CONSENT OF FINANCIAL ADVISORS
We consent to the inclusion of our letter dated October 29, 1997, on the subject
of Abigail's merger with Ballston Bancorp in the Proxy Statement.
/s/ Baxter Fentriss and Company
Baxter Fentriss and Company
Richmond, Virginia
November 13, 1997
<PAGE>
October 29, 1997
Personal and Confidential
- -------------------------
Ms. Barbara Blum
Chairwoman and CEO
Abigail Adams National Bancorp, Inc.
1627 K Street, NW
Washington, DC 20006
Dear Ms. Blum:
You have requested our response to Marshall Reynolds' letter of October 21 1997,
on the subject of Abigail's merger with Ballston Bancorp. We have concluded that
this transaction is financially attractive to the shareholders of Abigail Adams
National Bancorp. Our conclusions reflect the following:
1. The transaction should be accretive to Abigail earnings per share.
-----------------------------------------------------------------
Our analysis of the possible impact of this transaction is well
documented, showing a positive contribution to long term EPS,
Marshall's estimate of a 47% per share dilution eludes me. I am not
aware of the formula be is using to evaluate this transaction. Even a
simplified method (Attachment I) of estimating the impact produces a
positive core contribution of $0.08 per share. Longer term impact
should be greater as Ballston's immediate market is expected to grow
faster than Abigail's. It may be possible that Marshall has excluded
economies of scale from his calculation. This is not consistent with
the way most acquirors currently look at transactions. In fact, most
acquirors report that proforma dilution will be eliminated through
substantial economies of scale and go to great lengths in analyst
presentations to convince investors of the existence of these
economies. How else would Nations Bank justify 4.1x book for Barnett,
Wachovia Corp. 3.02x book for Central Fidelity or First Union 3.46x
book for Signet, if economies were not included in the justification
of price. I refer you to their press releases on these transactions,
as well as countless others, to support this position.
2. Ballston adds significant strategic value to Abigail.
-----------------------------------------------------
It adds approximately $72 million in assets in the Greater Washington
market. It complements Abigail's existing branch network, improves
Abigail's market share and expands Abigail's shareholder base in this
core market. Furthermore, it strengthens Abigail's standing as a
commercial bank, able to serve all parts of the market, while
providing special attention to women and minorities.
<PAGE>
3. The Ballston transaction makes Abigail much more attractive to
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strategic buyers.
-----------------
Strategic buyers want in-market assets, market share and branch
coverage, all of which are enhanced by the Ballston transaction.
4. Ballston transaction is fairly priced.
--------------------------------------
Abigail is paying 1.8x book for Ballston. Advisors for both parties
have concluded the transaction is fair.
5. Ballston lacks the risks and issues associated with an out of market
--------------------------------------------------------------------
transaction.
-------------
Clearly the potential for economies is higher. Furthermore, your
understanding and knowledge of Ballston's market and customers is
higher. It is far easier to resolve problems occurring across the
river, than those emerging in our states.
Abigail raised capital to complete one or more transactions in its market. The
Ballston transaction meets all reasonable financial and strategic tests for a
successful transaction. Failure to complete this transaction due to shareholder
disapproval would seriously damage Abigail's reputation and ability to complete
other transactions, if or when, other opportunities occur. Failure to complete
transactions leaves Abigail substantially over capitalized, providing inadequate
short term returns for the foreseeable future.
Sincerely,
/s/ L Fentriss
- --------------
Larry Fentriss
Chairman
LCF/jeg
<PAGE>
ATTACHMENT I - TRANSACTION IMPACT
I. EARNINGS IMPACT
BASE ABIGAIL EARNINGS $972,000
BASE BALLSTON EARNINGS $664,000
--------
TOTAL BASE EARNINGS $1,636,000
==========
LESS:
FINANCING COST @ 6% $274,396
GOODWILL $410,625
PLUS:
ECONOMIES $513,480
ADJUSTED EARNINGS $1,464,459
==========
II. IMPACT ON SHARES
BASE ABIGAIL SHARES 1,651,226
SHARES ISSUED AT $13.00 533,014
----------
ADJUSTED SHARES 2,184,240
=========
III. IMPACT ON EPS
BASE ABIGAIL $0.59
ADJUSTED ABIGAIL FOR MERGER $0.67
-----
IMPROVEMENT IN EPS $0.08
=====
CONSENT OF FINANCIAL ADVISORS
We consent to the inclusion of our analyst report dated October 15, 1997, on
Abigail Adams National Bancorp, Inc., in the Proxy Statment.
/s/ Baxter Fentriss and Company
- -------------------------------
Baxter Fentriss and Company
Richmond, Virginia
November 14, 1997
<PAGE>
[This analyst report was originally presented in a one-page 8 1/2 x 11, double-
sided, 3-column format]
BAXTER FENTRISS COMMUNITY BANK AND THRIFT REVIEW
ABIGAIL ADAMS NATIONAL BANCORP, INC.
Washington, D.C.
Industry: Commercial Banking
October 15, 1997
HIGHLIGHTS
o Superior growth trends expected in earnings and assets.
o Stock trades at a lower multiple of book compared to publicly
traded Virginia, Maryland and DC banks.
o Ballston Bancorp acquisition places Abigail in high growth
Northern Virginia market.
o New branch opened in Dupont Circle East in late 1996 and
new branch in Chinatown to be opened late 1997 should
provide substantial internal growth.
Table 1
Market Stats 52 Week Range Symbol: AANB
Price: $12.50 High: $13.75 Market: NASDAQ
P/B: 1.53 x Low: $8.50
P/E: 18.7 x
EPS P/E
Book Value: $ 8.18 ---------------- ------------------
Proj. DPS 1997:$0.40 1996A: $0.94 1996A: 13.3 x
Div Yield: 3.2% 1997E: $0.67 1997E: 18.7 x
Shares O/S:1,651,226 1998E: $0.95 1998E: 13.2 x
Market Cap:$20,640,325 Fiscal: Dec.
Market Makers: Advest Group, Inc.; Johnston, Lemon, & Co.,
Inc.; Ferris, Baker, Watts, Inc.; Koonce
Securities, Inc.; Ryan Hartley, & Lee, Inc.; &
Herzog, Heine, Geduld, Inc.
Table 2
[Stock Price Trend Graph 5/15/97 thru 10/1/97 is here]
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. Table 3
Historical Performance
($'s in Millions except per share)
- --------------------------------------------------------------------------------
Years Ended December 31, Sept 30 1994-1996
1994 1995 1996 1997 CGR.
---- ---- ---- ---- ----
Balance Sheet Review
Total Assets $82.3 $92.4 $112.2 $124.0 16.8%
Loans, Net $59.4 $62.3 $72.0 $83.6 10.0%
Total Deposits $75.3 $83.1 $95.2 $105.4 12.4%
Stockholders' Equity $5.8 $6.6 $13.1 $13.5 --
Shares Outstanding 0.855 0.855 1.650 1.651 --
Equity/Assets 7.0% 7.2% 11.7% 10.9% --
Net Loans/Deposits 78.9% 75.0% 75.6% 79.3% --
1994-1996
Earnings Review AVG.
- --------------- ----
Net Interest Income/
Avg Assets 5.06% 5.06% 4.86% 4.75% 5.00%
Noninterest Income/
Avg Assets 0.96% 1.02% 1.00% 1.01% 1.00%
Noninterest Expense/
Avg Assets 5.98% 4.59% 4.29% 4.24% 4.96%
Net Income ($0.184) $0.959 $1.127 $0.819 --
ROA -.22% 1.17% 1.18% 0.92% --
ROE -3.15% 15.53% 11.75% 8.20% --
1994-1996
Stockholders Review CGR.
- ------------------- ----
Book Value
Per Share $6.74 $7.75 $7.96 $8.18 8.7%
Earnings Per Share ($0.22) $1.12 $0.94 $0.50 --
Cash Dividends
Per Share $0.00 $0.17 $0.37 $0.30 --
Payout Ratio N/A 14.9% 39.0% 60.0% --
Credit Risk Review
NPA/Assets 3.1% 3.0% 1.5% 1.0% --
NPA/Gross Loans
& OREO 4.2% 4.4% 2.3% 1.5% --
Reserve/Gross Loans 2.1% 2.0% 1.4% 1.3% --
Reserves/NPL's 50.6% 45.3% 62.0% 87.1% --
Net Charge Offs/
Avg Gross Loans 0.5% 0.0% -0.1% -0.1% --
Background
Abigail Adams National Bancorp, Inc. (the "Company"
or "AANB") is a one bank holding company for Abigail
Adams National Bank ("Bank"). Organized in 1977, the
Bank is the first and largest federally chartered bank to be
owned and managed by women.
<PAGE>
The Bank's revenue stream is primarily derived from traditional commercial
banking and related financial services delivered through four full-service
banking offices located in Washington, DC, with a fifth branch opening on
November 6, 1997, near the MCI Center in Chinatown.
The primary business strategy is to provide a high level of personalized service
and quality products to customers within the community it serves, diversifying
both its market area and asset base while increasing profitability through
acquisitions and expansion. The Bank aggressively markets its range of
commercial and retail lending services to qualified customers in both the
commercial and consumer sectors, including small businesses and nonprofit
organizations.
The Bank draws most of its customer deposits and conducts most of its lending
activities from and within the Washington metropolitan region, including
suburban Virginia and Maryland. On June 23, 1997, Abigail Adams National
Bancorp, Inc., signed a definitive agreement to acquire Ballston Bancorp, Inc.,
a holding company for the Bank of Northern Virginia, Arlington, Virginia. The
strategic acquisition will expand the Bank's market to include Arlington,
Ballston and Falls Church, Virginia.
Tables 1 through 3 provide recent market and financial data.
Historical Performance
Table 3 shows AANB's financial results since 1994. Growth rates and averages
represent fiscal years ended December 31, 1994 through December 31, 1996. During
this period, assets, loans and deposits grew at a 10 - 16% annual rate. AANB
reported net income of $1,127,000 for the year ended December 31, 1996, an
increase of 18% over the $959,000 reported for the year ended December 31,
<PAGE>
1995. However, the 1996 earnings included a one time pre-tax negative provision
of $275,000. In addition, as a result the issuance of 795,000 shares of common
stock in the public stock offering completed in the third quarter of 1996,
earnings per share of $.94 for the year ended December 31, 1996 reflect a
decrease from $1.12 reported for 1995.
The Company's operations are best described as traditional commercial banking.
The Bank specializes in commercial, construction, and commercial mortgage
lending operations (78.0% of loan portfolio) and residential mortgage lending
operations (11.0% of loan portfolio). Installment lending and other loan types
round out the portfolio. Deposit sources consist of noninterest bearing demand
deposits (25.7%), interest bearing demand (31.9%), savings (1.6%), time deposits
(21.7%), and jumbos (19.1%). Low cost funding sources represent approximately
59% of the deposit structure and have been in the 50 - 65% range over the past
three years.
Results for Nine Months ended September 30, 1997
At September 30, 1997, AANB had consolidated assets of $124,000,000, deposits of
$105,446,000, stockholders' equity of $13,500,000 and reported net income of
$819,000, or $.50 per share. Annualized ROA and ROE were .92% and 8.20% for the
period, respectively. When comparing net income of $819,000 to $783,000 for the
same period in 1996, net income increased. On a per share basis, however, this
represents a decrease from $.73 per share for the first nine months of 1996 due
to the stock offering completed in third quarter 1996, higher expenses
associated with the new branch in Dupont Circle East and the negative provision
which occurred in 1996.
The Bank clearly benefited from increased lending activity as loans increased by
$11,716,000 or 16%, to $84,729,000 as compared to the balance at December 31,
1996 of $73,013,000. Given the extremely low level of net charge-offs over the
last three years, the allowance for loan losses at September 30, 1997 of
$1,124,000, or 1.3% of outstanding loans, appears to be adequate.
Management indicates that both commercial and consumer loan clients are leaving
regional and super-regional banking organizations to find more personalized
services provided by local institutions. Furthermore, with a current net
loans/deposit ratio of 79.3% and an equity/assets ratio of 10.9%, it appears the
Company can easily fund additional loan growth to fuel earnings.
Recent Merger & Acquisition Activity
The Company announced plans to acquire The Bank of Northern Virginia on June 23,
1997 for a purchase price of $14 million, or 1.80x March 31, 1997 book value.
Ballston will receive 50% in cash and 50% in stock. This acquisition will
increase Abigail Adams National Bancorp, Inc. to an asset size of approximately
$195 million, total deposits of $161 million and total loans of $127 million.
The merger increases the Company's size making it a more relevant competitor
against larger, wealthier financial institutions. The transaction is expected to
be accretive to EPS and accelerate AANB's growth.
Cash Dividend
The Company is on track to pay a $.40 per share dividend in 1997. This is the
third consecutive year the Company has paid a dividend to its shareholders.
<PAGE>
Abigail Adams' Stock Trading Pattern & Dividend Yield
In the last two years, AANB has traded at a lower multiple of book when compared
to other publicly traded financial institutions in Virginia, Maryland and
Washington, D.C. Furthermore, AANB's dividend yield of 3.20% is higher than the
average of other publicly traded institutions in the Greater Washington
Metropolitan Area. We expect price appreciation and multiple expansion as
Abigail becomes a larger competitor in the Greater Washington Metropolitan Area
and fully deploys capital raised in 1996.
Improving Stockholder Value
While the Company continues to be a traditional, commercial oriented financial
institution influenced by the rapid changes in the financial services industry,
it should prosper as a result of its merger with Ballston Bancorp, Inc. The
combined entity will have greater access to technology, larger lending limits
and an increased customer base. In addition, its new Northern Virginia base
should provide greater lending diversity and above average growth over the next
several years.
Earnings Projections
Based on earnings results through June 30, 1997, net interest income growth from
increased loan volume on commercial loans and other income, normalized provision
levels assuming no credit quality deterioration, improved noninterest income
generation and continued controlled noninterest expense growth, we expect 1997
earnings to approximate $1,106,321, or $.67 per share (using 1,651,226 shares).
Continued earnings growth in excess of 10% is possible through 1998, even with
branch expansion plans, assuming minimal contraction in the margin and minimal
credit issues.
Stock Price Valuation
We have estimated 1998 earnings of $.95 per share which includes substantial
incremental contributions from the Ballston acquisition. Based on current
valuations of 15-17 x estimated 1998 earnings for the banking sector, AANB
should trade between $14.25 and $16.15. The stock could periodically trade
higher in the market based on takeover speculation.
Baxter Fentriss and Company is an investment firm headquartered in Richmond,
Virginia. Baxter Fentriss provides investment banking and advisory services to
financial institution and corporate clients throughout the United States.
9100 Arboretum Parkway
Suite 280
Richmond Virginia 23236
(804) 323-7540
This is not a prospectus nor a solicitation of orders. Information presented
herein has been obtained from sources we believe reliable but in no way is
guaranteed by us. Any information contained herein of a non-factual nature is
the opinion Baxter Fentriss and is subject to change without notice. Baxter
Fentriss, affiliates, principals, or employees may from time to time have a
position in the securities mentioned herein or may perform investment banking
services for any of the companies mentioned.
