SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
/ / QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1998
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-10971
ABIGAIL ADAMS NATIONAL BANCORP, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 52-1508198
(State or other jurisdiction of (I.R.S. Employer ID No.)
Incorporation or organization)
1627 K Street, N.W. Washington, D.C. 20006
(Address of principal executive offices)
202-466-4090
Issuer's telephone number including area code
N/A
Former name, address, and fiscal year, if changes
since last report
Indicate by check whether the issuer (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Exchange Act of 1934 during the past 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No .
State the number of shares outstanding of each of the
issuer's classes of common equity as of July 28, 1997:
1,651,226 shares of Common Stock, Par Value $0.01/share
Transitional Small Business Disclosure Format (check one):
Yes / / No /X/
<PAGE>
PART I.
Item 1 - Financial Statements
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
June 30, 1998 and 1997 and December 31, 1997
<TABLE>
June 30, June 30, Dec 31,
1998 1997 1997
Assets (Unaudited)(Unaudited) (Unaudited)
<S> <C> <C> <C>
Cash and due from banks $ 7,728,948 $ 9,570,362 $ 7,654,347
Short-term investments:
Federal funds sold 3,421,285 3,850,000 6,450,000
Restricted CDs - Rabbi Trust 183,089 -- --
Interest-bearing deposits in other
banks 1,880,000 1,479,000 1,781,000
Total short-term investments 5,484,373 10,436,715 8,231,000
Securities available for sale 20,304,935 9,577,815 20,452,799
Investment securities (market value of
$9,052,643, $10,565,358 and $7,532,256
at June 30,1998, June 30, 1997 and
December 31, 1997, respectively) 9,029,421 10,517,060 7,508,850
Loans (net of deferred fees and
unearned discounts) 84,158,854 84,627,598 85,313,591
Less: Allowance for loan losses (1,105,496) (1,116,201) (1,141,719)
Loans, net 83,053,358 83,511,397 84,171,872
Bank premises and equipment, net 1,197,242 893,371 1,252,413
Other real estate owned -- -- --
Other assets 2,047,966 1,460,145 1,967,733
Total assets $128,846,243 $120,859,150 $131,239,014
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Demand deposits $ 34,485,834 $ 26,618,370 $ 27,184,087
NOW accounts 10,303,408 7,721,611 9,880,968
Money market accounts 23,210,458 25,317,094 26,969,638
Savings accounts 2,326,065 1,601,558 1,898,721
Certificates of deposit of
$100,000 or greater 21,507,988 22,516,474 25,255,095
Certificates of deposit less
than $100,000 18,243,856 19,787,373 21,072,887
Total deposits 110,077,609 103,562,480 112,261,396
Short-term borrowings 3,969,043 1,823,709 3,489,263
Long-term borrowings/debt 1,052,698 1,108,578 1,085,936
Other liabilities 1,100,022 1,035,277 1,372,681
Total liabilities 116,199,373 107,530,044 118,209,276
Stockholders' equity:
Common stock, par value $0.01 per
share, authorized 5,000,000
shares; issued 1,668,219 at
June 30, 1998, 1,651,226 at
June 30, 1997 and 1,651,226 shares
at December 31, 1997;
outstanding 1,672,899 shares at
June 30, 1998, 1,655,906 shares at
June 30, 1997 and 1,655,906 shares
at December 31, 1997 16,734 16,559 16,559
Surplus 12,331,070 12,182,466 12,187,657
Retained earnings 502,495 1,351,868 1,044,369
12,850,299 13,550,893 13,248,585
Less: Employee Stock Ownership Plan
shares, 20,243 shares at cost (175,758) (177,126) (175,757)
Less: Treasury stock, 4,680 shares
at cost (28,710) (28,710) (28,710)
Less: Unrealized loss (gain) on
securities, net of taxes 1,038 (15,951) (14,380)
Total stockholders' equity 12,646,870 13,329,106 13,029,738
Total liabilities and stockholders'
equity $128,846,243 $120,859,150 $131,239,014
</TABLE>
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Operations
For the Period Ended June 30, 1998 and 1997
(Unaudited)
<TABLE>
For the three months For the six months
Ended June 30, Ended June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans $2,095,418 $1,903,418 $4,219,868 $3,600,845
Interest on securities available for sale:
U.S. Treasury 14,224 3,378 28,425 3,378
Obligations of U.S. government agencies
and corporations 275,867 111,724 557,611 264,605
Total interest on securities available
for sale 290,091 115,102 586,036 267,983
Interest and dividends on investment securities:
U.S. Treasury 32,470 11,780 54,351 26,850
Obligations of U.S. government agencies
and corporations 65,727 135,526 117,259 279,714
Mortgage-backed securities 3,650 4,185 7,664 8,982
Obligations of states and municipalities 3,991 3,991 7,982 7,982
Other securities 9,842 9,084 18,720 21,162
Total interest and dividends on investment
securities 115,680 164,566 205,976 344,690
Interest on short-term investments:
Federal funds sold 108,456 86,246 205,662 138,207
Interest on Restricted CDs - Rabbi Trust 9,107 -- 12,956 --
Deposits with other banks 26,712 22,198 53,016 42,257
Total interest on short-term investments 144,275 108,444 271,634 180,464
Total interest income 2,645,463 2,291,530 5,283,514 4,393,982
Interest expense
Interest on deposits:
NOW accounts 51,384 44,673 107,574 88,888
Money market accounts 249,384 265,629 530,057 516,293
Savings accounts 45,098 10,757 58,033 20,385
Certificates of deposit:
$100,000 or greater 294,881 318,449 596,878 552,142
Less than $100,000 235,178 240,066 557,323 454,700
Total interest on deposits 875,925 879,574 1,849,865 1,632,408
Federal funds purchased and
repurchase agreements 49,400 29,975 91,185 63,766
Interest on long-term borrowings/debt 18,611 18,696 37,078 38,697
Total interest expense 943,936 928,245 1,978,128 1,734,871
Net interest income 1,701,527 1,363,285 3,305,386 2,659,111
Provision for loan losses 21 -- (24,979) --
Net interest income after provision 1,701,506 1,363,285 3,330,365 2,659,111
Other income
Service charges on deposit accounts 313,540 273,068 609,235 564,145
Other income 16,393 26,166 31,785 37,759
Total other income 329,933 299,234 641,020 601,904
Other expense
Salaries and employee benefits 1,519,284 544,806 2,105,925 1,083,090
Occupancy and equipment expense 315,756 244,071 600,965 472,693
Professional fees 565,508 86,464 748,746 151,097
Data processing fees 138,995 115,413 257,694 212,802
Other operating expense 307,459 274,370 635,471 545,651
Total other expense 2,847,002 1,265,124 4,348,801 2,465,333
Income (loss) before taxes (815,563) 397,395 (377,416) 795,682
Applicable income tax expense (173,431) 160,019 0 309,335
Net income $ (642,132) $ 237,376 $ (377,416) $ 486,347
Basic earnings per common share $ (.39) $ .14 $ (.23) $ .30
Diluted earnings per common share $ (.38) $ .15 $ (.22) $ .29
Weighted average number of shares used compute EPS:
Basic 1,644,626 1,650,340 1,636,170 1,530,559
Diluted 1,696,660 1,673,692 1,690,205 1,673,302
</TABLE>
PAGE
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
For the Six Months Ended June 30, 1998 and 1997
(Unaudited)
<TABLE>
Employee
Additional Retained Stock Unrealized
Common Paid-in Earnings Treasury Ownership Loss on Comprehensive
Stock Capital (Deficit) Stock Plan Securities Total Income
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,1997 $16,547 $12,172,435 $1,191,706 $(28,710) $(177,791) $(33,990) $13,140,197
Net income --- --- 486,347 --- --- --- 486,347 486,347
Dividends declared --- --- (326,185) --- --- --- (326,185)
Dividends on allocated shares
of the Employee Stock
Ownership Plan --- 276 --- --- 665 --- 941
Issuance of common stock
under the Employee
Incentive Stock Option Plan 12 9,755 --- --- --- --- 9,767
Unrealized loss on
securities, net of taxes --- --- --- --- --- 18,039 18,039 18,039
Comprehensive income 504,386
Balance at June 30, 1997 $16,559 $12,182,466 $1,351,868 $(28,710) $(177,126) $(15,951) $13,329,106
Balance at January 1, 1998 $16,559 $12,187,657 $1,044,369 $(28,710) $(175,757) $(14,380) 13,029,738
Net Loss --- --- (377,416) --- --- --- (377,416) (377,416)
Dividends declared --- --- (164,458) --- --- --- (164,458)
Issuance of common stock
under the Employee Incentive
Stock Option Plan 175 143,413 --- --- --- --- 143,588
Unrealized gain on
securities net of taxes --- --- --- --- --- 15,418 15,418 15,418
Comprehensive Income (361,998)
Balance at June 30, 1998 $16,734 $12,331,070 $ 504,495 $(28,710) $(175,757) $ 1,038 $12,646,870
/TABLE
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1998 and 1997
(Unaudited)
<TABLE>
1998 1997
<S> <C> <C>
Operating Activities
Net income $ (377,416) $ 486,347
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Benefit for loan losses (25,000) --
Depreciation and amortization 217,893 138,882
Accretion of loan discounts and fees (102,885) (60,345)
Amortization and accretion of discounts and
premiums on securities (66,350) (87,043)
Provision for deferred income taxes (89) (106,874)
Increase (decrease) in other assets (80,146) (206,171)
Increase in other liabilities (272,659) 210,842
Net cash (used in) provided by operating
activities (666,651) 375,638
Investing Activities
Proceeds from repayment and maturity
of investment securities and securities
available for sale 15,998,193 10,825,000
Proceeds from repayment of mortgage-
backed securities 52,244 35,862
Purchase of investment securities (17,358,941) (7,992,107)
Purchase of short term investments (99,000) --
Purchase of restricted CD's for rabbi trust (183,088) --
Principal collected on loans 10,082,566 6,842,511
Loans originated (7,988,131) (18,449,315)
Net decrease (increase)in short-term loans 96,908 57,343
Net decrease (increase) in lines of credit (944,943) 63,336
Purchase of bank premises and equipment (162,722) (192,204)
Net cash provided (used) by investing activities (506,914) (8,809,574)
Financing Activities
Net increase (decrease) in transaction and
savings deposits 4,392,351 (1,372,499)
Proceeds from issuance of time deposits 17,632,717 30,790,345
Payments for maturing time deposits (24,208,855) (21,010,106)
Net increase (decrease) in short-term borrowings 459,845 (92,979)
Payments on long-term debt (33,238) (30,237)
Proceeds from issuance of common stock 143,588 9,767
Cash dividends paid to common stockholders (166,957) (325,125)
Net cash provided (used) by financing activities (1,780,549) 7,969,166
Increase (decrease) in cash and cash equivalents (2,954,114) (464,770)
Cash and cash equivalents at beginning of year 14,104,347 13,885,132
Cash and cash equivalents at end of year $11,150,233 $13,420,362
Supplementary disclosures:
Interest paid on deposits and borrowings $ 1,978,127 $ 1,698,883
Income taxes paid -0- $ 535,000
</TABLE>
<PAGE>
Abigail Adams National Bancorp, Inc.
Notes to Consolidated Financial Statements
June 30, 1998 and 1996
1. General
The unaudited information at and for the six months ended
June 30, 1998 and 1997 furnished herein reflects all adjustments
which are, in the opinion of management, necessary to a fair
statement of the results for the interim periods presented. All
adjustments are of a normal and recurring nature. Certain
reclassifications have been made to amounts previously reported
in 1997 to conform with the 1998 presentation.
2. Contingent Liabilities
In the normal course of business, there are various
outstanding commitments and contingent liabilities such as
commitments to extend credit and standby letters of credit that
are not reflected in the accompanying consolidated financial
statements. No material losses are anticipated as a result of
these transactions on either a completed or uncompleted basis.
Under the terms of an employment agreement with the current
President of the Bank, the Company is obligated to make payments
to her under certain conditions totaling approximately $140,000,
in the event her employment is terminated or she chooses to
resign within one year of May 18, 1998. On February 25, 1998,
the Board of Directors of the Company approved the Company and
the Bank each establishing a grantor trust with a third party
trustee for the purpose of funding the severance agreements with
seven key management officials and for other amounts payable to
the President and Chief Executive Officer in connection with the
termination of their employment following a change of control.
The trusts are irrevocable for one year. On May 18, 1998 the
former Chairwoman, President & CEO of the company and six
management officials of the Bank exercised their rights to
payments under these agreements.
The Company maintains directors' and officers' liability
insurance in the amount of $5,000,000, subject to certain
exclusions. In addition, according to the by-laws, the Company
is obligated to indemnify any director or officer for any losses
incurred in the performance of their duties as director to the
full extent authorized or permitted by Delaware general
corporation law. The June 30, 1998 unaudited financial
statements reflect an accrual of $240,000 for such
indemnification, resulting from the Company's dismissed legal
action against three directors and certain other shareholders.
(See "Legal Proceedings" for additional discussion of these
issues)
3. Shareholder Rights Plan
On April 12, 1994, the Board of Directors of the Company
adopted a Rights Agreement ("Rights Agreement"), which was
amended April 20, 1995. Pursuant to the Rights Agreement, the
Board of Directors of the Company declared a dividend of one
share purchase right for each share of the Company's common stock
outstanding on April 25, 1994 ("Right"). Among other things,
each Right entitles the holder to purchase one share of the
Company's common stock at an exercise price of $20.11.
Subject to certain exceptions, the Rights will be
exercisable if a person or group of persons
<PAGE>
acquires 25% or more of the Company's common stock ("Acquiring
Person"), or announces a tender offer, the consummation of which
would result in ownership by a person or group of persons of 25%
or more of the common stock, or if the Board determines that a
person or group of persons holding 15% or more of the Company's
common stock is an Adverse Person, as defined in the Rights
Agreement.
Upon the occurrence of one of the triggering events, all
holders of Rights, except the Acquiring Person or Adverse Person,
would be entitled to purchase the Company's common stock at 50%
of the market price. If the Company is acquired in a merger or
business combination, each holder of a Right would be entitled to
purchase common stock of the Acquiring Person at a similar
discount.
The Board of Directors may redeem the Rights for $0.01 per
share or amend the Plan at any time before a person becomes an
Acquiring Person. The Rights expire on December 31, 2003.
4. Employee Benefits
The Company has adopted a Nonqualified Stock Option Plan for
certain officers and key employees and has reserved 90,000 shares
of common stock for options to be granted under the plan. No
options have been granted to date.
On January 23, 1996, the Company adopted a nonqualified
Directors Stock Option Plan (the "Directors Plan") and a
qualified Employee Incentive Stock Option Plan covering key
employees (the "Employee Plan"), 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 June 30, 1998, 13,702 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% to 100% 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. Options
<PAGE>
totaling 1,505 were granted to employees in 1997 at prices
ranging from $11.71 to $11.83. As of June 30, 1998, 4,994
options have been exercised under these plans. No options were
granted in 1997 or 1998.
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. These options became
fully vested on May 18, 1998 due to a change of control as
defined in the Agreement, but have not been exercised as of June
30, 1998.
Compensation expense is recognized on the Directors Plan,
the 1996 Directors Plan and the options granted to the President
and Chief Executive Officer in an amount equal to the difference
between the quoted market price of the stock at the date of grant
and the amount the employee/director is required to pay, ratably
over the five year vesting periods.
On April 16, 1996, the Company and the Bank adopted an
employee stock ownership plan ("ESOP") with 401(k) provisions,
replacing the Bank's former 401(k) Plan, 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 1997).
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.
5. Earnings Per Common Share
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" (SFAS No. 128). SFAS No. 128 specifies the
computation, presentation and disclosure requirements for earning
per share for entities with publicly held common stock or
potential common stock. Basic earnings per share is calculated
by dividing net income, after deduction for preferred stock
dividends, by the weighted average number of shares of common
stock. Diluted earnings per share is calculated by dividing net
income, after deduction for preferred stock dividends, by the
weighted average number of shares of common stock and common
stock equivalents, unless determined to be anti-dilutive. SFAS
No. 128 is effective for financial statements for both interim
and annual periods ending after December 15, 1997.
<TABLE>
Six Months Ended Six Months Ended
June 30, 1998 June 30, 1997
---------------- ----------------
Basic Diluted Basic Diluted
EPS EPS EPS EPS
<S> <C> <C> <C> <C>
Net income (377,416) (377,416) 486,347 486,347
Dividends on Preferred Stock n/a n/a n/a n/a
Income Available to Common
Stockholders (377,416) (377,416) 486,347 486,347
Weighted average share outstanding 1,638,170 1,638,170 1,630,559 1,630,559
Weighted average dilutive effect
of Stock Option Plans n/a 52,035 n/a 42,743
Adjusted Weighted Average Shares
Outstanding 1,638,170 1,690,205 1,630,559 1,673,302
Basic EPS $(.23) $.30
Diluted EPS $(.22) $.29
</TABLE>
6. New Financial Accounting Standards
(a) Disclosure of Information about Capital Structure
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 129,
"Disclosure of Information about Capital Structure" (SFAS No.
129). SFAS No. 129 continues the existing requirements for
companies to disclose the pertinent
<PAGE>
rights and privileges of all securities other than ordinary
common stock, but expands the number of companies subject to
portions of its requirements. SFAS No. 129 is effective for
financial statements for periods ending after December 15, 1997.
The adoption of SFAS No. 129 is not expected to have a material
impact on the Company.
(b) Reporting Comprehensive Income
In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS No. 130). SFAS No. 130
requires that certain financial activity typically disclosed in
stockholders' equity be reported in the financial statements as
an adjustment to net income in determining comprehensive income.
Items applicable to the Company would include unrealized gains
and losses on securities available for sale. Items identified as
comprehensive income have been presented in the statement of
changes in stockholders' equity, under separate captions. SFAS
No. 130 is effective for the Company on January 1, 1998 including
the restatement of prior periods reported consistent with this
pronouncement. The implementation of SFAS No. 130 has not had a
material impact on the Company.
(c) Disclosures about Segments of an Enterprise and Related
Information
In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related
Information" (SFAS No. 131). SFAS No. 131 requires the reporting
of selected segment information in quarterly and annual reports.
Information from operating segments is derived from methods used
by the Company's management to allocate resources and measure
performance. The Company is required to disclose profit and
loss, revenues and assets for each segment identified including
reconciliations of these items to consolidated totals. The
Company is also required to disclose the basis for identifying
the segments and the types of products and services within each
segment. SFAS No. 131 is effective for the Company on January 1,
1998, including the restatement of prior periods reported
consistent with this pronouncement, if practical. The Company
does not anticipate any material impact from the implementation
of SFAS No. 131.
(d) Employers' Disclosures about Pensions and Other
Postretirement Benefits
In February 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits - an
amendment of FASB Statements No. 87, 88 and 106" (SFAS No. 132).
SFAS No. 132 revises employers' disclosures about pension and
other postretirement benefit plans. It standardizes the
disclosure requirement for pensions and other postretirement
benefits and requires additional information on changes in the
benefit obligations and fair values of plan assets. SFAS No. 132
also eliminates certain disclosures which were required by SFAS
No. 87, "Employers' Accounting for Pensions", SFAS No. 88,
"Employers' Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits," and
SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions." SFAS No. 132 is effective for the Company
on January 1, 1998. The implementation of SFAS No. 132 has not
had a material impact on the Company.
(e) Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities".
The Statement establishes accounting and reporting standards
requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) to be
recorded in the balance sheet as either an asset or liability
measured at its fair value. The Statement requires that changes
in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met.
Special accounting for qualified hedges allows a derivative's
gain and losses to offset related results on the hedged item in
the income statement, and requires that a company must formally
document, designate, and assess the effectiveness of transactions
that receive hedge accounting. Statement 133 is effective for
fiscal years beginning after June 15, 1999. The Company may also
implement the Statement as of the beginning of any fiscal quarter
beginning June 16, 1998 and thereafter. Statement 133 cannot be
applied retroactively. Statement 133 must be applied to (a)
derivative instruments and (b) certain derivative instruments
embedded in hybrid contracts that were issued, acquired, or
substantively modified after December 31, 1997. The
implementation of SFAS 133 will not have a material impact on the
Company.
<PAGE>
PART I. FINANCIAL INFORMATION (Continued)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion should be read and reviewed in
conjunction Management's Discussion and Analysis of Financial
Condition and Results of Operations set forth in the Company's
Form 10-KSB (File No. 0-10971) for the year ended December 31,
1997.
Overview
Total assets of Abigail Adams National Bancorp, Inc. and
subsidiary (the "Company") were $128,846,000 at June 30, 1998 as
compared to $131,239,000 at December 31, 1997. Total assets at
June 30, 1998 decreased by $2,393,000 from December 31, 1997
predominantly due to decreases in short term investments of
$2,747,000. Total deposits decreased by $2,183,000 during the
same period to $110,078,000 at June 30, 1998 due primarily to
decreases in money market accounts and certificates of deposit,
partially offset by a $7,302,000 increase in demand deposit
accounts.
The Company reported a net loss for the first six months of
1998 of $377,000, or ($0.22) per share compared to income of
$486,000 for the first six months of 1997, or $.30 per share.
Although net interest income increased $646,000 to $3,305,000
over the same period in 1997 and other income increased $39,000
to $641,000, this income was offset by increases in operating
expenses associated with the opening of a new branch in the
fourth quarter of 1997, professional fees (legal and public
relations) associated with the litigation pursued by previous
management against three directors and other shareholders, and
salary expenses associated with the decision of seven members of
former management to exercise their rights to payments under
severance agreements and employment contracts.
Analysis of Net Interest Income
Net interest income, the most significant component of the
Company's earnings, increased by $646,000, or 19.33%, to
$3,305,000 for the first six months of 1998 as compared to
$2,659,000 for the comparable 1997 period. Average earning
assets for the first six months of 1998 of $119,181,000 increased
by $15,532,000, or 15%, over the comparable 1997 period. The
increase in net interest income resulted from increased earning
assets and a 30% increase in average demand deposit accounts
during the same period. The net interest spread for the first
six months of 1998 of 3.82% and a net interest margin of 5.24%
for the same period, reflected increase of 5 basis points and 6
basis points, respectively, from the prior year.
Other Income
Total other income increased by approximately $40,000, or
7%, to $641,000 for the first six months of 1998, primarily due
to increased income recognized on ATM transactions.
Other Expense
Salaries and benefits of $2,106,000 for the first six months
of 1998 increased by $1,023,000,
<PAGE>
or 94.44%, over the first six months of 1997, due primarily to
the payment of the severance agreements and employment contracts
of the seven former management employees. Net occupancy expense
of $601,000 for the first six months of 1998 reflects an increase
of $128,000, or 27.14%, from one year earlier due both to the
opening of the new branch during 1997 and additional depreciation
associated with office renovations and technology investments.
Professional fees of $749,000 for the first six months of 1998
increased by $598,000 from one year earlier due primarily to
legal expenses associated with previous management's decision to
file lawsuits against three directors and other shareholders of
the Company. Data processing expense of $258,000 for the first
six months of 1998 increased by $46,000 over the prior year due
to the opening of the new branch as well as increased activity
levels and item charges. Other operating expense of $635,000 for
the first six months of 1998 reflects an increase of $89,000 over
the prior year due primarily to increases in advertising, public
relations, travel and insurance costs, as well as increases in
administrative and overhead expenses associated with opening the
new branch.
The Bank contracts with an outside firm to provide data
processing and back-room operations. The enhanced 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 its data processing systems provided by its
outside data processor, as well as computer applications which
are used in-house to identify systems which could be affected by
the "Year 2000" issue and has developed an approach to address
the issue. The Year 2000 problem is the result of computer
programs being written using two digits rather than four to
define the applicable year. Any of the programs used by the Bank
that have time-sensitive software may recognize a date using "00"
as the year 1900 rather than the year 2000. This could result in
major miscalculations or system failure. To date,
representations have been received from the Bank's primary
processing vendors that their systems already adequately address
the Year 2000 issue or that plans have been developed to address
the issue. However, the Year 2000 problem is pervasive and
complex, and virtually every computer operation will be affected
in some way. Consequently, no assurance can be given that
unforeseen problems in the computer systems used by the Bank and
its software maintained by third party providers, will not have a
material impact on the Bank's ability to conduct business. The
Bank's contract with its primary outside data processor was
renewed in 1997 for one year and expired in the second quarter of
1998. The Bank is operating on a month to month basis with this
outside data processor, but plans to convert to a new outside
processor in October 1998 who addresses the Year 2000 issue
appropriately.
The Bank's customers, including its borrowers, are also
faced with potential Year 2000 problems. Through its Loan
Committee, the Bank has analyzed its customer base to determine
which types of customers are likely to be affected and has
adopted procedures to inquire of those borrowers whether they are
taking steps to address the problem. The failure of its
borrowers to resolve the problem could adversely affect their
operations and impair their ability to repay their loans to the
Bank. Therefore, even if the Bank adequately addresses its own
Year 2000 problems, it could nevertheless be materially and
adversely affected if its borrowers do not also successfully
resolve their Year 2000 problems. Incremental expenses for the
Bank to address the Year 2000 issue are not expected to
materially impact operating results in any one period. The Bank
has a Year 2000 Plan in place and a Year 2000 Committee which
meets on a regular basis and reports at least quarterly to the
Board of Directors.
<PAGE>
Analysis of Loans
The loan portfolio at June 30, 1998 of $84,159,000
decreased $1,155,000 as compared to the December 31, 1997
balance of $85,314,000. New loans of $7,988,000, exclusive of
short-term loans and lines of credit, were originated in the
first six months of 1998. Loan principal payments of $10,083,000
offset this increase. The loan to deposit ratio at June 30, 1998
was 76.5% as compared to 76% at December 31, 1997. On average,
the loan to deposit ratio for the first six months of 1998 was
75%, as compared to 82% during the comparable period of the prior
year.
Loan concentrations at June 30, 1998 and December 31, 1997
are summarized as follows:
Loan Concentrations
At June 30, 1998 and December 31, 1997
<TABLE>
June 30, December 31,
1998 1997
<S> <C> <C>
Service industry 38% 34%
Real estate development/finance 29 31
Wholesale/retail 23 23
Other 10 12
Total 100% 100%
</TABLE>
Analysis of Investments
Securities available for sale totaling $10,500,000 matured
during the first six months of 1998 as compared to purchases of
$10,299,000 during the same period. These securities
transactions coupled with scheduled amortization and accretion
for the first six months accounted for the $148,000 decrease in
the available for sale portfolio to $20,305,000 at June 30, 1998
as compared to $20,453,000 at December 31, 1997. Short term
investments decreased $2,747,000 from December 31, 1997 to
$5,484,000 primarily due to the decrease in overall deposits.
Long-term investment purchases of $7,060,000 partially offset by
maturities totaling $5,498,000 and normal pay downs on mortgage-
backed and other amortizing securities, account for the
$1,520,000 increase in long-term investments to $9,029,000 at
June 30, 1998 from $7,509,000 at December 31, 1997.
Noninterest-Earning Assets
Cash and due from banks of $7,729,000 at June 30, 1998
increased by $75,000 from the December 31, 1997 balance of
$7,654,000. This fluctuation is in the normal course of business
for the Bank.
Deposits
Total deposits of $110,078,000 at June 30, 1998 decreased by
$2,183,000, or 1.9%, from the December 31, 1997 balance of
$112,261,000. Demand deposits of $34,486,000 at June 30, 1998
reflect a $7,302,000, or 27%, increase from the $27,184,000
balance at December 31, 1997 due principally to growth in the
deposits of the Company's new branches as well as normal
fluctuations
<PAGE>
in the deposits of some of the Company's large corporate
customers. Normal fluctuations in the deposits of both personal
and nonprofit accounts make up the majority of the $422,000
increase in NOW accounts to $10,303,000 at June 30, 1997 as
compared to $9,881,000 at December 31, 1997. Money market
accounts of $23,210,000 at June 30, 1998 decreased by $3,760,000
from the $26,970,000 balance reported at December 31, 1997 due
primarily to normal fluctuations in the balances of some of the
Company's large corporate customers. Certificates of deposit at
June 30, 1998 of $39,752,000 decreased by $6,576,000 from the
$46,328,000 balance at December 31, 1997, with certificates of
deposit $100,000 and over decreasing by $3,747,000 and
certificates of deposit under $100,000 decreasing by $2,829,000.
The decrease in certificates of deposit over $100,000 is
primarily due to decreases in both brokered deposits and
collateralized government deposits.
Average noninterest-bearing demand deposits for the first
six months of 1998 of $30,705,000 increased by $7,317,000, or
31%, from the comparable 1997 period, while average interest-
bearing deposits increased by $9,555,000 during the same period
to $81,711,000. Average NOW accounts for the first six months of
1998 of $10,649,000 increased by $3,198,000. Average money market
deposits for the first six months of 1998 of $26,164,000
increased by $196,000 over the prior year's average balance.
Average certificates of deposit $100,000 and over increased by
$878,000 to $21,459,000 for the first six months of 1998, as
compared to the first six months of 1997. Average certificates
of deposit under $100,000 for the first six months of 1998 of
$20,217,000 increased by $4,608,000 over the comparable period of
the prior year. Average noninterest-bearing deposits to average
total deposits during the first six months of 1998 represent 27%
as compared to 25% one year earlier.
Asset Quality
Loan Portfolio and Adequacy of 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.
Net recoveries during 1997 added to the level of available
reserves. However, strong loan growth during 1997, coupled with
a more conservative allocation of the loan loss reserves to
nonclassified commercial and real estate loans resulted in a
decrease in the unallocated portion of the allowance for loan
losses at December 31, 1997 as compared to earlier periods.
<PAGE>
At June 30, 1998, the allowance for loan losses as a
percentage of outstanding loans was 1.31% as compared to 1.34% at
December 31, 1997.
Allocation of Allowance for Loan Losses
At June 30, 1998 and December 31, 1997
(In thousands)
<TABLE>
June 30, December 31,
1998 1997
Reserve % of loans Reserve % of loans
Amount to total loans Amount to total loans
<S> <C> <C> <C> <C>
Commercial $ 380 34.4% $ 486 42.6%
Real estate
- commercial mortgage 334 30.2 464 40.6
Real estate
- residential mortgage 139 12.6 23 2.0
Real estate - construction 30 2.7 49 4.3
Installment 86 7.8 59 5.2
Unallocated 136 12.3 61 5.3
Total $1,105 100.0% $1,142 100.0%
</TABLE>
<PAGE>
Transactions in the allowance for loan losses for the six
months ended June 30, 1998 and 1997 are summarized as follows:
Transactions in the Allowance for Loans Losses for the
Six Months Ended June 30, 1998 and 1997
(In thousands)
<TABLE>
1998 1997
<S> <C> <C>
Balance at January 1 $1,142 $1,048
Benefit (25)
Recoveries:
Commercial 25 89
Real estate - mortgage 8 16
Installment to individuals 65 10
Total recoveries 98 115
Loans charged off:
Commercial (57) (3)
Installment to individuals (53) (44)
Total charge-offs (110) (47)
Net recoveries (charge-offs) (12) 68
Balance at June 30 $1,105 $1,116
Ratio of net recoveries (charge-offs)
to average loans(1) 0.09% 0.09%
</TABLE>
(1) Ratio of net charge-offs to average loans is computed on an
annualized basis for the six months ended June 30, 1998 and
1997.
Nonperforming Assets
Nonaccrual loans at June 30, 1998 of $320,000 decreased by
$91,000 from the $411,000 reported at December 31, 1997.
Nonaccrual loans at June 30, 1998 include loans guaranteed by the
U.S. Small Business Administration ("SBA") totaling $99,000.
Banking regulations require that the full balance of these loans
be placed on nonaccrual status, despite the SBA guarantee on an
average of 100% of the total. Loans past due 90 days or more
decreased to $99,000 at June 30, 1998 from $103,000 at December
31, 1997 due principally to transfers to nonaccrual status.
<PAGE>
Analysis of Nonperforming Assets
At June 30, 1998 and December 31, 1997
(In thousands)
<TABLE>
June 30, December 31,
1998 1997
<S> <C> <C>
Nonaccrual loans:
Commercial $ 23 $ 411
Real estate - commercial mortgage 90
Installment - individuals 207 ---
Total nonaccrual loans(1) 320 411
Past due loans:
Commercial 97 --
Real estate - commercial mortgage -- 96
Installment - individuals 2 7
Total past due loans 99 103
Restructured loans:
Commercial -- --
Total restructured loans -- --
Total nonperforming assets $ 420 $ 514
Total nonperforming assets
exclusive of SBA guaranteed
balances $ 341 $ 420
Ratio of nonperforming assets
to gross loans plus foreclosed
properties(2) .50% .60%
Ratio of nonperforming assets
to total assets(2) .33% .39%
Percentage of allowance for loan
losses to nonperforming assets(2) 263.10% 222.12%
</TABLE>
____________________________
(1) Nonaccrual loans include $99,000 and $104,000 in loans
guaranteed by the SBA at June 30, 1998 and December 31, 1997,
respectively. The outstanding balance of these loans are insured
for 80%, or $79,000 and 90%, or $94,000, respectively.
(2) Ratios include SBA guaranteed loan balances.
Potential Problem Loans
At June 30, 1998 and December 31, 1997, respectively, loans
totaling $0 and $1,154,000 were classified as potential problem
loans which are not reported in the table entitled "Analysis of
Nonperforming Assets." The loans are subject to management
attention as a result of financial difficulties of the borrowers
and their classification is reviewed on a quarterly basis.
Interest Sensitivity
Through the Bank's Asset/Liability Investment Committee,
sensitivity of net interest income to fluctuations in interest
rates is considered through analysis of the interest sensitivity
positions of
<PAGE>
major asset and liability categories. A rate sensitivity
position is computed for various repricing intervals by
calculating rate sensitivity gaps. In these rate sensitivity
positions, interest earning assets and interest bearing
liabilities are distributed based on their repricing
opportunities, giving consideration to projected prepayment
patterns, historical relationships to changes in market interest
rates, or call dates of securities in light of current market
interest rates. Rate sensitivity gaps constantly change as funds
are acquired and invested. As a result of inherent limitations
in this type of analysis, the Company does not necessarily
attempt to maintain a matched position for each time frame. To
augment this analysis, the Company also prepares an analysis of
the effect on net interest income if all market rates were to
uniformly increase or decrease by 1%, 2% and 3% as compared to
the results of a flat interest rate environment. Based on the
Company's interest sensitivity position and the analyses
performed on the effect of interest rate movements at June 30,
1998 net interest income will not be materially impacted by
either a rising or declining interest rate environment.
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
$13,213,000 in cash and short-term investments at June 30, 1998,
the Company has a securities portfolio which can be pledged to
raise additional deposits and borrowings, if necessary. At June
30, 1998, the Company had $10,138,000 in unpledged securities
which were available for such use. As a percentage of total
assets, the amount of these cash equivalent assets at June 30,
1998 and December 31, 1997 remained unchanged at 18.1% and 18%,
respectively. Normal fluctuations in the deposit levels of some
of the Company's large corporate customers resulted in
corresponding fluctuations in the Company's liquidity position
(short-term investments). The Bank's liquidity needs are
mitigated by the sizeable base of relatively stable funds which
includes demand deposits, NOW and money market accounts, savings
deposits and nonbrokered certificates of deposit under $100,000
(excluding financial institutions and custodial funds raised
under deposit acquisition programs) representing 75% of average
total deposits for the six months ended June 30, 1998 and 70% of
average total deposits for the six months ended June 20, 1997.
In addition, the Bank has unsecured lines of credit from
correspondent financial institutions which can provide up to an
additional $3,000,000 in liquidity as well as access to other
collateralized borrowing programs. The Company maintained an
average loan to deposit ratio of 76% and 82% for the first six
months of 1998 and 1997 respectively, and can access
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, the Bank is eligible
to borrow up to approximately $1,757,000 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 June 30, 1998, $1,109,000 in
borrowings from the FHLB were outstanding. The Bank is eligible
to increase the maximum amount to be borrowed by $7,243,000 with
the purchase of up to $1,592,000 in additional stock in the FHLB.
The Company has adequate resources to meet its
<PAGE>
liquidity needs.
Increases in deposit levels and the repayment and maturity
of loans and investment securities comprise the majority of the
Company's net cash inflows from financing activities for the
first six months of 1998. Loan originations, the purchase of
investment securities, and maturing time deposits, during the
first six months of 1998 constitute the majority of the Company's
cash outflows from investing activities.
Stockholders' Equity
Stockholders' equity at June 30, 1998 of $12,647,000
decreased by $383,000 from December 31, 1997. The net loss of
($377,000) for the first six months of 1998 combined with the
dividends declared in the first quarter of $165,000 were
partially offset by stock options exercised in the amount of
$144,000 and a $15,000 unrealized gain on securities. Average
stockholders' equity as a percentage of average total assets for
1998 was 10.08% as compared to 12.02% for the comparable prior
year period.
Under the risk based capital guidelines issued by the
Federal Reserve Board and the Comptroller of the Currency, total
capital consists of core capital (Tier 1) and supplementary
capital (Tier 2). For the Company and the Bank, Tier 1 capital
consists of stockholders' equity, excluding unrealized gains and
losses on securities, and Tier 2 capital consists of long-term
debt and a portion of the allowance for loan losses. Assets
include items both on and off the balance sheet, with each item
being assigned a "risk-weight" for the determination of the ratio
of capital to risk-adjusted assets. These guidelines require a
minimum of 8% total capital to risk-adjusted assets, with at
least 4% being in Tier 1 capital. At June 30, 1998, the
Company's total risk-based capital ratio and Tier 1 capital ratio
of 14.54% and 13.37%, respectively, met the regulatory definition
of "well-capitalized." Under regulatory guidelines, an
institution is generally considered "well-capitalized" if it has
a total risk-based capital ratio of 10% or greater, a Tier 1
capital ratio of 6% or greater and a leverage ratio of 5% or
greater (discussed below). The Company's June 30, 1998 ratios
are based on total capital of $13,751,000, Tier 1 capital of
$12,646,000 and risk adjusted assets of $94,559,000. At June 30,
1998, the Bank's total risk-based capital ratio and Tier 1
capital ratio of 12.73% and 11.55%, respectively, also met the
definition of "well-capitalized." The June 30, 1998 ratios for
the Bank are based on total capital of $11,952,000, Tier 1
capital of $10,846,000 and risk-adjusted assets of $93,874,000.
The Federal Reserve Board and the Comptroller of the
Currency have also adopted a minimum leverage ratio of Tier 1
capital to total assets which is intended to supplement the risk-
based capital guidelines. The minimum Tier 1 leverage ratio is
3% for the most highly rated institutions which meet certain
standards. For other banks and bank holding companies, the
guidelines provide that the Tier 1 leverage ratio should be at
least 1% to 2% higher. At June 30, 1998, the Company's and the
Bank's Tier 1 leverage ratios based on annual average assets of
$129,799,000 and $128,142,000 were 10.09% and 7.82%,
respectively, meeting the regulatory definition of "well-
capitalized."
<PAGE>
Factors Affecting Future Results
In addition to historical information, this Form 10-QSB
includes certain forward looking statements based on current
management expectations which involve risks and uncertainties
such as statements of the Company's plans, expectations and
unknown outcomes. 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, uncertainties with respect to costs which the Company may
incur as result of litigation against the Company, director
Marshall T. Reynolds and certain related stockholders brought by
two minority shareholders, 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.
<PAGE>
PART II.
Item 1 - 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, except for
the matters discussed below.
On December 12, 1997, the Company commenced an action
against three directors, Marshall Reynolds, Jeanne Hubbard and
Robert Shell, Jr., and certain other shareholders, in United
States District Court for the District of Columbia seeking relief
in various counts to enjoin the defendants from voting their
shares at the shareholders meeting scheduled to vote on the
acquisition of Ballston Bancorp, Inc., and for other relief.
That complaint, in various counts, alleged that the defendants
had violated federal securities laws by inter alia, failing to
file a complete and accurate Schedule 13D, and soliciting of
shareholder proxies unlawfully by failing to file proxy
solicitation material with the Securities and Exchange
Commission. The complaint also alleged that the director
defendants breached their fiduciary duties by opposing the
acquisition after they had voted for it agreeing to use their
best efforts to bring it to fruition and caused the Company to
enter into a binding definitive agreement with Ballston. On
December 16, 1997, the District Court denied the Company's motion
for a preliminary injunction and, as described elsewhere, a
majority of the shareholders voted against the acquisition.
Subsequently, on January 23, 1998, the Company filed an amended
complaint against the same defendants, and joined Ferris, Baker,
Watts, Inc., an investment banking firm, alleging that it also
participated in an unlawful solicitation of proxies.
On May 4, 1998, the Company discontinued this action by the
filing of a Notice of Dismissal without prejudice. The directors
put previous management on notice that to the best of their
belief and knowledge, they were entitled to indemnification for
their legal expenses in defending themselves in this lawsuit.
During the second quarter of 1998, $250,000 was escrowed in
professional fees for the indemnification of these expenses.
On May 29, 1998 a suit was filed in The Court of Chancery of
the State of Delaware by Rose Z. Thorman and Martha Burke as
custodian for Holly McMackin, Jake McMackin, Ashtyn Talley and
Casey Talley against Marshall T. Reynolds, Jeanne D. Hubbard,
Robert H. Shell, Jr. and Ferris Baker Watts, defendants, and
Abigail Adams National Bancorp, Inc., Nominal Defendant asserting
claims for individual, derivative and class action for: (1)
breach of fiduciary duties of loyalty and disclosure; (2) aiding
and abetting breach of fiduciary duties; and (3) tortious
interference with economic and contractual relations. The
Company has hired Delaware counsel and intends to vigorously
defend this suit. A motion to dismiss this suit was filed on or
before July 31, 1998 and counsel is now preparing briefs to
support this motion. No ruling on the motion is expected before
October 1998.
On June 8, 1998 a suit was filed in United States District
Court, District of Delaware by Rose Z. Thorman, and Martha Burke,
individually and as custodian for Holly McMackin, Jake McMackin,
<PAGE>
Ashtyn Talley and Casey Talley, Plaintiffs against Abigail Adams
National Bancorp, Inc. a Delaware Corporation, Nominal Defendant,
and Marshall T. Reynolds, Jeanne D. Hubbard, Robert L. Shell, Jr.
and Ferris Baker Watts, Incorporated, a Delaware Corporation,
Defendants asserting claims under 15 U.S.C. Sec. 78n(a) - Action
of violations of 14(a) resulting from defendants': (1)
solicitations of proxies without filing proxy statements with the
SEC; (2) failure to provide persons solicited with proxy
statements concurrent or in advance of the solicitation; and (3)
solicitations containing false or misleading statements of
material facts. The Company has hired Delaware counsel and
intends to vigorously defend this suit. Counsel for the
plaintiffs has entered into a stipulation agreement to extend the
time for answering, moving or otherwise pleading in this case
until the Chancery Court has ruled upon the motions filed there.
Item 2 - Changes in Securities and Use of Proceeds
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
The Company did not conduct a solicitation of its security
holders during the period under report.
Item 5 - Other Matters
On December 30, 1997, Mr. Reynolds and certain related
stockholders (the "Reynolds Group") filed an amendment to their
report of beneficial ownership on Schedule 13D originally filed
on May 1, 1995 and subsequently amended, which amendment stated,
among other things, that the Reynolds Group may seek to effect a
change in the composition of the Board of Directors of the
Company. Subsequently, on March 11, 1998, Mr. Reynolds, his wife
and two other director/stockholders, Jeanne D. Hubbard and Robert
L. Shell, Jr., filed a preliminary consent solicitation statement
with the Securities and Exchange Commission, relating to their
proposed solicitation of consents for the removal of four
directors - Barbara Davis Blum, Clarence L. James, Jr., Shireen
L. Dodson and Susan Hager - and the election of four new
directors - A. George Cook, Marianne Steiner, Bonita Wilson and
Joseph L. Williams - to fill the vacancies created by the removal
of the four directors. The Reynolds Group also filed another
amendment to Schedule 13D on March 11, 1998 relating to the
efforts to effect the change in the membership of the Board of
Directors of the Company. Both the preliminary consent
solicitation statement and the amendment to Schedule 13D stated
that it is the intent of the Reynolds Group to request the
nonparty directors to dismiss the lawsuit (described in Item 1)
upon a change of control. On May 4, 1998 this lawsuit was
dismissed by previous management and the special committee of the
board of the Company. On May 18, 1998, the Reynolds Group
delivered sufficient consents to the Company to effect the
removal of the four directors and the election of the four new
directors. On May 19, 1998 at a regularly scheduled Board of
Directors Meeting Jeanne D. Hubbard was elected Chairwoman,
President and CEO of the Company. At this same meeting Jeanne D.
Hubbard was elected Chairwoman and CEO of the Bank and Kathleen
Walsh Carr was elected President, COO and director of the Bank.
At the regularly scheduled Board Of Directors meeting on June 15,
1998 Michelle D. Bernard and Lynne M. Miller were elected to the
Board of The Adams National Bank.
Item 6 - Exhibits and Reports on Form 8-K
<PAGE>
(a) Exhibits
Exhibit No. Description of Exhibit
13 Abigail Adams National Bancorp, Inc. Financial
Summary for June 30, 1998
27 Financial Data Schedule
(b) On May 22, 1998, the Company filed a report on Form 8-K
(earliest event reported May 19, 1998) reporting that the
resignation of three directors pursuant to Item 6. Resignations
of Registrant's Directors.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ABIGAIL ADAMS NATIONAL BANCORP, INC.
Registrant
Date: August 12, 1998 /s/ Jeanne D. Hubbard
------------------------
Jeanne D. Hubbard
Chairwoman of the Board,
President and Director
(Principal Executive Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 7729
<INT-BEARING-DEPOSITS> 2063
<FED-FUNDS-SOLD> 3421
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 20305
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0
0
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</TABLE>
