREST-OTHER> 163
<INTEREST-TOTAL> 2,431
<INTEREST-DEPOSIT> 822
<INTEREST-EXPENSE> 900
<INTEREST-INCOME-NET> 1,531
<LOAN-LOSSES> 36
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,490
<INCOME-PRETAX> 228
<INCOME-PRE-EXTRAORDINARY> 228
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 142
<EPS-BASIC> 0.06
<EPS-DILUTED> 0.06
<YIELD-ACTUAL> 8.31
<LOANS-NON> 1,509
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,448
<ALLOWANCE-OPEN> 1,483
<CHARGE-OFFS> 0
<RECOVERIES> 2
<ALLOWANCE-CLOSE> 1,521
<ALLOWANCE-DOMESTIC> 1,521
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,184
</TABLE>
