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, 1996
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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
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 of (I.R.S. Employer Identification Number)
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 $.01 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
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B 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 $8,526,000
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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 14, 1997.
$ 12,340,000
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of March 14, 1997.
1,651,226 shares of Common Stock, Par Value $.01
Transitional Small Business Disclosure Format (Check one) Yes No X
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1997 Annual Meeting of Stockholders
of Abigail Adams National Bancorp, Inc., to be filed with the Securities and
Exchange Commission on or before April 30, 1997, are incorporated herein by
reference in Part III of this Annual Report on Form 10-KSB.
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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 which conducts business through its wholly-owned bank subsidiary, The
Adams National Bank (the "Bank"). The Bank serves the nation's capital through
four full-service offices located in Washington. The Company's newest branch
opened in October of 1996 and a fifth branch is expected to open in the fourth
quarter of 1997. At December 31, 1996, the Company had consolidated assets of
$112,162,000, deposits of $95,155,000 and stockholders' equity of $13,140,000,
and reported net income of $1,127,000 for the year then ended. The Bank exceeds
all regulatory capital requirements. See "Supervision and Regulation."
Founded in 1977, 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 Bank changed its name in 1986 to alter the perception that
the Bank existed exclusively to serve the needs of women. Based on assets and
deposits, the Bank is the largest women-controlled bank in the United States.
Market Area
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. The nation's capital attracts a significant
number of businesses of all sizes, professional corporations and national
nonprofit organizations. The Bank actively solicits banking relationships with
these firms and organizations, as well as their professional staff, and with the
significant population of high net worth individuals who live and work in the
region.
The Company seeks to identify acquisitions in neighboring markets in
Virginia and Maryland. These areas are experiencing accelerating commercial
growth, especially in the areas of women owned and high technology businesses.
Management expects that a strategic acquisition in such markets would contribute
to the overall growth of the Company.
Services of the Bank
The Bank offers a full range of banking services to its customers. While
providing financial services to a wide-ranging customer base, including high net
worth individuals, Fortune 100 corporations, small to medium-sized businesses
and nonprofit and other organizations, the Bank remains committed to assisting
women and minority business owners with access to credit.
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The following types of services are offered by the Bank:
Commercial Services
o Loans, including working capital loans and lines of credit, a wide
range of demand, term and time loans, and loans for real estate land
acquisition, development and construction, equipment, inventory and
accounts receivable financing.
o Cash management, including automatic overnight investment of funds.
o Collateralized repurchase agreements.
o Investments, including certificates of deposit.
o Direct deposit of payroll.
o Letters of credit.
o ExecuBanc Business Banking, a computer accessed banking service.
Retail Services
o Transaction accounts, including checking and NOW accounts.
o Money market accounts.
o Overdraft checking.
o Certificates of deposit.
o Individual retirement accounts and Keogh accounts.
o Installment and home equity loans.
o Residential construction and first mortgage loans.
o Direct deposit.
o 24-hour automated teller machines ("ATMs") with access to the MOST(R)
and CIRRUS(R) systems.
o 24-hour telephone banking.
o VISA(R) credit card services.
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o Traveler's checks, money orders, cashier's checks and safe deposit
boxes.
o Custodial services.
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 loans. 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.
As technological developments continue to become available to all banks,
large and small, the Bank has also enhanced its delivery systems and reached
beyond its branch network to access customers on a cost-effective basis through
technological means. The Bank has developed its own electronic site (home page)
on the Internet (World Wide Web). Management believes that use of electronic
media such as the Internet will allow the Bank to further enhance its image in
its target market and identify future prospects for electronic and home banking
services. In 1997, it will offer customers the ability to pay certain bills by
personal computer. The Bank also offers its retail customers 24-hour banking by
means of an interactive voice response system activated by a touch tone phone
which enables customers to access account information and transfer funds. The
Company also maintains an integrated PC-based server network system that
provides immediate interaction among all operating functions of the Bank,
thereby enhancing internal communications and customer service.
The Bank contracts with an outside firm to provide data processing and back
room operations. The state-of-the-art resources provided by this firm, in
conjunction with the Bank's internal data management system, enable the Bank to
provide a high level of customer service while effectively managing its growth.
The Bank has reviewed the data processing systems provided by its outside data
processor as well as the computer applications which are used in- house and has
determined that the Bank's data processing will not be materially impacted by
any date-sensitive calculations related to the year 2000. The Bank's contract
with its outside data processor is scheduled to expire in the second quarter of
1997. While the Bank is presently considering renewal options as well as other
state-of-the-art data processing alternatives, the Bank will only consider data
processing systems which can appropriately recognize this date-sensitive
information.
Strategy
The Company's strategy is to provide a high level of personalized service
and quality products to customers within the community it serves, through its
experienced staff. In addition, the Company seeks to diversify both its market
area and asset base while increasing profitability through acquisitions and
expansion. Management believes that it possesses substantial expertise in
lending to groups traditionally underserved by the banking industry and that
these capabilities could be leveraged by making strategic acquisitions in the
neighboring markets of Maryland and Virginia.
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Although the Company continues to explore acquisition opportunities in
Washington and suburban Maryland and 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 and suburban Maryland and Virginia. In January 1997, the
Company signed a lease to open a fifth branch in Washington. 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. No specific lines of business are
under consideration at this time.
In 1992, the Company initiated a strategy to expand through acquisition by
purchasing from the FDIC and the Resolution Trust Corporation insured deposits
and certain performing loans of financial institutions which were placed into
receivership in the Washington metropolitan region. The Company 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, 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 loans. As of December 31, 1996, $152,000 in recoveries on such
loans have been received. The Company also purchased certain performing loans
from the FDIC at discounted prices of 96.2% and 96.9% of the outstanding loan
amounts in 1993 and 1994, respectively.
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 loans,
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. As of December
31, 1996, approximately 74% 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-Analysis of Loans."
The Bank aggressively markets its services to qualified lending customers
in both the commercial and consumer sectors, including small businesses and
nonprofit organizations. The Bank offers SBA-guaranteed loans which provide
better terms and more flexible repayment schedules than conventional financing.
Management believes that making such loans helps the local community and
provides the Bank with attractive returns with minimal risk, as the majority of
each loan is guaranteed by the SBA, and solid future lending relationships as
such businesses grow and prosper. As lending requirements of small businesses
grow to exceed the Bank's
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lending limit, the Bank has the ability to sell participations in these larger
loans to other financial institutions. The Bank believes that such
participations will help to preserve lending relationships while providing a
high level of customer service. As of December 31, 1996, commercial and real
estate SBA loans totaled $3,134,000.
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 children's rights,
senior citizens, minority rights and healthcare. At December 31, 1996,
commercial and real estate loans to these customers totaled $1,497,000.
Commercial and real estate lending is performed by the Bank's Lending
Division, which is comprised of five loan officers, a credit analyst and a
collections staff person. The Treasury Division includes the Loan Operations
staff of three, responsible for preparing loan documents, recording and
processing new loans and loan payments, ensuring compliance with regulatory
requirements, and working with the Lending Division, in order to ensure the
timely receipt of all initial and ongoing loan documentation and the prompt
reporting of any exceptions. Credit analysis on loans is performed by either
individual loan officers or 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 individual lending authorities established
based on both their seniority and experience. Loans in excess of individual
officers' lending limits are presented to the Officers' Loan Committee ("OLC"),
which meets weekly, and is comprised of all loan officers and the President of
the Bank. While a maximum of three loan officers may pool their loan authorities
to approve a loan, most loans over $100,000 are brought to this Committee. The
OLC has 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 of the Bank. In addition to approving new loans, this Committee
approves the restructuring of loans it originally approved, reviews past due
loans and approves charge-offs.
Commercial Lending
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. In most cases, the Bank has collateralized
these loans and/or taken personal guarantees to help assure repayment.
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. These loans often require that borrowers
maintain certain levels of deposits with the Bank as compensating balances.
Commercial business lending generally involves greater risk than residential
mortgage lending and involves risks that are different from those
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associated with residential, commercial and multi-family real estate lending.
Although commercial business loans are often collateralized by real estate,
equipment, inventory, accounts receivable or other business assets, the
liquidation of collateral in the event of a borrower default is often not a
sufficient source of repayment because accounts receivable may be uncollectible
and inventories and equipment may be obsolete or of limited use, among other
things. The primary repayment risk for commercial loans is the failure of the
business due to economic or financial factors. As of December 31, 1996,
commercial loans totaled $39,419,000.
Real Estate Lending
At December 31, 1996, the Bank's real estate loan portfolio consisted of
commercial real estate mortgages totaling $24,840,000 and residential real
estate mortgages totaling $2,631,000. The majority of these loans are amortizing
variable rate or annually repricing mortgage loans with a maximum maturity of
five years.
The majority of the $4,140,000 in loans classified as construction and land
development loans at December 31, 1996 in the Consolidated Financial Statements,
are primarily for renovation of commercial properties. Construction financing
generally is considered to involve a higher degree of risk of loss than
long-term financing on improved, occupied real estate. Multi- family and
commercial real estate lending entails significant additional risks as compared
to one- to four-family residential lending. For example, such loans typically
involve large loans to single borrowers or related borrowers, the payment
experience on such loans is typically dependent on the successful operation of
the project, and these risks can be significantly affected by the supply and
demand conditions in the market for commercial property and multi-family
residential units. To minimize these risks, the Bank limits the aggregate amount
of outstanding construction loans, and generally makes such loans only in its
market area and to borrowers with which it has substantial experience or who are
otherwise well known to the Bank. It is the Bank's current practice to obtain
personal guarantees and current financial statements from all principals
obtaining commercial real estate loans. The Bank also obtains appraisals on each
property in accordance with applicable regulations.
Consumer Lending
The Bank's consumer lending includes loans for motor vehicles, home
improvement, home equity and small personal credit lines. Consumer loans
generally involve more risk than first mortgage residential and commercial real
estate loans. Repossessed collateral for a defaulted loan may not provide an
adequate source of repayment of the outstanding loan balance as a result of
damage, loss or depreciation, and the remaining deficiency often does not
warrant further substantial collection efforts against the borrower. In
addition, loan collections are dependent on the borrower's continuing financial
stability. Further, the application of various federal and state laws, including
federal and state bankruptcy and insolvency laws, may limit the amount which can
be recovered. In underwriting consumer loans, the Bank considers the borrower's
credit history, an analysis of the borrower's income, expenses and ability to
repay the loan and the value of the collateral.
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During 1994, the Bank entered the credit card market by issuing its own
VISA(R) 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. As of December 31,
1996, consumer loans totaled $2,203,000.
Competition
The Bank faces strong competition among financial institutions in
Washington, Northern Virginia and suburban Maryland for both deposits and loans.
Principal competitors include other community commercial banks and larger
financial institutions with branches in the Bank's service area. Intense
competition is expected to continue as bank mergers and acquisitions of smaller
banks by larger institutions in the Washington, metropolitan region may be
expected to continue for the foreseeable future.
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
services, 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 serve the needs
of 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.
Employees
At December 31, 1996, the Company employed 45 people, 44 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.
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Supervision and Regulation
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 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.
Bank holding companies and banks are extensively regulated under both
federal and state law. Set forth below is a summary description of certain
provisions 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 and annual reports with the Federal
Reserve Board 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 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.
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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.
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.
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 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.
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 the 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
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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. In
addition, the prior approval of the OCC is required if the total of all
dividends declared by the Bank in any calendar year exceeds the Bank's net
profits (as 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.
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
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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
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.
Only a well capitalized depository institution may accept brokered deposits
without prior regulatory approval. Under FDIC regulations, an institution is
generally considered "well capitalized" if it has a total risk-based capital
ratio of at least 10%, a Tier 1 risk-based capital ratio of at least 6%, and a
Tier 1 capital (leverage) ratio of at least 5%. Federal law generally requires
full-scope on-site annual examinations of all insured depository institutions by
the appropriate federal bank regulatory agency although the examination may
occur at longer intervals for small well-capitalized or state chartered banks.
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.
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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.
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. In September 1992, the federal
banking agencies issued uniform final regulations implementing the prompt
corrective action provisions of federal law.
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.
In addition to restrictions and sanctions imposed 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.
12
<PAGE>
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.
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. 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. On August 8, 1995, the FDIC 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 capitalized and undercapitalized are the same in the FDIC's prompt
corrective action regulations.
13
<PAGE>
Since the Bank is considered well-capitalized under regulatory standards
and met certain other criteria during 1996, the Bank paid the flat FDIC
insurance premium rate of $2,000 per year for 1996.
Community Reinvestment Act
The Bank is subject to the provisions of the Community Reinvestment Act
("CRA") which requires banks to assess and help meet the credit needs of the
community in which the bank operates. The OCC examines the Bank to determine its
level of compliance with CRA. The OCC and the Federal Reserve Board are required
to consider the level of CRA compliance when regulatory applications are
reviewed.
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. On June 1, 1997, with certain restrictions, banks will be
able to branch across state lines by acquisition, merger or establishment of a
de novo facility. Certain states have already approved interstate branching.
Factors Affecting Future Results
In addition to historical information, this Form 10-KSB includes certain
forward looking statements based on current management expectations. The
Company's actual results could differ materially from those management
expectations. Factors that could cause future results to vary from current
management expectations include, but are not limited to, general economic
conditions, legislative and regulatory changes, monetary and fiscal policies of
the federal government, changes in tax policies, rates and regulations of
federal and local tax authorities, changes in interest rates, deposit flows, the
cost of funds, demand for loan products, demand for financial services,
competition, changes in the quality or composition of the Bank's loan and
investment portfolios, changes in ownership status resulting in the loss of
eligibility for participation in government and corporate programs for minority
and women- owned banks, changes in accounting principles, policies or
guidelines, and other economic, competitive, governmental and technological
factors affecting the Company's operations, markets, products, services and
prices.
14
<PAGE>
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 three other offices, located at 2905 M Street, N.W., Washington,
D.C.; Union Station, 50 Massachusetts Avenue, N.E., Washington, D.C.; and 1604
17th Street, N.W., Washington, D.C. In January 1997, the Bank entered into a
lease for a branch, to be located at 802 7th Street, N.W.. An additional ATM was
opened in Union Station in 1989 and a third ATM was opened in Union Station in
May 1994. Leases for these facilities expire as follows:
Location Expiration of Lease
-------- -------------------
1627 K Street, N.W. 2002
2905 M Street, N.W. Month-to-month term
50 Massachusetts Avenue, N.E. 1998
Union Station ATM 1999
Union Station ATM 1999
802 7th Street, N.W. 2007
1604 17th Street, N.W. 2016
In 1996, the Company and the Bank incurred rental expense on leased real
estate of approximately $464,000. 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.
Item 4. Submission of Matters to a Vote of Security-Holders.
The Company held an Annual Meeting of Stockholders on October 15, 1996 to
elect ten directors, to ratify the selection of Arthur Andersen LLP as
independent certified public accountants for the Company for 1996, to approve
the Employee Incentive Stock Option Plan and to approve the Directors Stock
Option Plan.
All of the following ten nominees for director were elected:
Barbara Davis Blum Steve Protulis
Shireen Dodson Marshall T. Reynolds
Susan Hager Robert L. Shell, Jr.
Jeanne Hubbard Dana Stebbins
Clarence L. James, Jr. Susan J. Williams
15
<PAGE>
The voting results regarding ratification of the selection of Arthur
Andersen LLP as independent certified public accountants for the Company for
1996 were as follows:
For 1,171,540
Against 2,200
Abstain 1,715
The voting results regarding the approval of the Employee Incentive Stock
Option Plan were as follows:
For 1,126,925
Against 21,525
Abstain 21,010
The voting results regarding the approval of the Directors Stock Option
Plan were as follows:
For 1,126,925
Against 65,890
Abstain 26,755
16
<PAGE>
PART II
-------
Item 5. Market for Registrant's Equity and Related Stockholder Matters.
(a) As of July 12, 1996, the Company's Common Stock is quoted on Nasdaq
National Market under the symbol AANB. Prior to that time, the stock was traded
on a limited and sporadic basis in the over-the-counter market and reported in
the "pink sheets."
The following table sets forth the range of the high and low bid prices of
the Company's Common Stock for all of 1995 and the first two quarters of 1996
and is based upon information provided by the National Quotation Bureau, and the
high and low closing bid prices as reported by Nasdaq National Market for the
remainder of 1996. The prices reported by the National Quotation Bureau reflect
inter-dealer prices and do not include retail mark-ups, mark-downs or
commissions and may not have represented actual transactions. The information
presented gives effect to three-for-one stock split in the form of a stock
dividend which took place on July 9, 1996.
Calendar Quarter Ended Bid Prices of Common Stock
High Low
March 31, 1995 $5.00 $5.00
June 30, 1995 5.50 5.00
September 30, 1995 7.67 5.00
December 31, 1995 8.17 7.33
March 31, 1996 $8.25 $8.17
June 30, 1996 8.33 7.83
September 30, 1996 8.75 8.00
December 31, 1996 11.25 8.50
(b) As of March 14, 1997, the Company had 724 stockholders of record.
(c) During 1996, the Company declared four quarterly cash dividends on the
Common Stock of $.0833 per share for the first two quarters and $.10 per share
for the last two quarters, for a total of $467,429. During 1995, the Company
declared two cash dividends on the Common Stock of $.0833 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. See Note 12 of the Notes to
Consolidated Financial Statements.
17
<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Overview
Abigail Adams National Bancorp, Inc. (the "Company") is the parent of The
Adams National Bank (the "Bank"), a bank with four full service branches located
in Washington, D.C. The Company's newest branch was opened in October of 1996
and a fifth branch is expected to open in the fourth quarter of 1997.
The year ended December 31, 1996 represented the Company's most successful
year. The Company reported record net income of $1,127,000, an increase of 18%
over the $959,000 reported for the year ended December 31, 1995. However, as a
result of the issuance of 795,500 shares of common stock in the public stock
offering completed in the third quarter of 1996, earnings per share of $.94 for
1996 reflected a decrease from $1.12 reported for 1995. Total assets at December
31, 1996 of $112,162,000 increased by $19,797,000 over December 31, 1995,
surpassing the $100,000,000 milestone.
The Company continued to maintain a "well-capitalized" status with a total
risk-based capital ratio (total capital divided by assets weighted for risk
elements) of 17.47% at December 31, 1996, of which 16.22% was Tier 1 capital.
The leverage ratio (based on annual average assets) was 13.81%. The following
analysis of financial condition and results of operations should be read in
conjunction with the Company's consolidated Financial Statements and Notes
thereto.
Analysis of Net Interest Income
Net interest income, the most significant component of the Company's
earnings, increased by $473,000, or 11%, to $4,640,000 in 1996 as compared to
$4,167,000 in 1995. This improvement in net interest income was a result of a
15% increase in average earning assets, partially offset by both a decrease in
the average loan to deposit ratio to 76% from 82% and deposit rates which did
not decrease as rapidly as earning asset rates during the same period. These
factors combined to produce a net interest spread (the difference between the
average interest rate earned on interest-earning assets and paid on
interest-bearing liabilities) of 3.86% and a net interest margin (net interest
income as a percentage of average interest-earning assets) of 5.23% for 1996,
reflecting decreases of 26 basis points and 16 basis points, respectively, from
1995. Loans, the highest yielding component of earning assets, represented
approximately 70% of total average earning assets for 1996 as compared to
approximately 78% for 1995.
Net interest income, increased by $19,000, or less than 1%, to $4,167,000
in 1995 as compared to $4,148,000 in 1994. This variance was 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 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.
Although the net interest spread 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
18
<PAGE>
earning assets during the same period caused net interest income to increase by
$19,000. The net interest margin for 1995 declined to 5.39% from 5.42% for 1994.
Loans represented approximately 78% of total average earning assets for 1995 as
compared to approximately 76% for the comparable 1994 period.
Distribution of Assets, Liabilities and Stockholders' Equity
Yields and Rates
For the Years Ended December 31, 1996, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
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 $ 62,350 $ 6,072 9.74% $ 60,318 $ 5,902 9.78% $ 58,245 $ 5,100 8.76%
Securities 12,795 755 5.90 14,367 859 5.98 15,609 876 5.61
Federal funds sold and
resale agreements 12,752 693 5.43 2,235 130 5.82 2,246 88 3.92
Interest-bearing deposits
in other banks 860 53 6.16 433 23 5.31 491 18 3.67
--- -- --- -- --- --
Total interest-earning assets 88,757 7,573 8.53 77,353 6,914 8.94 76,591 6,082 7.94
Allowance for loan losses (1,272) (1,299) (1,351)
Cash and due from banks 6,091 4,715 4,951
Bank premises and equipment 487 320 364
Other assets 1,319 1,205 1,394
----- ----- -----
Total assets $ 95,382 $ 82,294 $ 81,949
========= ========= ==========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Time deposits $ 32,195 1,257 3.90 $ 27,740 1,094 3.94 $ 28,556 839 2.94
Certificates of deposit 28,102 1,554 5.53 27,300 1,544 5.66 25,798 1,017 3.94
Federal funds purchased and
repurchase agreements 2,148 105 4.89 1,600 89 5.56 1,549 57 3.68
Other short-term borrowings -- -- -- 104 6 5.77 61 3 4.92
Long-term borrowings/debt 357 17 4.76 233 14 6.01 299 18 6.02
--- -- --- -- --- --
Total interest-bearing liabilities 62,802 2,933 4.67 56,977 2,747 4.82 56,263 1,934 3.44
----- ----- -----
Noninterest-bearing liabilities:
Demand deposits 22,099 18,547 18,877
Other liabilities 888 594 966
Stockholders' equity 9,593 6,176 5,843
----- ----- -----
Total liabilities and
stockholders' equity $ 95,382 $ 82,294 $ 81,949
========= ======== =========
Net interest income 2 $4,640 $ 4,167 $ 4,148
====== ======= =======
Net interest spread 3.86% 4.12% 4.50%
==== ==== ====
Net interest margin 5.23% 5.39% 5.42%
==== ==== ====
</TABLE>
- ----------------------------
1 Nonaccrual loans are included in the average loan balances. Interest on
loans includes fees of approximately $141,000, $152,000 and $151,000 in
1996, 1995 and 1994, respectively.
2 No taxable equivalent adjustments are necessary because the Company did not
have material tax-exempt securities or loans during 1996 and had no
tax-exempt securities or loans during 1995 and 1994.
19
<PAGE>
Interest Rates and Interest Differential
Analysis of Changes in Net Interest Income
(In thousands)
<TABLE>
<CAPTION>
For the years ended December 31, For the years ended December 31,
1996 versus 1995 1995 versus 1994
---------------- ----------------
Net Net
Increase Change per: Increase Change per:
(Decrease)1 Rate Volume (Decrease)1 Rate Volume
----------- ---- ------ ----------- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Interest income from:
Loans 2 $ 171 $ (28) $ 199 $ 802 $ 620 $ 182
Securities (104) (10) (94) (17) 53 (70)
Federal funds sold and
resale agreements 563 (49) 612 42 43 (1)
Interest-bearing deposits
in banks 30 7 23 5 7 (2)
-- - -- - - --
Total interest income 3, 4 660 (80) 740 832 723 109
Interest expense on:
Time deposits 5 164 (12) 176 255 279 (24)
Certificates of deposit 10 (35) 45 527 468 59
Short-term borrowings 10 (15) 25 35 32 3
Long-term borrowings/debt 3 (4) 7 (4) -- (4)
- -- - -- --
Total interest expense 3 187 (66) 253 813 779 34
--- --- --- --- --- --
Net interest income 4 $ 473 $ (14) $ 487 $ 19 $ (56) $ 75
===== ===== ===== ====== ====== ======
</TABLE>
- ---------------------------------
1 Changes due to both rate and volume are allocated to rate.
2 Interest on loans includes loan fees of approximately $141,000, $152,000
and $151,000 in 1996, 1995 and 1994, 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 No taxable equivalent adjustments are necessary because the Company did not
have material tax-exempt securities or loans during 1996 and had no
tax-exempt securities or loans during 1995 and 1994.
5 Includes transaction accounts.
Other Income
Total other income, which consists primarily of service charges on deposits
and other fee income, increased by approximately $112,000, or 13%, to $953,000
in 1996 as compared to $841,000 in 1995. Service charges on deposit accounts
increased by approximately $51,000, or 7%, to $788,000 in 1996 as compared to
$737,000 in 1995 principally due to a $94,000 increase in income recognized on
ATM transactions, primarily from the implementation in 1996 of the $1.00
surcharge on noncustomer ATM transactions. This was partially offset by a
$35,000 decrease in service charges on overdrafts. Other income increased by
approximately $61,000, or
20
<PAGE>
59%, to $165,000 in 1996 as compared to $104,000 in 1995, primarily due to
rental income received from other real estate coupled with gains recognized on
the sale of other real estate.
Total other income increased by $51,000, or 6%, to $841,000 in 1995 as
compared to $790,000 in 1994. This increase was 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 increased by $312,000, or 8%, to $4,093,000 in 1996
from $3,781,000 in 1995. Salaries and benefits for 1996 increased by $256,000,
or 16%, to $1,905,000 from $1,649,000 in 1995, due to an increase in the number
of employees resulting from the new branch, normal merit increases and the
hiring of employees to fill certain vacancies. Occupancy and equipment expense
increased by $79,000, or 11%, to $778,000 in 1996 from $699,000 in 1995 due to
the additional rental expense on the new branch, higher operating costs of the
Company's main office location which were passed through to the Company by the
landlord and the additional depreciation expense of a local area network
installed in the later part of the second quarter of 1996. Professional fees
decreased by $210,000, or 59%, to $143,000 in 1996 from $353,000 in 1995 due
primarily to lower legal fees associated with loan workouts and other corporate
matters, as well as partial reimbursement by the Small Business Administration
("SBA") of legal fees incurred for the workout of two troubled SBA guaranteed
loans. Data processing expense increased by $59,000, or 20%, to $359,000 in 1996
from $300,000 in 1995 due to the opening of the new branch, as well as increased
activity levels and item charges. Other operating expense increased by $128,000,
or 16%, to $909,000 in 1996 from $781,000 in 1995 due primarily to increases in
administrative and overhead expenses associated with the opening of the new
branch, partially offset by a decrease in FDIC deposit insurance premiums.
The Company has reviewed the data processing systems provided by the Bank's
outside data processor as well as the computer applications which are used
in-house and has determined that the Bank's data processing will not be
materially impacted by any date-sensitive calculations related to the year 2000.
The Bank's contract with its outside data processor is scheduled to expire in
the second quarter of 1997. While the Bank is presently considering renewal
options as well as other data processing alternatives, the Bank will only
consider data processing systems which can appropriately recognize this
date-sensitive information.
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 were passed through to the Company by the
landlord. Professional fees decreased by $534,000, or 60%, to $353,000. This
decrease is attributable to decreases in legal and other costs related to the
issue of the ownership of certain shares of the Company's common stock, the
expensing in 1994 of previously deferred
21
<PAGE>
professional fees related to the Company's proposed securities offering and
decreases in legal fees related to three employment related lawsuits which were
concluded in 1994. Professional fees for 1995 included costs of approximately
$102,000 incurred to finalize the issues surrounding the ownership of certain
shares of the Company's common stock. 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 was attributable to expenses incurred in 1994 for two employment
related lawsuits settled in 1994. During 1995, the Bank also experienced an
$87,000 decrease in total FDIC insurance premiums as a result of additional
premium rate reductions. The remainder of the decrease was due to savings in
various office operating expenses.
Income Tax Expense
Income tax expense of $648,000 for 1996 reflected an increase of $380,000
over the $268,000 tax expense recorded one year earlier due to an increase in
the Company's effective tax rate to 36% from 22% one year earlier. During 1995,
the Company reduced its deferred tax valuation allowance to zero which reduced
the effective tax rate.
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.
Analysis of Loans
The loan portfolio at December 31, 1996 increased by $9,421,000, or 15%, to
$73,013,000 from $63,592,000 at December 31, 1995. The majority of this growth
was in commercial real estate mortgages as the Company focused its marketing
efforts on commercial real estate loans. The Company believes such loans are
cost effective because larger balances can be underwritten in the same amount of
time as lesser amounts of other types of loans. The Company also believes that
such loans are secured by collateral which is more permanent in nature and
requires less periodic monitoring to assess the Company's ongoing security
position. On average, the Company's loans increased by $2,032,000, or 3%, to
$62,350,000 for 1996 from $60,318,000 for 1995, however, the average loan to
deposit ratio decreased to 76% from 82% during the same period. The loan to
deposit ratio at both December 31, 1996 and 1995 was 77%. 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 and by industry concentration at
December 31, 1996 and 1995, see Note 4 of the Notes to Consolidated Financial
Statements.
22
<PAGE>
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, 1996.
Analysis of Loan Maturity and Interest Sensitivity
At December 31, 1996
(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 $ 17,368 $ 15,640 $ 6,411 $ 39,419
Real estate:
- Commercial mortgage 1,864 16,489 6,487 24,840
- Residential mortgage 134 1,832 665 2,631
- Construction 2,242 1,737 160 4,139
Installment 643 1,021 539 2,203
--- ----- --- -----
Total loans 4 $ 22,251 $ 36,719 $ 14,262 $ 73,232
======== ======== ======== ========
Interest Rate Sensitivity of Loans:
With predetermined interest rates $ 6,305 $ 8,213 $ 1,496 $ 16,014
With floating or
adjustable interest rates 15,946 28,506 12,766 57,218
------ ------ ------ ------
Total loans (4) $ 22,251 $ 36,719 $ 14,262 $ 73,232
======== ======== ======== ========
</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 $218,558.
Analysis of Investments
The Company classifies its debt and marketable equity securities into one
of three categories: trading, available for sale, or held to maturity. See Note
1(c) of the Notes to Consolidated Financial Statements. 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. 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.
23
<PAGE>
Securities available for sale increased by $5,697,000, or 103%, to
$11,205,000 at December 31, 1996 from $5,508,000 at December 31, 1995. During
the last quarter of 1996, funds raised in the Company's public offering of
common stock completed in the third quarter of 1996, were principally invested
in obligations of U.S. Government agencies with up to three year maturities,
pending the longer-term use of the proceeds. Investment securities increased by
$3,448,000, or 42%, to $11,641,000 at December 31, 1996 from $8,193,000 at
December 31, 1995, reflective of the Company's increased liquidity levels. See
"Liquidity and Capital Resources" for a further analysis of liquidity. On
average for 1996, the combined investment and available for sale securities
portfolio decreased by $1,572,000, or 11%, to $12,795,000 for 1996 from
$14,367,000 for 1995.
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, 1996.
Analysis of Securities Portfolio
At December 31, 1996
(In thousands)
<TABLE>
<CAPTION>
Investment Securities Securities Available for Sale
--------------------- -----------------------------
Adjusted Market Average Adjusted Market Average
Cost Basis1 Value Yield Cost Basis1 Value Yield
----------- ----- ----- ----------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury:
Within one year $ 1,000 $ 1,004 6.08% $ -- $ -- --%
-------- ------- ----- -----
Obligations of other U.S.
Government agencies
and corporations: 2
Within one year 1,151 1,152 6.01 8,088 8,083 5.35
After one, but within five years 8,455 8,477 6.20 3,135 3,122 6.27
----- ----- ----- -----
Total 9,606 9,629 6.17 11,223 11,205 5.61
Mortgage-backed securities: 3
Federal National Mortgage Association:
Within one year 6 6 9.00 -- -- --
Federal Home Loan Mortgage Corporation:
After one, but within five years 262 274 8.70 -- -- --
--- --- ---- ----
Total 268 280 8.71 -- -- --
Obligations of states and municipalities:
After ten years 310 310 5.15 -- -- --
--- --- ---- ----
Federal Reserve Bank stock 163 163 6.00 -- -- --
--- --- ---- ----
Federal Home Loan Bank stock 282 282 7.25 -- -- --
--- --- ---- ----
Corporate securities:
After ten years 12 12 -- -- -- --
-- -- ---- ----
Total investment securities $ 11,641 $ 11,680 6.21% $ 11,223 $ 11,205 5.61%
======== ======== ==== ======== ======== ====
</TABLE>
------------------
24
<PAGE>
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, 1996 and 1995, see Note 3 of the Notes to
Consolidated Financial Statements.
Noninterest-Earning Assets
Cash and due from banks of $9,785,000 at December 31, 1996 reflected an
increase of $4,832,000, or 98%, from the $4,953,000 balance at December 31,
1995. Of this increase $2,800,000 was attributable to one large deposit received
on December 31, 1996 from one of the Company's large commercial customers which
was not yet available for investment with other financial institutions, while
the remainder was attributable to higher cash levels due to the new branch as
well as normal fluctuations in cash balances maintained at the Federal Reserve
Bank between December 31, 1996 and December 31, 1995.
Bank premises and equipment of $840,000 at December 31, 1996 reflected a
202% increase of $562,000 from the $278,000 balance reported at December 31,
1995. This increase was due to leasehold improvements and equipment associated
with the opening of the new branch as well as the local area network which was
installed during 1996.
Deposits
Total deposits of $95,155,000 at December 31, 1996 increased by
$12,092,000, or 15%, from the December 31, 1995 balance of $83,063,000.
Although demand deposit balances of $23,678,000 at December 31, 1996
increased $234,000 over the balance at December 31, 1995 of $23,444,000, average
demand deposits for 1996 of $22,099,000 increased $3,552,000, or 19%, over the
average balance for 1995. Negotiable Order of Withdrawal, or "NOW" accounts, at
December 31, 1996 of $8,040,000 increased $697,000, or 9%, over the balance at
December 31, 1995 of $7,343,000, while average NOW accounts for 1996 of
$8,019,000 decreased $2,110,000, or 21%, as compared to the average balance for
1995. Money market accounts of $29,533,000 at December 31, 1996 increased
$8,141,000, or 38%, over the $21,392,000 balance at December 31, 1995, due
principally to the opening of new deposit accounts as well as increases in the
balances of corporate and personal accounts, with a corresponding effect on the
average balances. In addition, the new branch opening in the fourth quarter of
1996 contributed to the deposit increases.
Certificates of deposit of $100,000 or greater at December 31, 1996 of
$15,658,000 increased by $2,067,000, or 15%, from the $13,591,000 reported at
December 31, 1995 primarily
25
<PAGE>
due to increases in collateralized government deposits. Certificates of deposit
under $100,000 increased by $890,000, or 6%, to $16,866,000 at December 31, 1996
from $15,976,000 at December 31, 1995. This increase is primarily due to the
issuance of brokered deposits in the first half of 1996.
The table entitled "Maturity Distribution of Certificates of Deposit
$100,000 and Over" sets forth, by time remaining to maturity, certificates of
deposit in amounts of $100,000 or more at December 31, 1996 and 1995.
Maturity Distribution of Certificates of Deposit $100,000 and Over
At December 31, 1996 and 1995
(In thousands)
1996 1995
---- ----
Within three months $ 8,183 $ 5,716
After three months but within six months 5,075 4,772
After six months but within twelve months 2,100 1,403
After twelve months 300 1,700
--- -----
Total $ 15,658 $ 13,591
======== ========
The table entitled "Average Deposits and Rates," sets forth the average
balances and average rate paid by major deposit category for the years ended
December 31, 1996 and 1995.
Average Deposits and Rates
For the Years Ended December 31, 1996 and 1995
(In thousands)
1996 1995
---- ----
Average Average Average Average
Balance Rate Balance Rate
------- ---- ------- ----
Interest-bearing demand accounts $ 8,019 2.42% $ 10,129 2.46%
Savings deposits 1,283 2.66 1,160 2.68
Money market deposit accounts 22,893 4.49 16,451 4.94
CD's $100,000 and over 10,977 5.31 12,672 5.51
Other time deposits 17,125 5.67 14,628 5.78
------ ------
Total interest-bearing deposits 60,297 4.66 55,040 4.79
Noninterest-bearing demand deposits 22,099 18,547
------ ------
Total deposits $ 82,396 $ 73,587
======== ========
26
<PAGE>
Short-Term Borrowings
Short-term borrowings of $1,917,000 at December 31, 1996 consisted entirely
of repurchase agreements with customers of the Company. This compares with
repurchase agreements outstanding at December 31, 1995 of $1,785,000. For
additional information on short-term borrowings, see Note 10 of the Notes to
Consolidated Financial Statements.
Long-Term Borrowings
On May 21, 1996, the Bank paid off the remaining balance on its long-term
capital note with Minbanc Capital Corp. On October 1, 1996, the Bank entered
into an agreement to borrow $1,143,000 for approximately twelve years at 6.95%
from the Federal Home Loan Bank Board under its Community Investment Program.
These proceeds were used to fund a loan at a positive spread with a like
amortization and maturity.
Asset Quality
Loan Portfolio and Adequacy of the Allowance for Loan Losses
The Company manages the risk characteristics of its loan portfolio through
various control processes, such as credit evaluation of individual borrowers,
establishment of 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.
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
has not taken a provision for loan losses since the third quarter of 1994.
Despite this, the unallocated portion of the Company's Allowance for Loan Losses
has continued to increase since that time. During the third quarter of 1996, the
Company received a recovery of approximately $87,000 on a previously charged off
loan, further increasing the level of the unallocated reserves. As of December
31, 1996, the Company evaluated the level of the Allowance for Loan Losses,
specifically the unallocated portion, to determine the level which would be
prudent given the Company's nonperforming asset and charge-off trends while at
the same time providing an appropriate level of unallocated reserve for any
potential losses which may be identified. Following this evaluation, the Company
reversed $275,000 of the loan loss provision during 1996, leaving the
unallocated portion of the allowance for loan losses at $117,000 at December 31,
1996. Throughout this process, 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 $1,048,000 at December 31, 1996 to be adequate.
At December 31, 1996, the allowance for loan losses as a percentage of
outstanding loans was 1.44% as compared to 2.00% at December 31, 1995. This
decrease is predominantly due to
27
<PAGE>
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 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 three years
covered approximately 72% of the dollar volume of the loan portfolio, and
included 97% 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, 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.
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, 1996, 1995 and 1994.
Allocation of Allowance for Loan Losses
At December 31, 1996, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
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 $ 438 53.8% $ 658 68.1% $ 760 70.3%
Real estate - commercial mortgage 360 33.9 252 19.7 194 15.8
Real estate - residential mortgage 19 3.6 39 2.4 21 2.3
Real estate - construction 31 5.7 27 4.1 21 5.3
Installment 83 3.0 45 5.7 46 6.3
Unallocated 117 -- 253 -- 248 --
--- ---- --- ---- --- ----
Total $ 1,048 100.0% $ 1,274 100.0% $ 1,290 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
28
<PAGE>
Nonperforming Assets
Nonperforming assets include nonaccrual loans, restructured loans, past due
loans and other real estate. See Note 1(d) of the Notes to Consolidated
Financial Statements.
Nonaccrual loans at December 31, 1996 of $963,000 decreased by $598,000
from $1,561,000 at December 31, 1995, while restructured loans decreased by
$672,000 to $573,000 at December 31, 1996 due to the payoff of one loan. Past
due loans increased by $147,000 to $153,000 at December 31, 1996 from $6,000 at
December 31, 1995 due principally to one credit which was both well secured and
in the process of collection. At December 31, 1996 and 1995, nonaccrual loans
included $607,000 and $875,000, respectively, in loans guaranteed by the SBA for
a total of $594,000 and $743,000, respectively. 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. During 1996, the Company transferred
$249,000 to other real estate from loans recorded on nonaccrual status at
December 31, 1995, reflecting real property acquired in satisfaction of the loan
balance. All such property was sold during 1996 at a gain of $27,000.
The table entitled "Analysis of Nonperforming Assets" presents
nonperforming assets, by category, at December 31, 1996 and 1995.
Analysis of Nonperforming Assets
At December 31, 1996 and 1995
(In thousands)
1996 1995
---- ----
Nonaccrual loans:
Commercial $ 863 $ 1,244
Real estate - commercial mortgage 100 122
Real estate - residential mortgage -- 195
--- -----
Total nonaccrual loans 1 963 1,561
Past due loans:
Real estate - commercial mortgage 142 --
Installment - individuals 11 6
-- --
Total past due loans 153 6
Restructured loans:
Commercial 573 1,245
--- -----
Total restructured loans 573 1,245
--- -----
Total nonperforming assets $ 1,689 $ 2,812
======= =======
Total nonperforming assets exclusive of
SBA guaranteed balances $ 1,094 $ 2,070
======= =======
Ratio of nonperforming assets
to gross loans 2 2.31% 4.42%
Ratio of nonperforming assets to total
assets 2 1.51% 3.04%
Percentage of allowance for loan losses to
nonperforming assets 2 62.05% 45.30%
Ratio of net charge-offs (recoveries) to average loans (.08)% .03%
29
<PAGE>
- ----------------------------
1 Nonaccrual loans include $607,000 and $875,000 in loans guaranteed by the
SBA at December 31, 1996 and 1995, respectively. The outstanding balance of
these loans are insured for 97.9%, or $594,000, and 84.9%, or $743,000,
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.
Potential Problem Loans
At December 31, 1996 and 1995, respectively, loans totaling $781,000 and
$618,000 were classified as potential problem loans which are not reported in
the table entitled "Analysis of Nonperforming Assets". These loans were made to
borrowers who subsequently experienced financial difficulties. The loans are
subject to management attention and their classification is reviewed on a
quarterly basis. Of the potential problem loans at December 31, 1996, 91% of the
balance represents loans which are partially to fully secured. The remaining 9%
of the balance, or $73,000, is guaranteed by the SBA for a total of $66,000.
Of the $618,000 in problem loans at December 31, 1995, 98% were partially
to fully secured with the remaining 2%, or $15,000, guaranteed by the SBA.
Impaired Loans
At December 31, 1996 and 1995, respectively, loans totaling $1,955,000 and
$2,790,000 were classified as impaired loans, all of which are reported as
nonaccrual, restructured or potential problem loans. For additional information
concerning impaired loans, see Note 4 to the Notes to Consolidated Financial
Statements.
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, 1996, interest
sensitive assets repricing within each period of less than one year ranged from
78% to 103% 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 considers, among other things, the sensitivity of major asset
and liability categories to anticipated interest rate changes. The Company does
not necessarily attempt to
30
<PAGE>
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, 1996, net
interest income will not be materially impacted by either a rising or declining
interest rate environment.
Analysis of Interest Rate Sensitivity
At December 31, 1996
(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> <C>
Interest-earning assets:
Loans $ 30,263 $ 7,490 $ 18,407 $ 56,160 $ 16,853 $ 73,013
Securities 1 2,172 6,122 2,550 10,844 12,002 22,846
Short-term investments 4,197 -- 1,382 5,579 -- 5,579
Noninterest-earning assets -- -- -- -- 10,724 10,724
---- ---- ---- ---- ------ ------
Total assets 36,632 13,612 22,339 72,583 39,579 $ 112,162
=======
Interest-bearing liabilities:
Deposits 2 44,732 10,108 13,353 68,193 3,284 $ 71,477
Short-term borrowings 1,916 -- -- 1,916 -- 1,916
Long-term borrowings/debt 17 13 27 57 1,082 1,139
Noninterest-bearing sources -- -- -- -- 37,630 37,630
---- ---- ---- ---- ------ ------
Total liabilities and stockholders' equity 46,665 10,121 13,380 70,166 41,996 $ 112,162
=======
Excess (deficiency) of interest sensitive assets over like liabilities:
For the period $(10,033) $ 3,491 $ 8,959 $ 2,417 $ (2,417)
Cumulative (10,033) (6,542) 2,417
Rate sensitive assets rate sensitive liabilities:
Cumulative 0.78x 0.88x 1.03x
</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.
31
<PAGE>
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 $15,364,000 in cash and short-term investments at December 31, 1996,
the Company has a securities portfolio which can be pledged to raise additional
deposits and borrowings, if necessary. At December 31, 1996, the Company had
$7,451,000 in unpledged securities which were available for such use. This
compares with cash and short-term investments of $14,915,000 and unpledged
securities of $4,658,000 at December 31, 1995. As a percentage of total assets,
the amount of these cash equivalent assets at December 31, 1996 and 1995 was 20%
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). On average, the
Company's short-term investments, which consist of Federal funds sold and
interest-bearing deposits in other banks, increased during 1996 by $10,944,000,
or 410%, to $13,612,000 for 1996 as compared to $2,668,000 for 1995. In order to
maintain maximum flexibility, proceeds from the Company's stock offering
completed in the third quarter of 1996 were temporarily invested in federal
funds sold at rates which were competitive with short-term government
securities. This coupled with normal fluctuations in the Company's liquidity
accounted for the variance in average federal funds sold. 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 acquisition programs)
representing 79%, and 76% of the average total deposit base in 1996 and 1995,
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. The Bank maintained an average loan to deposit ratio of 76% and 82%
during 1996 and 1995, respectively, and accesses collateralized deposit programs
through U.S. government agencies to raise additional deposits, when liquidity
needs dictate.
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, at December 31, 1996 the Bank was 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. At December 31, 1996, $1,139,000 in borrowings
from the FHLB were outstanding. The Bank is eligible to increase the maximum
amount to be borrowed by $7,717,000 with the purchase of $1,696,000 of
additional stock in the FHLB. The Company has adequate resources to meet its
liquidity needs.
Net proceeds of $6,019,000 from the Company's stock offering coupled with
increases in deposit levels comprised the majority of the Company's net cash
inflows from financing activities for 1996, as increases in deposits totaled
$12,092,000. Loan originations and security purchases exceeded curtailments and
repayments of loans and maturities and scheduled
32
<PAGE>
amortization of securities during 1996, constituting the majority of the
Company's cash outflows from investing activities.
Stockholders' Equity
During 1996, the Company completed a stock offering issuing 795,500 shares
at a price of $8.75 per share, resulting in net proceeds to the Company of
$6,019,000 after underwriting discounts, commissions and expenses. Of these
proceeds, $219,000 was used to fund a loan to The Adams National Bank Employee
Stock Ownership Plan with 401(k) Provisions ("ESOP") to purchase stock in that
public offering. Immediately prior to the stock offering, the Company increased
the number of shares of authorized Common Stock from 800,000 to 5,000,000,
reduced the par value to $0.01 per share and 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. As of July 12, 1996, the effective date of
the offering, the Company's Common Stock was approved for listing on the Nasdaq
National Market.
Stockholders' equity at December 31, 1996 of $13,140,000 was nearly double
the balance at December 31, 1995 of $6,619,000 principally as a result of the
$6,019,000 in net proceeds raised in the Company's public offering. The
Company's $1,127,000 net income for 1996 and a $6,000 decrease in unrealized
loss on securities, net of taxes, partially offset by dividends declared during
the year of $467,000 also contributed to this increase. Average stockholders'
equity as a percentage of average total assets for 1996 was 10.06% as compared
to 7.50% for the comparable prior year period.
The following table presents the Company's and the Bank's capital position
relative to their various minimum statutory and regulatory capital requirements
at December 31, 1996. The Company and the Bank are considered "well-capitalized"
under regulatory guidelines.
Minimum
Company Bank Capital
Amount Ratio Amount Ratio Requirements
------ ----- ------ ----- ------------
(Dollars in thousands)
Leverage ratio 1 $ 13,174 13.81% $ 7,230 7.61% 4.00%
Tier 1 risk-based ratio 2 13,174 16.22 7,230 9.19 4.00
Total risk-based ratio 2 14,190 17.47 8,213 10.44 8.00
1 Based on annual average assets
2 Based on risk-adjusted assets
Changes in Accounting Principles
For a discussion of changes in accounting principles, see Note 1 of the
Notes to Consolidated Financial Statements.
33
<PAGE>
Item 7. Financial Statements and Supplementary Data.
ABIGAIL ADAMS NATIONAL BANCORP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Independent Auditors' Reports............................................35
Consolidated Balance Sheets as of
December 31, 1996 and 1995.............................................36
Consolidated Statements of Operations for the
years ended December 31, 1996, 1995 and 1994...........................37
Consolidated Statements of Changes in Stockholders' Equity for
the years ended December 31, 1996, 1995 and 1994.......................39
Consolidated Statements of Cash Flows for the
years ended December 31, 1996, 1995 and 1994...........................40
Notes to Consolidated Financial Statements...............................42
34
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Abigail Adams National Bancorp, Inc.
We have audited the accompanying consolidated balance sheet of Abigail Adams
National Bancorp, Inc. and subsidiary as of December 31, 1996, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the year ended December 31, 1996. 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 audit.
We conducted our audit 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 audit provides 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, 1996 and the results of
their operations and their cash flows for year ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Washington, D.C.
January 17, 1997
- --------------------------------------------------------------------------------
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 the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows of Abigail Adams National Bancorp and subsidiary for each of the years in
the two-year period then ended. These consolidated financial statements are the
responsibility of Abigail Adams National Bancorp, Inc.'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
misstatements. 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 the results of
their operations and their cash flows for each of the years in the two-year
period then ended, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Washington, D.C.
January 26, 1996
35
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Assets
Cash and due from banks $ 9,785,132 $ 4,953,200
Short-term investments:
Federal funds sold 4,100,000 9,475,000
Interest-bearing deposits in other banks 1,479,000 486,715
--------- -------
Total short-term investments 5,579,000 9,961,715
Securities available for sale 11,205,282 5,508,406
Investment securities (market value of $11,679,607 and $8,309,265
for 1996 and 1995, respectively) 11,640,813 8,192,647
Loans (net of deferred fees and unearned discounts) 73,013,413 63,592,395
Less: Allowance for loan losses (1,048,487) (1,273,965)
---------- ----------
Loans, net 71,964,926 62,318,430
---------- ----------
Bank premises and equipment, net 840,051 277,517
Other assets 1,147,100 1,152,761
--------- ---------
Total assets $112,162,304 $ 92,364,676
============= =============
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Demand deposits $ 23,678,374 $ 23,443,937
NOW accounts 8,039,994 7,343,282
Money market accounts 29,533,210 21,391,814
Savings accounts 1,379,554 1,317,226
Certificates of deposit of $100,000 or greater 15,657,818 13,590,946
Certificates of deposit less than $100,000 16,865,790 15,975,990
---------- ----------
Total deposits 95,154,740 83,063,195
---------- ----------
Short-term borrowings 1,916,689 1,785,402
Long-term borrowings/debt 1,138,815 186,250
Other liabilities 811,863 710,963
------- -------
Total liabilities 99,022,107 85,745,810
---------- ----------
Stockholders' equity:
Common stock, par value $0.01 per share, authorized 5,000,000 shares; issued
1,654,712 shares in 1996 and 859,212 shares in 1995;
outstanding 1,650,032 shares in 1996 and 854,532 shares in 1995 16,547 8,592
Surplus 12,172,435 6,147,421
Retained earnings 1,191,706 531,830
--------- -------
13,380,688 6,687,843
Less: Employee Stock Ownership Plan shares, 20,319 shares at cost (177,791) --
Less: Treasury stock, 4,680 shares at cost (28,710) (28,710)
Less: Unrealized loss on securities, net of taxes (33,990) (40,267)
------- -------
Total stockholders' equity 13,140,197 6,618,866
---------- ---------
Total liabilities and stockholders' equity $112,162,304 $ 92,364,676
============= =============
</TABLE>
Commitments and contingent liabilities
See accompanying notes to consolidated financial statements.
36
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Operations
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest income
Interest and fees on loans $ 6,072,500 $ 5,902,325 $ 5,100,609
Interest on securities available for sale:
U.S. Treasury 48,098 175,979 220,986
Obligations of U.S. government agencies and corporations 207,408 128,954 173,619
------- ------- -------
Total interest on securities available for sale 255,506 304,933 394,605
Interest and dividends on investment securities:
U.S. Treasury 49,700 69,417 45,055
Obligations of U.S. government agencies and corporations 394,780 413,396 373,813
Mortgage-backed securities 27,705 38,539 50,862
Obligations of states and municipalities 1,907 -- --
Other securities 25,468 32,460 11,774
------ ------ ------
Total interest and dividends on investment securities 499,560 553,812 481,504
Interest on short-term investments:
Federal funds sold 692,614 130,069 87,954
Deposits with other banks 53,044 22,920 18,025
------ ------ ------
Total interest on short-term investments 745,658 152,989 105,979
------- ------- -------
Total interest income 7,573,224 6,914,059 6,082,697
--------- --------- ---------
Interest expense
Interest on deposits:
NOW accounts 194,092 249,377 264,771
Money market accounts 1,028,668 812,916 544,798
Savings accounts 34,182 31,060 29,125
Certificates of deposit:
$100,000 or greater 583,180 698,356 525,099
Less than $100,000 970,818 845,681 492,134
------- ------- -------
Total interest on deposits 2,810,940 2,637,390 1,855,927
Interest on short-term borrowings:
Federal funds purchased and
repurchase agreements 104,532 88,871 57,131
Other short-term borrowings -- 6,364 3,382
----- -----
Total interest on short-term borrowings 104,532 95,235 60,513
Interest on long-term borrowings/debt 17,435 13,969 18,028
------ ------ ------
Total interest expense 2,932,907 2,746,594 1,934,468
--------- --------- ---------
Net interest income 4,640,317 4,167,465 4,148,229
Provision (benefit) for loan losses (275,000) -- 221,572
-------- ------- -------
Net interest income after provision for
loan losses 4,915,317 4,167,465 3,926,657
--------- --------- ---------
(Continued)
</TABLE>
37
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Operations (Continued)
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Other income
Service charges on deposit accounts 788,207 737,059 696,829
Other income 164,996 103,712 93,556
------- ------- ------
Total other income 953,203 840,771 790,385
Other expense
Salaries and employee benefits 1,904,873 1,649,071 1,611,127
Occupancy and equipment expense 777,513 698,570 750,359
Professional fees 143,357 353,205 887,347
Data processing fees 358,555 299,580 265,897
Other operating expense 909,098 781,000 1,386,444
------- ------- ---------
Total other expense 4,093,396 3,781,426 4,901,174
Income (loss) before taxes 1,775,124 1,226,810 (184,132)
Applicable income tax expense 647,819 267,912 --
------- -------
Net income (loss) $ 1,127,305 $ 958,898 $ (184,132)
=========== =========== ===========
Net income (loss) per common share $ 0.94 $ 1.12 $ (0.22)
======== ======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
38
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Employee
Additional Retained Stock Unrealized
Common Paid-in Earnings Treasury Ownership Loss on
Stock Capital (Deficit) Stock Plan Securities Total
----- ------- --------- ----- ---- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $ 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
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 -- -- 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 8,592 6,147,421 531,830 (28,710) -- (40,267) 6,618,866
Net income -- -- 1,127,305 -- -- -- 1,127,305
Dividends declared -- -- (467,429) -- -- -- (467,429)
Issuance of 795,500 shares
of common stock, net 7,955 6,010,973 -- -- -- -- 6,018,928
Employee Stock Ownership
Plan, 25,000 shares -- -- -- -- (218,750) -- (218,750)
Release of shares under
Employee Stock Ownership
Plan, 4,681 shares -- 14,041 -- -- 40,959 -- 55,000
Unrealized gain on securities,
net of taxes -- -- -- -- -- 6,277 6,277
------ ------ ------ ------ ------ ------- -------
Balance at December 31, 1996 $ 16,547 $ 12,172,435 $ 1,191,706 $ (28,710) $ (177,791) $ (33,990) $ 13,140,197
============ ============ ============ ============ ============ =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
39
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating Activities
Net income (loss) $ 1,127,305 $ 958,898 $ (184,132)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Provision (benefit) for loan losses (275,000) -- 221,572
Depreciation and amortization 164,475 146,084 154,177
Profit sharing contribution of ESOP shares 55,000 -- --
Loss on sale of securities -- -- 281
Loss (gain) on sale of other real estate (27,181) -- 11,516
Accretion of loan discounts and fees (122,194) (106,116) (6,549)
Amortization and accretion of discounts and
premiums on securities (10,200) 19,097 33,226
Benefit (provision) for deferred income taxes 31,174 (300,227) 254,046
Decrease (increase) in other assets (25,514) 369,045 (444,958)
Increase (decrease) in other liabilities 5,175 (11,874) (476,874)
----- ------- --------
Net cash provided (used) by operating activities 923,040 1,074,907 (437,695)
------- --------- --------
Investing Activities
Proceeds from repayment and maturity
of investment securities 5,300,000 1,888,400 800,000
Proceeds from maturity of securities
available for sale 9,000,000 10,000,000 6,750,000
Proceeds from repayment of mortgage-
backed securities 117,452 126,951 258,705
Proceeds from sale of securities -- -- 449,718
Purchase of investment securities (8,830,713) (1,092,225) (1,758,334)
Purchase of securities available for sale (14,710,872) (9,485,625) (5,747,500)
Net decrease (increase) in interest-bearing deposits
in other banks (992,285) 4,000 --
Principal collected on loans 12,858,837 14,072,132 10,402,119
Loans originated (19,815,190) (12,771,600) (16,665,764)
Loans purchased from FDIC as receiver for other banks -- -- (493,086)
Net increase in short-term loans (200,684) (96,137) (160,958)
Net decrease (increase) in lines of credit (2,331,395) (3,936,146) 754,607
Purchase of bank premises and equipment (727,009) (54,383) (184,284)
Investment in other real estate (78,250) -- --
Proceeds from disposition of other real estate 344,562 -- 716,984
------- ------- --------
Net cash used by investing activities (20,065,547) (1,344,633) (4,877,793)
----------- ---------- ----------
Financing Activities
Net increase in transaction and savings deposits 9,134,873 4,361,262 2,948,474
Proceeds from issuance of time deposits 23,785,579 40,745,855 34,897,519
Payments for maturing time deposits (20,828,907) (37,337,424) (35,008,768)
Net increase in short-term borrowings 131,287 1,424,694 165,818
Payments on long-term debt (186,250) (74,500) (56,250)
Proceeds from other long-term borrowings 1,143,000 -- --
Payments on other long-term borrowings (4,185) -- --
Proceeds from issuance of common stock, net of expenses 6,018,928 -- --
Loan to Employee Stock Ownership Plan (218,750) -- --
Cash dividends paid to common stockholders (376,136) (71,211) --
-------- ------- ------
Net cash provided by financing activities 18,599,439 9,048,676 2,946,793
---------- --------- ---------
Increase (decrease) in cash and cash equivalents (543,068) 8,778,950 (2,368,695)
Cash and cash equivalents at beginning of year 14,428,200 5,649,250 8,017,945
---------- --------- ---------
Cash and cash equivalents at end of year $ 13,885,132 $ 14,428,200 $ 5,649,250
============ ============ ============
</TABLE>
40
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Supplementary disclosures:
Interest paid on deposits and borrowings $ 2,928,906 $ 2,711,626 $ 1,924,179
============= ============= ============
Income taxes paid $ 651,600 $ 327,593 $ 511,250
============== ============= ============
Securities transferred to investment
securities $ -- $ -- $ 3,500,000
=========== ========= ============
</TABLE>
See accompanying notes to consolidated financial statements.
41
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
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 $34,000
and $40,000, net of tax, at December 31, 1996 and 1995, respectively.
The Company does not maintain a trading account.
Premiums and discounts are amortized using a method which approximates
the effective 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.
42
<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"). 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) Stockholders' Equity
All financial information presented gives retroactive effect to 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 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.
Dividends totaling $467,000, or $.37 per share, and $142,000, or $.17
per share, were declared in 1996 and 1995, respectively.
(j) 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.
(k) 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, 1,200,803 in 1996, and 854,532 in 1995
and 1994.
(l) 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.
(m) 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
43
<PAGE>
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.
(n) Derivative Financial Instruments
In October 1994, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards 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.
(o) 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,
which was adopted by the Company as of January 1, 1996, does not have
a material impact on the results of operations or financial position.
(p) 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.
(q) 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 has provided pro-forma disclosure of net income and earnings per
share as if the expense provisions of SFAS No. 123 had been adopted in
Note 15.
(r) 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 loan losses
and other real estate, management periodically obtains independent
appraisals for significant properties.
(s) Reclassifications
Certain reclassifications have been made to amounts previously
reported in 1995 and 1994 to conform with the 1996 presentation.
44
<PAGE>
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 $1,543,000
and $1,475,000 at December 31, 1996 and 1995, respectively. There were no
other withdrawal, usage restrictions or legally required compensating
balances at December 31, 1996 or 1995.
3. Securities
Investment securities at December 31, 1996 and 1995 are summarized as
follows:
<TABLE>
<CAPTION>
1996
------------------------------------------------------------------
Gross Gross
Adjusted Unrealized Unrealized Market
Cost Basis Gains Losses Value
---------- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury:
Within one year $ 500,000 $ 1,094 $ -- $ 501,094
After one, but within five years 499,789 2,711 -- 502,500
------- ----- ---- -------
Total 999,789 3,805 -- 1,003,594
------- ----- ---- ---------
Obligations of U.S. government
agencies and corporations:
Within one year 1,150,680 1,508 -- 1,152,188
After one, but within five years 8,454,924 32,204 10,198 8,476,930
--------- ------ ------ ---------
Total 9,605,604 33,712 10,198 9,629,118
--------- ------ ------ ---------
Obligations of states and municipalities:
After ten years 310,000 244 -- 310,244
------- --- ---- -------
Mortgage-backed securities:
Federal National Mortgage Association:
Within one year 5,781 123 -- 5,904
Federal Home Loan Mortgage Corp.:
After one, but within five years 262,539 11,108 -- 273,647
------- ------ ---- -------
Total 268,320 11,231 -- 279,551
------- ------ ---- -------
Corporate securities (1) 12,500 -- -- 12,500
------ ---- ---- ------
Federal Reserve Bank Stock (1) 162,700 -- -- 162,700
------ ---- ---- ------
Federal Home Loan Bank Stock (1) 281,900 -- -- 281,900
------ ---- ---- ------
Total investment securities $11,640,813 $ 48,992 $ 10,198 $11,679,607
=========== =========== =========== ===========
</TABLE>
45
<PAGE>
<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>
(1) Corporate securities, Federal Reserve Bank and Federal Home Loan Bank
Stocks have no stated maturities.
Securities available for sale at December 31, 1996 and 1995 are summarized
below:
<TABLE>
<CAPTION>
1996
--------------------------------------------------------------
Gross Gross
Adjusted Unrealized Unrealized Market
Cost Basis Gains Losses Value
---------- ----- ------ -----
<S> <C> <C> <C> <C>
Obligations of U.S. government
agencies and corporations:
Within one year $ 8,088,415 $ 2,098 $ 7,411 $ 8,083,102
After one, but within five years 3,135,000 -- 12,820 3,122,180
--------- ----- ------ ---------
Total $11,223,415 $ 2,098 $ 20,231 $11,205,282
=========== =========== =========== ===========
</TABLE>
<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 1,995,654 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>
46
<PAGE>
Securities in the amount of approximately $14,938,000 and $8,616,000 were
pledged to collateralize public deposits and repurchase agreements at
December 31, 1996 and 1995, respectively.
The Company had no securities whose book value as to any single issuer
exceeded 10% of stockholders' equity. During 1996, the Company held one
security totaling $310,000 which was exempt from federal taxation. No
securities which were exempt from federal taxation were held during 1995.
During 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 $63,000, net of
taxes, as of December 31, 1996, coupled with unrealized losses in the
remaining available for sale portfolio of $11,000, net of taxes, brought
the equity balance of unrealized loss on securities to $34,000 at December
31, 1996.
4. Loans
Loans at December 31, 1996 and 1995 are summarized as follows:
1996 1995
---- ----
Commercial and industrial $39,418,672 $ 43,547,303
Real estate:
Commercial mortgage 24,840,270 12,603,988
Residential mortgage 2,630,845 1,546,590
Construction and development 4,139,569 2,617,836
Installment to individuals 2,202,615 3,652,022
--------- ---------
73,231,971 63,967,739
Less: Deferred income and unearned discounts (218,558) (375,344)
-------- --------
Total $ 73,013,413 $ 63,592,395
============ ============
Loan concentrations at December 31, 1996 and 1995 are summarized as
follows:
1996 1995
---- ----
Service industry 38% 38%
Real estate development/finance 30 32
Wholesale/retail 22 21
Other 10 9
-- -
Total 100% 100%
=== ===
A substantial portion, $50,211,000, or approximately 69%, at December 31, 1996,
and $41,418,000, or approximately 65%, at December 31, 1995, 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.
47
<PAGE>
Transactions in the allowance for loan losses for the years ended December
31, 1996, 1995 and 1994 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance at January 1 $ 1,273,965 $ 1,289,562 $ 1,385,875
Provision (benefit) for loan losses (275,000) -- 221,572
Recoveries:
Commercial 52,082 55,372 122,393
Real estate:
Commercial mortgage 680 9,516 --
Residential mortgage -- -- 3,000
Installment to individuals 111,981 33,105 30,981
------- ------ ------
Total recoveries 164,743 97,993 156,374
------- ------ -------
Loans charged off:
Commercial (71,937) (14,551) (429,090)
Installment to individuals (43,284) (99,039) (45,169)
------- ------- -------
Total loans charged off (115,221) (113,590) (474,259)
-------- -------- --------
Net recoveries (charge-offs) 49,522 (15,597) (317,885)
------ ------- --------
Balance at December 31 $ 1,048,487 $ 1,273,965 $ 1,289,562
=========== =========== ===========
</TABLE>
Included in the accompanying consolidated balance sheets are certain loans that
are accounted for on a nonaccrual basis. These nonaccrual loans totaled
approximately $963,000, $1,561,000 and $1,244,000 at December 31, 1996, 1995 and
1994, respectively. Had the loans been current in accordance with their original
terms, gross interest income for these loans would have been $124,000, $212,000
and $150,000 in 1996, 1995 and 1994, respectively. Actual recorded interest
income on these loans was $0, $40,000 and $53,000 in 1996, 1995 and 1994,
respectively. Nonaccrual loans include $607,000, $875,000 and $1,013,000 in
loans guaranteed by the U.S. Small Business Administration at December 31, 1996,
1995 and 1994, respectively. These loans are guaranteed for an average of 97.9%
of the outstanding balance, or $594,000, 84.9% of the outstanding balance, or
$743,000, and 87.3% of the outstanding balance, or $884,000 at December 31,
1996, 1995 and 1994, respectively. Also included in the accompanying
consolidated balance sheets are $573,000, $1,245,000 and $1,301,000 in loans at
December 31, 1996, 1995 and 1994, 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 $63,000, $124,000 and $110,000 in 1996, 1995
and 1994, respectively. As of year-end 1996, 1995 and 1994, these loans were
performing substantially in accordance with the restructured terms. 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, 1996, 1995 and 1994.
At December 31, 1996, 1995 and 1994, the Company had $153,000, $6,000 and
$3,000, 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.
A loan is considered impaired when, based on current information and events, the
Company deems it probable it will be unable to collect all amounts contractually
due under the loan. The recorded investment in impaired loans was $1,955,000 and
$2,790,000 at December 31, 1996 and 1995, respectively. Of the balance at
December 31, 1996 and 1995, $1,509,000 and $2,775,000, respectively, are
nonaccrual or restructured loans. Included in these amounts for December 31,
1996 and 1995, respectively, are $1,855,000 and $1,631,000 of impaired loans for
which the related impairment allowance is $264,000 and $416,000. Loans that do
not have an impairment allowance were $100,000 and $1,037,000 at December 31,
1996 and 1995, respectively. The average recorded investment in impaired loans
was $2,619,000 and $2,918,000 during 1996 and 1995, respectively. Interest
income recognized on impaired loans during the years ended December 31, 1996 and
1995 which has not been disclosed above in the discussion of nonaccrual and
restructured loans was $19,000 and $2,000,
48
<PAGE>
respectively. 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, 1996 and 1995, 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, 1996 and 1995 was
as follows:
1996 1995
---- ----
Balance at January 1 $ 532,577 $ 726,153
Additions 1,261,700 481,774
Repayments (542,609) (675,350)
Retirements (14,816) --
------- -------
Balance at December 31 $ 1,236,852 $ 532,577
=========== ===========
5. Bank Premises and Equipment
Bank premises and equipment at December 31, 1996 and 1995 is summarized as
follows:
1996 1995
---- ----
Furniture, fixtures and equipment $ 1,811,318 $ 1,351,454
Leasehold improvements 960,081 692,936
------- -------
Total, at cost 2,771,399 2,044,390
Less: Accumulated depreciation and amortization (1,931,348) (1,766,873)
---------- ----------
Total, net $ 840,051 $ 277,517
=========== ===========
Amounts charged to operating expenses for depreciation and amortization
aggregated approximately $165,000, $146,000 and $154,000 in 1996, 1995 and 1994,
respectively.
6. Interest-Bearing Deposits
Related party deposits totaled approximately $5,376,000 and $2,481,000 at
December 31, 1996 and 1995, respectively. In management's opinion, rates
paid on these deposits, where applicable, are available to others at the
same terms.
At December 31, 1996 and 1995, brokered deposits totaled approximately
$7,674,000 and $7,090,000, respectively. At December 31, 1996, time
deposits totaling $300,000 have scheduled maturities greater than one year
as follows:
1998 $ 200,000
1999 100,000
-------
$ 300,000
=========
7. Leasing Arrangements
The Company leases its main office space under two leases which expire in
2002. The Company also leases space for three branch offices and two
automated teller machines. The leases on the Union Station branch and the
two automated teller machines expire in 1998 and 1999, respectively. The
lease on the Dupont Circle East branch expires in 2016. The M Street branch
is leased on a month to month basis. All leases are classified as operating
leases. In January 1997, the Bank entered into a lease for a branch
location in Chinatown, to expire in 2007.
49
<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, 1996:
Lease
Payments
--------
1997 $ 441,935
1998 438,156
1999 375,888
2000 373,875
2001 373,875
2002 and thereafter 995,337
Rental expense in 1996, 1995 and 1994 was approximately $464,000, $408,000 and
$452,000, respectively.
8. Income Taxes
Income tax expense attributable to income from continuing operations for
1996, 1995 and 1994 consists of:
1996 1995 1994
---- ---- ----
Current:
Federal $ 484,762 $ 428,452 $(167,026)
District of Columbia 131,883 139,687 (87,020)
------- ------- -------
616,645 568,139 (254,046)
------- ------- --------
Deferred:
Federal 6,290 (160,540) 167,026
District of Columbia 24,884 (139,687) 87,020
------ -------- ------
31,174 (300,227) 254,046
------ -------- -------
Total:
Federal 491,052 267,912 --
District of Columbia 156,767 -- --
------- ------- ----
$ 647,819 $ 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>
1996 1995 1994
---- ---- ----
Amount % Amount % Amount %
------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C>
Tax expense at statutory rate $ 603,542 34.0% $ 417,116 34.0% $(62,605) (34.0)%
Increase (decrease) in taxes
resulting from District of
Columbia franchise tax, net
of Federal tax effect 103,466 5.8 124,952 10.2 (31,583) (17.2)
Other (59,189) (3.3) 37,235 3.0 2,550 1.4
Change in valuation allowance -- -- (311,391) (25.4) 91,638 49.8
------ ----- ------ ---- ------ -----
$ 647,819 36.5% $ 267,912 21.8% $ -- 0.0%
========= ==== ========= ==== ======== ===
</TABLE>
50
<PAGE>
The significant components of deferred income tax expense attributable to income
from continuing operations for the year ended December 31, 1996, 1995 and 1994
are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Deferred tax benefit (exclusive of the
effects of other components listed below) $ 31,174 $ 11,164 $ 162,409
Increase (decrease) in the valuation allowance
for deferred tax assets -- (311,391) 91,637
------ ------ ------
$ 31,174 $ (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, 1996 and 1995:
1996 1995
---- ----
Deferred tax assets:
Allowance for loan losses $ 186,959 $197,595
Interest income on nonaccrual loans 24,507 51,401
Deferred loan fees 87,070 76,344
Furniture and equipment 88,309 101,962
Unrealized losses on securities 23,275 26,778
Compensated absences 18,699 8,184
------ -----
Total gross deferred tax assets 428,819 462,264
Deferred tax liabilities:
Prepaid expenses (9,649) (19,513)
Other (14,622) --
------- ------
Total gross deferred tax liabilities (24,271) (19,513)
------- -------
Net deferred tax assets $ 404,548 $ 442,751
========= =========
Deferred income tax assets at December 31, 1996 and 1995 were $404,548 and
$442,751, respectively, and are included in other assets in the accompanying
financial statements. Also included in other assets at December 31, 1996 and
1995, were current tax receivables of $18,000 and $54,000, respectively.
Included in other liabilities at December 31, 1996 and 1995, were current tax
payables of $46,000 and $61,000, respectively.
9. Long-Term Borrowings/Debt
On October 1, 1996, the Bank entered into an agreement to borrow funds from
the Federal Home Loan Bank of Atlanta ("FHLB"). The principal balance of
this note shall be repaid in 146 monthly installments commencing on
November 1, 1996 through the note's maturity on December 1, 2008. The rate
of interest payable on the principal balance of this note is fixed at
6.95%. The outstanding balance of loans pledged at December 31, 1996 to
collateralize this debt is disclosed in Note 10 below. Annual principal
maturities as of December 31, 1996 are as follows:
1997 $ 57,516
1998 58,588
1999 64,402
2000 70,794
2001 77,821
2002 and thereafter 809,694
-------
$1,138,815
==========
On May 21, 1996, the Bank repaid its long-term capital note with Minbanc
Capital Corp. At December 31, 1995, the balance due on the note, which
carried an interest rate on that date of 6.00%, was $186,250 due to be
repaid in ten quarterly installments of $18,625 each. Prior to the
repayment, the note agreement restricted the total cash dividends which
could be paid by the Bank in any twelve month period to 25% of net
operating income.
51
<PAGE>
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,
1996 and 1995 of $1,916,689 and $1,785,402, 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, 1996 and 1995 was
approximately $2,296,000 and $2,060,000, respectively. The market value of
these same securities at December 31, 1996 and 1995 was $2,295,000 and
$2,094,000, 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, 1996 and 1995, such related party
repurchase agreements totaled approximately $757,000 and $500,000,
respectively. 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 consist of borrowings from the 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 short-term FHLB borrowings are
outstanding at December 31, 1996 and 1995, the outstanding balances of
loans pledged at December 31, 1996 and 1995 to collateralize long-term
borrowings as well as future short-term borrowings from the FHLB was
$2,557,000 and $3,194,000, respectively. The collateral value of the loans
pledged at December 31, 1996 and 1995 was $1,860,000 and $2,127,000,
respectively.
Short-term borrowings for 1996 and 1995 are summarized below:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Federal funds purchased
Balance at end of year $ -- $ --
Daily average balance outstanding during year -- 89,114
Maximum balance outstanding as of any month-end during year -- 850,000
Daily average interest rate during year -- 5.34%
Securities sold under repurchase agreements
Balance at end of year $ 1,916,689 $ 1,785,402
Daily average balance outstanding during year 2,147,737 1,510,954
Maximum balance outstanding as of any month-end during year 3,042,801 3,217,340
Daily average interest rate during year 4.87% 5.57%
Average interest rate on balance at end of year 5.95% 4.92%
Other short-term borrowings
Balance at end of year $ -- $ --
Daily average balance outstanding during year -- 103,493
Maximum balance outstanding as of any month-end during year -- 1,200,000
Daily average interest rate during year -- 6.15%
</TABLE>
52
<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, 1996 and 1995, the Company had outstanding letters of credit
aggregating approximately $1,806,000 and $706,000, commitments to originate
variable rate loans aggregating approximately $18,026,000 and $13,867,000,
and commitments to originate fixed rate loans aggregating approximately
$2,464,000 and $1,410,000, 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 47% and 100% at December 31, 1996 and 1995, respectively.
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 totaling up to $389,000 to her under certain conditions, in
the event her employment is terminated. In addition, upon termination,
certain unvested stock options granted to the President and Chief Executive
Officer shall become immediately vested. Such unvested options are
estimated to have an aggregate value of approximately $304,000 at December
31, 1996.
Under the terms of severance agreements with seven key management officials
of the Bank, at December 31, 1996 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.
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 the 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. At
December 31, 1996, approximately $1,774,000 of retained earnings of the
Bank was available for dividend declarations without prior regulatory
approval. 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. At December
31, 1996, approximately $660,000 of retained earnings of the Company was
available for dividend declaration without prior regulatory approval.
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. At December 31, 1996, the
Company and the Bank were in compliance with regulatory requirements.
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.
53
<PAGE>
Condensed Balance Sheets
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
<S> <C> <C>
Assets
Due from banks and interest-bearing balances with subsidiary bank $ 3,794,594 $ 248,797
Investment in subsidiary bank 7,195,748 6,364,594
Loans 2,195,030 --
Less: Allowance for loan losses (25,000) --
------- -------
Loans, net 2,170,030 --
Dividend receivable from subsidiary bank -- 71,211
Other assets 151,023 8,459
------- -----
Total assets $ 13,311,395 $ 6,693,061
============ ============
Liabilities and Stockholders' Equity
Liabilities:
Other liabilities $ 171,198 $ 74,195
Stockholders' equity:
Common stock, par value $0.01 per share, authorized 5,000,000 shares; issued
1,654,712 shares in 1996 and 859,212 in 1995;
outstanding 1,650,032 shares in 1996 and 854,532 shares in 1995 16,547 8,592
Additional paid-in capital 12,172,435 6,147,421
Retained earnings 1,157,716 491,563
--------- -------
13,346,698 6,647,576
Less: Employee Stock Ownership Plan shares, 20,319 shares at cost (177,791) --
Less: Treasury Stock, 4,680 shares at cost (28,710) (28,710)
----- ------- -------
Total stockholders' equity 13,140,197 6,618,866
---------- ---------
Total liabilities and stockholders' equity $ 13,311,395 $ 6,693,061
============ ===========
</TABLE>
Condensed Statements of Operations
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income
Dividends from subsidiary bank $ 307,425 $ 213,633 $ --
Interest earned on balances with subsidiary bank 115,427 4,906 5,881
Interest on loans 27,218 -- --
Interest on securities available for sale -- -- 7,518
Management fees earned from subsidiary bank -- 444 31,880
---- ----- ------
Total income 450,070 218,983 45,279
Expenses
Salaries and benefits 6,500 -- --
Professional fees 44,009 125,569 433,641
Provision for loan losses 25,000 -- --
Other 176,863 75,046 157,315
------- ------ -------
Total expenses 252,372 200,615 590,956
------- ------- -------
Income (loss) before taxes and equity
in undistributed net income of subsidiary 197,698 18,368 (545,677)
Applicable income tax benefit 104,730 300,993 --
------- ------- ------
Income (loss) before equity
in undistributed net income of subsidiary 302,428 319,361 (545,677)
Equity in undistributed net income of subsidiary 824,877 639,537 361,545
------- ------- -------
Net income (loss) $1,127,305 $ 958,898 $ (184,132)
========== ======== ==========
</TABLE>
54
<PAGE>
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating Activities
Net income (loss) $ 1,127,305 $ 958,898 $ (184,132)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Equity in undistributed net income of subsidiary (824,877) (639,537) (361,545)
Provision for loan losses 25,000 -- --
Dividends declared from subsidiary bank not received -- (71,211) --
Other, net (10,643) (97,910) 94,102
------- ------- ------
Net cash provided (used) by operating activities 316,785 150,240 (451,575)
Investing Activities
Proceeds from maturity of securities available for sale -- -- 450,000
Net increase in lines of credit (1,010,546) -- --
Loans originated (1,242,500) -- --
Principal collected on loans 58,016 -- --
------ ------ ------
Net cash provided (used) by investing activities (2,195,030) -- 450,000
Financing Activities
Proceeds from issuance of common stock, net 6,018,928 -- --
Loan to Employee Stock Ownership Plan (218,750) -- --
Cash dividends paid to stockholders (376,136) (71,211) --
-------- ------- ------
Net cash used by financing activities 5,424,042 (71,211) --
--------- ------- ------
Increase (decrease) in cash and cash equivalents 3,545,797 79,029 (1,575)
Cash and cash equivalents at beginning of year 248,797 169,768 171,343
------- ------- -------
Cash and cash equivalents at end of year $ 3,794,594 $ 248,797 $ 169,768
=========== ========= ===========
</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, 1996 and 1995, both the Company and the Bank were considered
"well-capitalized." The table below present the capital position of the
Company and
55
<PAGE>
the Bank relative to their various minimum statutory and regulatory capital
requirements at December 31, 1996. The Company and the Bank are considered
"well-capitalized" under regulatory guidelines.
<TABLE>
<CAPTION>
Minimum
Company Bank Capital
Amount Ratio Amount Ratio Requirements
------ ----- ------ ----- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Leverage ratio 1 $ 13,174 13.81% $ 7,230 7.61% 4.00%
Tier 1 risk-based ratio 2 13,174 16.22 7,230 9.19 4.00
Total risk-based ratio 2 14,190 17.47 8,213 10.44 8.00
</TABLE>
1 Based on annual average assets
2 Based on risk-adjusted assets
15. 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"), which were
approved by the shareholders on October 15, 1996. 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 in 1996 at a price of $6.74 for directors and $7.93 for
employees. As of December 31, 1996, no options have been exercised under
these plans.
On November 19, 1996, the Company adopted a nonqualified Directors Stock
Option Plan (the "1996 Directors Plan") and a qualified Employee Incentive
Stock Option Plan covering key employees (the "1996 Employee Plan"). Shares
subject to options under these plans may be authorized but unissued shares
or treasury shares. Options under the 1996 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. Options under the 1996 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. The options granted under both the 1996
Directors Plan and the 1996 Employee Plan vest beginning in 1997 at an
annual rate of 33.3% at the end of each year and become fully vested in the
event of a Change in Control, as defined in the 1996 Directors Plan and the
1996 Employee Plan. Options under both plans expire not later than ten
years after the date of grant. Options for a total of 22,113 shares of
common stock are available for grant under the above Plans. Options
totaling 20,608 were granted in 1996 at a price of $9.13 for directors and
$10.74 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.
The Company accounts for its stock option plans under APB Opinion No. 25.
In accordance with APB Opinion No. 25, no compensation expense has been
recorded for the Employee Plan and the 1996 Employee Plan and compensation
expense of $19,000 in 1996 has been recorded for the Directors Plan, the
1996 Directors Plan and the options granted to the President
56
<PAGE>
and Chief Executive Officer which is 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 options'
vesting periods.
Had compensation cost for these plans been determined consistent with SFAS
No. 123 the Company's net income and earnings per share for 1996 would have
been $1,105,000 and $.92, respectively.
A summary of the status of the Company's four stock option plans and the
one out-of-plan stock option grant at December 31, 1996 and changes during
the year then ended is presented in the table and narrative below:
<TABLE>
<CAPTION>
Directors Plans and
CEO Grants Employee Plans
---------- --------------
Wtd Avg Wtd Avg
Shares Ex Price Shares Ex Price
------ -------- ------ --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 0 $ -- 0 $ --
Granted 89,349 6.95 22,675 9.50
Exercised -- -- -- --
Forfeited/Expired -- -- -- --
Outstanding at end of year 89,349 6.95 22,675 9.50
Exercisable at end of year 16,286 6.74 9,987 7.93
Weighted average fair value of options granted $ .43 $ 2.19
</TABLE>
At December 31, 1996, options granted under the Directors Plan and the 1996
Directors Plan and under the Non-Qualified Stock Option Agreement between
the Company and the President and Chief Executive Officer have exercise
prices between $6.74 and $9.13, with a weighted average exercise price of
$6.95 and a weighted average remaining contractual life of 9.1 years. Of
these options 16,286 are exercisable. At December 31, 1996, options granted
under the Employee Plan and the 1996 Employee Plan have exercise prices
between $7.93 and $10.74, with a weighted average exercise price of $9.50
and a weighted average remaining contractual life of 9.5 years. Of these
options, 9,987 are exercisable.
The fair value of each option grant is estimated on the date of grant using
a Black-Scholes-based option pricing model (Noreen Wolfson) with the
following weighted average assumptions used for grants in 1996: risk-free
interest rate of 5.81%; expected dividend yields of 5.04%; expected lives
of 10 years; and expected volatility of 50%.
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, which covered all full-time employees 21 years of age or older
who have completed one year of service. 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. The initial
employer's discretionary contribution was immediately vested. All future
employer's discretionary contributions are vested as follows: 33 and 1/3%
for one year of service; 66 and 2/3% for two years of service; 100% for
three years of service, however, an employee's vested percentage will not
be less than their vested percentage under the former 401(k) Plan.
The Company made matching contributions to the Plan of $23,000, $34,000 and
$40,000 in 1996, 1995 and 1994, respectively. These amounts are included in
salaries and employee benefits in the accompanying consolidated statements
of operations. In 1996, the Company made an additional discretionary
contribution of 4,681 shares of Company stock, at a fair market value of
$55,000 on December 31, 1996, from the 25,000 shares purchased by the ESOP
to all eligible employees. This amount is included in salaries and benefits
for 1996 in the accompanying consolidated statements of operations. As of
December 31, 1996, these 4,681 shares are committed to be released and the
remaining 20,319 shares are unearned ESOP shares held in suspense.
Dividends paid on allocated shares may be paid to participants or used to
repay the ESOP loan. Dividends on unallocated shares are expected to be
used to repay the ESOP loan. The participating employee has certain put
rights in the event that the common stock distributed cannot be readily
sold. Only shares which are allocated or committed to
57
<PAGE>
be released are considered for purposes of computing earnings per share.
The fair value of the unearned ESOP shares at December 31, 1996 is
$239,000.
16. Other Operating Expense
Other operating expense for 1996, 1995 and 1994 is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Courier service and bank security $ 169,207 $ 149,689 $ 148,884
Stationery and office supplies 97,602 75,585 103,017
Advertising 85,572 14,616 27,483
FDIC insurance premiums 2,363 84,607 171,582
Employment litigation expense -- -- 387,000
Other 554,354 456,503 548,478
------- ------- -------
Total other operating expense $ 909,098 $ 781,000 $ 1,386,444
========= ========= ===========
</TABLE>
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 $5,000, $15,000 and $32,000 during 1996, 1995 and 1994,
respectively, to such related parties in connection with public relations
activities. The Company expensed $9,000 and $17,000 to such related parties
for legal services during 1996 and 1995, respectively.
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 $20.11.
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.
18. Fair Value of Financial Instruments
During 1995, the Company adopted 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
58
<PAGE>
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.
The following are the estimated fair values of the Company's financial
instruments at December 31, 1996 and 1995 followed by a general description
of the methods and assumptions used to estimate such fair values.
<TABLE>
<CAPTION>
1996 1995
---- ----
Carrying Estimated Carrying Estimated
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Financial assets
Cash and due from banks $ 9,785,132 $ 9,785,132 $ 4,953,200 $ 4,953,200
Short-term investments 5,579,000 5,579,000 9,961,715 9,961,715
Securities available for sale 11,205,282 11,205,282 5,508,406 5,508,406
Investment securities 11,640,813 11,679,607 8,192,647 8,309,265
Loans 73,013,413 63,592,395
Less: Allowance for loan losses (1,048,487) (1,273,965)
---------- ----------
Net loans 71,964,926 72,097,490 62,318,430 62,145,121
Financial liabilities
Noninterest-bearing deposits 23,678,374 23,678,374 23,443,937 23,443,937
Interest -bearing deposits
with no stated maturity 38,952,758 38,952,758 30,052,322 30,052,322
Time deposits 32,523,608 32,463,709 29,566,936 29,101,285
Short-term borrowings 1,916,689 1,916,689 1,785,402 1,785,402
Long-term borrowings/debt 1,138,815 1,137,349 186,250 186,250
</TABLE>
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
59
<PAGE>
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 borrowings/debt. The fair values of long-term
borrowings/debt 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. At December 31,
1996 and 1995, the Company had commitments to extend credit of
$20,490,000 and $15,277,000 and letters of credit of $1,806,000 and
$706,000, respectively. 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. At December 31, 1996 and 1995, approximately
84% and 85%, respectively, of the Company's commitments to lend expire
within one year or are otherwise cancelable. 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.
60
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
A change in accountants was previously reported in the Company's definitive
proxy statement filed on September 5, 1996, pursuant to Item 304(a) of
Regulation S-B. No disclosure is required under paragraph (b) of Item 304.
61
<PAGE>
PART III
--------
The information called for by Items 9, 10, 11 and 12 is incorporated herein
by reference to the Registrant's definitive Proxy Statement for the 1997 Annual
Meeting of Stockholders to be filed within 120 days after the end of the fiscal
year covered by the Form 10-KSB.
Item 9. Directors and Executive Officers of the Registrant.
Item 10. Executive Compensation.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
Item 12. Certain Relationships and Related Transactions.
Item 13. Exhibits, Financial Statement Schedules and Reports of Form 8-K.
(a) Exhibits
Exhibit
Number Description of Exhibit
- ------ ----------------------
3.1 Certificate of Incorporation of the Company, as amended (1)
3.1.1 Amendment to the Certificate of Incorporation of the Company (2)
3.2 By-laws of the Company, as amended (3)
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) (4)
4.1.2 First Amendment dated April 20, 1995 between the Company and The
First National Bank of Maryland, as Rights Agent (5)
10.1 Non-qualified Stock Option Plan, as amended (6)
10.2 Employee Incentive Stock Option Plan and Agreement (7)
10.3 Directors Stock Option Plan and Agreement (8)
10.4 Non-Qualified Stock Option Agreement (9)
62
<PAGE>
10.5 1996 Employee Incentive Stock Option Plan and Agreement
10.6 1996 Directors Stock Option Plan and Agreement
10.7 Amendment to The Adams National Bank Employee Stock Ownership Plan
with 401(k) Provisions, as amended and restated effective
January 1, 1996
10.8 Employment Agreement dated February 20, 1996 between the Company, the
Bank and Barbara Davis Blum, as amended on March 29, 1996 (10)
10.9 Lease Agreement dated November 1, 1992 between Chase Manhattan Bank,
N.A. as Trustee for Account Number p99904 and The Adams National Bank
(11)
10.10 Lease Agreement dated November 1, 1992 between Chase Manhattan Bank,
N.A. as Trustee for Account Number p99904 and The Adams National Bank
(12)
10.11 Lease Agreement dated April 21, 1988 between Union Station Joint
Venture, Ltd. and The Adams National Bank (13)
10.12 Lease Agreement dated April 21, 1989, as amended on August 1, 1989
between Union Station Joint Venture, Ltd. and The Adams National Bank
(14)
10.13 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 (15)
10.14 Lease Agreement dated December 20, 1993 between Union Station Joint
Venture, Ltd., and The Adams National Bank (16)
10.15 Sublease Agreement dated September 1, 1981, as amended September 1,
1984, between 2909 M Associates and The Adams National Bank (17)
10.16 Lease Agreement dated March 6, 1996 between 1604 17th Street Limited
Partners and The Adams National Bank. (18)
10.17 Lease Agreement dated January 8, 1997 between Riverdale
International, Inc. and The Adams National Bank.
10.18 Agreement for Information Technology Services between Electronic Data
Systems Corporation and The Adams National Bank (19)
10.19 Special Program Financial Services Agreement dated December 30, 1993
between IBAA Bancard, Inc. and The Adams National Bank (20)
63
<PAGE>
10.20 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 (21)
10.21 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 (22)
10.22 Severance Agreement between the Bank and Alexander Beltran dated as of
April 7, 1994 (23)
10.23 Severance Agreement between the Bank and Devin Blum dated as of April
7, 1994 (24)
10.24 Severance Agreement between the Bank and Thomas O. Griel dated as of
April 7, 1994 (25)
10.25 Severance Agreement between the Bank Joyce R. Hertz dated as of April
7, 1994 (26)
10.26 Severance Agreement between the Bank and Kimberly J. Levine dated as
of April 7, 1994 (27)
10.27 Severance Agreement between the Bank and Melrose Nathan dated as of
April 7, 1994 (28)
10.28 Severance Agreement between the Bank and Bijan Partovi dated as of
April 7, 1994 (29)
10.29 Agreement, dated April 20, 1995 between the Company and Marshall T.
Reynolds (30)
10.30 Employment Agreement between the Bank and Kate Walsh Carr dated as of
January 21, 1997.
21 Subsidiaries of the Registrant (31)
23 Consent of KPMG Peat Marwick
27 Financial Data Schedule for Bank Holding Companies
- ------------------------------
(1) Incorporated by reference to Exhibit 3 of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1987.
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<PAGE>
(2) Incorporated by reference to Exhibit 3.2 of Amendment No. 2 to Form
SB-2 filed July 9, 1996.
(3) Incorporated by reference to Exhibit 3 of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1987.
(4) Incorporated by reference to Exhibits 1-3 of the Company's
Registration Statement on Form 8-A dated April 12, 1994.
(5) Incorporated by reference to Exhibit 4 to the Company's Registration
Statement on Form 8-A/A dated April 21, 1995.
(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 10.2.2 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.
(8) Incorporated by reference to Exhibit 10.2.3 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.
(9) Incorporated by reference to Exhibit 10.2.4 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.
(10) Incorporated by reference to Exhibit 10.3 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.
(11) 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.
(12) 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.
(13) Incorporated by reference to Exhibit 10(f) of the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1988.
(14) 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.
(15) 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.
(16) 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.
65
<PAGE>
(17) 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.
(18) Incorporated by reference to Exhibit 10.10 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.
(19) 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.
(20) 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.
(21) Incorporated by reference to Exhibit 10 of the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1992.
(22) Incorporated by reference to Exhibit 10 of the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1993.
(23) 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).
(24) 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).
(25) 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).
(26) 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).
(27) 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).
(28) 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).
(29) 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).
(30) Incorporated by reference to Exhibit 5 of the Company's Registration
Statement on Form 8-A/A, dated April 21, 1995.
(31) 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, 1996.
66
<PAGE>
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 26, 1997 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 26, 1997
Barbara Davis Blum and Chief Executive Officer
(Principal Executive Officer)
/s/ Shireen L. Dodson Director March 26, 1997
Shireen Dodson
/s/ Susan Hager Director March 26, 1997
Susan Hager
/S/ Jeanne Hubbard Director March 26, 1997
Jeanne Hubbard
/s/ Clarence L. James, Jr. Director March 25, 1997
Clarence L. James, Jr.
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<PAGE>
Director March __, 1997
Marshall T. Reynolds
Director March 25, 1997
Robert L. Shell, Jr.
/s/ Dana Stebbins Director March __, 1997
Dana Stebbins
/s/ Susan J. Williams Director March 27, 1997
Susan J. Williams
/s/ Kimberly J. Levine Senior Vice President, March 26, 1997
Kimberly J. Levine Treasurer and Chief Financial
Officer (Principal Financial
and Accounting Officer)
68
<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)
3.1.1 Amendment to the Certificate of Incorporation of the Company (2)
3.2 By-laws of the Company, as amended (3)
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) (4)
4.1.2 First Amendment dated April 20, 1995 between the Company and The First
National Bank of Maryland, as Rights Agent (5)
10.1 Non-qualified Stock Option Plan, as amended (6)
10.2 Employee Incentive Stock Option Plan and Agreement (7)
10.3 Directors Stock Option Plan and Agreement (8)
10.4 Non-Qualified Stock Option Agreement (9)
10.5 1996 Employee Incentive Stock Option Plan and Agreement
10.6 1996 Directors Stock Option Plan and Agreement
10.7 Amendment to The Adams National Bank Employee Stock Ownership Plan
with 401(k) Provisions, as amended and restated effective
January 1, 1996
10.8 Employment Agreement dated February 20, 1996 between the Company, the
Bank and Barbara Davis Blum, as amended on March 29, 1996 (10)
10.9 Lease Agreement dated November 1, 1992 between Chase Manhattan Bank,
N.A. as Trustee for Account Number p99904 and The Adams National Bank
(11)
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10.10 Lease Agreement dated November 1, 1992 between Chase Manhattan Bank,
N.A. as Trustee for Account Number p99904 and The Adams National Bank
(12)
10.11 Lease Agreement dated April 21, 1988 between Union Station Joint
Venture, Ltd. and The Adams National Bank (13)
10.12 Lease Agreement dated April 21, 1989, as amended on August 1, 1989
between Union Station Joint Venture, Ltd. and The Adams National Bank
(14)
10.13 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 (15)
10.14 Lease Agreement dated December 20, 1993 between Union Station Joint
Venture, Ltd., and The Adams National Bank (16)
10.15 Sublease Agreement dated September 1, 1981, as amended September 1,
1984, between 2909 M Associates and The Adams National Bank (17)
10.16 Lease Agreement dated March 6, 1996 between 1604 17th Street Limited
Partners and The Adams National Bank. (18)
10.17 Lease Agreement dated January 8, 1997 between Riverdale International,
Inc. and The Adams National Bank.
10.18 Agreement for Information Technology Services between Electronic Data
Systems Corporation and The Adams National Bank (19)
10.19 Special Program Financial Services Agreement dated December 30, 1993
between IBAA Bancard, Inc. and The Adams National Bank (20)
10.20 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 (21)
10.21 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 (22)
10.22 Severance Agreement between the Bank and Alexander Beltran dated as of
April 7, 1994 (23)
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10.23 Severance Agreement between the Bank and Devin Blum dated as of April
7, 1994 (24)
10.24 Severance Agreement between the Bank and Thomas O. Griel dated as of
April 7, 1994 (25)
10.25 Severance Agreement between the Bank Joyce R. Hertz dated as of April
7, 1994 (26)
10.26 Severance Agreement between the Bank and Kimberly J. Levine dated as
of April 7, 1994 (27)
10.27 Severance Agreement between the Bank and Melrose Nathan dated as of
April 7, 1994 (28)
10.28 Severance Agreement between the Bank and Bijan Partovi dated as of
April 7, 1994 (29)
10.29 Agreement, dated April 20, 1995 between the Company and Marshall T.
Reynolds (30)
10.30 Employment Agreement between the Bank and Kate Walsh Carr dated as of
January 21, 1997.
21 Subsidiaries of the Registrant (31)
23 Consent of KPMG Peat Marwick
27 Financial Data Schedule for Bank Holding Companies
- ------------------------------
(1) Incorporated by reference to Exhibit 3.1.1 of Amendment No. 2 to Form
SB-2 filed July 9, 1996.
(2) Incorporated by reference to Exhibit 3.2 of Amendment No. 2 to Form
SB-2 filed July 9, 1996.
(3) Incorporated by reference to Exhibit 3.1.1 of Amendment No. 2 to Form
SB-2 filed July 9, 1996.
(4) Incorporated by reference to Exhibits 1-3 of the Company's
Registration Statement on Form 8-A dated April 12, 1994.
(5) Incorporated by reference to Exhibit 4 to the Company's Registration
Statement on Form 8-A/A dated April 21, 1995.
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(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 10.2.2 of the Company's Annual
Report on Form 10- K for the fiscal year ended December 31, 1995.
(8) Incorporated by reference to Exhibit 10.2.3 of the Company's Annual
Report on Form 10- K for the fiscal year ended December 31, 1995.
(9) Incorporated by reference to Exhibit 10.2.4 of the Company's Annual
Report on Form 10- K for the fiscal year ended December 31, 1995.
(10) Incorporated by reference to Exhibit 10.3 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.
(11) 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.
(12) 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.
(13) Incorporated by reference to Exhibit 10(f) of the Company's Quarterly
Report on Form 10- Q for the quarter ended September 30, 1988.
(14) 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.
(15) 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.
(16) 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.
(17) 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.
(18) Incorporated by reference to Exhibit 10.10 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.
(19) 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.
(20) 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.
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(21) Incorporated by reference to Exhibit 10 of the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1992.
(22) Incorporated by reference to Exhibit 10 of the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1993.
(23) 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).
(24) 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).
(25) 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).
(26) 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).
(27) 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).
(28) 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).
(29) 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).
(30) Incorporated by reference to Exhibit 5 of the Company's Registration
Statement on Form 8-A/A, dated April 21, 1995.
(31) Incorporated by reference to Exhibit 22 of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1987.
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EXHIBIT 10.5
1996 Employee Incentive Stock Option Plan and Agreement
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC.
1996 EMPLOYEE INCENTIVE STOCK OPTION PLAN
1. Purpose and Administration
(a) Purpose. The purpose of the 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,
$.01 par value (the "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.
(b) Administration. The Plan shall be administered, construed and
interpreted by the Company's Board of Directors, which, to the extent the Board
shall determine, may delegate its powers with respect to the administration of
the Plan (except its powers under Section 10(c)) to a committee of two or more
non-employee directors whose members shall be designated from time to time by
resolution of the Board of Directors. The decision of a majority of the members
of the administrative body shall be sufficient with respect to an action to be
taken or interpretation to be made under the Plan. If administration is
delegated to a committee, all references herein to the Board shall be deemed to
refer to the committee.
(c) 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.
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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.
(d) 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.
(e) 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.
(f) 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.
2. Awards Under the Plan
(a) Form. Awards under the Plan may be granted in either or both the
following forms: (i) incentive stock options ("Incentive Stock Options"), as
described in Section 3, and (ii) Stock Appreciation Rights, as described in
Section 4.
(b) Maximum Limitation. The aggregate number of shares of Common Stock
available for grant under the Plan is 14,193 shares, subject to adjustment
pursuant to Section 6. Shares of Common Stock issued pursuant to the Plan may be
either authorized but unissued shares or shares now or
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<PAGE>
hereafter held in the treasury of the Company. In the event that any Incentive
Stock Option granted 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 5(b)(ii)), without 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.
3. 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
Internal Revenue Code of 1986, as amended (the "Code"). Incentive Stock Options
may be granted in such form and subject to such terms and conditions as the
Board shall from time to time determine, subject to the following:
(a) Exercise Price. The per share exercise price of each Incentive Stock
Option shall be fixed by the Board in the Option Agreement (hereinafter defined)
but 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. Each Incentive Stock Option shall become exercisable
at the time, and for the number of shares of Common Stock, fixed by the Option
Agreement. Each Incentive 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 (10) years from the date such
Incentive Stock Option is granted. With respect to an Incentive Stock Option
granted to an employee who is subject to Section 16 under the Securities
Exchange Act of 1934, as amended, a period of six months must elapse between the
date of grant of an Incentive Stock Option hereunder and the date
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<PAGE>
of disposition of the shares of Common Stock purchased upon the exercise of the
Incentive Stock Option.
(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 Plan or any other plan of the Company) shall not exceed
$100,000.
(d) Ten Percent Shareholder. Notwithstanding any other provisions herein
contained, no key employee may receive an Incentive Stock Option under the Plan
if such key employee, at the time the award is granted owns (as defined in
Section 424(d) of 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.
(e) 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.
(f) Manner of Exercise and Payment for Common Stock. Any Stock Option
granted under the Plan may be exercised by the grantee, by a legatee or legatees
of such Stock Option under the grantee's last will or by his or her executors,
personal representatives or distributees, (a) 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 (b) by delivering such notice
to a broker-dealer with a copy to the Secretary of the Company. Except as
otherwise provided in the
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<PAGE>
Plan or in any Option Agreement, the purchase price of Common Stock upon
exercise of any Stock Option shall be paid in full (i) in cash or certified
check, (ii) if the grantee may do so in conformity with Regulation T and without
violation of Section 16(b) or (c) under the Securities Exchange Act of 1934, as
amended, pursuant to a broker-dealer's cashless exercise procedure, by a
broker-dealer to whom the grantee has submitted a properly executed exercise
notice consisting of a fully endorsed Stock Option and irrevocable instructions
to deliver to the Company the total exercise price in cash, (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 (vi) by any combination of (i), (ii), (iii), (iv) and
(v). In the case of payments pursuant to (ii), (iii), (iv) or (v) above, the
grantee's election must be made on or prior to the date of exercise of the Stock
Option and must be irrevocable. The Company shall issue, in the name of the
grantee, 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.
(g) 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 4) included in such Incentive Stock Option, 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.
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4. Stock Appreciation Rights
(a) Award. If deemed by the Board to be in the best interests 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.
(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) 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) 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.
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<PAGE>
(c) Cash Settlement Restriction. (i) Notwithstanding Section 4(b), so long
as the grantee of the 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 the
date of grant of the Stock Appreciation Right and either: (a) the automatic
exercise provisions in paragraph (ii) below have been triggered, or (b) during
the period beginning on the third business day 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 the Company shall cancel all unexercised
Incentive Stock Options as of the effective date of a merger or other
transaction (as described in Section 7), 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 determinations on the last
business day immediately prior to such effective date.
5. 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 9(c) by his or her estate or other person who
acquires the right to exercise such Incentive Stock Option or Stock Appreciation
Right upon his or her death by bequest or inheritance.
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<PAGE>
6. 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 reorganization, recapitalization, stock split, 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. The Board shall make adjustments under this
Section 6 in its sole discretion, and its decisions shall be binding and
conclusive.
7. Dissolution, Merger and Consolidation, Change of Control
In the event of a dissolution or liquidation of the Company or any merger
or combination in which the Company is not a surviving corporation, each
outstanding Option granted hereunder shall terminate, but the Optionee shall
have the right, immediately prior to such liquidation, dissolution, merger or
combination, to exercise his Option, in whole or in part, to the extent that
such Option is then otherwise exercisable and has not previously been exercised.
In the event that: (i) any person (as such term is used in Section 13 of
the Securities and Exchange Act of 1934, as amended, 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 becomes entitled to
vote more than eighty percent (80%) of the voting power entitled to be cast at
an 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
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<PAGE>
the Company and its subsidiary 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, then 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 Stock 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.
8. Shareholder Approval, Effective Date and Conditions Subsequent to Effective
Date
The Plan shall become effective on the date of the approval of the Plan by
the Board of Directors of the Company; provided, however, that the adoption of
the Plan is subject to shareholder approval within twelve (12) months 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 under the Plan shall
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 thereof; 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 described
herein until they have been
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<PAGE>
satisfied or terminated in accordance with the terms of the respective grants or
awards and the related agreements.
9. Termination of Employment
(a) Each Incentive Stock Option and Stock Appreciation Right shall, unless
sooner terminated as described in Section 9(b) or (c) below, expire on the first
to occur of the tenth anniversary of the date of grant thereof or the expiration
date set forth in the applicable option agreement.
(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 dates
set forth in paragraph (a) of this Section 9 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
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to occur of the date set forth in paragraph (a) of this Section 9 and the first
anniversary of such termination of employment.
10. 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, as
amended, if deemed necessary or appropriate by the Company. Certificates for
shares of Common Stock issued under the Plan 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.
(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 thereunder 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 described in Section 6 hereof): (i) materially increase the total number
of shares of Common Stock available for grant under the Plan; (ii) materially
modify the class of eligible employees under the Plan; or (iii) 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.
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(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. Whenever the Company proposes or is required to
issue or transfer shares of Common Stock to an optionee under the Plan, 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 such
shares. If such certificates have been delivered prior to the time a withholding
obligation arises, the Company shall have the right to require the optionee to
remit to the Company an amount sufficient to satisfy all federal, state or local
withholding tax requirements at the time such obligation arises and to withhold
from other amounts payable to the optionee, as compensation or otherwise, as
necessary. In lieu of requiring an optionee to make a payment to the Company in
an amount related to the withholding tax requirement, the Company may, in its
discretion, provide that at the optionee's election, the tax withholding
obligation shall be satisfied by the Company's withholding a portion of the
shares otherwise distributable to the optionee, such shares being valued at
their fair market value at the date of exercise, or by the optionee'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 of the date of delivery of
such shares by the optionee to the Company.
An election pursuant to the preceding sentence must be made in writing
either (i) during the period beginning on the third business day following the
date of release of a quarterly or annual summary of earnings and ending on the
12th business day following such day, or (ii) at least six months prior to the
date the income is realized.
(f) Right to Terminate Employment. Nothing in the Plan or any agreement
entered into pursuant to the Plan confers 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.
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(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.
(j) Notices. Every direction, revocation or notice authorized or required
by the Plan shall be deemed delivered to the Company: (i) on the date it is
personally delivered to the Secretary of the Company at its principal executive
offices, or (ii) 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
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<PAGE>
to an optionee (x) on the date it is personally delivered to him or her, or (y)
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 Incentive Stock Options and Stock
Appreciation Rights granted under the Plan shall be determined in conformity
with the laws of Delaware, to the extent not inconsistent with Section 422 of
the Code and regulations thereunder.
(l) 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.
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<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC.
1996 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, $0.01 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: $ 10.74
Date of Grant: November 19, 1996
Vesting Schedule: 33 1/3% at the end of each year
beginning on December 31, 1997 and ending on
December 31, 1999. However, in the event of a
Change in Control (as defined in the Employee
Incentive Stock Option Plan), all options granted
shall become immediately vested.
Commencement Date: Vested options may be exercised at any time
prior to the expiration date.
Expiration Date: November 18, 2006
<PAGE>
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 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 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
<PAGE>
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 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: ___________________________
<PAGE>
The undersigned hereby accepts the foregoing Option and the terms and conditions
hereof.
---------------------------
Key Employee
<PAGE>
EXHIBIT 10.6
1996 Directors Stock Option Plan and Agreement
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC.
1996 DIRECTORS STOCK OPTION PLAN
1. Purpose and Administration
(a) Purpose. The purpose of the Directors 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 Company, $.01 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.
(b) Administration. The Plan shall be administered, construed and
interpreted by the Company's Board of Directors. The decision of a majority of
the members of the Board shall be sufficient with respect to an action to be
taken or interpretation to be made under the Plan.
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 Limitation. The aggregate number of shares of Common Stock
available for grant under the Plan is 7,920 shares, subject to adjustment
pursuant to Section (c) below. Stock Options shall be allocated to each director
who holds such position on the date of the grant based upon the total months of
1996 board service performed by such director. 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
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<PAGE>
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 as the Board may determine in accordance with the
Plan.
(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, 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 by the Board of Directors or the applicable committee thereof
in its sole discretion, and its decisions shall be binding and conclusive.
3. Stock Options
Stock Options shall be granted in such form and upon such terms and
conditions, and shall be evidenced by such form of written option agreement
("Option Agreement") between the Director and the Company as the Board shall
determine, as follows:
(a) Exercise. The Stock Options shall be subject to such terms and
conditions, and shall be exercisable at such time or times set forth in the
Option Agreement.
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<PAGE>
(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 Option
Agreement, provided, however, that a period of six months must elapse between
the date of grant of a Stock Option hereunder and the date of the disposition of
the shares of Common Stock purchased upon exercise of the Stock Option. 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 (10) years from the date such Stock Option is granted.
(d) Manner of Exercise and Payment for Common Stock. Any Stock Option
granted under the Plan may be exercised by the grantee, by a legatee or legatees
of such Stock Option under the grantee's last will or by his or her executors,
personal representatives or distributees, (a) 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 (b) by delivering such notice
to a 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 shall be paid in full (i) in cash
or certified check, (ii) if the grantee may do so in conformity with Regulation
T and without violation of Section 16(b) or (c) under the Securities Exchange
Act of 1934, as amended, pursuant to a broker-dealer's cashless exercise
procedure, by a broker-dealer to whom the grantee has submitted a properly
executed exercise notice consisting of a fully endorsed Stock Option and
irrevocable instructions to deliver to the Company the total exercise price in
cash, (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
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<PAGE>
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 (vi) by any
combination of (i), (ii), (iii), (iv) and (v). In the case of payments pursuant
to (ii), (iii), (iv) or (v) above, the grantee's election must be made on or
prior to the date of exercise of the Stock Option and must be irrevocable. The
Company shall issue, in the name of the grantee, 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) Withholding. 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 the Director to remit to the
Company an amount sufficient to satisfy all federal, 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. 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 at 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 of the date of delivery of such shares by
the Director to the Company.
Notwithstanding any provision of the Plan to the contrary, an election
pursuant to the preceding sentence must be made in writing either (A) during the
period beginning on the third
4
<PAGE>
business day following the date of release of a 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
7(b), 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, Merger and Consolidation
In the event of a dissolution or liquidation of the Company or any merger
or combination in which the Company is not a surviving corporation, each
outstanding Option granted hereunder shall terminate, but the Optionee shall
have the right, immediately prior to such liquidation, dissolution, merger or
combination, to exercise his Option, in whole or in part, to the extent that
such Option is then otherwise exercisable and has not previously been exercised.
6. Effective Date And Conditions Subsequent To Effective Date
(a) The Plan shall become effective on the date of the approval of the Plan
by the Board of Directors of the Company, but the Plan shall be null and void
and of no effect if the Plan is not
5
<PAGE>
ratified by the Company's stockholders at the annual meeting subsequent to the
Board's approval of the Plan, and in such event each Stock Option granted under
the Plan shall 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) Unless otherwise provided in the Plan, a Stock Option shall expire on
the first to occur of the expiration date set forth in the applicable Option
Agreement or the termination of the Director's directorship.
(b) If the Director's 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 shall expire on the first to
occur of the expiration date set forth in the applicable Option Agreement or the
second anniversary of such termination of service.
8. Change In Control
In the event that: (i) any person (as such term is used in Section 13 of
the Securities and Exchange Act of 1934, as amended, 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 becomes entitled to
vote more than eighty percent (80%) of the voting power entitled to be cast at
an election for directors ("Voting Power") of the Company; or (ii) there occurs
any merger or consolidation of the
6
<PAGE>
Company, or any sale, lease or exchange of all or any substantial part of the
consolidated assets of the Company and its subsidiary 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, then 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 Stock 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.
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, it may not
(except to the extent provided in Section 2(c) hereof) materially increase the
total number of shares of Common Stock available for grant under the Plan. No
action
7
<PAGE>
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.
(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
8
<PAGE>
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.
(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.
(j) 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, as
amended, if deemed necessary or appropriate by the Company. Certificates for
shares of Common Stock issued under the Plan may be legended as the Board shall
deem appropriate.
9
<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, $0.01 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: $ 9.129
Date of Grant: November 19, 1996
<PAGE>
Vesting Schedule: 33 and 1/3% at the end of each year
beginning on December 31, 1997 and ending on
December 31, 1999. However, in the event of a
Change in Control (as defined in the Directors
Stock Option Plan), 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: November 18, 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.
Written notice of an election to exercise any portion of the Stock Option,
<PAGE>
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.
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: __________________________
<PAGE>
The undersigned hereby accepts the foregoing Stock Option and the terms and
conditions hereof.
_______________________________ Director
<PAGE>
EXHIBIT 10.7
First Amendment
to the Adams National Bank Employee Stock Ownership Plan
with 401(k) Provisions
(as amended and restated effective January 1, 1996)
<PAGE>
FIRST AMENDMENT
TO THE
ADAMS NATIONAL BANK EMPLOYEE STOCK OWNERSHIP PLAN
WITH 401(k) PROVISIONS
(AS AMENDED AND RESTATED EFFECTIVE JANUARY 1, 1996)
Pursuant to the rights reserved in Section 9.1 of the Adams National
Bank Employee Stock Ownership Plan with 401(k) Provisions, heretofore restated
as of January 1, 1996, the Plan and Trust is hereby amended as follows,
effective as of January 1, 1996, as set forth below:
1. Section 7.4(b) is revised to read as follows:
The Vested portion of any Participant's Account shall be a
percentage of the total amount credited to his Participant's
Account determined on the basis of the Participant's number
of Years of Service according to the following schedule:
Vesting Schedule
Years of Service Percentage Less than 1 0% 1 33 1/3% 2 66
2/3% 3 100%
However, the Vested portion of any Participant's Account
with respect to the Employer's Non-Elective Contribution
made pursuant to Section 4.1(c) for the Plan Year ending
December 31, 1996 shall be immediately 100% vested.
2. Section 7.4(c) is revised to read "(c) Reserved".
IN WITNESS WHEREOF, the parties have executed this Amendment this 28th
day of March, 1997.
WITNESS: THE ADAMS NATIONAL BANK
Joyce R. Hertz By: Kimberly J. Levine (SEAL)
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<PAGE>
EXHIBIT 10.17
Lease Agreement dated January 8, 1997 between Riverdale
International, Inc.
and The Adams National Bank
<PAGE>
LEASE
THIS LEASE, dated as of the 8th day of January, 1997, by and between
RIVERDALE INTERNATIONAL, INC., a Maryland corporation (hereinafter called
"Lessor") and ADAMS NATIONAL BANK, a District of Columbia corporation
(hereinafter called "Lessee"), provides:
W I T N E S E T H:
I.
Description of Demised Premises.
A. Lessor hereby leases to Lessee, and Lessee hereby hires from Lessor,
those certain premises (hereafter called the "Demised Premises") consisting of
approximately 1,583 square feet of retail space on the first floor of the
building located at 802 Seventh Street, N.W., Washington, D.C., and more
particularly described on Exhibit "A" (which is attached hereto and by this
reference made a part hereof and incorporated herein) for a term (hereafter
called the "Initial Term") of ten (10) years, commencing at 12:01 a.m. on the
date Lessor delivers possession of the Demised Premises to Lessee (the
"Commencement Date") and ending at 12:00 a.m. on the date that is ten (10) years
from the Commencement Date, subject to and in accordance with the terms,
provisions, covenants and conditions contained herein. Lessor shall deliver the
Demised Premises to Lessee after substantial completion of Lessor's Work (as
hereinafter defined). Lessor and Lessee shall designate the exact Commencement
Date by executing a Lease Commencement Agreement in the form attached hereto as
Exhibit "B" after performing a walk-through of the Demised Premises.
B. Provided no event of default by Lessee shall have occurred at the time
of the exercise of the option granted herein or at the commencement of the
Extended Term (as hereinafter defined), Lessee shall have the option to extend
the Term of the Lease for two (2) additional periods of five (5) years (each, an
"Extended Term") upon all of the same terms, covenants and conditions in this
Lease, except that each Extended Term shall terminate on the day immediately
preceding the fifth anniversary thereof, unless sooner terminated pursuant to
the terms hereof. (The Initial Term and the Extended Terms, if any, are
sometimes hereinafter referred to collectively as the "Term".) In order to
exercise its right to extend the Lease for an Extended Term, Lessee must notify
Lessor in writing of Lessee's election to so extend the Lease not earlier than
160 days and no later than 120 days prior to the expiration of the Initial Term
of this Lease. Failure to give such notice within the time period specified
herein shall terminate Lessee's option to extend as specified herein.
<PAGE>
II.
Rent.
A. Lessee shall pay to Lessor, without notice, demand, offset or reduction,
rent (the "Rent"), commencing on November 1, 1997 (the "Rent Commencement Date")
and continuing on the first (1st) day of each and every month thereafter during
the Term, in the following amounts:
Lease Annual Rent Monthly
Year Per Square Foot Annual Rent Installments
1 $32.00 $50,656.00 $4,221.00
2 $33.00 $52,239.00 $4,353.00
3 $34.00 $53,822.00 $4,485.00
4-7 $35.25 $55,801.00 $4,650.00
8-10 $39.50 $62,529.00 $5,211.00
11-15 $45.50 $72,027.00 $6,002.00
16-20 $52.35 $82,870.00 $6,906.00
The Rent shall be paid at the offices of Lessor, or to such other person or
entity or at such other place or address as Lessor may hereafter direct in
writing. If the Commencement Date is not on the first (1st) day of a month, a
prorated monthly installment of the Rent shall be paid by Lessee to Lessor for
the period of time from the Commencement Date up to (but not including) the
first (1st) day of the next succeeding month, and, thereafter, the Rent shall be
paid on the first (1st) day of each and every month. Lessee shall neither occupy
the Demised Premises prior to the Commencement Date, nor place any property
whatsoever in or on the Demised Premises prior to the Commencement Date, without
the prior written consent of Lessor. If Lessee is unable to occupy the Demised
Premises or commence work on the Initial Improvements on the Commencement Date
because a previous tenant, sub-tenant or occupant of the Demised Premises has
held over without Lessor's consent, or because of any cause or reason beyond the
direct control of Lessor or Lessor's contractor, such delay shall not constitute
a default on the part of Lessor, nor shall such delay entitle Lessee to
terminate or cancel this Lease, and Lessor shall not be liable for any damages
Lessee may incur as a result
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of its inability to occupy the Demised Premises on the Commencement Date;
provided, however, that in the event of such a delay, the Rent Commencement Date
shall be delayed for a period of time equal to the period of time between the
Commencement Date and the date on which the Demised Premises are ready for
occupancy.
B. If Lessor does not receive from Lessee each monthly rental payment when
it is due, Lessor, at its option, may charge Lessee a late charge equal to ten
percent (10%) of the monthly rental payment (together with any additional rent
as hereinafter provided) as additional rent, and such late charge shall be due
and payable by Lessee to Lessor immediately upon notice to Lessee. In addition,
if a check of Lessee's is returned to Lessor unpaid for any reason, Lessor, at
its option, may thereafter require that Lessee pay the Rent and any other
charges payable hereunder by a certified or cashier's check drawn on a bank in
the metropolitan Washington area.
III.
Use of Demised Premises.
Lessee shall use the Demised Premises only for the purpose of operating a
retail banking branch of Adams National Bank. Lessee acknowledges and agrees
that Lessor has made no express or implied warranty, representation, undertaking
or agreement regarding the condition of the Demised Premises or the ability of
Lessee to use the Demised Premises in the manner or for the purposes
contemplated by Lessee. Lessee may not use the Demised Premises for any purpose
other than that stated in this Article III without the prior written consent of
Lessor.
IV.
Access to Premises.
Lessor covenants and agrees that Lessee and its agents, employees,
contractors, invitees and licensees shall have the right of ingress and egress
to the Demised Premises through all common or public areas of the building in
which the Demised Premises are located (including but not limited to all public
entrances, lobbies, elevators and corridors) during normal business hours (which
are hereby deemed to be daily from 8:00 a.m. to 6:00 p.m., and Saturdays from
8:00 a.m. to 1:00 p.m.) and at such other times as may be established by Lessor
in accordance with appropriate rules and regulations (or otherwise as agreed
upon by Lessor and Lessee). Lessor and its agents, employees, contractors,
invitees and licensees shall have access to the Demised Premises during normal
business hours; provided that
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<PAGE>
Lessor and its agents, employees, contractors, invitees and licensees shall,
give 24 hours prior notice to Lessee and be accompanied by an officer of Lessee
on the Demised Premises. Notwithstanding the foregoing, Lessor and its agents,
employees, contractors, invitees and licensees shall have access to the Demised
Premises at all times for emergency or security purposes. Lessee shall provide
Lessor with a list of contact persons for emergency and security access and, if
practical under the circumstances, Lessor will attempt to contact such contact
persons prior to entering the Demised Premises for emergency or security
purposes.
V.
Maintenance and Repairs; Lessee's Obligation to Notify.
Lessor shall keep the Demised Premises in reasonably good working order and
condition and shall make all repairs and replacements not occasioned by the
negligent or willful act of Lessee, its agents, employees, contractors, invitees
or licensees. Lessee shall notify Lessor immediately by telephone and as soon as
possible in writing of any repairs or replacements which, in the opinion of
Lessee, need to be made to the Demised Premises and of any loss, damage or
casualty to the Demised Premises.
VI.
Taxes.
A. Lessor shall pay all taxes assessed against the real estate (hereafter
called the "Real Estate Taxes") on which the Demised Premises are located on or
before the date on which such taxes become due and payable.
B. Lessee shall pay all taxes, charges and levies assessed against the
personal property and fixtures owned by Lessee and placed, stored or used by
Lessee in conjunction with the Demised Premises. Lessee shall pay, as additional
rent, any ad valorem, license or other tax imposed upon Lessor by reason of or
with respect to this Lease or the Rent, and such additional rent shall be
payable within thirty (30) days after Lessor notifies Lessee that such amount is
due and payable.
C. Either Lessor or Lessee may challenge the amount, validity or
applicability of any tax, fee, charge or obligation, and the non-challenging
party shall render all necessary and reasonable assistance to the challenging
party in the prosecution of such challenge. Notwithstanding such challenge,
Lessor or Lessee, as applicable, shall pay all taxes, fees, charges and
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<PAGE>
obligations (including any tax, fee, charge or obligation the amount, validity
or applicability of which is being challenged) on or before the date on which
such taxes, fees, charges or obligations become due and payable.
VII.
Adjustments for Real Estate Taxes
and Building Operating Costs.
A.
General.
1. The term "Lessee's Proportionate Share" shall refer to the proportionate
amount of the real estate taxes and building operating costs to be paid by
Lessee. Lessee's Proportionate Share is 57.964%. Notwithstanding anything to the
contrary contained herein, Lessee's Proportionate Share shall be equal to a
fraction, the numerator of which is the total floor area of the Demised Premises
and the denominator of which is the total leasable space on the ground floor of
the Building.
2. The obligations of Lessee set forth in this Article VII shall survive
any termination of this Lease.
B.
Real Estate Taxes.
1. For each calendar year during the Term of this Lease, Lessee shall pay
to Lessor, as additional rent and within thirty (30) days after notification by
Lessor of the amount thereof, its Proportionate Share of the Real Estate Taxes.
2. If this Lease terminates and Lessee surrenders the Demised Premises
before the end of a calendar year, Lessee's share of the Real Estate Taxes for
such year shall be prorated based upon the portion of such year for which this
Lease is in effect and during which Lessee occupied the Demised Premises.
C.
Building Operating Costs.
1. The term "Building Operating Costs" shall be deemed to include all
expenses incurred by Lessor in the proper management, operation and maintenance
of the building and grounds in and on which the Demised Premises are located,
including but not limited to the cost to Lessor of all building supplies,
janitorial
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<PAGE>
services, maintenance expenses, trash removal services, all fire, extended
coverage and public liability insurance, all labor costs, and all costs for
replacement parts, but excluding management fees, rental commissions, structural
repairs, capital improvements and debt service.
2. For each calendar year, Lessee shall pay to Lessor, as additional rent
and within thirty (30) days after notification by Lessor of the amount thereof,
Lessee's Proportionate Share of the Building Operating Costs.
3. If this Lease terminates and Lessee surrenders the Demised Premises
before the end of a calendar year, Lessee's Proportionate Share of the Building
Operating Costs for such year shall be prorated based upon the portion of such
year for which this Lease was in effect and during which Lessee occupied the
Demised Premises.
4. In computing the Building Operating Costs, Lessor may use any method of
accounting it desires, provided that it adheres to generally accepted accounting
principles.
VIII.
Lessor Not Liable; Indemnity by Lessee.
Lessor shall not be liable for any injury to persons (including death) or
for any loss or damage to property resulting from any cause other than the gross
negligence or wilful, wrongful act of Lessor. Lessee shall indemnify and hold
Lessor and Agent harmless for and from any and all suits, actions, damage,
liability and expense (including attorneys' fees) arising from or out of (A) any
occurrence in or on the Demised Premises or (B) the occupancy or use by Lessee
of the Demised Premises.
IX.
Insurance.
Lessee shall, at all times during the term of this Lease or any renewal
thereof, carry with an insurance carrier acceptable to Lessor and qualified to
do business in the District of Columbia, public liability insurance naming
Lessor as co-insured, with a limit of liability of not less than $2,000,000.00.
Certificates of such insurance shall be furnished to Lessor before the occupancy
of the Demised Premises by Lessee.
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<PAGE>
X.
Destruction to Leased Premises.
A. If the Demised Premises are damaged by fire, the elements, accident or
any other casualty but are not thereby rendered untenantable in whole or in
part, Lessor shall promptly, at its sole cost and expense (unless such damage
was caused by Lessee or any agent, contractor, employee, invitee or licensee of
Lessee, in which event such damage shall be repaired at the sole cost and
expense of Lessee), cause such damage to be repaired, and the Rent shall not be
abated.
B. If the Demised Premises are damaged by fire, the elements, accident or
any other casualty and are thereby rendered untenantable in part, Lessor shall
promptly, at its sole cost and expense (unless such damage was caused by Lessee
or any agent, contractor, employee, invitee or licensee of Lessee, in which
event such damage shall be repaired at the sole cost and expense of Lessee),
cause the damage to be repaired, and the Rent shall be abated proportionately in
accordance with the portion of the Demised Premises rendered untenantable, and
such abatement shall commence on the date Lessor [or Agent] is notified of the
damage and shall continue until the repairs have been completed.
C. If the Demised Premises are damaged by fire, the elements, accident or
other casualty and are thereby rendered wholly untenantable and the completion
of the repairs are estimated to take more than 90 days from the day damaged
occurred, either Lessor or Lessee shall have the option to terminate this Lease
immediately by giving written notice of such termination to the other party
within 30 days of the occurrence of such damage, in which event neither Lessor
nor Lessee shall, after the date of such notice, have any further liability to
the other hereunder. In the event neither Lessee nor Lessor so terminates this
Lease, Lessor shall cause such damage to be repaired, in which event the Rent
shall be abated in full, and such abatement shall commence on the date Lessor
[or Agent] is notified of the damage and shall continue until the repairs have
been completed. If Lessor causes the Demised Premises to be repaired, such
repairs shall be at the sole cost and expense of Lessor (unless such damage was
caused by Lessee or any agent, contractor, employee, invitee or licensee of
Lessee, in which event such damage shall be repaired at the sole cost and
expense of Lessee).
D. Lessor shall not be required to repair or replace, or to compensate
Lessee for, any property which Lessee is entitled to remove from the Demised
Premises.
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<PAGE>
E. Lessor shall be obligated to make no payments for damages, compensation
or claims for inconvenience, loss of business or annoyance arising from any
damage to or repair of the Demised Premises or the building in which the Demised
Premises are located.
XI.
Eminent Domain.
If all or any part of the Demised Premises, or all means of access thereto,
are taken or condemned pursuant to the power of eminent domain, or by purchase
in lieu thereof, this Lease shall terminate and Lessee shall have no claim
against Lessor or to any portion of the award or purchase price for the value of
any unexpired term of this Lease, but the foregoing shall not limit Lessee's
right to compensation from the condemning or purchasing authority for the value
of any of Lessee's property taken (other than Lessee's leasehold interest in the
Demised Premises). In the event of a temporary taking pursuant to the power of
eminent domain, this Lease shall not terminate but the term hereof shall be
extended by the period of the taking and the Rent shall abate in proportion to
the area for the period of such taking.
XII.
Utilities.
Lessee shall arrange and pay for all utilities furnished to the Demised
Premises during the Term of this Lease, including water, electricity, gas, and
telephone service, including any and all tap or hook-up fees.
XIII.
No Other Banks
Lessor agrees it will not permit any other bank, credit union, savings &
loan, trust company or other depository or lending institution in the Riverdale
Property. For purposes of this Lease the term "Riverdale Property shall mean the
property owned by Lessor and commonly known as "Gallery Court," which
encompasses 800-808 7th Street and 705-709 "H" Street, N.W., Washington, D.C.
and any other real property Lessor now owns or may hereafter acquire that fronts
on "H" Street from 5th to 8th Street, on 7th Street for a distance of one-half
(1/2) block north and south of "H" Street, or on 6th Street for a distance of
one-half (1/2) block south of "H" Street and commonly known as "Chinatown."
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<PAGE>
XIV.
Rights of Lessee Subordinate.
This Lease, and the rights of Lessee hereunder, are subject and subordinate
to all ground or underlying leases and to all mortgages or deeds of trust which
may now or hereafter affect this Lease, the Demised Premises, the building in
which the Demised Premises are located or the land on which such building is
constructed. The foregoing subordination provision shall be self-operative and
no further instrument of subordination shall be required; provided, however,
that in confirmation of such subordination, Lessee hereby agrees, upon the
request of Lessor, to execute and deliver, in recordable form, any instrument of
subordination or confirmation of subordination required by Lessor.
Notwithstanding the foregoing, in the event of a foreclosure under any mortgage
or deed of trust affecting the Demised Premises or the building in which the
Demised Premises are located, or in the event of the termination of Lessor's
interest or the eviction of Lessor under any ground or other underlying lease,
the holder of the note secured by the mortgage or deed of trust, or the
purchaser at such foreclosure sale, or the landlord under such ground or other
underlying lease, shall have the option to recognize this Lease, in which event
this Lease shall continue in full force and effect and Lessee shall attorn to
the new landlord hereunder. In the event that Lessor places a new mortgage or
deed of trust on the building in which the Demised Premises are located after
the date hereof, Lessor shall use its best efforts (without the expenditure of
money) to obtain a nondisturbance agreement from the new mortgagee for the
benefit of Lessee on terms reasonably acceptable to Lessee.
XV.
Rules and Regulations.
Lessee, on behalf of itself and its agents, employees, contractors,
invitees and licensees, hereby agrees to observe and strictly comply with
certain rules and regulations (hereafter called the "Rules and Regulations"),
hereafter adopted by Lessor. Lessor shall give Lessee written notice of the
Rules and Regulations as soon as practicable after they have been modified or
supplemented. Lessor shall not be liable for the non- observance or violation by
Lessee, or any agent, employee, contractor, invitee or licensee of Lessee, of
any of the Rules and Regulations.
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<PAGE>
XVI.
No Assignment or Subletting.
Lessee covenants and agrees that it will not assign this Lease, or sublet
the Demised Premises, without the prior written consent of Lessor (which consent
shall not be unreasonably withheld).
XVII.
Quiet Enjoyment.
Lessor agrees that, subject to and upon compliance with the terms,
provisions, covenants and conditions of this Lease, Lessee shall and may
peaceably and quietly have, hold and enjoy the Demised Premises for the Term of
this Lease and any renewal or extension of the Term.
XVIII.
Personal Property at Risk of Lessee.
All personal property of every kind and description which may at any time
be placed in or on the Demised Premises by Lessee (including but not limited to
the equipment and inventory of Lessee) shall be at Lessee's sole risk.
XIX.
Covenants by Lessee; Hazardous Materials.
Lessee covenants and agrees to comply with all federal, state and local
laws, statutes, ordinances, rules, regulations, orders and requirements relative
to Lessee's occupancy and use of the Demised Premises. Lessee further covenants
and agrees to permit nothing to be done in, on or concerning the Demised
Premises which would invalidate, conflict with or increase the premiums for the
fire, casualty and liability insurance covering the Demised Premises or the
building in which the Demised Premises are located.
Lessor agrees to remove all hazardous materials and substances from the
Demised Premises and agrees to indemnify Lessee in connection with the presence
of all hazardous materials and substances located within the Demised Premises,
other than those hazardous materials and substances present in the Demised
Premises due to the actions of Lessee. Lessee shall be responsible for all
hazardous materials and substances present at the Demised Premises due to the
actions of Lessee and agrees to
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indemnify Lessor in connection with the presence of all such hazardous materials
and substances.
XX.
Alterations and Improvements; Signage.
A. Lessor shall perform all work required to deliver the Demised Premises
to Lessee in clean retail shell condition, with rough-in plumbing connections
and hookups for a staff restroom facility for Lessee and, upon receipt from
Lessee of the required structural drawings, a reinforced floor for Lessee's safe
area ("Lessor's Work"). After completion of Lessor's Work, the structural
elements, roof and building systems of the Demised Premises shall be in sound
condition and be in substantial compliance with all applicable federal, state
and local codes including but not limited to handicapped accessibility
standards. Lessor agrees to disclose to Lessee any known conditions that would
adversely affect bank design, construction and use.
B. Lessor acknowledges that Lessee desires to make certain improvements to
the Demised Premises prior to use of the Demised Premises for the purposes
authorized by this Lease (the "Initial Improvements"). All costs in connection
with the Initial Improvements shall be paid by Lessee, including, without
limitation, costs of preparation of plans and specifications, materials, labor,
inspections, permits and licenses. Prior to commencing the Initial Improvements,
Lessee shall provide Lessor with copies of all plans and specifications for the
Initial Improvements (the "Plans") and such information as Lessor may require in
connection with the contractor that Lessee desires to use to complete the
Initial Improvements (the "Contractor"). Lessee shall not commence any work on
the Initial Improvements until such time as Lessee has received written approval
from Lessor of the Plans and the Contractor, said approval not to be
unreasonably conditioned, delayed or withheld. All work on the Initial
Improvements shall be performed only in accordance with the Plans. Lessee shall
be responsible for diligently pursuing and obtaining, at its sole expense, all
licenses and permits required to complete the Initial Improvements. In the event
Lessee cannot obtain the permits required to perform the Initial Improvements,
Lessee shall have the right to terminate this Lease upon thirty (30) days
written notice to Lessor.
C. Notwithstanding any provision of this Lease to the contrary, Lessor
shall provide Lessee with a $2,500 allowance for the relocation and
reinstallation of the HVAC unit, which shall be payable to Lessee within fifteen
(15) business days of request for reimbursement by Lessee. The request shall be
accompanied by proof of payment by Lessee for the relocation of the HVAC unit,
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in an amount equal to or exceeding $2,500. In addition, Lessee agrees to
complete a stairway to the basement adjoining the Demised Premises at its sole
expense as part of the Initial Improvements. In return, Lessee shall be entitled
to use as much of the basement under Demised Premises for storage space during
the Term and any Extended Term of this Lease, as it desires, at no charge.
D. After completion of the Initial Improvements, Lessee shall not alter or
improve, nor cause any alterations or improvements to be made to, the Demised
Premises without Lessor's prior written consent (which Lessor shall be under no
obligation to grant). Upon such consent of Lessor, any such alterations or
improvements shall be made or constructed at Lessee's sole cost and expense, by
one or more contractors approved in writing by Lessor and using materials
approved in writing by Lessor. In addition, all such alterations and
improvements (including the Initial Improvements), and all such contractors,
shall comply with all applicable District of Columbia laws, statutes,
ordinances, rules, regulations, orders and requirements. Lessee covenants and
agrees to indemnify and hold Lessor harmless for and from any and all claims,
costs, demands and expenses (including attorneys' fees) relative to or resulting
from such alterations and improvements (including the Initial Improvements) and
the work necessary therefor. Lessor shall have the right, to be exercised at
Lessor's option and in its sole discretion, to require Lessee to remove any or
all of such alterations, improvements, decorations and furnishings and to
repair, at Lessee's sole cost and expense, any damage to the Demised Premises
resulting from such removal.
Lessee shall not alter or improve, nor cause any alterations or
improvements to be made to, the Demised Premises without Lessor's prior written
consent (which Lessor shall be under no obligation to grant). Upon such consent
of Lessor, any such alterations or improvements shall be made or constructed at
Lessee's sole cost and expense, by one or more contractors approved in writing
by Lessor and using materials approved in writing by Lessor. In addition, all
such alterations and improvements, and all such contractors, shall comply with
all applicable District of Columbia laws, statutes, ordinances, rules,
regulations, orders and requirements. Lessee covenants and agrees to indemnify
and hold Lessor harmless for and from any and all claims, costs, demands and
expenses (including attorneys' fees) relative to or resulting from such
alterations and improvements and the work necessary therefor. Lessor shall have
the right, to be exercised at Lessor's option and in its sole discretion, to
require Lessee to remove any or all of such alterations, improvements,
decorations and furnishings and to
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repair, at Lessee's sole cost and expense, any damage to the Demised Premises
resulting from such removal.
E. Lessee, at its sole cost and expense, shall have the right to install or
place signs, awnings, or other advertising material in or about the Demised
Premises or the building in which the Demised Premises is locate and may remove
them, provided that Lessee obtains Lessor's prior written consent for exterior
signs, which consent shall not be unreasonably withheld, conditioned or delayed.
Such signs and awnings shall be in compliance with all applicable laws,
regulations and rules.
F. As a service to the community, Lessee, at its sole cost and expense,
shall install an Automatic Teller Machine and Night Deposit Box in the exterior
wall of the Demised Premises. Its size and appearance shall be subject to the
prior written approval of the Lessor, which approval shall not be unreasonably
withheld, conditioned or delayed. No additional rent will be charged to the
Lessee for the Automatic Teller Machine or the Night Deposit Box.
XXI.
Covenant to Care for Demised Premises.
Lessee covenants and agrees to commit no waste and to take good care of the
Demised Premises. Lessee shall, at Lessee's sole cost and expense and to the
complete satisfaction of Lessor, repair any and all damage or injury to the
Demised Premises, and the building in which the Demised Premises are located,
that is caused by Lessee or any agent, employee, contractor, invitee or licensee
of Lessee. If Lessee fails to make such repairs, Lessor may, after ten (10) days
prior written notice to Lessee, make such repairs and the cost of such repairs
shall be deemed to be additional rent hereunder and shall be paid by Lessee to
Lessor within ten (10) days after demand is made therefor upon Lessee. Lessee
covenants and agrees not to change any locks or lock systems in or on the
Demised Premises without the prior written consent of Lessor, and Lessee further
covenants and agrees, upon the expiration of the Term of this Lease, to return
all keys to locks installed in or on the Demised Premises or the building in
which the Demised Premises are located to Lessor and to quit and surrender the
Demised Premises in clean and good condition, reasonable wear and tear excepted.
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XXII.
Certain Loading Prohibited.
Lessee shall not place a load upon the floor of the Demised Premises that
exceeds the design or lawful floor load per square foot. Lessor reserves the
right to establish and regulate the weight and positioning of all safes,
computers and any other heavy equipment or equipment constituting a "live" load
in order to provide for the proper distribution of weight, and Lessee agrees to
bear the entire cost and expense, if any, necessary to determine such weight and
position. Notwithstanding the foregoing, Lessor acknowledges that a safe will be
installed by Lessee, but only in the area prepared for such safe, in accordance
with the terms and provisions of Section XIX A. of this Lease.
XXIII.
Default of Lessee.
F. Each of the following shall, if not cured within the time periods
prescribed in Paragraph XXII(B) hereof, constitute an event of default
(hereinafter called an "Event of Default") under this Lease:
1. The Rent or any additional rent is not paid when due.
2. The Demised Premises are vacated even though Lessee continues to
pay the Rent.
3. Lessee fails or is unable to pay its debts generally as they become
due.
4. Lessee transfers property in fraud of creditors.
5. Lessee makes an assignment for the benefit of creditors.
6. A conservator, receiver or trustee is appointed for any of Lessee's
assets and such appointment is not vacated within thirty (30) days.
7. Lessee fails to comply with any term, provision, covenant or
condition of this Lease within the time and notice periods applicable.
8. Lessee makes six (6) consecutive payments of the Rent or any
additional rent after the due date therefor.
-14-
<PAGE>
G. Lessor shall give Lessee notice of each and every Event of Default as it
or they occur and Lessee shall have ten (10) days from the date of such notice
to cure any and all Events of Default described in Paragraph XXII(A)(1) hereof
and thirty (30) days from the date of such notice to cure (or commence and
prosecute a good faith effort to cure, if an Event of Default cannot reasonably
be cured within such thirty-day period) any and all Events of Default described
in Paragraph XXII(A)(2)-(8) hereof.
Upon notice to Lessee by Lessor of the occurrence of an Event of Default
and the failure of Lessee to cure such Event of Default within the time periods
stated above, Lessor shall have the right and option (1) to terminate this Lease
by written notice to Lessee (in which event Lessee shall immediately surrender
the Demised Premises to Lessor) and retain all monies (including a security
deposit, if applicable) received from Lessee (but without prejudice to Lessor's
rights to recover from Lessee any amounts remaining to be paid under the Lease,
including the Rent not yet due and payable), or (2) to enter the Demised
Premises and remove Lessee and Lessee's property therefrom with or without force
and without being liable to Lessee in any manner whatsoever for any damage and
to attempt to relet the Demised Premises for Lessee's account on such terms as
Lessor alone shall determine, or (3) to continue this Lease and sue for Lessee's
performance hereunder (including payment of the Rent or any additional rent as
it becomes due). In all events, Lessor shall be entitled to recover from Lessee
all costs and expenses incurred by Lessor as a result of an Event of Default,
including reasonable attorneys' fees. The proceeds of any reletting during the
term of this Lease shall be applied first to all expenses incurred as a result
of Lessee's default and of such reletting (including, without limitation,
reasonable attorneys' fees, leasing commissions and the cost of any alterations
and redecorating of the Demised Premises that Lessor deems to be desirable) and
second to payment of the Rent and any additional rent due hereunder. Lessee
shall be liable to Lessor for any deficiency (including all costs of collection
and reasonable attorneys' fees) but shall not be entitled to any surplus that
may arise. Notwithstanding anything to the contrary contained herein, Lessee
shall not be entitled to use self-help to obtain any of Lessee's customers'
money that may be present on the Demised Premises,
The remedies provided Lessor above are in addition to, and not in lieu of,
any other rights and remedies Lessor may have under this Lease, at law or in
equity. No delay by Lessor in the enforcement of the provisions of this Lease
shall be deemed to constitute a waiver of any default of Lessee, and the pursuit
by Lessor of one or more remedies shall not be deemed to constitute
-15-
<PAGE>
an election of remedies to the exclusion of any other remedy. Notwithstanding
any other provision of this Lease, Lessor shall be under no obligation to relet
the Demised Premises if Lessee, for any reason whatsoever, vacates the Demised
Premises before the end of the Term.
XXIV.
Notices.
Any notice, request or demand required or permitted to be given pursuant to
this Lease shall be in writing and delivered by messenger or sent by United
States mail, certified, postage prepaid, return receipt requested, to the
following persons at the indicated addresses:
To Lessor: Riverdale International, Inc.
720 7th Street, N.W.
Suite 305
Washington, D.C. 20001
Attn: Mr. Glenn Golonka
Managing Director
To Lessee: Adams National Bank
1627 K Street, N.W.
Washington, D.C. 20006
Attn: Barbara Davis Blum, President
Any such notice, request or demand, if delivered or mailed (as the case may be)
in the manner aforesaid, shall be deemed given on the date hand-delivered at the
specified address (whether or not any person is there to receive it), or on the
day of deposit in the United States mail, as the case may be. Either party may,
at any time, designate by written notice to the other party (in accordance with
the provisions of this Article XXIII) a change in the above address or
addresses, but such change shall be binding upon the person to whom it is sent
only from and after the date of receipt by such person.
XXV.
Holdover Tenancy.
Any holding over by Lessee with the consent of Lessor after the expiration
of the Term of this Lease (or any renewal or extension thereof) shall be
construed to be a tenancy from month to month and shall be at the Rent (and in
accordance with) all of the other terms, provisions, covenants and conditions
contained in this Lease.
-16-
<PAGE>
XXVI.
Mechanics' and Other Liens.
Lessee will not permit any mechanic's, laborer's or materialman's lien to
stand against the Demised Premises for any labor or material furnished to Lessee
or claimed to have been furnished to Lessee in connection with work of any
character performed or claimed to have been performed on the Demised Premises by
or at the direction or sufferance of Lessee. Lessee shall have the right to
contest the validity or amount of any such lien or claimed lien if Lessee shall
have such lien bonded off and released of record.
XXVII.
Successors and Assigns.
Subject to the provisions of Article XV of this Lease, this Lease and all
of the terms, provisions, covenants and conditions contained herein shall inure
to the benefit of, and be binding upon, Lessor and Lessee and their respective
heirs, devisees, personal representatives, successors and assigns.
XXVIII.
Relationship of Parties.
Nothing contained in this Lease shall be deemed or construed by the parties
hereto or by any third person as creating the relationship of principal and
agent or a partnership or joint venture between the parties hereto, it being
expressly understood and agreed that no provision contained herein nor any act
of the parties hereto shall be deemed to create any relationship between the
parties hereto other than the relationship of landlord and tenant.
XXIX.
Severability.
If any provision of this Lease or the application thereof to any person or
circumstance shall, for any reason or to any extent, be held or determined to be
invalid or unenforceable, the remainder of this Lease and the application of
such provision to other persons or circumstances shall not be affected thereby,
but rather shall be enforced to the greatest extent permitted by law.
-17-
<PAGE>
XXX.
Waiver.
No waiver of any condition or legal right or remedy shall be implied by the
failure of either party to declare a forfeiture, or for any other reason, and no
waiver of any condition or covenant shall be valid unless it be contained in a
writing signed by both parties, nor shall the waiver of a breach of any
condition be claimed or pleaded to excuse the future breach of the same
condition or covenant.
XXXI.
Applicable Law.
This Lease shall be governed by and construed in accordance with the laws
of the District of Columbia.
XXXII.
Titles.
The titles contained in this Lease are inserted only for convenience and
are not to be construed as a part of this Lease or as a limitation upon the
scope of the particular provisions to which they refer.
XXXIII.
Entire Agreement; Incorporation of Exhibits.
H. This Lease (together with the Exhibits referred to in Paragraph XXXII(B)
hereof which are hereby incorporated herein by reference) contains the entire
agreement between Lessor and Lessee relative to the Demised Premises, and
supersedes all prior and contemporaneous negotiations, understandings and
agreements, written or oral, between the parties. This Lease shall not be
amended or modified, and no waiver of any provision hereof shall be effective,
unless and until set forth in a written instrument authorized and executed with
the same formality as this Lease.
I. The following Exhibits are attached hereto and by this reference made a
part hereof and incorporated herein:
1. Exhibit "A" - Description of Demised Premises
2. Exhibit "B" - Commencement Agreement
-18-
<PAGE>
WITNESS the following signatures and seals:
LESSOR:
RIVERDALE INTERNATIONAL, INC., a
Maryland corporation
By:______________________________
Name:
Title:
LESSEE:
ADAMS NATIONAL BANK, a District
of Columbia corporation
By:______________________________
Name:
Title:
-19-
<PAGE>
EXHIBIT "A"
DESCRIPTION OF DEMISED PREMISES
<PAGE>
EXHIBIT "B"
LEASE COMMENCEMENT AGREEMENT
This Lease Commencement Agreement is hereby attached to and made a part of
the Lease dated January 8, 1997 (the "Lease"), by and between RIVERDALE
INTERNATIONAL, INC., a Maryland corporation, as Lessor and ADAMS NATIONAL BANK,
a District of Columbia corporation, as Lessee.
Lessor and Lessee do hereby agree that:
1. Possession of the Demised Premises was accepted by Tenant on the 8th day
of January, 1997.
2. The Commencement Date is hereby established as the 8th day of January,
1997.
3. No Lessor default exists under the Lease. Lessee hereby waives any
set-offs, claims, counterclaims or other defenses of any nature it may have as
of the date hereof with respect to the Lease or the Demised Premises.
LESSOR:
RIVERDALE INTERNATIONAL, INC., a
Maryland corporation
By:______________________________
Name:
Title:
LESSEE:
ADAMS NATIONAL BANK, a District
of Columbia corporation
By:______________________________
Name:
Title:
[DC CFRE] T:\RIVERDAL\ADAMS\LEASE.003
<PAGE>
EXHIBIT 10.30
Employment Agreement between
Kate Walsh Carr and
The Adams National Bank
dated January 21, 1997
<PAGE>
January 21, 1997
Ms. Kate Carr
3702 Curtis Court
Chevy Chase, MD 20815
Dear Ms. Carr:
Please accept this letter as The Adams National Bank's (the "Bank") offer
to employ you as the Bank's Senior Vice President, Lending. As the Senior Vice
President, Lending, you will be responsible for the overall management and
operation of the Bank's loan department including compliance with all applicable
regulations. All employees of the department shall report to you and shall
report to the CEO of the Bank.
The base compensation for the performance of your duties shall be a salary
of $ 99,500.00 per annum, payable in cash in accordance with the Bank's normal
payroll practices. Such compensation shall be reviewed annually by the CEO and
the Personnel Committee of the Board of Directors. In addition, you shall be
eligible to receive annual or other bonuses at the sole discretion of the Board
of Directors of the Bank. You shall also participate in any plan that the Bank
maintains for the benefit of its executive employees relating to profit sharing,
retirement benefits, medical insurance and other group benefits including
disability and life insurance. Enclosed herewith is a summary of the Bank's
current package of benefits for which you would qualify as the Bank's Senior
Vice President, Lending.
Further, you will be an important member of the management of the Bank upon
whose services the Bank will depend for its future growth and prosperity. As
such, in the event of any actual or proposed change in control of the Bank or
its parent, Abigail Adams National Bancorp, Inc. (the "Company"), which has not
been approved by a majority of the continuing directors then in office, you
shall be entitled to receive a lump sum payment equal to one year's base salary.
Change in control means:
(a) when the Company or the Bank acquires actual knowledge that any person,
other then an employee benefit plan established or maintained by the Company or
the Bank, is or becomes the beneficial owner 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 then a tender or exchange made by an employee benefit
plan established or maintained by the Company or the Bank);
<PAGE>
(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), (2) a sale or
disposition 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,
other than 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.
If after any such event there is a reduction in your compensation,
benefits, responsibilities, authority or functions which is deemed materially
adverse by you, you may choose to consider yourself as being terminated and
entitled to the foregoing lump sum payment.
While you are employed by the Bank, the Bank may, after written notice to
you, terminate your employment for "Just Cause." Termination for "Just Cause"
shall include termination because of personal dishonesty, breach of fiduciary
duty involving personal profit, willful failure to perform stated duties or
willful violation of any law, rule or regulation.
The Bank and its Board of Directors look forward to your joining our
management. Please confirm for me your acceptance of the position as the Bank's
Senior Vice President, Chief Lender commencing no later than February 10, 1997.
Sincerely,
Barbara Davis Blum
Chairwoman & CEO
ACCEPTED JANUARY ___, 1997:
- --------------------------
Kate Carr
<PAGE>
The Board of Directors
Abigail Adams National Bancorp, Inc.
We consent to incorporation by reference in the registration statement No.
333-19155 on Form S-8 of Abigail Adams National Bancorp, Inc. and subsidiary of
our report dated January 26, 1996, relating to the consolidated balance sheet of
Abigail Adams National Bancorp, Inc. and subsidiary as of December 31, 1995, and
the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for the two-year period then ended, which report is
incorporated by reference in the December 31, 1996 annual report on Form 10-KSB
of Abigail Adams National Bancorp, Inc. and subsidiary.
/s/ KPMG Peat Marwick LLP
Washington, D.C.
March 26, 1997
<PAGE>
<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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 9,785,132
<INT-BEARING-DEPOSITS> 1,479,000
<FED-FUNDS-SOLD> 4,100,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 11,205,282
<INVESTMENTS-CARRYING> 11,640,813
<INVESTMENTS-MARKET> 11,679,607
<LOANS> 73,013,413
<ALLOWANCE> (1,048,487)
<TOTAL-ASSETS> 112,162,304
<DEPOSITS> 95,154,740
<SHORT-TERM> 1,916,689
<LIABILITIES-OTHER> 811,863
<LONG-TERM> 1,138,815
0
0
<COMMON> 16,547
<OTHER-SE> 13,123,650
<TOTAL-LIABILITIES-AND-EQUITY> 112,162,304
<INTEREST-LOAN> 6,072,500
<INTEREST-INVEST> 755,066
<INTEREST-OTHER> 745,658
<INTEREST-TOTAL> 7,573,224
<INTEREST-DEPOSIT> 2,810,940
<INTEREST-EXPENSE> 2,932,907
<INTEREST-INCOME-NET> 4,640,317
<LOAN-LOSSES> (275,000)
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,093,396
<INCOME-PRETAX> 1,775,124
<INCOME-PRE-EXTRAORDINARY> 1,775,124
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,127,305
<EPS-PRIMARY> 0.94
<EPS-DILUTED> 0
<YIELD-ACTUAL> 5.23
<LOANS-NON> 962,800
<LOANS-PAST> 152,677
<LOANS-TROUBLED> 573,369
<LOANS-PROBLEM> 781,356
<ALLOWANCE-OPEN> (1,273,965)
<CHARGE-OFFS> 115,221
<RECOVERIES> (164,743)
<ALLOWANCE-CLOSE> (1,048,487)
<ALLOWANCE-DOMESTIC> (1,048,487)
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 116,761
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