SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1996
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| | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from___________ to________________
Commission file number 0-10971
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ABIGAIL ADAMS NATIONAL BANCORP, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 52-1508198
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(State or other jurisdiction of (I.R.S. Employer ID No.)
Incorporation or organization)
1627 K Street, N.W. Washington, D.C. 20006
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(Address of principal executive offices)
202-466-4090
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Issuer's telephone number including area code
N / A
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Former name, address, and fiscal year, if changes since last report
Indicate by check whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes |X| No | |.
State the number of shares outstanding of each of the issuer's classes of
common equity as of August 9, 1996:
1,549,532 shares of Common Stock, Par Value $0.01/share.
Transitional Small Business Disclosure Format (check one): Yes____ No__X__
<PAGE>
PART I.
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Item 1 - Financial Statements
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1
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
June 30, 1996 and 1995 and December 31, 1995
<TABLE>
<CAPTION>
June 30 June 30 December 31
1996 1995 1995
---- ---- ----
(unaudited) (unaudited)
Assets
- -------------------------------------
<S> <C> <C> <C>
Cash and due from banks $5,824,109 $4,086,467 $4,953,200
Short-term investments:
Federal funds sold and securities purchased under agreements to resell 9,950,000 5,025,000 9,475,000
Interest bearing deposits in other banks 486,715 391,715 486,715
-------------------------------------------------
Total short-term investments 10,436,715 5,416,715 9,961,715
Securities available for sale 3,997,812 4,504,375 5,508,406
Investments securities (market value of $7,562,045, $9,964,271 and $8,309,265
at June 30, 1996, June 30, 1995 and December 31, 1995, respectively) 7,536,421 9,883,256 8,192,647
Loans 59,400,325 60,839,436 63,592,395
Less: Allowance for loan losses (1,260,922) (1,310,944) (1,273,965)
-------------------------------------------------
58,139,403 59,528,492 62,318,430
Bank premises and equipment 500,009 318,448 277,517
Other real estate owned 317,381 -- --
Other assets 1,283,441 1,225,320 1,152,761
-------------------------------------------------
Total assets $88,035,291 $84,963,073 $92,364,676
=================================================
Liabilities
- -------------------------------------
Demand deposits 20,295,942 18,897,823 $23,443,937
NOW accounts 7,503,649 12,930,951 7,343,282
Money market deposit accounts 22,070,938 15,024,490 21,391,814
Savings deposits 1,273,014 1,079,085 1,317,226
CD's $100,000 and over 8,804,361 15,325,158 13,590,946
CD's under $100,000 18,636,549 13,698,756 15,975,990
-------------------------------------------------
Total deposits 78,584,453 76,956,263 83,063,195
Federal funds purchased and securities sold under agreements to repurchase 1,738,580 1,128,389 1,785,402
Long-term debt -- capital note - 223,500 186,250
Other liabilities 743,326 483,316 710,963
-------------------------------------------------
Total liabilities 81,066,359 78,791,468 85,745,810
Stockholders' Equity
- -------------------------------------
Common stock, par value, $.01 per share, authorized 5,000,000 shares;
issued 859,212; outstanding 854,532 8,592 8,592 8,592
Surplus 6,147,421 6,147,421 6,147,421
Retained earnings 874,888 97,428 531,830
-------------------------------------------------
7,030,901 6,253,441 6,687,843
Less: Treasury Stock, 4,680 shares at cost (28,710) (28,710) (28,710)
Unrealized loss on securities, net of taxes (33,259) (53,126) (40,267)
-------------------------------------------------
Total stockholders' equity 6,968,932 6,171,605 6,618,866
-------------------------------------------------
Total liabilities and stockholders' equity $88,035,291 $84,963,073 $92,364,676
=================================================
</TABLE>
2
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ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Operations
For the Period Ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
For three months For six months
Ended June 30, Ended June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
- -------------------------------------
Interest and fees on loans $1,470,918 $1,479,528 $2,979,645 $2,897,706
Interest and dividends on investment securities:
U.S. Treasury 11,659 18,123 19,148 36,127
Obligations of U.S. government agencies 91,838 85,378 177,431 196,194
Mortgage-backed securities 7,139 21,300 15,267 21,300
Other 6,941 6,987 13,977 18,483
----------------------------------------------------------
Total interest and dividends on investment securities 117,577 131,788 225,823 272,104
Interest on securities available for sale:
U.S. Treasury 14,266 46,239 40,828 92,195
Obligations of U.S. government agencies 37,928 37,281 85,239 78,570
----------------------------------------------------------
Total interest on securities available for sale 52,194 83,520 126,067 170,765
Interest on federal funds sold 105,043 46,171 214,281 65,075
Interest on deposits with other banks 8,980 4,975 15,846 10,812
----------------------------------------------------------
Total interest income 1,754,712 1,745,982 3,561,662 3,416,462
Interest expense
- -------------------------------------
Interest on deposits:
NOW 45,554 72,543 91,618 143,198
Money market deposit accounts 253,398 201,160 470,786 406,999
Savings deposits 8,492 7,229 17,178 14,948
CD's $100,000 and over 116,072 198,700 287,541 377,062
CD's under $100,000 228,090 224,081 466,765 383,071
----------------------------------------------------------
651,606 703,713 1,333,888 1,325,278
Interest on Federal funds purchased and securities
sold under agreements to repurchase 22,963 16,683 51,410 42,830
Interest on other borrowings 0 1,446 0 6,559
Interest on subordinated note 1,425 3,632 4,219 7,543
----------------------------------------------------------
Total interest expense 675,994 725,474 1,389,517 1,382,210
----------------------------------------------------------
Net interest income 1,078,718 1,020,508 2,172,145 2,034,252
Provision for loan losses 0 0 0 0
----------------------------------------------------------
Net interest income after provision for loan losses 1,078,718 1,020,508 2,172,145 2,034,252
</TABLE>
3
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ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Operations
For the Period Ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
For three months For six months
Ended June 30, Ended June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Other income:
- -------------------------------------
Service charges on deposit accounts 175,764 190,099 348,033 369,852
Other fees and commissions 47,285 36,553 59,435 48,431
---------------------------------------------------------
Total other income 223,049 226,652 407,468 418,283
Other expense:
- -------------------------------------
Salaries and employee benefits 452,756 414,869 884,447 829,014
Net occupancy expense 183,601 191,071 355,325 376,565
Professional fees (27,390) 86,041 15,227 178,460
Data processing fees 86,454 69,881 173,333 134,513
Other operating expense 211,791 214,323 380,214 408,909
---------------------------------------------------------
Total other expense 907,212 976,185 1,808,546 1,927,461
---------------------------------------------------------
Income before taxes 394,555 270,975 771,067 525,074
Income tax expense 147,108 73,123 285,587 143,000
---------------------------------------------------------
Net income $247,447 $197,852 $485,480 $382,074
=========================================================
Earnings per share:
- -------------------------------------
Net income per share $0.28 $0.23 $0.56 $0.45
=========================================================
Average shares outstanding used to compute EPS 868,423 854,532 864,682 854,532
=========================================================
</TABLE>
4
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
For the Six Months Ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Additional Retained
Common Paid-in Earnings Treasury Unrealized Loss
Stock Capital (Deficit) Stock on Securities Total
----- ------- --------- ----- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 $2,864,040 $3,291,973 ($284,646) ($28,710) ($80,387) $5,762,270
Change in par value of
common stock (2,861,176) 2,861,176 --- --- --- --
Shares issued in three-for-
one stock split in the form
of a stock dividend 5,728 (5,728) --- --- --- --
Net income --- --- 382,074 --- --- 382,074
Unrealized gain on securities,
net of taxes --- --- --- --- 27,261 27,261
-------------------------------------------------------------------------------------
Balance, June 30, 1995 $8,592 $6,147,421 $97,428 ($28,710) ($53,126) $6,171,605
=====================================================================================
Balance, January 1, 1996 $8,592 $6,147,421 $531,830 ($28,710) ($40,267) $6,618,866
Net income --- --- 485,480 --- --- 485,480
Dividend declared --- --- (142,422) --- --- (142,422)
Unrealized gain on securities,
net of taxes --- --- --- --- 7,008 7,008
-------------------------------------------------------------------------------------
Balance, June 30, 1996 $8,592 $6,147,421 $874,888 ($28,710) ($33,259) $6,968,932
=====================================================================================
</TABLE>
5
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statement of Cash Flows
For the Six Months Ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Operating Activities
- -------------------------------------
Net income $485,480 $382,074
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization on bank premises & equipment 57,307 80,035
Accretion of loan discounts (17,956) (33,425)
Amortization and accretion of discounts and premiums on investment securities (182) 14,305
Increase in other assets (192,146) (3,741)
Benefit for deferred income taxes 61,466 73,176
Increase (decrease) in other liabilities 27,464 (204,905)
---------------------------------------
Net cash provided by operating activities 421,433 307,519
Investing Activities
- -------------------------------------
Proceeds from repayment and maturity of investment securities 3,150,000 150,000
Proceeds from repayment of mortgage-backed securities 50,716 69,140
Proceeds from repayment and maturity of securities available for sale 4,500,000 6,088,400
Proceeds from repayment and maturity of time deposits -- 99,000
Purchase of investment securities (2,521,806) (1,003,825)
Purchase of securities available for sale (3,000,000) (4,568,466)
Principal collected on loans 4,129,198 8,598,610
Loans originated (3,892,818) (8,036,642)
Net decrease in short-term loans 59,184 161,274
Net decrease(increase) in lines of credit 3,901,418 (766,721)
Purchase of bank premises and equipment (279,798) (29,264)
Purchase of other real estate (317,381) --
---------------------------------------
Net cash provided by investing activities 5,778,713 761,506
Financing Activities
- -------------------------------------
Net decrease in transaction and savings deposits (2,352,716) (1,202,648)
Proceeds from issuance of time deposits 8,934,363 23,451,248
Payments for maturing time deposits (11,060,389) (20,585,839)
Net increase (decrease) in Federal funds purchased and repurchase agreements (46,823) 767,681
Payments on long-term debt (186,250) (37,250)
Payment of dividends (142,422) --
---------------------------------------
Net cash provided (used) by financing activities (4,854,237) 2,393,192
---------------------------------------
Increase in cash & cash equivalents 1,345,909 3,462,217
Cash and cash equivalents at beginning of period 14,428,200 5,649,250
---------------------------------------
Cash and cash equivalents at end of period $15,774,109 $9,111,467
=======================================
Supplementary disclosures:
Interest paid on deposits and borrowings $1,433,843 $1,350,927
=======================================
Income taxes paid $246,500 $95,593
=======================================
</TABLE>
6
<PAGE>
Abigail Adams National Bancorp, Inc.
Notes to Consolidated Financial Statements
June 30, 1996 and 1995
1. General
The unaudited information at and for the six months ended June 30, 1996 and
l995 furnished herein reflects all adjustments which are, in the opinion of
management, necessary to a fair statement of the results for the interim periods
presented. All adjustments are of a normal and recurring nature. All financial
information presented gives retroactive effect to (i) an increase in the number
of shares of authorized Common Stock from 800,000 to 5,000,000 and a reduction
of par value to $0.01 per share as of July 8, 1996, and (ii) the issuance by the
Company on July 9, 1996 of a three-for-one stock split in the form of a stock
dividend of two shares of Common Stock for each share of Common Stock issued and
outstanding.
2. Contingent Liabilities
In the normal course of business, there are various outstanding commitments
and contingent liabilities such as commitments to extend credit and standby
letters of credit that are not reflected in the accompanying consolidated
financial statements. No material losses are anticipated as a result of these
transactions on either a completed or uncompleted basis.
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, totaling approximately $499,000, 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 $539,000 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.
3. 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 $20.11.
7
<PAGE>
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.
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.
4. Employee Benefits
The Company has adopted a Nonqualified Stock Option Plan for certain
officers and key employees and has reserved 90,000 shares of common stock for
options to be granted under the plan. No options have been granted to date.
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 16,416 shares of common
stock available for grant under the above Plans were granted at a price of $6.74
for directors and $7.93 for employees. No options have been exercised under
these plans.
On March 29, 1996, the Company granted the President and Chief Executive
Officer a nonqualified stock option to purchase 75,000 shares at a price equal
to 85% of the fair market value of the Company's common stock on the date of
grant ($6.74). The option vests beginning in 1996 at an annual rate of 20% at
the end of each year and becomes fully vested in the event of a Change in
Control as defined in the Agreement, or in the event that she leaves the Company
or the Bank.
Compensation expense is recognized on the Directors Plan and the options
granted to the
8
<PAGE>
President and Chief Executive Officer in an amount equal to the difference
between the quoted market price of the stock at the date of grant and the amount
the employee/director is required to pay, ratably over the five year vesting
periods.
On April 16, 1996, the Company and the Bank adopted an employee stock
ownership plan ("ESOP") with 401(k) provisions, replacing the Bank's former
401(k) Plan. Participants may elect to contribute to the ESOP a portion of their
salary, which may not be less than 1% nor more than 15%, of their annual salary
(up to $9,500 for 1996). In addition, the Bank may make a discretionary matching
contribution equal to one-half of the percentage amount of the salary reduction
elected by each participant (up to a maximum of 3%), which percentage will be
determined each year by the Bank, and an additional discretionary contribution
determined each year by the Bank. Employee contributions and the employer's
matching contributions immediately vest. Employer's discretionary contributions
are vested as follows: 0% for less than three years of service; 20% for three
years of service; 40% for four years of service; 60% for five years of service;
80% for six years of service; and 100% for seven or more years of service.
5. Net Income Per Share
Net income per common share is calculated by dividing net income by the
weighted average number of common shares and common share equivalents
outstanding during the period, 864,682 and 854,532 for the six months ended June
30, 1996 and 1995, respectively. Common share equivalents include stock options.
6. Change in Accounting Principles
(a) 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. SFAS No. 121 is
effective for the Company as of January 1, 1996. Implementation of SFAS No. 121
does not have a material impact on the results of operations or financial
position at or for the six months ended June 30, 1996.
(b) 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 retain servicing rights and therefore the implementation of
SFAS No. 122 will not have a material impact.
9
<PAGE>
(c) 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 follows the existing accounting standards for these
plans, but will provide annual pro-forma disclosure of net income and earnings
per share as if the expense provisions of SFAS No. 123 had been adopted.
10
<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
- --------------------------------------------------------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- --------------------------------------------------------------------------------
Overview
Total assets of Abigail Adams National Bancorp, Inc. and subsidiary (the
"Company") were $88,035,000 at June 30, 1996 as compared to $92,365,000 at
December 31, 1995. Total assets at June 30, 1996 decreased by $4,330,000 from
December 31, 1995 predominantly due to decreases in loans of $4,192,000. Total
deposits decreased by $4,479,000 during the same period to $78,584,000 at June
30, 1996 due primarily to normal fluctuations in commercial demand deposit
accounts, coupled with a decrease in collateralized government certificates of
deposit.
The Company reported net income for the first half of 1996 of $485,000, or
$0.56 per share, for an annualized return on average assets of 1.12% and an
annualized return on average equity of 14.34%. This compares with return on
assets of 0.93% and return on equity of 12.91% for the first six months of 1995.
Net income for the first six months of 1996 reflects a 27% increase over the
$382,000 net income (or $0.45 per share) recorded for the first half of 1995.
Increases in net interest income and reductions in operating expenses, partially
offset by increases in the Company's effective tax rate, accounted for the
growth in net income.
Analysis of Net Interest Income
Net interest income, the most significant component of the Company's
earnings, increased by $138,000, or 7%, to $2,172,000 for the first six months
of 1996 as compared to $2,034,000 for the comparable 1995 period. Average
earning assets for the first half of 1996 of $87,313,000 increased by
$4,723,000, or 6%, over the comparable 1995 period. Increased net interest
income resulting from a 21% increase in demand deposit accounts for the first
half of 1996 as compared to 1995 more than offset the effects of a decline in
the average loan to deposit ratio of 78% for the first half of 1996 from 81% for
the comparable prior year period, as well as a 4 basis point increase in the
cost of deposits. These factors combined to produce a net interest spread of
4.04% and a net interest margin of 5.37% for the first half of 1996, reflecting
decrease of 9 basis points and an increase of 8` basis points, respectively,
from the prior year.
Other Income
Total other income decreased by approximately $11,000, or 3%, to $407,000
for the first six months of 1996 due principally to a decrease in ATM income.
Other Expense
Salaries and benefits of $884,000 for the first half of 1996 increased by
$55,000, or 7%, over the first half of 1995, due primarily to normal merit
increases, increases in employee benefits and recruitment expenses. Net
occupancy expense of $355,000 for the first six months of 1996 reflects
11
<PAGE>
a decrease of $21,000, or 6%, from one year earlier, due primarily to a decrease
in depreciation expense. During the later part of the second quarter of 1996,
the Company completed the installation of its local area network. Depreciation
on the local area network hardware and software, coupled with the opening of a
new branch late in the third quarter is expected to impact the Company's
occupancy expense in the future. Professional fees of $15,000 for the first six
months of 1996 declined by $163,000 from one year earlier due primarily to lower
legal fees associated with loan workouts and other corporate matters, as well as
prior legal expenses which the Small Business Administration ("SBA") has agreed
to reimburse the Company for the workout of two troubled SBA guaranteed loans.
Data processing expense of $173,000 for the first half of 1996 increased by
$39,000, or 29%, over the prior year as a result of increased activity levels
and item charges as well as the introduction of new electronic services. Other
operating expense of $380,000 for the first six months of 1996 reflects a
decrease of $29,000, or 7%, over the prior year due primarily to decreased FDIC
deposit insurance premiums, partially offset by increases in administrative and
overhead expenses.
Income Tax Expense
Income tax expense of $286,000 for the first six months of 1996 reflects an
increase of $143,000 over the $143,000 tax expense recorded one year earlier due
to an increase in the Company's effective tax rate to 37% from 27% one year
earlier. During 1995, the Company reduced its deferred tax valuation allowance
to zero which reduced the effective tax rate.
Analysis of Loans
The loan portfolio at June 30, 1996 of $59,400,000 decreased by $4,192,000,
or approximately 7%, as compared to the December 31, 1995 balance of $63,592,000
primarily due to fluctuations in the outstanding balance of commercial loans
issued under lines of credit. Loans outstanding on commercial lines of credit
were approximately 34% of the total committed line amount at June 30, 1996 as
compared to 52% at December 31, 1995. New loans, exclusive of short-term loans
and lines of credit, of $3,893,000 were originated in the first half of 1996,
however, loan principal payments of $4,129,000 offset the [majority] of this
increase. The loan to deposit ratio at June 30, 1996 was 76% as compared to 77%
at December 31, 1995. On average, the loan to deposit ratio for the first
quarter of 1996 was 78%.
Loan concentrations at June 30, 1996 and December 31, 1995 are summarized
as follows:
Loan Concentrations
At June 30, 1996 and December 31, 1995
June 30, December 31,
1996 1995
---- ----
Service industry 35% 38%
Real estate development/finance 34 32
Wholesale/retail 22 21
Other 9 9
-- --
Total 100% 100%
=== ===
12
<PAGE>
Analysis of Investments
Securities available for sale totaling $4,500,000 matured during the first
six months of 1996 as compared to purchases of $3,000,000 during the same
period. These securities transactions coupled with scheduled amortization and
accretion for the first quarter accounted for the $1,511,000 decrease in the
available for sale portfolio to $3,998,000 at June 30, 1996 as compared to
$5,508,000 at December 31, 1995. Maturities totaling $3,150,000 in the long-term
investment portfolio coupled with normal pay downs on mortgage-backed and other
amortizing securities offset by $2,522,000 in new purchases, account for the
$656,000 decrease in long-term investments to $7,536,000 at June 30, 1996 as
compared to $8,193,000 at December 31, 1995.
Short-term investments increased by $475,000 to $10,437,000 at June 30,
1996 due to decreases in the loan portfolio as well as normal fluctuations in
the Company's liquidity.
Noninterest-Earning Assets
Cash and due from banks of $5,824,000 at June 30, 1996 increased by
$871,000 from the December 31, 1995 balance of $4,953,000 due primarily to funds
received in the Company's account at the Federal Reserve Bank subsequent to the
deadline for investing those funds with other financial institutions.
Deposits
Total deposits of $78,584,000 at June 30, 1996 decreased by $4,479,000, or
5%, from the December 31, 1995 balance of $83,063,000. Demand deposits of
$20,296,000 at June 30, 1996 reflect a $3,148,000, or 13%, decrease from the
$23,444,000 balance at December 31, 1995 due principally to fluctuations in
large commercial accounts. Normal fluctuations in the deposits of nonprofit
accounts make up the majority of the $160,000 increase in NOW accounts to
$7,504,000 at June 30, 1996 as compared to $7,343,000 at December 31, 1995.
Money market accounts of $22,071,000 at June 30, 1996 decreased by $679,000 from
the $21,392,000 balance reported at December 31, 1995 due primarily to normal
fluctuations in the balances of commercial customers. Certificates of deposit at
June 30, 1996 of $27,441,000 decreased by $2,126,000 from the $29,567,000
balance at December 31, 1995, with certificates of deposit $100,000 and over
decreasing by $4,787,000 and certificates of deposit under $100,000 increasing
by $2,661,000. The decrease in certificates of deposit $100,000 and over is
primarily due to decreases in collateralized government deposits, while the
increase in certificates of deposit under $100,000 is primarily due to the
issuance of brokered deposits during the second quarter of 1996.
Average noninterest-bearing demand deposits for the first half of 1996 of
$21,173,000 increased by $3,717,000, or 21%, from the comparable 1995 period,
while average interest-bearing deposits decreased by $346,000 during the same
period to $56,324,000. Average NOW accounts for the first six months of 1996 of
$7,629,000 decreased by $3,970,000 due in large part to the withdrawal of
deposits of one large national organization as part of the organization's
deposit consolidation program. Average money market deposits for the first half
of 1996 of $20,755,000 increased by $4,552,000 over the prior year's average
balance. Average certificates of deposit $100,000 and over decreased by
$3,514,000 to $10,568,000 for the first half of 1996 as compared
13
<PAGE>
to the first half of 1995 due principally to the withdrawal of $5,000,000 in
District of Columbia collateralized deposits which were on account for most of
the first half of 1995. Average certificates of deposit under $100,000 for the
first half of 1996 of $16,075,000 increased by $2,410,000 over the comparable
period of the prior year primarily due to the issuance of brokered certificates
of deposit during 1995 and 1996. Average noninterest-bearing deposits to average
total deposits during the first six months of 1996 represent 27% as compared to
24% one year earlier.
Asset Quality
Loan Portfolio and Adequacy of Allowance for Loan Losses
As a result of improvement in the quality of the loan portfolio over the
last few years as well as relatively low levels of net charge-offs, the Company
took no provision for loan losses in either 1996 or 1995. 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, and deems the allowance for loan losses of $1,261,000 at June 30,
1996 to be adequate. The allowance for loan losses as a percentage of
outstanding loans at June 30, 1996 was 2.12%, up from the 2.00% reported at
December 31, 1995. Although the dollar amount of the allowance for loan losses
at June 30, 1996 has declined slightly from the December 31, 1995 balance of
$1,274,000, the portion of the allowance for loan losses which is not allocated
to any particular component of the loan portfolio increased by 18% to $298,000
from the December 31, 1995 level of $253,000.
Allocation of Allowance for Loan Losses
At June 30, 1996 and December 31, 1995
(In thousands)
June 30, December 31,
1996 1995
--------------------- --------------------
Reserve % of loans Reserve % of loans
Amount to total loans Amount to total loans
------ -------------- ----- --------------
Commercial $ 616 66.54% $ 658 68.08%
Real estate - mortgage 285 26.74 291 22.12
Real estate - construction 9 1.74 27 4.09
Installment 53 4.98 45 5.71
Unallocated 298 -- 253 --
--- --- --- ---
Total $ 1,261 100.00% $ 1,274 100.00%
======= ====== ======= ======
14
<PAGE>
Transactions in the allowance for loan losses for the six months ended June
30, 1996 and 1995 are summarized as follows:
Transactions in the Allowance for Loans Losses for the
Six Months Ended June 30, 1996 and 1995
(In thousands)
1996 1995
---- ----
Balance at January 1 $1,274 $1,290
Provision for loan losses -- --
Recoveries:
Commercial 31 28
Real estate - mortgage 1 --
Installment 17 17
-- --
Total recoveries 49 45
Loans charged off:
Commercial (41) --
Installment (21) (24)
--- ---
Total charge-offs (62) (24)
--- ---
Net charge-offs (13) 21
--- --
Balance at June 30 $ 1,261 $ 1,311
== ======= =======
Ratio of net charge-offs to average loans (1) 0.04% (0.07)%
==== =====
(1) Ratio of net charge-offs to average loans is computed on an annualized
basis for the six months ended June 30, 1996 and 1995.
Nonperforming Assets
Nonaccrual loans at June 30, 1996 of $1,163,000 are down by $398,000 from
the $1,561,000 reported at December 31, 1995. During the second quarter of 1996,
the Company foreclosed on two properties which were previously reported as
nonaccrual loans resulting in an investment in other real estate of $317,000.
Nonaccrual loans at June 30, 1996 include $779,000 in loans guaranteed by the
U.S. Small Business Administration ("SBA") for a total of $658,000. Banking
regulations require that the full balance of these loans be placed on nonaccrual
status, despite the SBA guarantee on approximately 80% of the total.
Restructured loans at June 30, 1996 of $1,236,000 remain virtually unchanged
from the $1,245,000 reported at December 31, 1995. Loans past due 90 days or
more increased to $56,000 at June 30, 1996 from $6,000 at December 31, 1995 due
principally to increases in small commercial and consumer loan delinquencies.
15
<PAGE>
Analysis of Nonperforming Assets
At June 30, 1996 and December 31, 1995
(In thousands)
June 30, December 31,
1996 1995
---- ----
Nonaccrual loans:
Commercial $ 1,052 $1,244
Real estate - mortgage 111 317
--- ---
Total nonaccrual loans (1) 1,163 1,561
Past due loans:
Installment - individuals 56 6
-- -
Total past due loans (2) 56 6
Restructured loans:
Commercial 1,236 1,245
----- -----
Total restructured loans 1,236 1,245
----- -----
Other real estate 317 --
--- ---
Total nonperforming assets $ 2,772 $ 2,812
======= =======
Total nonperforming assets exclusive of
SBA guaranteed balances $ 2,097 $ 2,070
======= =======
Ratio of nonperforming assets
to gross loans plus foreclosed properties (3) 4.64% 4.42%
Ratio of nonperforming assets to total
assets (3) 3.15% 3.04%
Percentage of allowance for loan losses to
nonperforming assets (3) 45.48% 45.30%
- ----------------------------
(1) Nonaccrual loans include $779,000 and $875,000 in loans guaranteed by the
SBA at June 30, 1996 and December 31, 1995, respectively. The outstanding
balance of these loans are insured for 84.5%, or $658,000 and 84.9%, or
$743,000, respectively.
(2) Past due loans include $20,000 in loans guaranteed by the SBA insured for
85%, or $17,000, at June 30, 1996.
(3) Ratios include SBA guaranteed loan balances.
Potential Problem Loans
At June 30, 1996 and December 31, 1995, respectively, loans totaling
$785,000 and
16
<PAGE>
$618,000 were classified as potential problem loans which are not reported in
the table entitled "Analysis of Nonperforming Assets." The loans are subject to
management attention as a result of financial difficulties of the borrowers and
their classification is reviewed on a quarterly basis. Of the potential problem
loans at June 30, 1996, 91% of the balance represents two loans which are
partially to fully secured, with the remaining 9%, or $73,000, guaranteed by the
SBA for a total of $66,000. This compares with potential problem loans at
December 31, 1995, of $618,000, 98% of which are partially to fully secured,
with the remaining 2%, or $15,000, guaranteed by the SBA. The $167,000 increase
in potential problem loans from December 31, 1995 to June 30, 1996 is primarily
attributable to the sale of one real estate loan.
Impaired Loans
At June 30, 1996 and December 31, 1995, respectively, loans totaling
$2,844,000 and $2,790,000 were classified as impaired loans, all of which are
reported above as nonaccrual, restructured or potential problem loans.
Interest Sensitivity
Through the Bank's Asset/Liability Investment Committee, sensitivity of net
interest income to fluctuations in interest rates is considered through analysis
of the interest sensitivity positions of major asset and liability categories.
As a result of inherent limitations in this type of analysis, the Company does
not necessarily attempt to maintain a matched position for each time frame. To
augment this analysis, the Company also prepares an analysis of the effect on
net interest income of 1%, 2% and 3% interest rate movements in either
direction. Based on the Company's interest sensitivity position and the analyses
performed on the effect of interest rate movements, at June 30, 1996 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.
Liquidity and Capital Resources
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 $16,261,000 in cash and short-term investments at June 30, 1996, the
Company has a securities portfolio which can be pledged to raise additional
deposits and borrowings, if necessary. At June 30, 1996, the Company had
$3,775,000 in unpledged securities which were available for such use with an
additional $3,241,000 in securities which could be available for immediate use
at the Company's request without any change in the Company's deposit or
borrowing structure. As a percentage of total assets, the amount of these cash
equivalent assets at June 30, 1996 and December 31, 1995 was 23% and 21%,
respectively. Normal fluctuations in the deposit levels of some of the Company's
large corporate customers may result in corresponding fluctuations in the
Company's liquidity position (short-term investments). 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 and custodial funds raised under deposit
17
<PAGE>
acquisition programs) representing 79% of average total deposits for the six
months ended June 30, 1996 and 76% of average total deposits for the year ended
December 31, 1995. 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. Through its membership in the Federal Home Loan Bank of Atlanta (the
"FHLB"), which serves as a reserve or central bank for member institutions
within its region, the Bank is eligible to borrow up to approximately $1,283,000
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 $7,717,000 with the purchase of up to $1,696,000 in additional stock in the
FHLB. The Company has adequate resources to meet its liquidity needs.
Normal fluctuations in the deposit levels of the Bank's customers comprise
the majority of the Company's net cash outflows from financing activities for
the first six months of 1996, as reductions in deposits totaled $4,479,000.
Curtailments and repayments of loans and maturities and scheduled amortization
of securities exceeded loan originations and security purchases during the first
half of 1996, constituting the majority of the Company's cash inflows from
investing activities.
Stockholders' Equity
Stockholders' equity at June 30, 1996 increased by $350,000 over the
balance at December 31, 1995 to $6,969,000 as a result of the Company's $485,000
net income for the six months ended June 30, 1996 and a $7,000 decrease in
unrealized loss on securities, net of taxes, partially offset by dividends
declared in the first half of 1996 of $142,000. Average stockholders' equity as
a percentage of average total assets for the first six months of 1996 was 7.80%
as compared to 7.22% for the comparable prior year period. On July 8, 1996, the
Company increased the number of shares of authorized Common Stock from 800,000
to 5,000,000 and reduced the par value to $0.01 per share. On July 9, 1996, the
Company issued a three-for-one stock split in the form of a stock dividend of
two shares of Common Stock for each share of Common Stock issued and
outstanding. On July 12, 1996, the Company was approved for listing on the
Nasdaq National Market. On July 17, the Company completed a stock offering
issuing 670,000 shares at a price of $8.75 per share, resulting in proceeds to
the Company of $5,900,000, before underwriting discounts, commissions and
expenses. Upon closing of the offering, an additional 25,000 shares were issued
by the Company and purchased by The Adams National Bank Employees Stock
Ownership Plan with 401(k) Provisions ("ESOP") with a loan from the Company. On
August 13, 1996, the underwriters of the stock offering exercised their option
to purchase an additional 100,500 shares resulting in additional proceeds to the
Company of $879,000, before underwriting discounts and commissions and expenses.
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
18
<PAGE>
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
June 30, 1996, the Company's total risk-based capital ratio and Tier 1 capital
ratio of 11.82% and 10.57%, 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 June 30, 1996 ratios are based on Tier 1
capital of $7,002,000, total capital of $7,830,000 and risk adjusted assets of
$66,259,000. At June 30, 1996, the Bank's total risk-based capital ratio and
Tier 1 capital ratio of 11.52% and 10.27%, respectively, also met the definition
of "well-capitalized." The June 30, 1996 ratios for the Bank are based on Tier 1
capital of $6,796,000, total capital of $7,624,000 and risk-adjusted assets of
$66,182,000.
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 June 30,
1996, the Company's and the Bank's Tier 1 leverage ratios based on annual
average assets of $87,313,000 and $87,256,000 were 8.02% and 7.79%,
respectively, meeting the regulatory definition of "well-capitalized."
19
<PAGE>
PART II.
- --------------------------------------------------------------------------------
Item 4. Submission of Matters to a Vote of Security Holders
- --------------------------------------------------------------------------------
By written consent dated as of May 31, 1996, holders of a majority of the
outstanding shares of the Company's common stock approved, in accordance with he
provisions of Delaware General Corporation Law, an amendment to the Company's
Certificate of incorporation pursuant to which the number of authorized shares
of the Company's Common Stock was increased from 800,000 to 5,000,000 and the
par value per share of the Company's Common Stock was reduced to $.01.
Subsequently, the Company distributed to stockholders an information statement
relating to such matter, in accordance with Section 14 of the Securities and
Exchange Act of 1934, as amended, and rules promulgated thereunder.
- --------------------------------------------------------------------------------
Item 6 - Exhibits and Reports on Form 8-K
- --------------------------------------------------------------------------------
(a) Exhibits
Exhibit No. Description of Exhibit
19 Abigail Adams National Bancorp, Inc. Financial Summary for
June 30, 1996
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended June 30, 1996
20
<PAGE>
SIGNATURES
In accordance with the requirements 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: August 14, 1996 /s/ Barbara Davis Blum
---------------- ----------------------
Barbara Davis Blum
Chairwoman of the Board,
President and Director
(Principal Executive Officer)
Date: August 14, 1996 /s/ Kimberly J. Levine
--------------- ----------------------
Kimberly J. Levine
Senior Vice President & Treasurer
(Principal Financial and
Accounting Officer)
21
July 26, 1996
Dear Shareholder:
Enclosed is your dividend check for the second quarter.
Abigail Adams National Bancorp, Inc. reported net income of $485,000, or $0.56
per share, for the first six months of 1996, for an annualized return on average
assets of 1.12%.
Early summer has been a busy time for us. In July, we completed a $6 million
stock offering, nearly doubling our equity, issued a three-for-one stock split
in the form of a stock dividend, tripling the number of shares now owned by you,
and on July 12 our stock became listed on NASDAQ. We are excited about our
future prospects, especially so as we seek to deploy the proceeds from our
recent stock offering through expansion and acquisition. That expansion will
take its first steps later this summer when we open our new full service branch
at 1604 17th Street, Dupont Circle East, in the District of Columbia.
We also declared our fourth quarterly dividend of $.25 per share, on a pre-split
basis ($.0833 per share, on a post-split basis). Although we maintained our
well-capitalized status (the top capital rating) prior to the stock offering,
our capital ratios are now even stronger.
While we take great satisfaction in these accomplishments, it is our eighteen
years of outstanding service to our customers in which we take the most pride.
Over the years, we have faithfully served the needs of our non-profit, small
business and commercial real estate customers, offering a high level of
personalized service without the bureaucracy of a large bank environment. We
appreciate our customers' business and value each as important.
Sincerely,
Barbara Davis Blum
Chairwoman, President
and Chief Executive Officer
<PAGE>
Abigail Adams National Bancorp, Inc.
Balance Sheet
June 30, 1996 and 1995
($ in thousands)
June 30,
--------
1996 1995
---- ----
Assets:
Cash and due from banks $ 5,824 $4,086
Short-term investments 10,437 5,417
Securities (market value of $11,560 and
$14,469 in 1996 and 1995, respectively) 11,534 14,388
Loans 59,400 60,839
Less: Allowance
for loan losses (1,261) (1,311)
------ ------
Loans, net 58,139 59,528
Other assets 2,101 1,544
----- -----
Total assets $ 88,035 $ 84,963
======== ========
Liabilities and Equity:
Deposits $ 78,584 $ 76,956
Short-term borrowings 1,739 1,128
Long-term debt -- 224
Other liabilities 743 483
--- ---
Total liabilities 81,066 78,791
Stockholders' equity 6,969 6,172
----- -----
Total liabilities and
stockholders' equity $ 88,035 $ 84,963
======== ========
Statement of Income
For the six months ended June 30, 1996 and 1995
($ in thousands, except per share data)
For the six months ended:
June 30,
--------
1996 1995
---- ----
Total interest income $ 3,562 $ 3,416
Total interest expense 1,390 1,382
----- -----
Net interest income 2,172 2,034
Other income 407 418
Other expense 1,808 1,927
----- -----
Income before taxes 771 525
Applicable income tax expense 286 143
--- ---
Net income $ 485 $ 382
======= =======
Net income per share $ 0.56 $ 0.45
======= =======
Weighted average number of shares
used to compute EPS 864,682 854,532
Selected Data
June 30, 1996 and 1995
1996 1995
---- ----
Allowance for loan losses as a
percentage of loans 2.12% 2.15%
Average equity to average assets 7.80% 7.22%
Return on average assets 1.12% 0.93%
Net interest margin 5.37% 5.29%
<PAGE>
ABIGAIL ADAMS
NATIONAL BANCORP,
INC.
FINANCIAL SUMMARY
JUNE 30, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
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<PERIOD-START> JAN-1-1996
<PERIOD-END> JUN-30-1996
<CASH> 5,824,109
<INT-BEARING-DEPOSITS> 486,715
<FED-FUNDS-SOLD> 9,950,000
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<LOANS> 59,400,325
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0
0
<COMMON> 8,592
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<INTEREST-LOAN> 2,979,645
<INTEREST-INVEST> 351,890
<INTEREST-OTHER> 230,127
<INTEREST-TOTAL> 3,561,662
<INTEREST-DEPOSIT> 1,333,888
<INTEREST-EXPENSE> 1,389,517
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<EXPENSE-OTHER> 1,808,546
<INCOME-PRETAX> 771,067
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<EPS-PRIMARY> 0.56
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<LOANS-NON> 1,163,386
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