SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
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| | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ___________ to __________
Commission file number 0-10971
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ABIGAIL ADAMS NATIONAL BANCORP, INC.
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(Name of small business issuer as specified in its charter)
Delaware 52-1508198
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(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
1627 K Street, N.W., Washington, D.C. 20006
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(Address of principal executive offices) (Zip Code)
(202) 466-4090
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(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $10.00 per share
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period as the registrant was required to file such reports) and (2) has
been subject to such filing requirements for the past 90 days. Yes X No
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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year $7,755,000
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State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock as of March 15, 1996.
$ 2,348,193
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Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of March 15, 1996.
284,844 shares of Common Stock, Par Value $10
Transitional Small Business Disclosure Format (Check one) Yes No X
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DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
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Item 1. Business
General
Abigail Adams National Bancorp, Inc. (the "Company") is a bank holding
company incorporated in Delaware on July 22, 1981 and registered under the Bank
Holding Company Act of 1956, as amended ("BHCA"). The Company conducts
operations through its sole wholly-owned subsidiary, The Adams National Bank
(the "Bank"), a national banking association. The Bank provides banking and
other financial services to individuals, small to medium-sized businesses and
nonprofit and other organizations, including the acceptance of demand, time and
savings deposits and the making and servicing of secured and unsecured loans.
Chartered in 1977 and opened in 1978, the Bank was the first federally
chartered bank in the United States to be owned and managed by women. Originally
named The Women's National Bank, the name was changed in 1986 to The Adams
National Bank. This change reflected the growth-oriented policies of the Bank as
well as a move to alter the public perception that the Bank existed exclusively
to serve the banking needs of women. The Bank, the deposits of which are insured
by the FDIC to the fullest extent permitted by law, serves the nation's capital
through three full service offices located in Washington, D.C. A fourth branch
is scheduled to open in the summer of 1996.
The Bank offers a full range of banking services to its customers, from
checking and savings deposits to individualized cash management accounts. The
consumer and commercial products and services include the following: demand,
savings and time deposits, individual retirement and Keogh accounts;
collateralized repurchase agreements; commercial, industrial, consumer, real
estate and small business lending, including installment loans, credit card
services, lines of credit and overdraft checking; safe deposit operations; and a
variety of additional services tailored to the needs of individual customers,
such as the acquisition of U.S. Treasury notes and bonds, the sale of travelers
checks, money orders, cashier's checks, direct deposit, custodial, cash
management, electronic banking and other special services. While providing
financial services to a wide-ranging customer base, including individuals, small
to medium-sized businesses, professional firms and nonprofit and other
organizations, the Bank remains committed to assisting women and minorities with
access to credit opportunities for career growth and small business ownership.
Commercial and consumer loans are made to corporations, partnerships and
individuals, primarily on a secured basis. Commercial lending focuses on
business, capital, renovation, inventory and real estate. Consumer lending
focuses on automobile, home equity and personal loans made on a direct, secured
basis. Real estate loans are originated for both commercial and consumer
purposes. Through its "Residential Express" program in affiliation
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with Knutson Mortgage Corporation ("Knutson"), the Bank is able to offer a
variety of residential home mortgage loan products.
The Bank participates in the U.S. Government's Minority Bank Deposit
Program ("MBDP") administered by the U.S. Treasury Department. The MBDP is
designed to encourage the participation of eligible minority and women's banks
in supplying the federal government's needs for various banking relationships.
Federal agencies and federal contractors are encouraged under the MBDP to
establish depository relationships with women and minority-owned banks.
Eligibility in the MBDP requires that at least 51% of a company's outstanding
stock be owned by women and/or minorities and that a majority of its directors
and executive officers be women. At December 31, 1995, less than 10% of the
Bank's deposits were attributable to depositors either under the MBDP or under
similar corporate programs in the private sector.
The Bank emphasizes customer service as its primary competitive mechanism.
As permitted by law and regulation, the Bank continually develops and markets
new and improved services to its customers. In 1988, the Bank joined the Cirrus
ATM network to complement its membership in the MOST ATM network initiated in
1986. These networks, particularly through the Company's three ATM's located at
Union Station, increase the Bank's exposure to other institutions' depositors
and provide an additional convenience to the Bank's own customers.
Acquisition and Expansion Strategy
The Company seeks to diversify both its market area and asset base while
increasing profitability through acquisitions and expansion. The Company's
strategic plan, as implemented in 1991, included expanding through the
acquisition from the FDIC and the Resolution Trust Corporation (the "RTC"), in
their capacities as receivers, of insured deposits and certain performing loans
of financial institutions which had been placed into receivership in the
Washington, D.C. area. To date, the Bank was the successful bidder on three such
purchases, one in each of 1992, 1993 and 1994. In 1992, the Company purchased
insured deposits and certain performing loans from the FDIC, as receiver for a
failed financial institution, for a premium of $1,000. In addition, the Company
was entitled to any future recoveries received on loans charged off prior to the
bid date for the sale of the financial institution. As of December 31, 1995,
$104,000 in recoveries on such loans have been received. In 1993, the Company
purchased certain performing loans from the FDIC, as receiver for another failed
financial institution, at a discounted price of 96.2% of the outstanding loan
amount. In 1994, the Company purchased an additional $508,000 in performing
loans from the FDIC at a price of $492,000.
In addition, the Company's plan includes the acquisition of small to medium
sized financial institutions, primarily commercial banks or thrifts, or branches
of such institutions. The Company's acquisition strategy is focused on
traditional community banks or thrifts located in Washington, D.C., Maryland and
Northern Virginia. In addition to price and terms, other factors to be
considered by the Company in determining the desirability of an
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acquisition candidate are financial condition, earnings potential, quality of
management, market area and competitive environment.
Although the Company continues to explore acquisition opportunities in
Washington, D.C., suburban Maryland and Northern Virginia, no banks have been
identified as probable merger or acquisition candidates. It is expected that
additional discussions will take place in the future as opportunities are
presented. However, no assurance can be given that any such merger or
acquisition candidates will be identified or that any merger or acquisition will
be consummated.
The Company also considers establishing branches as a means of expanding
its presence in current or new market areas and is presently reviewing potential
locations in Washington, D.C. and suburban Maryland. In March 1996, the Company
signed a lease to open a new branch in Washington, D.C. The Company will also
consider the expansion into other lines of business closely related to banking
if it believes these lines could be profitable without undue risk to the Company
and if the Company can be competitive.
Marketing Targets
In its marketing efforts, the Bank actively targets women and
minority-owned businesses and nonprofit organizations through various outreach
programs, involvement of management in civic and business organizations and
participation of management in programs sponsored by women, minority and
nonprofit business organizations. In addition, the Bank participates in federal
programs that encourage federal agencies and contractors to establish banking
relationships with women and minority banks. The Bank's status also has created
opportunities for Fortune 500 companies to establish borrowing and deposit
relationships with the Bank through corporate programs that encourage such
relationships with women and minority-owned institutions.
Operating Strategy
Corporate policy, strategy and goals are established by the Board of
Directors of the Company. Pursuant to the Company's philosophy, the main focus
is on providing personalized services and quality products to customers to meet
the needs of the community in which it operates. Recognizing the substantial
changes facing the banking industry, beginning in 1990, the Company redirected
its existing resources and personnel to redesign and focus its lending staff to
address the challenges of safe and sound underwriting and lending practices
coupled with aggressive loan growth. The Company hired an experienced senior
bank executive with a knowledge of commercial lending who was familiar with the
Washington, D.C. market area. In addition, computer resources were purchased and
training implemented to assist in the consistent application of safe and sound
underwriting and documentation standards. Additional emphasis was also placed on
the ongoing maintenance of current financial and collateral documentation of
borrowers. Annual reviews by experienced
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independent loan auditors also provide independent verification that the Company
keeps its policies and practices current.
As part of its community banking approach, the Bank encourages its officers
to actively participate in community organizations. In addition, within credit
and rate of return parameters, the Bank attempts to ensure that it meets the
credit needs of its communities, as evidenced by its "Outstanding" Community
Reinvestment Act ("CRA") rating from the Comptroller of the Currency ("OCC.")
The Bank uses a variety of marketing strategies to attract and retain
customers. Strategies include letters to companies in targeted markets,
referrals from existing customers, cross-selling services to existing customers,
contacts made through officers' and directors' active community service,
publicity on regional print and electronic media, as well as an officers and
branch managers loan and deposit calling program. The Bank is in the process of
developing its own electronic site (home page) on the Internet (World Wide Web).
The Bank contracts with an outside national firm to provide data processing
and back room operations. The state-of-the-art resources provided by this
outside firm, in conjunction with the Bank's internal data management system,
enable the Bank to provide a high level of customer service. In addition, the
Bank is currently installing a local area network in order to effectively manage
its growth.
Lending Activities
The Bank provides a range of commercial and retail lending services to
individuals, small to medium-sized businesses, professional corporations,
nonprofits and other organizations. These services include, but are not limited
to, commercial business loans, commercial and residential real estate,
renovation and mortgage loans, loan participations, consumer loans, revolving
lines of credit and letters of credit. Consumer lending focuses on automobile,
home equity and personal loans made on a direct, secured basis. Real estate
loans are originated for both commercial and consumer purposes, with a variety
of residential home mortgage loan products originated predominantly under the
Bank's Residential Express program. As of December 31, 1995, approximately three
quarters of the Bank's total loan portfolio was comprised of loans with interest
rates which either float or generally adjust on an annual basis. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--Loans."
The Bank aggressively markets its services to qualified borrowers in both
the commercial and consumer sectors. The Bank's commercial lending officers
actively solicit the business of new companies entering the Washington, D.C.
market, national and local nonprofit organizations and longstanding members of
the Washington, D.C. community. Through personalized professional service and
competitive pricing, the Bank has been successful in attracting new commercial
lending customers.
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Commercial and real estate lending is performed by the Bank's Lending
Division, which is comprised of three full time and one part time loan officers,
a credit analyst, a collections staff person and an administrative assistant
specializing in loan documentation. The Treasury Division includes the Loan
Operations staff of two, responsible for recording and processing new loans and
loan payments and working in conjunctiuon with the Lending Division, ensuring
the timely receipt of all ongoing loan documentation and the prompt reporting of
any exceptions. Credit analysis on loans is generally performed by the credit
analyst, using a sophisticated credit analysis computer program which provides
not only the flexibility necessary to analyze loans but also the structure
necessary to ensure that all documentation requirements are appropriately met.
Policies and procedures have been established by the Bank to promote safe
and sound lending. Loan officers have established individual lending authorities
based on both seniority and experience. Loans in excess of individual officers'
lending limits are presented to the Officers' Loan Committee ("OLC"), which is
comprised of all loan officers and the President of the Bank and which meets
weekly. While a maximum of two loan officers may pool their loan authorities to
approve a loan, most loans over $100,000 are brought to this Committee. The OLC
has the authority to approve unsecured loans up to $250,000 and secured loans up
to $400,000. Loans over $250,000 on an unsecured basis and over $400,000 on a
secured basis are brought to the Executive Loan Committee ("ELC"), which meets
approximately twice per month. The ELC is comprised of two outside directors and
the President. In addition to approving new loans, this Committee approves
restructuring of loans it originally approved, reviews past due loans and
approves charge-offs.
The full Board of Directors reviews the Bank's Classified and Criticized
Loan Quarterly Report and quarterly Migration and Allowance for Loan Losses
analyses. In addition, an independent loan review is performed by a consultant
on an annual basis which during 1994 and 1995 covered approximately 73% of the
dollar volume of the loan portfolio, and included 96% of the criticized and
classified loans. In addition to the Company's independent loan auditors and the
Company's independent audit firm, KPMG Peat Marwick LLP, the regulatory agencies
review the loan portfolio as part of the regular examination process.
Commercial Loans
The Bank provides a wide range of commercial business loans, including
lines of credit for working capital purposes and term loans for the acquisition
of equipment and other purposes. Collateral for these loans generally includes
accounts receivable, inventory, equipment and real estate. Terms of commercial
business loans generally range from three months to five years. The primary
repayment risk for commercial loans is the failure of the business due to
economic or financial factors. In most cases, the Bank has collateralized these
loans and/or taken personal guarantees to help assure repayment.
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Small Business Administration Lending ("SBA")
The SBA is a federal agency established in 1953 to support and promote
small business in the United States. The Bank offers SBA-guaranteed loans to
businesses. These loans offer better terms and more flexible repayment schedules
than conventional financing. Many small, growing firms have been unable to
obtain the long-term financing they require to facilitate expansion and compete
in the market. The Bank recognizes this problem and has established in-house
expertise in this specialized type of lending. Management believes that making
SBA loans helps the local community and provides the Bank with a source of
income and with solid future lending relationships as the businesses grow and
prosper. As lending requirements of small businesses grow to exceed the Bank's
lending limit, the Bank has the ability to participate portions of larger loans
to other financial institutions. The Bank believes that such participation
agreements will help to preserve lending relationships while providing a high
level of customer service. While advantageous to business customers, SBA lending
can provide the Bank attractive returns with minimal risk, as the majority of
each loan is guaranteed by the SBA. As of December 31, 1995, loans in this
category totaled $4,607,000.
Nonprofit Lending
The Bank provides financing to nonprofit organizations for construction and
renovation of local headquarters offices and other facilities, working capital
lines of credit and equipment financing. Current nonprofit customers of the Bank
include organizations which focus on issues relating to women's rights, the
environment, minority rights and AIDS treatment and education. At December 31,
1995, these loans amounted to $5,107,000.
Real Estate Loans
The Bank originates residential mortgage loans through an affiliated loan
program with Knutson. A variety of fixed and variable rate loan products are
offered for varying terms through this program. Loan applications can be taken
by the Bank or through a 24 hour Knutson Hot Line. These loans are preapproved
by Knutson prior to funding by the Bank and are generally sold (inclusive of
servicing rights) to Knutson at the original principal amount within one to
three days of closing. The Bank has the option, however, of retaining these
loans for its own portfolio. While the Bank has a real estate mortgage portfolio
of $14,151,000 at December 31, 1995, these loans are predominantly commercial or
residential investment mortgage loans and are either variable rate or reprice on
an annual basis.
The majority of the $2,618,000 in loans classified as construction and land
development loans in the accompanying consolidated financial statements are
primarily for renovation and rehabilitation of commercial and residential
properties.
Consumer Lending
The Bank's consumer lending includes loans for motor vehicles, home equity
loans and lines of credit, debt consolidation loans and loans to individuals for
investment purposes.
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During 1994, the Bank entered the credit card market by issuing its own VISA
card at competitive rates and with no annual fee. The credit card is offered to
both new and existing customers as well as corporate accounts, and provides
various cardmember benefits, including frequent flyer miles. Through its credit
card services, the Bank hopes to increase profits and augment its cross-selling
opportunities by increasing its marketing base.
Competition
The Bank faces substantial competition for deposits and loans throughout
its market area. The primary factors in competing for deposits are interest
rates, personalized services, the quality and range of financial services,
convenience of office locations and office hours. Competition for deposits comes
primarily from other commercial banks, savings associations, credit unions,
money market funds and other investment alternatives. The primary factors in
competing for loans are interest rates, loan origination fees, the quality and
range of lending services and personalized services. Competition for loans comes
primarily from other commercial banks, savings associations, mortgage banking
firms, credit unions and other financial intermediaries. The Bank faces
competition for deposits and loans throughout its market areas not only from
local institutions but also from out-of-state financial intermediaries which
have opened loan production offices or which solicit deposits in its market
areas. Many of the financial intermediaries operating in the Bank's market areas
offer certain services, such as trust, investment and international banking,
which the Bank does not offer. Additionally, banks with larger capitalization
and financial intermediaries not subject to bank regulatory restrictions have
larger lending limits and are thereby able to service larger customers.
In order to compete with other financial services providers, the Bank
principally relies upon local promotional activities, personal relationships
established by officers, directors and employees with its customers, and
specialized services tailored to meet its customers' needs. In those instances
where the Bank is unable to accommodate a customer's needs, the Bank will
arrange for those services to be provided by its correspondents.
Effect of Governmental Policies and Legislation
Banking is a business that depends on rate differentials. In general, the
difference between the interest rate paid by the Bank on its deposits and its
other borrowings and the interest rate received by the Bank on loans extended to
its customers and securities held in the Bank's portfolio comprise the major
portion of the Company's earnings. These rates are highly sensitive to many
factors that are beyond the control of the Bank. Accordingly, the earnings and
growth of the Company are subject to the influence of domestic and foreign
economic conditions, including inflation, recession and unemployment.
The commercial banking business is not only affected by general economic
conditions but is also influenced by the monetary and fiscal policies of the
federal government and the policies of regulatory agencies, particularly the
Federal Reserve Board. The Federal Reserve
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Board implements national monetary policies (with objectives such as curbing
inflation and combating recession) by its open-market operations in U.S.
Government securities, by adjusting the required level of reserves for financial
institutions subject to its reserve requirements and by varying the discount
rates applicable to borrowings by depository institutions. The actions of the
Federal Reserve Board in these areas influence the growth of bank loans,
investments and deposits and also affect interest rates charged on loans and
paid on deposits. The nature and impact of any future changes in monetary
policies cannot be predicted.
From time to time, legislation is enacted which has the effect of
increasing the cost of doing business, limiting or expanding permissible
activities or affecting the competitive balance between banks and other
financial institutions. Proposals to change the laws and regulations governing
the operations and taxation of banks, bank holding companies and other financial
institutions are frequently made in Congress and before various bank regulatory
and other professional agencies. For example, legislation was recently
introduced in Congress that would merge the deposit insurance funds applicable
to commercial banks and savings associations and impose a one-time assessment on
savings associations to recapitalize the deposit insurance fund applicable to
savings associations, possibly resulting in adjustments of deposit insurance
premiums for all FDIC-insured institutions. The likelihood of any major
legislative changes and the impact such changes might have on the Company are
impossible to predict. See "SUPERVISION AND REGULATION."
Employees
At December 31, 1995, the Company employed 37 people, 36 on a full-time and
1 on a part-time basis. The employees are not represented by a union and
management believes that its relations with its employees are good.
Supervision and Regulation
Bank holding companies and banks are extensively regulated under both
federal and state law. Set forth below is a summary description of certain laws
which relate to the regulation of the Company and the Bank. The description does
not purport to be complete and is qualified in its entirety by reference to the
applicable laws and regulations.
The Company
The Company, as a registered bank holding company, is subject to regulation
under the Bank Holding Company Act of 1956, as amended (the "BHCA"). The Company
is required to file quarterly reports with the Federal Reserve Board and annual
reports and such additional information as the Federal Reserve Board may require
pursuant to the BHCA. The Federal Reserve Board may conduct examinations of the
Company and its subsidiaries.
The Federal Reserve Board may require that the Company terminate an
activity or terminate control of or liquidate or divest certain subsidiaries or
affiliates when the Federal
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Reserve Board believes the activity or the control of the subsidiary or
affiliate constitutes a significant risk to the financial safety, soundness or
stability of any of its banking subsidiaries. The Federal Reserve Board also has
the authority to regulate provisions of certain bank holding company debt,
including authority to impose interest ceilings and reserve requirements on such
debt. Under certain circumstances, the Company must file written notice and
obtain approval from the Federal Reserve Board prior to purchasing or redeeming
its equity securities.
Under the BHCA and regulations adopted by the Federal Reserve Board, a bank
holding company and its nonbanking subsidiaries are prohibited from requiring
certain tie-in arrangements in connection with any extension of credit, lease or
sale of property or furnishing of services. Further, the Company is required by
the Federal Reserve Board to maintain certain levels of capital. See "Capital
Standards."
The Company is required to obtain the prior approval of the Federal Reserve
Board for the acquisition of more than 5% of the outstanding shares of any class
of voting securities or substantially all of the assets of any bank or bank
holding company. Prior approval of the Federal Reserve Board is also required
for the merger or consolidation of the Company and another bank holding company.
The Company is prohibited by the BHCA, except in certain statutorily
prescribed instances, from acquiring direct or indirect ownership or control of
more than 5% of the outstanding voting shares of any company that is not a bank
or bank holding company and from engaging directly or indirectly in activities
other than those of banking, managing or controlling banks or furnishing
services to its subsidiaries. However, the Company, subject to the prior
approval of the Federal Reserve Board, may engage in any activities, or acquire
shares of companies engaged in activities that are deemed by the Federal Reserve
Board to be so closely related to banking or managing or controlling banks as to
be a proper incident thereto. In making any such determination, the Federal
Reserve Board is required to consider whether the performance of such activities
by the Company or an affiliate can reasonably be expected to produce benefits to
the public, such as greater convenience, increased competition or gains in
efficiency, that outweigh possible adverse effects, such as undue concentration
of resources, decreased or unfair competition, conflicts of interest or unsound
banking practices. The Federal Reserve Board is also empowered to differentiate
between activities commenced de novo and activities commenced by acquisition, in
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whole or in part, of a going concern.
Under Federal Reserve Board regulations, a bank holding company is required
to serve as a source of financial and managerial strength to its subsidiary
banks and may not conduct its operations in an unsafe or unsound manner. In
addition, it is the Federal Reserve Board's policy that in serving as a source
of strength to its subsidiary banks, a bank holding company should stand ready
to use available resources to provide adequate capital funds to its subsidiary
banks during periods of financial stress or adversity and should maintain the
financial flexibility and capital-raising capacity to obtain additional
resources for assisting its subsidiary banks. A bank holding company's failure
to meet its obligations to serve as a source of strength to its subsidiary banks
will generally be considered by the Federal Reserve Board to
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be an unsafe and unsound banking practice or a violation of the Federal Reserve
Board's regulations or both. This doctrine has become known as the "source of
strength" doctrine. The validity of the source of strength doctrine has been and
is likely to continue to be the subject of litigation until definitively
resolved by the courts or by Congress.
Finally, the Company is subject to the periodic reporting requirements of
the Securities Exchange Act of 1934, as amended, including but not limited to,
filing annual, quarterly and other current reports with the Securities and
Exchange Commission.
The Bank
The Bank, as a national banking association, is subject to primary
supervision, examination and regulation by the OCC. If, as a result of an
examination of a Bank, the OCC should determine that the financial condition,
capital resources, asset quality, earnings prospects, management, liquidity or
other aspects of the Bank's operations are unsatisfactory or that the Bank or
its management is violating or has violated any law or regulation, various
remedies are available to the OCC. Such remedies include the power to enjoin
"unsafe or unsound practices," to require affirmative action to correct any
conditions resulting from any violation or practice, to issue an administrative
order that can be judicially enforced, to direct an increase in capital, to
restrict the growth of the Bank, to assess civil monetary penalties, and to
remove officers and directors. The FDIC has similar enforcement authority, in
addition to its authority to terminate a Bank's deposit insurance in the absence
of action by the OCC and upon a finding that a Bank is in an unsafe or unsound
condition, is engaging in unsafe or unsound activities, or that its conduct
poses a risk to the deposit insurance fund or may prejudice the interest of its
depositors. The Bank is not subject to any such actions by the OCC or the FDIC.
The deposits of the Bank are insured by the FDIC in the manner and to the
extent provided by law. For this protection, the Bank pays a semiannual
statutory assessment. See "Premiums for Deposit Insurance." Various other
requirements and restrictions under the laws of the United States affect the
operations of the Bank. Federal statutes and regulations relate to many aspects
of the Bank's operations, including reserves against deposits, interest rates
payable on deposits, loans, investments, mergers and acquisitions, borrowings,
dividends, locations of branch offices, capital requirements and disclosure
obligations to depositors and borrowers. Further, the Bank is required to
maintain certain levels of capital. See "Capital Standards."
Restrictions on Transfers of Funds to the Company by the Bank
The Company is a legal entity separate and distinct from the Bank. The
Company's ability to pay cash dividends is limited by Delaware state law.
There are statutory and regulatory limitations on the amount of dividends
which may be paid to the Company by the Bank. The prior approval of the OCC is
required if the total of all dividends declared by a national bank in any
calendar year exceeds the bank's net profits (as
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defined) for that year combined with its retained net profits (as defined) for
the preceding two years, less any transfers to surplus.
The OCC also has authority to prohibit the Bank from engaging in activities
that, in the OCC's opinion, constitute unsafe or unsound practices in conducting
its business. It is possible, depending upon the financial condition of the bank
in question and other factors, that the OCC could assert that the payment of
dividends or other payments might, under some circumstances, be such an unsafe
or unsound practice. Further, the OCC and the Federal Reserve Board have
established guidelines with respect to the maintenance of appropriate levels of
capital by banks or bank holding companies under their jurisdiction. Compliance
with the standards set forth in such guidelines and the restrictions that are or
may be imposed under the prompt corrective action provisions of federal law
could limit the amount of dividends which the Bank or the Company may pay. See
"Prompt Corrective Regulatory Action and Other Enforcement Mechanisms" and
"Capital Standards" for a discussion of these additional restrictions on capital
distributions.
At present, substantially all of the Company's revenues, including funds
available for the payment of dividends and other operating expenses, are
primarily dividends paid by the Bank. At December 31, 1995, the Bank had
$1,594,000 in retained earnings available for the payment of cash dividends in
accordance with OCC limitations. However, restrictions imposed by the Bank's
Subordinated Note Agreement with Minbanc Capital Corp. limit the total cash
dividends payable by the Bank in any 12 calendar month period to 25% of net
operating income, which at December 31, 1995 limited the payment of cash
dividends to zero. See Note 9 of the Notes to Consolidated Financial Statements.
The Bank is subject to certain restrictions imposed by federal law on any
extensions of credit to, or the issuance of a guarantee or letter of credit on
behalf of, the Company or other affiliates, the purchase of or investments in
stock or other securities thereof, the taking of such securities as collateral
for loans and the purchase of assets of the Company or other affiliates. Such
restrictions prevent the Company and such other affiliates from borrowing from
the Bank unless the loans are secured by marketable obligations of designated
amounts. Further, such secured loans and investments by the Bank to or in the
Company or to or in any other affiliate is limited to 10% of the Bank's capital
and surplus (as defined by federal regulations) and such secured loans and
investments are limited, in the aggregate, to 20% of the Bank's capital and
surplus (as defined by federal regulations). Additional restrictions on
transactions with affiliates may be imposed on the Bank under the prompt
corrective action provisions of federal law. See "Prompt Corrective Action and
Other Enforcement Mechanisms."
Capital Standards
The Federal Reserve Board and the OCC have adopted risk-based minimum
capital guidelines intended to provide a measure of capital that reflects the
degree of risk associated with a banking organization's operations for both
transactions reported on the balance sheet as assets and transactions, such as
letters of credit and recourse arrangements, which are recorded as off balance
sheet items. Under these guidelines, nominal dollar amounts of assets and credit
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equivalent amounts of off balance sheet items are multiplied by one of several
risk adjustment percentages, which range from 0% for assets with low credit
risk, such as certain U.S. Treasury securities, to 100% for assets with
relatively high credit risk, such as business loans.
A banking organization's risk-based capital ratios are obtained by dividing
its qualifying capital by its total risk adjusted assets. The regulators measure
risk-adjusted assets, which include off balance sheet items, against both total
qualifying capital (the sum of Tier 1 capital and limited amounts of Tier 2
capital) and Tier 1 capital. Tier 1 capital consists primarily of common stock,
retained earnings, noncumulative perpetual preferred stock (cumulative perpetual
preferred stock for bank holding companies) and minority interests in certain
subsidiaries, less most intangible assets. Tier 2 capital may consist of a
limited amount of the allowance for possible loan and lease losses, cumulative
preferred stock, long term preferred stock, eligible term subordinated debt and
certain other instruments with some characteristics of equity. The inclusion of
elements of Tier 2 capital is subject to certain other requirements and
limitations of the federal banking agencies. The federal banking agencies
require a minimum ratio of qualifying total capital to risk-adjusted assets of
8% and a minimum ratio of Tier 1 capital to risk-adjusted assets of 4%.
In addition to the risk-based guidelines, federal banking regulators
require banking organizations to maintain a minimum amount of Tier 1 capital to
total assets, referred to as the leverage ratio. For a banking organization
rated in the highest of the five categories used by regulators to rate banking
organizations, the minimum leverage ratio of Tier 1 capital to total assets is
3%. For all banking organizations not rated in the highest category, the minimum
leverage ratio must be at least 100 to 200 basis points above the 3% minimum, or
4% to 5%. In addition to these uniform risk-based capital guidelines and
leverage ratios that apply across the industry, the regulators have the
discretion to set individual minimum capital requirements for specific
institutions at rates significantly above the minimum guidelines and ratios.
In January 1995, the federal banking agencies issued a final rule relating
to capital standards and the risks arising from the concentration of credit and
nontraditional activities. Institutions which have significant amounts of their
assets concentrated in high risk loans or nontraditional banking activities and
who fail to adequately manage these risks, are required to set aside capital in
excess of the regulatory minimums. The federal banking agencies have not imposed
any quantitative assessment for determining when these risks are significant,
but have identified these issues as important factors they will review in
assessing an individual bank's capital adequacy.
Federally supervised banks and savings associations are currently required
to report deferred tax assets in accordance with SFAS No. 109. See Note 8 of the
Notes to Consolidated Financial Statements. The federal banking agencies issued
final rules, effective April 1, 1995, which limit the amount of deferred tax
assets that are allowable in computing an institution's regulatory capital. The
standard has been in effect on an interim basis since March 1993. Deferred tax
assets that can be realized for taxes paid in prior carryback years and from
future reversals of existing taxable temporary differences are generally not
limited. Deferred tax assets that can only be realized through future taxable
earnings are limited for regulatory capital
12
<PAGE>
purposes to the lesser of (i) the amount that can be realized within one year of
the quarter-end report date, or (ii) 10% of Tier 1 Capital. The amount of any
deferred tax in excess of this limit would be excluded from Tier 1 Capital and
total assets and regulatory capital calculations.
In August 1995, the federal banking agencies adopted final regulations
specifying that the agencies will include, in their evaluations of a bank's
capital adequacy, an assessment of the exposure to declines in the economic
value of the bank's capital due to changes in interest rates. The final
regulations, however, do not include a measurement framework for assessing the
level of a bank's exposure to interest rate risk, which is the subject of a
proposed policy statement issued by the federal banking agencies concurrently
with the final regulations. Because this proposal has only recently been issued,
the Bank currently is unable to predict the impact of the proposal on the Bank
if the policy statement is adopted as proposed.
Future changes in regulations or practices could further reduce the amount
of capital recognized for purposes of capital adequacy. Such a change could
affect the ability of the Bank to grow and could restrict the amount of profits,
if any, available for the payment of dividends.
The following table presents the amounts of regulatory capital and the
capital ratios for the Bank, compared to its minimum regulatory capital
requirements as of December 31, 1995.
December 31, 1995
-----------------
Actual Minimum
--------------------- Capital
Amount Ratio Requirement
------ ----- -----------
(In thousands)
Leverage ratio (1).............. $6,405 7.79% 4.0%
Tier 1 risk-based ratio (2)..... $6,405 9.40 4.0
Total risk-based ratio (2)...... $7,287 10.69 8.0
(1) Ratio is based on annual average assets of $82,216,000.
(2) Ratio is based on risk-adjusted assets of $68,172,000.
Prompt Corrective Action and Other Enforcement Mechanisms
Federal law requires each federal banking agency to take prompt corrective
action to resolve the problems of insured depository institutions, including but
not limited to those that fall below one or more prescribed minimum capital
ratios. The law requires each federal banking agency to promulgate regulations
defining the following five categories in which an insured depository
institution will be placed, based on the level of its capital ratios: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized.
13
<PAGE>
In September 1992, the federal banking agencies issued uniform final
regulations implementing the prompt corrective action provisions of federal law.
An insured depository institution generally will be classified in the following
categories based on capital measures indicated below:
<TABLE>
<CAPTION>
<C> <C>
"Well capitalized" "Adequately capitalized"
------------------ ------------------------
Total risk-based capital of 10%; Total risk-based capital of 8%;
Tier 1 risk-based capital of 6%; and Tier 1 risk-based capital of 4%; and
Leverage ratio of 5%. Leverage ratio of 4% (3% if the
institution receives the highest
rating from its primary regulator)
</TABLE>
<TABLE>
<CAPTION>
<C> <C>
"Undercapitalized" "Significantly undercapitalized"
------------------ --------------------------------
Total risk-based capital less than 8%; Total risk-based capital less than 6%;
Tier 1 risk-based capital less than 4%; or Tier 1 risk-based capital less than 3%; or
Leverage ratio less than 4% (3% if the Leverage ratio less than 3%.
institution receives the highest rating
from its primary regulator)
</TABLE>
"Critically undercapitalized"
-----------------------------
Tangible equity to total assets less than 2%.
An institution that, based upon its capital levels, is classified as "well
capitalized," "adequately capitalized" or "undercapitalized" may be treated as
though it were in the next lower capital category if the appropriate federal
banking agency, after notice and opportunity for hearing, determines that an
unsafe or unsound condition or an unsafe or unsound practice warrants such
treatment. At each successive lower capital category, an insured depository
institution is subject to more restrictions. The federal banking agencies,
however, may not treat an institution as "critically undercapitalized" unless
its capital ratio actually warrants such treatment.
The law prohibits insured depository institutions from paying management
fees to any controlling persons or, with certain limited exceptions, making
capital distributions if after such transaction the institution would be
undercapitalized. In addition, without the prior written approval of the
appropriate federal banking agency, a significantly undercapitalized institution
may not pay any bonus to its senior executive officers or provide compensation
to any of them at a rate that exceeds such officer's average rate of base
compensation during the 12 calendar months preceding the month in which the
institution became undercapitalized. If an insured depository institution is
undercapitalized, it will be closely monitored by the appropriate federal
banking agency, subject to asset growth restrictions and required to obtain
prior regulatory approval for acquisitions, branching and engaging in new lines
of business. Any undercapitalized depository institution must submit an
acceptable capital restoration plan to the appropriate federal banking agency 45
days after becoming undercapitalized. In addition, each company controlling an
undercapitalized depository institution must guarantee that the institution will
comply with the capital plan until the depository institution has been
adequately capitalized on an average basis during each of four consecutive
calendar quarters and must otherwise provide adequate assurances of performance.
Finally, the appropriate federal banking agency may impose any of the additional
restrictions or sanctions that it may impose on significantly undercapitalized
14
<PAGE>
institutions if it determines that such action will further the purpose of the
prompt correction action provisions.
An insured depository institution that is significantly undercapitalized,
or is undercapitalized and fails to submit, or in a material respect to
implement, an acceptable capital restoration plan, is subject to additional
restrictions and sanctions. These include, among other things: (i) a forced sale
of voting shares to raise capital or, if grounds exist for appointment of a
receiver or conservator, a forced merger; (ii) restrictions on transactions with
affiliates; (iii) further limitations on interest rates paid on deposits; (iv)
further restrictions on growth or required shrinkage; (v) modification or
termination of specified activities; (vi) replacement of directors or senior
executive officers; (vii) prohibitions on the receipt of deposits from
correspondent institutions; (viii) restrictions on capital distributions by the
holding companies of such institutions; (ix) required divestiture of
subsidiaries by the institution; or (x) other restrictions as determined by the
appropriate federal banking agency.
Further restrictions and sanctions are required to be imposed on insured
depository institutions that are critically undercapitalized. Most importantly,
for example, except under limited circumstances, the appropriate federal banking
agency, not later than 90 days after an insured depository institution becomes
critically undercapitalized, is required to appoint a conservator or receiver
for the institution.
In addition to measures taken under the prompt corrective action
provisions, commercial banking organizations may be subject to potential
enforcement actions by the federal regulators for unsafe or unsound practices in
conducting their businesses or for violations of any law, rule, regulation or
any condition imposed in writing by the agency or any written agreement with the
agency. Enforcement actions may include the imposition of a conservator or
receiver, the issuance of a cease and desist order that can be judicially
enforced, the termination of insurance of deposits (in the case of a depository
institution), the imposition of civil money penalties, the issuance of
directives to increase capital, the issuance of formal and informal agreements,
the issuance of removal and prohibition orders against institution-affiliated
parties and the enforcement of such actions through injunctions or restraining
orders based upon a judicial determination that the agency would be harmed if
such equitable relief was not granted.
Safety and Soundness Standards
In July 1995, the federal banking agencies adopted final guidelines
establishing standards for safety and soundness. The guidelines set forth
operational and managerial standards relating to internal controls, information
systems and internal audit systems, loan documentation, credit underwriting,
interest rate exposure, asset growth and compensation, fees and benefits.
Guidelines for asset quality and earnings standards will be adopted in the
future. The guidelines establish the safety and soundness standards that the
agencies will use to identify and address problems at insured depository
institutions before capital becomes impaired. If an institution fails to comply
with a safety and soundness standard, the appropriate federal banking agency may
require the institution to submit a compliance plan. Failure to submit a
compliance plan or to implement an accepted plan may result in enforcement
action.
15
<PAGE>
In December 1992, the federal banking agencies issued final regulations
prescribing uniform guidelines for real estate lending. The regulations, which
became effective on March 19, 1993, require insured depository institutions to
adopt written policies establishing standards, consistent with such guidelines,
for extensions of credit secured by real estate. The policies must address loan
portfolio management, underwriting standards and loan to value limits that do
not exceed the supervisory limits prescribed by the regulations. Appraisals for
"real estate related financial transactions" must be conducted by either state
certified or state licensed appraisers for transactions in excess of certain
amounts.
Premiums for Deposit Insurance
Federal law has established several mechanisms to increase funds to protect
deposits insured by the Bank Insurance Fund ("BIF") administered by the FDIC.
The FDIC is authorized to borrow up to $30 billion from the United States
Treasury; up to 90% of the fair market value of assets of institutions acquired
by the FDIC as receiver from the Federal Financing Bank; and from depository
institutions that are members of the BIF. Any borrowings not repaid by asset
sales are to be repaid through insurance premiums assessed to member
institutions. Such premiums must be sufficient to repay any borrowed funds
within 15 years and provide insurance fund reserves of $1.25 for each $100 of
insured deposits. The result of these provisions is that the assessment rate on
deposits of BIF members could increase in the future. The FDIC also has
authority to impose special assessments against insured deposits.
The FDIC implemented a final risk-based assessment system, effective
January 1, 1994, under which an institution's premium assessment is based on the
probability that the deposit insurance fund will incur a loss with respect to
the institution, the likely amount of any such loss, and the revenue needs of
the deposit insurance fund. As long as BIF's reserve ratio is less than a
specified "designated reserve ratio," 1.25%, the total amount raised from BIF
members by the risk-based assessment system may not be less than the amount that
would be raised if the assessment rate for all BIF members were .023% of
deposits. On August 8, 1995, the FDIC announced that the designated reserve
ratio had been achieved and, accordingly, issued final regulations adopting an
assessment rate schedule for BIF members of 4 to 31 basis points effective on
June 1, 1995. On November 14, 1995, the FDIC further reduced deposit insurance
premiums to a range of 0 to 27 basis points effective for the semi- annual
period beginning January 1, 1996.
Under the risk-based assessment system, a BIF member institution such as
the Bank is categorized into one of three capital categories (well capitalized,
adequately capitalized, and undercapitalized) and one of three categories based
on supervisory evaluations by its primary federal regulator (in the Bank's case,
the FDIC). The three supervisory categories are: financially sound with only a
few minor weaknesses (Group A), demonstrates weaknesses that could result in
significant deterioration (Group B), and poses a substantial probability of loss
(Group C). The capital ratios used by the FDIC to define well-capitalized,
adequately
16
<PAGE>
capitalized and undercapitalized are the same in the FDIC's prompt corrective
action regulations. The BIF assessment rates are summarized below; assessment
figures are expressed in terms of cents per $100 in deposits.
Assessment Rates Effective Through the First Half of 1995
Group A Group B Group C
------- ------- -------
Well Capitalized............... 23 26 29
Adequately Capitalized......... 26 29 30
Undercapitalized............... 29 30 31
Assessment Rates Effective through the Second Half of 1995
Group A Group B Group C
------- ------- -------
Well Capitalized............... 4 7 21
Adequately Capitalized......... 7 14 28
Undercapitalized............... 14 28 31
Assessment Rates Effective January 1, 1996
Group A Group B Group C
------- ------- -------
Well Capitalized............... 0* 3 17
Adequately Capitalized......... 3 10 24
Undercapitalized............... 10 24 27
*Subject to a statutory minimum assessment of $1,000 per semi-annual period
(which also applies to all other assessment risk classifications).
Interstate Banking and Branching
In September 1994, the Riegel-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Act") became law. Under the Interstate
Act, beginning one year after the date of enactment, a bank holding company that
is adequately capitalized and managed may obtain approval under the BHCA to
acquire an existing bank located in another state without regard to state law. A
bank holding company would not be permitted to make such an acquisition if, upon
consummation, it would control (a) more than 10% of the total amount of deposits
of insured depository institutions in the United States or (b) 30% or more of
the deposits in the state in which the bank is located. A state may limit the
percentage of total deposits that may be held in that state by any one bank or
bank holding company if application of such limitation does not discriminate
against out-of-state banks. An out-of-state bank holding company may not acquire
a state bank in existence for less than a minimum length of time that may be
prescribed by state law except that a state may not impose more than a five year
existence requirement.
17
<PAGE>
The Interstate Act also permits, beginning June 1, 1997, mergers of insured
banks located in different states and conversion of the branches of the acquired
bank into branches of the resulting bank. Each state may permit such
combinations earlier than June 1, 1997, and may adopt legislation to prohibit
interstate mergers after that date in that state or in other states by that
state's banks. The same concentration limits discussed in the preceding
paragraph apply. The Interstate Act also permits a national or state bank to
establish branches in a state other than its home state if permitted by the laws
of that state, subject to the same requirements and conditions as for a merger
transaction.
Community Reinvestment Act and Fair Lending Developments
The Bank is subject to certain fair lending requirements and reporting
obligations involving home mortgage lending operations and CRA activities. The
CRA generally requires the federal banking agencies to evaluate the record of a
financial institution in meeting the credit needs of their local communities,
including low and moderate income neighborhoods. In addition to substantial
penalties and corrective measures that may be required for a violation of
certain fair lending laws, the federal banking agencies may take compliance with
such laws and CRA into account when regulating and supervising other activities.
The OCC has rated the Bank "Outstanding" in complying with its CRA obligations.
In May 1995, the federal banking agencies issued final regulations which
change the manner in which they measure a bank's compliance with its CRA
obligations. The final regulations adopt a performance-based evaluation system
which bases CRA ratings on an institution's actual lending service and
investment performance rather than the extent to which the institution conducts
needs assessments, documents community outreach or complies with other
procedural requirements.
Item 2. Properties.
The principal executive offices of the Company and the main office of the
Bank are located in leased space at 1627 K Street, N.W., Washington, D.C. 20006.
The Bank leases two other offices, one located at 2905 M Street, N.W.,
Washington, D.C. and the other at Union Station, 50 Massachusetts Avenue, N.E.,
Washington, D.C. An additional ATM was opened in Union Station in 1989 and a
third ATM was opened in Union Station in May 1994. In March 1996, a lease was
signed for a new branch office at 1604 17th Street, N.W. Leases for these
facilities expire as follows:
Location Expiration of Lease
-------- -------------------
1627 K Street, N.W. 2002
2905 M Street, N.W. 1996
50 Massachusetts Avenue, N.E. 1999
Union Station ATM 1999
Union Station ATM 1999
1604 17th Street, N.W. 2016
18
<PAGE>
In 1995, the Company and the Bank incurred rental expense on leased real
estate of approximately $408,000. The Company considers all of the properties
leased by the Bank to be suitable and adequate for their intended purposes.
Item 3. Legal Proceedings.
Although the Bank, from time to time, is involved in various legal
proceedings in the normal course of business, there are no material legal
proceedings to which the Company or the Bank is a party or to which any of their
property is subject. For a discussion of certain legal proceedings in connection
with the Company's prior ownership, see "BENEFICIAL OWNERSHIP OF SHARES."
Item 4. Submission of Matters to a Vote of Security-Holders.
None
PART II
-------
Item 5. Market for Registrant's Equity and Related Stockholder Matters.
(a) The Company's Common Stock has been traded in the over-the-counter
market and reported in the "pink sheets." Trading in the Company's Common Stock
has been limited and sporadic.
The following table sets forth the range of the high and low bid prices of
the Company's Common Stock for each fiscal quarter indicated and is based upon
information provided by the National Quotation Bureau. These prices reflect
inter-dealer prices and do not include retail mark-ups, mark-downs or
commissions and may not have represented actual transactions.
Calendar Quarter Ended Bid Prices of Common Stock
High Low
March 31, 1994 $12.50 $11.50
June 30, 1994 15.00 12.00
September 30, 1994 15.00 15.00
December 31, 1994 15.00 15.00
March 31, 1995 $15.00 $15.00
June 30, 1995 16.50 15.00
September 30, 1995 23.00 15.00
December 31, 1995 24.50 22.00
19
<PAGE>
(b) As of March 15, 1996, the Company had 579 stockholders of record.
(c) During 1995, the Company declared two cash dividends on the Common
Stock of $.25 per share per quarter, for a total of $142,422. Prior to 1995, the
Company did not pay dividends. The Company's ability to pay cash dividends is
limited by the provisions of Delaware law, which permit the payment of dividends
from either surplus or retained earnings. In addition, the ability of the
Company to pay a cash dividend depends largely on the Bank's ability to pay a
cash dividend to the Company. The National Bank Act imposes limitations on the
amount of dividends that a national bank, such as the Bank, may pay without
prior regulatory approval. Generally, the amount is limited to the Bank's
current year's net earnings plus the retained net earnings for the two preceding
years. The Bank is also subject to dividend restrictions under a subordinated
capital note agreement. That agreement restricts the total cash dividends
payable by the Bank in any 12 calendar month period to 25% of net operating
income, which at December 31, 1995 limited the payment of cash dividends to
zero. See Notes 9 and 12 of the Notes to Consolidated Financial Statements.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Overview
Abigail Adams National Bancorp, Inc. and subsidiary (the "Company") had
total assets of $92,365,000 at December 31, 1995 reflecting an increase of
$10,105,000 from total assets of $82,260,000 at December 31, 1994. Total loans
at December 31, 1995 of $63,592,000 and the average loan balance for the year of
$60,318,000 increased by 5% and 4%, respectively, over the comparable 1994
period. Total deposits at December 31, 1995 of $83,063,000 increased by
$7,770,000, or 10%, as compared to December 31, 1994, while average deposits for
1995 of $73,587,000 increased by $356,000, or less than 1%, from the 1994
average of $73,231,000.
The Company reported record net income of $959,000 for the year ended
December 31, 1995 as compared to a net loss of $184,000 for the year ended
December 31, 1994. The $959,000 net income for 1995 is attributable to increases
in other income and decreases in operating costs, as well as no provision for
loan losses, as compared to 1994. As a result of the Company's utilization of
its remaining valuation allowance on deferred tax assets, the Company's actual
tax rate of 22% is lower than the 41% combined statutory tax rate, thus
contibuting to the improved earnings for 1995. The net loss of $184,000 for the
year ended December 31, 1994 was due to nonrecurring legal and related expenses.
If these nonrecurring items are excluded, the Company would have been profitable
for 1994 with net income after taxes of $714,000. The $714,000 adjusted net
income for 1994 assumes that the valuation allowance on deferred tax assets was
utilized in 1994 instead of 1995 thus resulting in a lower income tax expense
for 1994. Had this actually been the case, net income for 1995 would not have
utilized the valuation allowance on deferred tax assets and net income for 1995,
adjusted for $102,000 in costs incurred during the year to finalize the
ownership issues, would have been $805,000, reflecting an increase of 13% over
1994's adjusted net income of $714,000.
20
<PAGE>
The Company's total risk-based capital ratio (total capital divided by
assets weighted for risk elements) is 11.06%, of which 9.77% is Tier 1 capital.
The leverage ratio (based on annual average assets) is 8.09%. All are well in
excess of the 8%, 4% and 5% ratios, respectively, required by federal banking
regulations. Additionally, the Company's average equity to average asset ratio
is 7.50% for 1995 as compared to 7.13% reported for 1994. See "Stockholders'
Equity" below.
Loans
The loan portfolio at December 31, 1995 increased by $2,863,000, or 5%, to
$63,592,000 from $60,729,000 reflected at December 31, 1994. The majority of
this growth has been in commerical and residential real estate mortgages. On
average, the Company's loans increased by $2,073,000, or 4%, to $60,318,000 for
1995 from $58,245,000 for 1994. As a result of this loan growth, the average
loan to deposit ratio increased to 82% in 1995 from 80% in 1994 and 73% in 1993.
The loan to deposit ratio at December 31, 1995 was 77% as compared to 81% at
December 31, 1994 and 76% at December 31, 1993. The Company has a target loan to
deposit ratio of 80% based on quarterly averages. See "Liquidity and Capital
Resources" for a further discussion of this ratio.
For a summary of loans by category at Decmeber 31, 1995 and 1994, see Note
4 of the Notes to Consolidated Financial Statements.
The table entitled "Analysis of Loan Maturity and Interest Sensitivity"
below, summarizes the maturity distribution and interest sensitivity of the
Company's loan portfolio at December 31, 1995.
Analysis of Loan Maturity and Interest Sensitivity
At December 31, 1995
(In thousands)
<TABLE>
<CAPTION>
Within 1 1 - 5 After
Year (1) Years 5 Years Total
-------- ----- ------- -----
<S> <C> <C> <C> <C>
Maturity of Loans (2)(3):
Commercial $ 15,311 $ 21,881 $ 6,355 $ 43,547
Real Estate - mortgage 1,615 8,335 4,201 14,151
Real Estate - construction 1,591 340 687 2,618
Installment 1,013 1,690 949 3,652
----- ----- --- -----
Total loans (4) $ 19,530 $ 32,246 $ 12,192 $ 63,968
======== ======== ========= ========
Interest Rate Sensitivity of Loans:
With predetermined interest rates $ 3,520 $ 8,791 $ 780 $ 13,091
With floating or
adjustable interest rates 16,010 23,455 11,412 50,877
------ ------ ------ ------
Total loans (4) $ 19,530 $ 32,246 $ 12,192 $ 63,968
======== ======== ========= ========
</TABLE>
- ---------------------------
(1) Includes demand loans, loans having no stated schedule of repayment and no
stated maturity, and overdrafts.
(2) Loan maturity is based upon individual loan contract terms. The Company has
not established a rollover policy. Each loan is reviewed on a case by case
basis with respect to renewal.
(3) The Company has no foreign loans.
(4) The above table does not include deferred income and unearned discounts
which total a credit balance of $375,344.
21
<PAGE>
Investments
The Company classifies its debt and marketable equity securities into one
of three categories: trading, available for sale, or held to maturity. Trading
securities are bought and held principally for the purpose of selling them in
the near term and are reported at fair value, with unrealized gains and losses
included in earnings. Held to maturity securities are those securities in which
the Company has the ability and the intent to hold until maturity and are
reported at amortized cost. All other securities not included in trading or held
to maturity are classified as available for sale and are reported at fair value,
with unrealized gains and losses, net of taxes, reported as a separate component
of stockholders' equity. The available for sale portfolio exists to maintain
adequate liquidity and to provide a base for executing asset/liability
management strategy. These securities may be sold in response to changes in
interest rates, restructuring of maturity distributions, need for additional
funds for loans, tax planning and regulatory needs, as well as for other
purposes. As investment securities are purchased, they are classified as either
held to maturity (long-term investment) or available for sale. The value of
securities recorded as available for sale fluctuates based on changes in
interest rates. Generally, an increase in interest rates will result in a
decline in the value of securities available for sale, while a decline in
interest rates will result in an increase in the value of such securities.
Therefore, the value of securities available for sale and the Company's
stockholders' equity is subject to fluctuation based on changes in interest
rates. Increases in the general level of interest rates during 1994 caused a
decline in the fair value of securities in the Company's available for sale
portfolio. Based on an evaluation of the existing and projected liquidity needs
of the Company, during the second quarter of 1994, the Company reclassified
$3,500,000 in securities previously classified as available for sale to the held
to maturity portfolio, resulting in an unrealized loss, net of taxes, on the
date of transfer of approximately $86,000. This unrealized loss is recorded in
equity and amortized as a yield adjustment over the remaining terms of the
reclassified securities. This amortization of approximately $39,000, net of
taxes as of December 31, 1995, coupled with unrealized gains in the remaining
available for sale portfolio of $7,000, net of taxes, brings the equity balance
of unrealized loss on securities to $40,000, at December 31, 1995.
Investment securities and securities available for sale at December 31,
1995 totaled $13,701,000, a decrease of $1,389,000, or 9%, from one year
earlier, due principally to maturities and scheduled repayments. Of the
$13,701,000 outstanding at December 31, 1995, $5,508,000 was segregated in the
available for sale portfolio, with the remainder classified as held to maturity
investments. The $5,508,000 available for sale portfolio at December 31, 1995
decreased by $501,000 from $6,009,000 reported one year earlier. The investment
(held to maturity) portfolio at December 31, 1995 of $8,193,000 decreased by
$888,000 from $9,081,000 reported at December 31, 1994. Although no securities
were sold, scheduled maturities and repayments in both the available for sale
and held to maturity portfolios were used to fund increases in the loan
portfolio. See "Liquidity and Capital Resources" for a further analysis of
liquidity. On average for 1995, the combined long-term investment and available
for sale securities portfolio of $14,367,000 decreased by $1,242,000, or 8%,
from $15,609,000 for 1994.
22
<PAGE>
The table entitled "Analysis of Securities Portfolio" below, sets forth by
major categories, the adjusted cost bases, approximate market values and the
weighted average yields of investment securities and securities available for
sale at December 31, 1995.
Analysis of Securities Portfolio
At December 31, 1995
(In thousands)
<TABLE>
<CAPTION>
Investment Securities Securities Available for Sale
--------------------- -----------------------------
Adjusted Market Average Adjusted Market Average
Cost Basis(1) Value Yield Cost Basis(1) Value Yield
------------- ----- ----- ------------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury:
Within one year $ 1,499 $ 1,500 5.71% $ 1,996 $2,002 5.85%
------- ------- ------- ------
Obligations of other U.S.
Governement agencies
and corporations (2):
Within one year 1,006 1,015 6.68 2,501 2,503 5.48
After one, but within five years 4,875 4,964 5.96 1,000 1,003 5.56
----- ----- ----- -----
Total 5,881 5,979 6.09 3,501 3.506 5.50
----- ----- ----- -----
Mortgage-backed securities (3):
Federal National Mortgage Association:
After one, but within five years 17 17 9.18 -- -- --
Federal Home Loan Mortgage Corporation:
After five, but within ten years 369 386 8.63 -- -- --
--- --- ---- -----
Total 386 403 8.65 -- -- --
--- --- ---- -----
Federal Reserve Bank stock 163 163 6.00 -- -- --
--- --- ---- -----
Federal Home Loan Bank stock 252 252 7.25 -- -- --
--- --- ---- -----
Corporate securities:
After ten years 12 12 -- -- -- --
-- -- ---- ------
Total investment securities $ 8,193 $ 8,309 6.16% $ 5,497 $ 5,508 5.63%
======= ======= ==== ======= ======= ====
</TABLE>
1 The adjusted cost basis of securities which were transferred from available
for sale to investment securities is shown net of unrealized loss on the
date of transfer.
2 Includes obligations of quasi-government agencies and corporations.
3 This reflects final maturity, although contractual maturity is not a
reliable indicator of expected life because borrowers have the right to
repay their obligations at any time. Monthly amortization prior to the
final maturity is not shown as it cannot be reasonably estimated.
For additional information about investment securities and securities
available for sale at December 31, 1995 and 1994, see Note 3 of the Notes to
Consolidated Financial Statements.
23
<PAGE>
Short-term investments, consisting of Federal funds sold and
interest-bearing deposits in other banks, increased by $8,171,000 to $9,962,000
at December 31, 1995 from $1,791,000 one year earlier. Deposits made in December
by some of the Company's large corporate customers increased deposit levels at
December 31, 1995, which in turn increased the Company's short-term investments.
The Company has historically maintained its short-term liquid investments at a
level sufficient to account for the normal fluctuations of its corporate deposit
accounts. While short-term investments at December 31, 1995 reflect an
$8,171,000 increase from the prior year-end, average short-term investments
during 1995 have declined by $69,000 as compared to 1994.
Noninterest-Earning Assets
Cash and due from banks
Cash and due from banks of $4,953,000 at December 31, 1995 reflects an
increase of $604,000, or 14%, from the $4,349,000 balance at December 31, 1994.
This increase is primarily attributable to normal fluctuations in cash reserve
balances maintained at the Federal Reserve Bank between December 31, 1995 and
December 31, 1994.
Bank premises and equipment
Bank premises and equipment of $278,000 at December 31, 1995 reflects a
decrease of $91,000, or 25%, from the $369,000 balance reported at December 31,
1994. This decrease is due to the depreciation and amortization expense of
$146,000 for the year, offset by equipment purchases of $55,000.
Other assets
Other assets of $1,153,000 at December 31, 1995 reflect a decrease of
$68,000, or 6%, from the $1,221,000 balance reported at December 31, 1994. This
decrease is principally due to a $47,000 increase in accrued interest receivable
and $260,000 increase in deferred taxes, offset by a $375,000 decrease in taxes
receivable at December 31, 1995 as compared with December 31, 1994.
Deposits
Deposits at December 31, 1995 of $83,063,000 increased by $7,770,000, or
10%, from December 31, 1994, as discussed below.
Demand, NOW and Money Market Accounts
Demand deposits of $23,444,000 at December 31, 1995 reflect a $3,767,000,
or 19% increase over the balance one year earlier. This increase is attributable
to fluctuations in the balances of the Company's large corporate customers.
Negotiable Order of Withdrawal, or "NOW" accounts, of $7,343,000 at December 31,
1995 decreased by $3,038,000, or 29%, over the $10,381,000 balance at December
31, 1994, due primarily to the withdrawal of the deposit
24
<PAGE>
accounts of one large national organization as well as fluctuations in the
balances of both individual and nonprofit customers. Money market account
balances of $21,392,000 at December 31, 1995 have increased by $3,541,000, or
20%, from the $17,851,000 balance for the comparable 1994 period due primarily
to the opening of new deposit accounts as well as to fluctuations in the
balances of both commercial and individual customers.
Certificates of Deposit
Certificates of deposit of $100,000 or greater at December 31, 1995 of
$13,591,000 remained virtually unchanged from the $13,651,000 balance reported
one year earlier, despite the withdrawal of $5,000,000 of local government funds
which had been on deposit at December 31, 1994. These deposits had been
collateralized by U.S. Treasury and agency securities. Certificates of deposit
under $100,000 of $15,976,000 at December 31, 1995 increased by $3,469,000
during the same period. This increase is primarily attributable to approximately
$3,500,000 of brokered funds which were raised in the first quarter of 1995. In
addition, the Company continues to maintain $2,200,000 in certificates of
deposit under $100,000 issued during 1994 to custodial accounts for pension
funds.
The table entitled "Maturity Distribution of Certificates of Deposit
$100,000 and Over" below, sets forth, by time remaining to maturity,
certificates of deposit in amounts of $100,000 or more at December 31, 1995 and
1994.
Maturity Distribution of Certificates of Deposit $100,000 and Over
At December 31, 1995 and 1994
(In thousands)
1995 1994
---- ----
Within three months $ 5,716 $ 9,260
After three months but within six months 4,772 1,767
After six months but within twelve months 1,403 2,422
After twelve months 1,700 202
----- ---
Total $13,591 $13,651
======= =======
Average Deposits
Average deposits for 1995 of $73,587,000 remain virtually unchanged from
the average deposits for 1994 of $73,231,000. Average noninterest-bearing demand
deposits of $18,547,000 for 1995 represent 25% of total deposits for 1995 as
compared to 26% for 1994.
25
<PAGE>
The table entitled "Average Deposits and Rates" below, sets forth the
average amount outstanding and average rate paid by major deposit category for
the years ended December 31, 1995 and 1994.
Average Deposits and Rates
For the Years Ended December 31, 1995 and 1994
(In thousands)
1995 1994
--------------- ----------------
Average Average Average Average
Balance Rate Balance Rate
------- ---- ------- ----
Interest-bearing demand accounts $ 10,129 2.46% $ 11,470 2.31%
Savings deposits 1,160 2.68 1,185 2.46
Money Market deposit accounts 16,451 4.94 15,901 3.43
CD's $100,000 and over 12,672 5.51 14,252 3.68
Other time deposits 14,628 5.78 11,546 4.26
------ ------
Total interest-bearing deposits 55,040 4.79 54,354 3.41
Noninterest-bearing demand deposits 18,547 18,877
------ ------
Total deposits $ 73,587 $ 73,231
======== ========
Short-Term Borrowings
Short-term borrowings of $1,786,000 at December 31, 1995 consist entirely
of repurchase agreements with customers of the Company. This compares with
repurchase agreements outstanding at December 31, 1994 of $361,000.
For additional information on short-term borrowings, see Note 10 of the
Notes to Consolidated Financial Statements.
Other Liabilities
Other liabilities of $711,000 at December 31, 1995 increased by $128,000,
or 22%, due in large part to increases in accrued interest payable on deposits
and other accrued expenses.
Results of Operations -- 1995 As Compared With 1994
Analysis of Net Interest Income
Net interest income, the most significant component of the Company's
earnings, increased by $19,000, or less than 1%, to $4,167,000 in 1995 as
compared to $4,148,000 in 1994. This variance is consistent with the 1% increase
in average earning assets during the same period. Although the mix of earning
assets during 1995 was more heavily weighted
26
<PAGE>
towards loans, thus improving interest income, a 138 basis point increase in
rates paid on deposits for 1995 as compared to 1994 offset virtually all the
positive variances achieved in interest income. As illustrated in the table
entitled "Net Interest Income, Average Balances and Rates," the rate paid on
interest-bearing liabilities increased by 138 basis points to 4.82% in 1995,
while the yield on earning assets increased by 100 basis points to 8.94% in 1995
as compared to 1994.
Although the net interest spread (the difference between the average
interest rate earned on interest-earning assets and paid on interest-bearing
liabilities) decreased by 38 basis points from 4.50% in 1994 to 4.12% in 1995, a
$762,000 increase in the level of earning assets coupled with improvements in
the mix of earning assets during the same period caused net interest income to
increase by $19,000. The net interest margin (net interest income as a
percentage of average interest-earning assets) for 1995 declined to 5.39% from
5.42% for 1994. Loans, the highest yielding component of earning assets, now
represent approximately 78% of total average earning assets as compared to
approximately 76% for the comparable 1994 period.
The average balance of core deposits in 1995, excluding $5,000,000 in local
governmental deposits referred to above in the section entitled "Certificates of
Deposit," remain virtually unchanged from the 1994 levels. The increase in
interest expense is attributable to increases in rates paid on all deposit
categories. As shown in the table entitled "Distribution of Assets, Liabilities
and Stockholders' Equity: Interest Rates and Interest Differential Analysis of
Changes in Net Interest Income," the $723,000 increase in interest income due to
increasing rates was more than offset by the $779,000 increase in interest
expense due to increasing rates. This negative variance in net interest income
due to rates is offset by increases in net interest income attributable to
volume resulting in a $19,000 increase in net interest income for 1995 as
compared to 1994.
Other Income
Total other income, which consists primarily of service charges on
deposits, other fee income and gains (losses) on securities transactions,
increased by $51,000, or 6%, to $841,000 in 1995 as compared to $790,000 in
1994. This increase is due to increases in ATM income resulting from the
installation of more efficient ATM equipment in the Company's Union Station
location, as well as the full year's effect of the addition of one new ATM at
that location in April 1994.
Other Expense
Total other expense decreased by $1,120,000, or 23%, to $3,781,000 in 1995
as compared to 1994. Salaries and benefits for 1995 increased by $38,000, or 2%,
to $1,649,000 as compared to 1994, primarily due to normal merit increases.
Occupancy and equipment expense decreased by $52,000, or 7%, to $699,000 during
the same period, principally due to decreases in operating costs of the
Company's main office location which are passed through to the Company by the
landlord. Professional fees decreased by $534,000, or 60%, to $353,000. This
decrease is
27
<PAGE>
attributable to decreases in legal and other costs related to the issue of the
Company's ownership, the expensing in 1994 of previously deferred professional
fees related to the Company's proposed securities offering, as well as decreases
in legal fees related to three employment related lawsuits which were concluded
in 1994. Professional fees for 1995 include costs of approximately $102,000
incurred to finalize the issues surrounding the Company's ownership. Data
processing expense increased by $34,000, or 13%, to $300,000 in 1995 as compared
to 1994. Other operating expense decreased by $605,000 in 1995 as compared to
1994. Of this decrease, $387,000 is attributable to expenses incurred in 1994
for two employment related lawsuits settled in 1994. During 1995, the Company's
wholly owned subsidiary, The Adams National Bank (the "Bank"), also experienced
an $87,000 decrease in total FDIC insurance premiums as a result of additional
premium rate reductions. Since the Bank is considered well capitalized under
regulatory standards and meets certain other criteria, during 1995, the Bank
paid the lowest FDIC insurance premium rate of $.04 per $100 of deposits.
Beginning January 1, 1996, the Bank will pay a flat $2,000 per year for FDIC
deposit insurance. The remainder of the decrease is due to savings in various
office operating expenses.
Income Tax Expense
Income tax expense for 1995 was recorded at a combined tax rate of 22%, as
the Company eliminated the remaining valuation allowance on deferred tax assets
during the year. See Note 8 of the Notes to Consolidated Financial Statements.
Results of Operations -- 1994 As Compared With 1993
Analysis of Net Interest Income
Net interest income increased by $143,000, or 4%, to $4,148,000 in 1994 as
compared to $4,005,000 in 1993. This positive variance is a direct result of
both the $8,616,000, or 13%, increase in average earning assets from 1993 to
1994 and the Company's efforts to realign its earning assets to maximize yield.
The increase in net interest income occurred despite an increase in the rate
paid on interest-bearing liabilities and a decrease in the rate earned on
interest-earning assets. As illustrated in the table entitled "Net Interest
Income, Average Balances and Rates," the rate paid on interest-bearing
liabilities increased by 48 basis points to 3.44%, while the yield on earning
assets declined by 17 basis points to 7.94% in 1994 as compared to 1993. A
significant contributor to the decline in earning asset yields was a more
competitive loan pricing strategy implemented during 1994, resulting in 22%
average loan growth as compared to 1993. In addition, during 1993, the Company
recognized as interest income approximately $125,000 in purchase discounts on
the payoff of a portion of the loans purchased from the FDIC. When this interest
income is excluded from 1993, the yield on earning assets for 1993 would have
been 7.93% as compared to 7.94% for 1994. At December 31, 1994, $124,000 in loan
purchase discounts remain to be recognized on loans still outstanding.
Although the net interest spread decreased by 65 basis points from 5.15% in
1993 to 4.50% in 1994, an $8,616,000 increase in the level of earning assets
coupled with a lesser increase in the level of interest-bearing liabilities of
$5,259,000 during the same period caused net interest income to increase.
Despite the improvement in the mix of earning assets away from securities and
short-term investments and towards loans and the increase in net
28
<PAGE>
noninterest-bearing sources of funds, the net interest margin for 1994 declined
to 5.42% from 5.89% for 1993. Loans in 1994 represent approximately 76% of total
average earning assets as compared to approximately 70% for the comparable 1993
period.
The 20% increase in average net noninterest-bearing sources of funds from
1993 to 1994, coupled with the improvement in both the volume and mix of earning
assets, was more than offset by the decreases in the rates earned on earning
assets and the increase in the rates paid on interest-bearing liabilities,
resulting in negative variances in both the net interest spread and the net
interest margin. The net interest spread decreased by 65 basis points to 4.50%
for 1994 as compared to 5.15% for 1993, while the net interest margin decreased
by 47 basis points to 5.42% during the same period.
Average deposits in 1994 grew by approximately 11% over the 1993 levels.
The $4,155,000 increase in average interest-bearing deposits during 1994 as
compared with 1993, coupled with the increase in the rates paid on money market
accounts and certificates of deposit contributed to the $426,000 increase in
total interest expense. As shown in the table entitled "Net Interest Income,
Average Balances and Rates," the cost of total interest-bearing liabilities
increased by 48 basis points from 2.96% in 1993 to 3.44% in 1994. This increase
in the cost of total interest-bearing liabilities occurred despite an increase
in average demand deposits to total deposits from 24% in 1993 to 26% in 1994. As
shown in the table entitled "Distribution of Assets, Liabilities and
Stockholders' Equity: Interest Rates and Interest Differential Analysis of
Changes in Net Interest Income," approximately $707,000 of the increase in net
interest income is attributable to the improvement in the levels and the mix of
earning assets offset by a $564,000 reduction in net interest income due both to
the decrease in the rates earned on earning assets and the increase in the rates
paid on interest-bearing liabilities.
Other Income
Total other income decreased by $95,000, or 11%, to $790,000 in 1994 as
compared to $885,000 in 1993, due in part to a decrease in gains on securities
transactions during 1994. During 1994, one security was sold for liquidity
purposes resulting in a nominal loss. This compares with the sale of one
security from the held for sale portfolio resulting in a gain in 1993 of
$24,000.
Other Expense
Total other expense increased by $797,000, or 19%, to $4,901,000 in 1994 as
compared to 1993. Salaries and benefits for 1994 increased by $47,000, or 3%, to
$1,611,000 as compared to 1993, primarily due to normal merit increases.
Occupancy and equipment expense increased by $76,000, or 11%, to $750,000 during
the same period, principally due to increases in depreciation and amortization
expense on the new ATM equipment installed during 1994 coupled with increases in
operating costs of the Company's main office location which are passed through
to the Company by the landlord. Professional fees increased by $406,000, or 85%,
to $887,000. Of this amount $645,000 is attributable to legal fees related to
three employment related lawsuits which were concluded in 1994, legal and other
costs related to the issue of the Company's ownership and the expensing of
previously deferred professional fees related to the Company's proposed 1994
securities
29
<PAGE>
offering. See "Liquidity and Capital Resources" for a further discussion of
issues relating to the Company's ownership.
Data processing expense increased by $22,000, or 9%, to $266,000 in 1994 as
compared to 1993. Other operating expense increased by $246,000 in 1994 as
compared to 1993. This increase is primarily attributable to a $387,000 expense
for two employment related lawsuits settled in 1994 as compared to a $250,000
expense for a judgment for damages and a reserve for legal fees associated with
another employment related lawsuit in 1993. All three of these employment suits
were concluded during 1994 with no further amounts owed. During 1994, the Bank
also experienced an increase in total FDIC insurance premiums due to increased
deposit levels.
Income Tax Expense
There was no income tax expense recorded for 1994, as the Company reported
a loss for the year and under the criteria specified by generally accepted
accounting principles was not permitted to record a net tax benefit. See Note 8
of the Notes to Consolidated Financial Statements.
Distribution of Assets, Liabilities and Stockholders' Equity:
Interest Rates and Interest Differential
Analysis of Changes in Net Interest Income
(In thousands)
<TABLE>
<CAPTION>
1995 versus 1994 1994 versus 1993
---------------------------------- --------------------------------
Net Change per: Net Change per:
Increase ----------- Increase -----------
(Decrease)1 Rate Volume (Decrease)1 Rate Volume
----------- ---- ------ ----------- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Interest income from:
Loans (2) $ 802 $ 620 $ 182 $ 688 $ (265) $ 953
Securities (17) 53 (70) (113) (57) (56)
Federal funds sold and
securities purchased under
agreements to resell 42 43 (1) 5 16 (11)
Bankers acceptances -- -- -- (17) -- (17)
Interest-bearing deposits
in banks 5 7 (2) 6 3 3
- - -- - - -
Total interest income (3) (5) 832 723 109 569 (303) 872
--- --- --- --- ---- ---
Interest expense on:
Time deposits (4) 255 279 (24) 131 86 45
Certificates of deposit 527 468 59 254 174 80
Short-term borrowings 35 32 3 43 1 42
Long-term borrowings (4) -- (4) (2) -- (2)
-- -- -- --
Total interest expense (3) 813 779 34 426 261 165
--- --- -- --- --- ---
Net interest income (5) $ 19 $ (56) $ 75 $ 143 $ (564) $ 707
====== ====== ====== ======= ======= =======
</TABLE>
- ---------------------------------
(1) Changes due to both rate and volume are allocated to rate.
(2) Interest on loans includes loan fees of approximately $152,000, $151,000
and $151,000 in 1995, 1994 and 1993, respectively.
(3) Changes are computed on a line-by-line basis and do not sum to the rate and
volume changes of total interest income or total interest expense because
of changes in the mix of interest-earning assets and interest-bearing
liabilities from year to year.
(4) Includes transaction accounts.
(5) No taxable equivalent adjustments are necessary because the Company had no
tax-exempt securities or loans during 1995, 1994 and 1993.
30
<PAGE>
Net Interest Income, Average Balances and Rates
For the Years Ended December 31, 1995, 1994 and 1993
(In thousands)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
Average Income Average Average Income Average Average Income Average
Balance Expense Rate Balance Expense Rate Balance Expense Rate
------- ------- ----- ------- ------- ------ -------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans (1) $ 60,318 $ 5,902 9.78% $ 58,245 $ 5,100 8.76% $ 47,903 $ 4,412 9.21%
Securities 14,367 859 5.98 15,609 876 5.61 16,540 989 5.98
Federal funds sold and repos 2,235 130 5.82 2,246 88 3.92 2,598 83 3.19
Bankers' acceptances -- -- -- -- -- -- 528 17 3.22
Interest-bearing deposits
in other banks 433 23 5.31 491 18 3.67 406 12 2.96
--- -- --- -- --- --
Total interest-earning assets 77,353 6,914 8.94 76,591 6,082 7.94 67,975 5,513 8.11
Allowance for loan losses (1,299) (1,351) ( 1,404)
Cash and due from banks 4,715 4,951 4,299
Bank premises and equipment 320 364 396
Other assets 1,205 1,394 1,728
----- ----- -----
Total assets $ 82,294 $ 81,949 $ 72,994
========= ========== ==========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Time deposits $ 27,740 1,094 3.94 $ 28,556 839 2.94 $ 26,848 708 2.64
Certificates of deposit 27,300 1,544 5.66 25,798 1,017 3.94 23,351 763 3.27
Federal funds purchased and
resale agreements 1,600 89 5.56 1,549 57 3.68 465 17 3.66
Other short term borrowings 104 6 5.77 61 3 4.92 -- -- --
Long-term debt 233 14 6.01 299 18 6.02 340 20 5.88
--- -- --- -- --- --
Total interest-bearing liabilities 56,977 2,747 4.82 56,263 1,934 3.44 51,004 1,508 2.96
----- ----- -----
Noninterest-bearing liabilities:
Demand deposits 18,547 18,877 15,687
Other liabilities 594 966 660
Stockholders' equity 6,176 5,843 5,643
----- ----- -----
Total liabilities and
stockholders' equity $ 82,294 $ 81,949 $ 72,994
======== ========== =========
Net interest income (2) $ 4,167 $ 4,148 $ 4,005
======= ======= =======
Net interest spread 4.12% 4.50% 5.15%
==== ==== ====
Net interest margin 5.39% 5.42% 5.89%
==== ==== ====
</TABLE>
- ----------------------------
(1) Nonaccrual loans are included in the average loan balances. Interest on
loans includes fees of approximately $152,000, $151,000 and $151,000 in
1995, 1994 and 1993, respectively.
(2) No taxable equivalent adjustments are necessary because the Company had no
tax-exempt securities or loans during 1995, 1994 and 1993.
Asset Quality
Loan Portfolio and Adequacy of the Allowance for Loan Losses
Lending is the Company's principal business. Inherent in the lending
process is the risk of loss. The Company manages the risk characteristics of its
loan portfolio through various control processes, such as credit evaluation of
individual borrowers, establishment of
31
<PAGE>
lending limits to individuals and application of lending procedures, such as the
holding of adequate collateral and the maintenance of compensating balances.
Although credit policies are designed to minimize risk, management recognizes
that loan losses will occur and that the amount of these losses will fluctuate
depending on the risk characteristics of the loan portfolio as well as general
and regional economic conditions.
The provision for loan losses decreased to $0 in 1995 from $221,000
recorded for the prior year. While the Company continues to recognize the risk
characteristics of the loan portfolio, including specific reserves for problem
credits and general reserves for the overall loan portfolio, the Company deems
the allowance for loan losses of $1,274,000 at December 31, 1995 to be adequate.
Although the dollar amount of the allowance for loan losses of $1,274,000 at
December 31, 1995 has declined from the balance of $1,290,000 one year earlier,
as shown in the table entitled "Allocation of Allowance for Loan Losses," the
portion of the allowance for loan losses which is not allocated to any
particular component of the loan portfolio remains virtually unchanged from 1994
levels at $253,000 at December 31, 1995.
At December 31, 1995, the allowance for loan losses as a percentage of
outstanding loans was 2.00% as compared to 2.12% at December 31, 1994. This
decrease is predominantly due to improvement in the quality of the loan
portfolio. See analysis of "Nonperforming Assets" for a further discussion of
asset quality. In assessing the adequacy of the allowance for loan losses,
management primarily relies on its ongoing review of the loan portfolio, which
is undertaken both to determine whether there are probable losses which must be
written off and to assess the risk characteristics of the loan portfolio as a
whole. In addition to actual loss experience, management considers factors such
as industry specific composition of the loan portfolio and the general and
regional economic conditions. This review takes into account the judgment of the
individual loan officer, senior management and the Board of Directors. The full
Board of Directors reviews the Company's Classified and Criticized Loans
Quarterly Report and quarterly loan loss analyses. In addition, the Company's
review takes into account the judgment of the regulatory agencies that review
the loan portfolio as a part of the regular examination process. Such regulatory
agencies may require the Company to recognize additions to the allowance based
on their judgments about information available to them at the time of their
examination. The Company also has an independent loan review performed by a
consultant on an annual basis, which during the last two years covered
approximately 73% of the dollar volume of the loan portfolio, and included 96%
of the criticized and classified loans. While management uses available
information to recognize losses on loans, future additions may be necessary
based on changes in economic conditions and other factors.
In reviewing the adequacy of the allowance for loan losses, the Company
also prepares a detailed migration analysis which measures the Company's
historical loss experience relative to the risk classifications within the
individual loan portfolio pools. This historical loss experience is then
adjusted for external factors such as trends in volumes and characteristics of
loans, national and local economic trends and management experience, among other
factors,
32
<PAGE>
and is applied to the current outstanding loan portfolio pools within each risk
classification. Based on the results of this migration analysis, which
encompasses all of the factors previously used, management makes a determination
as to the adequacy of the allowance for loan losses.
Nonperforming Assets
Nonperforming assets include nonaccrual loans, restructured loans, past due
loans and other real estate. Nonaccrual loans consist of loans on which interest
is no longer being accrued. Restructured loans consist of loans where the terms
have been renegotiated due to a deterioration in the financial condition of the
borrower. Past due loans include loans ninety days or more past due with respect
to principal or interest. Other real estate consists of real property that has
been acquired in satisfaction of debts previously contracted. Loans are placed
on nonaccrual status when, in the opinion of management, timely collection of
principal or interest is doubtful. Thereafter, no interest income is recognized
until such time as the borrower demonstrates a history of ability to pay both
principal and interest on a regular agreed upon basis.
Total nonperforming assets at December 31, 1995 have increased by $264,000,
or 10%, as compared to the December 31, 1994 balance. As shown in the table
entitled "Analysis of Nonperforming Assets," the ratio of nonperforming assets
to total assets declined to 3.04% at December 31, 1995 from 3.10% at December
31, 1994, demonstrating a modest improvement in asset quality. Since the
increase in total loans at December 31, 1995 as compared to one year earlier was
not as great as the corresponding increase in total assets, the ratio of
nonperforming assets to gross loans at December 31, 1995 of 4.42% reflects a 22
basis point increase from the 4.20% reported at December 31, 1994. In addition,
the allowance for loan losses as a percentage of nonperforming assets has
decreased to 45% at December 31, 1995 from 51% one year earlier. Nonaccrual
loans at December 31, 1995 of $1,561,000 have increased by $317,000 from
$1,244,000 at December 31, 1994, restructured loans have decreased by $56,000 to
$1,245,000 at December 31, 1995 and past due loans have increased by $3,000 to
$6,000 during the same period. Of the $1,561,000 balance of nonaccrual loans at
December 31, 1995, $875,000, or 56%, are loans insured by the U.S. Small
Business Administration (the "SBA") for an average of 85% of the outstanding
loan balance. This compares with $1,013,000 of nonaccrual loans at December 31,
1994, or 81% of total nonaccrual loans, which were insured by the SBA for an
average of 87% of the outstanding balance. Banking regulations require that the
full balance of these loans be placed on nonaccrual status, despite the SBA
guarantee on a portion of the loan.
33
<PAGE>
The table entitled "Analysis of Nonperforming Assets" below, presents
nonperforming assets, by category, at December 31, 1995 and 1994.
Analysis of Nonperforming Assets
At December 31, 1995 and 1994
(In thousands)
At December 31,
---------------
1995 1994
---- ----
Nonaccrual loans:
Commercial $ 1,244 $1,096
Real estate - mortgage 317 148
----- -----
Total nonaccrual loans (1) 1,561 1,244
Past due loans:
Installment - individuals 6 3
---- -----
Total past due loans 6 3
Restructured loans:
Commercial 1,245 1,301
----- -----
Total restructured loans 1,245 1,301
----- -----
Total nonperforming assets $ 2,812 $ 2,548
======= =======
Total nonperforming assets exclusive of
SBA guaranteed balances $ 2,070 $ 1,664
======= =======
Ratio of nonperforming assets
to gross loans (2) 4.42% 4.20%
Ratio of nonperforming assets to total
assets (2) 3.04% 3.10%
Percentage of allowance for loan losses to
nonperforming assets (2) 45.30% 50.61%
Ratio of net charge-offs to average loans .03% .55%
- ----------------------------
(1) Nonaccrual loans include $875,000 and $1,013,000 in loans guaranteed by the
SBA at December 31, 1995 and 1994, respectively. The outstanding balance of
these loans are insured for 84.9%, or $743,000, and 87.3%, or $884,000,
respectively.
(2) Ratios include SBA guaranteed loan balances.
For additional information concerning nonaccrual, restructured and past due
loans, see Note 4 to the Notes to Consolidated Financial Statements included
herein.
34
<PAGE>
Potential Problem Loans
At December 31, 1995, loans totalling $618,000 were classified as potential
problem loans which are not reported in the table entitled "Analysis of
Nonperforming Assets" as compared to $1,742,000 at December 31, 1994. These
loans were made to borrowers who are now experiencing financial difficulties.
These financial difficulties have caused management to question the ability of
such borrowers to comply with the present repayment terms. The loans are subject
to management attention and their classification is reviewed on a quarterly
basis. Of the potential problem loans at December 31, 1995, 98% of the balance
represents loans which are partially to fully secured. The remaining 2% of the
balance, or $15,000, is guaranteed by the SBA for a total of $13,000.
Of the $1,742,000 in problem loans at December 31, 1994, $618,000 were
guaranteed by the SBA for a total of $503,000 and the majority of the remainder
were adequately collateralized.
Impaired Loans
In January 1995, the Company adopted Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan" (SFAS No.
114), as amended by SFAS No. 118. This statement addresses how creditors should
establish allowances for credit losses on individual loans determined to be
impaired. The allowance for loan losses relates to loans that are identified as
impaired includes impairment reserves, which are based on discounted cash flows
using the loan's effective interest rate, or the fair value of the collateral
for collateral-dependent loans, or the observable market price of the impaired
loan. Loans which were restructured prior to the adoption of SFAS No. 114 and
which are performing in accordance with the renegotiated terms are not required
to be reported as impaired. Loans restructured subsequent to the adoption of
SFAS No. 114 are required to be reported as impaired in the year of
resturcturing. Thereafter, such loans can be removed from the impaired loan
disclosure if the loans were paying a market rate of interest at the time of
restructuring and are performing in accordance with their renegotiated terms. In
accordance with SFAS No. 114, a loan is classified as an in-substance
foreclosure when the Company has taken possession of the collateral regardless
of whether formal foreclosure proceedings take place. Upon the adoption of SFAS
No. 114, the Company did not change its method of recognizing interest income on
impaired loans.
At December 31, 1995, loans totalling $2,790,000 were classified as
impaired loans, all of which are reported above as nonaccrual, restructured or
potential problem loans. For additional information concerning impaired loans,
see Note 4 to the Notes to Consolidated Financial Statements included herein.
35
<PAGE>
The table entitled "Allocation of Allowance for Loan Losses" sets forth an
analysis of the allocation of the allowance for loan losses by categories as of
December 31, 1995, 1994 and 1993.
Allocation of Allowance for Loan Losses
At December 31, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
1995 1994 1993
--------------------- --------------------- ----------------------
Reserve% of loans Reserve % of loans Reserve % of loans
Amount to total loans Amount to total loans Amount to total loans
------ -------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 658 68.08% $ 760 70.33% $ 843 66.80%
Real estate - mortgage 291 22.12 215 18.13 323 20.57
Real estate - construction 27 4.09 21 5.30 36 4.79
Installment 45 5.71 46 6.24 67 7.84
Unallocated 253 -- 248 -- 117 --
--- ---- --- ---- --- ----
Total $ 1,274 100.00% $ 1,290 100.00% $ 1,386 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
Loan Concentrations
For a summary of loan concentrations by industry, see Note 4 of the Notes
to Consolidated Financial Statements.
Liquidity and Capital Resources
Interest Sensitivity Management
The sensitivity of net interest income to fluctuations in interest rates is
known as interest rate risk. Sensitivity arises when assets and liabilities are
not subject to rate repricing within the same period. As shown by the table
entitled "Analysis of Interest Rate Sensitivity," at December 31, 1995, interest
sensitive assets repricing within each period of less than one year ranges from
120% to 122% of interest sensitive liabilities repricing in the comparable
periods. When non-rate sensitive assets and liabilities are excluded, the
interest sensitive assets in each remaining period beyond one year exceed
interest sensitive liabilities repricing in the comparable periods. Management
of interest rate sensitivity is monitored by the Asset/Liability Investment
Committee of the Bank which meets monthly and includes members of the Bank's
Board of Directors as well as the Bank's officers.
The Committee meets monthly to consider, among other things, the
sensitivity of major asset and liability categories to anticipated interest rate
changes. The Company does not
36
<PAGE>
necessarily attempt to maintain a matched position for each time frame. While
interest sensitivity analysis is a useful tool for asset/liability management,
limitations exist which make it difficult to predict the Company's net interest
income solely on the basis of the interest sensitivity position. For example,
the relationship between interest rates earned on loans, particularly the prime
rate, and interest rates paid on deposits is not constant over time. Despite
these limitations, in an effort to better predict the effect of possible
interest rate changes on net interest income, the Company also prepares an
analysis of the effect on net interest income of interest rate shocks of 1%, 2%
and 3% in either direction. Based on the Company's interest sensitivity position
and the analyses performed of the effect of interest rate movements at December
31, 1995, a rising interest rate environment will generally tend to increase net
interest income, while a declining interest rate environment will generally tend
to decrease net interest income.
Analysis of Interest Rate Sensitivity
December 31, 1995
(In thousands)
<TABLE>
<CAPTION>
Total Non-Rate
0-90 91-180 181-365 Rate Sensitive &
Days Days Days Sensitive Over 1 Year Total
---- ---- ---- --------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $ 27,349 $ 8,691 $ 11,843 $ 47,883 $ 15,709 $63,592
Securities (1) 4,183 1,593 2,756 8,532 5,169 13,701
Short-term investments 9,475 95 297 9,867 95 9,962
Noninterest-earning assets -- -- -- -- 5,110 5,110
----- ----- ----- ----- ----- -----
Total assets 41,007 10,379 14,896 66,282 26,083 $92,365
Interest-bearing liabilities:
Deposits (2) 31,760 9,058 12,358 53,176 6,443 $59,619
Short-term borrowings 1,786 -- -- 1,786 -- 1,786
Long-term debt -- 186 -- 186 -- 186
Noninterest-bearing sources -- -- -- -- 30,774 30,774
----- ----- ----- ----- ------ ------
Total liabilities and stockholders' equity 33,546 9,244 12,358 55,148 37,217 $92,365
======
Excess (deficiency) of interest sensitive assets over like liabilities:
For the period $ 7,461 $ 1,135 $ 2,538 $ 11,134 $ (11,134)
Cumulative 7,461 8,596 11,134
Rate sensitive assets/ rate sensitive liabilities:
Cumulative 1.22x 1.20x 1.20x
</TABLE>
(1) Includes both investment securities and available for sale securities.
(2) NOW and savings accounts are reflected in the 181-365 days classification,
based on the Company's evaluation of historical runoff and interest
sensitivity of these deposits.
37
<PAGE>
Liquidity
Principal sources of liquidity are cash and unpledged assets that can be
readily converted into cash, including investment securities maturing within one
year, the available for sale security portfolio and short-term loans. In
addition to $14,915,000 in cash and short-term investments at December 31, 1995,
the Company has a securities portfolio which can be pledged to raise additional
deposits and borrowings, if necessary. At December 31, 1995, the Company had
$4,658,000 in unpledged securities which were available for such use. This
compares with cash and short-term investments of $6,140,000 and unpledged
securities of $2,738,000 at December 31, 1994. As a percentage of total assets,
the amount of these cash equivalent assets at December 31, 1995 was 21%, as
compared to 11% at December 31, 1994. The Bank's liquidity needs are mitigated
by the sizeable base of relatively stable funds which includes demand deposits,
NOW and money market accounts, savings deposits and nonbrokered certificates of
deposit under $100,000 (excluding financial institutions) representing 79%, 80%
and 79% of the average total deposit base in 1995, 1994 and 1993, respectively.
In addition, the Bank has unsecured lines of credit from correspondent financial
institutions which can provide up to an additional $1,000,000 in liquidity as
well as access to other collateralized borrowing programs. Although the Bank
maintained an average loan to deposit ratio of 82% during 1995, the Bank has
access to collateralized deposit programs through U.S. government agencies which
can be called upon to raise additional deposits, thus lowering the loan to
deposit ratio. Similarly, the Company has adequate resources to meet its
liquidity needs.
In the second quarter of 1994, the Bank became a member of the Federal Home
Loan Bank of Atlanta (the "FHLB"), which serves as a reserve or central bank for
member institutions within its region. Based on the Bank's purchase of
approximately $250,000 of stock in the FHLB in August of 1994, the Bank is
eligible to borrow up to approximately $1,554,000 in funds from the FHLB
collateralized by loans secured by first liens on one to four family,
multifamily and commercial mortgages as well as investment securities. The Bank
is eligible to increase the maximum amount to be borrowed by $7,446,000 with the
purchase of $1,205,000 of additional stock in the FHLB. During the fiscal year
1995, the Bank borrowed approximately $104,000 on average, however no borrowings
were outstanding at December 31, 1995.
Stockholders' Equity
Stockholders' equity at December 31, 1995 increased by $857,000 over the
prior year to $6,619,000 as a result of the Company's 1995 net income of
$959,000 and the $40,000 decrease in unrealized loss on securities, net of
taxes, partially offset by dividends paid of $142,000. Average stockholders'
equity as a percentage of average total assets for 1995 was 7.50% as compared to
7.13% for 1994.
38
<PAGE>
Under the risk-based capital guidelines issued by the Federal Reserve Board
and the Comptroller of the Currency, total capital consists of core capital
(Tier 1) and supplementary capital (Tier 2). For the Company and the Bank, Tier
1 capital consists of stockholders' equity, excluding unrealized gains and
losses on securities, and Tier 2 capital consists of long- term debt and a
portion of the allowance for loan losses. Assets include items both on and off
the balance sheet, with each item being assigned a "risk-weight" for the
determination of the ratio of capital to risk-adjusted assets. These guidelines
require a minimum of 8% total capital to risk-adjusted assets, with at least 4%
being in Tier 1 capital. At December 31, 1995, the Company's total risk-based
capital ratio and Tier 1 capital ratio of 11.06% and 9.77%, respectively, met
the regulatory definition of "well capitalized." Under regulatory guidelines, an
institution is generally considered "well capitalized" if it has a total
risk-based capital ratio of 10% or greater, a Tier 1 capital ratio of 6% or
greater and a leverage ratio of 5% or greater (discussed below). The December
31, 1995 ratios are based on Tier 1 capital of $6,659,000, total capital of
$7,541,000 and risk-adjusted assets of $68,181,000. At December 31, 1995, the
Bank's total risk-based capital ratio and Tier 1 capital ratio of 10.69% and
9.40%, respectively, also met the regulatory definition of "well capitalized."
The 1995 ratios for the Bank are based on Tier 1 capital of $6,405,000, total
capital of $7,287,000 and risk-adjusted assets of $68,172,000.
The Federal Reserve Board and the Comptroller of the Currency have also
adopted a minimum leverage ratio of Tier 1 capital to total assets which is
intended to supplement the risk-based capital guidelines. The minimum Tier 1
leverage ratio is 3% for the most highly rated institutions which meet certain
standards. For other banks and bank holding companies, the guidelines provide
that the Tier 1 leverage ratio should be at least 1% to 2% higher. At December
31, 1995, the Company's and the Bank's Tier 1 leverage ratios based on annual
average assets of $82,294,000 and $82,216,000 were 8.09% and 7.79%,
respectively, meeting the regulatory definition of "well capitalized."
During 1994, the Company's Board of Directors, on the recommendation of the
Special Committee (a Board appointed committee of outside directors comprised of
those of the Company's directors who were neither employees nor significant
stockholders of the Company), adopted a Rights Agreement, the purpose of which
was to provide the Board of Directors with adequate time to respond effectively
to a takeover attempt and in a manner that would maximize the value of the
Company for all stockholders. On July 21, 1995, Citibank, the Company's former
71% stockholder, sold its shares and the lawsuit which Citibank brought against
the Company and each of its directors in connection with the adoption of the
Rights Agreement was dismissed. An amendment to the Company's Rights Agreement
on April 20, 1995 exempted this transaction from triggering the exercisability
of the Rights. For a further discussion of the Rights Agreement, see Note 17 to
the Notes to Consolidated Financial Statements included herein.
Changes in Accounting Principles
For a discussion of changes in accounting principles, see Note 1 of the
Notes to Consolidated Financial Statements.
39
<PAGE>
Item 7. Financial Statements and Supplementary Data.
ABIGAIL ADAMS NATIONAL BANCORP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report...............................................41
Consolidated Balance Sheets as of
December 31, 1995 and 1994...............................................42
Consolidated Statements of Operations for the
years ended December 31, 1995, 1994 and 1993.............................43
Consolidated Statements of Changes in Stockholders' Equity for
the years ended December 31, 1995, 1994 and 1993.........................45
Consolidated Statements of Cash Flows for the
years ended December 31, 1995, 1994 and 1993.............................46
Notes to Consolidated Financial Statements.................................48
40
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Abigail Adams National Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of Abigail Adams
National Bancorp, Inc. and subsidiary as of December 31, 1995 and 1994, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the years in the three-year period ended December 31,
1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Abigail Adams
National Bancorp, Inc. and subsidiary as of December 31, 1995 and 1994 and the
results of their operations and their cash flows for each of the years in the
three- year period ended December 31, 1995, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Washington, D.C.
January 26, 1996
41
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Assets
Cash and due from banks (Note 2) $ 4,953,200 $ 4,349,250
Short-term investments:
Federal funds sold 9,475,000 1,300,000
Interest-bearing deposits in other banks 486,715 490,715
------- -------
Total short-term investments 9,961,715 1,790,715
Securities available for sale (Note 3) 5,508,406 6,009,025
Investment securities (market value of $8,309,265 and $8,838,874
for 1995 and 1994, respectively) (Note 3) 8,192,647 9,080,778
Loans (net of deferred fees and unearned discounts) (Notes 4 and 10) 63,592,395 60,729,437
Less: Allowance for loan losses (Note 4) (1,273,965) (1,289,562)
---------- ----------
Loans, net 62,318,430 59,439,875
Bank premises and equipment, net (Note 5) 277,517 369,218
Other assets (Note 8) 1,152,761 1,221,580
--------- ---------
Total assets $ 92,364,676 $ 82,260,441
============= =============
Liabilities and Stockholders' Equity
Liabilities:
Deposits (Notes 3 and 6):
Demand deposits $ 23,443,937 $ 19,677,159
NOW accounts 7,343,282 10,381,478
Money market accounts 21,391,814 17,850,822
Savings accounts 1,317,226 1,225,538
Certificates of deposit of $100,000 or greater 13,590,946 13,651,233
Certificates of deposit less than $100,000 15,975,990 12,507,272
---------- ----------
Total deposits 83,063,195 75,293,502
---------- ----------
Short-term borrowings (Note 10) 1,785,402 360,708
Long-term debt -- capital note (Note 9) 186,250 260,750
Other liabilities 710,963 583,211
------- -------
Total liabilities 85,745,810 76,498,171
---------- ----------
Stockholders' equity (Notes 9 and 12):
Common stock, par value $10 per share, authorized 800,000 shares;
issued 286,404 shares; outstanding 284,844 shares in 1995 and 1994 2,864,040 2,864,040
Additional paid-in capital 3,291,973 3,291,973
Retained earnings (deficit) 531,830 (284,646)
------- --------
6,687,843 5,871,367
Less: Treasury stock, 1,560 shares at cost (28,710) (28,710)
Less: Unrealized loss on securities, net of taxes (40,267) (80,387)
------- -------
Total stockholders' equity 6,618,866 5,762,270
--------- ---------
Total liabilities and stockholders' equity $ 92,364,676 $ 82,260,441
============= =============
</TABLE>
Commitments and contingent liabilities (Notes 7 and 11)
See accompanying notes to consolidated financial statements.
42
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Operations
Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Interest income:
Interest and fees on loans (Note 4) $ 5,902,325 $ 5,100,609 $ 4,412,001
Interest on securities available/held for sale:
U.S. Treasury 175,979 220,986 238,443
Obligations of U.S. government agencies 128,954 173,619 251,849
------- ------- -------
Total interest on securities available/held for sale 304,933 394,605 490,292
Interest and dividends on investment securities:
U.S. Treasury 69,417 45,055 --
Obligations of U.S. government agencies 413,396 373,813 379,806
Mortgage-backed securities 38,539 50,862 85,919
Other securities 32,460 11,774 32,549
------ ------ ------
Total interest and dividends on investment securities 553,812 481,504 498,274
Interest on short-term investments:
Federal funds sold 130,069 87,954 83,108
Bankers' acceptances -- -- 16,820
Deposits with other banks 22,920 18,025 12,573
------ ------ ------
Total interest on short-term investments 152,989 105,979 112,501
------- ------- -------
Total interest income 6,914,059 6,082,697 5,513,068
--------- --------- ---------
Interest expense:
Interest on deposits (Note 6):
NOW accounts 249,377 264,771 256,815
Money market accounts 812,916 544,798 418,340
Savings accounts 31,060 29,125 32,961
Certificates of deposit:
$100,000 or greater 698,356 525,099 421,563
Less than $100,000 845,681 492,134 341,275
-------- ------- ------- -------
Total interest on deposits 2,637,390 1,855,927 1,470,954
Interest on short-term borrowings:
Federal funds purchased and
repurchase agreements 88,871 57,131 16,502
Other short-term borrowings 6,364 3,382 --
----- -----
Total interest on short-term borrowings 95,235 60,513 16,502
Interest on capital note (Note 9) 13,969 18,028 20,445
------ ------ ------
Total interest expense 2,746,594 1,934,468 1,507,901
--------- --------- ---------
Net interest income 4,167,465 4,148,229 4,005,167
Provision for loan losses (Note 4) -- 221,572 175,000
------ ------- -------
Net interest income after provision for
loan losses 4,167,465 3,926,657 3,830,167
--------- --------- ---------
(Continued)
</TABLE>
43
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Operations (Continued)
Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Other income:
Service charges on deposit accounts 737,059 696,829 669,242
Other income 103,712 93,837 191,040
Gain (loss) on securities transactions -- (281) 24,495
------ ---- ------
Total other income 840,771 790,385 884,777
------- ------- -------
Other expense:
Salaries and employee benefits 1,649,071 1,611,127 1,564,364
Occupancy and equipment expense (Notes 5 and 7) 698,570 750,359 674,341
Professional fees 353,205 887,347 480,860
Data processing fees 299,580 265,897 243,742
Other operating expense (Note 16) 781,000 1,386,444 1,140,578
------- --------- ---------
Total other expense 3,781,426 4,901,174 4,103,885
--------- --------- ---------
Income (loss) before taxes 1,226,810 (184,132) 611,059
Applicable income tax expense (Note 8) 267,912 -- --
------- ------ ------
Net income (loss) $ 958,898 $ (184,132) $ 611,059
=========== =========== ===========
Net income (loss) per common share $ 3.37 $ (0.65) $ 2.15
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
44
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Additional Retained Unrealized
Common Paid-in Earnings Treasury Loss on
Stock Capital (Deficit) Stock Securities Total
----- ------- --------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993 $ 2,864,040 $ 3,291,973 $ (711,573) $ (28,710) $ --- $ 5,415,730
Net income --- --- 611,059 --- --- 611,059
---------- --------- -------- -------- ------- --------
Balance at December 31, 1993 2,864,040 3,291,973 (100,514) (28,710) --- 6,026,789
Net loss --- --- (184,132) --- --- (184,132)
Unrealized loss on securities,
net of taxes --- --- --- --- (80,387) (80,387)
--------- --------- -------- -------- -------- --------
Balance at December 31, 1994 2,864,040 3,291,973 (284,646) (28,710) (80,387) 5,762,270
Net income --- --- 958,898 --- --- 958,898
Dividends declared --- --- (142,422) --- --- (142,422)
Unrealized gain on securities,
net of taxes --- --- --- --- 40,120 40,120
--------- --------- ------- ------- ------- --------
Balance at December 31,1995 $ 2,864,040 $ 3,291,973 $ 531,830 $ (28,710) $ (40,267) $ 6,618,866
============ ============ ========= ========== ======== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
45
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Operating Activities
Net income (loss) $ 958,898 $ (184,132) $ 611,059
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Provision for loan and other real estate losses -- 221,572 179,775
Depreciation, amortization and retirement
of bank premises and equipment 146,084 154,177 140,159
Loss (gain) on sale of securities -- 281 (24,495)
Loss on sale of other real estate -- 11,516 --
Accretion of loan discounts (106,116) (6,549) (184,412)
Amortization and accretion of discounts and
premiums on securities 19,097 33,226 61,779
Benefit (provision) for deferred income taxes (300,227) 254,046 (356,630)
Decrease (increase) in other assets 369,045 (444,958) 621,994
Increase (decrease) in other liabilities (11,874) (476,874) 684,933
------- -------- -------
Net cash provided (used) by operating activities 1,074,907 (437,695) 1,734,162
--------- -------- ---------
Investing Activities
Proceeds from repayment and maturity
of investment securities 1,888,400 800,000 5,314,450
Proceeds from maturity of securities
available/held for sale 10,000,000 6,750,000 3,950,000
Proceeds from repayment of mortgage-
backed securities 126,951 258,705 647,776
Proceeds from sale of securities -- 449,718 1,524,495
Purchase of investment securities (1,092,225) (1,758,334) --
Purchase of securities available/held for sale (9,485,625) (5,747,500) (8,889,403)
Net decrease (increase) in interest-bearing deposits
in other banks 4,000 -- (94,715)
Principal collected on loans 14,072,132 10,402,119 13,616,541
Loans originated (12,771,600) (16,665,764) (18,254,957)
Loans purchased from FDIC as receiver for other banks -- (493,086) (6,418,028)
Net decrease (increase) in short-term loans (96,137) (160,958) (9,000)
Net decrease (increase) in lines of credit (3,936,146) 754,607 (339,495)
Purchase of bank premises and equipment (54,383) (184,284) (44,499)
Proceeds from disposition of other real estate -- 716,984 --
-------- ------- ---------
Net cash used by investing activities (1,344,633) (4,877,793) (8,996,835)
---------- ---------- ----------
Financing Activities
Net increase (decrease) in transaction
and savings deposits 4,361,262 2,948,474 3,949,010
Proceeds from issuance of time deposits 40,745,855 34,897,519 45,663,732
Payments for maturing time deposits (37,337,424) (35,008,768) (38,003,294)
Net increase (decrease) in short-term borrowings 1,424,694 165,818 (1,400,110)
Payments on long-term debt (74,500) (56,250) (38,000)
Cash dividends paid to common stockholders (71,211) -- --
------- -------- --------
Net cash provided by financing activities 9,048,676 2,946,793 10,171,338
--------- --------- ----------
Increase (decrease) in cash and cash equivalents 8,778,950 (2,368,695) 2,908,665
Cash and cash equivalents at beginning of year 5,649,250 8,017,945 5,109,280
--------- --------- ---------
Cash and cash equivalents at end of year $ 14,428,200 $ 5,649,250 $ 8,017,945
============ =========== ===========
</TABLE>
46
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Supplementary disclosures:
Interest paid on deposits and borrowings $ 2,711,626 $ 1,924,179 $ 1,401,879
============= ============= ============
Income taxes paid $ 327,593 $ 511,250 $ 8,000
============= ============== =============
Securities transferred to investment
securities $ -- $ 3,500,000 $ --
============= ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
47
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
1. Summary of Significant Accounting Policies
Abigail Adams National Bancorp, Inc. (the "Company") and its wholly-owned
subsidiary, The Adams National Bank (the "Bank"), prepare their financial
statements on the accrual basis and in conformity with generally accepted
accounting principles. The more significant accounting policies are
explained below. As used herein, the term the Company includes the Bank
unless the context otherwise requires.
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and the Bank. All significant intercompany accounts and
transactions have been eliminated in consolidation.
(b) Cash and Cash Equivalents
The Company has defined cash and cash equivalents as those amounts
included in cash and due from banks and Federal funds sold.
(c) Securities
Management determines the appropriate classifications of securities at
the time of purchase. Securities which the Company has the ability and
the intent to hold until maturity are classified as investment
securities and reported at amortized cost. Securities bought and held
principally for the purpose of selling them in the near term are
classified as trading and reported at fair market value with
unrealized gains and losses included in earnings. Securities which are
not classified as trading or held to maturity are classified as
available for sale and are reported at fair value with unrealized
gains and losses reported as a separate component of stockholders'
equity. The unrealized loss on securities recognized had the effect of
decreasing the Company's stockholders' equity by approximately
$40,000, and $80,000, net of tax, at December 31, 1995 and 1994,
respectively. The Company does not maintain a trading account.
Premiums and discounts are amortized using a method which approximates
the interest method over the term of the security.
(d) Loans
Loans are stated at unpaid principal amount, net of unearned discount
and deferred loan fees and costs.
The Company discontinues the accrual of interest when the timely
collection of principal or interest is doubtful. Interest accruals are
resumed on such loans when they are brought fully current with respect
to interest and principal or when, in the judgment of management, the
loans have demonstrated a new period of performance and are estimated
to be fully collectible as to both principal and interest.
(e) Allowance for Loan Losses
The allowance for loan losses is a current estimate of the anticipated
losses in the present loan portfolio. The allowance is increased by
provisions charged to operating expenses and decreased by loan
charge-offs, net of recoveries. The allowance for loan losses is based
on management's evaluation of several factors, including loan loss
experience, composition and volume of the loan portfolio, overall
portfolio quality, review of specific problem loans and current
economic trends and specific conditions that may effect the borrower's
ability to pay. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the
Company's allowance for loan losses. Such agencies may require the
Company to recognize additions to the allowance based on their
judgments about information available to them at the time of their
examination. Management believes that the current allowance for loan
losses is adequate to absorb losses that are inherent in the current
loan portfolio.
48
<PAGE>
(f) Loan Origination Fees and Costs
All fee income received from loan origination and purchases as well as
costs directly attributable to the loan origination are deferred. The
net deferred fees are amortized into interest income on loans as a
yield adjustment over the estimated life of the loan. Deferred fees
and costs are not amortized during periods in which interest income is
not being recognized because of concerns about the realization of loan
principal or interest. Discounts obtained on loans purchased from the
FDIC as receiver for other banks are considered credit discounts and
are not amortized into income until such time as a periodic credit
evaluation deems that the discount, or a portion thereof, is no longer
necessary or until such time as the loans have paid off. If the credit
evaluation deems all or some of the discount is no longer necessary,
it is then amortized into interest on loans as a yield adjustment over
the remaining estimated life of the loan.
(g) Depreciation
Depreciation of Bank premises and equipment is computed over the
estimated useful lives of the respective assets, ranging from three to
five years, on the straight-line basis. Leasehold improvements are
amortized on a straight-line basis over the estimated useful lives of
the respective assets or the terms of the respective leases, whichever
is shorter. Expenditures for major renewals and betterments of Bank
premises and equipment are capitalized at cost and those for
maintenance and repairs are charged to expense as incurred.
(h) Other real estate
Other real estate includes assets that have been acquired in
satisfaction of debt ("assets owned") and in-substance foreclosures.
Other real estate is recorded at the lower of cost or fair value. Any
valuation adjustments required at the date of transfer are charged to
the allowance for loan losses. Subsequent to acquisition, other real
estate is carried at the lower of its cost basis at foreclosure or
fair value less estimated selling costs, based upon periodic
evaluations.
(i) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(j) Net Income (Loss) Per Share
Net income (loss) per common share is calculated by dividing net
income (loss) by the weighted average number of common shares
outstanding during the year, 284,844 in 1995, 1994 and 1993.
(k) Fair Value Disclosures
In December, 1991 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 107, "Disclosures About
Fair Value of Financial Instruments" (SFAS No. 107). SFAS No. 107
requires entities to disclose the fair value of financial instruments,
both assets and liabilities recognized and not recognized in the
statement of financial position, for which it is practical to estimate
fair value. SFAS No. 107 is effective for the Company at December 31,
1995. The fair value of the Company's financial instruments is
reported in Note 18.
(l) Accounting by Creditors for Impairment of a Loan
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors for
Impairment of a Loan" (SFAS No. 114) and Statement of Financial
Accounting Standards No. 118, "Accounting by Creditors for Impairment
of a Loan - Income Recognition and Disclosures" (SFAS No. 118) which
amended SFAS No. 114. SFAS No. 114 and SFAS No. 118 require creditors
to measure impaired loans in one of three ways: the present value of
expected future cash flows discounted at the loan's effective interest
rate, the loan's observable market price or the fair value of the
underlying collateral. If the measure of the impaired loan is less
than the recorded investment in the loan, the creditor shall recognize
the impairment by creating a valuation allowance with a corresponding
charge to expense. SFAS No. 114 and SFAS No. 118 were adopted by the
Company as of January 1, 1995. The adoption of SFAS No. 114 and SFAS
No. 118 did not have a material impact on the Company.
49
<PAGE>
(m) Derivative Financial Instruments
In October 1994, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial
Instruments" (SFAS No. 119). SFAS No. 119 requires entities to
disclose the amount, nature and terms of all derivative financial
instruments, such as futures, forward, swap or option contracts, or
other financial instruments with similar characteristics, and to
separately disclose certain information about these instruments which
are held or issued for trading purposes and those which are held or
issued for purposes other than trading. SFAS No. 119 was adopted as of
January 1, 1995.
(n) Accounting for the Impairment of Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" (SFAS No. 121). SFAS No. 121 requires that assets to be
held and used be evaluated for impairment whenever events or
circumstances indicate that the carrying value may not be recoverable.
SFAS No. 121 also requires that assets to be disposed of be reported
at the lower of cost or fair value less selling costs. Implementation
of SFAS No. 121 is not expected to have a material impact on the
results of operations or financial position. SFAS No. 121 is effective
for the Company as of January 1, 1996.
(o) Accounting for Mortgage Servicing Rights
In May 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 122, "Accounting for Mortgage
Servicing Rights" (SFAS No. 122). SFAS No. 122 provides accounting for
mortgage servicers that sell or securitize loans and retain servicing
rights. SFAS No. 122 is effective as of January 1, 1996. The Company
does not sell or securitize mortgage loans and therefore the
implementation of SFAS No. 122 will not have a material impact.
(p) Accounting for Stock Based Compensation
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock Based Compensation" (SFAS No. 123). SFAS No. 123 allows
companies either to continue to account for stock-based employee
compensation plans under existing accounting standards or to adopt a
fair-value- based method of accounting as defined in the new standard.
The Company will follow the existing accounting standards for these
plans, but will provide pro-forma disclosure of net income and
earnings per share as if the expense provisions of SFAS No. 123 had
been adopted.
(q) Risks and Uncertainties
The Company is subject to competition from other financial
institutions, and is also subject to the regulations of certain
federal agencies and undergoes periodic examination by those
regulatory authorities.
The financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial
statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the
date of the balance sheet and revenues and expenses for the period.
Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant
change in the near-term relate to the determination of the allowance
for loan losses and the valuation of real estate acquired in
connection with foreclosures or in satisfaction of loans. In
connection with the determination of the allowances for loans losses
and other real estate, management periodically obtains independent
appraisals for significant properties.
(r) Reclassifications
Certain reclassifications have been made to amounts previously
reported in 1994 and 1993 to conform with the 1995 presentation.
2. Restrictions on Cash Balances
Included in cash and due from banks are balances maintained within the
Company to satisfy legally required reserves and to compensate for services
provided from correspondent banks. Balances maintained totaled $1,475,000
and $1,526,000 at December 31, 1995 and 1994, respectively. There were no
other withdrawal, usage restrictions or legally required compensating
balances at December 31, 1995 or 1994.
50
<PAGE>
3. Securities
Investment securities at December 31, 1995 and 1994 are summarized as
follows:
<TABLE>
<CAPTION>
1995
----------------------------------------------------------------
Gross Gross
Adjusted Unrealized Unrealized Market
Cost Basis Gains Losses Value
---------- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury:
Within one year $ 1,499,200 $ 1,581 $ -- $ 1,500,781
------------ ---------- ---------- ------------
Total 1,499,200 1,581 -- 1,500,781
------------ ---------- ---------- ------------
Obligations of U.S. government
agencies and corporations:
Within one year 1,005,685 9,627 -- 1,015,312
After one, but within five years 4,875,445 90,630 2,500 4,963,575
--------- ------ ----- ---------
Total 5,881,130 100,257 2,500 5,978,887
--------- ------- ----- ---------
Mortgage-backed securities:
Federal National Mortgage Association:
After one, but within five years 16,961 343 -- 17,304
Federal Home Loan Mortgage Corp.:
After five but within ten years 368,656 16,937 -- 385,593
------- ------ ----- -------
Total 385,617 17,280 -- 402,897
------- ------ ----- -------
Corporate securities (1) 12,500 -- -- 12,500
------ ----- ----- ------
Federal Reserve Bank Stock (1) 162,700 -- -- 162,700
------- ----- ----- -------
Federal Home Loan Bank Stock (1) 251,500 -- -- 251,500
------- ----- ----- -------
Total investment securities $ 8,192,647 $ 119,118 $ 2,500 $ 8,309,265
============ ========= ========== =============
</TABLE>
<TABLE>
<CAPTION>
1994
-----------------------------------------------------------------
Gross Gross
Adjusted Unrealized Unrealized Market
Cost Basis Gains Losses Value
---------- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury:
Within one year $ 987,423 $ -- $ 15,861 $ 971,562
After one, but within five years 496,767 -- 9,111 487,656
------- ------ ----- -------
Total 1,484,190 -- 24,972 1,459,218
--------- ----- ------ ---------
Obligations of U.S. government
agencies and corporations:
After one, but within five years 6,657,520 -- 215,935 6,441,585
--------- ----- ------- ---------
Total 6,657,520 -- 215,935 6,441,585
--------- ----- ------- ---------
Mortgage-backed securities:
Federal National Mortgage Association:
After one, but within five years 30,076 577 -- 30,653
Federal Home Loan Mortgage Corp.:
After five but within ten years 482,292 952 2,526 480,718
------- --- ----- -------
Total 512,368 1,529 2,526 511,371
------- ----- ----- -------
Corporate securities (1) 12,500 -- -- 12,500
------ ----- ----- ------
Federal Reserve Bank Stock (1) 162,700 -- -- 162,700
------- ----- ----- -------
Federal Home Loan Bank Stock (1) 251,500 -- -- 251,500
------- ------ ------- -------
Total investment securities $9,080,778 $ 1,529 $ 243,433 $8,838,874
========== ======== ========= ==========
</TABLE>
(1) Corporate securities and Federal Reserve Bank and Federal Home Loan Bank
Stocks have no stated maturities.
51
<PAGE>
Securities available for sale at December 31, 1995 and 1994 are summarized
below:
<TABLE>
<CAPTION>
1995
--------------------------------------------------------------
Gross Gross
Adjusted Unrealized Unrealized Market
Cost Basis Gains Losses Value
---------- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury:
Within one year $ 1,995,654 $ 6,220 $ -- $ 2,001,874
----------- ----- -------- -----------
Total 1,995,624 6,220 -- 2,001,874
--------- ----- -------- ---------
Obligations of U.S. government
agencies and corporations:
Within one year 2,501,562 1,249 -- 2,502,811
After one, but within five years 1,000,000 3,721 -- 1,003,721
--------- ----- ------- ---------
Total 3,501,562 4,970 -- 3,506,532
--------- ----- ------ ---------
Total securities available for sale $ 5,497,216 $ 11,190 $ -- $ 5,508,406
=========== ======== ======= ===========
</TABLE>
<TABLE>
<CAPTION>
1994
-----------------------------------------------------------------
Gross Gross
Adjusted Unrealized Unrealized Market
Cost Basis Gains Losses Value
---------- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury:
Within one year $ 3,024,521 $ -- $ 7,646 $ 3,016,875
----------- ------- ------- -----------
Total 3,024,521 -- 7,646 3,016,875
--------- ------- ----- ---------
Obligations of U.S. government
agencies and corporations:
Within one year 2,998,757 -- 6,607 2,992,150
--------- ------ ----- ---------
Total 2,998,757 -- 6,607 2,992,150
--------- ------ ----- ---------
Total securities available for sale $ 6,023,278 $ -- $ 14,253 $ 6,009,025
=========== ======== ======== ===========
</TABLE>
Securities in the amount of approximately $8,616,000 and $11,925,000 were
pledged to collateralize public deposits and repurchase agreements at
December 31, 1995 and 1994, respectively.
The Company had no securities exempt from federal taxation during 1995 and
1994 or any securities whose book value as to any single issuer exceeded
10% of stockholders' equity.
4. Loans
Loans at December 31, 1995 and 1994 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Commercial and industrial $ 43,547,303 $ 42,960,687
Real estate - mortgages 14,150,578 11,074,167
Real estate - construction and development 2,617,836 3,237,156
Installment to individuals 3,652,022 3,816,083
--------- ---------
63,967,739 61,088,093
Less: Deferred income and unearned discounts (375,344) (358,656)
-------- --------
Total $ 63,592,395 $ 60,729,437
============ ============
</TABLE>
52
<PAGE>
Loan concentrations at December 31, 1995 and 1994 are summarized as
follows:
1995 1994
---- ----
Service industry 38% 34%
Real estate development/finance 32% 32%
Wholesale/retail 21% 21%
Other 9% 13%
-- --
Total 100% 100%
=== ===
A substantial portion, $41,418,000, or approximately 65%, at December 31,
1995, and $41,862,000, or approximately 69%, at December 31, 1994, of the
Company's loans are secured by real estate in the Washington, D.C.
metropolitan area. Accordingly, the ultimate collectibility of a
substantial portion of the Company's loan portfolio is susceptible to
changes in market conditions in the Washington metropolitan area.
Transactions in the allowance for loan losses for the years ended December
31, 1995 and 1994 are summarized as follows:
1995 1994 1993
---- ---- ----
Balance at January 1 $ 1,289,562 $ 1,385,875 $ 1,320,487
Provision for loan losses -- 221,572 175,000
Recoveries 97,993 156,374 97,552
Loans charged off (113,590) (474,259) (207,164)
-------- -------- --------
Net charge-offs (15,597) (317,885) (109,612)
------- -------- --------
Balance at December 31 $ 1,273,965 $ 1,289,562 $ 1,385,875
=========== =========== ===========
Included in the accompanying consolidated balance sheets are certain loans
that are accounted for on a nonaccrual basis. These nonaccrual loans
totaled approximately $1,561,000, $1,244,000 and $1,733,000 at December 31,
1995, 1994 and 1993, respectively. Had the loans been current in accordance
with their original terms, gross interest income for these loans would have
been $212,000, $150,000 and $154,000 in 1995, 1994 and 1993, respectively.
Actual recorded interest income on these loans was $40,000, $53,000 and
$82,000 in 1995, 1994 and 1993, respectively. Nonaccrual loans include
$875,000, $1,013,000 and $1,151,000 in loans guaranteed by the U.S. Small
Business Administration at December 31, 1995, 1994 and 1993, respectively.
These loans are guaranteed for an average of 84.9% of the outstanding
balance, or $743,000, 87.3% of the outstanding balance, or $884,000, and
77.4% of the outstanding balance, or $891,000 at December 31, 1995, 1994
and 1993, respectively. Also included in the accompanying consolidated
balance sheets are $1,245,000, $1,301,000 and $1,502,000 in loans at
December 31, 1995, 1994 and 1993, respectively, restructured due to a
deterioration in the financial condition of the borrowers. Actual interest
income recorded subsequent to the date of restructuring on loans reported
as restructured at each year-end was $124,000, $110,000 and $148,000 in
1995, 1994 and 1993, respectively. As of year-end 1995, 1994 and 1993,
these loans were performing in accordance with the restructured terms.
Nonaccrual loans at December 31, 1995 and 1994 include $0 and $826,000 in
loans which were reported as restructured as of the prior year-end. The
Company had no commitments to lend additional funds to any of the borrowers
whose loans are recorded as nonaccrual or restructured at December 31,
1995, 1994 and 1993. At December 31, 1995, 1994 and 1993, the Company had
$6,000, $3,000 and $89,000, respectively, in loans greater than 90 days
delinquent which were still accruing. These loans consisted primarily of
loans which were both adequately secured and in the process of collection.
53
<PAGE>
At December 31, 1995, the recorded investment in impaired loans was
$2,790,000, substantially all of which are on nonaccrual status or are
reported as restructured loans. Included in this amount is $1,631,000 of
impaired loans for which the related impairment allowance is $416,000 and
$1,037,000 of loans that do not have an impairment allowance. The average
recorded investment in impaired loans during 1995 was $2,918,000. The
amount of interest income recognized on impaired loans during the year
ended December 31, 1995 has been disclosed above in the discussion of
nonaccrual and restructured loans. The allowance for credit losses contains
additional amounts for impaired loans as deemed necessary to maintain
allowances at levels considered adequate by management.
The Company has engaged in banking transactions in the ordinary course of
business with some of its directors, officers, principal shareholders and
their associates. Management believes that all loans or commitments to
extend loans and the payment of overdrafts included in such transactions
are made on the same terms, including interest rates and collateral, as
those prevailing at the time of comparable loans with other persons and do
not involve more than the normal risk of collectibility. At December 31,
1995 and 1994, none of these loans are either reported as nonaccrual,
restructured or classified. The aggregate amount of loans to related
parties for the years ended December 31, 1995 and 1994 was as follows:
1995 1994
---- ----
Balance at January 1 $ 726,153 $ 472,447
Additions 481,774 668,102
Repayments (675,350) (260,594)
Terminations -- (153,802)
------- --------
Balance at December 31 $ 532,577 $ 726,153
========== ==========
5. Bank Premises and Equipment
Bank premises and equipment at December 31, 1995 and 1994 is summarized as
follows:
1995 1994
---- ----
Furniture, fixtures and equipment 1,351,454 $ 1,311,979
Leasehold improvements 692,936 678,028
------- -------
Total, at cost 2,044,390 1,990,007
Less: Accumulated depreciation and amortization (1,766,873) (1,620,789)
---------- ----------
Total, net $ 277,517 $ 369,218
=========== ==========
Amounts charged to operating expenses for depreciation and amortization
aggregated approximately $146,000, $154,000 and $140,000 in 1995, 1994 and
1993, respectively.
6. Interest-Bearing Deposits
Related party deposits totaled approximately $2,481,000 and $610,000 at
December 31, 1995 and 1994, respectively. In management's opinion, rates
paid on these deposits, where applicable, are available to others at the
same terms.
At December 31, 1995 and 1994, brokered deposits totaled approximately
$7,090,000 and $3,135,000, respectively.
7. Leasing Arrangements
The Company leases its main office space under two leases which expire in
2002. The Company also leases space for two branch offices and two
automated teller machines. The lease on the M Street branch expires in
1996, and the leases on the Union Station branch and the two automated
teller machines expire in 1999. All leases are classified as operating
leases.
54
<PAGE>
The following is a schedule of future minimum payments under operating
leases that have initial or remaining noncancelable lease terms in excess
of one year as of December 31, 1995:
Lease
Payments
--------
1996 $ 398,114
1997 386,340
1998 383,676
1999 324,756
2000 322,742
2001 and thereafter 591,694
Rental expense in 1995, 1994 and 1993 was approximately $408,000, $452,000,
$392,000, respectively.
8. Income Taxes
Income tax expense attributable to income from continuing operations for
1995, 1994 and 1993 consists of:
1995 1994 1993
---- ---- ----
Current:
Federal $ 428,452 $ (167,026) $ 289,174
District of Columbia 139,687 (87,020) 67,456
------- ------- ------
568,139 (254,046) 356,630
------- -------- -------
Deferred:
Federal (160,540) 167,026 (289,174)
District of Columbia (139,687) 87,020 (67,456)
-------- ------ -------
(300,227) 254,046 (356,630)
-------- ------- --------
Total:
Federal 267,912 -- --
District of Columbia -- -- --
------- ------- -------
$ 267,912 $ -- $ --
========= ======== ========
Income tax expense differed from the amounts computed by applying the U.S.
Federal income tax rate of 34 percent to pretax income from continuing
operations as a result of the following:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
Amount % Amount % Amount %
------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C>
Tax expense at statutory rate $ 417,115 34.0% $(62,605) (34.0)% $207,760 34.0%
Increase (decrease) in taxes
resulting from District of
Columbia franchise tax, net
of Federal tax effect 124,952 10.2 (31,583) (17.2) 16,708 2.7
Other 37,235 3.0 2,550 1.4 -- --
Change in beginning of year
valuation allowance (311,391) (25.4) 91,638 49.8 224,468) (36.7)
-------- ----- ------ ---- -------- -----
$ 267,912 21.8% $ -- 0.0% $ -- 0.0%
========= ==== ====== === =========== ===
</TABLE>
55
<PAGE>
The significant components of deferred income tax expense attributable to
income from continuing operations for the year ended December 31, 1995 and
1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Deferred tax benefit (exclusive of the
effects of other components listed below) $ 11,164 $ 162,409
Increase (decrease) in beginning of the year
balance of the valuation allowance
for deferred tax assets (311,391) 91,637
-------- ------
$ (300,227) $ 254,046
========== ========
</TABLE>
The following is a summary of the tax effects of temporary differences that
give rise to significant portions of the deferred tax assets and deferred
tax liabilities at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Deferred tax assets:
Book allowance for loan losses $519,332 $ 525,690
Interest income on nonaccrual loans, due to accrual for tax purposes 51,401 51,401
Deferred loan fees, due to cash basis for tax purposes 76,344 97,136
Furniture and equipment, principally due to differences in depreciation 101,962 91,266
Unrealized losses on securities 26,778 55,298
Compensated absences, principally due to cash basis
for financial reporting purposes 8,184 7,005
Other -- 20,401
------ ------
Total gross deferred tax assets 784,001 848,197
Less: Valuation allowance -- (311,391)
----- --------
Net deferred tax assets 784,001 536,806
Deferred tax liabilities:
Tax allowance for loan losses (321,737) (332,806)
Prepaid expenses due to cash basis for tax purposes (19,513) (20,987)
------- -------
Total gross deferred tax liabilities (341,250) 353,793
-------- -------
Net deferred tax assets $ 442,751 $ 183,013
========= =========
</TABLE>
The Company had established a valuation allowance through December 31, 1994
for the excess of deferred tax assets over taxes paid in the carryback
years and future reversals of certain existing taxable temporary
differences. As of December 31, 1995, all deferred tax assets were
recoverable through taxes paid in the carryback years and therefore no
valuation allowance was required.
At December 31, 1995, the Company had utilized all of its available
financial statement net operating loss carryforwards. Deferred income tax
assets at December 31, 1995 and 1994 were $442,751 and $183,013,
respectively, and are included in other assets in the accompanying
financial statements. Also included in other assets at December 31, 1995
and 1994, were current tax receivables of $54,000 and $429,000,
respectively.
9. Long-Term Debt -- Capital Note
On February 2, 1988, the Bank renegotiated its subordinated capital note
agreement with Minbanc Capital Corp. The principal balance of this note
shall be repaid in 16 quarterly installments of $9,500 each commencing on
September 30, 1990 through June 30, 1994 and thereafter 16 quarterly
installments of $18,625 through the note's maturity on June 30, 1998. The
rate of interest payable on the principal balance of this note was
initially fixed at 6.50%. On June 30, 1989 and annually thereafter, the
interest rate adjusts to the equivalent of 2% under the rate of the most
recently auctioned ten year United States Treasury Note. The note carries a
minimum rate of 6.00% and a maximum rate of 12% per annum. As of December
31, 1995, the note carried an interest rate of 6.00%. Annual principal
maturities as of December 31, 1995 are as follows:
1996 $ 74,500
1997 74,500
1998 37,250
------
$186,250
========
56
<PAGE>
The note agreement restricts the total cash dividends which may be paid by
the Bank in any twelve calendar month period to 25% of net operating
income.
10. Short-term Borrowings
Short-term borrowings consist primarily of Federal funds purchased and
securities sold under repurchase agreements. Federal funds purchased
represent overnight funds, while securities sold under repurchase
agreements generally involve the receipt of immediately available funds
which mature in one business day or roll over under a continuing contract.
The balance of securities sold under repurchase agreements at December 31,
1995 and 1994 of $1,785,402 and $360,708, respectively, represents funds
received by the Company for securities sold to customers of the Company, at
the customer's request, which mature in one business day but roll over
under a continuing contract. In accordance with these contracts, the
underlying securities sold are U.S. Treasuries or government agencies which
are segregated from the Company's other investment securities in the Bank's
Federal Reserve Bank account. The book value of the underlying securities
sold under these repurchase agreements at December 31, 1995 and 1994 was
approximately $2,060,000 and $1,196,000, respectively. The market value of
these same securities at December 31, 1995 and 1994 was $2,094,000 and
$1,159,000, respectively. At maturity, the same security is repurchased by
the Company.
Repurchase agreements are entered into with related parties in the normal
course of business. At December 31, 1995, such related party repurchase
agreements totalled approximately $500,000. In management's opinion, rates
paid on these repurchase agreements are available to others at the same
terms.
In the normal course of business, there are securities sold under
repurchase agreements that the Company initiates with correspondent banks
for liquidity purposes. As with the customer repurchase agreements, these
contracts generally involve the receipt of immediately available funds
which mature in one business day or roll over under a continuing contract,
however, the underlying securities sold are transferred to the
correspondent bank's Federal Reserve Bank account until maturity. At
maturity, the same security is repurchased by the Company.
Other short-term borrowings during 1995 and 1994 consist of borrowings from
the Federal Home Loan Bank of Atlanta ("FHLB") for liquidity purposes.
Borrowings are collateralized by loans secured by first liens on one to
four family, multifamily and commercial mortgages as well as investment
securities. Although no FHLB borrowings are outstanding at December 31,
1995 and 1994, the outstanding balance of loans pledged at December 31,
1995 and 1994 to collateralize future borrowings from the FHLB were
$3,194,000 and $2,719,000. The collateral value of the loans pledged at
December 31, 1995 and 1994 was $2,127,000 and $2,150,000, respectively.
Short-term borrowings for 1995 and 1994 are summarized below:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Federal funds purchased
Balance at end of year $ -- $ --
Daily average balance outstanding during year 89,114 63,219
Maximum balance outstanding as of any month-end during year 850,000 1,000,000
Daily average interest rate during year 5.34% 4.68%
Securities sold under repurchase agreements
Balance at end of year $ 1,785,402 $ 360,708
Daily average balance outstanding during year 1,510,954 1,484,991
Maximum balance outstanding as of any month-end during year 3,217,340 3,987,421
Daily average interest rate during year 5.57% 3.65%
Average interest rate on balance at end of year 4.92% --
Other short-term borrowings
Balance at end of year $ -- $ --
Daily average balance outstanding during year 103,493 61,370
Maximum balance outstanding as of any month-end during year 1,200,000 1,100,000
Daily average interest rate during year 6.15% 5.56%
</TABLE>
57
<PAGE>
11. Commitments and Contingent Liabilities
In the normal course of business, there are various outstanding commitments
and contingent liabilities such as commitments to extend credit that are
not reflected in the accompanying consolidated financial statements. No
material losses are anticipated as a result of these transactions. At
December 31, 1995 and 1994, the Company had outstanding letters of credit
aggregating approximately $706,000 and $474,000, commitments to originate
variable rate loans aggregating approximately $13,867,000 and $13,315,000,
and commitments to originate fixed rate loans aggregating approximately
$1,410,000 and $452,000, respectively.
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.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, 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 obtained if deemed necessary by the Company upon
extension of credit is based on management's credit evaluation. Collateral
held varies but may include accounts receivable, inventory, property, plant
and equipment, and residential and income-producing commercial properties.
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 support lease and security deposits and
private borrowing arrangements. 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 cash, marketable securities and
other collateral supporting those commitments for which collateral is
deemed necessary. The portion of letters of credit which are collateralized
was 100% at December 31, 1995 and 1994.
Under the terms of an employment agreement with the President and Chief
Executive Officer of the Company and the Bank, the Company is obligated to
make payments to her under certain conditions, in the event her employment
is terminated.
Under the terms of severance agreements with seven key management officials
of the Bank, the Bank is obligated to make payments totaling $504,000 under
certain conditions in the event of a change in control of the Company or
the Bank.
The Company maintains directors' and officers' liability insurance in the
amount of $2,000,000, subject to certain exclusions. In addition, according
to the by-laws, the Company is obligated to indemnify any director or
officer for losses incurred to the full extent authorized or permitted by
Delaware general corporation law.
12. Restrictions on Dividend Payments and Loans by Affiliated Bank
Any dividends payable by the Company are dependent on dividends payable
from the Bank to the Company. Federal banking laws restrict the total
dividend payments that a national banking association may make during any
calendar year to the total net income of the bank for current year plus
retained net income for the preceding two years, except with the prior
written approval of the Office of the Comptroller of the Currency. As a
result of additional dividend restrictions referred to in Note 9 above, the
Bank is restricted from making dividend payments in excess of 25% of net
operating income in any twelve calendar month period. The Federal Reserve
Board has issued a statement effective November 14, 1985 which indicates
that dividends should only be paid out of net income available to common
shareholders over the past year. Restrictions are also imposed upon the
ability of the Bank to make loans to the Company, purchase stock in the
Company or use the Company's securities as collateral for indebtedness of
the Bank.
13. Parent Company Information
On April 1, 1982, the Company acquired, through merger, all of the
outstanding shares of the Bank, becoming the parent and sole stockholder.
The earnings (losses) of the Bank are recorded by the Company using the
equity method of accounting. Earnings (losses) are recorded as an increase
(decrease) in the Company's investment, and dividends declared by the Bank
are recorded as reductions in the Company's investment in the Bank.
58
<PAGE>
Condensed Balance Sheets
<TABLE>
<CAPTION>
December 31,
------------
1995 1994
---- ----
<S> <C> <C>
Assets
Due from banks and interest-bearing balances with subsidiary bank $ 248,797 $ 169,768
Investment in subsidiary bank 6,364,594 5,684,937
Dividend receivable from subsidiary bank 71,211 --
Other assets 8,459 4,438
----- -----
Total assets $ 6,693,061 $ 5,859,143
=========== ===========
Liabilities and Stockholders' Equity
Liabilities:
Other liabilities $ 74,195 $ 96,873
Stockholders' equity:
Common stock, par value $10 per share, authorized 800,000 shares; issued
286,404 shares; outstanding 284,844 shares
in 1995 and 1994 2,864,040 2,864,040
Additional paid-in capital 3,291,973 3,291,973
Retained earnings (deficit) 491,563 (365,033)
------- --------
6,647,576 5,790,980
Less: Treasury Stock, 1,560 shares at cost (28,710) (28,710)
------- -------
Total stockholders' equity 6,618,866 5,762,270
--------- ---------
Total liabilities and stockholders' equity $ 6,693,061 $ 5,859,143
=========== ===========
</TABLE>
Condensed Statements of Operations
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Income:
Dividends from subsidiary bank $213,633 $ -- $ --
Interest earned on balances with subsidiary bank 4,906 6,162 7,004
Interest on securities available for sale -- 7,518 8,722
Interest on other -- (281) 6,750
Management fees earned from subsidiary bank 444 31,880 12,649
--- ------ ------
Total income 218,983 45,279 35,125
Expenses:
Professional fees 125,569 433,641 32,882
Organizational and other 75,046 157,315 109,854
------ ------- -------
Total expenses 200,615 590,956 142,736
Income (loss) before taxes and equity
in undistributed net income of subsidiary 18,368 (545,677) (107,611)
Applicable income tax benefit 300,993 -- --
------- ------ ------
Income (loss) before equity
in undistributed net income of subsidiary 319,361 (545,677) (107,611)
Equity in undistributed net income of subsidiary 639,537 361,545 718,670
------- ------- -------
Net income (loss) $958,898 $ (184,132) $ 611,059
======== ========== =========
</TABLE>
59
<PAGE>
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Operating Activities
Net income (loss) $ 958,898 $ (184,132) $ 611,059
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Equity in undistributed loss (net income) of subsidiary (639,537) (361,545) (718,670)
Dividends declared from subsidiary bank not received (71,211)
Other, net (97,910) 94,102 (1,064)
------- ------ ------
Net cash provided (used) by operating activities 150,240 (451,575) (108,675)
Investing Activities
Proceeds from maturity of securities available for sale -- 450,000 --
Proceeds from maturity of investment securities -- -- 900,000
Purchase of securities -- -- (900,000)
---- ------- -------
Net cash provided by investing activities -- 450,000 --
Financing Activities
Cash dividends paid to stockholders (71,211) -- --
------- ------ -------
Net cash used by financing activities (71,211) -- --
------- ------ -------
Increase (decrease) in cash 79,029 (1,575) (108,675)
Cash and cash equivalents at beginning of year 169,768 171,343 280,018
------- ------- -------
Cash and cash equivalents at end of year $ 248,797 $ 169,768 $ 171,343
========= =========== ===========
</TABLE>
14. Federal Deposit Insurance Corporation Improvement Act
Regulations implementing the prompt corrective action provisions of the
Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
became effective on December 19, 1992. FDICIA requires the regulators to
stratify institutions into five quality tiers based upon their respective
capital strengths and to increase progressively the degree of regulation
over the weaker institutions, limits the pass-through deposit insurance
treatment of certain types of accounts, adopts a "Truth in Savings"
program, calls for the adoption of risk-based premiums on deposit insurance
and requires banks to observe insider credit underwriting procedures no
less strict than those applied to comparable noninsider transactions.
The prompt corrective action regulations define specific capital categories
based on an institution's capital ratios. The capital categories, in
declining order, are "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized." Institutions categorized as "undercapitalized" or below
are subject to certain restrictions, including the requirement to file a
capital plan with its primary federal regulator, prohibitions on the
payment of dividends and management fees, restrictions on executive
compensation and increased supervisory monitoring, among other things.
Other restrictions may be imposed on the institution either by its primary
federal regulator or by the FDIC, including requirements to raise
additional capital, sell assets or sell the entire institution. Once an
institution becomes "critically undercapitalized" it is generally placed in
receivership or conservatorship within 90 days.
To be considered "well capitalized," an institution must generally have a
leverage ratio of at least 5%, a Tier 1 risk-based capital ratio of at
least 6% and a total risk-based capital ratio of at least 10%. At December
31, 1995 and 1994, both the Company and the Bank were considered "well
capitalized."
60
<PAGE>
15. Employee Benefits
The Company has adopted a Nonqualified Stock Option Plan for certain
officers and key employees and has reserved 30,000 shares of common stock
for options to be granted under the plan. No options have been granted to
date.
The Company has a 401(k) plan covering all full-time employees. The Company
made contributions to the plan of $34,000, $40,000 and $24,000 in 1995,
1994 and 1993, respectively. These amounts are included in salaries and
employee benefits in the accompanying consolidated statements of
operations.
On January 23, 1996, the Company adopted a nonqualified Directors Stock
Option Plan (the "Directors Plan") and a qualified Employee Incentive Stock
Option Plan covering key employees (the "Employee Plan"), subject to
shareholder approval. Shares subject to options under these plans may be
authorized but unissued shares or treasury shares. Options under the
Directors Plan are granted at a price not less than 85% of the fair market
value of the Company's common stock on the date of grant. The options vest
beginning in 1996 at an annual rate of 20% at the end of each year and
become fully vested in the event of a Change in Control, as defined in the
Directors Plan, or in the event that the Director leaves the Board. Options
under the Employee Plan are granted at a price of 100% of the fair market
value of the Company's common stock on the date of grant and are
immediately exercisable. Options under both plans expire not later than ten
years after the date of grant. Options for a total of 5,472 shares of
common stock available for grant under the above Plans were granted at a
price of $20.21 for directors and $23.78 for employees. No options have
been exercised under these plans.
16. Other Operating Expense
Other operating expenses for 1995, 1994 and 1993 are summarized as follows:
1995 1994 1993
---- ---- ----
FDIC insurance premiums $ 84,607 $ 171,582 $ 154,107
Courier service and bank security 149,689 148,884 131,229
Stationery and office supplies 75,585 103,017 71,542
Employment litigation expense -- 387,000 250,000
Other 471,119 575,961 553,700
------- ------- -------
Total other operating expense $ 781,000 $ 1,386,444 $ 1,140,578
========= =========== ===========
The Company has engaged in transactions in the ordinary course of business
with some of its directors, officers, principal stockholders and their
associates. Management believes that all such transactions are made on the
same terms as those prevailing at the time with other persons. The Company
expensed $15,000, $32,000 and $27,000 during 1995, 1994 and 1993,
respectively, to such related parties in connection with public relations
activities. The Company expensed $17,000 to such related parties for legal
services during 1995.
17. Shareholder Rights Plan
On April 12, 1994, the Board of Directors of the Company adopted a Rights
Agreement ("Rights Agreement"), which was amended April 20, 1995. Pursuant
to the Rights Agreement, the Board of Directors of the Company declared a
dividend of one share purchase right for each share of the Company's common
stock outstanding on April 25, 1994 ("Right"). Among other things, each
Right entitles the holder to purchase one share of the Company's common
stock at an exercise price of $60.33.
Subject to certain exceptions, the Rights will be exercisable if a person
or group of persons acquires 25% or more of the Company's common stock
("Acquiring Person"), or announces a tender offer, the consummation of
which would result in ownership by a person or group of persons of 25% or
more of the common stock, or if the Board determines that a person or group
of persons holding 15% or more of the Company's common stock is an Adverse
Person, as defined in the Rights Agreement.
61
<PAGE>
Upon the occurrence of one of the triggering events, all holders of Rights,
except the Acquiring Person or Adverse Person, would be entitled to
purchase the Company's common stock at 50% of the market price. If the
Company is acquired in a merger or business combination, each holder of a
Right would be entitled to purchase common stock of the Acquiring Person at
a similar discount.
The Board of Directors may redeem the Rights for $0.01 per share or amend
the Plan at any time before a person becomes an Acquiring Person. The
Rights expire on December 31, 2003.
18. Fair Value of Financial Instruments
During 1995, the Company adopted Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments"
(SFAS No. 107), which requires the disclosure of fair value information
about financial instruments, whether or not recognized in the balance
sheet, for which it is practicable to estimate that value. Quoted market
prices, when available, are used as the measure of fair value. In cases
where quoted market prices are not available, fair values are based on
present value estimates or other valuation techniques. These derived fair
values are estimates at a specific point in time and are significantly
affected by assumptions used, principally the timing of future cash flows
and the discount rate. Because assumptions are inherently subjective in
nature, the estimated fair values cannot be substantiated by comparison to
independent market quotes and, in many cases, the estimated fair values
would not necessarily be realized in an immediate sale or settlement of the
instrument. The disclosure requirements of SFAS No. 107 exclude certain
financial instruments and all nonfinancial instruments. The estimated fair
values presented do not give effect to the values associated with the
Company's banking business, existing customer relationships, branch
network, property or equipment. Also, under SFAS No. 107, the fair value of
noninterest bearing demand deposits, savings and NOW accounts and money
market deposit accounts is equal to the carrying amount because these
deposits have no stated maturity. This approach to estimating fair value
excludes the significant benefit that results from the low-cost funding
provided by such deposit liabilities, as compared to alternative sources of
funding. Accordingly, the aggregate fair value amounts presented do not
represent management's estimation of the underlying value of the Company.
SFAS No. 119 amended SFAS No. 107 for disclosure purposes. The amendments
require that the disclosures distinguish between financial instruments held
for trading purposes, measured at fair value with gains and losses
recognized in earnings, and financial instruments held or issued for
purposes other than trading. The fair value of derivative financial
instruments must be disclosed separately from non-derivative financial
instruments. The Company does not hold any financial instruments for
trading purposes and does not have any material derivative financial
instruments.
The following are the estimated fair values of the Company's financial
instruments at December 31, 1995 followed by a general description of the
methods and assumptions used to estimate such fair values.
Carrying Estimated
Amount Value
Financial assets:
Cash $ 4,953,200 $ 4,953,200
Short-term investments 9,961,715 9,961,715
Securities available for sale 5,508,406 5,508,406
Investment securities 8,192,647 8,309,265
Loans 63,592,395
Less: Allowance for loan losses (1,273,965)
----------
Net loans 62,318,430 62,145,121
Financial liabilities:
Noninterest-bearing deposits 23,443,937 23,443,937
Interest -bearing deposits
with no stated maturity 30,052,322 30,052,322
Time deposits 29,566,936 29,101,285
Short-term borrowings 1,785,402 1,785,402
Long-term debt 186,250 186,250
62
<PAGE>
The following methods and assumptions were used by the Company in
estimating the fair value of its financial instruments:
Cash and due from banks. The carrying amounts reported in the balance
sheet approximate fair value due to the short- term nature of these
assets.
Short-term investments. The carrying amounts of short-term investments
on the balance sheet with maturities of 90 days or less approximate
fair value. For short-term investments with maturities of greater than
90 days, fair value estimates are based on market quotes for similar
instruments adjusted for such differences between the quoted
instruments and the instruments being valued as to maturity and credit
quality.
Securities Available for Sale and Investment Securities. The estimated
fair values of securities by type are based on quoted market prices,
when available. If a quoted market price is not available, fair value
is estimated using quoted market prices for similar securities.
Loans. Fair values are estimated for portfolios of loans with similar
financial characteristics. Loans are classified by variable rate,
fixed rate and loans which reprice on a predetermined schedule.
Non-variable rate loans are further classified by general purpose
within the commercial, real estate and consumer portfolios. Loans are
further classified by performing or nonperforming loans.
For performing variable-rate loans which reprice immediately as market
rates change, the carrying amounts approximate fair value.
Additionally, most variable rate lines of credit, which comprise more
than half of the variable loan portfolio, are reviewed and extended on
at least an annual basis. At the time of that review, these loans are
repriced to reflect the current credit risk inherent in these loans.
For performing fixed-rate loans and loans which reprice on a
pre-determined schedule, fair values are estimated by discounting the
expected cash flows up to and including the date of repricing, if
applicable, by a discount rate that reflects the interest rate and
credit risk inherent in the loan. The estimated maturity of these
loans reflects both contractual maturity and management's assessment
of prepayments, economic condition, and other factors that may affect
the maturity of the portfolio. The discount rate is based on the rate
that would be currently offered for loans with similar terms to
borrowers of similar credit quality.
Nonperforming loans are included in each of the loan portfolios
previously described. The fair value of nonperforming loans is
estimated in a manner which approximates discounting the expected
return of principal over the period of time the Company anticipates
receiving principal payments on the loan at a discount rate which is
reflective of the higher risk surrounding these assets compared to a
performing loan.
Deposits. The fair value of deposits with no stated maturity, such as
noninterest-bearing deposits, NOW accounts, savings and money market
deposit accounts, is the amount payable on demand as of year-end. For
time deposits, fair value is estimated by discounting the contractual
cash flows using a discount rate equal to the incremental deposit rate
for similar remaining maturities.
Short-term borrowings. The carrying values of federal funds purchased,
securities sold under agreements to repurchase and other short-term
borrowings approximate fair values.
Long-term debt. The fair values of long-term debt and other borrowings
are estimated by discounting the contractual cash flows for each
instrument. The discount rate applied is based on the current
incremental borrowing rates for similar arrangements with similar
maturities.
Commitments to extend credit and letters of credit. The Company has
commitments to extend credit of $15,277,000 and letters of credit of
$706,000. Pricing of these financial instruments is based on the
credit quality and relationship, fees, interest rates, probability of
funding, compensating balance and other covenant requirements.
Non-credit card commitments generally have fixed expiration dates, are
variable rate and contain termination and other clauses which provide
for relief from funding in the event that there is a significant
deterioration in the credit quality of the customer. Many loan
commitments are expected to, and typically do, expire without being
drawn upon. Approximately 85% of the Company's commitments to lend
expire within one year. The rates and terms of the Company's
commitments to lend and letters of credit are competitive with others
in the markets in which the Company operates. Carrying amounts which
are comprised of the unamortized fee income and, where necessary,
reserves for any expected credit losses from these financial
instruments, are immaterial.
63
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
PART III
--------
Item 9. Directors and Executive Officers of the Registrant.
The following is a summary of certain information, as of March 15, 1996,
regarding persons who serve as directors and executive officers of the Company.
Name Age Position with the Company
- ---- --- -------------------------
Barbara Davis Blum 55 Chairwoman of the Board,
President and Chief Executive
Officer
Shireen L. Dodson 44 Director
Susan Hager 51 Director
Jeanne D. Hubbard 47 Director
Clarence L. James, Jr. 62 Director
Marshall T. Reynolds 59 Director
Robert L. Shell, Jr. 52 Director
Dana B. Stebbins 49 Director
Susan J. Williams 55 Director
Kimberly J. Levine, CPA 39 Senior Vice President,
Treasurer and Chief
Financial Officer
Barbara Davis Blum has served as Chairwoman of the Board of the Company and
the Bank since March 1986, President and Chief Executive Officer of the Company
since 1985 and President and Chief Executive Officer of the Bank since 1983. She
also serves as Chairwoman of the Economic Development Finance Corporation, a
quasi-public economic development corporation for the benefit of District of
Columbia businesses; Chairwoman, Center for Policy Alternatives, a national
nonprofit organization; and a Director of Kaiser Permanente Health Care
64
<PAGE>
of the Mid-Atlantic States. She is a director of the Greater Washington Board of
Trade, a Trustee of the Federal City Council, a member of the National Advisory
Council of the U.S. Small Business Administration; Senior Advisor, Commercial
Real Estate Women; and a Director of IAIA, a presidentially appointed position
requiring Senate confirmation. She founded Leadership Washington in 1985 and
served as its Chairwoman in 1987. She also served as 1996 Greater Washington
Area, United States Savings Bonds Chairperson. From 1981 to 1983, she served as
President of Direction International, an environmental consulting firm, and from
1977 to 1981 she served as the Deputy Administrator of the U.S. Environmental
Protection Agency.
Shireen L. Dodson has served as the Assistant Director of Administration
and Planning for the Center for African American History and Culture (formerly
called the National African American Museum Project) of the Smithsonian
Institution since 1993. From 1985 to 1992, she served as Comptroller of the
Smithsonian Institution. She also served as the Commissioner of the District of
Columbia Minority Business Opportunity Commission from 1989 to 1992. She has
been President of the Coalition of 100 Black Women of D.C., Inc. and currently
serves on the Advisory Committee of that organization. She is also a member of
the Women's Advisory Board, Girl Scout Council of the National Capital. She is
Treasurer of the Washington D.C. Chamber of Commerce and has been a Director of
the Company since 1993 and a Director of the Bank since February 1992.
Susan Hager has been the President of Hager Sharp, Inc., an issues oriented
communications firm since 1973. She is also a Director of the Greater Washington
Board of Trade, Chairwoman of the Board of the Lab School of Washington and a
member of the National Advisory Council of the U.S. Small Business
Administration and a Trustee of the Federal City Council. She served as
President of National Small Business United, a national small business trade
association, and Chairwoman of the U.S. Department of the Treasury's Small
Business Advisory Council. She was a founder of the National Association of
Women Business Owners (NAWBO). She has been a Director of the Company and the
Bank since June 1992.
Jeanne D. Hubbard has served as a consultant to First Guaranty Bank,
Hammond, Louisiana, since 1993. From 1980 to 1993, Ms. Hubbard held a variety of
officer positions, including Vice President and Senior Commercial Lender and
Chairwoman of the Loan Committee and Asset/Liability Committee, with First Bank
of Ceredo, Ceredo, West Virginia. She serves as President of the C-K Rotary Club
and Chairwoman of the Citizens Advisory Committee of the United Way. She has
been a Director of the Company and the Bank since October 1995.
Clarence L. James, Jr. joined the law firm of Manatt, Phelps & Phillips,
LLP, as a partner in 1995. From 1983 to 1995, he served as President and Chief
Operating Officer of The Keefe Company, a government relations and public
affairs firm. From 1981 to 1983, he was Vice President of Domestic Affairs and
General Counsel of The Keefe Company. Since 1990, he has also served as Chairman
of the Board of Douglas James Securities, Incorporated, a registered
broker-dealer and a member of the National Association of Securities Dealers,
Inc. He founded and is on the board of the Executive Leadership Council and the
Executive Leadership Foundation, an association of the top national African
American business leaders. From 1977 to 1981, he served as Commissioner and
Chairman of the Copyright Royalty Tribunal, a presidential appointment. From
1971 to 1977, he was Managing Partner of James, Moore, Douglas & Co.,
65
<PAGE>
LPA, a corporate, tax and land development law practice. He has been a Director
of the Company and the Bank since February 1993.
Marshall T. Reynolds is the Chairman of the Board, President and Chief
Executive Officer of Champion Industries, Inc., a holding company for commercial
printing and office products companies, a position he has held since 1992. He
became Chairman of the Board of Premier Financial Bancorp in the first quarter
of 1996. From 1964 to 1993, Mr. Reynolds was President and Manager of The Harrah
and Reynolds Corporation (predecessor to Champion Industries, Inc.). From 1983
to 1993, he was Chairman of the Board of Banc One, West Virginia Corporation
(formerly Key Centurion Bancshares, Inc.). He has served as Chairman of United
Way of the River Cities, Inc. and Boys and Girls Clubs of Huntington. He has
been a Director of the Company and the Bank since November 1995.
Robert L. Shell, Jr., is the Chairman and Chief Executive Officer of Guyan
International, a privately held holding company for manufacturing and service
companies, a position he has held since 1985. Mr. Shell is also the Chairman of
Carolina Hose and Hydraulics, Standard Leasing Co. and Permco Hydraulik AG. He
is a member of the Huntington Boys and Girls Club, the Cabell Huntington
Hospital Foundation and the West Virginia Foundation for Independent Colleges.
He was formerly the Chairman of the Marshall Artists Series. He has been a
Director of the Company and the Bank since October 1995.
Dana B. Stebbins is a partner in Wilkes, Artis, Hedrick & Lane, a law firm
located in Washington, D.C., where she has practiced since 1989. From 1983 to
1989, she was Special Counsel for Klimek, Kolodney & Casale, P.C. From 1981 to
1983, she was Special Counsel for the U.S. House of Representatives Committee on
Small Business. From 1980 to 1982, she was Special Assistant to the Associate
Administrator of the U.S. Small Business Administration. From 1978 to 1980, she
was the Special Assistant and White House Liaison to the Chairman of the
Commodity Futures Trading Commission. From 1977 to 1978, she was Advisor to the
White House Office of Domestic and Urban Policy. She is currently President of
the Washington D.C. Chamber of Commerce, a Trustee of the Federal City Council
and is on the Board of the Greater Washington Boys and Girls Clubs, as well as
the Lab School of Washington. She has been a Director of the Company and the
Bank since March 1993.
Susan J. Williams is the President of Bracy Williams & Company, a
government and public affairs consulting firm, a position she has held since
1982. In 1986, she was a representative on the Southern Growth Policies Board
for the State of Virginia. From 1979 to 1981, Ms. Williams served as Assistant
Secretary for Governmental Affairs of the U.S. Department of Transportation and
from 1977 to 1979 she was Deputy Assistant Secretary for Governmental and Public
Affairs for that agency. She is the Chair-Elect of the Greater Washington Board
of Trade, having previously served as Secretary. She is also a Director of the
Henry L. Stimson Center and the American Institute for Public Service. She has
been a Director of the Company since October 1995 and the Bank since September
1994.
Kimberly J. Levine, CPA, has been Senior Vice President and Treasurer of
the Company and the Bank since 1988. From 1984 to 1987, she was Vice President
and Controller of the First American Bank, N.A. From 1979 to 1984, she was
Assistant Vice President of Suburban Bank in various accounting and reporting
positions. From 1977 to 1979, she was a Senior Accountant with
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Arthur Andersen & Co. She formerly served as a member of the Corporate Reporting
Task Force, a combination public and private sector task force designed to
address District of Columbia government tax issues and has been an instructor
for the American Institute of Banking. Ms. Levine holds a Bachelors of Economics
from the Wharton School of Business of the University of Pennsylvania.
The Company's directors and executive officers, and persons who own more
than 10% of the Company's Common Stock, are required to file with the Securities
and Exchange Commission initial reports of ownership and reports of changes in
ownership of any securities of the Company. To the Company's knowledge, based
solely on a review of the copies of such reports furnished to the Company and
written representations that no other reports were required, all of the
Company's directors, executive officers and greater than 10% shareholders made
all required filings during the fiscal year ended December 31, 1995, with the
exception of Barbara Davis Blum whose report following an October 1995 stock
purchase was filed eleven days late.
Item 10. Executive Compensation
The executive officers of the Company receive cash compensation from the
Bank in connection with their positions as executive officers of the Bank. The
Company does not separately compensate its executive officers with cash, but
does offer certain stock option compensation.
The following table shows the cash compensation paid by the Bank during the
fiscal years ended December 31, 1995, 1994 and 1993 to the Chief Executive
Officer, who is the only executive officer of the Company whose cash
compensation exceeded $100,000, for services rendered during these years:
Summary Compensation Table
Annual Compensation
---------------------------------------
Other Annual
Year Salary Bonus/Other Compensation (1)
---- ------ ----------- ----------------
Barbara Davis Blum, 1995 $185,155 $ 0 $ 5,555
Chairwoman of the Board, 1994 185,155 0 5,183
President, Chief Executive 1993 173,040 0 4,271
Officer of the Company
and the Bank
(1) Represents the Bank's contribution to the 401(k) Plan for the account of
Barbara Davis Blum. Ms. Blum received certain perquisites but the cost of
providing such perquisites did not exceed the lesser of $50,000 or 10% of
her salary.
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Employment Agreement
- --------------------
On February 20, 1996, the Company and the Bank entered into an employment
agreement with Barbara Davis Blum providing for the employment by the Company
and the Bank of Ms. Blum as Chair, President and Chief Executive Officer of the
Company and the Bank through February 20, 1998. The agreement shall
automatically be extended for an additional two-year period unless, six months
prior to the expiration date, the Company and the Bank Boards of Directors
determine in a duly adopted resolution that the agreement should not be extended
and so notify Ms. Blum. Under the terms of the employment agreement,which was
amended on March 29, 1996, Ms. Blum is entitled to receive a base salary for
1996 of $194,413, all benefits provided by any plan available by the Bank to its
employees, certain executive fringe benefits, annual or other bonuses at the
sole discretion of the Company and the Bank Boards and a nonqualified stock
option (the "Option") to purchase 25,000 shares of the Company's common stock.
The Option vests beginning in 1996 at an annual rate of 20% at the end of each
year and is exercisable for a period of 10 years from the date of grant at an
exercise price equal to 85% of the fair market value of the Company's common
stock on the date of grant. The Option shall become fully vested in the event of
a Change in Control (as defined in the employment agreement) or in the event Ms.
Blum's employment should terminate for any reason, and remain exercisable for a
period of two years. Under the terms of Ms. Blum's previous employment agreement
her salary for 1995 was $185,155. The current employment agreement provides
that, in the event Ms. Blum shall resign with 60 days notification, then she
shall be entitled to receive a cash payment equal to the current year's salary
then in effect. In addition, the agreement provides that in the event of Ms.
Blum's death, disability, termination without just cause or termination without
her written consent and for a reason other than just cause in connection with or
within 12 months after any Change in Control, or upon the occurrence of certain
other events in connection with a change of control, she shall be entitled to
receive a cash payment equal to two times her base salary (in semi-monthly
payments in the event of disability) and the acceleration of the unvested
portion of any stock options. In addition, she shall be included to the full
extent eligible in all plans providing benefits, including group life insurance,
disability insurance and pension programs for executive employees of the Company
during the term of the employment agreement and for two years following her
disability or termination without just cause or one year following her voluntary
termination. The change in control benefits are estimated to have an aggregate
value of approximately $499,000. Ms. Blum has agreed not to engage in the
banking business elsewhere in Washington, D.C. or Baltimore, Maryland
metropolitan areas or to solicit the Bank's customers or employees for a period
of one year following the voluntary termination of her employment.
Non-Qualified Stock Option Plan
- -------------------------------
No options have been granted to date under the Company's Non-Qualified
Stock Option Plan (the "Plan"). A total of 30,000 shares of the Company's Common
Stock are authorized for issuance under the Plan, in which officers of the
Company and the Bank who have been employed for at least one year are eligible
to participate. The option exercise price of any options granted under the Plan
will equal 100% of the book value of the shares as of the date of grant. Any
options granted under the Plan will become exercisable on a cumulative basis at
a rate of 25% per year during the period of four years after the grant;
provided, however, that the first 25% will not become exercisable until the
expiration of six months after the date of grant.
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Employee Incentive Stock Option Plan
- ------------------------------------
On January 23, 1996, the Board of Directors of the Company approved a
qualified Employee Incentive Stock Option Plan (the "Employee Plan"). A total of
3,329 shares of the Company's Common Stock are authorized for issuance under the
Employee Plan, in which key employees of the Company and the Bank are eligible
to participate. On January 23, 1996, all such options were granted at an
exercise price of 100% of fair value at the date of grant, or $23.78. Options
granted under the Employee Plan are immediately exercisable and expire not later
than ten years following the date of grant. The Employee Plan is subject to
shareholder approval, which will be sought at the next annual meeting.
Directors Stock Option Plan
- ---------------------------
On January 23, 1996, the Board of Directors of the Company approved a
nonqualified Directors Stock Option Plan (the "Directors Plan"). A total of
2,143 shares of the Company's Common Stock are authorized for issuance under the
Directors Plan, in which all directors of the Company and the Bank in 1995 are
eligible to participate based upon the total months of 1995 Board service. On
January 23, 1996, all such options were granted at an exercise price of 85% of
fair value at the date of grant, or $20.21. Options granted under the Directors
Plan vest beginning in 1996 at an annual rate of 20% at the end of each year and
expire at the earlier of ten years following the date of grant or two years
after leaving the Board. The options shall become fully vested in the event of a
Change in Control (as defined in the Directors Stock Option Plan) or in the
event the Director leaves the Board. The Directors Plan is subject to
shareholder approval, which will be sought at the next annual meeting.
401(k) Plan
- -----------
The Bank has a 401(k) plan covering all full-time employees. The Bank made
contributions to the plan of $34,000 in 1995.
Directors' Compensation
- -----------------------
During 1995, directors of the Company received $250 for each meeting of the
Board of Directors attended, $200 for each Executive Committee meeting and $100
for all other committee meetings.
Severance Agreements
- --------------------
On April 7, 1994, the Board of Directors of the Bank approved severance
arrangements for seven key management officials. These arrangements were
incorporated into Severance Agreements, dated as of April 7, 1994 (the
"Severance Agreements").
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The Severance Agreements provide that, in the event of a "Change in
Control" (as defined in the Severance Agreements) the officers will be entitled
to resign from the Bank within the one year period following a Change in Control
and receive a lump sum payment equal to one year's full base salary at the rate
applicable to the officer in effect at that time. The term "Change in Control"
does not include a transaction approved by a majority of the "Continuing
Directors" (as defined in the Severance Agreements) then in office. In addition,
an officer will be entitled to receive such severance payment in the event the
officer's employment with the Bank is "Terminated" (as defined in the Severance
Agreements) within the one year period following a Change in Control, prior to
the resignation of the officer. These benefits are estimated to have an
aggregate value of approximately $504,000 based on current salary levels. Any
severance payment payable under the Severance Agreements will be reduced to the
extent that any such payment constitutes an "Excess Parachute Payment" as such
term is defined in the Internal Revenue Code of 1986, as amended. The Severance
Agreements are binding on the Bank and its successors.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information regarding the beneficial
ownership of the Common Stock as of March 15, 1996 by (i) each person or group
known by the Company to own beneficially more than 5% of the outstanding Common
Stock; (ii) each of the Company's directors; and (iii) all directors and
executive officers of the Company as a group. Unless otherwise noted below, the
persons named in the table have sole voting and sole investment powers with
respect to each of the Shares reported as beneficially owned by such person.
Beneficial
Ownership of Percent of
Name and Address Shares Class Owned
---------------- ------ -----------
Shirley A. Reynolds 40,000 (1)(2) 14.0%
1130 13th Avenue
Huntington, West Virginia 25701
Barbara W. Beymer 27,000 (1) 9.4%
214 North Boulevard West
Huntington, West Virginia 25701
Deborah P. Wright 20,000 (1)(3) 7.0%
1517 Diederich Boulevard
Flatwoods, Kentucky 41139
Thomas W. Wright and
Deborah P. Wright, jointly 7,000 (1)(3) 2.4%
P.O. Box 716
Ashland, Kentucky 41105
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SAG, Corp. Money Purchase 20,161 (4) 7.0%
Plan and Trust (Pension),
Neal R. Gross, Trustee
Ava S. Gross, Trustee
4218 Lenore Lane, N.W.
Washington, D.C. 20008
Barbara Davis Blum 1,708 (6) *
Shireen L. Dodson 100 *
Susan Hager 522 *
Jeanne D. Hubbard 1,500 (1) *
Clarence L. James, Jr. 100 *
Marshall T. Reynolds 75,165 (1)(2) 26.3%
Robert L. Shell, Jr. 22,000 (1)(5) 7.7%
Dana B. Stebbins 100 *
Susan J. Williams 522 *
All directors and executive
officers as a group (10 persons) 102,321 (7) 35.8%
- -------------------------
* Less than 1%
(1) Based upon Amendment No. 1 to Schedule 13D dated July 21, 1995,
Marshall T. Reynolds, Shirley A. Reynolds, Robert L. Shell, Jr., Robert H.
Beymer, Barbara W. Beymer, Thomas W. Wright, Deborah P. Wright and Jeanne D.
Hubbard acquired 203,038 outstanding shares of the Company. Amendment No. 2 to
Schedule 13D dated March 5, 1996, evidences the disposition of a total of 15,000
shares by Marshall T. Reynolds and Robert L. Shell, Jr. An additional 4,627
shares were acquired by Marshall T. Reynolds and Shirley A. Reynolds, jointly in
a tender offer which was completed September 15, 1995.
(2) Marshall T. Reynolds and Shirley A. Reynolds share voting and
dispositive power with respect to 65,165 shares owned jointly. An additional
10,000 shares are held by a dependent child.
(3) Thomas W. Wright and Deborah P. Wright share voting and dispositive
power with respect to 7,000 shares owned jointly.
(4) Based upon a Schedule 13D dated September 18, 1995, Neal R. Gross and
Ava S. Gross share voting and dispositive power with respect to these shares.
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(5) Based upon Amendment No. 1 to Schedule 13D dated July 21, 1995, upon
any default under Robert L. Shell, Jr.'s loan agreement with Bank One, West
Virginia which extended financing for the purchase of Mr. Shell's shares,
Marshall T. Reynolds would be required to purchase the shares of the Company's
Common Stock attributed to Mr. Shell, increasing the number of shares held with
sole voting and dispositive power by Mr. Reynolds to 27,000 and reducing Mr.
Shell's beneficial ownership to -0-. Mr. Shell's shares include 2,000 shares
transferred by gift to his wife.
(6) Includes options to purchase 756 shares granted to Ms. Blum under the
Employees Plan.
(7) Includes options to purchase 1,160 shares granted to all directors and
executive officers as a group.
For several years, an issue existed regarding the ownership of 203,038 of
the Company's shares of Common Stock. Citibank, N.A. ("Citibank") held a
security interest in 203,038 Shares, representing approximately 71% of the
outstanding shares (the "Pledged Shares"). Beginning in 1990, the Company and
its advisors participated in various discussions with Citibank and its advisors
concerning the disposition by Citibank of the Pledged Shares or a sale of the
Company.
On April 12, 1994, the Company's Board of Directors, on the recommendation
of the Special Committee (a Board appointed committee of outside directors
comprised of those of the Company's directors who were neither employees nor
significant stockholders of the Company), adopted a Rights Agreement, the
purpose of which was to provide the Board of Directors with adequate time to
respond effectively to a takeover attempt and in a manner that would maximize
the value of the Company for all shareholders.
On April 14, 1994, Citibank filed a complaint against the Company and each
of its directors in the Delaware Chancery Court seeking to enjoin the Company
from implementing the Rights Agreement or distributing the Rights. The complaint
alleged, among other things, that the Rights Agreement violated Delaware law and
that in adopting the Rights Agreement the directors of the Company violated
their fiduciary duty to all of the shareholders of the Company and tortiously
interfered with the consummation of Citibank's proposed sale of the Pledged
Shares to National Bankshares, Inc., a group with whom Citibank had negotiated
the sale of the Pledged Shares from 1992 through 1994 ("NBI"). On June 24, 1994,
the Company filed an answer to the complaint denying the allegations and in a
counterclaim against Citibank requested that the court enter a judgment
declaring the Rights Agreement valid and lawfully adopted under Delaware law
(collectively, the "Delaware Litigation").
On June 29, 1994, the Special Committee was advised by Baxter Fentriss and
Company (the Company's investment advisor) of a proposal received from Marshall
T. Reynolds to purchase the Pledged Shares from Citibank and to make an offer to
purchase up to the 81,806 shares of Common Stock that were not owned by Citibank
(the "Minority Shares"). On April 19, 1995, the Board of Directors of the
Company, on the recommendation of the Special Committee, authorized the entry by
the Company into an agreement with Mr. Reynolds pursuant to which he
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agreed that if his purchase of the Pledged Shares from Citibank was completed,
he would within 20 business days commence a tender offer to purchase the
Minority Shares at a price of $21.00 per share (the "Reynolds Agreement"). Under
the Reynolds Agreement, Mr. Reynolds also agreed that until the Tender Offer was
completed neither he nor any assignee of his rights to purchase the Pledged
Shares would vote the Pledged Shares, without the consent of the Company's Board
of Directors or to change in any respect the composition of the Company's Board
of Directors. In consideration for the commitment of Reynolds to undertake the
Tender Offer, the Company agreed (i) to amend the Rights Agreement to prevent
the purchase by Mr. Reynolds of the Pledged Shares or the Tender Offer from
triggering the exercisability of the Rights, (ii) to take such actions as are
necessary to ensure that neither the purchase of the Pledged Shares nor the
Tender Offer will constitute a "Change in Control" under the Bank's Severance
Agreements with certain key officers and (iii) not to, or not permit the Bank to
(A) amend the Severance Agreements (except as described above), (B) amend the
Employment Agreement among the Company, the Bank and Barbara Davis Blum (except
that an extension of the termination date to a date that is not more than 90
days following the completion of the purchase of the Pledged Shares would be
permitted), (C) issue any stock, or any options, warrants or rights to purchase
stock, or any long-term debt securities, (D) enter into, or materially increase
the level of contributions to, any pension, retirement, stock option, profit
sharing, deferred compensation, bonus, group insurance or similar plan for
directors, officers or employees, (E) other than in the ordinary course of
business, mortgage, pledge or dispose of any assets, incur any indebtedness,
increase the compensation or benefits payable to directors, officers or
employees, incur any material obligation, or enter into any material contract,
or (F) amend the Certificate of Incorporation or Bylaws of the Company or the
Articles of Association or Bylaws of the Bank. The foregoing restrictions were
subject to the exception that the Company or the Bank was permitted to adopt a
stock option plan for its directors and employees and during the first year of
the plan issue options to purchase shares of Common Stock not in excess of 2
1/2% of the total number of shares outstanding.
On April 20, 1995, the Company amended the Rights Agreement to provide that
neither (i) the entry by Mr. Reynolds into an agreement with Citibank to
purchase the Pledged Shares or the purchase by Mr. Reynolds (or any of his
permitted assignees) of the Pledged Shares nor (ii) the announcement, conduct or
completion of the Tender Offer will trigger the exercisability of the Rights.
On April 21, 1995, Citibank and Mr. Reynolds entered into a Stock Purchase
Agreement pursuant to which Mr. Reynolds agreed to purchase the Pledged Shares
at a purchase price of $17.00 per share. The purchase was completed on July 21,
1995. In connection with the closing of the purchase of the Pledged Shares, the
Company, the Bank and each director of the Company (other than Richard Naing, a
former director of the Bank) delivered a release releasing Citibank and its
directors, officers, employees, agents and representatives from any and all
claims relating to actions taken by Citibank with respect to the Pledged Shares.
Correspondingly, Citibank delivered a release releasing the Company, the Bank
and each director (other than Mr. Naing who declined to deliver a release in
favor of Citibank), officer, employee, agent and representative of the Company
and the Bank from any and all claims relating to Citibank's efforts to dispose
of the Pledged Shares. In addition, the Company, the Bank and each director
(other than Mr. Naing) and executive officer of the Company delivered a release
releasing NBI and its directors, officers,
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<PAGE>
employees, agents and representatives from any and all claims relating to NBI's
efforts to purchase the Pledged Shares. Correspondingly, NBI delivered a release
releasing the Company, the Bank and each director, executive officer, employee,
agent and representative of the Company and the Bank (other than Mr. Naing who
declined to deliver a release in favor of NBI). On July 21, 1995, the Delaware
Litigation was dismissed with prejudice.
On August 16, 1995, Mr. Reynolds commenced his Tender Offer to purchase up
to 81,806 shares of Common Stock, consisting of the outstanding shares of Common
Stock that were not then owned by him or his associates at a price of $21.00 per
share net to seller in cash, upon the terms and subject to the conditions set
forth in the Offer to Purchase, dated August 16, 1995 and the related Letter of
Transmittal (which together constitute the "Tender Offer"). The Tender Offer was
completed on September 15, 1995. A total of 4,627 shares were tendered and
acquired by Marshall T. Reynolds and Shirley A. Reynolds, jointly.
Item 12. Certain Relationships and Related Transactions.
The Bank has had, and it is expected that it will have in the future,
banking transactions in the ordinary course of business with the Company's
directors, officers and their associates on substantially the same terms,
including interest rates, collateral and payment terms on extensions of credit,
as those prevailing at the same time for comparable transactions with others. In
the opinion of management these transactions did not in 1995 involve more than a
normal risk of collectibility or present other unfavorable features.
As of March 15, 1996, the aggregate principal amount of indebtedness to the
Bank owed by officers and directors of the Company and their associates who were
indebted to the Bank on that date was approximately $572,000. The highest
aggregate principal amount owed during 1995 by all officers and directors of the
Company and their associates who were indebted to the Bank during the year was
approximately $1,001,000.
The Company has engaged in transactions in the ordinary course of business
with some of its directors, officers, principal stockholders and their
associates. Management believes that all such transactions are made on the same
terms as those prevailing at the time with other persons. During 1995, the
Company engaged Hager Sharp, Inc., of which Susan Hager, a director of the
Company, is President, to provide public relations services. For the fiscal year
ended December 31, 1995, the Company paid Hager Sharp, Inc. $15,000 for such
services. During 1995, the Company engaged Manatt, Phelps & Phillips, LLP, of
which Clarence L. James, Jr., a director of the Company, is a partner, to
provide legal services. For the fiscal year ended December 31, 1995, fees paid
to Manatt, Phelps & Phillips, LLP did not exceed 5% of the firm's revenues for
the year.
Item 13. Exhibits, Financial Statement Schedules and Reports of Form 8-K.
(a) Exhibits
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Exhibit
Number Description of Exhibit
- ------ ----------------------
3.1 Certificate of Incorporation of the Company, as amended (1)
3.2 By-laws of the Company, as amended (2)
4.1.1 Rights Agreement dated as of April 12, 1994, between the Company and
The First National Bank of Maryland, as Rights Agent (Right
Certificate attached as Exhibit A to Rights Agreement and Summary of
Rights to Purchase Common Shares attached as Exhibit B to Rights
Agreement) (3)
4.1.2 First Amendment dated April 20, 1995 between the Company and The First
National Bank of Maryland, as Rights Agent (4)
10.1 Subordinated Note Agreement dated February 2, 1988 between The Adams
National Bank and Minbanc Capital Corp. (5)
10.2.1 Non-qualified Stock Option Plan, as amended (6)
10.2.2 Employee Incentive Stock Option Plan and Agreement
10.2.3 Directors Stock Option Plan and Agreement
10.2.4 Non-Qualified Stock Option Agreement
10.3 Employment Agreement dated February 20, 1996 between the Company, the
Bank and Barbara Davis Blum, as amended on March 29, 1996.
10.4 Lease Agreement dated November 1, 1992 between Chase Manhattan Bank,
N.A. as Trustee for Account Number p99904 and The Adams National Bank
(7)
10.5 Lease Agreement dated November 1, 1992 between Chase Manhattan Bank,
N.A. as Trustee for Account Number p99904 and The Adams National Bank
(8)
10.6 Lease Agreement dated April 21, 1988 between Union Station Joint
Venture, Ltd. and The Adams National Bank (9)
10.7.1 Lease Agreement dated April 21, 1989, as amended on August 1, 1989
between Union Station Joint Venture, Ltd. and The Adams National Bank
(10)
10.7.2 Amendment dated December 20, 1993 to Lease Agreement dated April 21,
1989, as amended on August 1, 1989 between Union Station Joint
Venture, Ltd. and The Adams National Bank (11)
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10.8 Lease Agreement dated December 20, 1993 between Union Station Joint
Venture, Ltd., and The Adams National Bank (12)
10.9 Sublease Agreement dated September 1, 1981, as amended September 1,
1984, between 2909 M Associates and The Adams National Bank (13)
10.10 Lease Agreement dated March 6, 1996 between 1604 17th Street Limited
Partners and The Adams National Bank.
10.11 Agreement for Information Technology Services between Electronic Data
Systems Corporation and The Adams National Bank (14)
10.12 Special Program Financial Services Agreement dated December 30, 1993
between IBAA Bancard, Inc. and The Adams National Bank (15)
10.13 Deposit Insurance Transfer and Asset Purchase Agreement dated as of
May 1, 1992 by and among the Federal Deposit Insurance Corporation as
Receiver of Metropolitan Bank, N.A., the Federal Deposit Insurance
Corporation and The Adams National Bank (16)
10.14 Asset Pool Proposal Form and the Asset Pool Sale Agreement dated as of
July 6, 1993 by and among the Federal Deposit Insurance Corporation as
Receiver of City National Bank, the Federal Deposit Insurance
Corporation and The Adams National Bank (17)
10.15 Severance Agreement between the Bank and Alexander Beltran dated as of
April 7, 1994 (18)
10.16 Severance Agreement between the Bank and Devin Blum dated as of April
7, 1994 (19)
10.17 Severance Agreement between the Bank and Thomas O. Griel dated as of
April 7, 1994 (20)
10.18 Severance Agreement between the Bank Joyce R. Hertz dated as of April
7, 1994 (21)
10.19 Severance Agreement between the Bank and Kimberly J. Levine dated as
of April 7, 1994 (22)
10.20 Severance Agreement between the Bank and Melrose Nathan dated as of
April 7, 1994 (23)
10.21 Severance Agreement between the Bank and Bijan Partovi dated as of
April 7, 1994 (24)
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10.22 Agreement, dated April 20, 1995 between the Company and Marshall T.
Reynolds (25)
21 Subsidiaries of the Registrant (26)
- ------------------------------
(1) Incorporated by reference to Exhibit 3(a) of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1987.
(2) Incorporated by reference to Exhibit 3(b) of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1987.
(3) Incorporated by reference to Exhibits 1-3 of the Company's
Registration Statement on Form 8- A dated April 12, 1994.
(4) Incorporated by reference to Exhibit 4 to the Company's Registration
Statement on Form 8- A/A dated April 21, 1995.
(5) Incorporated by reference to Exhibit 10(a) of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1987.
(6) Incorporated by reference to Exhibit 10(b) of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1987 and
Exhibit 10(i) of the Company's Annual Report on Form 10-K for fiscal
year ended December 31, 1989.
(7) Incorporated by reference to Exhibit 10(d) of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992.
(8) Incorporated by reference to Exhibit 10(e) of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992.
(9) Incorporated by reference to Exhibit 10(f) of the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1988.
(10) Incorporated by reference to Exhibit 10(g) of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1989.
(11) Incorporated by reference to Exhibit 10.7.2 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993.
(12) Incorporated by reference to Exhibit 10.8 of the Company's Annual
Report on Form 10- K for the fiscal year ended December 31, 1993.
(13) Incorporated by reference to Exhibit 10.9 of the Company's Annual
Report on Form 10- K for the fiscal year ended December 31, 1994.
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(14) Incorporated by reference to Exhibit 10(j) of the Company's Annual
Report on Form 10- K for the fiscal year ended December 31, 1992.
(15) Incorporated by reference to Exhibit 10.11 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994.
(16) Incorporated by reference to Exhibit 10 of the Company's Quarterly
Report on Form 10- Q for the quarter ended June 30, 1992.
(17) Incorporated by reference to Exhibit 10 of the Company's Quarterly
Report on Form 10- Q for the quarter ended June 30, 1993.
(18) Incorporated by reference to Exhibit 10.1 of the Company's Current
Report on Form 8- K dated April 27, 1994 (earliest event reported
April 7, 1994).
(19) Incorporated by reference to Exhibit 10.2 of the Company's Current
Report on Form 8- K dated April 27, 1994 (earliest event reported
April 7, 1994).
(20) Incorporated by reference to Exhibit 10.3 of the Company's Current
Report on Form 8- K dated April 27, 1994 (earliest event reported
April 7, 1994).
(21) Incorporated by reference to Exhibit 10.4 of the Company's Current
Report on Form 8- K dated April 27, 1994 (earliest event reported
April 7, 1994).
(22) Incorporated by reference to Exhibit 10.5 of the Company's Current
Report on Form 8- K dated April 27, 1994 (earliest event reported
April 7, 1994).
(23) Incorporated by reference to Exhibit 10.6 of the Company's Current
Report on Form 8- K dated April 27, 1994 (earliest event reported
April 7, 1994).
(24) Incorporated by reference to Exhibit 10.7 of the Company's Current
Report on Form 8- K dated April 27, 1994 (earliest event reported
April 7, 1994).
(25) Incorporated by reference to Exhibit 5 of the Company's Registration
Statement on Form 8-A/A, dated April 21, 1995.
(26) Incorporated by reference to Exhibit 22 of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1987.
(b) No reports on Form 8-K were filed during the last quarter of the
fiscal year ended December 31, 1995.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ABIGAIL ADAMS NATIONAL BANCORP, INC.
------------------------------------
Registrant
Date: March 29, 1996 By: /s/ Barbara Davis Blum
-----------------------
Barbara Davis Blum
Chairwoman of the Board,
President and
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Barbara Davis Blum Chairwoman of the Board, President March 29, 1996
- ---------------------- and Chief Executive Officer
Barbara Davis Blum (Principal Executive Officer)
/s/ Shireen L. Dodson Director March 29, 1996
- ---------------------
Shireen Dodson
/s/ Susan Hager Director March 29, 1996
- ---------------
Susan Hager
- --------------- Director March 29, 1996
Jeanne Hubbard
/s/ Clarence L. James, Jr. Director March 29, 1996
- --------------------------
Clarence L. James, Jr.
79
<PAGE>
- -------------------- Director March 29, 1996
Marshall T. Reynolds
- --------------- Director March 29, 1996
Robert L. Shell, Jr.
/s/ Dana Stebbins Director March 29, 1995
- -----------------
Dana Stebbins
/s/ Susan J. Williams Director March 29, 1996
- ---------------------
Susan J. Williams
/s/ Kimberly J. Levine Senior Vice President, March __, 1996
- ---------------------- Treasurer and Chief Financial
Kimberly J. Levine Officer (Principal Financial
and Accounting Officer)
80
<PAGE>
EXHIBIT INDEX
Page at Which
Exhibit Appears
Exhibit in Sequentially
Number Description of Exhibit Numbered Copy
- ------ ---------------------- -------------
3.1 Certificate of Incorporation of the Company, as
amended (1)
3.2 By-laws of the Company, as amended (2)
4.1.1 Rights Agreement dated as of April 12, 1994,
between the Company and The First National Bank of
Maryland, as Rights Agent (Right Certificate
attached as Exhibit A to Rights Agreement and
Summary of Rights to Purchase Common Shares
attached as Exhibit B to Rights Agreement) (3)
4.1.2 First Amendment dated April 20, 1995 between the
Company and The First National Bank of Maryland,
as Rights Agent (4)
10.1 Subordinated Note Agreement dated February 2, 1988
between The Adams National Bank and Minbanc
Capital Corp. (5)
10.2.1 Non-qualified Stock Option Plan, as amended (6)
10.2.2 Employee Incentive Stock Option Plan and Agreement
10.2.3 Directors Stock Option Plan and Agreement
10.2.4 Non-Qualified Stock Option Agreement
10.3 Employment Agreement dated February 20, 1996, as
amended on March 29, 1996, between the Company,
the Bank and Barbara Davis Blum
10.4 Lease Agreement dated November 1, 1992 between
Chase Manhattan Bank, N.A. as Trustee for Account
Number p99904 and The Adams National Bank (7)
10.5 Lease Agreement dated November 1, 1992 between
Chase Manhattan Bank, N.A. as Trustee for Account
Number p99904 and The Adams National Bank (8)
10.6 Lease Agreement dated April 21, 1988 between Union
Station Joint Venture, Ltd. and The Adams National
Bank (9)
10.7.1 Lease Agreement dated April 21, 1989, as amended
on August 1, 1989 between Union Station Joint
Venture, Ltd. and The Adams National Bank (10)
81
<PAGE>
10.7.2 Amendment dated December 20, 1993 to Lease
Agreement dated April 21, 1989, as amended on
August 1, 1989 between Union Station Joint
Venture, Ltd. and The Adams National Bank (11)
10.8 Lease Agreement dated December 20, 1993 between
Union Station Joint Venture, Ltd., and The Adams
National Bank (12)
10.9 Sublease Agreement dated September 1, 1981, as
amended September 1, 1984, between 2909 M
Associates and The Adams National Bank (13)
10.10 Lease Agreement dated March 6, 1996 between 1604
17th Street Limited Partners and The Adams
National Bank.
10.11 Agreement for Information Technology Services
between Electronic Data Systems Corporation and
The Adams National Bank (14)
10.12 Special Program Financial Services Agreement dated
December 30, 1993 between IBAA Bancard, Inc. and
The Adams National Bank (15)
10.13 Deposit Insurance Transfer and Asset Purchase
Agreement dated as of May 1, 1992 by and among the
Federal Deposit Insurance Corporation as Receiver
of Metropolitan Bank, N.A., the Federal Deposit
Insurance Corporation and The Adams National Bank
(16)
10.14 Asset Pool Proposal Form and the Asset Pool Sale
Agreement dated as of July 6, 1993 by and among
the Federal Deposit Insurance Corporation as
Receiver of City National Bank, the Federal
Deposit Insurance Corporation and The Adams
National Bank (17)
10.15 Severance Agreement between the Bank and Alexander
Beltran dated as of April 7, 1994 (18)
10.16 Severance Agreement between the Bank and Devin
Blum dated as of April 7, 1994 (19)
10.17 Severance Agreement between the Bank and Thomas O.
Griel dated as of April 7, 1994 (20)
10.18 Severance Agreement between the Bank Joyce R.
Hertz dated as of April 7, 1994 (21)
10.19 Severance Agreement between the Bank and Kimberly
J. Levine dated as of April 7, 1994 (22)
10.20 Severance Agreement between the Bank and Melrose
Nathan dated as of April 7, 1994 (23)
82
<PAGE>
10.21 Severance Agreement between the Bank and Bijan
Partovi dated as of April 7, 1994 (24)
10.22 Agreement, dated April 20, 1995 between the
Company and Marshall T. Reynolds (25)
21 Subsidiaries of the Registrant (26)
- ------------------------------
(1) Incorporated by reference to Exhibit 3(a) of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1987.
(2) Incorporated by reference to Exhibit 3(b) of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1987.
(3) Incorporated by reference to Exhibits 1-3 of the Company's
Registration Statement on Form 8- A dated April 12, 1994.
(4) Incorporated by reference to Exhibit 4 to the Company's Registration
Statement on Form 8- A/A dated April 21, 1995.
(5) Incorporated by reference to Exhibit 10(a) of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1987.
(6) Incorporated by reference to Exhibit 10(b) of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1987 and
Exhibit 10(i) of the Company's Annual Report on Form 10-K for fiscal
year ended December 31, 1989.
(7) Incorporated by reference to Exhibit 10(d) of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992.
(8) Incorporated by reference to Exhibit 10(e) of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992.
(9) Incorporated by reference to Exhibit 10(f) of the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1988.
(10) Incorporated by reference to Exhibit 10(g) of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1989.
(11) Incorporated by reference to Exhibit 10.7.2 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993.
(12) Incorporated by reference to Exhibit 10.8 of the Company's Annual
Report on Form 10- K for the fiscal year ended December 31, 1993.
83
<PAGE>
(13) Incorporated by reference to Exhibit 10.9 of the Company's Annual
Report on Form 10- K for the fiscal year ended December 31, 1994.
(14) Incorporated by reference to Exhibit 10(j) of the Company's Annual
Report on Form 10- K for the fiscal year ended December 31, 1992.
(15) Incorporated by reference to Exhibit 10.11 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994.
(16) Incorporated by reference to Exhibit 10 of the Company's Quarterly
Report on Form 10- Q for the quarter ended June 30, 1992.
(17) Incorporated by reference to Exhibit 10 of the Company's Quarterly
Report on Form 10- Q for the quarter ended June 30, 1993.
(18) Incorporated by reference to Exhibit 10.1 of the Company's Current
Report on Form 8- K dated April 27, 1994 (earliest event reported
April 7, 1994).
(19) Incorporated by reference to Exhibit 10.2 of the Company's Current
Report on Form 8- K dated April 27, 1994 (earliest event reported
April 7, 1994).
(20) Incorporated by reference to Exhibit 10.3 of the Company's Current
Report on Form 8- K dated April 27, 1994 (earliest event reported
April 7, 1994).
(21) Incorporated by reference to Exhibit 10.4 of the Company's Current
Report on Form 8- K dated April 27, 1994 (earliest event reported
April 7, 1994).
(22) Incorporated by reference to Exhibit 10.5 of the Company's Current
Report on Form 8- K dated April 27, 1994 (earliest event reported
April 7, 1994).
(23) Incorporated by reference to Exhibit 10.6 of the Company's Current
Report on Form 8- K dated April 27, 1994 (earliest event reported
April 7, 1994).
(24) Incorporated by reference to Exhibit 10.7 of the Company's Current
Report on Form 8- K dated April 27, 1994 (earliest event reported
April 7, 1994).
(25) Incorporated by reference to Exhibit 5 of the Company's Registration
Statement on Form 8-A/A, dated April 21, 1995.
(26) Incorporated by reference to Exhibit 22 of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1987.
84
ABIGAIL ADAMS NATIONAL BANCORP, INC.
EMPLOYEE INCENTIVE STOCK OPTION PLAN
1. PURPOSE
The purpose of this Employee Incentive Stock Option Plan (the "Plan") is to
give officers and executive personnel ("key employees") of Abigail Adams
National Bancorp, Inc. (The "Company") and The Adams National Bank (the
"Bank") an opportunity to acquire shares of the common stock of the
Company, $10.00, par value ("Common Stock") to provide an incentive for key
employees to continue to promote the best interests of the Company and
enhance its long-term performance, and to provide an incentive for key
employees to join or remain with the Company.
2. ADMINISTRATION
(a) BOARD OF DIRECTORS. The Plan shall be administered by the Board of
Directors of the Company (the "Board"), which, to the extent it shall
determine, may delegate its powers with respect to the administration of
the Plan (except its powers under Section 12(c) to a committee (the
"Committee") appointed by the Board and composed of not less than three
members of the Board. If the Board chooses to appoint a Committee,
references hereinafter to the Board (except in Section 12(c)) shall be
deemed to refer to the Committee. Notwithstanding the preceding provisions
of the Section, no member of the Board may exercise discretion with respect
to, or participate in, the administration of the Plan if, at any time
within one year prior to such exercise or participation, he or she has
received stock, stock options, stock appreciation rights or any other
derivative security pursuant to the Plan or any other plan of the Company
or any affiliate thereof as to which any discretion is exercised. This
restriction does not apply to a member who receives awards during such
period under a formula plan.
(b) POWERS. Within the limits of the express provisions of the Plan, the
Board shall determine:
(i) the key employees to whom awards hereunder shall be granted,
(ii)the time or times at which such awards shall be granted,
(iii) the form and amount of the awards, and
(iv) the limitations, restrictions and conditions applicable to any
such award.
<PAGE>
In making such determinations, the Board may take into account the nature
of the services rendered by such employees, or classes of employees, their
present and potential contributions to the Company's success and such other
factors as the Board in its discretion shall deem relevant.
(c) INTERPRETATIONS. Subject to the express provisions of the Plan, the
Board may interpret the Plan, prescribe, amend and rescind rules and
regulations relating to it, determine the terms and provisions of the
respective awards and make all other determinations it deems necessary or
advisable for the administration of the Plan.
(d) DETERMINATIONS. The determinations of the Board on all matters
regarding the Plan shall be conclusive. A member of the Board shall only be
liable for any action taken or determination made in bad faith.
(e) NON-UNIFORM DETERMINATIONS. The Board's determinations under the Plan,
including without limitation, determinations as to the persons to receive
awards, the terms and provisions of such awards and the agreements
evidencing the same, need not be uniform and may be made by it selectively
among persons who receive or are eligible to receive awards under the Plan,
whether or not such persons are similarly situated.
3. AWARDS UNDER THE PLAN
(a) FORM. Awards under the Plan may be granted in either or both the
following forms:
(i) Incentive Stock Options, as described in Section 4, and (ii) Stock
Appreciation Rights, as described in Section 6.
(b) MAXIMUM LIMITATIONS. The aggregate number of shares of Common Stock
available for grant under the Plan is 3,329, subject to adjustment pursuant
to Section 8. Shares of Common Stock issued pursuant to the Plan may be
either authorized but unissued shares or shares now or hereafter held in
the treasury of the Company. In the event that, prior to the end of the
period during which Incentive Stock Options under the Plan, any Incentive
Stock Options under the Plan expires unexercised or is terminated,
surrendered or canceled (other than in connection with the exercise of a
Stock Appreciation Right with respect to which common stock is delivered to
the key employee under Section 6(b)(ii)), without
<PAGE>
being exercised, in whole or in part, for any reason, the number of shares
theretofore subject to such Incentive Stock Option, or the unexercised,
terminated, forfeited or unearned portion thereof, shall be added to the
remaining number of shares of Common Stock available for grant as an
Incentive Stock Option under the Plan, including a grant to a former holder
of such Incentive Stock Option, upon such terms and conditions as the Board
shall determine, which terms may be more or less favorable than those
applicable to such former Incentive Stock Option.
(c) TEN PERCENT SHAREHOLDER. Notwithstanding any other provision herein
contained, no key employee may receive an Incentive Stock Option under the
Plan if such employee, at the time the award is granted owns (as defined in
Section 424(d) of the Internal Revenue Code, as amended (the "Code")) stock
possessing more than 10% of the total combined voting power of all classes
of stock of the Company, unless the option price for such Incentive Stock
Option is at least 110% of the fair market value of the Common Stock
subject to such Incentive Stock Option on the date of grant and such Option
is not exercisable after the date five years from the date such Option is
granted.
4. INCENTIVE STOCK OPTIONS
It is intended that Incentive Stock Options granted under the Plan shall
constitute Incentive Stock Options within the meaning of Section 422 of the
Code. Incentive Stock Options may be granted under the Plan for the
purchase of shares of Common Stock. Incentive Stock Options shall be in
such form and upon such conditions as the Board shall from time to time
determine, subject to the following:
(a) OPTION PRICES. The option price of each Incentive Stock Option shall be
at least 100% of the fair market value of the Common Stock subject to such
Incentive Stock Option on the date of grant.
(b) TERMS OF OPTIONS. No Incentive Stock Option shall be exercisable after
the date, ten years, from the date such Incentive Stock Option is granted.
(c) LIMITATION ON AMOUNTS. The aggregate fair market value (determined with
respect to each Incentive Stock Option as of the time such Incentive Stock
Option is granted) of the capital stock with respect to which Incentive
Stock Options are exercisable for the first time by a key employee during
any calendar year (under this
<PAGE>
Plan or any other plan of the Company) shall not exceed $100,000.
5. PROVISIONS APPLICABLE TO INCENTIVE STOCK OPTIONS
(a) EXERCISE. Incentive Stock Options shall be subject to such terms and
conditions, shall be exercisable at such time or times, and shall be
evidenced by such form of written option agreement between the optionee and
the Company, as the Board shall determine; provided, that such terms are
not inconsistent with the other provisions of the Plan, and with Section
422 of the Code or regulations thereunder.
(b) MANNER OF EXERCISE OF OPTIONS AND PAYMENT FOR COMMON STOCK. Incentive
Stock Options may be exercised by an optionee by giving written notice to
the Secretary of the Company stating the number of shares of Common Stock
with respect to which the Incentive Stock Option is being exercised and
tendering payment therefor. At the time that an Incentive Stock Option
granted under the Plan, or any part thereof, is exercised, payment for the
Common Stock issuable thereupon shall be made in full in cash or by
certified check or, if the Board at its discretion agrees to accept, in
shares of Common Stock of the Company (the number of shares paid for each
share subject to the Incentive Stock Option, or part thereof, being
exercised shall be determined by dividing the option price by the fair
market value per share of the Common Stock purchased, registered in the
name of the optionee shall be delivered to the optionee.
(c) CANCELLATION OF STOCK APPRECIATION RIGHTS. The exercise of any
Incentive Stock Option shall cancel that number, if any, of Stock
Appreciation Rights (as defined in Section 6) included in such Incentive
Stock Options, which is equal to the excess of (i) the number of shares of
Common Stock subject to Stock Appreciation Rights included in such
Incentive Stock, over (ii) the number of shares of Common Stock which
remain subject to such Incentive Stock Option after such exercise.
6. STOCK APPRECIATION RIGHTS
(a) AWARD. If deemed by the Board to be in the best interest of the
Company, any Incentive Stock Option granted under the Plan may include a
stock appreciation right ("Stock Appreciation Right"), either at the time
of grant or thereafter while the Incentive Stock Option is outstanding.
<PAGE>
(b) TERMS OF RIGHTS. Stock Appreciation Rights shall be subject to such
terms and conditions not inconsistent with the other provisions of the Plan
as the Board shall determine, provided that:
(i) LIMITATIONS. A Stock Appreciation Right shall be exercisable to
the extent, and only to the extent, the Incentive Stock Option in
which it is included is exercisable and shall be exercisable only for
such period as the Board may determine (which period may expire prior
to, but not later than, the expiration date of such Incentive Stock
Option). Notwithstanding the preceding sentence, a Stock Appreciation
Right is exercisable only when the fair market value of a share of
Common Stock exceeds the option price specified in such Incentive
Stock Option.
(ii) SURRENDER OR EXCHANGE. A Stock Appreciation Right shall entitle
the optionee to surrender to the Company unexercised the Incentive
Stock Option, or portion thereof, to which it is related, or any
portion thereof, and to receive from the Company in exchange therefor
that number of shares of Common Stock having an aggregate fair market
value equal to the excess of the fair market value on the date of
exercise of one share of Common Stock over the option price per share
specified in such Incentive Stock Option multiplied by the number of
shares of Common Stock subject to the Incentive Stock Option, or
portion thereof, which is so surrendered. The Board shall be entitled
to elect to settle any part or all of the Company's obligation arising
out of the exercise of a Stock Appreciation Right by the payment of
cash or by check equal to the aggregate fair market value on the date
on which the Stock Appreciation Right is exercised of that part or all
of the shares of Common Stock the Company would otherwise be obligated
to deliver.
(c) CASH SETTLEMENT RESTRICTION.
(i) Notwithstanding Section 6(b), so long as the grantee of a Stock
Appreciation Right is an officer of the Company, the Company's right
to elect to settle any part or all of its obligation arising out of
the exercise of a Stock Appreciation Right by the payment of cash or
by check shall not apply unless such exercise occurs no less than six
months after date of grant of the Right and either: (1) pursuant to
the provisions of subsection (ii) below, or (2) during the period
beginning on the third business day
<PAGE>
following the date of release by the Company for publication of its
quarterly or annual summary statements of sales and earnings and
ending on the twelfth business day following such date.
(ii) In the event that, pursuant to Section 9, the Company shall
cancel all unexercised Incentive Stock Options as of the effective
date of a merger or other transaction provided therein, or in the case
of dissolution of the Company, then each Stock Appreciation Right held
by an executive officer or director of the Company shall be
automatically exercised for cash on such date within 90 days prior to
the effective date of such transaction or dissolution as the Board
shall determine and, in the absence of such determination, on the last
business day immediately prior to such effective date.
7. TRANSFERABILITY
No Incentive Stock Option or Stock Appreciation Right may be transferred,
assigned, pledged or hypothecated (whether by operation of law or
otherwise), except as provided by will or the applicable laws of descent or
distribution, and no Incentive Stock Option or Stock Appreciation Right
shall be subject to execution, attachment or similar process. Any attempted
assignment, transfer, pledge, hypothecation or other disposition of an
Incentive Stock Option or Stock Appreciation Right, or levy of attachment
or similar process upon the Incentive Stock Option or Stock Appreciation
Right not specifically permitted herein shall be null and void and without
effect. An Incentive Stock Option or Stock Appreciation Right may be
exercised only by a key employee during his or her lifetime, or pursuant to
Section I I (c), by her/his or estate or the person who acquires the right
to exercise such Incentive Stock Option or Stock Appreciation Right upon
his or her death by bequest or inheritance.
8. ADJUSTMENT PROVISIONS
The aggregate number of shares of Common Stock with respect to which
Incentive Stock Options and Stock Appreciation Rights may be granted, the
aggregate number of shares of Common Stock subject to each outstanding
Incentive Stock Option and Stock Appreciation Right, and the option price
per share of each such Incentive Stock Option, may all be appropriately
adjusted as the Board may determine for any increase or decrease in the
number of shares of issued Common Stock resulting from a subdivision or
consolidation of shares, whether through
<PAGE>
reorganization, recapitalization, stock split-up, stock distribution or
combination of shares, or the payment of a share dividend or other increase
or decrease in the number of such shares outstanding effected without
receipt of consideration by the Company. Adjustments under this Section 8
shall be made according to the sole discretion of the Board, and its
decisions shall be binding and conclusive.
9. DISSOLUTION, MERGER AND CONSOLIDATION
Except as otherwise provided in Section 6(c)(ii), upon the dissolution or
liquidation of the Company, or upon a merger or consolidation of the
Company in which the Company is not the surviving corporation, each
Incentive Stock Option and Stock Appreciation Right granted hereunder shall
expire as of the ninetieth (90th) day following the effective date of such
event.
10. EFFECTIVE DATE AND CONDITIONS SUBSEQUENT TO EFFECTIVE DATE
The Plan shall become effective on the date of the approval of the Plan by
the holders of a majority of the shares of Common Stock of the Company;
provided, however, that the adoption of the Plan is subject to such
shareholder approval within twelve (12) months before or after the date of
adoption of the Plan by the Board. The Plan shall be null and void and of
no effect if the foregoing condition is not fulfilled, and in such event
each Incentive Stock Option or Stock Appreciation Right granted hereunder
shall, notwithstanding any of the preceding provisions of the Plan, be null
and void and of no effect.
No grant or award shall be made under the Plan more than ten years from the
earlier of the date of adoption of the Plan by the Board and shareholder
approval hereof; provided, however, that the Plan and all Incentive Stock
Options and Stock Appreciation Rights granted under the Plan prior to such
date shall remain in effect and subject to adjustment and amendment as
herein provided until they have been satisfied or terminated in accordance
with the terms of the respective grants or awards and the related
agreements.
11. TERMINATION OF EMPLOYMENT
(a) Each Incentive Stock Option and Stock Appreciation Right shall, unless
sooner expired pursuant to Section 11(b) or (c) below, expire on the first
to occur of the tenth anniversary of the date of grant thereof and the
expiration date set forth in the applicable option agreement,
<PAGE>
(b) The nonvested portion (if any) of an Incentive Stock Option and Stock
Appreciation Right shall expire on the first to occur of the applicable
date set forth in paragraph (a) of this Section 11 and the date that the
employment of the key employee with the Company terminates for any reason
other than death or disability. Notwithstanding the preceding provisions of
this paragraph, the Board, in its sole discretion, may, by written notice
given to an ex-employee, permit the ex- employee to exercise Incentive
Stock Options or Stock Appreciation Rights during a period following his or
her termination of employment, which period shall not exceed three months.
In no event, however, may the Board permit an ex-employee to exercise an
Incentive Stock Option or Stock Appreciation Right after the expiration
date contained in the agreement evidencing such Incentive Stock Option or
Stock Appreciation Right. Notwithstanding the preceding provision of this
paragraph, if the Board permits an ex-employee to exercise Incentive Stock
Options or Stock Appreciation Rights during a period following his or her
termination of employment pursuant to such preceding provisions, such
Incentive Stock Options or Stock Appreciation Rights shall, to the extent
unexercised, expire on the date that such ex-employee violates (as
determined by the Board) any covenant not to compete in effect between the
Company and the ex-employee.
(c) If the employment of a key employee with the Company terminates by
reason of disability (as defined in Section 422(c)(9) of the Code as
determined by the Board) or by reason of death, his or her Incentive Stock
Options and Stock Appreciation Rights, if any, shall expire on the first to
occur of the date set forth in paragraph (a) of this Section 11 and the
first anniversary of such termination of employment.
12. MISCELLANEOUS
(a) LEGAL AND OTHER REQUIREMENTS. The obligation of the Company to sell and
deliver Common Stock under the Plan shall be subject to all applicable
laws, regulations, rules and approvals, including, but not by way of
limitation, the effectiveness of a registration statement under the
Securities Act of 1933 if deemed necessary or appropriate by the Company.
Certificates for shares of Common Stock issued hereunder may be legended as
the Board shall deem appropriate.
(b) NO OBLIGATION TO EXERCISE OPTIONS. The granting of an Incentive Stock
Option shall impose no obligation upon an optionee to exercise such
Incentive Stock Option.
<PAGE>
(c) TERMINATION AND AMENDMENT OF PLAN. The Board, without further action on
the part of the shareholders of the Company, may from time to time alter,
amend or suspend the Plan or any Incentive Stock Option or Stock
Appreciation Right granted hereunder or may at any time terminate the Plan,
except that it may not, without the approval of the shareholders of the
Company (except to the extent provided in Section 8 hereof):
(i) Materially increase the total number of shares of Common Stock
available for grant under the Plan except as provided in Section 8;
(ii) Materially modify the class of eligible employees under the Plan;
(iii) Materially increase benefits to any key employee who is subject
to the restrictions of Section 16 of the Securities Exchange Act of
1934; or (iv) Effect a change relating to Incentive Stock Options
granted hereunder which is inconsistent with Section 422 of the Code
or regulations issued thereunder.
No action taken by the Board under this Section, either with or without the
approval of the shareholders of the Company, may materially and adversely
affect any outstanding Incentive Stock Option or Stock Appreciation Right
without the consent of the holder hereof.
(d) APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of Common Stock pursuant to Incentive Stock Options will be used for
general corporate purposes.
(e) WITHHOLDING TAXES. Upon the exercise of any Incentive Stock Option or
Stock Appreciation Right, the Company shall have the right to require the
optionee to remit to the Company an amount sufficient to satisfy all
federal, state and local withholding tax requirements prior to the delivery
of any certificate or certificates for shares of Common Stock.
Upon the disposition of any Common Stock acquired by the exercise of an
Incentive Stock Option, the Company shall have the right to require the
optionee to remit to the Company an amount sufficient to satisfy all
federal, state and local withholding tax requirements as a condition to the
registration of the transfer of such Common Stock on its books. Whenever
under the Plan payments are to be made by the Company in cash or by check,
such payments shall be net of any amounts sufficient to satisfy all
federal, state and local withholding tax requirements.
<PAGE>
(f) RIGHT TO TERMINATE EMPLOYMENT. Nothing in the Plan or any agreement
entered into pursuant to the Plan shall confer upon any key employee or
other optionee the right to continue in the employment of the Company or
affect any right which the Company may have to terminate the employment of
such key employee or other optionee.
(g) RIGHTS AS A SHAREHOLDER. No optionee shall have any right as a
shareholder unless and until certificates for shares of Common Stock are
issued to him or her.
(h) LEAVES OF ABSENCE AND DISABILITY. The Board shall be entitled to make
such rules, regulations and determinations as it deems appropriate under
the Plan in respect of any leave of absence taken by or disability of any
key employee. Without limiting the generality of the foregoing, the Board
shall be entitled to determine (I) whether or not any such leave of absence
shall constitute a termination of employment within the meaning of the
Plan, and (ii) the impact, if any of any such leave of absence on awards
under the Plan theretofore made to any key employee who takes such leave of
absence.
(i) FAIR MARKET VALUE. Whenever the fair market value of Common Stock is to
be determined under the Plan as of a given date, such fair market value
shall be:
(i) If the Common Stock is actively traded on the over-the-counter
market, the average of the bid and the asked price for the Common
Stock at the close of trading for the ten consecutive trading days
immediately preceding such given date;
(ii) If the Common Stock is listed on a national securities exchange,
the average of the closing prices of the Common Stock on the Composite
Tape for the 10 consecutive trading days immediately preceding such
given date; and
(iii) If the Common Stock is neither actively traded on the
over-the-counter market nor listed on a national securities exchange,
such value as the Board, in good faith, shall determine.
Notwithstanding any provision of the Plan to the contrary, no determination
made with respect to the fair market value of Common Stock subject to an
Incentive Stock Option shall be inconsistent with Section 422 of the Code
or regulations thereunder.
<PAGE>
(j) NOTICES. Every direction, revocation or notice authorized or required
by the Plan shall be deemed delivered to the Company (1) on the date it is
personally delivered to the Secretary of the Company at its principal
executive offices, or (2) three business days after it is sent by
registered or certified mail, postage prepaid, addressed to the Secretary
at such offices, and shall be deemed delivered to an optionee (1) on the
date it is personally delivered to him or her, or (2) three business days
after it is sent by registered or certified mail, postage prepaid,
addressed to him or her at the last address shown for him or her on the
records of the Company.
(k) APPLICABLE LAW. All questions pertaining to the validity, construction
and administration of the Plan and Stock Options and Stock Appreciation
Rights granted hereunder shall be determined in conformity with the laws of
Delaware, to the extent not inconsistent with Section 422 of the Code and
regulations thereunder.
(1) ELIMINATION OF FRACTIONAL SHARES. If under any provision of the Plan
which requires a computation of the number of shares of Common Stock
subject to an Incentive Stock Option or Stock Appreciation Right, the
number so computed is not a whole number of shares of Common Stock, such
number of shares of Common Stock shall be rounded down to the next whole
number.
This plan is adopted this day _______ by Abigail Adams National Bancorp, Inc.
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC.
INCENTIVE STOCK OPTION AGREEMENT
An Incentive Stock Option ("Option") is hereby granted by Abigail Adams National
Bancorp, Inc. (The "Company"), to the Key Employee named below ("Optionee"), for
and with respect to common stock of the Company, $10.00 par value per share
("Common Stock"), subject to the following terms and conditions:
1. Subject to the provisions set forth herein and the terms and conditions of
The Adams National Bank Employee Incentive Stock Option Plan ("Plan"), the
terms of which are hereby incorporated by reference, and in consideration
of the agreements of Optionee herein provided, the Company hereby grants to
Optionee:
(a) an option intended to be an Incentive Stock Option within the meaning
of Section 422 of the Internal Revenue Code ("Code") as amended and
regulations issued thereunder to purchase from the Company the number of
shares of Common Stock, at the purchase price per share, and on the
schedule, all as set forth below; and
(b) Name of Optionee:
Number of Shares
Subject to Option: shares
Option Price per Share: $ 23.78
Date of Grant: January 23, 1996
Expiration Date: January 22, 2006
2. The exercise of the Option is conditioned upon the acceptance by Optionee
of the terms hereof as evidenced by her/his execution of this agreement in
the space provided therefor at the end hereof and the return of an executed
copy to the Secretary of the Company.
If Optionee's employment with the Company is terminated for any reason,
other than for death or disability, the nonvested portion (if any) of the
Option shall expire on the date of termination of employment. The Options
granted by this agreement shall become one hundred percent (100%) vested at
the date of grant. Such vested portion of the Options shall expire three
(3) months from the date of termination of employment. If Optionee's
employment with the Company is terminated due to her/his disability or
death, the Option shall expire on the earlier
<PAGE>
of the first anniversary of such termination of employment and the date the
Option expires in accordance with its terms. During such periods the Option
may be exercised by Optionee with respect to the same number of shares of
Common Stock, in the same manner, and to the same extent as if Optionee had
continued in employment during such period and the Option shall be canceled
with respect to all remaining shares of Common Stock; provided that in the
event Optionee shall die at a time when the Option, or a portion thereof,
is exercisable by her/him, the Option shall be exercisable in whole or in
part during the applicable period set forth herein by a legatee or legatees
of the Option under Optionee's will, or by her/his executors personal
representatives or distributees, with respect to the number of shares of
Common Stock which Optionee could have purchased hereunder on the date of
her/his death and the Option shall be canceled with respect to all
remaining shares of Common Stock.
Written notice of an election to exercise any portion of the Option,
specifying the portion thereof being exercised and the exercise date, shall
be given by Optionee, or her/his personal representative in the event of
Optionee's death, (I) by delivering such notice at the principal executive
offices of the Company no later than the exercise date, or (ii) by mailing
such notice, postage prepaid, addressed to the Secretary of the Company at
the principal executive offices of the Company at least three business days
prior to the exercise date.
3. The Option may be exercised only by Optionee during her/his lifetime and
may not be transferred other than by will or the applicable laws of descent
or distribution. The Option shall not otherwise be transferred, assigned,
pledged or hypothecated for any purpose whatsoever and is not subject, in
whole or in part, to execution, attachment, or similar process. Any
attempted assignment, transfer, pledge or hypothecation or other
disposition of the Option, other than in accordance with the terms set
forth herein, shall be void and of no effect.
4. Neither Optionee nor any other person entitled to exercise the Option under
the terms hereof shall be, or have any of the rights or privileges of, a
shareholder of the Company in respect of any of the shares of Common Stock
issuable on exercise of the Option, unless and until the purchase price for
such shares shall have been paid in full.
5. In the event the Option shall be exercised in whole, this agreement shall
be surrendered to the Company for cancellation. In the event the Option
shall be exercised in part, or a change in the number or designation of the
Common Stock
<PAGE>
shall be made, this agreement shall be delivered by Optionee to the Company
for the purpose of making appropriate notation thereon, or of otherwise
reflecting, in such manner as the Company shall determine, the partial
exercise or the change in the number or designation of the Common Stock.
6. The Option shall be exercised in accordance with such administrative
regulations as the Committee shall from time to time adopt to the extent
not inconsistent with Section 422 of the Code and regulations issued
thereunder.
7. The Option and this agreement shall be construed, administered and governed
in all respects under and by the laws of Delaware to the extent not
inconsistent with Section 422 of the Code and regulations issued
thereunder.
ABIGAIL ADAMS NATIONAL BANCORP, INC.
By: ___________________________
The undersigned hereby accepts the foregoing Option and the terms and
conditions hereof.
---------------------------
Key Employee
ABIGAIL ADAMS NATIONAL BANCORP, INC.
DIRECTORS STOCK OPTION PLAN
1. PURPOSE
The purpose of the Stock Option Plan (the "Plan") is to give directors
("Directors") of Abigail Adams National Bancorp, Inc. (the "Company") and
The Adams National Bank (the "Bank"), an opportunity to acquire shares of
the common stock of the the Company, $10 par value ("Common Stock"), to
provide an incentive for such Directors to continue to promote the best
interests of the Company and enhance its long-term performance, and to
provide an incentive for Directors to join or remain with the Company.
2. AWARDS UNDER THE PLAN
(a) FORM
Awards under the Plan shall be granted in the form of nonstatutory stock
options ("Stock Options"), as described in Section 3.
(b) MAXIMUM LIMITATIONS
The aggregate number of shares of Common Stock available for grant under
the Plan is 2,143 shares, subject to adjustment pursuant to Section 7.
Stock Options for 2,143 shares shall be allocated to each director who
holds such position on the date of the grant based upon the total months of
1995 board service performed by each director prior to the date of this
plan. Shares of Common Stock issued pursuant to the Plan may be either
authorized but unissued shares or shares now or hereafter held in the
treasury of the Company. In the event that, prior to the end of the period
during which Stock Options may be granted under the Plan, any Stock Option
under the Plan expires unexercised or is terminated, surrendered or
canceled without being exercised, in whole or in part, for any reason, the
number of shares theretofore subject to such Stock Option or the
unexercised, terminated, forfeited or unearned portion thereof, shall be
added to the remaining number of shares of Common Stock available for grant
as a Stock Option under the Plan, including a grant to a former holder of
such Stock Option, upon such terms and conditions of this Plan.
<PAGE>
(c) ADJUSTMENT PROVISIONS
The aggregate number of shares of Common Stock with respect to which Stock
Options may be granted, the aggregate number of shares of Common Stock
subject to each outstanding Stock Option, and the exercise price per share
of each such Stock Option, may all be appropriately adjusted as the Board
may determine for any increase or decrease in the number of shares of
issued Common Stock resulting from a subdivision or consolidation of
shares, whether through reorganization, recapitalization, stock split-up,
stock distribution or combination of shares, or the payment of a share
dividend or other increase or decrease in the number of such shares
outstanding effected without receipt of consideration by the Company.
Adjustments under this Section 2(c) shall be made according to the sole
discretion of the Board, and its decisions shall be binding and conclusive.
3. STOCK OPTIONS
Stock Options may be granted under the Plan for the purchase of shares of
Common Stock. Stock Options shall be in such form and upon such terms and
conditions as follows:
(a) EXERCISE
Stock Options shall be subject to such terms and conditions, shall be
exercisable at such time or times, and shall be evidenced by such form of
written option agreement ("Option Agreement") between the Director and the
Company, pursuant to this plan.
(b) EXERCISE PRICE
The per share exercise price of each Stock Option shall be fixed by the
Board of Directors in the Option Agreement, but shall not be less than
eighty-five percent (85%) of the fair market value of the Common Stock
subject to such Stock Option on the date of grant.
(c) TERM OF STOCK OPTIONS
Each Stock Option shall become exercisable at the time, and for the number
of shares of Common Stock, fixed by the Stock Option Agreement. Each Stock
Option shall expire and all rights to purchase Common Stock thereunder
shall cease on the date fixed on the Option Agreement, which shall not be
later than the date ten
<PAGE>
(10) years from the date such Stock Option is granted.
(d) Any Stock Option granted under the Plan may be exercised by the
Director, by a legatee or legatees of such Stock Option under the
Director's last will or by his or her executors, personal representatives
or distributees, or by his or her assignees as shown in Section 4 below,
(I) by delivering to the Secretary of the Company written notice of the
number of shares of Common Stock with respect to which the Stock Option is
being exercised, or (ii) by delivering such notice to broker-dealer with a
copy to the Secretary of the Company. Except as otherwise provided in the
Plan or in any Option Agreement the purchase price of Common Stock upon
exercise of any Stock Option by a Director shall be paid in full (I) in
cash or certified check by the Director, (ii) by a broker dealer to whom
the Director has submitted an exercise notice consisting of a fully
endorsed Stock Option, (iii) in Common Stock valued at its fair market
value on the date of exercise, (iv) by agreeing to surrender Stock Options
then exercisable by him or her valued at the excess of the aggregate fair
market value of the Common Stock subject to such Stock Options on the date
of exercise over the aggregate option exercise price of such Common Stock,
(v) by directing the company to withhold such number of shares of Common
Stock otherwise issuable upon exercise of such Stock Option having an
aggregate fair market value on the date of exercise equal to the exercise
price of the Stock Option, or by any combination of (I), (ii), (iii), (iv),
(v) and (vi). In the case of payments pursuant to (ii), (iii), (iv), (v) or
(vi) above, the Director's election must be made on or prior to the date of
exercise of the Stock Option and must be irrevocable. In the case of a
Director who is an insider subject to Section 16 of the Securities Exchange
Act of 1934 ("Section 16 Insider") and who elects payment pursuant to (v)
above, the election must be made in writing either (A) within ten (10)
business days beginning on the third business day following such day, or
(B) at least six (6) months prior to the date of exercise of such Stock
Option. The Company shall issue, in the name of the Director, Stock
Certificates representing the total number of shares of Common Stock
issuable pursuant to the exercise of any Stock Option as soon as reasonably
practicable after such exercise.
(e) Whenever the Company proposes or is required to issue or transfer
shares of Common Stock to a Director under the Plan, the Company shall have
the right to require the Director to remit to the Company an amount
sufficient to satisfy all federal, state and local withholding tax
requirements prior to the delivery of any certificate or certificates for
such shares, If such certificates have been delivered prior to the time a
withholding obligation arises, the Company shall have the right to require
Director to remit to the Company an amount sufficient to satisfy all
federal,
<PAGE>
state or local withholding tax requirements at the time such obligation
arises and to withhold from other amounts payable to the director, as
compensation or otherwise, as necessary, Whenever payments under the Plan
are to be made to a Director in cash, such payments shall be net of any
amounts sufficient to satisfy all federal, state and local withholding tax
requirements. In lieu of requiring a Director to make a payment to the
Company in an amount related to the withholding tax requirement, the
Company may, in its discretion, provide that the Director's election, the
tax withholding obligation shall be satisfied by the Company's withholding
a portion of the shares otherwise distributable to the Director, such
shares being valued at their fair market value at the date of exercise, or
by the Director's delivering to the Company a portion of the shares
previously delivered by the Company, such shares being valued at their fair
market value as the date of delivery of such shares by the Director to the
Company.
Notwithstanding any provision of the Plan to the contrary, (I) a Section 16
Insider's election pursuant to the preceding sentence must be made in
writing either (A) during the period beginning on the third business day
following the date of release of 10 quarterly or annual summary of earnings
and ending on the 12th business day following such day, or (B) at least six
months prior to the date the income is realized.
4. TRANSFERABILITY
No Stock Option may be transferred, assigned, pledged or hypothecated
(whether by operation of law or otherwise), except as provided by will or
the applicable laws of descent or distribution, and no Stock Option shall
be subject to execution, attachment or similar process. Any attempted
assignment, transfer, pledge, hypothecation or other disposition of a Stock
Option, or levy or attachment similar process upon the Stock Option not
specifically permitted herein shall be null and void and without effect. A
Stock Option may be exercised only by a Director during his or her
lifetime, or pursuant to Section 9(c), by his or her estate or the person
who acquires the right to exercise such Stock Option upon his or her death
by bequest or inheritance.
5. DISSOLUTION
Upon the dissolution or liquidation of the Company, each Stock Option
granted hereunder shall expire as of the ninetieth (90th) day following the
effective date of
<PAGE>
such transaction.
6. EFFECTIVE DATE AND CONDITION SUBSEQUENT TO EFFECTIVE DATE
(a) The Plan shall become effective on the date of the approval of the Plan
by the holders of a majority of the shares of Common Stock of the Company,
and the Plan shall be null and void and of no effect if such condition is
not fulfilled, and in such event each Stock Option granted hereunder shall,
notwithstanding any of the preceding provision of the Plan, be null and
void and of no effect.
(b) No grant or award shall be made under the Plan more than ten (10) years
from the date of adoption of the Plan by the Board, provided, however, that
the Plan and all Stock Options granted under the Plan prior to such date
shall remain in effect and subject to adjustment and amendment as herein
provided until they have been satisfied or terminated in accordance with
the terms of the respective grants or awards and the related Option
Agreements.
7. TERMINATION OF DIRECTORSHIP
(a) A Stock Option shall expire on the first to occur of the expiration
date set forth in the applicable Option Agreement.
(b) If the Directors service on the Board of Directors of the Company and
all subsidiaries terminates by reason of disability (as determined by the
Board) or by reason of death, his or her stock Options, if any shall expire
on the first to occur of the expiration date set forth in the applicable
Option Agreement and the second anniversary of such termination of
directorship.
(c) If the Directors service on the Board of Directors of the Company and
all subsidaries terminates by reason other than disability or death, his or
her stock Options, if any shall expire on the first to occur of the
expiration date set forth in the applicable Option Agreement and the second
anniversary of such termination of directorship.
8. CHANGE IN CONTROL
In the event that:
<PAGE>
(I) any person (as such term is used in Section 13 of the Securities and
Exchange Act of 1934 and the rules and regulation thereunder and
including any affiliate or associate of such person, as defined in
Rule 12b- 2 under said Act, and any person acting in concert with such
person) directly or indirectly acquires or otherwise become entitled
to vote more than eighty percent (80%) of the voting power entitled to
be cast at election for directors ("Voting Power") of the Company; or
(ii) there occurs any merger or consolidation of the Company, or any sale,
lease or exchange of all or any substantial part of the consolidated
assets of the Company and its subsidiaries to any other person and (A)
in the case of a merger or consolidation, the holders of outstanding
stock of the Company entitled to vote in elections of directors
immediately before such merger or consolidation (excluding for this
purpose any person, including any Affiliate or Associate that directly
or indirectly owns or is entitled to vote twenty percent (20%) or more
of the Voting Power of the Company) hold less than eighty percent
(80%) of the Voting Power of the survivor of such merger or
consolidation or its parent; or (B) in the case of any such sale,
lease or exchange, the Company does not own at least eighty percent
(80%) of the Voting Power of the other person; or
(iii)one or more new directors of the company are elected and at such time
five or more directors (or, if less, a majority of the directors) then
holding office were not nominated as candidates by majority of the
directors in office immediately before such election.
The Option will be deemed to apply to the securities to which a holder of the
number of shares of Common Stock subject to the unexercised portion of the
Option would be entitled if he or she actually owned such shares immediately
prior to the record date or other times any such event became effective.
Outstanding and unexercised Stock Options previously granted shall immediately
become fully vested and exercisable.
<PAGE>
9. MISCELLANEOUS
(a) NO OBLIGATION TO EXERCISE OPTIONS The granting of a Stock Option shall
impose no obligation upon a Director to exercise such Stock Option.
(b) TERMINATION AND AMENDMENT OF PLAN
The Board, without further action on the part of the shareholders of the
company, may from time to time alter, amend or suspend the Plan or any
Stock Option granted hereunder or may at any time terminate the Plan,
except that, unless approved by the shareholders in accordance with Section
8 hereof, it may not (except to the extent provided in Section 2 (c)
hereof); (I) materially increase the total number of shares of Common Stock
available for grant to Section 16 Insiders under the Plan; (ii) materially
increase benefits to Section 16 Insiders under the plan; or (iii)
materially change the class of Section 16 Insiders eligible to be granted
Stock Options under the Plan. No action taken by the Board under this
Section may materially and adversely affect any outstanding Stock Option
without the consent of the holder thereof.
(c) APPLICATION OF FUNDS
The proceeds received by the Company from the sale of Common Stock pursuant
to Stock Options will be used for general corporate purposes.
(d) RIGHT TO TERMINATE DIRECTORSHIP
Nothing in the Plan or any agreement entered into pursuant to the plan
shall confer upon any Director the right to continue on the Board of
Directors of the Company or any Subsidiary or affect any right which the
Company or any Subsidiary may have to terminate the board service of such
Director.
(e) RIGHTS AS A SHAREHOLDER
No Director shall have any right or privileges as a shareholder unless and
until certificates for shares of Common Stock are issuable to him or her.
<PAGE>
(f) FAIR MARKET VALUE
Whenever the fair market value of Common Stock is to be determined under
the Plan as of a given date, such fair market value shall be:
(I) If the Common Stock is actively traded on an exchange or market
in which prices are reported on a bid and asked basis, the
average of the mean between the bid and the asked price for the
Common Stock at the close of trading for the ten (10) consecutive
days immediately preceding such given date; and
(II) If the Common Stock is principally traded listed on a national
securities exchange, the average of the closing prices of the
Common Stock on the Composite Tape for the ten (10) consecutive
trading days immediately preceding such given date; and
(III)If the Common Stock is neither actively traded on the
over-the-counter market nor listed on a national securities
exchange, such value as the Board, in good faith shall determine
(g) NOTICES
Every direction, revocation or notice authorized or required by the Plan
shall be deemed delivered to the Company (a) on the date it is personally
delivered to the Secretary of the Company at its principal executive
offices or (b) three business days after it is sent by registered or
certified mail; postage prepaid, addressed to the Secretary at such
offices; and shall be deemed delivered to an optionee (a) on the date it is
personally delivered to him or her or (b) three business days after it is
sent by registered or certified mail, postage prepaid, addressed to him or
her at the last address shown for him or her on the records of the Company.
(h) APPLICABLE LAW
All questions pertaining to the validity, construction and administration
of the Plan and, Stock Options granted hereunder shall be determined in
conformity with the laws of Delaware.
<PAGE>
(i) ELIMINATION OF FRACTIONAL SHARES
If under any provision of the Plan that requires a computation of the
number of shares of Common Stock subject to a Stock Option, the number so
computed is not a whole number of shares of Common Stock, such number of
shares of Common Stock shall be rounded down to the next whole number.
This plan is adopted this day _________by Abigail Adams National Bancorp, Inc.
<PAGE>
Abigail Adams National Bancorp, Inc.
Stock Option Agreement
A nonqualified stock option ('Stock Option") is hereby granted by Abigail Adams
National Bancorp, Inc., (the "Company"), to the director named below (Director),
for and with respect to common stock of the Company, $10 par value per share
("Common Stock"), subject to the following terms and conditions:
1. Subject to the provisions set forth herein and the terms and conditions of
the Abigail Adams National Bancorp Inc.'s Directors Stock Option Plan
("Plan"), the terms of which are hereby incorporated by reference, and in
consideration of the agreements of Director herein provided, the Company
hereby grants to Director a Stock Option to purchase from the Company the
number of shares of Common Stock, at the purchase price per share, and on
the schedule, all as set forth below. At the time of exercise of the Stock
Option, payment of the purchase price must be made in cash, or if the
Committee charged with the administration of the Plan in its discretion
agrees to so accept, then by the delivery to the Company of other Common
Stock owned by Director, valued at its fair market value on the date of
exercise, or in some combination of cash and such Common Stock so valued.
Upon the exercise of a Stock Option, the Committee shall have the right to
require the Director to remit to the Company, in any such manner or
combination of manners permitted under the terms of the Plan, an amount
sufficient to satisfy all federal, state and local withholding tax
requirements prior to the delivery by the Company of any certificate for
shares of Common Stock.
Name of Director:
Number of Shares Subject to Stock Option: shares
Exercise Price Per Share: $ 20.21
Date of Grant: January 23, 1996
<PAGE>
Vesting Schedule: 20% at the end of each year
beginning on December 31, 1996
and ending on December 31, 2000.
However, in the event of a Change
in Control (as defined in the
Directors Stock Option Plan), or in
the event the Director's service on
the Board of Directors of the
Company and all subsidiaries
terminates, all options granted shall
become immediately fully vested.
Commencement Date: Vested options may be exercised at
any time prior to the expiration
date.
Expiration Date: January 22, 2006
2. The exercise of the Stock Option is conditioned upon the acceptance by
Director of the terms hereof as evidenced by his execution of this
Agreement and the return of an executed copy to the Secretary of the
Company.
If Director's service on the Board of Directors of the Company and its
parent and all subsidiaries is terminated for any reason, the Stock Option
shall expire on the earlier of the second anniversary of such termination
of directorship or the date the Stock Option expires in accordance with
Paragraph 1 above. During such periods the Stock Option may be exercised by
Director with respect to the same number of shares of Common Stock, in the
same manner, and to the same extent as if Director had conditioned
directorship during such period and the Stock Option shall be canceled with
respect to all remaining shares of Common Stock; provided that in the event
Director shall die at a time when the Stock Option, or a portion thereof,
is exercisable by him, the Stock Option shall be exercisable in whole or in
part during the applicable period set forth herein by a legatee or legatees
of the Stock Option under Key Employee's will, or by his executors,
personal representatives or distributes, with respect to the number of
shares of common stock that Director could have purchased hereunder on the
date of his death and the Stock Option shall be canceled with respect to
all remaining shares of Common Stock.
<PAGE>
Written notice of an election to exercise any portion of the Stock Option,
specifying the portion thereof being exercised and the exercise date, shall
be given by Director, or his personal representative in the event of
Director's death, (I) by delivering such notice at the principal executive
offices of the Company no later than the exercise date, or (ii) by mailing
such notice, postage prepaid, addressed to the Secretary of the Company at
the principal executive offices of the Company at least three business days
prior to the exercise date.
3. The Stock Option may be exercised only by Director during his lifetime and
may not be transferred other than by will or the applicable laws of descent
or distribution. The Stock Option shall not otherwise be transferred,
assigned, pledged or hypothecated for any purpose whatsoever and is not
subject, in whole or in part, to execution, attachment, or similar process.
Any attempted assignment, transfer, pledge or hypothecation or other
disposition of the Stock Option, other than in accordance with the terms
set forth herein, shall be void and of no effect.
4. Neither Director nor any other person entitled to exercise the Stock Option
under the terms hereof shall be, or have any of the rights or privileges
of, a shareholder of the Company in respect of any of the shares of Common
Stock issuable on exercise of the Stock Option, unless and until the
purchase price of such shares shall have been paid in full.
5. In the event the Stock Option shall be exercised in whole, the Agreement
shall be surrendered to the Company for cancellation. In the event the
Stock Option shall be exercised in part, or a change in the number or
designation of the Common Stock shall be made, this Agreement shall be
delivered by Director to the Company for the purpose of making appropriate
notation thereon, or of otherwise reflecting, in such manner as the Company
shall determine, the partial exercise or the change in the number or
designation of the Common Stock.
<PAGE>
6. The Stock Option and this Agreement shall be construed, administered and
governed in all respects under an by the laws of Delaware.
Abigail Adams National Bancorp, Inc.
By: __________________________
The undersigned hereby accepts the foregoing Stock Option and the terms and
conditions hereof.
-------------------------------
Director
ABIGAIL ADAMS NATIONAL BANCORP, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
Barbara Davis Blum, Optionee:
Abigail Adams National Bancorp, Inc. (the "Company") hereby grants to
you, the Optionee named above, an Option to purchase shares of the common stock
of the Company ("Common Stock"). You have been awarded this Option in connection
with your services to the Company and the Company's wholly-owned subsidiary The
Adams National Bank (the "Bank"). This Option is not intended to qualify as an
"incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"). The date of grant of this Option
is February 20, 1996.
The details of your Option are as follows:
1. The total number of shares subject to this Option is Twenty-Five
Thousand (25,000). Twenty percent (20%) of the shares subject to this Option (or
5,000 shares) shall vest and become exercisable at each year-end, beginning on
December 31, 1996 and ending on December 31, 2000. In the event your employment
with the Company and the Bank shall terminate, or in the event of a Change in
Control (as defined in the Employment Agreement dated February 20, 1996 by and
among you, the Company and the Bank (the "Employment Agreement")), 100% of the
shares subject to this Option (or 25,000 shares) shall immediately fully vest
and become exercisable.
2. (a) The Exercise Price of this Option is Twenty Dollars and
Twenty-One Cents ($20.21) per share, which the Company believes is equal to 85%
of the fair market value of the Common Stock on the date of the grant of this
Option.
(b) The Exercise Price per share shall be paid upon exercise of all
of any part of this Option by you at the time the Option is exercised in cash or
a check payable to the order of the Company, in Common Stock, or a combination
of Common Stock and cash or a check.
3. The minimum number of shares with respect to which this Option may
be exercised at any one time is ten (10). This Option may not be exercised so as
to purchase fractional shares.
4. The term of this Option commences on the date of the grant hereof
and, unless sooner terminated as set forth below, terminates on the date which
is ten (10) years from the date of the grant of this Option. This Option shall
terminate prior to the expiration of its term two years after the termination of
your employment with the Company and the Bank for any reason, including by
reason of your death or Disability (as defined in the Employment Agreement).
Notwithstanding the foregoing provisions of this paragraph 4, no Option shall be
exercisable later than the date on which the Option would otherwise expire
pursuant to the first sentence of this paragraph 4.
5. This Option may be exercised, to the extent specified above, by
delivering written notice of exercise together with the Exercise Price to the
Secretary of the Company, or to such other person as the Company may designate,
during regular business hours, together with such additional documents as the
Company may then require.
1
<PAGE>
6. This Option is not transferable, except by will or by the laws of
descent and distribution or pursuant to the terms of a "qualified domestic
relations order" within the meaning of Section 414(p) of the Code, and is
exercisable during your life only by you, your personal representative or a
permitted transferee. The terms of this Option shall be binding upon the
beneficiaries, executors, administrators, heirs and successors of the Optionee.
7. Any notices provided for in this Option shall be given in writing
and shall be deemed effectively given upon receipt or, in the case of notices
delivered by the Company to you, five (5) days after deposit in the United
States mail, postage prepaid, addressed to you at the address specified below or
at such other address as you hereafter designate by written notice to the
Company.
8. By accepting this grant and the shares of Common Stock covered
thereby, and by signing this instrument, you acknowledge that you are familiar
with the terms of the grant, that you have been encouraged by the Company to
discuss the grant with your own legal, tax and business advisers, and that you
agree to be bound by the terms of the grant.
9. You acknowledge that federal and state income tax withholding and
payroll tax may apply upon exercise of this Option or upon certain other events
related to the shares acquired upon exercise of this Option. You agree that such
withholding may be accomplished with respect to the cash compensation (if any)
due to you from the Company or the Bank. If withholding pursuant to the
foregoing sentence is insufficient (in the sole judgment of the Company) to
satisfy the full withholding obligation, you agree that at the election of the
Company either: (a) you will pay over to the Company the amount of cash or, if
permitted by applicable law and acceptable to the Company, property with a value
necessary to satisfy such remaining withholding obligation on the date the
Option is exercised or at a time thereafter specified in writing by the Company;
or (b) the Company may, if permitted by applicable law, withhold an amount of
Optioned Shares equal in value (as of the date of Option exercise) to the amount
of the remaining withholding obligation. Upon due notice to you and if permitted
by applicable law, the Company may satisfy the entire withholding obligation by
withholding shares as provided in (b) above in lieu of withholding from you cash
compensation.
10. The Company hereby grants you the following registration rights in
connection with the shares ("Shares") subject to this Option:
(a) Incidental Registration. (i) If the Company proposes to
register any of its securities under the Securities Act of 1933, as amended (the
"Securities Act") (other than by a registration on Form S-4, S-8 or any
successor or similar forms), whether or not for sale for its own account, it
will at such time give prompt written notice to you of its intention to do so
and of your rights hereunder. Upon written request made by you within 20 days
after the receipt of such notice, the Company will use its best efforts to
effect the registration under the Securities Act of all Shares which the Company
has been so requested to register by you, by inclusion of such Shares in the
registration statement which covers the securities which the Company proposes to
register, provided that if, at any time after giving written notice of its
intention to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason either not to register or to delay registration
of such securities, the Company may, at its election, give written notice of
such determination to you and, thereupon, (A) in the case of a determination not
to register, shall be relieved of its obligation to register any Shares in
connection with such registration (but not from its obligation to pay the
registration expenses in
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connection therewith), without prejudice, however, to your right to request that
such registration be effected as a registration under Section 10(b) hereof, and
(B) in the case of a determination to delay registering, shall be permitted to
delay registering any Shares, for the same period as the delay in registering
such other securities. No registration effected under this Section 10(a) shall
relieve the Company of its obligation to effect any registration upon request
under Section 10(b), nor shall any such registration hereunder be deemed to have
been effected pursuant to Section 10(b).
(ii) If the registration pursuant to Section 10(a) involves an
underwritten offering of the securities so being registered, whether or not for
sale for the account of the Company, to be distributed (on a firm commitment
basis) by or through one or more underwriters of recognized standing under
underwriting terms appropriate for such a transaction, the managing underwriter
of such underwritten offering shall inform the Company and you by letter of its
belief that the distribution of all or a specified number of such Shares
concurrently with the securities being distributed by such underwriters would
interfere with the successful marketing of the securities being distributed by
such underwriters (such writing to state the basis of such belief and the
approximate number of such Shares which may be distributed without such effect),
then the Company may, upon written notice to you, reduce (if and to the extent
stated by such managing underwriter to be necessary to eliminate such effect)
the number of such Shares the registration of which shall have been requested by
you so that the resultant number of such Shares so included in such registration
shall be equal to the number of Shares stated in such managing underwriter's
letter.
(iii) The Company shall pay all registration expenses in
connection with all registrations requested pursuant to this Section 10(a).
(b) Registration on Request. (i) If you request in writing that the
Company effect the registration under the Securities Act of all or part of the
Shares, the Company will use its best efforts to effect the registration under
the Securities Act of the Shares to permit the disposition of the Shares in an
underwritten offering, provided that you shall be entitled to not more than one
registration upon request, and provided further that the Company will not be
required to register securities under this Section 10(b) to the extent that in
the opinion of the Company's counsel, which shall be reasonably satisfactory to
you, the sale of the Shares covered by the written request for registration may
be affected pursuant to Rule 144 or otherwise without registration within a 90
day period.
(ii) The Company will pay all registration expenses in
connection with registration requested pursuant to this Section 10(b).
(iii) A registration requested pursuant to this Section 10(b)
shall not be deemed to have been effected (A) unless a registration statement
with respect thereto has become effective, (B) if, after it has become
effective, such registration is interfered with by any stop order, injunction or
other order or requirement of the SEC or other governmental agency or court for
any reason, or (C) the conditions to closing specified in the underwriting
agreement entered into in connection with such registration are not satisfied.
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(iv) If a requested registration pursuant to this Section
10(b) shall involve an underwritten offering, and the managing underwriter shall
advise the Company in writing (with a copy to you) that, in its opinion, the
number of securities requested to be included in such registration exceeds the
number which can be sold in such offering within a price range acceptable to
you, the Company will include in such registration, to the extent of the number
which the Company is so advised can be sold in such offering, (i) first, the
Shares requested to be included in such registration by you, and (ii) second,
other Company Common Stock.
Dated this 29th day of March, 1996.
Very truly yours,
ABIGAIL ADAMS NATIONAL BANCORP, INC.
By: /s/ Clarence L. James, Jr.
__________________________
Duly authorized on behalf of the
Board of Directors
The undersigned:
(a) Acknowledges receipt of the foregoing Option and understands
that all rights and liabilities with respect to this Option are set forth in
this Option Agreement;
(b) Agrees that, in consideration of the grant of this Option,
Optionee will comply with all the terms and conditions of this Agreement;
(c) Acknowledges that as of the date of grant of this Option, it
sets forth the entire understanding between the undersigned Optionee, and the
Company regarding the acquisition of stock in the Company and supersedes all
prior oral and written agreements on this subject.
/s/ Barbara Davis Blum
______________________
Optionee
The Adams National Bank
1627 K Street, NW
Washington, DC 20006
Address:____________________________
4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into this 20th day of February, 1996
(the "Effective Date"), and amended on this 29th day of March, 1996, by and
among Abigail Adams National Bancorp, Inc., a Delaware corporation (the
"Company"), The Adams National Bank, a national banking association (the
"Bank"), and Barbara Davis Blum (the "Executive").
RECITALS:
WHEREAS, the Executive has served as President and Chief Executive Officer
of the Company and the Bank since 1985 and 1983, respectively, and as Chairwoman
of the Company and the Bank since 1986;
WHEREAS, the Board of Directors of the Company (the "Company Board") and
the Board of Directors of the Bank (the "Bank Board") have determined that the
future services of the Executive as Chairwoman, President and Chief Executive
Officer will be of value to the Company and the Bank (and that the past services
of Executive have been valuable to the Company and the Bank) and, accordingly,
the Company Board and the Bank Board wish to have the Executive's services
available for the term specified herein and to provide certain benefits to the
Executive in recognition of her past service and as an incentive for her future
service to the Company and the Bank;
WHEREAS, the parties desire by this writing to set forth the continuing
employment relationship of the Company, the Bank and the Executive;
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, it is AGREED as follows:
1. EMPLOYMENT. The Executive shall be employed as the Chairwoman, President
and Chief Executive Officer of the Company and the Bank with responsibility for
the overall management and operations of the Company and the Bank. The Executive
shall render such administrative and management services to the Company and the
Bank as are currently being rendered and as are customarily performed by persons
situated in a similar executive capacity. The Executive's other duties shall be
such as the Company Board or the Bank Board may from time to time reasonably
direct. The Company agrees that, as long as Executive is employed by the Company
and the Bank, to nominate the Executive to successive terms as a member of the
Company Board, and to use its best efforts to elect and re-elect the Executive
as a member of the Company Board; and, as sole shareholder of the Bank, to elect
and re-elect Executive as a member of the Bank Board.
2. BASE COMPENSATION. The Executive shall receive a base salary at the rate
of $194,413 per annum, payable in cash in accordance with the Bank's normal
payroll practices. The Company Board and the Bank Board shall review, not less
often than annually, the rate of the Executive's salary, and in its sole
discretion may decide to increase her base salary.
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3. DISCRETIONARY BONUSES. The Executive shall be eligible to receive annual
or other bonuses at the sole discretion of the Company Board and the Bank Board.
No other compensation provided for in this Agreement shall be deemed a
substitute for the Executive's eligibility for such discretionary bonuses.
4. (a) PARTICIPATION IN RETIREMENT, MEDICAL AND OTHER PLANS . The Executive
shall participate in any plan that the Bank maintains for the benefit of its
employees relating to (i) pension, profit- sharing or other retirement benefits,
(ii) medical insurance or the reimbursement of medical or dependent care
expenses, or (iii) other group benefits, including disability and life insurance
plans.
(b) EXECUTIVE BENEFITS: EXPENSES. The Executive shall be entitled to the
continuation of her current fringe benefits and to participate in any fringe
benefits which are or may become available to the Bank's senior management
executives and directors, including any stock option or incentive compensation
plans and any other benefits which are commensurate with the responsibilities
and functions to be performed by the Executive under this Agreement. The
Executive shall be reimbursed for all reasonable out-of-pocket business expenses
which she shall incur in connection with her services under this Agreement upon
substantiation of such expenses in accordance with the policies of the Bank.
5. STOCK OPTIONS. Subject to the terms of a stock option agreement between
the Company and the Executive being executed simultaneously herewith (the "Stock
Option Agreement"), the Company grants to the Executive a non-qualified stock
option (the "Option") to purchase 25,000 shares of the Company's common stock.
The Option shall be immediately exercisable for a period of 10 years from the
date of grant at an exercise price equal to 85% of the fair market value of the
Company's common stock on the date of grant. The Executive shall also be
eligible to receive additional grants of stock options in the future at the sole
discretion of the Company Board and the Bank Board.
6. TERM. The Company and the Bank hereby employ the Executive, and the
Executive hereby accepts such employment under this Agreement, for the period
commencing on the Effective Date and ending 24 months thereafter (or such
earlier date as is determined in accordance with Section 8). This Agreement
shall automatically be extended for an additional two-year period beyond the
then effective expiration date unless, six months prior to such expiration date,
the Company Board and the Bank Board determine in a duly adopted resolution that
the Agreement should not be extended and so notifies the Executive.
7. NONCOMPETITION. During the term of this Agreement and for a period of
one year following the Executive's voluntary termination of employment, unless
otherwise authorized by the Company Board and the Bank Board, the Executive
shall not, directly or indirectly, engage within the Washington, D.C. or
Baltimore, Maryland metropolitan areas, either alone or in conjunction with any
person, in the banking business except on behalf of the Company and the Bank. In
addition, during such period, the Executive shall not solicit the customers or
employees of the Company or the Bank on behalf of any other person, partnership,
entity, association or corporation,
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solicit or seek to hire any employee of the Company or the Bank or in any manner
attempt directly or indirectly to influence, induce or encourage any such
employee to leave the employment of the Company or the Bank. During said period,
the Executive will not take any action intended or which may reasonably be
expected, directly or indirectly, to impair the goodwill or business reputation
or good name of the Company or the Bank or to be otherwise detrimental to the
interests of the Company or the Bank, including any action intended or which may
reasonably be expected, directly or indirectly, to benefit a competitor of the
Company or the Bank.
The Executive agrees that the restrictions set forth above are reasonable.
If, however, the scope of any such restriction is deemed to be too broad to
permit enforcement of such restriction to its full extent, then such restriction
shall be enforced to the maximum extent permitted by law, and the Executive
hereby consents and agrees that such scope may be judicially modified
accordingly in any proceeding brought to enforce such restriction.
8. TERMINATION AND TERMINATION PAY. Subject to Section 10 hereof, the
Executive's employment hereunder may be terminated under the following
circumstances:
(a) DEATH. The Executive's employment under this Agreement shall terminate
upon her death during the term of this Agreement, in which event the Executive's
estate shall be entitled to receive a death benefit in the amount of two times
the Executive's base salary in effect at the time of death, and the unvested
portion of any stock options previously granted to the Executive shall be
accelerated.
(b) DISABILITY. The Bank may terminate the Executive's employment after
having established the Executive's Disability. For purposes of this Agreement,
"Disability" means a physical or mental infirmity which impairs the Executive's
ability to substantially perform her duties under this Agreement and which
results in the Executive becoming eligible for long-term disability benefits
under the Bank's long-term disability plan (or, if the Bank has no such plan in
effect, which impairs the Executive's ability to substantially perform her
duties under this Agreement for a period of 180 consecutive days). The Executive
shall be entitled to the base salary and fringe benefits provided for under this
Agreement or otherwise for a period of two years after the establishment of the
Executive's Disability. In addition, upon the Executive's Disability, the
unvested portion of any stock options previously granted to the Executive shall
be accelerated.
(c) JUST CAUSE. The Company Board and the Bank Board may, by written notice
to the Executive, immediately terminate her employment at any time, for Just
Cause. The Executive shall have no right to receive compensation or other
benefits, except as provided below, for any period after termination for Just
Cause. All unvested stock options held by the Executive at the time of
termination for Just Cause shall immediately vest and shall not expire until the
earlier of the expiration stated in the Non-Qualified Stock Option Agreement or
the second anniversary following the termination of the Executive's employment
with the Company and the Bank. Termination for "Just Cause" shall mean
termination because of, in the good faith determination of the Company Board and
the Bank Board, the Executive's personal dishonesty, breach of fiduciary duty
involving
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personal profit, willful failure to perform stated duties, willful violation of
any law, rule or regulation (other than traffic violations or similar offenses)
or final cease-and-desist order, or material breach of any provision of this
Agreement. No act, or failure to act, on the Executive's part shall be
considered "willful" unless she has acted, or failed to act, with an absence of
good faith and without a reasonable belief that her action or failure to act was
in the best interest of the Company or the Bank. Notwithstanding the foregoing,
the Executive shall not be deemed to have been terminated for Just Cause unless
there shall have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of not less than a majority of the entire
membership of the Company Board and the Bank Board at a meeting of such Boards
called and held for the purpose (after reasonable notice to the Executive and an
opportunity for the Executive to be heard before such Boards), finding that in
the good faith opinion of such Boards the Executive was guilty of conduct
constituting Just Cause and specifying the particulars thereof in detail.
(d) WITHOUT JUST CAUSE. Subject to Section 10 hereof, the Company Board and
the Bank Board may, by written notice to the Executive, immediately terminate
her employment at any time for a reason other than Just Cause, in which event
the Company and the Bank shall pay and/or grant the Executive the following
compensation and benefits: (i) a cash payment equal to two times the base salary
of the Executive at the time of the termination without Just Cause; (ii) the
acceleration of any unvested stock options previously granted to the Executive;
and (iii) the fringe benefits provided for under this Agreement or otherwise for
a period of two years following such termination. At the Executive's option, she
may elect to receive the cash payment provided for herein in installments.
Termination without Just Cause shall include a decision of the Company Board and
the Bank Board not to renew this Agreement pursuant to Section 6 hereof and the
occurrence of any of the events enumerated in Section 10(b) hereof.
(e) VOLUNTARY TERMINATION BY EXECUTIVE. Subject to Section 10 hereof, the
Executive may voluntarily terminate employment with the Company and the Bank
during the term of this Agreement, upon at least 60 days' prior written notice
to the Company Board and the Bank Board, in which case the Executive shall
receive a cash payment equal to one year's base salary at the time of such
termination and be entitled to continue to receive the fringe benefits provided
for under this Agreement or otherwise for a period of one year following such
termination.
(f) ACTION BY SUPERVISORY AUTHORITY. This Agreement shall terminate
immediately without further liability or obligation of the Company or the Bank
to the Executive (i) if the Bank is closed or taken over by the Office of the
Comptroller of the Currency or other supervisory authority, including the
Federal Deposit Insurance Corporation; or (ii) if any such supervisory authority
should exercise its cease and desist powers to remove the Executive from office.
9. NO MITIGATION. The Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Executive in any subsequent employment.
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10. CHANGE IN CONTROL.
(a) (i) Notwithstanding any provision herein to the contrary, if the
Executive's employment under this Agreement is terminated by the Company or the
Bank, without the Executive's prior written consent and for a reason other than
Just Cause, in connection with or within 12 months after any Change in Control
(as defined herein) of the Company or the Bank, the Company and the Bank shall
pay and/or grant the Executive the following compensation and benefits: (i) a
cash payment equal to two times her base salary at the time of such termination;
(ii) the fringe benefits provided for under this Agreement or otherwise for a
period of two years following such termination; and (iii) the acceleration of
any unvested stock options previously granted to the Executive. At Executive's
option, she may elect to receive the cash payment provided for herein in
installments.
(ii) This Section 10 shall be interpreted and administered so that
Executive shall receive no compensation or other benefits subject to the excise
tax imposed by Section 4999 of the Code taking into account this Agreement and
all other plans, agreements or arrangements involving the Executive, the Company
or the Bank. The determination by the Bank Board that any compensation or other
benefits would cause the excise tax imposed by section 4999 to apply shall be
final and conclusive. In the event the Bank Board determines that compensation
or other benefits under this Agreement or any such plans, agreements or
arrangements must be reduced in order to avoid imposition of the excise tax, the
Bank Board shall decide which benefits will be reduced and by how much,
provided, however, that the Bank Board shall offer the Executive an opportunity
to consult with the Bank Board about said decision prior to making the decision.
(iii) The term "Change in Control" as used herein shall mean any of the
following events:
(A) when the Company or the Bank acquires actual knowledge that
any person (as such term is used in Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934 (the "Exchange Act")), other than an
employee benefit plan established or maintained by the Company or the
Bank, is or becomes the beneficial owner (as defined in Rule 13d-3 of
the Exchange Act) directly or indirectly, or record owner of
securities of the Company representing 20% or more of the combined
voting power of the Company's then outstanding securities;
(B) upon the first purchase of the Company's common stock
pursuant to a tender or exchange offer (other than a tender or
exchange offer made by the Company or an employee benefit plan
established or maintained by the Company or the Bank);
(C) upon the approval by the Company's stockholders of (1) a
merger or consolidation of the Company with or into another
corporation (other than a merger or consolidation the definitive
agreement for which provides that at least two-thirds of the directors
of the surviving or resulting corporation immediately after the
transaction are Continuing Directors (as defined herein)), (2) a sale
or disposition
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of all or substantially all of the Company's assets or (3) a plan of
liquidation or dissolution of the Company;
(D) if during any period of two consecutive years, individuals
who at the beginning of such period constitute the Board of Directors
of either the Company or the Bank (the "Continuing Directors") cease
for any reason to constitute at least two-thirds thereof;
(E) upon a sale of (1) common stock of the Bank if after such
sale any person (as defined above), other than the Company or an
employee benefit plan established or maintained by the Company or the
Bank, owns a majority of the Bank's common stock or (2) all or
substantially all of the Bank's assets; or
(F) any other agreement, happening or device which has
substantially the same effect on control of the Company or the Bank as
any of the foregoing.
(b) Notwithstanding any other provision of this Agreement to the contrary,
the Executive may voluntarily terminate her employment under this Agreement
within 12 months following a Change in Control of the Company or the Bank, and
the Executive shall thereupon be entitled to receive the payment described in
Section 10(a) of this Agreement, upon the occurrence of any of the following
events, or within 90 days thereafter, which have not been consented to in
advance by the Executive in writing: (i) the requirement that the Executive move
her personal residence, or perform her principal executive functions, more than
35 miles from her primary office as of the date of the Change in Control; (ii) a
material reduction in the Executive's base salary as in effect on the date of
the Change in Control or as the same may be increased from time to time; (iii)
the failure by the Bank to continue to provide the Executive with compensation
and benefits provided for under this Agreement, as the same may be increased
from time to time, or with benefits substantially similar to those provided to
her under any of the Executive benefit plans in which the Executive now or
hereafter becomes a participant, or the taking of any action by the Company or
the Bank which would directly or indirectly reduce any of such benefits in a
material way or deprive the Executive of any material fringe benefit enjoyed by
her at the time of the Change in Control, provided that such reduction is not
part of a Bank-wide reduction which affects all employees or all similarly
situated employees; (iv) the assignment to the Executive of duties and
responsibilities materially different from those normally associated with her
position as referenced in Section 1 hereof; (v) a failure to elect or re-elect
the Executive to the Board of Directors of the Company or the Bank (and as its
Chairwoman), if the Executive is serving on such Board on the date of the Change
in Control; or (vi) a material diminution or reduction in the Executive's
responsibilities or authority (including reporting responsibilities) in
connection with her employment with the Bank.
(c) Any payments made to the Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 U.S.C.
Section 1828(k) and any regulations promulgated thereunder.
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(d) In the event that any dispute arises between the Executive, the Company
or the Bank as to the terms or interpretation of this Agreement, including this
Section 10, whether instituted by formal legal proceedings or otherwise,
including any action that the Executive takes to enforce the terms of this
Section 10 or to defend against any action taken by the Company or the Bank, the
Executive shall be reimbursed for all costs and expenses, including reasonable
attorneys' fees, arising from such dispute, proceedings or actions, provided
that the Executive shall obtain a final judgment by a court of competent
jurisdiction in favor of the Executive. Such reimbursement shall be paid within
10 days of Executive's furnishing to the Bank written evidence, which may be in
the form, among other things, of a cancelled check or receipt, of any costs or
expenses incurred by the Executive.
11. CONFIDENTIALITY. During the period of employment hereunder, the
Executive shall not, except as required by any court, supervisory authority or
administrative agency, without the written consent of the Company Board or the
Bank Board, disclose to any person, other than an employee or director of the
Company or the Bank or a person to whom disclosure is reasonably necessary or
appropriate in connection with the performance by the Executive of her duties as
an executive of the Company or the Bank, any confidential information obtained
by her while in the employ of the Company or the Bank, provided, however, that
confidential information shall not include any information known generally to
the public (other than as a result of unauthorized disclosure by the Executive).
Following any termination of employment hereunder, the Executive shall not
disclose any confidential information of the type described above except as
required by any court, supervisory authority or administrative agency.
12. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon any corporate or other successor of the Company or the Bank
which shall acquire, directly or indirectly, by merger, consolidation, purchase
or otherwise, all or substantially all of the assets or stock of the Company or
the Bank.
13. AMENDMENTS. No amendments or additions to this Agreement shall be
binding unless made in writing and signed by all of the parties, except as
herein otherwise specifically provided.
14. APPLICABLE LAW. Except to the extent preempted by Federal law, the laws
of the State of Delaware shall govern this Agreement in all respects, whether as
to its validity, construction, capacity, performance or otherwise.
15. SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
16. WAIVER. The parties hereto acknowledge that this Agreement was prepared
pursuant to their mutual request by the law firm of Manatt, Phelps & Phillips,
counsel solely to the Company and the Bank. The Executive acknowledges that she
is sophisticated in business matters (including, but not limited to, employment
agreements) and that she has had the opportunity to seek
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independent legal advice. The Executive specifically waives any actual or
apparent conflict of interest of Manatt, Phelps & Phillips in connection with
the preparation and negotiation of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first hereinabove written.
ATTEST: ABIGAIL ADAMS NATIONAL BANCORP,
INC.
/s/ Joyce R. Hertz /s/Clarence L. James, Jr.
__________________________ By: ______________________________
Secretary Name: Clarence L. James, Jr.
Title: Director
ATTEST: THE ADAMS NATIONAL BANK
/s/ Joyce R. Hertz /s/ Clarence L. James, Jr.
__________________________ By:________________________________
Secretary Name: Clarence L. James, Jr.
Title: Director
WITNESS: EXECUTIVE
/s/ Susan Hager /s/ Barbara Davis Blum
__________________________ __________________________________
Barbara Davis Blum
8
LEASE AGREEMENT
DATED AS OF _______________, 1996
BY AND BETWEEN
1604 17TH STREET LIMITED PARTNERSHIP,
AS LANDLORD,
THE ADAMS NATIONAL BANK,
AS TENANT
<PAGE>
LEASE AGREEMENT
Table of Contents
1. Premises.............................................. 1
2. Term.................................................. 1
3. Minimum Rent.......................................... 2
4. Additional Rent....................................... 3
5. Definition of Additional Rent......................... 4
6. Past Due Rent and Late Charges........................ 4
7. Use of Demised Premises............................... 5
8. [INTENTIONALLY DELETED]............................... 5
9. [INTENTIONALLY DELETED]............................... 5
10. Subletting and Assignment............................. 5
11. Upkeep and Surrender of Demised Premises.............. 6
12. Alterations........................................... 7
13. Floor Loading......................................... 8
14. Tenant's Equipment.................................... 8
15. Notice of Defects..................................... 8
16. Liability............................................. 8
17. Signs................................................. 9
18. Ordinances, Regulations and Rules..................... 9
19. Indemnity............................................. 9
20. Entry Inspection...................................... 10
21. Interruption of Services or Utilities................. 10
22. Insurance............................................. 10
23. Damage by Fire or Other Casualty...................... 11
24. Eminent Domain........................................ 11
25. Bankruptcy or Insolvency.............................. 12
26. Defaults and Remedies................................. 13
27. Hazardous Materials................................... 14
28. No Waiver............................................. 15
29. Subordination......................................... 15
30. Estoppel Certificates................................. 16
31. [INTENTIONALLY DELETED]............................... 16
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32. Holding Over.......................................... 16
33. Submission of Lease................................... 17
34. Covenants of Landlord................................. 17
35. Waiver of Trial by Jury............................... 17
36. Attorney's Fees....................................... 17
37. Brokers............................................... 18
38. Notices............................................... 18
39. Miscellaneous......................................... 18
40. Authority of Landlord and Tenant...................... 19
41. Option to Extend Term................................. 19
EXHIBIT "A".................................................... 21
ii
<PAGE>
LEASE AGREEMENT
THIS LEASE is made as of the _____day of________ , 1996 ("Lease"), by and
between 1604 17TH STREET LIMITED PARTNERSHIP ("Landlord") and THE ADAMS NATIONAL
BANK, a Delaware corporation ("Tenant").
W I T N E S S E T H:
In consideration of the mutual agreements hereinafter set forth, the
parties do hereby mutually agree as follows:
1. Premises. Landlord does hereby lease to Tenant, and Tenant does hereby
lease from Landlord, for the Term (as hereinafter defined) and on the conditions
hereinafter provided, all of the first floor and lower level of the building
(the "Demised Premises") located at 1604 17th Street, N.W., Washington, D.C.
(the "Property"). The tenant(s) on the upper floors will, during the full term
of this Lease and any extensions thereof, continue to have ingress and egress
through the vestibule of the first floor (lobby) and adequate signage noting
their occupancy as long as that signage does not obscure, obstruct, or detract
from Tenant's signage.
2. Term Provisions.
(a) Term. The Demised Premises are leased for a term of twenty (20)
years (hereinafter called the "Term"), commencing on the first day of the month
following the date that Landlord provides written notice (the "Notice") to
Tenant that Landlord has obtained possession of the Demised Premises free and
clear of any tenants, but in no event shall said Notice be provided later than
April 15, 1996 (hereinafter referred to as the "Lease Commencement Date") and
terminating at midnight on that date which is twenty (20) years following the
Lease Commencement Date (said date of termination being hereinafter called the
"Lease Termination Date"), unless the Term shall be extended or shall sooner
cease, expire or be terminated, as hereinafter provided. Landlord shall
immediately give Tenant the Notice when Landlord has obtained the consent of the
current tenant (the "Current Tenant") to vacate the Demised Premises. The Notice
of consent by the Current Tenant (the "Notice of Consent") must be posted at
least thirty (30) days prior to the Commencement Date. Upon receipt of the
Notice of Consent, Tenant shall have access to the entire Demised Premises for
the purpose of inspecting, measuring and studying the Demised Premises. Landlord
and Tenant hereby agree that while the Term of the Lease shall commence on the
first day of the month, Tenant shall pay rent on a pro rated basis for the days
remaining in the month beginning thirty (30) days after the posting of
Landlord's Notice of Consent (hereinafter referred to as the "Possession Date");
provided, however, that no rent shall be due for any period during which the
Current Tenant remains in possession of the Demised Premises.
(b) Lease Termination Provisions. Tenant shall have the obligation to
seek the approval of the Office of the Controller of the Currency (the "OCC") to
open a bank branch at the Demised Premises and to seek and obtain approvals
required of the Government of the District of Columbia and, if necessary, the
Local Advisory Neighborhood Commission as to the improvements to the site
contemplated by Tenant. Tenant shall take all actions reasonable and necessary
to diligently pursue obtaining said approvals. In the event that Tenant's
application to the OCC to open a bank branch in the Demised Premises is denied
or, in the further event that either the Government of the District of Columbia
or, if applicable, the Local Advisory Neighborhood Commission denies or
materially delays Tenant's plans for the
<PAGE>
renovation for the Demised Premises, then Paragraphs 2(a), 3 and 4 of this Lease
shall be deleted and replaced by the following:
(i) The term of this Lease shall expire on October 31, 1999.
(ii) Total monthly rent shall be $3,150.00 per month through
October 31, 1996, plus any additional rent due and owing Landlord for this
period pursuant to the terms of the Current Tenant's lease dated September 28,
1994, which is attached hereto as Exhibit "A" and incorporated herein by
reference (the "Current Lease").
(iii) From November 1, 1996 through October 31,
1997, monthly rent shall be $3,307.50, plus any additional rent due and owing
Landlord for this time period pursuant to the terms of the Current Lease.
(iv) From November 1, 1997 through October 31, 1998, monthly rent
shall be $3,472.88, plus any additional rent due and owing Landlord for this
time period pursuant to the terms of the Current Lease.
(v) From November 1, 1998 through October 31, 1999, monthly rent
shall be $3,646.52, plus any additional rent due and owing Landlord for this
time period pursuant to the terms of the Current Lease.
Notwithstanding any other provision of this Paragraph 2(b), in the event
that Tenant is unsuccessful in obtaining from the Government of the District of
Columbia a certificate of occupancy for the Demised Premises as a bank branch
pursuant to the current zoning requirements for the Demised Premises, then in
such event, this Lease shall immediately terminate upon receipt of said denial
of certificate of occupancy and delivery of Tenant's Notice of same to Landlord.
3. Minimum Rent.
(a) Tenant shall pay as rent (said rent being hereinafter referred to
as "Minimum Rent") for the Demised Premises the total sum of Forty-Five Thousand
Dollars ($45,000.00) per annum payable in equal monthly installments of Three
Thousand Seven Hundred Fifty Dollars ($3,750.00) (hereinafter referred to as
"Monthly Minimum Rent"), subject to increase as set forth in Paragraphs 3(d), 4,
5 and 41 below. Notwithstanding the foregoing, Landlord shall grant to Tenant a
"rent holiday" from the payment of a portion of the Monthly Minimum Rent
installments in the amount of Two Thousand Two Hundred Fifty Dollars ($2,250.00)
per installment (hereinafter referred to as the "Reduced Rent Allowance") only
for an aggregate period not to exceed either the first One Hundred Twenty (120)
days of the term or the date on which Tenant opens for business to the public,
whichever first occurs (the "Reduced Rent Period"). Provided, however, that (i)
the Reduced Rent Period and the granting of the Reduced Rent Allowance as
provided hereunder shall not affect the Lease Commencement Date as determined
pursuant to Paragraph 2 hereof, and (ii) Tenant shall remain obligated during
the Reduced Rent Period to pay the remainder of each installment of Monthly
Minimum Rent in the amount of One Thousand Five Hundred Dollars ($1,500.00)
each, and to pay all Additional Rent payable pursuant to this Lease and to
perform all of Tenant's obligations under this Lease except as expressly
aforesaid.
Commencing with the first month following the completion of the Reduced
Rent Period, and continuing for a number of months
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equal to the actual number of months which comprised the Reduced Rent Period,
the Minimum Rent shall be reduced by Five Hundred Dollars ($500.00) per month
(the "Monthly Reduction"); provided, however, that the Monthly Reduction shall
be increased as necessary to fully utilize the Entire Monthly Reduction by
December 31, 1996 (the Entire Monthly Reduction shall equal Five Hundred Dollars
($500.00) multiplied by the actual number of months of the Reduced Rent
Period.))
(b) The first installment of Minimum Rent shall be due and payable
upon execution of this Lease and the remaining installments shall be due and
payable, in advance, on the first day of the first month following the Lease
Commencement Date and on the first day of each and every month thereafter during
the Term at c/o The Jason Corporation, 4420 Connecticut Avenue, N.W., Suite 200,
Washington, D.C. 20008, to the attention of Mr. Wayne Carroll (or at such other
place as Landlord may designate in a written notice to Tenant). Tenant shall not
be required to pay any mortgage indebtedness or any interest on any mortgages
placed by Landlord that may encumber, at any time, the interest of Landlord in
the Demised Premises or the Property.
(c) For purposes of this Lease, the term "lease year" shall mean a
twelve (12) month period, with the first lease year commencing on the Lease
Commencement Date and ending on that date which is one day prior to the first
anniversary of the Lease Commencement Date, and each subsequent lease year shall
commence on the same day of each subsequent calendar year of the Term as the
Lease Commencement Date and shall end on the day prior to the commencement of
the next lease year.
(d) Commencing on the first day of each of the fourth (4th), seventh
(7th), tenth (10th), thirteenth (13th), sixteenth (16th) and nineteenth (19th)
lease years, Minimum Rent shall be increased by two-thirds (2/3) of the yearly
increases in the Consumer Price Index, as hereinafter defined, over the Base
Consumer Price Index, as hereinafter defined and shall be those reports which
are or are as close as possible to three (3) months prior to the dates herein
referred to in this Lease. For example, if the Consumer Price Index for a three
(3) year period was to increase by nine and one-half percent (9 1/2%) in year
one, eleven percent (11%) in year two, and three percent (3%) in year three, the
calculation would be as follows:
Year One - 2/3 of 9 1/2% not to exceed 3% = 3%
Year Two - 3% plus 1% (11% - 10% = 1%) = 4%
Year Three - 2/3 of 3% = 2%
3% + 4% + 2% = 9% increase in Minimum Rent over the then current
Minimum Rent for the next three (3) lease years.
"Consumer Price Index (Regular and Base)" shall mean the revised monthly
Consumer Price Index for Urban Wage Earners and Clerical Workers for the
Washington, D.C.-MD-VA SMSA (All Items, 1982-84 = 100) promulgated by the Bureau
of Labor Statistics of the United Stated Department of Labor. If said Index is
discontinued, the Consumer Price Index shall be the successor index adopted by
the Bureau of Labor Statistics or, if none, any similar index adopted by
Landlord. The "Base Consumer Price Index" shall be the Consumer Price Index most
recently published prior to the Lease Commencement Date.
4. Additional Rent. Any amounts required to be paid by Tenant hereunder in
addition to the Minimum Rent, and any charges
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or expenses incurred by Landlord on behalf of Tenant under the terms of this
Lease, shall be considered Additional Rent, and any failure by Tenant to pay
such Additional Rent when and as the same shall become due shall entitle
Landlord to the remedies provided herein for nonpayment of Minimum Rent.
5. Definition of Additional Rent. The term "Additional Rent" means the
following costs incurred by Landlord in the operation of the Property,
including:
(a) fifty percent (50%) of real estate taxes, fees or charges assessed
or imposed upon the Property;
(b) fifty percent (50%) of insurance for the Property;
(c) fifty percent (50%) of water and sewer charges for the Property;
(d) Tenant shall also pay any value added tax, excise, sales, rental
privilege tax or similar tax at any time imposed upon the Rent payments or any
other payments to Landlord hereunder, and such taxes shall be paid by Tenant at
the time and in addition the Rent or other payments required under this Lease;
provided, however, that in no event shall Tenant be liable for any tax on the
net income of Landlord (taxes set forth in Paragraphs 5(a) and (d) shall
hereinafter collectively be referred to as the "Property Taxes"); and
(e) Commencing on the Possession Date and on the first (1st) day of
each calendar month thereafter, Tenant shall pay a monthly charge in advance on
account of Tenant's pro rata share of the Property Taxes, insurance and water
and sewer charges. The amount of the monthly charge shall be established by
Landlord and may be adjusted from time to time by Landlord to reflect Landlord's
estimate of actual costs. Within ninety (90) days after the end of each fiscal
year as established for the Property by Landlord, Landlord shall provide to
Tenant the actual Property Tax, insurance and water/sewer bills and shall show
Tenant's actual share and the amount by which Tenant has overpaid or underpaid
the same. In the event of an overpayment by Tenant of Property Taxes, insurance
and water/sewer charges, such overpayment shall be credited against Tenant's
next due payment of Property Taxes and Insurance. The amount credited shall be
dollar for dollar on overage, with no payment due until the overage is used up.
In the event Tenant has underpaid Property Taxes, insurance and water/sewer
charges, the deficiency in respect of such underpayment shall be paid to
Landlord by Tenant within ten (10) days receipt of the summary of the Property's
actual taxes, insurance and water/sewer charges.
Additional Rent shall not include any other costs incurred by Landlord.
6. Past Due Rent and Late Charges. If any installment of Rent or any other
sum due from Tenant is not received by Landlord or Landlord's designee within
ten (10) days after such amount is due, Tenant shall pay to Landlord a late
charge equal to five percent (5%) of such overdue amount. A returned check due
to insufficient funds will be treated as a late payment. Acceptance of any late
charge by Landlord shall not constitute a waiver of Tenant's default with
respect to the overdue amount, or prevent Landlord from exercising any of the
other rights and remedies available to Landlord. The parties agree that such
late charge represents a fair and reasonable estimate of the costs Landlord will
incur by reason of late payment by Tenant.
4
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7. Use of Demised Premises. Tenant shall use and occupy the Demised
Premises initially as follows: the first floor and lower level shall be used as
an FDIC bank branch, subject to all applicable zoning and other governmental
regulations and Tenant shall conform at all times to such applicable zoning and
other governmental regulations. Landlord warrants the suitability and legality
of the Demised Premises as a bank branch; however, it shall be the obligation of
Tenant to obtain any and all certificates of occupancy, licenses, permits and
other governmental authorizations necessary for such uses. Tenant may also use
the Demised Premises for any lawful purpose allowed under the zoning regulations
existing at the time of any changed usage. Tenant shall not obstruct, interfere,
or conflict with, the rights of adjoining property owners, other tenants in the
property, or conflict with the fire laws or regulations, or with any insurance
policy upon the Property or any part thereof, or with any statutes, rules or
regulations now existing or subsequently enacted or established by local, state
or federal governments, nor shall Tenant use or permit the Demised Premises, or
any part hereof, to be used for any disorderly, unlawful or extra hazardous
purpose, nor for any purpose other than hereinabove specified without Landlord's
prior written consent, which consent shall not be unreasonably withheld,
conditioned or delayed.
8. [INTENTIONALLY DELETED]
9. [INTENTIONALLY DELETED]
10. Subletting and Assignment.
(a) Prohibition. Tenant shall not voluntarily or by operation of law
assign, sublet, or otherwise transfer or encumber all or any part of Tenant's
interest in the Lease, or in the Premises, without Landlord's prior written
consent, which consent shall not be unreasonably withheld, conditioned or
delayed as to an assignment or unreasonably withheld or delayed as to a
subletting. For purposes of the immediately preceding sentence, it shall be
reasonable for Landlord to withhold its consent if, for example: (i) Tenant is
in default hereunder; or (ii) Tenant fails to comply with the provisions of this
Paragraph 10, or (iii) the initial tenant does not remain fully liable as a
primary obligor for the payments of all rent and other charges payable by Tenant
hereunder and for the performance of all other obligations of Tenant hereunder.
If Landlord does not respond to Tenant's written request to assign, sublet or
otherwise transfer or encumber any part of Tenant's interest in the Lease within
fifteen (15) days of receipt of such written request, then Tenant's request
shall be deemed approved. Any purported assignment or subletting contrary to the
provisions hereof without consent shall be void. In connection with any proposed
assignment or sublease, Tenant shall submit to Landlord in writing (i) the name
of the proposed assignee or subtenant; (ii) such information as to such
assignee's or subtenant's financial responsibility and standing as Landlord may
reasonably require; (iii) the proposed use of the Premises by such assignee or
subtenant; (iv) all of the terms and conditions upon which the proposed
assignment or subletting is to be made; and (v) an instrument of assignment or
sublease wherein such assignee or subtenant assumes all of Tenant's obligations
hereunder and agrees to be bound by the terms hereof. Any sublet or occupancy,
Landlord's consent thereto or Landlord's collection or acceptance of rent from
any subtenant, or occupant shall not be construed as a waiver or release of
Tenant from liability for the performance of any obligation to be performed
under this Lease by Tenant. Landlord hereby agrees that any assignment of the
Lease by Tenant
5
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with Landlord's consent shall automatically release Tenant from any further
responsibility under or pursuant to the Lease.
(b) Waiver. Landlord's consent to any assignment or subletting of the
Premises by Tenant shall not constitute an acknowledgement that Tenant is not
then in default under this Lease, nor shall such consent be deemed a waiver of
any then existing default. The consent by Landlord to any assignment or
subletting shall not constitute a consent to any subsequent assignment or
subletting by Tenant or to any subsequent or successive assignment or subletting
by the subtenant.
(c) Security Deposit. In the event of an assignment, the new Tenant
shall tender to Landlord, at the commencement of the assignment, a security
deposit which shall be equal to one (1) month's rent to secure and fulfill
Tenant's performance of the Terms and conditions of this Lease.
11. Upkeep and Surrender of Demised Premises.
(a) Throughout the Term of this Lease, Tenant, at Tenant's sole cost
and expense, shall put, keep and maintain the Demised Premises, the front and
rear yard of the Property and the first floor vestibule to include all windows
and doors on the first floor and lower level, and any sidewalks, curbs and
vaults adjoining or appurtenant thereto in good repair and clean and sanitary
order and condition, and make all necessary repairs thereto, interior and
exterior, structural and non-structural, ordinary and extraordinary, foreseen
and unforeseen, it being the intention of the parties that such repairs and
maintenance shall be measured by the standard of those repairs and maintenance
which a judicious owner would make, provided that Tenant shall in any event make
all repairs necessary to avoid any structural damage or injury to the Demised
Premises and to keep it in sound condition. Tenant will not do or suffer any
waste, damage, injury or disfigurement to the Demised Premises, the Property or
any part thereof. When used in this Paragraph, the term "repairs" shall include,
without limitation, all necessary replacements, and renewals, and any work
required as a condition to the continued use of the Demised Premises for the
uses herein set forth or any work required by any order of any governmental
agency. All repairs made by Tenant shall be equal in quality and class to the
original work, and all work required by this Paragraph shall be performed in
accordance with the requirements of Paragraph 12(c) hereof. Tenant shall put,
keep and maintain all portions of the Demised Premises, the Property and any
sidewalks, curbs, alleyways and passageways adjoining the same free of dirt,
rubbish, snow, ice, and obstructions.
(b) Tenant shall be required to furnish any services or facilities, or
to make any repairs, alterations, additions, replacements or betterments in or
to the Demised Premises.
(c) Landlord agrees to maintain the structural components of the
Property and exterior walls, the common areas that do not now exist but which
may be created in the future by the division of the second and third floors as
separate units, and roof and utility lines to the building, in good order,
repair and condition, during the Term, and shall make such repairs thereto as
become necessary after obtaining actual knowledge of the need for such repairs,
all costs of which shall be at Landlord's sole cost and expense. Landlord shall
have no duty to Tenant to maintain or to make any repairs or improvements to the
Demised Premises.
(d) Tenant shall, at the Lease Termination Date, the expiration, or
other termination of the Term of this Lease
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(including any extension thereof), surrender and deliver the Demised Premises
broom clean to Landlord. Upon such termination of this Lease, Landlord shall
have the right to reenter and resume possession of the Demised Premises.
12. Alterations.
(a) Throughout the Term, Tenant shall have the right to make such
alterations, installations, changes, replacements, additions or improvements
(structural or otherwise) (collectively, "Alterations") in or to the Demised
Premises or any part thereof as Tenant desires, with the consent of Landlord,
which consent shall not be unreasonably withheld, conditioned or delayed, said
consent to be limited to structural and ingress/egress issues only.
(b) Landlord hereby consents to the performance by Tenant, at Tenant's
sole cost and expense, of a renovation of the Demised Premises. Landlord further
consents to Tenant regrading or otherwise altering the front yard landscape as a
part of the renovation. Landlord acknowledges that the plans and specifications
of Tenant ("Tenant's Work") may include an automated teller machine.
(c) At all times during which substantial Tenant's Work is or
substantial Alterations are being performed at the Demised Premises, Tenant
shall have in full force and effect, (i) casualty insurance in Builder's Risk
Form covering Landlord, Landlord's agents, employees, contractors and any of
Landlord's mortgagees, as their interest may appear, against loss or damage by
fire, vandalism, and malicious mischief and other such risks customarily covered
by the so-called "broad form extended coverage endorsement" upon all of Tenant's
Work or Alterations (as the case may be) in place, materials, supplies, tools
and equipment used in connection with such Alterations and Tenant's Work. Said
Builder's Risk Insurance shall contain an express waiver of any right of
subrogation by the insurer against Landlord, its agents, employees or
contractors; (ii) Worker's Compensation Insurance, in the amounts required by
law; and (iii) Public Liability and any other insurance otherwise required by
Paragraph 22 of this Lease. Tenant shall indemnify, defend and hold Landlord
harmless from and against any and all expenses, liens, claims or damages to
person or property which may or might arise by reason of the making of any
Alterations or Tenant's Work, or both. At all times during which substantial
Tenant's work is or substantial alterations are being performed by Tenant,
Tenant shall have in full force and effect casualty insurance in Builder's Risk
Form covering Landlord and other tenants in the building.
(d) It is distinctly understood that all Alterations, without
limitation, wall-to-wall carpet and Tenant's Work, but excluding Tenant's
movable equipment and furniture, to or upon the Demised Premises (whether with
or without Landlord's consent) may, at the election of Tenant, remain upon the
Demised Premises and be surrendered with the Demised Premises at the expiration
of this Lease. ATMs, vaults, safes, and other equipment installed by Tenant must
be removed by Tenant at Landlord's option and at Tenant's expense and Tenant
shall repair any damage caused by said removal or installation thereof.
(e) All Alterations shall be performed in accordance with all
applicable legal requirements. All Tenant's Work shall be performed in
accordance with all applicable legal requirements.
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(f) Tenant shall not cause or permit any mechanic's lien or other lien
to be filed against the Demised Premises or the Property for work or materials
claimed to have been done for, or furnished to, Tenant. If any mechanic's lien
or other is filed against the Demised Premises or the Property for work or
materials claimed to have been done for, or furnished to, Tenant, such
mechanic's or other lien shall be discharged by Tenant within twenty (20) days
thereafter, at Tenant's sole cost and expense, by payment thereof or posting
such bond or paying such amount as will effect a release of such lien. If Tenant
shall fail to discharge or obtain the release of any such mechanic's or other
lien, Landlord may, at its option, after giving five (5) business days written
notice of right to cure to Tenant, discharge or release same and treat the cost
thereof as Additional Rent payable with the monthly installment of Minimum Rent
next becoming due; and such discharge or release by Landlord and payment by
Tenant shall be deemed to waive the default of Tenant in not discharging or
releasing same.
13. Floor Loading. Tenant shall not install in the Demised Premises any
fixtures, equipment or machinery that shall place a load upon any floor
exceeding the floor load per square foot area which such floor was designed or
modified by Tenant to carry. Notwithstanding the foregoing, Landlord
acknowledges that Tenant may install a vault in the Demised Premises, at
Tenant's sole cost and expense.
14. Tenant's Equipment. Tenant may install and operate in the Demised
Premises any equipment it deems necessary for the conduct of its business or
that of any subtenant or assign without Landlord's consent throughout the Term
of this Lease or any extension thereof.
15. Notice of Defects. Tenant shall give Landlord prompt notice of any
defects or breakage in the structure of the Demised Premises or the Property.
16. Liability.
(a) Landlord assumes no liability or responsibility whatsoever with
respect to the conduct and operation of the business to be conducted in the
Demised Premises. Landlord shall not be liable for any accident or injury to any
person or persons or property in or about the Demised Premises or the Property,
or at any other location, caused by the conduct and operation of said business
or by virtue of equipment or property of Tenant in the Demised Premises, or from
any other cause outside of the control of Landlord. Landlord shall be liable for
any accident or injury to any person or persons caused by the gross negligence
or willful misconduct of Landlord, its agents, employees or assigns. Landlord
agrees to indemnify, defend and hold Tenant harmless against all such claims.
Tenant shall indemnify, defend and hold harmless Landlord from and against any
loss, damage or liability occasioned by or resulting from any default by Tenant
hereunder or any negligent act or omission on the part of Tenant, its agents,
employees or invitees, or persons permitted in the Demised Premises by Tenant.
Landlord is not liable or responsible in respect to any exterior improvements
installed or altered by Tenant.
(b) Landlord shall not be liable for any accident or damage caused by
electric lights or wires, or any accident or damage which may occur through the
operation of elevators or ADA lifts (if any), heating, ventilating,
air-conditioning, lighting or plumbing apparatus, or any accident or injury
occurring on or in the Demised Premises front yard, or rear yard. All personal
property of Tenant, its agents, employees, invitees, customers or
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visitors in, on or about the Demised Premises or on the Property shall be at the
sole risk of Tenant. Landlord shall not be liable for loss or damage to property
or business of Tenant, or Tenant's agents, employees, invitees, customers or
visitors, caused by rain, snow, water or steam that may leak into or flow from
any part of the Demised Premises or the Property through any defects in the roof
or plumbing or from any other source, including but not limited to acts or
omissions on the part of persons using the Property or present therein. It is
understood and agreed that Tenant covenants to indemnify, defend and save
harmless Landlord from all loss, damage, liability or expense incurred by reason
of Tenant's negligent act or omission in Tenant's use of the Demised Premises or
the Property or any part thereof, including, without limitation, the use of the
water, steam, electric or other systems, and the injury, loss or damage to any
person or party on, in or about the Demised Premises or the Property, or at any
other location, from whatsoever cause outside of the control of Landlord, except
for loss, injury or damage caused by the gross negligence or willful misconduct
of Landlord, its agents, servants, employees or contractors.
17. Signs. Tenant may install any signage, at its expense, that meets
governmental regulations with Landlord's consent, which consent will not be
unreasonably withheld, conditioned or delayed.
18. Ordinances, Regulations and Rules. Tenant shall, at Tenant's sole cost,
promptly comply with and carry out all orders, requirements or conditions now or
hereafter imposed by any and all ordinances, laws, orders, rules and/or
regulations, foreseen or unforeseen, ordinary or extraordinary of local, state
or federal governments, or by any of their various departments or agencies,
which are adjudged by a court of competent jurisdiction to be applicable to the
Demised Premises, the use or manner of use of the Demised Premises, whether
required of Landlord or otherwise to be done or performed during the Term of
this Lease. Tenant shall indemnify, defend and save Landlord harmless from all
penalties, claims and demands resulting from Tenant's act or omission in this
respect.
19. Indemnity.
(a) Tenant shall indemnify, defend and save harmless Landlord and
Landlord's agents from and against any and all claims, actions, damages,
liabilities and expense in connection with loss of life, personal injury and/or
damage to property arising out of Tenant's use or occupancy of the Demised
Premises or the Property (irrespective of where such loss of life, personal
injury or damage to property occurs), any occurrence in, upon or at the Demised
Premises or the Property, or occasioned wholly or in part by any negligent act
or omission of Tenant, its agents, contractors, employees, servants, or
permitted subtenants, resulting from any default, breach, violation or
non-performance of this Lease by Tenant. In the event Landlord or its agents and
employees shall be made a party to any litigation commenced by or against
Tenant, then Tenant shall protect and hold Landlord harmless and shall pay all
reasonable costs, expenses, and attorney's fees incurred or paid in connection
with such litigation. Tenant shall pay, satisfy and discharge any and all
judgments, orders and decrees which may be recovered against Landlord in
connection with the foregoing.
(b) Landlord hereby indemnifies and saves harmless Tenant from any and
all claims, obligations or liabilities whatsoever arising out of the gross
negligent acts or willful failure to act by Landlord or any of its agents,
employees or contractors in connection with its obligations under this Lease,
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which indemnification and save harmless shall include reasonable attorneys' fees
and other reasonable costs of defense incurred by Tenant in connection with any
such claim, liability or obligation.
20. Entry Inspection.
Upon two (2) business days prior written notice, which shall include
reasons for doing so, (except in the event of an emergency in which event prior
notice shall be given to Tenant's emergency contact representative), Tenant
shall permit Landlord, and Landlord's representatives, to enter the Demised
Premises, at times to be mutually agreed to, without diminution of the Minimum
Rent or Additional Rent payable by Tenant, to examine, inspect and protect same,
or to exhibit the same to prospective tenants (during the last two (2) months of
the Term), mortgagees or purchasers, without liability to Tenant for any loss to
Tenant's business by reason thereof.
21. Interruption of Services or Utilities. Any failure or interruption of
any services or utilities to the Demised Premises which is not the result of
willful acts or gross negligence of Landlord or any agent, employee or
contractor of Landlord shall not render Landlord liable in any respect for
damages to either person or property, nor be construed as an eviction of Tenant,
nor work an abatement of any Minimum Rent or Additional Rent, nor relieve Tenant
from Tenant's obligations hereunder.
22. Insurance. Without limiting or otherwise modifying or affecting
Tenant's obligations under Paragraph 19 or any other provision of this Lease,
throughout the Term of this Lease and any extension or renewal thereof, Tenant
shall maintain in effect, at Tenant's sole cost and expense, the following
insurance, with coverages, in amounts, with insurers and with such other terms
and conditions as are reasonably satisfactory to Landlord. Without limitation of
the generality of the foregoing, Tenant shall maintain the following insurance:
(a) Tenant shall, during the entire Term hereof, keep in full force
and effect a policy of public liability and property damage, including all trade
fixtures, insurance with respect to the Demised Premises, and the business
operated by Tenant and any subtenants of Tenant in the Demised Premises, and the
business operated by Tenant and any subtenants of Tenant in the Demised Premises
in which the limits of public liability shall be not less than One Million and
00/100 Dollars ($1,000,000.00) per person and One Million and 00/100 Dollars
($1,000,00.00) per accident and in which the property damage liability shall be
not less than One Million and 00/100 Dollars ($1,000,000.00). A One Million and
00/100 Dollars $1,000,000.00) combined limit policy is also acceptable, with an
aggregate coverage amount of not less then Two Million and 00/100 Dollars
($2,000,000.00). The policy shall name Landlord, any person, firms or
corporations designated by Landlord, and Tenant as insured, and shall contain a
clause that the insurer will not cancel or change the insurance without first
giving Landlord thirty (30) days prior written notice. The insurance shall be in
an insurance company approved by Landlord and a copy of the policy or a
certificate of insurance shall be delivered to Landlord before occupancy by
Tenant and for each subsequent policy period.
(b) Landlord shall obtain and maintain in effect during the Term of
the Lease a policy or policies of insurance (i) covering the Property (including
the common areas, but excluding Tenant's leasehold improvements, trade fixtures
and other property required to be insured by Tenant) in an amount not
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less than the full replacement cost (exclusive of the cost of excavations,
foundations and footings), provided such coverage is available in the
marketplace at standard premium rates, as determined from time to time,
providing protection against perils included within the standard form of fire
and extended coverage insurance policy, together with such other risks, and with
such deductibles, as Landlord may from time to time determine, (ii) public
liability insurance covering the common areas with a combined single limit of at
least One Million and 00/100 Dollars ($1,000,000.00), and (iii) insurance
covering loss of rental income from the Property as a result of a casualty or
other such event.
(c) Any such insurance may be effected by a policy or policies of
blank insurance covering additional items or locations or assureds. Tenant shall
have no rights in any policy maintained by Landlord and shall not, by reason of
payment by Tenant of its pro rata share of Landlord's premium therefore, be
entitled to be named assured thereunder.
23. Damage by Fire or Other Casualty. If the Demised Premises shall be
damaged by fire or other casualty, other than through the willful misconduct of
Tenant, the Minimum Rent shall be abated if the Demised Premises are rendered
untenantable as a bank branch until such repairs are completed; provided,
however, that if the Demised Premises are substantially damaged by fire or other
casualty, other than through the willful misconduct of Tenant, to such extent
that the damage cannot be fully repaired within one hundred eighty (180) days
from the date of such damage, or if the proceeds of insurance are insufficient
to repair such damage (unless Tenant provides the additional funds necessary for
such repairs) Tenant shall have the option of terminating this Lease by giving
written notice to the other of such decision and the Term of this Lease shall
terminate ten (10) days after such notice is given. Except as set forth above,
no compensation or reduction of any Minimum Rent or Additional Rent shall be
allowed or paid by Landlord by reason of inconvenience, annoyance, or injury to
business arising from the necessity of repairing the Demised Premises or any
portion of the Property.
24. Eminent Domain. If the entire Demised Premises shall be permanently
taken by eminent domain, or in the event Landlord shall convey the Property of
which the Demised Premises are a part to any public authority or its designee in
settlement of a threat of condemnation or taking, the rent shall be adjusted to
the date of such taking or conveyance and this Lease shall thereupon terminate.
In such event the entire proceeds resulting from any such taking or conveyance
under threat thereof shall belong to and inure solely to the benefit of Landlord
and all improvements to the Demised Premises made by Tenant shall be deemed to
be the property of Landlord and this Lease shall terminate, provided, however,
that upon such taking or conveyance Landlord shall be obligated to pay to Tenant
from the proceeds of such taking or conveyance an amount determined in
accordance with the formula set forth below in this Paragraph 24, which amount
represents the unamortized improvements to be made to the Demised Premises by
Tenant. In the event only a portion of the Demised Premises shall be so taken or
conveyed under threat of such taking, and as a result of such partial taking,
Tenant is not reasonably able to use the remainder of the Demised Premises for
the purposes intended, then such taking shall be deemed to be a taking of the
entire Demised Premises, otherwise the amount to be paid by Landlord to Tenant
with respect to unamortized improvements shall be further adjusted by
multiplying the same by a fraction, the numerator of which shall be the square
footage of the Demised Premises which Tenant is not reasonably able to continue
to use, and the denominator of which shall be the square
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footage of the Demised Premises. In the event of a partial taking, or threatened
taking of the Property of which the Demised Premises are a part which taking
does not include any portion of the Demised Premises, this Lease shall remain in
full force and effect and Tenant shall have no claim with respect thereto and
Landlord shall not be obligated to make any payment to Tenant with respect
thereto. The foregoing provisions of this paragraph shall apply to any temporary
taking, or lease in lieu thereof, in the event that the same shall result in
either (i) Tenant being displaced from the Demised Premises for a period of more
than one (1) year, or (ii) the destruction of a substantial portion of the
improvements made by Tenant to the Demised Premises. In any instance to which
the provisions of this paragraph may be applicable and which requires a payment
from Landlord to Tenant pursuant to this paragraph, there shall be deducted from
the sum so payable by Landlord to Tenant a portion of Landlord's total costs
relating thereto and all negotiations with respect thereto including, without
limitation, attorney's fees and expenses, fees of expert witnesses, appraisals,
and costs of litigation. The portion of such Landlord's costs to be deducted
from the amount so payable to Tenant shall be a fraction, the numerator of which
shall be the amount otherwise payable by Landlord to Tenant pursuant to this
paragraph and the denominator of which shall be the entire award received by
Landlord with respect to such taking, or conveyance or lease in lieu thereof.
Notwithstanding the foregoing, Tenant shall be entitled to make claim against
the condemning authority for any relocation expense or similar award which
cannot be made to Landlord and which does not diminish or affect Landlord's
claim with respect to such taking. Tenant shall have the right to receive an
apportionment of any condemnation award hereunder for the unamortized amount of
the Tenant Improvements to the Demised Premises; provided, however, that
Landlord shall have the prior right to first receive from any such condemnation
award an amount equal to the then current value of Landlord's interest in the
Demised Premises. The then current value of Landlord's interest in the Demised
Premises shall be determined by an appraisal performed by an appraiser selected
by Landlord from the list of approved appraisers maintained by The Adams
National Bank. In determining the then current value of Landlord's interest in
the Demised Premises, the appraisal shall be based on the then current market
rental for the Demised Premises as if such Demised Premises were leased to a
commercial tenant other than a financial institution, and assuming that the
condition of the Demised Premises is in an "as-built" condition prior to the
Tenant's Tenant Improvements being constructed. Notwithstanding the foregoing,
for a full taking in no event will Tenant receive an amount less than
$100,000.00 or an amount more than the total value of the Tenant Improvements to
the Demised Premises. The minimum and maximum apportionment amounts available to
Tenant as set forth herein shall be reduced annually during the original Term
set forth herein, on the anniversary dates of this Lease, by an amount equal to
five percent (5%) of each such amount.
25. Bankruptcy or Insolvency. If Tenant shall make an assignment of its
assets for the benefit of creditors or if Tenant shall file a voluntary petition
under any Federal, District of Columbia or state bankruptcy or insolvency law (a
"petition in bankruptcy") or if any involuntary petition in bankruptcy or for
receivership be instituted against Tenant and not dismissed within sixty (60)
days of the filing thereof, or if Tenant shall be adjudged bankrupt or
insolvent, then and in any of said events this Lease shall immediately cease and
terminate, at the option of Landlord, with the same force and effect as though
the date of said event was the day herein fixed for expiration of the Term of
this Lease.
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26. Defaults and Remedies.
(a) The following events shall constitute a default (hereinafter
referred to as a "Default") of Tenant under this Lease:
(i) Failure of Tenant to make any payment of Minimum Rent when
due which failure shall continue for ten (10) days following written notice from
Landlord to Tenant;
(ii) Failure of Tenant to make any payment of Additional Rent
(including, without limitation, any Real Estate Taxes or insurance premiums), or
any other charge or payment due under this Lease, when due which failure shall
continue following ten (10) days written notice from Landlord to Tenant;
(iii) Failure of Tenant to perform or comply with any provision
of this Lease to be performed or complied with by Tenant, other than provisions
described in items (i) or (ii) above, where such failure shall continue for a
period of thirty (30) days after written notice thereof by Landlord to Tenant
or, if the failure is not capable of being cured within such 30-day period, then
such longer period as may be required so long as Tenant is proceeding diligently
to attempt to cure such failure and keeps Landlord reasonably informed of its
progress.
(b) The provisions of this Paragraph shall apply notwithstanding the
continued willingness and ability of Tenant to pay Minimum Rent and/or other
rent and otherwise perform hereunder. The receipt by Landlord of payments of
Minimum Rent or Additional Rent, as such, accruing subsequent to the time of
Tenant's Default under this Lease (irrespective of whether Landlord has notice
of such Default) shall not be deemed a waiver by Landlord of the provisions of
this Lease. Notwithstanding any other provision of this Paragraph, payment by
Tenant of all then delinquent Minimum Rent or Additional Rent shall constitute a
cure of any default by Tenant under subparagraphs 26(i) and (ii) hereof.
(c) Upon the occurrence of an uncured Default, Landlord shall have the
right at its election, within ten (10) days of the occurrence of said Default,
to give Tenant written notice of Landlord's intention to terminate this Lease
ninety (90) days after the date of the notice, and on such date Tenant's right
to possession of the Demised Premises shall cease and this Lease shall thereupon
be terminated.
(d) If Landlord terminates this Lease pursuant to the preceding
Paragraph, Tenant shall remain liable (in addition to accrued liabilities) for
(i) Minimum Rent, Additional Rent and any other sums provided for in this Lease
for a period of the remainder of the existing lease term following the default
had such termination not occurred, and any and all expenses (including
reasonable attorney's fees, disbursements and brokerage fees) incurred by
Landlord in reentering and repossessing the Demised Premises, in making good any
Default of Tenant, in painting, altering, repairing or dividing the Demised
Premises, in protecting and preserving the Demised Premises by use of watchmen
and caretakers, and in reletting the Demised Premises; less (ii) the net
proceeds of any reletting prior to the date this Lease would have expired if it
had not be terminated. Tenant agrees to pay to Landlord the difference between
items (i) and (ii) above for each month during the Term, at the end of each such
month. In addition to the foregoing, and without regard to whether this Lease
has been terminated, Tenant shall pay to Landlord all costs reasonably incurred
by Landlord, including reasonable attorney's fees, with respect to any lawsuit
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or action instituted or taken by Landlord to enforce the provisions of this
Lease. Tenant's liability shall survive the institution of summary proceedings
and the issuance of any writ of restitution thereunder.
(e) If Landlord fails to pay the Real Estate Taxes in a timely
fashion, and such failure shall continue for a period of thirty (30) days after
written notice to Landlord from Tenant of such failure, Tenant shall have the
right to make the required payment of Real Estate Taxes, and offset same against
future rent and additional rent when said payments are due. Landlord shall
reimburse Tenant for, payment of the Real Estate Taxes within ten (10) days of
presentation of invoices from Tenant. In the event Landlord fails to reimburse
Tenant for said payment of Real Estate Taxes, Landlord shall be in default under
this Lease and Tenant may offset the amount of Real Estate Taxes paid by Tenant
against the Minimum Rent or the Additional Rent and, at Tenant's sole option.
27. Hazardous Materials.
(a) Hazardous Materials. Tenant shall comply with all environmental
laws relating to "Hazardous Materials" (as hereinafter defined) affecting the
Demised Premises, the Property and the improvements thereon, and the business
conducted thereon by Tenant, or any activity or condition on or in the Demised
Premises. Without limiting the generality of the foregoing, Tenant shall (i) not
cause or permit any Hazardous Material to be brought upon, kept, or used in or
about the Demised Premises or the Property by itself or its agents, employees,
contractors or invitees without the prior written consent of Landlord. If Tenant
breaches the obligations stated in the preceding sentence, or if the presence of
Hazardous Material on the Demised Premises caused or permitted by Tenant results
in contamination of the Demised Premises, the Property or any adjacent property,
then, notwithstanding the termination of this Lease, Tenant shall indemnify,
defend and hold Landlord harmless from any and all claims, judgments, damages,
penalties, fines, costs, liabilities or losses (including, without limitation,
diminution in value of the Demised Premises, the Property, and/or adjacent
property, damages for the loss or restriction on use of rentable or usable space
or of any amenity of the Demised Premises, the Property, and/or adjacent
property, damages arising from any adverse impact on occupying or marketing of
the Demised Premises, the Property, and/or adjacent property, and sums paid in
settlement of claims, attorneys' fees, consultant fees and expert fees) which
arise during or after the term or extended term of this Lease as a result of
such contamination. This indemnification includes, without limitation, costs
incurred in connection with any investigation of site conditions or any cleanup,
remedial removal or restoration of the Property by any federal, state or local
governmental agency or political subdivision because of Hazardous Material
present in the soil or ground water on or under the Demised Premises, the
Property, and/or adjacent property. Without limiting the foregoing, if the
presence of any Hazardous Material on the Demised Premises or Property caused or
permitted by Tenant results in any contamination of the Demised Premises, the
Property, and/or adjacent property, Tenant shall promptly take all actions at
its sole expense as are necessary to return the Demised Premises, the Property,
and/or adjacent property. As used herein, the term "Hazardous Material" means
any hazardous or toxic substance, material or waste which is or becomes
regulated by any local governmental authority and which is stored, used,
disposed of or released in the District of Columbia or the United States
Government, except for normal and customary office supplies. The provisions of
this Paragraph 27 shall survive the
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expiration or earlier termination of this Lease and Tenant's surrender of the
Demised Premises to Landlord.
(b) Hazardous Materials Disclosure. During the first month of each
calendar year during the term of this Lease (the "Disclosure Dates"), Tenant
shall disclose to Landlord in writing the common and chemical names and the
quantities of all Hazardous Materials, which were stored, used or disposed of on
the Demised Premises or the Property during the preceding calendar year. Tenant
shall immediately notify Landlord of the receipt of any notice, citation or
other communication received by Tenant relating to the presence, storage, use or
release of any Hazardous materials in on or about the Demised Premises or the
Property.
(c) Hazardous Materials Inspection. Landlord shall have the right, but
not the duty, to inspect the Demised Premises at any time to determine whether
Tenant is complying with the requirements of this Paragraph 27. If Tenant is not
in compliance with the requirements of this Paragraph 27, Landlord shall have
the right, but not the obligation, to immediately enter upon the Demised
Premises to remedy any condition which is in violation of the terms of this
Lease or caused by Tenant's failure to comply with the requirements of this
Lease. Landlord shall use reasonable effort to minimize interference with
Tenant's business as a result of any such entry by Landlord.
(d) Hazardous Materials Knowledge. Notwithstanding any of the
provisions of Paragraphs 27(a) through 27(c), The Adams National Bank, as
Tenant, shall only be responsible for knowingly introducing any hazardous
material on to the Demised Premises, and the provisions of Paragraphs 27(a)
through 27(c) shall not apply to The Adams National Bank, but the provisions of
Paragraphs 27(a) through 27(c) shall apply to any subtenants or assignees.
28. No Waiver. If under the provisions hereof Landlord or Tenant shall
institute proceedings and a compromise or settlement thereof shall be made, the
same shall not constitute a waiver of any covenant herein contained nor of any
of such party's rights hereunder. No waiver by either party of any breach of any
covenant, condition or agreement herein contained shall operate as a waiver of
such covenant, condition or agreement itself, or of any subsequent breach
thereof. No payment by Tenant or receipt by Landlord of a lesser amount than the
monthly installments of Minimum Rent herein stipulated shall be deemed to be
other than on account of the earliest stipulated Minimum Rent, nor shall any
endorsement or statement on any check or letter accompanying a check for payment
of Minimum Rent or Additional Rent be deemed an accord and satisfaction, and
Landlord may accept such check or payment without prejudice to Landlord's right
to recover the balance of such Minimum Rent or Additional Rent or to pursue any
other remedy provided in this Lease. No reentry by Landlord, and no acceptance
by Landlord of keys from Tenant, shall be considered an acceptance of a
surrender of this Lease, unless Landlord expressly agrees to such surrender in
writing.
29. Subordination.
(a) Automatic Subordination. This Lease is subject and subordinate to
the lien of any and all mortgages (which term "mortgages" shall include deeds of
trust and similar security instruments) and ground or other underlying leases
which may now or hereafter encumber or otherwise affect the Property, as well as
the obligation to pay any and all renewals, extensions, modifications,
recastings or refinancing thereof; provided,
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however, that in the event the mortgagee under any such mortgage, or ground
lessor under any such ground lease, shall require this Lease to be superior and
paramount to such mortgage or ground lease, Tenant agrees to execute and deliver
any documents required for such purpose within five (5) days after delivery of
such documents to Tenant.
(b) Instruments of Subordination. This paragraph shall be
self-operative and no further instruments of subordination need be required by
any mortgagee, trustee or Ground Lessor. Nevertheless, if requested by Landlord,
Tenant shall promptly execute any certificate or other document specified by
Landlord in confirmation of this subordination. Tenant hereby constitutes and
appoints Landlord as Tenant's attorney-in-fact to execute any such certificate
or document on behalf of Tenant if Tenant does not execute it within five (5)
days after receiving it. Tenant agrees that, if any proceedings are brought for
the foreclosure of any such mortgage, Tenant, if requested to do so by the
purchaser at the foreclosure sale, shall attorn to the purchaser, shall
recognize the purchaser as Landlord under this Lease, and shall make all
payments required hereunder to such new Landlord without deduction or setoff.
Tenant waives the provisions of any law or regulation, now or hereafter in
effect, which may give or purport to give Tenant any right to terminate or
otherwise adversely affect this Lease or the obligations of Tenant hereunder in
the event that any such foreclosure or termination or other proceeding is
prosecuted or completed.
(c) Non-Disturbance and Quiet Enjoyment. Tenant shall and may
peacefully have, hold and enjoy the Demised Premises, provided that Tenant pays
all rent and other sums herein recited and timely performs all of its
obligations contained in this Lease. It is understood and agreed that this
covenant and any and all other covenants of Landlord contained in this Lease
shall be binding upon Landlord and its successors and assigns, but only with
respect to breaches occurring during its and their respective ownership of
Landlord's interest hereunder.
30. Estoppel Certificates. Tenant agrees, at any time and from time to
time, upon not less than fifteen (15) days prior written notice by Landlord, to
execute, acknowledge and deliver to Landlord a statement in writing on a form
submitted to Tenant by Landlord (a) certifying that this Lease is unmodified (or
if modified, stating the modifications) and in full force and effect (or if not
in full force and effect, the reasons therefor), (b) stating the dates to which
the Minimum Rent, Additional Rent and other charges hereunder have been paid by
Tenant, (c) stating the amount of any security deposit held by Landlord, (d)
stating whether or not to the best knowledge of Tenant, Landlord is in default
in the performance of any covenant, agreement or condition contained in this
Lease, and if so, specifying each such default of which Tenant may have
knowledge, and (e) stating the address to which notices to Tenant should be
sent. Any such statement delivered pursuant hereto may be relied upon by an
owner of the Property, any prospective purchaser of the Property, any mortgagee
or prospective mortgagee of the Property, any prospective assignee of any such
mortgagee, or any lessor or prospective lessor of the land which is a part of
the Property.
31. [INTENTIONALLY DELETED]
32. Holding Over. If Tenant shall, with the knowledge and consent of
Landlord, continue to remain in the Demised Premises after the expiration of the
Term of this Lease and any extension thereof, then and in that event, Tenant
shall, by virtue of this agreement become a tenant by the month at a monthly
rental equal
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to one hundred fifty percent (150%) of the monthly installment of Minimum Rent
agreed by Tenant to be paid as aforesaid for the lease year immediately
preceding such expiration, in addition to Additional Rent; subject to all of the
terms and provisions of this Lease, except any option to renew or extend the
Term hereof and except as otherwise provided in this Paragraph; commencing said
monthly tenancy with the first day next after the end of the Term above demised;
and Tenant shall give to Landlord at least thirty (30) days' written notice of
any intention to quit the Demised Premises, and Tenant shall be entitled to
thirty (30) days' written notice to quit the Demised Premises, except in the
event of nonpayment of Minimum Rent or Additional Rent or of the breach of any
other covenant by Tenant, in which event Tenant shall not be entitled to any
notice to quit, the usual thirty (30) days' notice to quit being hereby
expressly waived; provided, however, that in the event that Tenant shall hold
over after the expiration of the Term hereby created (and any extension
thereof), and if Landlord shall desire to regain possession of the Demised
Premises promptly at the expiration of the Term aforesaid (and any extension
thereof), then at any time prior to Landlord's acceptance of Minimum Rent from
Tenant as a monthly tenant hereunder, Landlord, at Landlord's option, may
forthwith reenter and take possession of the Demised Premises without process,
or by any legal process in force.
33. Submission of Lease. This Lease shall become effective as a lease only
upon execution and delivery thereof by Landlord and Tenant.
34. Covenants of Landlord. Landlord covenants that Landlord has the right
to make this Lease, and that if Tenant shall pay the Minimum Rent and Additional
Rent and shall perform all of Tenant's obligations under this Lease, Tenant
shall, during the Term hereof, freely, peaceably and quietly occupy and enjoy
the possession of the Demised Premises without molestation or hindrance by
Landlord or any party claiming through or under Landlord, except as otherwise
provided herein. The term "Landlord" as used herein shall mean solely the owner
of Landlord's interest in the Property, whoever that may be at the relevant
time, so that in the event of any sale or transfer of Landlord's interest in the
Property, any prior Landlord shall be freed and relieved of all covenants and
obligations of Landlord hereunder. In the event of a transfer of Landlord's
interest, the entering Landlord shall obtain from Tenant an estoppel
certificate, pursuant to Paragraph 30 hereof, prior to effecting the transfer of
Landlord's interest.
35. Waiver of Trial by Jury. Landlord and Tenant hereby waive all right to
trial by jury in any claim, action, proceeding or counterclaim on any matters
arising out of or in any way connected with this Lease, the relationship of
Landlord and Tenant, and/or Tenant's use or occupancy of the Demised Premises.
36. Attorney's Fees. In the event of any default of Landlord or Tenant
hereunder, the non-prevailing party shall pay to the prevailing party all
reasonable attorneys' fees incurred by the prevailing party in connection with
such default or the enforcement of the prevailing party's rights or remedies
arising in connection therewith, whether or not this Lease is terminated and
whether or not the prevailing party institutes any lawsuit against the
non-prevailing party as a result of such default. In addition to the foregoing,
whether or not this Lease is terminated, the non-prevailing party shall pay to
the prevailing party all other costs incurred by the prevailing party with
respect to any lawsuit instituted or action taken by the prevailing party to
enforce the provisions of this Lease.
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37. Brokers. Landlord and Tenant each represent and warrant that neither of
them has employed any broker in carrying on the negotiations relating to this
Lease, except as set forth below. Landlord and Tenant shall indemnify and hold
each other harmless from any loss, claim or damage relating to the breach of the
foregoing representation and warranty. Tenant recognizes Demers Real Estate,
Inc. and Barrueta & Associates, as Tenant's agents with respect to this Lease
and Landlord recognizes The Jason Corporation as Landlord's agent with respect
to this Lease and each agrees to be responsible for the payment of any leasing
commissions owed to their respective brokers pursuant to a separate agreement
with such brokers.
38. Notices. All notices or other communications hereunder shall be in
writing and shall be deemed duly given if delivered in person or sent by
certified or registered mail, return receipt requested, first class, postage
prepaid, (a) if to Landlord, to c/o The Jason Corporation, 4420 Connecticut
Avenue, N.W., Suite 200, Washington, D.C. 20008, to the attention of Mr. Wayne
Carroll, and (b) if to Tenant, to Barbara Davis Blum, President, The Adams
National Bank, 1627 K Street, N.W., Second Floor, Washington, D.C. 20006, unless
notice of a change of address is given pursuant to the provisions of this
Paragraph. The effective date for any notice or communication hereunder shall be
the date of delivery if delivered in person and the date of posting if sent by
mail as hereinabove provided.
39. Miscellaneous.
(a) This Lease and the exhibits attached hereto contain and embody the
entire agreement of the parties hereto, and no representations, inducements, or
agreements, oral or otherwise, between Landlord and Landlord's agents and Tenant
not contained in this Lease and exhibits shall be of any force or effect. This
Lease may not be modified, changed or terminated in whole or in part in any
manner other than by an agreement in writing duly signed by both parties hereto.
(b) The terms, covenants and conditions hereof shall be binding upon
and inure to the parties hereto and the permitted successors in interest and
assigns of the parties hereto. Landlord may freely and fully assign its interest
hereunder.
(c) If any provision of this Lease or the application thereof to any
person or circumstance shall to any extent be held void, unenforceable or
invalid, then the remainder of this Lease or the application of such provision
to persons or circumstances other than those as to which it is held void,
unenforceable or invalid shall not be effected thereby, and each provision of
this Lease shall be valid and enforceable to the fullest extent permitted by
law.
(d) Tenant may record this Lease without the prior written consent of
Landlord at Tenant's sole cost and expense.
(e) The captions and headings throughout this Lease are for
convenience and reference only and the words contained therein shall in no way
be held or deemed to define, limit, describe, explain, modify, amplify or add to
the interpretation, construction or meaning of any provision of or the scope of
intent of this Lease nor in any way affect this Lease.
(f) Nothing contained in this Lease shall be deemed or construed to
create a partnership or joint venture of or between Landlord and Tenant, or to
create any other relationship between the parties hereto other than that of
Landlord and Tenant.
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(g) Feminine or neuter pronouns shall be substituted for those of the
masculine form, the plural shall be substituted for singular number and vice
versa in any place or places herein in which the context may require such
substitute or substitutions.
(h) If one or more Lease Addenda are executed by Landlord and Tenant
and attached hereto, the covenants and agreements contained in each such Lease
Addendum shall be incorporated into and become a part of the covenants and
agreements of this Lease as if they were set forth in this instrument.
(i) This Lease is to be construed under the laws of the District of
Columbia (excluding the choice of law rules thereof).
40. Authority of Landlord and Tenant. Each individual executing this Lease
on behalf of Landlord and Tenant represents and warrants that he or she is duly
authorized to execute and deliver this Lease on behalf of Landlord or Tenant, as
the case may be, and Tenant represents that such execution is in accordance with
a duly adopted resolution of the Board of Directors of Tenant and in accordance
with Tenant's bylaws and that this Lease is binding upon Landlord and Tenant in
accordance with its terms.
41. Option to Extend Term. Provided that no default by Tenant exists beyond
the expiration of any applicable cure period at the time for the exercise of the
following options, Tenant shall have two (2) successive options (respectively,
the "First Extension Option" and the "Second Extension Option", and collectively
the "Extension Options") to extend the Term of this Lease for two (2) additional
successive periods of five (5) years each (respectively, the "First Extension
Period" and the "Second Extension Period", individually an "Extension Period",
and collectively the "Extension Periods") after the expiration of the initial
Term as to the First Extension Option, and after the expiration of the First
Extension Period as to the Second Extension Option. Each Extension Option shall
be exercisable only by written notice given by Tenant to Landlord not later than
one hundred fifty (150) days prior to the expiration of the initial Term as to
the First Extension Option and prior to the expiration of the First Extension
Period as to the Second Extension Option.
All terms and conditions of this Lease shall be applicable during each
Extension Period, and except that the amount of Minimum Rent payable for the
first and each succeeding Lease Year of each Extension Period shall be as
follows:
The Minimum Monthly Rental of Three Thousand Seven Hundred Fifty Dollars
($3,750.00), plus all actual accrued increases in the Consumer Price Index since
the inception of the initial Lease Term to the date of each respective Extension
Period. During each Extension Period, if exercised, rental escalation as
provided for in Paragraph 3(d) herein shall be applied every two and one-half (2
1/2) years instead of every three (3) years. This calculation shall be based on
three (3) ten (10) month periods, rather than three (3) twelve (12) month
periods, as set forth in the example in Paragraph 3(d).
(signatures on next page)
19
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease under seal
the day and year first hereinabove written.
WITNESS: LANDLORD:
- -------- ---------
1604 17TH STREET LIMITED
PARTNERSHIP
_______________________________ By:__________________________
General Partner
TENANT:
-------
ATTEST: THE ADAMS NATIONAL BANK
[Corporate Seal]
By:_____________________________ By:____________________________
Its_____________________________ Its____________________________
[38851]
20
<PAGE>
EXHIBIT "A"
Copy of Lease dated September 28, 1994
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000356809
<NAME> ABIGAIL ADAMS NATIONAL BANCORP,INC.
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 4,953,200
<INT-BEARING-DEPOSITS> 486,715
<FED-FUNDS-SOLD> 9,475,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,508,406
<INVESTMENTS-CARRYING> 8,192,647
<INVESTMENTS-MARKET> 8,309,265
<LOANS> 63,592,395
<ALLOWANCE> (1,273,965)
<TOTAL-ASSETS> 92,364,676
<DEPOSITS> 83,063,195
<SHORT-TERM> 1,785,402
<LIABILITIES-OTHER> 710,963
<LONG-TERM> 186,250
0
0
<COMMON> 2,864,040
<OTHER-SE> 3,754,826
<TOTAL-LIABILITIES-AND-EQUITY> 92,364,676
<INTEREST-LOAN> 5,902,325
<INTEREST-INVEST> 858,745
<INTEREST-OTHER> 152,989
<INTEREST-TOTAL> 6,914,059
<INTEREST-DEPOSIT> 2,637,390
<INTEREST-EXPENSE> 2,746,594
<INTEREST-INCOME-NET> 4,167,465
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,781,426
<INCOME-PRETAX> 1,226,810
<INCOME-PRE-EXTRAORDINARY> 1,226,810
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 958,898
<EPS-PRIMARY> 3.37
<EPS-DILUTED> 0
<YIELD-ACTUAL> 8.94
<LOANS-NON> 1,561,125
<LOANS-PAST> 6,476
<LOANS-TROUBLED> 1,244,877
<LOANS-PROBLEM> 617,582
<ALLOWANCE-OPEN> (1,289,562)
<CHARGE-OFFS> (113,590)
<RECOVERIES> 97,993
<ALLOWANCE-CLOSE> (1,273,965)
<ALLOWANCE-DOMESTIC> (1,273,965)
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 253,000
</TABLE>
