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 For the fiscal year ended December 31, 1997
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
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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. [X]
State issuer's revenues for its most recent fiscal year $10,807,000
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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 16, 1998.
$15,659,000
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of March 16, 1998.
1,651,226 shares of Common Stock, Par Value $.01
Transitional Small Business Disclosure Format (Check one) Yes No X
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1998 Annual Meeting of
Stockholders of Abigail Adams National Bancorp, Inc., to be
filed with the Securities and Exchange
Commission on or before April 30, 1998, 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
five full-service offices located in Washington. The Company's newest branch
opened in November of 1997. At December 31, 1997, the Company had consolidated
assets of $131,239,000, deposits of $112,261,000 and stockholders' equity of
$13,030,000, and reported net income of $342,000 for the year then ended. The
Bank exceeds all regulatory capital requirements. See "Supervision and
Regulation."
In each of the last two years, the Bank has opened a new branch. In the
fourth quarter of 1996, the Bank opened its branch in Dupont Circle East in the
District of Columbia and in the fourth quarter of 1997, the Bank opened its
Chinatown branch across from the MCI Arena in the District of Columbia.
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, management believes 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.
Since undertaking a public offering in 1996, the Company has sought 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. During 1997, the Company
attempted to acquire Ballston Bancorp, Inc., parent of the Bank of Northern
Virginia, but the transaction did not receive the required approval by the
Company's stockholders. See "Strategy," below for a further discussion of that
transaction.
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
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Bank remains committed to assisting women and minority business owners obtain
access to credit.
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.
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o VISA(R) credit card services.
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. During January 1998, the Bank undertook a pilot program to
offer customers the ability to pay certain bills by personal computer. During
1998, the Bank plans to offer this service to all of its customers. The Bank
currently 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 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 is now scheduled to expire in the second
quarter of 1998. While the Bank is presently considering renewal options as well
as other
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state-of-the-art data processing alternatives, the Bank will only consider data
processing systems which can appropriately address the Year 2000 issue.
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.
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.
Upon the unanimous approval of the Company's Board of Directors, in
June 1997, the Company entered into an agreement ("Agreement") with Ballston
Bancorp, Inc. ("Ballston") to purchase Ballston for a price equal to 1.8 times
Ballston's book value at March 31, 1997, subject to certain adjustments, to be
paid 50% in the Company's stock and 50% in cash. In late October, 1997, a
director of the Company, Marshall T. Reynolds, advised the Company's Board of
Directors that he would not support the acquisition of Ballston, despite his
earlier vote as a director supporting the transaction. At the Company's Special
Meeting of Shareholders held on December 31, 1997, the acquisition of Ballston
was not approved by the shareholders. In March 1998, Ballston Bancorp, Inc.
entered into an agreement to sell for $5.5 million more than Abigail Adams
National Bancorp had agreed to pay.
Although the Company intends to continue to explore acquisition
opportunities and to hold discussions with potential merger candidates should
opportunities arise, no banks have been identified as probable merger or
acquisition candidates. 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. In January 1997, the
Company signed a lease to open a fifth branch, in Washington. This branch in
Chinatown across from the MCI Arena, opened in November 1997. No new branches
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
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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, 1997, $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.
As disclosed herein in Item 3, it is likely that the composition of the
Board of Directors will change in 1998 as a result of the efforts of certain
stockholders, including three current directors, to remove four other directors.
A new board is likely to develop and implement its own strategies, which are not
known to present management.
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, residential real estate loans, renovation and
mortgage loans, loan participations, consumer loans, revolving lines of credit
and letters of credit, with an emphasis on commercial real estate lending.
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, 1997, approximately 66% of the Bank's
total loan portfolio was comprised of loans with interest rates which either
float or adjust on an annual basis. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Analysis of Loans."
The Bank 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 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, 1997 and 1996, commercial and
real estate SBA loans totaled $2,264,000 and $3,134,000, respectively.
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, community housing, education and health care. At December 31, 1997 and
1996, commercial and real estate loans to these customers totaled $1,996,000 and
$1,497,000, respectively.
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Commercial and real estate lending is performed by the Bank's Lending
Division, which is comprised of five loan officers and a credit analyst. 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 $500,000. Loans over $250,000 on an unsecured basis and over
$500,000 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 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, 1997 and 1996, commercial
loans totaled $38,980,000 and $39,419,000, respectively.
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Real Estate Lending
At December 31, 1997 and 1996, the Bank's real estate loan portfolio
consisted of commercial real estate mortgages totaling $38,627,000 and
$24,840,000, respectively, and residential real estate mortgages totaling
$1,981,000 and $2,631,000, respectively. The majority of these loans are
amortizing variable rate or annually repricing mortgage loans.
The majority of the $4,231,000 in loans classified as construction and
land development loans at December 31, 1997 in the Consolidated Financial
Statements, are primarily for construction and 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.
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,
1997 and 1996, consumer loans totaled $1,763,000 and $2,203,000, respectively.
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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, 1997, the Company employed 50 people on a full time and
none on a part time basis. The employees are not represented by a union and
management believes that its relations with its employees are good.
Supervision and Regulation
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.
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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").
Such regulations include prior approval of Company affiliates and subsidiaries.
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.
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.
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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 of law or unsafe or unsound practice, to
issue an administrative order that can be judicially enforced, to direct an
increase in capital, to restrict the growth of the Bank, to assess civil
monetary penalties, and to remove officers and directors. The FDIC has similar
enforcement authority, in addition to its authority to terminate a Bank's
deposit insurance, in the absence of action by the OCC and upon a finding that a
Bank is in an unsafe or unsound condition, is engaging in unsafe or unsound
activities, or that its conduct poses a risk to the deposit insurance fund or
may prejudice the interest of its depositors. The Bank is not subject to any
such actions by the OCC or the FDIC.
The deposits of the Bank are insured by the FDIC in the manner and to
the extent provided by law. For this protection, the Bank pays a semiannual
statutory assessment. See "Premiums for Deposit Insurance." Various other
requirements and restrictions under the laws of the United States affect the
operations of the Bank. Federal statutes and regulations relate to many aspects
of the Bank's operations, including reserves against deposits, interest rates
payable on deposits, loans, investments, mergers and acquisitions, borrowings,
dividends, locations of
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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 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.
11
<PAGE>
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.
The current risk-based capital ratio analysis establishes minimum
supervisory guidelines and standards. It does not evaluate all factors affecting
an organization's financial condition. Factors which are not evaluated include
(i) overall interest rate exposure; (ii) quality and level of earnings; (iii)
investment or loan portfolio concentrations; (iv) quality of loans and
investments; (v) the effectiveness of loan and investment policies; (vi) certain
risks arising from nontraditional activities and (vii) management's overall
ability to monitor and control other financial and operating risks, inclduing
the risks presented by concentrations of credit and nontraditional activities.
The capital adequacy assessment of federal bank regulators will, however,
continue to include analyses of the foregoing considerations and in particular,
the level and severity of problem and classified assets. Market risk of a
banking organization -- risk of loss stemming from movements in market prices --
is not evaluated under the current risk-based capital ratio analysis (and is
therefore analyzed by the bank regulators through a general assessment of an
organization's captial adequacy) unless trading activities constitute 10 percent
of $1 billion or more of the assets of such organization. Such an organization
(unless exempted by the banking regulators) and certain other banking
organization designated by the banking regulators must, beginning on or before
January 1, 1998, include in its risk-based capital ratio analysis charges
12
<PAGE>
for, and hold capital against, general market risk of all positions held in its
trading account and of foreign exchange and commodity positions wherever
located, as well as against specific risk of debt and equity positions located
in its trading account. Currently, the Company does not calculate a risk-based
capital charge for its market risk.
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.
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
13
<PAGE>
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. The FDIC has since acted to
continue this range of assessment rates through December 31, 1997.
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.
Since the Bank is considered well-capitalized under regulatory
standards and met certain other criteria during 1997, the Bank, as a Bank
Insurance Fund Member, paid a Financing Corporation ("FICO") assessment of
approximately $12,000 under the Deposit Insurance Fund Act of 1996, which is an
assessment separate from and in addition to deposit insurance premiums. The Bank
was not required to pay a deposit insurance premium for 1997.
In addition to the payment of deposit insurance assessments, depository
institutions are required to make quarterly assessment payments to the FDIC on
their BIF assessable deposits,
14
<PAGE>
which will be paid FICO to enable it to pay interest and certain other expenses
on bonds which it issued pursuant to the Financing Institutions Reform,
Recovery, and Enforcement Act of 1989, as amended, to facilitate the resolution
of failed savings associations. Pursuant to the Federal Home Loan Bank Act,
FICO, with the approval of the FDIC, establishes assessment rates based upon
estimates of (i) expected operating expenses, case resolution expenditures and
income of FICO; (ii) the effect of assessments upon members' earnings and
capital; and (iii) any other factors deemed appropriate by it. Assessment rates
for 1997 were set at 1.28 basis points annually for BIF-assessable deposits,
subject to quarterly review and adjustment.
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
Under the Riegel-Neal Interstate Banking and Branching Efficiency Act
of 1994, as amended (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 generally without regard to state law prohibitions on such acquisitions. 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. Since June 1, 1997 (and prior to that date in some
instances), banks have been able to expand across state lines where qualifying
legislation adopted by certain states prior to that date prohibits such
interstate expansion. Banks may also expand across state lines through the
acquisition of an individual branch of a bank located in another state or
through the establishment of a de novo branch in another state where the law of
the state in which the branch is to be acquired or established specifically
authorizes such acquisition or de novo branch establishment.
Factors Affecting Future Results
In addition to historical information, this Form 10-KSB includes
certain forward looking statements that 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 management expectations.
Factors that could contribute to those differences include, but are not limited
to, general economic conditions, legislative and regulatory changes, monetary
15
<PAGE>
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, among other
things, 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 Mr. Reynolds and
certain related stockholders (the "Reynolds Group"), uncertainties with respect
to policies and strategies undertaken and costs incurred following a change in
control, 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.
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 four other offices, located at 2905 M Street, N.W.,
Washington, D.C. 20007; Union Station, 50 Massachusetts Avenue, N.E.,
Washington, D.C. 20002; 1604 17th Street, N.W., Washington, D.C. 20009 and 802
7th Street, N.W., Washington, D.C. 20001. 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
During the first quarter of 1998, the Bank initiated discussions
through a tenant brokerage firm with the Union Station landlord for renewal of
the Union Station lease expiring during 1998.
In 1997, the Company and the Bank incurred rental expense on leased
real estate of approximately $505,000. The Company considers all of the
properties leased by the Bank to be suitable and adequate for their intended
purposes.
16
<PAGE>
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, except for the matter 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. That complaint seeks
damages of not less than $10 million. The defendants have not answered the
complaint. An answer is due on April 6, 1998. It is believed that the defendants
will deny the allegations. The defendants may choose to assert counterclaims
against the Company and/or its other directors. The action was authorized by a
unanimous vote of a Special Committee of the Board of Directors consisting of
the seven directors not named as defendant directors. The consent solicitation
filed by directors Reynolds, Hubbard and Shell on March 11, 1998 and referred to
below, discloses that a principal purpose of the solicitation and reorganization
of the board is to cause the Company to drop the lawsuit. The consent
solicitation discloses that the director defendants have a conflict of interest
in taking such action.
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 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 dismiss
the lawsuit upon a change of control. As of March 31, 1998, to the best of
17
<PAGE>
management's knowledge, the consent solicitation materials are still undergoing
review by the staff of the Securities and Exchange Commission.
Item 4. Submission of Matters to a Vote of Security-Holders.
The Company held a Special Meeting of Stockholders on December 31, 1997
to vote upon a proposal to ratify the Board's approval and adoption of the
Agreement and Plan of Reorganization, dated as of June 23, 1997 as amended by
and among the Company, Ballston Bancorp, Inc. and The Bank of Northern Virginia
and the merger provided for therein and to approve the issuance of a number of
shares, subject to adjustment, of the common stock of the Company to holders of
the common stock of Ballston sufficient to complete the Company's proposed
acquisition of Ballston through the merger of Ballston with and into Adams
Acquisition Corporation, a to-be-formed wholly-owned subsidiary of the Company.
The voting results regarding this matter were as follows:
For 536,306
Against 933,927
Abstain 16,440
18
<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 the
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 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 and all of 1997. 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, 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
March 31, 1997 $12.25 $11.25
June 30, 1997 13.25 11.50
September 30, 1997 13.75 10.75
December 31, 1997 14.50 12.25
(b) As of March 16, 1997, the Company had 697 stockholders of record.
(c) During 1997, the Company declared three quarterly cash dividends on
the Common Stock of $.10 per share, for a total of $489,164. No dividend was
declared for the fourth quarter of 1997. During 1996, the Company declared four
quarterly cash dividends on the Common Stock of $.0833 per share for each of the
first two quarters and $.10 per share for each of the last two quarters, for a
total of $467,429. 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.
19
<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Abigail Adams National Bancorp, Inc. (the "Company") is the parent of
The Adams National Bank (the "Bank"), a bank with five full-service branches
located in Washington, D.C. The Company's newest branch in Chinatown in the
District of Columbia was opened in November 1997.
The Company reported a 17% increase in both total assets and loans but
a decrease in net income for 1997 as compared to 1996. Total assets at December
31, 1997, were $131,239,000, up from $112,162,000 one year ago, and total loans
of $85,314,000 at year-end were up from $73,013,000 at the end of 1996.
The Company reported net income of $342,000, or $.21 per share, for
1997, a decrease of $785,000 from the $1,127,000, or $.94 per share, reported
for the year ended December 31, 1996. The decrease in net income was
attributable principally to the write-off of approximately $1,200,000 in costs
incurred in conjunction with the Company' aborted purchase of Ballston Bancorp,
Inc. In addition, costs associated with re-engineering of management systems
which would ordinarily have been implemented over a two-year period were
consolidated into 1997 in order to facilitate the anticipated merger of the two
operations. The acquisition of Ballston Bancorp was not approved by shareholders
at the Company's Special Meeting of Shareholders held on December 31, 1997.
During 1996, the Company reversed $275,000 of loan loss provision, further
emphasizing the decrease in net income in 1997 as compared to 1996. In addition
to the factors discussed above, earnings per share were also impacted by the
full year effect of the additional 795,500 shares issued in an oversubscribed
stock offering completed during the third quarter of 1996.
Nonetheless, 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 14.97% at December 31, 1997, of which 13.76% was
Tier 1 capital. The leverage ratio (based on annual average assets) was 11.09%.
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.
As discussed in Note 19 of the Notes to Consolidated Financial
Statements, in late 1997 the Company filed a lawsuit against three directors and
certain other shareholders alleging violations of securities laws and breach of
fiduciary duty in connection with the failed acquisition of Ballston Bancorp.
The complaint has not yet been answered by the defendants. On March 11, 1998
these same three directors filed a preliminary consent solicitation statement
with the Securities and Exchange Commission ("SEC"), relating to their proposed
solicitation of consents for the removal of four directors and the election of
four new directors to fill the vacancies thus created. The consent solicitation
also disclosed that it was the three directors' intent to dismiss the lawsuit
against them after a change in control. As of March 31, 1998, to the best of
management's knowledge, the consent solicitation materials are still undergoing
review by the staff of the SEC. The Company may continue to incur costs in
connection with this litigation in an amount which cannot be determined at this
time. However, the directors have determined not
20
<PAGE>
to engage in a solicitation contest with respect to the proposed removal and
replacement of four of the directors.
In February 1998, the Company and the Bank each established a trust
with a third party trustee for the purpose of funding the severance agreements
with certain key management officials and the employment agreement with the
President and Chief Executive Officer. In the aggregate, funds totaling
$1,132,000 were deposited in these trusts. The establishment of these trusts has
no impact on the consolidated financial statements. The funds held in the trusts
are invested in interest-bearing deposits with other banks. See Notes 11 and 19
of the Notes to the Consolidated Financial Statements for a further discussion.
Analysis of Net Interest Income
Net interest income, the most significant component of the Company's
earnings, increased by $1,144,000, or 25%, to $5,781,000 in 1997 as compared to
$4,640,000 in 1996. This improvement in net interest income was a result of a
24% increase in average earning assets, an increase in the average loan to
deposit ratio to 81% from 76% and increases in average net non interest-bearing
sources of funds. 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 3.87% and a fully taxable
equivalent ("FTE") net interest margin (FTE net interest income as a percentage
of average interest-earning assets) of 5.25% for 1997, reflecting increases of 1
basis points and 2 basis points, respectively, from 1996. Loans, the highest
yielding component of earning assets, represented approximately 73% of total
average earning assets for 1997 as compared to approximately 70% for 1995.
Net interest income 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 of 3.86% and a
net interest margin of 5.23% for 1996, reflecting decreases of 26 basis points
and 16 basis points, respectively, from 1995. Loans represented approximately
70% of total average earning assets for 1996 as compared to approximately 78%
for 1995.
21
<PAGE>
Distribution of Assets, Liabilities and Stockholders' Equity
Yields and Rates
For the Years Ended December 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------- --------------------------- ---------------------------
Average Income Average Average Income Average Average Income Average
Balance Expense Rate Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ---- ------- ------- ----
Assets
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans 1 $ 80,460 $ 7,880 9.79% $ 62,350 $ 6,072 9.74% $ 60,318 $ 5,902 9.78%
Securities 21,837 1,285 5.88 12,795 755 5.90 14,367 859 5.98
Federal funds sold and
resale agreements 6,378 352 5.52 12,752 693 5.43 2,235 130 5.82
Interest-bearing deposits
in other banks 1,509 89 5.90 860 53 6.16 433 23 5.31
-------- ----- ------- ----- ------- -----
Total interest-earning assets 110,184 9,606 8.72 88,757 7,573 8.53 77,353 6,914 8.94
Allowance for loan losses (1,100) (1,272) (1,299)
Cash and due from banks 6,042 6,091 4,715
Bank premises and equipment 941 487 320
Other assets 1,500 1,319 1,205
-------- ------- -------
Total assets $ 117.567 $ 95,382 $ 82,294
========= =========== ==========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Time deposits $ 34,051 1,355 3.98 $ 32,195 1,257 3.90 $ 27,740 1,094 3.94
Certificates of deposit 40,849 2,255 5.52 28,102 1,554 5.53 27,300 1,544 5.66
Federal funds purchased and
repurchase agreements 2,724 135 4.96 2,148 105 4.89 1,600 89 5.56
Other short-term borrowings -- -- -- -- -- -- 104 6 5.77
Long-term borrowings/debt 1,111 77 6.93 357 17 4.76 233 14 6.01
------- ------ ------- ------- ------- -------
Total interest-bearing 78,735 3,822 4.85 62,802 2,933 4.67 56,977 2,747 4.82
liabilities ----- ----- -----
Noninterest-bearing liabilities:
Demand deposits 24,468 22,099 18,547
Other liabilities 979 888 594
Stockholders' equity 13,385 9,593 6,176
-------- ------- -------
Total liabilities and
stockholders' equity $ 117,567 $ 95,382 $ 82,294
========= ======== =========
FTE net interest income 2 $ 5,784 $ 4,640 $ 4,167
======= ======= =======
Net interest spread 3.87% 3.86% 4.12%
===== ===== =====
Net interest margin 5.25% 5.23% 5.39%
===== ===== =====
</TABLE>
- ----------------------------
1 Nonaccrual loans are included in the average loan balances. Interest on
loans includes fees of approximately $244,000, $141,000 and $152,000 in
1997, 1996 and 1995, respectively.
2 Taxable equivalent adjustments for tax-exempt securities were $3,000, $0
and $0 for 1997, 1996 and 1995.
22
<PAGE>
Interest Rates and Interest Differential
Analysis of Changes in Fully Taxable Equivalent Net Interest Income
(In thousands)
<TABLE>
<CAPTION>
For the years ended December 31, For the years ended December 31,
1997 versus 1996 1996 versus 1995
------------------------------------- ----------------------------
Net Net
Increase Change per: Increase Change per:
(Decrease)1 Rate Volume (Decrease)1 Rate Volume
----------- ---- ------ ----------- ---- ------
Interest income from:
<S> <C> <C> <C> <C> <C> <C>
Loans 2 $ 1,808 $ 44 $ 1,764 $ 171 $ (28) $ 199
Securities 530 (3) 533 (104) (10) (94)
Federal funds sold and
resale agreements (341) 6 (347) 563 (49) 612
Interest-bearing deposits
in banks 36 (4) 40 30 7 23
------- ------- ------- ------ ------ -----
Total interest income 3, 4 2,033 43 1,990 660 (80) 740
Interest expense on:
Time deposits 5 98 25 73 164 (12) 176
Certificates of deposit 701 (4) 705 10 (35) 45
Short-term borrowings 30 1 29 10 (15) 25
Long-term borrowings/debt 60 24 36 3 (4) 7
------- ------ ----- ------- ------ ----
Total interest expense 3 889 46 843 187 (66) 253
----- ----- ---- ------ ------ -----
Net interest income 4 $ 1,144 $ (3) $ 1,147 $ 473 $ (14) $ 487
======== ===== ======= ====== ======= =====
</TABLE>
- ---------------------------------
1 Changes due to both rate and volume are allocated to rate.
2 Interest on loans includes loan fees of approximately $244,000, $141,000
and $152,000 in 1997, 1996 and 1995, 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 Taxable equivalent adjustments for tax-exempt securities were $3,000, $0
and $0 for 1997, 1996 and 1995.
5 Includes transaction accounts.
Other Income
Total other income, which consists primarily of service charges on
deposits and other fee income, increased by approximately $251,000, or 26%, to
$1,204,000 in 1997 as compared to $953,000 in 1996. Service charges on deposit
accounts increased by approximately $338,000, or 43%, to $1,126,000 in 1997 as
compared to $788,000 in 1996 principally due to a $369,000 increase in income
recognized on ATM transactions, primarily from the full year's effect of the
late 1996 implementation of the $1.00 surcharge on noncustomer ATM transactions.
This was partially offset by a $31,000 decrease in monthly and transactional
service charges on deposits. Other income decreased by approximately $87,000, or
53%, to $78,000 in 1997 as compared to
23
<PAGE>
$165,000 in 1996, primarily due to income recognized in 1996 related in part to
rental income received from and gains recognized on the sale of other real
estate.
Total other 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 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.
Other Expense
Total other expense increased by $2,326,000, or 57%, to $6,419,000 in
1997 from $4,093,000 in 1996. Salaries and benefits for 1997 increased by
$350,000, or 18%, to $2,255,000 from $1,905,000 in 1996, due to the full year's
impact of employees hired for the new branch opened in late 1996, an increase in
the number of employees resulting from the new branch opened in late 1997, staff
additions in contemplation of the failed merger, normal merit increases and
associated increases in employee benefits. Occupancy and equipment expense
increased by $231,000, or 30%, to $1,009,000 in 1997 from $778,000 in 1996
primarily due to the full year's effect of the new branch opened in late 1996,
as well as the partial year effect of the branch opened in late 1997. The full
year's effect of depreciation expense from the Company's local area network
which was installed in the later part of the second quarter of 1996 also
contributed to the increase. Professional fees increased by $1,147,000 to
$1,290,000 in 1997 from $143,000 in 1996 due primarily to the expensing of
approximately $991,000 in professional fees incurred in connection with the
Company's aborted purchase of Ballston Bancorp, Inc. in the last quarter of
1997. Additionally, professional costs associated with the re-engineering of
management systems were also incurred in 1997, further contributing to the
increase in professional fees. Data processing expense increased by $136,000, or
38%, to $495,000 in 1997 from $359,000 in 1996 due to an increase in accounts
from the new branches opened in late 1996 and 1997, as well as increased numbers
of accounts and activity thereon. Other operating expense increased by $460,000,
or 51%, to $1,369,000 in 1997 from $909,000 in 1996 due primarily to increases
in administrative and overhead expenses associated with the opening of the new
branches in late 1996 and 1997 and the write-off of other costs incurred in
connection with the aborted purchase of Ballston Bancorp, Inc., such as
printing, public relations and regulatory filing fees.
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 for the new branch, higher
24
<PAGE>
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 Bank contracts with an outside firm to provide data processing and
back-room operations. 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 is now scheduled to expire
in the second quarter of 1998. 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 address the
Year 2000 issue. 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'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
effected 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.
25
<PAGE>
Income Tax Expense
Income tax expense of $225,000 for 1997 reflected a decrease of
$423,000 over the $648,000 tax expense recorded one year earlier due to a
$1,219,000 decrease in income before taxes, partially offset by an increase in
the Company's effective tax rate to 40% from 36% one year earlier.
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.
Analysis of Loans
The loan portfolio at December 31, 1997 increased by $12,301,000, or
17%, to $85,314,000 from $73,013,000 at December 31, 1996. 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 $18,110,000, or
29%, to $80,460,000 for 1997 from $62,350,000 for 1996, while the average loan
to deposit ratio increased to 81% from 76% during the same period. The loan to
deposit ratio at December 31, 1997 was 76% while the ratio at December 31, 1996
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, 1997 and 1996, see Note 4 of the Notes to Consolidated Financial
Statements.
26
<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, 1997.
Analysis of Loan Maturity and Interest Sensitivity
At December 31, 1997
(In thousands)
<TABLE>
<CAPTION>
Within 1 1 - 5 After
Year (1) Years 5 Years Total
Maturity of Loans: (2)(3)
<S> <C> <C> <C> <C>
Commercial $ 16,546 $ 17,387 $ 5,047 $ 38,980
Real estate - commercial mortgage 3,834 22,615 12,178 38,627
Real estate - residential mortgage 327 1,041 613 1,981
Real estate - construction 3,147 216 868 4,231
Installment 618 1,039 106 1,763
--- ----- --- -----
Total loans (4) $ 24,472 $ 42,298 $ 18,812 $ 85,582
======== ======== ======== ========
Interest Rate Sensitivity of Loans:
With predetermined interest rates $ 6,673 $ 9,953 $ 244 $ 16,870
With floating or
adjustable interest rates 17,799 32,345 18,568 68,712
------ ------ ------ ------
Total loans (4) $ 24,472 $ 42,298 $ 18,812 $ 85,582
======== ======== ======== ========
</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 $268,228.
Analysis of Investments
The Company classifies its debt and marketable equity securities at
acquisition 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.
Securities available for sale totaling $18,810,000 matured or were
repaid during 1997 as compared to purchases of $27,884,000 during the same
period. These securities transactions
27
<PAGE>
coupled with scheduled amortization and accretion for the year accounted for the
increase in the available for sale portfolio of $9,248,000, or 83%, to
$20,453,000 at December 31, 1997 as compared to $11,205,000 at December 31,
1996. Investment maturities of $6,150,000 and normal paydowns on mortgage-backed
securities, partially offset by purchases totaling $2,059,000, accounted for the
decrease in investments of $4,132,000, or 35%, to $7,509,000 at December 31,
1997 from $11,641,000 at December 31, 1996. The net increase in the combined
investment and available for sale securities portfolio is reflective of the
Company's increased liquidity levels. See "Liquidity and Capital Resources" for
a further analysis of liquidity. On average for 1997, the combined investment
and available for sale securities portfolio increased by $9,042,000, or 71%, to
$21,837,000 for 1997 from $12,795,000 for 1996.
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, 1997.
Analysis of Securities Portfolio
At December 31, 1997
(In thousands)
<TABLE>
<CAPTION>
Investment Securities Securities Available for Sale
--------------------- -----------------------------
Adjusted Market Average Adjusted Market Average
Cost Basis1 Value Yield Cost Basis1 Value Yield
----------- ----- ----- ----------- ----- -----
U.S. Treasury:
<S> <C> <C> <C> <C> <C> <C>
Within one year $ 500 $ 501 6.16% $ -- $ -- -- %
After one, but within five years 1,000 1,000 5.75 1,009 1,009 5.70
----- ----- ----- -----
Total 1,500 1,501 5.89 1,009 1,009 5.70
----- ----- ----- -----
Obligations of other U.S.
Government agencies
and corporations: 2
Within one year 3,489 3,499 5.71 5,933 5,935 5.74
After one, but within five years 1,498 1,498 6.10 13,523 13,509 6.11
----- ----- ------ ------
Total 4,987 4,997 5.83 19,456 19,444 6.00
----- ----- ------ ------
Mortgage-backed securities: 3
Federal Home Loan Mortgage Corporation:
After one, but within five years 196 205 8.71 -- -- --
----- ----- ------- -------
Obligations of states and municipalities:
After ten years 310 313 5.15 -- -- --
----- ---- -------- --------
Federal Reserve Bank stock 173 173 6.00 -- -- --
------ ------ -------- --------
Federal Home Loan Bank stock 330 330 7.25 -- -- --
---- ---- -------- --------
Corporate securities 13 13 -- -- -- --
------ ------ -------- --------
Total investment securities $ 7,509 $ 7,532 5.94 % $20,465 $20,453 5.98 %
======= ======= ====== ======= ======= ======
</TABLE>
------------------
28
<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.
Obligations of other U.S. Government agencies and corporations are shown
based on final maturity, although securities may be called prior to such
date.
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, 1997 and 1996, see Note 3 of the Notes to
Consolidated Financial Statements.
Noninterest-Earning Assets
Cash and due from banks of $7,654,000 at December 31, 1997 reflected a
decrease of $2,131,000, or 22%, from the $9,785,000 balance at December 31,
1996. One large deposit was 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 and no such deposits were received at December
31, 1997.
Bank premises and equipment of $1,252,000 at December 31, 1997
reflected a 49% increase of $412,000 from the $840,000 balance reported at
December 31, 1996. This increase was primarily due to leasehold improvements and
equipment associated with the opening of the new branch in 1997.
Deposits
Total deposits of $112,261,000 at December 31, 1997 increased by
$17,106,000, or 18%, from the December 31, 1996 balance of $95,155,000.
Demand deposit balances of $27,184,000 at December 31, 1997 increased
$3,506,000 over the balance at December 31, 1996 of $23,678,000, while average
demand deposits for 1997 of $24,468,000 increased $2,369,000, or 11%, over the
average balance for 1996. The opening of new branches in the fourth quarter of
1996 and 1997 contributed to the increase in both period end and average demand
deposits. Negotiable Order of Withdrawal, or "NOW" accounts, at December 31,
1997 of $9,881,000 increased $1,841,000, or 23%, over the balance at December
31, 1996 of $8,040,000, while average NOW accounts for 1997 of $7,536,000
decreased $483,000, or 6%, as compared to the average balance for 1996. Money
market accounts of $26,970,000 at December 31, 1997 decreased $2,563,000, or 9%,
over the $29,533,000 balance at December 31, 1996, due in part to the normal
fluctuations in the balances of one large commercial customer. Average money
market accounts for 1997 of $24,895,000 increased $2,002,000, or 9%, as compared
to the average balance for 1996 primarily due to the full year's effect of
increased deposits resulting from the new branch opened in late 1996.
29
<PAGE>
Certificates of deposit of $100,000 or greater at December 31, 1997 of
$25,255,000 increased by $9,597,000, or 61%, from the $15,658,000 reported at
December 31, 1996 primarily due to increases in collateralized government
deposits, brokered certificates of deposits and new customers. Certificates of
deposit under $100,000 increased by $4,207,000, or 25%, to $21,073,000 at
December 31, 1997 from $16,866,000 at December 31, 1996. This increase is
primarily due to opening of the new branch in the fourth quarter 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, 1997 and 1996.
Maturity Distribution of Certificates of Deposit $100,000 and Over
At December 31, 1997 and 1996
(In thousands)
1997 1996
---- ----
Within three months $ 11,203 $ 8,183
After three months but within six months 7,388 5,075
After six months but within twelve months 6,210 2,100
After twelve months 454 300
------ ------
Total $ 25,255 $ 15,658
======== ========
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, 1997 and 1996.
Average Deposits and Rates
For the Years Ended December 31, 1997 and 1996
(In thousands)
1997 1996
------------------ ---------------
Average Average Average Average
Balance Rate Balance Rate
------- ---- ------- ----
Interest-bearing demand accounts $ 7,536 2.43% $ 8,019 2.42%
Savings deposits 1,620 2.65 1,283 2.66
Money market deposit accounts 24,895 4.53 22,893 4.49
CD's $100,000 and over 21,979 5.49 10,977 5.31
Other time deposits 18,870 5.56 17,125 5.67
------- -------
Total interest-bearing deposits 74,900 4.82 60,297 4.66
Noninterest-bearing demand deposits 24,468 22,099
------- -------
Total deposits $ 99,368 $ 82,396
======== ========
30
<PAGE>
Short-Term Borrowings
Short-term borrowings of $3,489,000 at December 31, 1997 consisted
entirely of repurchase agreements with customers of the Company. This compares
with repurchase agreements outstanding at December 31, 1996 of $1,917,000. For
additional information on short-term borrowings, see Note 10 of the Notes to
Consolidated Financial Statements.
Long-Term Borrowings
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. 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. Net recoveries during
1997 added to the level of loan loss 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 to $61,000 from $117,000 one year earlier. 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 $1,142,000 at
December 31, 1997 to be adequate.
At December 31, 1997, the allowance for loan losses as a percentage of
outstanding loans was 1.34% as compared to 1.44% at December 31, 1996. This
decrease is predominantly due to improvement in the quality of the loan
portfolio. See analysis of "Nonperforming Assets" for a further discussion of
asset quality. In assessing the adequacy of the allowance for loan losses,
31
<PAGE>
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. 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, 1997, 1996 and 1995.
Allocation of Allowance for Loan Losses
At December 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------------------------------------------------------
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 $ 486 45.6 $ 438 53.8% $ 658 68.1%
Real estate - commercial mortgage 464 45.1 360 33.9 252 19.7
Real estate - residential mortgage 23 2.3 19 3.6 39 2.4
Real estate - construction 49 4.9 31 5.7 27 4.1
Installment 59 2.1 83 3.0 45 5.7
Unallocated 61 -- 117 -- 253 --
-------- -------- ------ ------- ------- ----
Total $ 1,142 100.0% $ 1,048 100.0% $ 1,274 100.0%
========= ======= ====== ======= ======== =======
</TABLE>
Nonperforming Assets
Nonperforming assets include nonaccrual loans, restructured loans, past
due loans and other real estate. See Note 4 of the Notes to Consolidated
Financial Statements.
32
<PAGE>
Nonaccrual loans at December 31, 1997 of $411,000 decreased by $552,000
from $963,000 at December 31, 1996, while restructured loans, which continued to
perform as agreed, decreased by $573,000 to $0 at December 31, 1997. Past due
loans decreased by $50,000 to $103,000 at December 31, 1997 from $153,000 at
December 31, 1996 due principally to two loans which were both well-secured and
in the process of collection. At December 31, 1997 and 1996, nonaccrual loans
included $104,000 and $607,000, respectively, in loans guaranteed by the SBA for
a total of $94,000 and $594,000, 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.
The table entitled "Analysis of Nonperforming Assets" presents
nonperforming assets, by category, at December 31, 1997 and 1996.
Analysis of Nonperforming Assets
At December 31, 1997 and 1996
(In thousands)
1997 1996
------ -----
Nonaccrual loans:
Commercial $ 411 $ 863
Real estate - commercial mortgage -- 100
------- -----
Total nonaccrual loans 1 411 963
Past due loans:
Real estate - commercial mortgage 96 142
Installment - individuals 7 11
----- ------
Total past due loans 103 153
Restructured loans:
Commercial -- 573
------ ---
Total restructured loans -- 573
------ ---
Total nonperforming assets $ 514 $ 1,689
===== =======
Total nonperforming assets exclusive of
SBA guaranteed balances $ 420 $ 1,094
===== =======
Ratio of nonperforming assets
to gross loans 2 .60% 2.31%
Ratio of nonperforming assets to total
assets 2 .32% 1.51%
Percentage of allowance for loan losses to
nonperforming assets 2 222.12% 62.05%
Ratio of net charge-offs (recoveries) to (.12)% (.08)%
average loans
- ----------------------------
1 Nonaccrual loans include $104,000 and $607,000 in loans guaranteed by the
SBA at December 31, 1997 and 1996, respectively. The outstanding balance of
these loans are insured for 90.0%, or $94,000, and 97.9%, or $594,000,
respectively.
2 Ratios include SBA guaranteed loan balances.
33
<PAGE>
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, 1997 and 1996, respectively, loans totaling $1,154,000
and $781,000 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. At December 31, 1997, all of the potential problem loans were
partially to fully secured.
Of the $781,000 in 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.
Impaired Loans
At December 31, 1997 and 1996, respectively, loans totaling $698,000
and $1,955,000 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,
1997, interest sensitive assets repricing within each period of less than one
year ranged from 111% to 116% 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 generally 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 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%
34
<PAGE>
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, 1997, net interest income will be materially impacted by either a rising or
declining interest rate environment.
Analysis of Interest Rate Sensitivity
At December 31, 1997
(In thousands)
<TABLE>
<CAPTION>
Total Non-Rate
0-90 91-180 181-365 Rate Sensitive &
Days Days Days Sensitive Over 1 Year Total
---- ---- ---- --------- ----------- -----
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans $ 36,320 $ 10,388 $ 21,465 $ 68,173 $ 17,140 $ 85,313
Securities 1 13,510 2,020 8,009 23,539 4,423 27,962
Short-term investments 6,450 397 1,285 8,132 99 8,231
Noninterest-earning assets -- -- -- -- 9,733 9,733
--------- ---------- --------- --------- -------- ------
Total assets 56,280 12,805 30,759 99,844 31,395 $131,239
========
Interest-bearing liabilities:
Deposits 2 46,457 12,268 24,155 82,880 2,197 $ 85,077
Short-term borrowings 3,489 -- -- 3,489 -- 3,489
Long-term borrowings/debt 19 15 29 63 1,023 1,086
Noninterest-bearing sources -- -- -- -- 41,587 41,587
--------- ---------- --------- --------- --------- --------
Total liabilities and stockholders' equity 49,965 12,283 24,184 86,432 44,807 $131,239
========
Excess (deficiency) of interest sensitive assets over like liabilities:
For the period $ 6,315 $ 522 $ 6,575 $13,412 $(13,412)
Cumulative 6,315 6,837 13,412
Cumulative gap as a % of total
interest-earning assets 11.22% 9.90% 13.43%
Rate sensitive assets rate sensitive liabilities:
Cumulative 1.13x 1.11x 1.16x
- ------------
</TABLE>
1 Includes both investment securities and available for sale securities.
Investments reflect expected prepayments based on call dates of securities,
in light of current market conditions.
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.
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 $15,885,000 in cash and short-term investments at December 31, 1997,
the Company has a securities portfolio which can be pledged to raise additional
deposits and borrowings, if necessary. At December 31, 1997, the Company had
$8,003,000 in unpledged securities which were available for such use. This
compares with cash and short-term investments of $15,364,000 and unpledged
securities of $7,451,000 at December 31, 1996. As a percentage of total assets,
the amount of these cash equivalent assets at December
35
<PAGE>
31, 1997 and 1996 was 18% and 20%, 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, decreased
during 1997 by $5,725,000, or 42%, to $7,887,000 for 1997 as compared to
$13,612,000 for 1996. 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 decrease in average federal funds sold in
1997 as compared to 1996. 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 71% and 79% of the average
total deposit base in 1997 and 1996, respectively. 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 Bank maintained an average loan to
deposit ratio of 81% and 76% during 1997 and 1996, 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, 1997 the Bank was eligible to borrow up to
approximately $1,501,000 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, 1997, $1,086,000 in borrowings
from the FHLB were outstanding. The Bank is eligible to increase the maximum
amount to be borrowed by $7,499,000 with the purchase of $1,648,000 of
additional stock in the FHLB. The Company has adequate resources to meet its
liquidity needs.
Net increases in deposit levels and short-term borrowings, comprised
the majority of the Company's net cash inflows from financing activities for
1997, as increases in deposits totaled $17,106,000. Loan originations and
security purchases exceeded curtailments and repayments of loans and maturities
and scheduled amortization of securities during 1997, 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
36
<PAGE>
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, 1997 of $13,030,000 reflected a
decrease of $110,000 from the balance at December 31, 1996 of $13,140,000 as a
result of the Company declaring dividends during the year of $489,000 which is
in excess of net income of $342,000. Average stockholders' equity as a
percentage of average total assets for 1997 was 11.38% as compared to 10.06% 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, 1997. 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 $ 13,044 11.09% $ 8,610 7.49% 4.00%
Tier 1 risk-based ratio 2 13,044 13.76 8,610 9.37 4.00
Total risk-based ratio 2 14,186 14.97 9,727 10.59 8.00
</TABLE>
- ----------
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.
Change of Accountants
In August 1996, as a result of the recommendation of the Audit
Committee to solicit bids for accounting services, KPMG Peat Marwick LLP's
appointment as principal accountants for the Company was terminated and Arthur
Andersen LLP was engaged as the Company's principal accountants. This engagement
was approved by the Audit Committee of the Board of Directors. In connection
with the audit for the year ended December 31, 1995 and the subsequent period
through August 27, 1996, there were no disagreements with KPMG on accounting
principles or practices, financial statement disclosure or auditing procedures
which would have caused them to make reference in connection with their opinion
to the subject matter of the disagreement. Their audit reports for that period
did not contain any adverse opinion, disclaimer of opinion, or were they
qualified or modified as to uncertainty, audit scope or accounting principles.
Factors Affecting Future Results
In addition to historical information, this Form 10-KSB includes
certain forward-looking statements that involve risks and uncertainties such as
statements of the Company's plans,
37
<PAGE>
expectations and unknown outcomes. The Company's actual results could differ
materially from management expectations. Factors that could contribute to those
differences 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, among other things, 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 Mr. Reynolds and certain related
stockholders (the "Reynolds Group"), uncertainties with respect to policies and
strategies undertaken and costs incurred following a change in control, 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.
Item 7. Financial Statements and Supplementary Data.
ABIGAIL ADAMS NATIONAL BANCORP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Public Accountants.................................39
Consolidated Balance Sheets as of
December 31, 1997 and 1996.............................................40
Consolidated Statements of Operations for the
years ended December 31, 1997, 1996 and 1995...........................41
Consolidated Statements of Changes in Stockholders' Equity for
the years ended December 31, 1997, 1996 and 1995.......................43
Consolidated Statements of Cash Flows for the
years ended December 31, 1997, 1996 and 1995...........................44
Notes to Consolidated Financial Statements...............................46
38
<PAGE>
Report of Independent Public Accountants
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, 1997 and 1996, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the two years ended December 31, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Abigail Adams
National Bancorp, Inc. and subsidiary as of December 31, 1997 and 1996 and the
results of their operations and their cash flows for the two years ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Washington, D.C.
January 27, 1998 (except with respect to the matter discussed in Note 19, as to
which the date is March 30, 1998)
- --------------------------------------------------------------------------------
Report of Independent Public Accountants
The Board of Directors and Stockholders
Abigail Adams National Bancorp, Inc.
We have audited the accompanying consolidated statements of operations, changes
in stockholders' equity and cash flows of Abigail Adams National Bancorp, Inc.
and subsidiary for the year ended December 31, 1995. These consolidated
financial statements are the responsibility of the Abigail Adams National
Bancorp, Inc.'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 results of operations and cash flows of
Abigail Adams National Bancorp, Inc. and subsidiary for the year ended December
31, 1995, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Washington, D.C.
January 26, 1996
39
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------- --------
Assets
<S> <C> <C>
Cash and due from banks $ 7,654,347 $ 9,785,132
Short-term investments:
Federal funds sold 6,450,000 4,100,000
Interest-bearing deposits in other banks 1,781,000 1,479,000
---------- ---------
Total short-term investments 8,231,000 5,579,000
Securities available for sale 20,452,799 11,205,282
Investment securities (market value of $7,532,256 and $11,679,607
for 1997 and 1996, respectively) 7,508,850 11,640,813
Loans (net of deferred fees and unearned discounts) 85,313,591 73,013,413
Less: Allowance for loan losses (1,141,719) (1,048,487)
----------- -----------
Loans, net 84,171,872 71,964,926
------------ -----------
Bank premises and equipment, net 1,252,413 840,051
Other assets 1,967,733 1,147,100
------------- ------------
Total assets $ 131,239,014 $ 112,162,304
============= =============
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Demand deposits $ 27,184,087 $ 23,678,374
NOW accounts 9,880,968 8,039,994
Money market accounts 26,969,638 29,533,210
Savings accounts 1,898,721 1,379,554
Certificates of deposit of $100,000 or greater 25,255,095 15,657,818
Certificates of deposit less than $100,000 21,072,887 16,865,790
------------- -----------
Total deposits 112,261,396 95,154,740
------------ -----------
Short-term borrowings 3,489,263 1,916,689
Long-term borrowings/debt 1,085,936 1,138,815
Other liabilities 1,372,681 811,863
-------------- -------------
Total liabilities 118,209,276 99,022,107
------------ -----------
Commitments and contingent liabilities
Stockholders' equity:
Common stock, par value $0.01 per share, authorized 5,000,000 shares; issued
1,655,906 shares in 1997 and 1,654,712 shares in 1996;
outstanding 1,651,226 shares in 1997 and 1,650,032 shares in 1996 16,559 16,547
Surplus 12,187,657 12,172,435
Retained earnings 1,044,369 1,191,706
------------ ---------
13,248,585 13,380,688
Less: Employee Stock Ownership Plan shares, 20,086 shares in 1997 and
20,319 shares in 1996, at cost (175,757) (177,791)
Less: Treasury stock, 4,680 shares at cost (28,710) (28,710)
Less: Unrealized loss on securities, net of taxes (14,380) (33,990)
------------- -------------
Total stockholders' equity 13,029,738 13,140,197
------------ ------------
Total liabilities and stockholders' equity $ 131,239,014 $ 112,162,304
============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
40
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Operations
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
Interest income
<S> <C> <C> <C>
Interest and fees on loans $ 7,879,610 $ 6,072,500 $ 5,902,325
Interest on securities available for sale:
U.S. Treasury 31,582 48,098 175,979
Obligations of U.S. government agencies and corporations 652,203 207,408 128,954
------- -------- ----------
Total interest on securities available for sale 683,785 255,506 304,933
Interest and dividends on investment securities:
U.S. Treasury 59,787 49,700 69,417
Obligations of U.S. government agencies and corporations 481,328 394,780 413,396
Mortgage-backed securities 8,390 27,705 38,539
Obligations of states and municipalities 15,965 1,907 --
Other securities 32,797 25,468 32,460
-------- --------- --------
Total interest and dividends on investment securities 598,267 499,560 553,812
Interest on short-term investments:
Federal funds sold 352,235 692,614 130,069
Deposits with other banks 88,633 53,044 22,920
--------- --------- ---------
Total interest on short-term investments 440,868 745,658 152,989
-------- ---------- -------
Total interest income 9,602,530 7,573,224 6,914,059
---------- ----------- ---------
Interest expense
Interest on deposits:
NOW accounts 182,782 194,092 249,377
Money market accounts 1,128,860 1,028,668 812,916
Savings accounts 42,979 34,182 31,060
Certificates of deposit:
$100,000 or greater 1,206,372 583,180 698,356
Less than $100,000 1,048,540 970,818 845,681
----------- ------------ ----------
Total interest on deposits 3,609,533 2,810,940 2,637,390
Interest on short-term borrowings:
Federal funds purchased and
repurchase agreements 134,909 104,532 88,871
Other short-term borrowings -- -- 6,364
-------------- ---------------- ----------
Total interest on short-term borrowings 134,909 104,532 95,235
Interest on long-term borrowings/debt 77,162 17,435 13,969
--------- ------------ ----------
Total interest expense 3,821,604 2,932,907 2,746,594
--------- ------------ ----------
Net interest income 5,780,926 4,640,317 4,167,465
Benefit for loan losses -- (275,000) --
--------------- ----------- --------------
Net interest income after provision for
loan losses 5,780,926 4,915,317 4,167,465
--------- ------------ ----------
(Continued)
</TABLE>
41
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Operations (Continued)
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- ------
Other income
<S> <C> <C> <C>
Service charges on deposit accounts 1,125,694 788,207 737,059
Other income 78,403 164,996 103,712
---------- ---------- --------
Total other income 1,204,097 953,203 840,771
--------- ---------- ---------
Other expense
Salaries and employee benefits 2,255,446 1,904,873 1,649,071
Occupancy and equipment expense 1,008,792 777,513 698,570
Professional fees 1,289,650 143,357 353,205
Data processing fees 495,455 358,555 299,580
Other operating expense 1,369,346 909,098 781,000
--------- ----------- --------
Total other expense 6,418,689 4,093,396 3,781,426
--------- ---------- ---------
Income before taxes 566,334 1,775,124 1,226,810
Applicable income tax expense 224,507 647,819 267,912
--------- ----------- ------------
Net income $ 341,827 $ 1,127,305 $ 958,898
============ ============== =========
Earnings per common share:
Basic earnings per common share $ 0.21 $ 0.94 $ 1.12
======== ========= ======
Diluted earnings per common share $ 0.20 $ 0.92 $ 1.12
======= ======== ======
Average shares outstanding for computation of:
Basic earnings 1,630,665 1,200,803 854,532
Diluted earnings 1,673,897 1,219,505 854,532
</TABLE>
See accompanying notes to consolidated financial statements.
42
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Employee Unrealized
Additional Retained Stock Gain
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, 1995 $ 2,864,040 $ 3,291,973 $ (284,646) $ (28,710) $ --- $ (80,387) $ 5,762,270
Change in par value of common
stock (2,861,176) 2,861,176 --- --- --- --- ---
Shares issued in three-for-one
stock split in the form of a
stock dividend 5,728 (5,728) --- --- --- --- ---
Net income --- --- 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
Net income --- --- 341,827 --- --- --- 341,827
Dividends declared --- --- (489,164) --- --- --- (489,164)
Issuance of shares under Employee
Incentive Stock Option Plan 12 9,755 --- --- --- --- 9,767
Release of shares under
Employee Stock Ownership
Plan, 233 shares --- 5,467 --- --- 2,034 --- 7,501
Unrealized gain on securities,
net of taxes --- --- --- --- --- 19,610 19,610
------------------------------------------------------------------------------------ ----------
Balance at December 31, 1997 $ 16,559 $12,187,657 $1,044,369 $ (28,710) $(175,757) $ (14,380) $13,029,738
======== =========== =========== ========== ========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
43
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- -------
Operating Activities
<S> <C> <C> <C>
Net income $ 341,827 $ 1,127,305 $ 958,898
Adjustments to reconcile net income to net cash
provided by operating activities:
Benefit for loan losses -- (275,000) --
KSOP compensation expense paid in stock 6,203 -- --
Depreciation and amortization 308,584 164,475 146,084
Profit sharing contribution of ESOP shares -- 55,000 --
Gain on sale of other real estate -- (27,181) --
Accretion of loan discounts and fees (194,242) (122,194) (106,116)
Amortization and accretion of discounts and
premiums on securities (164,508) (10,200) 19,097
Benefit (provision) for deferred income taxes 54,351 31,174 (300,227)
Increase (decrease) in other assets (874,984) (25,514) 369,045
Increase (decrease) in other liabilities 709,748 5,175 (11,874)
---------- --------- -----------
Net cash provided by operating activities 186,979 923,040 1,074,907
---------- -------- ------------
Investing Activities
Proceeds from repayment and maturity
of investment securities 6,150,000 5,300,000 1,888,400
Proceeds from maturity of securities
available for sale 18,810,000 9,000,000 10,000,000
Proceeds from repayment of mortgage-
backed securities 64,762 117,452 126,951
Purchase of investment securities (2,058,500) (8,830,713) (1,092,225)
Purchase of securities available for sale (27,884,125) (14,710,872) (9,485,625)
Net decrease (increase) in interest-bearing deposits
in other banks (302,000) (992,285) 4,000
Principal collected on loans 17,890,513 12,858,837 14,072,132
Loans originated (30,528,260) (19,815,190) (12,771,600)
Net increase in short-term loans (64,981) (200,684) (96,137)
Net decrease (increase) in lines of credit 690,025 (2,331,395) (3,936,146)
Purchase of bank premises and equipment (720,946) (727,009) (54,383)
Investment in other real estate -- (78,250) --
Proceeds from disposition of other real estate -- 344,562 --
---------------- -------------- -----------------
Net cash used by investing activities (17,953,512) (20,065,547) (1,344,633)
------------ ------------ ------------
Financing Activities
Net increase in transaction and savings deposits 3,302,282 9,134,873 4,361,262
Proceeds from issuance of time deposits 54,949,563 23,785,579 40,745,855
Payments for maturing time deposits (41,145,189) (20,828,907) (37,337,424)
Net increase in short-term borrowings 1,572,574 131,287 1,424,694
Payments on long-term debt -- (186,250) (74,500)
Proceeds from other long-term borrowings -- 1,143,000 --
Payments on other long-term borrowings (52,879) (4,185) --
Proceeds from issuance of common stock, net of expenses 9,767 6,018,928 --
Loan to Employee Stock Ownership Plan -- (218,750) --
Cash dividends paid to common stockholders (650,370) (376,136) ( 71,211)
------------ -------------- -----------
Net cash provided by financing activities 17,985,748 18,599,439 9,048,676
----------- ------------- ---------
Increase (decrease) in cash and cash equivalents 219,215 (543,068) 8,778,950
Cash and cash equivalents at beginning of year 13,885,132 14,428,200 5,649,250
------------ ----------- -----------
Cash and cash equivalents at end of year $ 14,104,347 $ 13,885,132 $ 14,428,200
============= ============= ============
</TABLE>
44
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- -------
Supplementary disclosures:
<S> <C> <C> <C>
Interest paid on deposits and borrowings $ 3,659,897 $ 2,928,906 $ 2,711,626
=========== ============= =============
Income taxes paid $ 798,600 $ 651,600 $ 327,593
========= ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
45
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
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. Unrealized gains and losses reflect the
difference between fair market value and amortized cost of the
individual securities as of the reporting date. The unrealized loss
on securities recognized had the effect of decreasing the Company's
stockholders' equity by approximately $14,000 and $34,000, net of
tax, at December 31, 1997 and 1996, 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 their 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, generally when a
loan which is well secured becomes 90 days past due or management
becomes aware of other circumstances which indicate that accrual of
interest is no longer appropriate. Accrued interest at that date on
such loans is either charged against current income or the
allowance for loan losses. 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. Loans, and
the related accrued interest, which are past due 90 days or more
which are not well-secured are charged to the allowance for loan
losses.
The Company adopted SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan" on January 1, 1995, which defines impaired
loans as specifically reviewed loans for which it is probable that
the Company will be unable to collect all amounts due according to
the terms of the loan agreement. The Company's impaired loans
generally are defined as nonaccrual, restructured and potential
problem loans as detailed in Note 4. Per SFAS No. 114, impaired
loans do not include large groups of smaller balance loans with
similar collateral characteristics such as residential mortgage and
consumer installment loans, which are evaluated collectively for
impairment. Impaired loans are therefore primarily commercial and
industrial loans, real estate-commercial mortgage and construction
and development loans.
46
<PAGE>
(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.
The specific reserves for impaired loans, under SFAS No. 114 at
December 31, 1997, are included in the allowance for loan losses
discussed above. Impaired loans are valued based on the fair value of
the related collateral if the loans are collateral dependent, and for
all other impaired loans, the specific reserves approximate the
present values of expected future cash flows discounted at each loan's
initial effective interest rate.
(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) Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities
In June 1996, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" (SFAS No. 125). SFAS No. 125 provides accounting and
reporting standards for transfers and servicing of financial assets
and extinguishments of liabilities, based on a financial components
approach that focuses on control. Under this approach, after a
transfer of financial assets, financial and servicing assets are
recognized if controlled, or liabilities are recognized if incurred.
Financial and servicing assets are removed from the statement of
condition when control has been surrendered, and liabilities are
removed when extinguished. SFAS No. 125 was effective and adopted
January 1, 1997, and was applied prospectively. In addition, in
December 1996, SFAS No. 127, "Deferral of the Effective Date of
Certain Provisions of FASB Statement No. 125" was issued. SFAS No. 127
deferred implementation of certain portions of SFAS No. 125 for one
year relating primarily to repurchase agreements, securities lending
and comparable transactions. The Company did not experience any
material effect on its financial position or results of operations
from this implementation, and does not expect any when the remainder
is implemented on January 1, 1998.
(i) Earnings Per Share
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" (SFAS No. 128). SFAS No. 128, which supersedes Accounting
Principles Board Opinion No. 15 ("APB No. 15"), conforms earnings per
share to the international standards, as well as simplifies the
computation under APB No. 15. Basic earnings per share is calculated
by dividing net income after deduction for preferred stock dividends,
if any, 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, if any, by the weighted
average number of shares of common stock and common stock equivalents,
unless determined to be anti-dilutive. The weighted average shares
outstanding were 1,630,665, 1,200,803 and 854,532 for 1997, 1996 and
1995,
47
<PAGE>
respectively. The dilutive effect of stock option plans on weighted
average shares outstanding was 43,232, 18,702 and 0 for the same
periods.
(j) 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 should
be reported in the statements of condition and the statements 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 Company does not anticipate any material impact
from the implementation of SFAS No. 130.
(k) 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.
(l) 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 Company does not anticipate any material impact from the
implementation of SFAS No. 132.
(m) 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.
(n) Reclassifications
Certain reclassifications have been made to amounts previously
reported in 1996 and 1995 to conform with the 1997 presentation.
2. Restrictions on Cash Balances
Included in cash and due from banks are balances maintained within the
Company to satisfy legally required reserves and to compensate for services
provided from correspondent banks. Balances maintained totaled $1,749,000
and $1,543,000 at
48
<PAGE>
December 31, 1997 and 1996, respectively. There were no other withdrawal,
usage restrictions or legally required compensating balances at December 31,
1997 or 1996.
3. Securities
Investment securities at December 31, 1997 and 1996 are summarized as
follows:
<TABLE>
<CAPTION>
1997
---------------------------------------------------------------
Gross Gross
Adjusted Unrealized Unrealized Market
Cost Basis Gains Losses Value
---------- ----- ------ -----
U.S. Treasury:
<S> <C> <C> <C> <C>
Within one year $ 499,943 $ 1,307 $ -- $ 501,250
After one, but within five years 1,000,000 -- -- 1,000,000
--------- --------- ------------- ---------
Total 1,499,943 1,307 -- 1,501,250
--------- ------ ------------- ---------
Obligations of U.S. government
agencies and corporations:
Within one year 3,489,283 10,105 -- 3,499,388
After one, but within five years 1,497,724 -- 224 1,497,500
--------- --------- ------ ---------
Total 4,987,007 10,105 224 4,996,888
--------- ------ ------ ---------
Obligations of states and municipalities:
After ten years 310,000 3,602 -- 313,602
--------- -------- --------- ---------
Mortgage-backed securities:
Federal Home Loan Mortgage Corp.:
After one, but within five years 196,300 8,616 -- 204,916
--------- -------- --------- ---------
Corporate securities (1) 12,500 -- -- 12,500
---------- ----------- --------- ---------
Federal Reserve Bank Stock (1) 173,200 -- -- 173,200
--------- ----------- --------- -------
Federal Home Loan Bank Stock (1) 329,900 -- -- 329,900
--------- ----------- --------- -------
Total investment securities $ 7,508,850 $ 23,630 $ 224 $ 7,532,256
=========== ======== ======= ===========
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
1996
-------------------------------------------------------------------
Gross Gross
Adjusted Unrealized Unrealized Market
Cost Basis Gains Losses Value
U.S. Treasury:
<S> <C> <C> <C> <C>
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>
- ----------
1 Corporate securities, Federal Reserve Bank and Federal Home Loan Bank
Stocks have no stated maturities.
Securities available for sale at December 31, 1997 and 1996 are summarized
below:
<TABLE>
<CAPTION>
1997
-----------------------------------------------------------------
Gross Gross
Adjusted Unrealized Unrealized Market
Cost Basis Gains Losses Value
U.S. Treasury:
<S> <C> <C> <C> <C>
After one, but within five years $ 1,009,138 $ 237 $ -- $ 1,009,375
------------- ---------- ------------- -------------
Obligations of U.S. government
Within one year 5,933,057 2,347 887 5,934,517
After one, but within five years 13,523,289 2,876 17,258 13,508,907
----------- ------- -------- ------------
19,456,346 5,223 18,145 19,443,424
----------- ------- -------- ------------
Total $ 20,465,484 $ 5,460 $ 18,145 $ 20,452,799
============ ======== ======== ============
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
1996
----
Gross Gross
Adjusted Unrealized Unrealized Market
Cost Basis Gains Losses Value
---------- ----- ------ -----
Obligations of U.S. government
agencies and corporations:
<S> <C> <C> <C> <C>
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>
Securities in the amount of approximately $19,443,000 and $14,938,000 were
pledged to collateralize public deposits and repurchase agreements at
December 31, 1997 and 1996, respectively.
The Company had no securities whose book value as to any single issuer
exceeded 10% of stockholders' equity. During 1997 and 1996, the Company held
one security totaling $310,000 which was exempt from federal taxation.
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.
4. Loans
Loans at December 31, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
----------- --------
<S> <C> <C>
Commercial and industrial $ 38,979,724 $ 39,418,672
Real estate:
Commercial mortgage 38,626,975 24,840,270
Residential mortgage 1,981,075 2,630,845
Construction and development 4,230,573 4,139,569
Installment to individuals 1,763,472 2,202,615
----------- ----------
85,581,819 73,231,971
Less: Deferred income and unearned discounts (268,228) (218,558)
---------- ------------
Total $ 85,313,591 $ 73,013,413
============ ============
</TABLE>
Loan concentrations at December 31, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Service industry 34% 38%
Real estate development/finance 31 30
Wholesale/retail 23 22
Other 12 10
------ ----
Total 100% 100%
==== ====
</TABLE>
A substantial portion, $61,948,000, or approximately 73%, at December 31,
1997, and $50,211,000, or approximately 69%, at December 31, 1996, 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.
51
<PAGE>
Transactions in the allowance for loan losses for the years ended December
31, 1997, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Balance at January 1 $ 1,048,487 $ 1,273,965 $ 1,289,562
Benefit for loan losses -- (275,000) --
Recoveries:
Commercial 103,533 52,082 55,372
Real estate: 1
Commercial mortgage 56,277 680 9,516
Residential mortgage -- -- --
Installment to individuals 34,878 111,981 33,105
--------- ---------- --------
Total recoveries 194,688 164,743 97,993
----------- ---------- -------
Loans charged off:
Commercial (3,000) (71,937) (14,551)
Installment to individuals (98,456) (43,284) (99,039)
--------- -------- --------
Total loans charged off (101,456) (115,221) (113,590)
---------- --------- ---------
Net recoveries (charge-offs) 93,232 49,522 (15,597)
----------- --------- --------
Balance at December 31 $1,141,719 $ 1,048,487 $ 1,273,965
============ ============ ===========
</TABLE>
1 The Company has had no charge-offs for construction and development loans.
Included in the accompanying consolidated balance sheets are certain loans
that are accounted for on a nonaccrual basis. These nonaccrual loans totaled
approximately $411,000, $963,000 and $1,561,000 at December 31, 1997, 1996
and 1995, respectively. Had the loans been current in accordance with their
original terms, gross interest income for these loans would have been
$54,000, $124,000 and $212,000 in 1997, 1996 and 1995, respectively. Actual
recorded interest income on these loans was $9,000, $0 and $40,000 in 1997,
1996 and 1995, respectively. Nonaccrual loans include $104,000, $607,000 and
$875,000 in loans guaranteed by the U.S. Small Business Administration at
December 31, 1997, 1996 and 1995, respectively. These loans are guaranteed
for an average of 90% of the outstanding balance, or $94,000, 97.9% of the
outstanding balance, or $594,000, and 84.9% of the outstanding balance, or
$743,000 at December 31, 1997, 1996 and 1995, respectively. Also included in
the accompanying consolidated balance sheets are $0, $573,000 and $1,245,000
in loans at December 31, 1997, 1996 and 1995, 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 $0, $63,000 and $124,000 in
1997, 1996, and 1995, respectively, which is not materially different from
that which would have been recorded if the loans had been current in
accordance with their original terms. As of year-end 1997, 1996 and 1995,
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, 1997, 1996 and 1995. At December 31, 1997, 1996
and 1995, the Company had $103,000, $153,000 and $6,000, respectively, in
loans greater than 90 days delinquent which were still accruing interest.
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 $698,000, $1,955,000 and $2,790,000 at December 31, 1997, 1996 and 1995,
respectively. Of the balance at December 31, 1997, 1996 and 1995, $411,000,
$1,509,000 and $2,775,000, respectively, are on nonaccrual status or as
restructured loans. Included in these amounts for December 31, 1997, 1996
and 1995, respectively, are $544,000, $1,855,000 and $1,631,000 of impaired
loans for which the related impairment allowance is $116,000, $264,000 and
$416,000. Loans that do not have an impairment allowance were $154,000,
$100,000 and $1,037,000 at December 31, 1997, 1996 and 1995, respectively.
The December 31,
52
<PAGE>
1997 balance consists of one unfunded letter of credit. The average recorded
investment in impaired loans was $1,587,000, $2,619,000 and $2,918,000
during 1997, 1996 and 1995, respectively. Interest income recognized on
impaired loans during the years ended December 31, 1997, 1996 and 1995 which
has not been disclosed above in the discussion of nonaccrual and
restructured loans was $23,000, $19,000 and $2,000, 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 for comparable loans with other persons and do not
involve more than the normal risk of collectibility. At December 31, 1997
and 1996, 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, 1997 and 1996 was as follows:
1997 1996
---------- ---------
Balance at January 1 $ 1,236,852 $ 532,577
Additions 319,593 1,261,700
Repayments (1,399,466) (542,609)
Retirements (23,231) (14,816)
------------- ------------
Balance at December 31 $ 133,748 $ 1,236,852
============ ===========
5. Bank Premises and Equipment
Bank premises and equipment at December 31, 1997 and 1996 is summarized as
follows:
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Furniture, fixtures and equipment $ 1,281,275 $ 1,811,318
Leasehold improvements 2,208,979 960,081
------------ ----------
Total, at cost 3,490,254 2,771,399
Less: Accumulated depreciation and amortization (2,237,841) (1,931,348)
----------- -----------
Total, net $ 1,252,413 $ 840,051
============ ============
</TABLE>
Amounts charged to operating expenses for depreciation and amortization
expense aggregated approximately $309,000, $165,000 and $146,000 in 1997,
1996 and 1995, respectively.
6. Interest-Bearing Deposits
Related party deposits totaled approximately $5,704,000 and $5,376,000 at
December 31, 1997 and 1996, respectively. In management's opinion, rates
paid on these deposits, where applicable, are available to others at the
same terms.
At December 31, 1997 and 1996, brokered deposits totaled approximately
$8,790,000 and $7,674,000, respectively. At December 31, 1997, time deposits
totaling $2,199,000 have scheduled maturities greater than one year as
follows:
1999 $ 1,473,000
2000 96,000
2001 150,000
2002 480,000
-----------
$ 2,199,000
============
53
<PAGE>
7. Leasing Arrangements
The Company leases its main office space under two leases which expire in
2002. The Company also leases space for four 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 lease on the
Chinatown branch expires in 2007. The M Street branch is leased on a month
to month basis. All leases are classified as operating leases.
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, 1997:
Lease
Payments
1998 $ 492,785
1999 435,716
2000 435,342
2001 436,992
2002 381,990
2003 and thereafter 972,280
-------
Total $3,155,105
Rental expense in 1997, 1996 and 1995 was approximately $505,000, $464,000
and $408,000, respectively.
54
<PAGE>
8. Income Taxes
Income tax expense (benefit) for 1997, 1996 and 1995 consists of:
1997 1996 1995
------ ------ ------
Current:
Federal $ 235,260 $ 484,762 $ 428,452
District of Columbia 43,598 131,883 139,687
-------- --------- ----------
278,858 616,645 568,139
---------- ---------- ---------
Deferred:
Federal (37,060) 6,290 (160,540)
District of Columbia (17,291) 24,884 (139,687)
--------- -------- -------------
(54,351) 31,174 (300,227)
--------- -------- ------------
Total:
Federal 198,200 491,052 267,912
District of Columbia 26,307 156,767 --
--------- ---------- ----------
$ 224,507 $ 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 as a result of the
following:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- --------------------- -----------------------
Amount % Amount % Amount %
------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C>
Tax expense at statutory rate $ 192,554 34.0% $ 603,542 34.0% $ 417,116 34.0%
Increase (decrease) in taxes
resulting from District of
Columbia franchise tax, net
of Federal tax effect 14,186 2.5 103,466 5.8 124,952 10.2
Other 17,767 3.1 (59,189) (3.3) 37,235 3.0
Change in valuation allowance -- -- -- -- (311,391) (25.4)
-------------- ------- ------------- --------- ----------- ------
$ 224,507 39.6% $ 647,819 36.5% $267,912 21.8%
========= ===== ========== ===== ========== ========
</TABLE>
The significant components of deferred income tax expense (benefit)
attributable to income for the year ended December 31, 1997, 1996 and 1995
are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- ----
<S> <C> <C> <C>
Deferred tax benefit (expense) (exclusive of the
effects of other components listed below) $ (54,351) $ 31,174 $ 11,164
Decrease in the valuation allowance
for deferred tax assets -- -- (311,391)
----------- ---------- ----------
$ (54,351) $ 31,174 $ (300,227)
============ ======== ===========
</TABLE>
55
<PAGE>
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, 1997 and 1996:
1997 1996
--------- --------
Deferred tax assets:
Allowance for loan losses $ 151,457 $186,959
Interest income on nonaccrual loans 5,253 24,507
Deferred loan fees 111,482 87,070
Furniture and equipment 54,522 88,309
Unrealized losses on securities 9,748 23,275
Compensated absences 36,880 18,699
---------- ----------
Total gross deferred tax assets 369,342 428,819
Deferred tax liabilities:
Prepaid expenses (13,860) (9,649)
Other (2,470) (14,622)
-------- ---------
Total gross deferred tax liabilities (16,330) (24,271)
-------- ---------
Net deferred tax assets $ 353,012 $ 404,548
========== =========
Deferred income tax assets at December 31, 1997 and 1996 were $353,012 and
$404,548, respectively, and are included in other assets in the accompanying
financial statements. Also included in other assets at December 31, 1997 and
1996, were current tax receivables of $589,000 and $18,000, respectively.
Included in other liabilities at December 31, 1997 and 1996, were current
tax payables of $0 and $46,000, 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, 1997 to
collateralize this debt is disclosed in Note 10 below. Annual principal
maturities as of December 31, 1997 are as follows:
1998 $ 63,225
1999 64,402
2000 70,794
2001 77,821
2002 85,544
2003 and thereafter 724,150
----------
$ 1,085,936
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,
1997 and 1996 of $3,489,263 and $1,916,689, 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, 1997 and 1996 was
approximately $4,787,000 and $2,296,000, respectively. The market value of
these same securities at December 31, 1997 and 1996 was $4,787,000 and
$2,295,000, respectively. At maturity, the same security is repurchased by
the Company.
56
<PAGE>
Repurchase agreements are entered into with related parties in the normal
course of business. At December 31, 1997 and 1996, such related party
repurchase agreements totaled approximately $1,225,000 and $757,000,
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 of the repurchase agreement. At
maturity, the same security is repurchased by the Company.
Other short-term borrowings may 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, 1997 and 1996, the outstanding balances of loans
pledged at December 31, 1997 and 1996 to collateralize long-term borrowings
as well as future short-term borrowings from the FHLB was $4,011,000 and
$2,557,000, respectively. The collateral value of the loans pledged at both
December 31, 1997 and 1996 was $1,860,000.
Short-term borrowings for 1997 and 1996 are summarized below:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Federal funds purchased
Balance at end of year $ -- $ --
Daily average balance outstanding during year 14,383 --
Maximum balance outstanding as of any month-end during year -- --
Daily average interest rate during year 5.41% --
Securities sold under repurchase agreements
Balance at end of year $ 3,489,263 $ 1,916,689
Daily average balance outstanding during year 2,710,121 2,147,737
Maximum balance outstanding as of any month-end during year 5,047,960 3,042,801
Daily average interest rate during year 4.95% 4.87%
Average interest rate on balance at end of year 5.21% 5.95%
</TABLE>
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,
1997 and 1996, the Company had outstanding letters of credit aggregating
approximately $692,000 and $1,806,000, commitments to originate variable
rate loans aggregating approximately $18,608,000 and $18,026,000, and
commitments to originate fixed rate loans aggregating approximately
$2,832,000 and $2,464,000, 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 77%
and 47% at December 31, 1997 and 1996, 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, the
President and Chief Executive Officer is entitled to receive her current
benefits for up to two years, having a total value of up to $127,000, and
certain unvested stock options granted to the
57
<PAGE>
President and Chief Executive Officer shall become immediately vested. Such
unvested options are estimated to have an aggregate value of approximately
$339,000 at December 31, 1997.
Under the terms of severance agreements with seven key management officials
of the Bank, at December 31, 1997 the Bank is obligated to make payments
totaling $568,000 under certain conditions in the event of a change in
control of the Company or the Bank. See Note 19, included herein, for
further discussion.
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 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,
1997, approximately $2,495,000 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. As of December 31,
1997, dividends paid exceeded the net income available to common
shareholders for 1997 by approximately $147,000, as a result of the fourth
quarter write-off of expenses associated with the aborted Ballston Bancorp
acquisition. See Note 16, included herein. 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, 1997, 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.
Condensed Balance Sheets
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
------ ------
Assets
<S> <C> <C>
Due from banks and interest-bearing balances with subsidiary bank $ 2,356,267 $ 3,794,594
Investment in subsidiary bank 8,595,752 7,195,748
Loans 2,034,278 2,195,030
Less: Allowance for loan losses (25,000) (25,000)
----------- ---------
Loans, net 2,009,278 2,170,030
Dividend receivable from subsidiary bank -- --
Other assets 559,919 151,023
--------- ------------
Total assets $13,521,216 $13,311,395
=========== ===========
Liabilities and Stockholders' Equity
Liabilities:
Other liabilities $ 491,478 $ 171,198
Stockholders' equity:
Common stock, par value $0.01 per share, authorized 5,000,000 shares; issued
1,655,906 shares in 1997 and 1,654,712 in 1996;
outstanding 1,651,226 shares in 1997 and 1,650,032 shares in 1996 16,559 16,547
Additional paid-in capital 12,187,657 12,172,435
Retained earnings 1,029,989 1,157,716
------------ -----------
13,234,205 13,346,698
Less: Employee Stock Ownership Plan shares, 20,086 shares in 1997 and
20,319 shares in 1996, at cost (175,757) (177,791)
Less: Treasury Stock, 4,680 shares at cost (28,710) (28,710)
---------- -------------
Total stockholders' equity 13,029,738 13,140,197
----------- -----------
Total liabilities and stockholders' equity $13,521,216 $13,311,395
============ ===========
</TABLE>
58
<PAGE>
Condensed Statements of Operations
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1997 1996 1995
------ ------ ------
Income
<S> <C> <C> <C>
Dividends from subsidiary bank $ -- $ 307,425 $ 213,633
Interest earned on balances with subsidiary bank 110,920 115,427 4,906
Interest on loans 233,800 27,218 --
Management fees earned from subsidiary bank -- -- 444
-------------- --------- -------
Total income 344,720 450,070 218,983
Expenses
Salaries and benefits 6,203 6,500 --
Professional fees 1,043,450 44,009 125,569
Provision for loan losses -- 25,000 --
Other 431,327 176,863 75,046
--------- --------- -------
Total expenses 1,480,980 252,372 200,615
---------- -------- -------
Income(loss) before taxes and equity
in undistributed net income of subsidiary (1,136,260) 197,698 18,368
Applicable income tax benefit 447,693 104,730 300,993
----------- -------- --------
Income (loss) before equity
in undistributed net income of subsidiary (688,567) 302,428 319,361
Equity in undistributed net income of subsidiary 1,030,394 824,877 639,537
----------- -------- ---------
Net income $ 341,827 $1,127,305 $958,898
========== ========== ========
</TABLE>
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1997 1996 1995
------ ------ ------
Operating Activities
<S> <C> <C> <C>
Net income $ 341,827 $ 1,127,305 $ 958,898
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Equity in undistributed net income of subsidiary (1,030,394) (824,877) (639,537)
Provision for loan losses -- 25,000 --
KSOP compensation expense paid in stock 6,203 -- --
Dividends declared from subsidiary bank not received -- -- (71,211)
Other, net 73,888 (10,643) (97,910)
--------- -------- -----------
Net cash provided (used) by operating activities (608,476) 316,785 150,240
Investing Activities
Proceeds from maturity of securities available for sale -- -- --
Net decrease (increase) in lines of credit 848,339 (1,010,546) --
Loans originated (2,394,500) (1,242,500) --
Principal collected on loans 1,706,913 58,016 --
----------- -------- -----------
Net cash provided (used) by investing activities 160,752 (2,195,030) --
Financing Activities
Proceeds from issuance of common stock, net 9,767 6,018,928 --
Loan to Employee Stock Ownership Plan -- (218,750) --
Contribution of capital to subsidiary (350,000) -- --
Cash dividends paid to stockholders (650,370) (376,136) (71,211)
--------- --------- --------
Net cash provided (used) by financing activities (990,603) 5,424,042 (71,211)
---------- --------- ---------
Increase (decrease) in cash and cash equivalents (1,438,327) 3,545,797 79,029
Cash and cash equivalents at beginning of year 3,794,594 248,797 169,768
----------- -------- ---------
Cash and cash equivalents at end of year $ 2,356,267 $ 3, 794,594 $ 248,797
============ ============= ===========
</TABLE>
59
<PAGE>
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 under- capitalized" 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,
1997 and 1996, both the Company and the Bank were considered
"well-capitalized." The table below presents the capital position of the
Company and the Bank relative to their various minimum statutory and
regulatory capital requirements at December 31, 1997. 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 $ 13,044 11.09% $ 8,610 7.49% 4.00%
Tier 1 risk-based ratio 2 13,044 13.76 8,610 9.37 4.00
Total risk-based ratio 2 14,186 14.97 9,727 10.59 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, 1997, 1,194 options have been exercised under these plans.
60
<PAGE>
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. Options
totaling 1,505 were granted in 1997 at prices ranging from $11.71 to $11.83
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 approximately $24,000 and $19,000 in 1997 and 1996, respectively,
has been recorded for the Directors Plan, the 1996 Directors Plan and the
options granted to the President 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
Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation" (SFAS No. 123) the Company's net income and basic
earnings per share for 1997 and 1996 would have been $354,000 and $.22 per
share and $1,105,000 and $.92 per share, respectively. Diluted earnings per
share for 1997 and 1996 would have been $.21 per share and $.91 per share,
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, 1997 and 1996 and changes
during the years then ended is presented in the table and narrative below:
<TABLE>
<CAPTION>
1997
--------------------------------------------------------------
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 89,349 $ 6.95 22,675 $ 9.50
Granted -- -- 1,505 11.75
Exercised -- -- (1,194) 7.93
Forfeited/Expired -- --
Outstanding at end of year 89,349 6.95 22,986 9.73
Exercisable at end of year 35,212 6.92 14,191 9.08
Weighted average fair value of options granted -- n/a $2.12 n/a
</TABLE>
<TABLE>
<CAPTION>
1996
--------------------------------------------------------------
Directors Plans and
CEO Grants Employee Plans
---------- --------------
Wtd Avg Wtd Avg
Shares Ex Price Shares Ex Price
------ -------- ------ --------
<S> <C> <C> <C>
Outstanding at beginning of year -- $ -- -- $ --
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 n/a $ 2.19 n/a
</TABLE>
61
<PAGE>
At December 31, 1997, 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 8.1 years. Of
these options, 35,212 are exercisable. At December 31, 1997, options granted
under the Employee Plan and the 1996 Employee Plan have exercise prices
between $7.93 and $11.83, with a weighted average exercise price of $9.73
and a weighted average remaining contractual life of 8.5 years. Of these
options, 14,191 are exercisable.
The fair value of each option grant is estimated on the date of grant using
a Black-Scholes-based option pricing model 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%. The following weighted average assumptions are
used for grants in 1997: risk-free interest rate of 5.94%; expected dividend
yields of 3.48%; expected lives of 1.3 years; and expected volatility of
30%.
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 had 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 and 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; and 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 $41,000, $23,000 and
$34,000 in 1997, 1996 and 1995, 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. In
accordance with the terms of the ESOP, dividends paid on all shares
previously allocated to the participants' accounts are allocated to the
participants' accounts and are reflected as dividends declared in the
accompanying consolidated statement of changes in stockholders' equity.
Dividends paid on all remaining unallocated shares owned by the ESOP are
also allocated to the participants' accounts and are included in salaries
and benefits for 1997 in the accompanying consolidated statement of
operations. As of December 31, 1997, 4,426 shares were allocated to
participants' accounts, 488 shares were committed to be released and the
remaining 20,086 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, with an equivalent number of shares allocated to participants'
accounts. Dividends on unallocated shares are expected to be used to repay
the ESOP loan with the equivalent number of shares allocated to
participants' accounts. 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 be released are considered for
purposes of computing earnings per share. The fair value of the unearned
ESOP shares at December 31, 1997 and 1996 is $281,000 and $239,000,
respectively.
16. Other Operating Expense
Other operating expense for 1997, 1996 and 1995 is summarized as follows:
1997 1996 1995
---- ---- ----
Courier service and bank security $ 157,116 $ 169,207 $ 149,689
Stationery and office supplies 159,638 97,602 75,585
Printing 152,189 39,632 36,744
Advertising 97,534 85,572 14,616
FDIC insurance premiums 10,271 2,363 84,607
Other 792,598 514,722 419,759
--------- -------- ----------
Total other operating expense $ 1,369,346 $ 909,098 $ 781,000
=========== ========= =========
62
<PAGE>
Other operating expenses for 1997 include approximately $222,000 in costs
written-off in connection with the Ballston Bancorp, Inc. acquisition,
which was not approved by shareholders at the Company's Special Meeting
of Shareholders on December 31, 1997. Total costs incurred in connection
with this failed acquisition were $1,213,000, inclusive of the $222,000
reported above.
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 $0, $5,000 and $15,000 during 1997, 1996 and 1995, respectively, to
such related parties in connection with public relations activities. The
Company expensed $0, $9,000 and $17,000 to such related parties for legal
services during 1997, 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
their fair value. Quoted market prices, when available, are used as the
measure of fair value. In cases where quoted market prices are not
available, fair values are based on present value estimates or other
valuation techniques. These derived fair values are estimates at a specific
point in time and are significantly affected by assumptions used,
principally the timing of future cash flows and the discount rate. Because
assumptions are inherently subjective in nature, the estimated fair values
cannot be substantiated by comparison to independent market quotes and, in
many cases, the estimated fair values would not necessarily be realized in
an immediate sale or settlement of the instrument. The disclosure
requirements of SFAS No. 107 exclude certain financial instruments and all
nonfinancial instruments. The estimated fair values presented do not give
effect to the values associated with the Company's banking business,
existing customer relationships, branch network, property or equipment.
Also, under SFAS No. 107, the fair value of noninterest bearing demand
deposits, savings and NOW accounts and money market deposit accounts is
equal to the carrying amount because these deposits have no stated maturity.
This approach to estimating fair value excludes the significant benefit that
results from the low-cost funding provided by such deposit liabilities, as
compared to alternative sources of funding. Accordingly, the aggregate fair
value amounts presented do not represent management's estimation of the
underlying value of the Company.
63
<PAGE>
The following are the estimated fair values of the Company's financial
instruments at December 31, 1997 and 1996 followed by a general description of
the methods and assumptions used to estimate such fair values.
<TABLE>
<CAPTION>
1997 1996
-----------------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Value Amount Value
------ ----- ------ -----
Financial assets
<S> <C> <C> <C> <C>
Cash and due from banks $ 7,654,347 $ 7,654,347 $ 9,785,132 $ 9,785,132
Short-term investments 8,231,000 8,231,000 5,579,000 5,579,000
Securities available for sale 20,452,799 20,452,799 11,205,282 11,205,282
Investment securities 7,508,850 7,532,256 11,640,813 11,679,607
Loans 85,313,591 73,013,413
Less: Allowance for loan losses (1,141,719) (1,048,487)
----------- -----------
Net loans 84,171,872 83,233,356 71,964,926 72,097,490
Financial liabilities
Noninterest-bearing deposits 27,184,087 27,184,087 23,678,374 23,678,374
Interest-bearing deposits
with no stated maturity 38,749,327 38,749,327 38,952,758 38,952,758
Time deposits 46,327,982 46,383,831 32,523,608 32,463,709
Short-term borrowings 3,489,263 3,489,263 1,916,689 1,916,689
Long-term borrowings/debt 1,085,936 1,138,688 1,138,815 1,137,349
</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 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
64
<PAGE>
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,
1997 and 1996, the Company had commitments to extend credit of
$21,440,000 and $20,490,000 and letters of credit of $692,000 and
$1,806,000, 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, 1997 and 1996, approximately 78% and
84%, 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.
19. Subsequent Events
Litigation
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, 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 and caused the Company to enter
into a binding definitive agreement with Ballston Bancorp, Inc.. 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. That complaint seeks damages of not less than
$10 million. The defendants have not answered the complaint. An answer
is due on April 6, 1998. It is believed that the defendants will deny
the allegations. The defendants may choose to assert counterclaims
against the Company and/or its other directors. There is currently no
asserted claim against the Company, therefore no accrual for any costs
or potential loss has been accrued. The action was authorized by a
unanimous vote of a Special Committee of the Board of Directors
consisting of the seven directors not named as defendant directors. The
consent solicitation filed by directors Reynolds, Hubbard and Shell on
March 11, 1998 and referred to below, discloses that a principal
purpose of the solicitation and reorganization of the board is to cause
the Company to drop the lawsuit. The consent solicitation discloses
that the director defendants have a conflict of interest in taking such
action.
Change of Control
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 and the election of four new
directors to fill the vacancies created by the removal of the four
directors. The Reynolds Group also filed another amendment to Schedule
65
<PAGE>
13D on March 11, 1998 relating to the efforts to effect the change in
the membership of the Board of Directors of the Company. As of March
31, 1998, the status of the consent solicitation is unknown to present
management.
Severance Agreements and Establishment of Grantor Trust
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.
In February 1998, the severance benefits payable under the severance
agreements with the seven key management officials increased to
$590,000 as a result of normal salary increases.
66
<PAGE>
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
Managing interest rate risk is fundamental to the financial services
industry. The Company's policies are designed to manage the inherently different
maturity and repricing characteristics of the loan and deposit portfolios to
achieve a desired interest sensitivity position and to limit exposure to
interest rate risk. By using a combination of on-and off- balance sheet
financial instruments, the Company manages interest rate sensitivity while
optimizing interest income within the constraints of prudent capital adequacy
and liquidity needs. Principal maturities and repricing profiles are monitored
through static gap analysis and future operating results are simulated through
computer modeling.
The management of interest rate sensitivity includes monitoring the
maturities and repricing opportunities of interest earning assets and interest
bearing liabilities. The Company's interest rate sensitivity analysis as of
December 31, 1997 is included in the Interest Sensitivity Management section of
Management's Discussion and Analysis in the Company's Annual Report to
Stockholders. A rate sensitivity position is computed for various repricing
intervals by calculating rate sensitivity gaps. Interest earning assets and
interest bearing liabilities have been distributed based on their repricing
opportunities. The maturities of certain investments and deposits have been
adjusted based on projected prepayment patterns, historical relationships to
changes in market interest rates, or call dates of securities in light of
current market interest rates. Although rate sensitivity gaps constantly change
as funds are acquired and invested, the Company's positive gap of $13,412 at one
year or less as of December 31, 1997, was approximately 13.43% of total interest
earning assets within one year.
The Company utilizes a simulation model to measure and evaluate the impact
of changing interest rates on net interest income. The simulation techniques
involve changes in interest rate relationships, prepayment options inherent in
financial instruments and directional changes in prevailing interest rates. The
table below illustrates the projected change in the Company's net interest
income during the next twelve months if all market rates were to uniformly
increase or decrease by 2.00% compared to the results of a flat rate
environment. These projections, based upon the Company's balance sheet as of
December 31, 1997, were prepared using modeling techniques and assumptions which
were then used for asset/liability management purposes.
Increase (Decrease)
-------------------
Change in interest rates from current level 2.00% (2.00)%
- ------------------------------------------- ----- -------
Change in net interest income 2.66% (2.46)%
The table indicates that if rates were to increase or decrease by 2.00%, net
interest income would be expected to increase by 2.66% or decrease by 2.46%,
respectively, compared to a flat rate environment. This narrow projected
exposure to interest rate risk is consistent with management's desire to limit
the sensitivity of net interest income to changes in interest rates in order to
reduce risk to earnings and capital. This model is based solely on uniform
changes in market rates and does not reflect the levels of interest rate risk
that may arise from other factors such as changes in the spreads between key
market rates or the shape of the Treasury yield curve.
The Company has not entered into any derivative interest rate contracts.
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.
67
<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 1998 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 on 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)
10.5 1996 Employee Incentive Stock Option Plan and Agreement (10)
10.6 1996 Directors Stock Option Plan and Agreement (11)
68
<PAGE>
10.7 Amendment to The Adams National Bank Employee Stock Ownership
Plan with 401(k) Provisions, dated February 18, 1997 (12)
10.7.1 Second amendment to The Adams National Bank Employee Stock
Ownership Plan with 401(k) Provisions
10.8 Employment Agreement dated February 20, 1996 between the
Company, the Bank and Barbara Davis Blum, as amended on
March 29, 1996 (13)
10.8.1 Amendment dated March 5, 1998 to Employment Agreement dated
February 20, 1996 between the Company, the Bank and Barbara
Davis Blum, as amended on March 29, 1996
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 (14)
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 (15)
10.11 Lease Agreement dated April 21, 1988 between Union Station
Joint Venture, Ltd. and The Adams National Bank (16)
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 (17)
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 (18)
10.14 Lease Agreement dated December 20, 1993 between Union Station
Joint Venture, Ltd., and The Adams National Bank (19)
10.15 Sublease Agreement dated September 1, 1981, as amended
September 1, 1984, between 2909 M Associates and The Adams
National Bank (20)
10.16 Lease Agreement dated March 6, 1996 between 1604 17th Street
Limited Partners and The Adams National Bank (21)
10.17 Lease Agreement dated January 8, 1997 between Riverdale
International, Inc. and The Adams National Bank (22)
10.18 Agreement for Information Technology Services between
Electronic Data Systems Corporation and The Adams National
Bank (23)
10.18.1 Amendment to Agreement for Information Technology Services
between Electronic Data Systems Corporation and The Adams
National Bank
10.19 Special Program Financial Services Agreement dated
December 30, 1993 between IBAA Bancard, Inc. and The Adams
National Bank (24)
69
<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 (25)
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 (26)
10.22 Severance Agreement between the Bank and Alexander Beltran
dated as of April 7, 1994, as amended March 5, 1998
10.23 Severance Agreement between the Bank and Devin Blum dated as of
April 7, 1994, as amended March 5, 1998
10.24 Severance Agreement between the Bank and Joyce R. Hertz dated
as of April 7, 1994, as amended March 5, 1998
10.25 Severance Agreement between the Bank and Kimberly J. Levine
dated as of April 7, 1994, as amended March 5, 1998
10.26 Severance Agreement between the Bank and Melrose Nathan dated
as of April 7, 1994, as amended March 5, 1998
10.27 Severance Agreement between the Bank and Bijan Partovi dated
as of April 7, 1994, as amended March 5, 1998
10.28 Agreement, dated April 20, 1995 between the Company and
Marshall T. Reynolds (27)
10.29 Employment Agreement between the Bank and Kate Walsh Carr
dated as of January 21, 1997, as amended March 5, 1998
10.30 Grantor Trust of Abigail Adams National Bancorp, Inc. dated
March 4, 1998
10.31 Grantor Trust of The Adams National Bank dated March 4, 1998
21 Subsidiaries of the Registrant (28)
23 Consent of KPMG Peat Marwick, LLP
23.1 Consent of Arthur Andersen, LLP
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
(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
70
<PAGE>
(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 10.5 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.
(11) Incorporated by reference to Exhibit 10.6 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.
(12) Incorporated by reference to Exhibit 10.7 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.
(13) 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.
(14) 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.
(15) 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.
(16) Incorporated by reference to Exhibit 10(f) of the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1988.
(17) 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.
(18) 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.
71
<PAGE>
(19) 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.
(20) 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.
(21) 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.
(22) Incorporated by reference to Exhibit 10.17 of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1996.
(23) 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.
(24) 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.
(25) Incorporated by reference to Exhibit 10 of the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1992.
(26) Incorporated by reference to Exhibit 10 of the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1993.
(27) Incorporated by reference to Exhibit 5 of the Company's
Registration Statement on Form 8-A/A, dated April 21, 1995.
(28) 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, 1997.
72
<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 30, 1998 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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Barbara Davis Blum Chairwoman of the Board, President March 30, 1998
- ----------------------------- and Chief Executive Officer
Barbara Davis Blum
(Principal Executive Officer)
/s/ Shireen L. Dodson Director March 30, 1998
- -----------------------------
Shireen Dodson
/s/ Susan Hager Director March 30, 1998
- ------------------------------
Susan Hager
- ------------------------------ Director March __, 1998
Jeanne Hubbard
/s/ Clarence L. James, Jr. Director March 30, 1998
- ---------------------------
Clarence L. James, Jr.
73
<PAGE>
/s/ Steve Protulis Director March 30, 1998
- ------------------------------
Steve Protulis
- ------------------------------ Director March __, 1998
Marshall T. Reynolds
- ------------------------------- Director March __, 1998
Robert L. Shell, Jr.
/s/ Dana Stebbins Director March 31, 1998
- --------------------------------
Dana Stebbins
/s/ Susan J. Williams Director March 30, 1998
- --------------------------------
Susan J. Williams
/s/ Kimberly J. Levine Senior Vice President, March 30, 1998
- ------------------------------- Treasurer and Chief Financial
Kimberly J. Levine Officer
(Principal Financial
and Accounting Officer)
</TABLE>
74
<PAGE>
EXHIBIT INDEX
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)
10.5 1996 Employee Incentive Stock Option Plan and Agreement (10)
10.6 1996 Directors Stock Option Plan and Agreement (11)
10.7 Amendment to The Adams National Bank Employee Stock Ownership
Plan with 401(k) Provisions, dated February 18, 1997 (12)
10.7.1 Second amendment to The Adams National Bank Employee Stock
Ownership Plan with 401(k) Provisions
10.8 Employment Agreement dated February 20, 1996 between the Company,
the Bank and Barbara Davis Blum, as amended on March 29, 1996
(13)
10.8.1 Amendment dated March 5, 1998 to Employment Agreement dated
February 20, 1996 between the Company, the Bank and Barbara Davis
Blum, as amended on March 29, 1996
75
<PAGE>
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 (14)
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 (15)
10.11 Lease Agreement dated April 21, 1988 between Union Station Joint
Venture, Ltd. and The Adams National Bank (16)
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 (17)
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 (18)
10.14 Lease Agreement dated December 20, 1993 between Union Station
Joint Venture, Ltd., and The Adams National Bank (19)
10.15 Sublease Agreement dated September 1, 1981, as amended September
1, 1984, between 2909 M Associates and The Adams National Bank
(20)
10.16 Lease Agreement dated March 6, 1996 between 1604 17th Street
Limited Partners and The Adams National Bank (21)
10.17 Lease Agreement dated January 8, 1997 between Riverdale
International, Inc. and The Adams National Bank (22)
10.18 Agreement for Information Technology Services between Electronic
Data Systems Corporation and The Adams National Bank (23)
10.18.1 Amendment to Agreement for Information Technology Services
between Electronic Data Systems Corporation and The Adams
National Bank
10.19 Special Program Financial Services Agreement dated December 30,
1993 between IBAA Bancard, Inc. and The Adams National Bank (24)
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 (25)
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 (26)
76
<PAGE>
10.22 Severance Agreement between the Bank and Alexander Beltran dated
as of April 7, 1994, as amended March 5, 1998
10.23 Severance Agreement between the Bank and Devin Blum dated as of
April 7, 1994, as amended March 5, 1998
10.24 Severance Agreement between the Bank and Joyce R. Hertz dated as
of April 7, 1994, as amended March 5, 1998
10.25 Severance Agreement between the Bank and Kimberly J. Levine dated
as of April 7, 1994, as amended March 5, 1998
10.26 Severance Agreement between the Bank and Melrose Nathan dated as
of April 7, 1994, as amended March 5, 1998
10.27 Severance Agreement between the Bank and Bijan Partovi dated as
of April 7, 1994, as amended March 5, 1998
10.28 Agreement, dated April 20, 1995 between the Company and Marshall
T. Reynolds (27)
10.29 Employment Agreement between the Bank and Kate Walsh Carr dated
as of January 21, 1997, as amended March 5, 1998
10.30 Grantor Trust of Abigail Adams National Bancorp, Inc. dated
March 4, 1998
10.31 Grantor Trust of The Adams National Bank dated March 4, 1998
21 Subsidiaries of the Registrant (28)
23 Consent of KPMG Peat Marwick, LLP
23.1 Consent of Arthur Andersen, LLP
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.
(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.
77
<PAGE>
(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 10.5 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.
(11) Incorporated by reference to Exhibit 10.6 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.
(12) Incorporated by reference to Exhibit 10.7 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.
(13) 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.
(14) 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.
(15) 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.
(16) Incorporated by reference to Exhibit 10(f) of the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1988.
(17) 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.
(18) 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.
(19) 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.
(20) 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.
(21) 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.
(22) Incorporated by reference to Exhibit 10.17 of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1996.
78
<PAGE>
(23) 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.
(24) 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.
(25) Incorporated by reference to Exhibit 10 of the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1992.
(26) Incorporated by reference to Exhibit 10 of the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1993.
(27) Incorporated by reference to Exhibit 5 of the Company's
Registration Statement on Form 8-A/A, dated April 21, 1995.
(28) Incorporated by reference to Exhibit 22 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1987.
79
Exhibit 10.7.1
SECOND 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, 1997 except as otherwise set forth below:
FIRST CHANGE
------------
Section 1.10 is amended to delete the third paragraph therein which
states "For a Participant's initial year of participation,...." and replace it
with the following paragraph:
For the initial year of an Employee's participation,
"Compensation" shall mean Compensation for the entire Plan
Year, not just Compensation for the portion of the Plan Year
in which the Employee was a Participant.
SECOND CHANGE
-------------
Section 1.31 is amended to add the following language before the final
paragraph:
"Highly Compensated Employee" means an Employee described in
Code Section 414(q) and the Regulations thereunder, and
generally means an Employee who performs services for the
Employer during the Plan Year, and is in one of the following
groups:
(a) Employees who at any time during the Plan
Year or the preceding Year were "Five
Percent Owners (5%)" as defined in Section
1.37(c).
(b) Employees who during the preceding Plan
Year had Compensation from the Employee in
excess of Eighty Thousand Dollars ($80,000).
The Employer may elect to reduce the size of
the Highly Compensated Employees Group in
this subparagraph (b) by limiting this group
to only those Employees who had Compensation
from the Employer in excess of Eighty
Thousand Dollars ($80,000) for the preceding
Plan Year.
1
<PAGE>
THIRD CHANGE
------------
Section 4.2(k)(3) is amended to add the following language at the end
of the paragraph:
Effective January 1, 1997, there will no longer be a required
notice period for revocation of a salary deferral reduction
agreement. The revocation shall become effective as of the
first day of the pay period next following receipt of the
revocation notice.
FOURTH CHANGE
-------------
Section 4.4(b)(3) is amended to delete the second paragraph and replace
it with the following:
Effective January 1, 1997, only Participants who complete more
than five hundred (500) Hours of Service during the Plan Year
shall be eligible to share in the discretionary contribution
for that year. In determining whether a Participant has
completed more than five hundred (500) Hours of Service during
a short Plan Year, the number of Hours of Service required
shall be proportionately reduced based on the number of full
months in the short Plan Year.
FIFTH CHANGE
------------
Section 4.11(a) is amended to add the following paragraph:
An Employee shall be eligible to transfer amounts from other
qualified plans even if the Employee is not a Participant in
the Plan at the time of the transfer. Notwithstanding the
foregoing, the Employee shall not be treated as a Participant
for purposes of receiving any allocation under Article IV
until the Employee satisfies the eligibility requirements of
Section 3.1.
SIXTH CHANGE
------------
Section 7.4(a) shall be amended to delete the first paragraph and
replace it with the following:
On or before the Anniversary Date coinciding with or
subsequent to the termination of a Participant's employment
for any reason other than death, Total and Permanent
Disability or retirement, the Vested portion of such
Terminated Participant's Combined Account shall remain in a
separate account for the Terminated Participant and shall
share in allocations pursuant to Section 4.4 until such time
as a distribution is made to the Terminated Participant.
2
<PAGE>
SEVENTH CHANGE
--------------
Section 7.4(a) is amended to delete the third paragraph and replace it
with the following:
Distribution of the funds due to a Terminated Participant
shall be made on the occurrence of an event which would result
in the distribution had the Terminated Participant remained in
the employ of the Employer (upon the Participant's death,
Total and Permanent Disability, Early or Normal Retirement).
However, at the election of the Participant, the Administrator
shall direct the Trustee to cause the entire Vested portion of
the Terminated Participant's Combined Account to be payable to
such Terminated Participant on or after the Anniversary Date
coinciding with or next following termination of employment.
Distribution to a Participant shall include any Company Stock
acquired with the proceeds of an Exempt Loan unless the terms
of the Exempt Loan prohibit distribution until the close of
the Plan Year in which such loan is repaid in full. Any
distribution under this paragraph shall be made in a manner
which is consistent with and satisfies the provisions of
Section 7.5 and 7.6, including, but not limited to, all notice
and consent requirements of Code Section 411(a)(11) and the
Regulations thereunder.
EIGHTH CHANGE
-------------
Section 7.4(b) is amended to add the following additional sentence:
The portion of any Participant's Account with respect to the
Employee's Salary Reduction Elections made pursuant to Section
4.1(a) and the Employer's Matching Contribution made pursuant
to Section 4.1(b) shall be 100% vested immediately.
NINTH CHANGE
------------
Section 7.5(b) is deleted and replaced with the following:
(b) Unless the Participant elects in writing a longer
distribution period or elects a lump sum payment,
distributions to a Participant or his Beneficiary
attributable to Company Stock shall be in
substantially equal monthly, quarterly,
semiannual, or annual installments over a period
not longer than five (5) years. In the case of a
Participant with an account balance attributable
to Company Stock in excess of $500,000, the five
(5) year period shall be extended by one (1)
additional year (but not more than five (5)
additional years) for each $100,000 or fraction
thereof by which such balance exceeds $500,000.
The dollar limits shall be adjusted at the same
time and in the same manner as provided in Code
Section 415(d).
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment this
________day of _______, 1998.
WITNESS: THE ADAMS NATIONAL BANK
______________________________ By:_________________________(SEAL)
4
Exhibit 10.8.1
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment") is made as of
this 5th day of March, 1998 by and among Abigail Adams National Bancorp, Inc., a
Delaware corporation (the "Company"), The Adams National Bank, a national
banking association (the "Bank") and Barbara Davis Blum (the "Executive").
RECITALS
A. The Company, the Bank and the Executive entered into an Employment
Agreement dated as of February 20, 1996 and amended as of March 29, 1996 (the
"Original Agreement").
B. Events occurring after the failure to obtain stockholder approval of
the acquisition of Ballston Bancorp have increased the degree of uncertainty as
to future job security for the Executive.
C. The Board of Directors of the Company and of the Bank believes that
the interest of the Bank and the Company will best be served by helping to
relieve the Executive of uncertainty about her personal economic interest in the
event of any actual or proposed Change in Control, and thereby permit her to
devote her uninterrupted attention to the performance of her duties to the Bank
and the Company.
D. The Board of Directors of the Company and of the Bank and the
Executive desire to amend the Original Agreement as set forth herein.
NOW, THEREFORE, it is agreed that:
1. From and after the date of this Agreement, 1998, the Original
Agreement shall be amended as follows:
(a) Section 10(a)(i) shall be deleted in its entirety, and the
following new Section 10(a)(i) shall be substituted in lieu thereof:
Notwithstanding any provisions herein to the contrary, if the
Executive's employment under this Agreement is terminated by the Company or the
Bank, without the Executive's prior written consent and for a reason other than
Just Cause, or if the Executive is asked to resign, as a condition to, in
preparation for, or otherwise in connection with, or within 12 months after, a
Change in Control (as defined herein) of the Company or the Bank, the Company
and the Bank shall pay and/or grant the Executive the following compensation and
benefits: (i) a cash payment equal to two times her base salary at the time of
such resignation or termination; (ii) the fringe benefits provided for under
this Agreement or otherwise for a period of two years following such resignation
or termination; and (iii) the acceleration of any unvested stock options
previously granted to the Executive. At Executive's option, she may elect to
receive the cash payment provided for herein in installments. The cash payments
set forth in Section (i) and (ii) herein shall be paid in the following order of
priority: (A) from the funds in the separate grantor trust between the Company
and the
<PAGE>
Trustee; (B) from the funds in the separate grantor trust between the Bank and
the Trustee; (C) from the Company; and (D) from the Bank.
(b) Section 10(b) shall be amended by adding at the end of such
section the following language:
or (vii) the Executive is requested by management or the Board of
Directors of the Bank or the Company to engage in conduct which she can
demonstrate is illegal.
(c) The following new Section 17 shall be added to the Original
Agreement:
17. Unfunded Arrangement. In conjunction with the execution of this
----------------------
Agreement, the Company and the Bank shall each establish a grantor trust, as
that term is defined in Section 671 of the Internal Revenue Code, in order to
fund its obligations to provide a cash payment equal to two times base salary
and fringe benefits for a two year period in the event the Executive's
employment is terminated in accordance with Paragraph 10 of the Original
Agreement. The grantor trust, which shall be irrevocable, will be governed by
the terms of separate trust agreements entered into between the Company and
NationsBank, and the Bank and NationsBank, the terms of which are incorporated
by reference. To the extent that the Executive acquires a right to receive
benefits under this Agreement, such right shall be no greater than the right of
any unsecured general creditor of the Company.
2. This Amendment is for the purposed of inducing the Executive to
continue her employment with the Company and the Bank and in consideration of
the services rendered by the Executive to the Bank from and after the date of
this Amendment, which consideration the Company and the Bank each hereby
acknowledge is fair and adequate.
3. From and after the Effective Date, the Original Agreement shall be
amended as set forth herein and all other terms of the Original Agreement shall
remain in full force and effect as amended hereby.
4. The parties hereto acknowledge that this Amendment and the related
grantor trusts were prepared pursuant to their mutual request by the law firm of
Ober, Kaler, Grimes & Shriver, counsel solely to the Company and the Bank. The
Executive acknowledges that she is sophisticated in business matters (including,
but not limited to, employment agreements) and that she has had the opportunity
to seek independent legal advice. Each of the Executive and the Bank
specifically waives any actual or apparent conflict of interest of Ober Kaler,
Grimes & Shriver in connection with the preparation and negotiation of this
Amendment.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
day and year first above written.
ATTEST: ABIGAIL ADAMS NATIONAL
BANCORP, INC.
___________________________ By:_______________________________
Joyce R. Hertz, Secretary Clarence L. James, Jr.
ATTEST: THE ADAMS NATIONAL BANK
__________ _________ By:______________________________
Joyce R. Hertz Clarence L. James
WITNESS:
- --------------------------- --------------------------------
Barbara Davis Blum
Exhibit 10.18.1
RENEWAL ADDENDUM
THIS ADDENDUM ("Addendum") to that certain Agreement for Information Technology
Services ("Agreement") between ELECTRONIC DATA SYSTEMS CORPORATION ("EDS") and
THE ADAMS NATIONAL BANK ("Customer"), dated June 5, 1992, is between Customer
and EDS. To the extent that any provision of the Agreement or Addendum is
inconsistent with this Addendum, this Addendum will control.
The parties agree to amend the Agreement as follows:
1. Section 2.1 of the Agreement is hereby amended in its entirely to read
as follows:
Term. This agreement will begin on June 6, 1997 and, unless terminated
earlier under Section 7.2, 7.3, 7.4, or 9.5, will continue for a
period of one (1) year until June 5, 1998 ("Renewal Term").
Thereafter, this Agreement will not automatically renew.
2. Schedule C Service Charges, Section 2 - Charges for Conversion
Services is hereby amended in its entirely to read as follows:
All additional conversions (acquisitions) for Customer shall be at
EDS' then current rate. This charge will vary dependent upon processor
and number of application systems converted.
3. Customer will convert to the ITI Standard transaction code no later
than July 3, 1997.
4. Customer will convert to image check capture no later than August 1,
1997. Customer's parallel image statements/traditional statements will
begin with all statement cycles after August 31, 1997 and the parallel
period will be no longer than two (2) statements cycles.
5. Four (4) originals of this Addendum will be executed and submitted to
EDS by Customer. EDS will return one (1) of the executed originals to
Customer.
6. Except as amended by this Addendum, the Agreement will be and remain in
full force and effect in accordance with its terms. Capitalized terms
used in this Addendum will be as defined in the Agreement unless
otherwise expressly defined in this Addendum.
IN WITNESS WHEREOF, the parties have executed this addendum as of the 12th day
of June, 1997
ELECTRONIC DATA SYSTEMS CORPORATION THE ADAMS NATIONAL BANK
By:____________________________________ By:___________________________
Printed Printed
Name: __________________________________ Name:________________________
Title:___________________________________ Title:_________________________
Date:___________________________________ Date:_________________________
Exhibit 10.22
AMENDED AND RESTATED SEVERANCE AGREEMENT
This Amended and Restated Severance Agreement is made and entered into
as of this 5th day of March, 1998 by and between The Adams National Bank, a
national banking association (the "Bank"), and
Alexander Beltran ("Executive").
R E C I T A L S
A. The Board of Directors of the Bank believes that the Executive is a
critically important member of the management of the Bank upon whose continuing
services the Bank depends and will depend for its future growth and prosperity.
B. The Board of Directors desires to assure itself of the uninterrupted
and unimpaired performance and loyalty of the Executive to the Bank in the event
of any actual or proposed Change in Control of the Bank or its parent, Abigail
Adams National Bancorp, Inc. (the "Company").
C. Events occurring after the failure to obtain stockholder approval of
the acquisition of Ballston Bancorp have increased the degree of uncertainty as
to future job security for the Executive.
D. The Board of Directors believes that the interests of the Bank and
the Company will best be served by providing the Executive with economic
assurances which will help to relieve her of uncertainty about her personal
economic interests in the event of any actual or proposed change in control, and
thereby permit her to devote her uninterrupted attention to the continued
performance of her duties to the Bank.
NOW, THEREFORE, IT IS AGREED:
1. Definitions. For Purposes of this Agreement, the following
terms have the meanings indicated:
(a) "Change in Control" means any of the following events:
(i) when the Company or the Bank acquires actual
knowledge that any person (as such term is used in Section
13(d) and 15(d)(2) of the Securities and Exchange Act of 1934
(the "Exchange Act")), other than an employee benefit plan
established or maintained by the Company or the Bank, is or
becomes the beneficial owner (as defined in Rule 13d-3 of the
Exchange Act) directly or indirectly, or record owner of
securities of the Company representing 20% or more of the
combined voting power of the Company's then outstanding
securities;
(ii) upon the first purchase of the Company's common
stock pursuant to a tender or exchange offer (other than a
tender or exchange offer made by the Company or an employee
benefit plan established or maintained by the Company or the
Bank);
1
<PAGE>
(iii) upon the approval by the Company's stockholders
of (A) 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 (hereinafter defined)), (B) a sale or disposition of
all or substantially all of the Company's assets or (C) a plan
of liquidation or dissolution of the Company;
(iv) 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;
(v) upon a sale of (A) common stock of the Bank if
after such sale any person (as defined above), other than the
Company or an employee benefit plan established or maintained
by the Company or the Bank, owns a majority of the Bank's
common stock or (B) all or substantially all of the Bank's
assets; or
(vi) 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.
The events described above shall be deemed a Change in Control
regardless of whether such event was approved in advance by a majority of the
Continuing Directors then in office.
(b) The Executive will be deemed to be "Terminated" upon the
occurrence of any one of the following events:
(i) the involuntary termination without cause of
the Executive's employment with the Bank;
(ii) the relocation of the principal place at which
the Executive's duties are to be performed to a location
outside a 35-mile radius of the District of Columbia;
(iii) a reduction in the Executive's compensation;
(iv) a change in benefits or perquisites provided to
the Executive which is deemed materially adverse by the
Executive;
(v) a change in the Executive's responsibilities,
authorities or functions which is deemed materially adverse by
the Executive; or
(vi) the Executive is requested by management or the
Board of Directors to engage in conduct which the Executive
can demonstrate is illegal.
2
<PAGE>
(c) "Rabbi Trust" means a grantor trust, as that term is
defined in Section 671 of the Internal Revenue Code, established pursuant to a
trust agreement entered into between the Bank and NationsBank.
2. Compensation. Executive shall be entitled to resign from the Bank
within the one year period following a Change in Control of the Bank or the
Company and if the Change in Control has not been approved by a majority of the
Continuing Directors then in office, the Executive shall receive a lump sum
payment equal to one year's full base salary at the rate applicable to the
Executive in effect immediately prior to the Change in Control (the "Severance
Payment"). Executive shall also receive the Severance Payment in the event she
is asked to resign or her employment with the Bank is Terminated as a condition
to, in preparation for, or otherwise in connection with a Change in Control, or
within the one year period following a Change in Control, prior to the
resignation of the Executive, whether or not such change in Control was approved
by a majority of the Continuing Directors.
3. Limitation on Severance Payment. Any Severance Payment payable in
accordance with this Agreement shall be reduced to the extent that any such
payment constitutes an "Excess Parachute Payment," as such term is defined in
the Internal Revenue Code of 1986, as amended.
4. Consideration. This Agreement is for the purpose of inducing the
Executive to continue her employment with the Bank and in consideration of the
services rendered by the Executive to the Bank from and after the date of this
Agreement, which consideration the Bank hereby acknowledges is fair and
adequate.
5. Rabbi Trust. In conjunction with the execution of this Agreement,
the Bank shall establish an irrevocable Rabbi Trust in order to fund its
Severance Payment obligations under this Agreement. The terms of the Rabbi Trust
are incorporated by reference. To the extent that the Executive acquires a right
to receive benefits under this Agreement, such right shall be no greater than
the right of any unsecured general creditor of the Bank.
6. Successors. This Agreement shall inure to the benefit of the
Executive, her heirs, personal representatives and assigns and shall bind the
Bank and its successors.
7. Waiver. The parties hereto acknowledge that this Amended and
Restated Severance Agreement and the related Rabbi Trust was prepared pursuant
to their mutual request by the law firm of Ober, Kaler, Grimes & Shriver,
counsel solely to the Company and the Bank. The Executive acknowledges that she
is sophisticated in business matters (including, but not limited to, employment
agreements) and that she has had the opportunity to seek independent legal
advice. Each of the Executive and the Bank specifically waives any actual or
apparent conflict of interest of Ober Kaler, Grimes & Shriver in connection with
the preparation and negotiation of this Amended and Restated Severance
Agreement.
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
THE ADAMS NATIONAL BANK
By: _____________________________________
Barbara Davis Blum
Chairwoman, President and
Chief Executive Officer
-------------------------------------
Name: _____________________________
4
Exhibit 10.23
AMENDED AND RESTATED SEVERANCE AGREEMENT
This Amended and Restated Severance Agreement is made and entered into
as of this 5th day of March, 1998 by and between The Adams National Bank, a
national banking association (the "Bank"), and
Devin Blum ("Executive").
R E C I T A L S
A. The Board of Directors of the Bank believes that the Executive is a
critically important member of the management of the Bank upon whose continuing
services the Bank depends and will depend for its future growth and prosperity.
B. The Board of Directors desires to assure itself of the uninterrupted
and unimpaired performance and loyalty of the Executive to the Bank in the event
of any actual or proposed Change in Control of the Bank or its parent, Abigail
Adams National Bancorp, Inc. (the "Company").
C. Events occurring after the failure to obtain stockholder approval of
the acquisition of Ballston Bancorp have increased the degree of uncertainty as
to future job security for the Executive.
D. The Board of Directors believes that the interests of the Bank and
the Company will best be served by providing the Executive with economic
assurances which will help to relieve her of uncertainty about her personal
economic interests in the event of any actual or proposed change in control, and
thereby permit her to devote her uninterrupted attention to the continued
performance of her duties to the Bank.
NOW, THEREFORE, IT IS AGREED:
1. Definitions. For Purposes of this Agreement, the following
terms have the meanings indicated:
(a) "Change in Control" means any of the following events:
(i) when the Company or the Bank acquires actual
knowledge that any person (as such term is used in Section
13(d) and 15(d)(2) of the Securities and Exchange Act of 1934
(the "Exchange Act")), other than an employee benefit plan
established or maintained by the Company or the Bank, is or
becomes the beneficial owner (as defined in Rule 13d-3 of the
Exchange Act) directly or indirectly, or record owner of
securities of the Company representing 20% or more of the
combined voting power of the Company's then outstanding
securities;
(ii) upon the first purchase of the Company's common
stock pursuant to a tender or exchange offer (other than a
tender or exchange offer made by the Company or an employee
benefit plan established or maintained by the Company or the
Bank);
1
<PAGE>
(iii) upon the approval by the Company's stockholders
of (A) 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 (hereinafter defined)), (B) a sale or disposition of
all or substantially all of the Company's assets or (C) a plan
of liquidation or dissolution of the Company;
(iv) 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;
(v) upon a sale of (A) common stock of the Bank if
after such sale any person (as defined above), other than the
Company or an employee benefit plan established or maintained
by the Company or the Bank, owns a majority of the Bank's
common stock or (B) all or substantially all of the Bank's
assets; or
(vi) 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.
The events described above shall be deemed a Change in Control
regardless of whether such event was approved in advance by a majority of the
Continuing Directors then in office.
(b) The Executive will be deemed to be "Terminated" upon the
occurrence of any one of the following events:
(i) the involuntary termination without cause of
the Executive's employment with the Bank;
(ii) the relocation of the principal place at which
the Executive's duties are to be performed to a location
outside a 35-mile radius of the District of Columbia;
(iii) a reduction in the Executive's compensation;
(iv) a change in benefits or perquisites provided to
the Executive which is deemed materially adverse by the
Executive;
(v) a change in the Executive's responsibilities,
authorities or functions which is deemed materially adverse by
the Executive; or
(vi) the Executive is requested by management or the
Board of Directors to engage in conduct which the Executive
can demonstrate is illegal.
2
<PAGE>
(c) "Rabbi Trust" means a grantor trust, as that term is
defined in Section 671 of the Internal Revenue Code, established pursuant to a
trust agreement entered into between the Bank and NationsBank.
2. Compensation. Executive shall be entitled to resign from the Bank
within the one year period following a Change in Control of the Bank or the
Company and if the Change in Control has not been approved by a majority of the
Continuing Directors then in office, the Executive shall receive a lump sum
payment equal to one year's full base salary at the rate applicable to the
Executive in effect immediately prior to the Change in Control (the "Severance
Payment"). Executive shall also receive the Severance Payment in the event she
is asked to resign or her employment with the Bank is Terminated as a condition
to, in preparation for, or otherwise in connection with a Change in Control, or
within the one year period following a Change in Control, prior to the
resignation of the Executive, whether or not such change in Control was approved
by a majority of the Continuing Directors.
3. Limitation on Severance Payment. Any Severance Payment payable in
accordance with this Agreement shall be reduced to the extent that any such
payment constitutes an "Excess Parachute Payment," as such term is defined in
the Internal Revenue Code of 1986, as amended.
4. Consideration. This Agreement is for the purpose of inducing the
Executive to continue her employment with the Bank and in consideration of the
services rendered by the Executive to the Bank from and after the date of this
Agreement, which consideration the Bank hereby acknowledges is fair and
adequate.
5. Rabbi Trust. In conjunction with the execution of this Agreement,
the Bank shall establish an irrevocable Rabbi Trust in order to fund its
Severance Payment obligations under this Agreement. The terms of the Rabbi Trust
are incorporated by reference. To the extent that the Executive acquires a right
to receive benefits under this Agreement, such right shall be no greater than
the right of any unsecured general creditor of the Bank.
6. Successors. This Agreement shall inure to the benefit of the
Executive, her heirs, personal representatives and assigns and shall bind the
Bank and its successors.
7. Waiver. The parties hereto acknowledge that this Amended and
Restated Severance Agreement and the related Rabbi Trust was prepared pursuant
to their mutual request by the law firm of Ober, Kaler, Grimes & Shriver,
counsel solely to the Company and the Bank. The Executive acknowledges that she
is sophisticated in business matters (including, but not limited to, employment
agreements) and that she has had the opportunity to seek independent legal
advice. Each of the Executive and the Bank specifically waives any actual or
apparent conflict of interest of Ober Kaler, Grimes & Shriver in connection with
the preparation and negotiation of this Amended and Restated Severance
Agreement.
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
THE ADAMS NATIONAL BANK
By: _____________________________________
Barbara Davis Blum
Chairwoman, President and
Chief Executive Officer
-------------------------------------
Name: _____________________________
4
Exhibit 10.24
AMENDED AND RESTATED SEVERANCE AGREEMENT
This Amended and Restated Severance Agreement is made and entered into
as of this 5th day of March, 1998 by and between The Adams National Bank, a
national banking association (the "Bank"), and
Joyce R. Hertz ("Executive").
R E C I T A L S
A. The Board of Directors of the Bank believes that the Executive is a
critically important member of the management of the Bank upon whose continuing
services the Bank depends and will depend for its future growth and prosperity.
B. The Board of Directors desires to assure itself of the uninterrupted
and unimpaired performance and loyalty of the Executive to the Bank in the event
of any actual or proposed Change in Control of the Bank or its parent, Abigail
Adams National Bancorp, Inc. (the "Company").
C. Events occurring after the failure to obtain stockholder approval of
the acquisition of Ballston Bancorp have increased the degree of uncertainty as
to future job security for the Executive.
D. The Board of Directors believes that the interests of the Bank and
the Company will best be served by providing the Executive with economic
assurances which will help to relieve her of uncertainty about her personal
economic interests in the event of any actual or proposed change in control, and
thereby permit her to devote her uninterrupted attention to the continued
performance of her duties to the Bank.
NOW, THEREFORE, IT IS AGREED:
1. Definitions. For Purposes of this Agreement, the following
terms have the meanings indicated:
(a) "Change in Control" means any of the following events:
(i) when the Company or the Bank acquires actual
knowledge that any person (as such term is used in Section
13(d) and 15(d)(2) of the Securities and Exchange Act of 1934
(the "Exchange Act")), other than an employee benefit plan
established or maintained by the Company or the Bank, is or
becomes the beneficial owner (as defined in Rule 13d-3 of the
Exchange Act) directly or indirectly, or record owner of
securities of the Company representing 20% or more of the
combined voting power of the Company's then outstanding
securities;
(ii) upon the first purchase of the Company's common
stock pursuant to a tender or exchange offer (other than a
tender or exchange offer made by the Company or an employee
benefit plan established or maintained by the Company or the
Bank);
1
<PAGE>
(iii) upon the approval by the Company's stockholders
of (A) 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 (hereinafter defined)), (B) a sale or disposition of
all or substantially all of the Company's assets or (C) a plan
of liquidation or dissolution of the Company;
(iv) 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;
(v) upon a sale of (A) common stock of the Bank if
after such sale any person (as defined above), other than the
Company or an employee benefit plan established or maintained
by the Company or the Bank, owns a majority of the Bank's
common stock or (B) all or substantially all of the Bank's
assets; or
(vi) 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.
The events described above shall be deemed a Change in Control
regardless of whether such event was approved in advance by a majority of the
Continuing Directors then in office.
(b) The Executive will be deemed to be "Terminated" upon the
occurrence of any one of the following events:
(i) the involuntary termination without cause of
the Executive's employment with the Bank;
(ii) the relocation of the principal place at which
the Executive's duties are to be performed to a location
outside a 35-mile radius of the District of Columbia;
(iii) a reduction in the Executive's compensation;
(iv) a change in benefits or perquisites provided to
the Executive which is deemed materially adverse by the
Executive;
(v) a change in the Executive's responsibilities,
authorities or functions which is deemed materially adverse by
the Executive; or
(vi) the Executive is requested by management or the
Board of Directors to engage in conduct which the Executive
can demonstrate is illegal.
2
<PAGE>
(c) "Rabbi Trust" means a grantor trust, as that term is
defined in Section 671 of the Internal Revenue Code, established pursuant to a
trust agreement entered into between the Bank and NationsBank.
2. Compensation. Executive shall be entitled to resign from the Bank
within the one year period following a Change in Control of the Bank or the
Company and if the Change in Control has not been approved by a majority of the
Continuing Directors then in office, the Executive shall receive a lump sum
payment equal to one year's full base salary at the rate applicable to the
Executive in effect immediately prior to the Change in Control (the "Severance
Payment"). Executive shall also receive the Severance Payment in the event she
is asked to resign or her employment with the Bank is Terminated as a condition
to, in preparation for, or otherwise in connection with a Change in Control, or
within the one year period following a Change in Control, prior to the
resignation of the Executive, whether or not such change in Control was approved
by a majority of the Continuing Directors.
3. Limitation on Severance Payment. Any Severance Payment payable in
accordance with this Agreement shall be reduced to the extent that any such
payment constitutes an "Excess Parachute Payment," as such term is defined in
the Internal Revenue Code of 1986, as amended.
4. Consideration. This Agreement is for the purpose of inducing the
Executive to continue her employment with the Bank and in consideration of the
services rendered by the Executive to the Bank from and after the date of this
Agreement, which consideration the Bank hereby acknowledges is fair and
adequate.
5. Rabbi Trust. In conjunction with the execution of this Agreement,
the Bank shall establish an irrevocable Rabbi Trust in order to fund its
Severance Payment obligations under this Agreement. The terms of the Rabbi Trust
are incorporated by reference. To the extent that the Executive acquires a right
to receive benefits under this Agreement, such right shall be no greater than
the right of any unsecured general creditor of the Bank.
6. Successors. This Agreement shall inure to the benefit of the
Executive, her heirs, personal representatives and assigns and shall bind the
Bank and its successors.
7. Waiver. The parties hereto acknowledge that this Amended and
Restated Severance Agreement and the related Rabbi Trust was prepared pursuant
to their mutual request by the law firm of Ober, Kaler, Grimes & Shriver,
counsel solely to the Company and the Bank. The Executive acknowledges that she
is sophisticated in business matters (including, but not limited to, employment
agreements) and that she has had the opportunity to seek independent legal
advice. Each of the Executive and the Bank specifically waives any actual or
apparent conflict of interest of Ober Kaler, Grimes & Shriver in connection with
the preparation and negotiation of this Amended and Restated Severance
Agreement.
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
THE ADAMS NATIONAL BANK
By: _____________________________________
Barbara Davis Blum
Chairwoman, President and
Chief Executive Officer
-------------------------------------
Name: _____________________________
4
Exhibit 10.25
AMENDED AND RESTATED SEVERANCE AGREEMENT
This Amended and Restated Severance Agreement is made and entered into
as of this 5th day of March, 1998 by and between The Adams National Bank, a
national banking association (the "Bank"), and
Kimberly J. Levine ("Executive").
R E C I T A L S
A. The Board of Directors of the Bank believes that the Executive is a
critically important member of the management of the Bank upon whose continuing
services the Bank depends and will depend for its future growth and prosperity.
B. The Board of Directors desires to assure itself of the uninterrupted
and unimpaired performance and loyalty of the Executive to the Bank in the event
of any actual or proposed Change in Control of the Bank or its parent, Abigail
Adams National Bancorp, Inc. (the "Company").
C. Events occurring after the failure to obtain stockholder approval of
the acquisition of Ballston Bancorp have increased the degree of uncertainty as
to future job security for the Executive.
D. The Board of Directors believes that the interests of the Bank and
the Company will best be served by providing the Executive with economic
assurances which will help to relieve her of uncertainty about her personal
economic interests in the event of any actual or proposed change in control, and
thereby permit her to devote her uninterrupted attention to the continued
performance of her duties to the Bank.
NOW, THEREFORE, IT IS AGREED:
1. Definitions. For Purposes of this Agreement, the following
terms have the meanings indicated:
(a) "Change in Control" means any of the following events:
(i) when the Company or the Bank acquires actual
knowledge that any person (as such term is used in Section
13(d) and 15(d)(2) of the Securities and Exchange Act of 1934
(the "Exchange Act")), other than an employee benefit plan
established or maintained by the Company or the Bank, is or
becomes the beneficial owner (as defined in Rule 13d-3 of the
Exchange Act) directly or indirectly, or record owner of
securities of the Company representing 20% or more of the
combined voting power of the Company's then outstanding
securities;
(ii) upon the first purchase of the Company's common
stock pursuant to a tender or exchange offer (other than a
tender or exchange offer made by the Company or an employee
benefit plan established or maintained by the Company or the
Bank);
1
<PAGE>
(iii) upon the approval by the Company's stockholders
of (A) 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 (hereinafter defined)), (B) a sale or disposition of
all or substantially all of the Company's assets or (C) a plan
of liquidation or dissolution of the Company;
(iv) 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;
(v) upon a sale of (A) common stock of the Bank if
after such sale any person (as defined above), other than the
Company or an employee benefit plan established or maintained
by the Company or the Bank, owns a majority of the Bank's
common stock or (B) all or substantially all of the Bank's
assets; or
(vi) 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.
The events described above shall be deemed a Change in Control
regardless of whether such event was approved in advance by a majority of the
Continuing Directors then in office.
(b) The Executive will be deemed to be "Terminated" upon the
occurrence of any one of the following events:
(i) the involuntary termination without cause of
the Executive's employment with the Bank;
(ii) the relocation of the principal place at which
the Executive's duties are to be performed to a location
outside a 35-mile radius of the District of Columbia;
(iii) a reduction in the Executive's compensation;
(iv) a change in benefits or perquisites provided to
the Executive which is deemed materially adverse by the
Executive;
(v) a change in the Executive's responsibilities,
authorities or functions which is deemed materially adverse by
the Executive; or
(vi) the Executive is requested by management or the
Board of Directors to engage in conduct which the Executive
can demonstrate is illegal.
2
<PAGE>
(c) "Rabbi Trust" means a grantor trust, as that term is
defined in Section 671 of the Internal Revenue Code, established pursuant to a
trust agreement entered into between the Bank and NationsBank.
2. Compensation. Executive shall be entitled to resign from the Bank
within the one year period following a Change in Control of the Bank or the
Company and if the Change in Control has not been approved by a majority of the
Continuing Directors then in office, the Executive shall receive a lump sum
payment equal to one year's full base salary at the rate applicable to the
Executive in effect immediately prior to the Change in Control (the "Severance
Payment"). Executive shall also receive the Severance Payment in the event she
is asked to resign or her employment with the Bank is Terminated as a condition
to, in preparation for, or otherwise in connection with a Change in Control, or
within the one year period following a Change in Control, prior to the
resignation of the Executive, whether or not such change in Control was approved
by a majority of the Continuing Directors.
3. Limitation on Severance Payment. Any Severance Payment payable in
accordance with this Agreement shall be reduced to the extent that any such
payment constitutes an "Excess Parachute Payment," as such term is defined in
the Internal Revenue Code of 1986, as amended.
4. Consideration. This Agreement is for the purpose of inducing the
Executive to continue her employment with the Bank and in consideration of the
services rendered by the Executive to the Bank from and after the date of this
Agreement, which consideration the Bank hereby acknowledges is fair and
adequate.
5. Rabbi Trust. In conjunction with the execution of this Agreement,
the Bank shall establish an irrevocable Rabbi Trust in order to fund its
Severance Payment obligations under this Agreement. The terms of the Rabbi Trust
are incorporated by reference. To the extent that the Executive acquires a right
to receive benefits under this Agreement, such right shall be no greater than
the right of any unsecured general creditor of the Bank.
6. Successors. This Agreement shall inure to the benefit of the
Executive, her heirs, personal representatives and assigns and shall bind the
Bank and its successors.
7. Waiver. The parties hereto acknowledge that this Amended and
Restated Severance Agreement and the related Rabbi Trust was prepared pursuant
to their mutual request by the law firm of Ober, Kaler, Grimes & Shriver,
counsel solely to the Company and the Bank. The Executive acknowledges that she
is sophisticated in business matters (including, but not limited to, employment
agreements) and that she has had the opportunity to seek independent legal
advice. Each of the Executive and the Bank specifically waives any actual or
apparent conflict of interest of Ober Kaler, Grimes & Shriver in connection with
the preparation and negotiation of this Amended and Restated Severance
Agreement.
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
THE ADAMS NATIONAL BANK
By: _____________________________________
Barbara Davis Blum
Chairwoman, President and
Chief Executive Officer
-------------------------------------
Name: _____________________________
4
Exhibit 10.26
AMENDED AND RESTATED SEVERANCE AGREEMENT
This Amended and Restated Severance Agreement is made and entered into
as of this 5th day of March, 1998 by and between The Adams National Bank, a
national banking association (the "Bank"), and
Melrose M. Nathan ("Executive").
R E C I T A L S
A. The Board of Directors of the Bank believes that the Executive is a
critically important member of the management of the Bank upon whose continuing
services the Bank depends and will depend for its future growth and prosperity.
B. The Board of Directors desires to assure itself of the uninterrupted
and unimpaired performance and loyalty of the Executive to the Bank in the event
of any actual or proposed Change in Control of the Bank or its parent, Abigail
Adams National Bancorp, Inc. (the "Company").
C. Events occurring after the failure to obtain stockholder approval of
the acquisition of Ballston Bancorp have increased the degree of uncertainty as
to future job security for the Executive.
D. The Board of Directors believes that the interests of the Bank and
the Company will best be served by providing the Executive with economic
assurances which will help to relieve her of uncertainty about her personal
economic interests in the event of any actual or proposed change in control, and
thereby permit her to devote her uninterrupted attention to the continued
performance of her duties to the Bank.
NOW, THEREFORE, IT IS AGREED:
1. Definitions. For Purposes of this Agreement, the following
terms have the meanings indicated:
(a) "Change in Control" means any of the following events:
(i) when the Company or the Bank acquires actual
knowledge that any person (as such term is used in Section
13(d) and 15(d)(2) of the Securities and Exchange Act of 1934
(the "Exchange Act")), other than an employee benefit plan
established or maintained by the Company or the Bank, is or
becomes the beneficial owner (as defined in Rule 13d-3 of the
Exchange Act) directly or indirectly, or record owner of
securities of the Company representing 20% or more of the
combined voting power of the Company's then outstanding
securities;
(ii) upon the first purchase of the Company's common
stock pursuant to a tender or exchange offer (other than a
tender or exchange offer made by the Company or an employee
benefit plan established or maintained by the Company or the
Bank);
1
<PAGE>
(iii) upon the approval by the Company's stockholders
of (A) 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 (hereinafter defined)), (B) a sale or disposition of
all or substantially all of the Company's assets or (C) a plan
of liquidation or dissolution of the Company;
(iv) 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;
(v) upon a sale of (A) common stock of the Bank if
after such sale any person (as defined above), other than the
Company or an employee benefit plan established or maintained
by the Company or the Bank, owns a majority of the Bank's
common stock or (B) all or substantially all of the Bank's
assets; or
(vi) 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.
The events described above shall be deemed a Change in Control
regardless of whether such event was approved in advance by a majority of the
Continuing Directors then in office.
(b) The Executive will be deemed to be "Terminated" upon the
occurrence of any one of the following events:
(i) the involuntary termination without cause of
the Executive's employment with the Bank;
(ii) the relocation of the principal place at which
the Executive's duties are to be performed to a location
outside a 35-mile radius of the District of Columbia;
(iii) a reduction in the Executive's compensation;
(iv) a change in benefits or perquisites provided to
the Executive which is deemed materially adverse by the
Executive;
(v) a change in the Executive's responsibilities,
authorities or functions which is deemed materially adverse by
the Executive; or
(vi) the Executive is requested by management or the
Board of Directors to engage in conduct which the Executive
can demonstrate is illegal.
2
<PAGE>
(c) "Rabbi Trust" means a grantor trust, as that term is
defined in Section 671 of the Internal Revenue Code, established pursuant to a
trust agreement entered into between the Bank and NationsBank.
2. Compensation. Executive shall be entitled to resign from the Bank
within the one year period following a Change in Control of the Bank or the
Company and if the Change in Control has not been approved by a majority of the
Continuing Directors then in office, the Executive shall receive a lump sum
payment equal to one year's full base salary at the rate applicable to the
Executive in effect immediately prior to the Change in Control (the "Severance
Payment"). Executive shall also receive the Severance Payment in the event she
is asked to resign or her employment with the Bank is Terminated as a condition
to, in preparation for, or otherwise in connection with a Change in Control, or
within the one year period following a Change in Control, prior to the
resignation of the Executive, whether or not such change in Control was approved
by a majority of the Continuing Directors.
3. Limitation on Severance Payment. Any Severance Payment payable in
accordance with this Agreement shall be reduced to the extent that any such
payment constitutes an "Excess Parachute Payment," as such term is defined in
the Internal Revenue Code of 1986, as amended.
4. Consideration. This Agreement is for the purpose of inducing the
Executive to continue her employment with the Bank and in consideration of the
services rendered by the Executive to the Bank from and after the date of this
Agreement, which consideration the Bank hereby acknowledges is fair and
adequate.
5. Rabbi Trust. In conjunction with the execution of this Agreement,
the Bank shall establish an irrevocable Rabbi Trust in order to fund its
Severance Payment obligations under this Agreement. The terms of the Rabbi Trust
are incorporated by reference. To the extent that the Executive acquires a right
to receive benefits under this Agreement, such right shall be no greater than
the right of any unsecured general creditor of the Bank.
6. Successors. This Agreement shall inure to the benefit of the
Executive, her heirs, personal representatives and assigns and shall bind the
Bank and its successors.
7. Waiver. The parties hereto acknowledge that this Amended and
Restated Severance Agreement and the related Rabbi Trust was prepared pursuant
to their mutual request by the law firm of Ober, Kaler, Grimes & Shriver,
counsel solely to the Company and the Bank. The Executive acknowledges that she
is sophisticated in business matters (including, but not limited to, employment
agreements) and that she has had the opportunity to seek independent legal
advice. Each of the Executive and the Bank specifically waives any actual or
apparent conflict of interest of Ober Kaler, Grimes & Shriver in connection with
the preparation and negotiation of this Amended and Restated Severance
Agreement.
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
THE ADAMS NATIONAL BANK
By: _____________________________________
Barbara Davis Blum
Chairwoman, President and
Chief Executive Officer
-------------------------------------
Name: _____________________________
4
Exhibit 10.27
AMENDED AND RESTATED SEVERANCE AGREEMENT
This Amended and Restated Severance Agreement is made and entered into
as of this 5th day of March, 1998 by and between The Adams National Bank, a
national banking association (the "Bank"), and
Bijan Partovi ("Executive").
R E C I T A L S
A. The Board of Directors of the Bank believes that the Executive is a
critically important member of the management of the Bank upon whose continuing
services the Bank depends and will depend for its future growth and prosperity.
B. The Board of Directors desires to assure itself of the uninterrupted
and unimpaired performance and loyalty of the Executive to the Bank in the event
of any actual or proposed Change in Control of the Bank or its parent, Abigail
Adams National Bancorp, Inc. (the "Company").
C. Events occurring after the failure to obtain stockholder approval of
the acquisition of Ballston Bancorp have increased the degree of uncertainty as
to future job security for the Executive.
D. The Board of Directors believes that the interests of the Bank and
the Company will best be served by providing the Executive with economic
assurances which will help to relieve her of uncertainty about her personal
economic interests in the event of any actual or proposed change in control, and
thereby permit her to devote her uninterrupted attention to the continued
performance of her duties to the Bank.
NOW, THEREFORE, IT IS AGREED:
1. Definitions. For Purposes of this Agreement, the following
terms have the meanings indicated:
(a) "Change in Control" means any of the following events:
(i) when the Company or the Bank acquires actual
knowledge that any person (as such term is used in Section
13(d) and 15(d)(2) of the Securities and Exchange Act of 1934
(the "Exchange Act")), other than an employee benefit plan
established or maintained by the Company or the Bank, is or
becomes the beneficial owner (as defined in Rule 13d-3 of the
Exchange Act) directly or indirectly, or record owner of
securities of the Company representing 20% or more of the
combined voting power of the Company's then outstanding
securities;
(ii) upon the first purchase of the Company's common
stock pursuant to a tender or exchange offer (other than a
tender or exchange offer made by the Company or an employee
benefit plan established or maintained by the Company or the
Bank);
1
<PAGE>
(iii) upon the approval by the Company's stockholders
of (A) 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 (hereinafter defined)), (B) a sale or disposition of
all or substantially all of the Company's assets or (C) a plan
of liquidation or dissolution of the Company;
(iv) 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;
(v) upon a sale of (A) common stock of the Bank if
after such sale any person (as defined above), other than the
Company or an employee benefit plan established or maintained
by the Company or the Bank, owns a majority of the Bank's
common stock or (B) all or substantially all of the Bank's
assets; or
(vi) 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.
The events described above shall be deemed a Change in Control
regardless of whether such event was approved in advance by a majority of the
Continuing Directors then in office.
(b) The Executive will be deemed to be "Terminated" upon the
occurrence of any one of the following events:
(i) the involuntary termination without cause of
the Executive's employment with the Bank;
(ii) the relocation of the principal place at which
the Executive's duties are to be performed to a location
outside a 35-mile radius of the District of Columbia;
(iii) a reduction in the Executive's compensation;
(iv) a change in benefits or perquisites provided to
the Executive which is deemed materially adverse by the
Executive;
(v) a change in the Executive's responsibilities,
authorities or functions which is deemed materially adverse by
the Executive; or
(vi) the Executive is requested by management or the
Board of Directors to engage in conduct which the Executive
can demonstrate is illegal.
2
<PAGE>
(c) "Rabbi Trust" means a grantor trust, as that term is
defined in Section 671 of the Internal Revenue Code, established pursuant to a
trust agreement entered into between the Bank and NationsBank.
2. Compensation. Executive shall be entitled to resign from the Bank
within the one year period following a Change in Control of the Bank or the
Company and if the Change in Control has not been approved by a majority of the
Continuing Directors then in office, the Executive shall receive a lump sum
payment equal to one year's full base salary at the rate applicable to the
Executive in effect immediately prior to the Change in Control (the "Severance
Payment"). Executive shall also receive the Severance Payment in the event she
is asked to resign or her employment with the Bank is Terminated as a condition
to, in preparation for, or otherwise in connection with a Change in Control, or
within the one year period following a Change in Control, prior to the
resignation of the Executive, whether or not such change in Control was approved
by a majority of the Continuing Directors.
3. Limitation on Severance Payment. Any Severance Payment payable in
accordance with this Agreement shall be reduced to the extent that any such
payment constitutes an "Excess Parachute Payment," as such term is defined in
the Internal Revenue Code of 1986, as amended.
4. Consideration. This Agreement is for the purpose of inducing the
Executive to continue her employment with the Bank and in consideration of the
services rendered by the Executive to the Bank from and after the date of this
Agreement, which consideration the Bank hereby acknowledges is fair and
adequate.
5. Rabbi Trust. In conjunction with the execution of this Agreement,
the Bank shall establish an irrevocable Rabbi Trust in order to fund its
Severance Payment obligations under this Agreement. The terms of the Rabbi Trust
are incorporated by reference. To the extent that the Executive acquires a right
to receive benefits under this Agreement, such right shall be no greater than
the right of any unsecured general creditor of the Bank.
6. Successors. This Agreement shall inure to the benefit of the
Executive, her heirs, personal representatives and assigns and shall bind the
Bank and its successors.
7. Waiver. The parties hereto acknowledge that this Amended and
Restated Severance Agreement and the related Rabbi Trust was prepared pursuant
to their mutual request by the law firm of Ober, Kaler, Grimes & Shriver,
counsel solely to the Company and the Bank. The Executive acknowledges that she
is sophisticated in business matters (including, but not limited to, employment
agreements) and that she has had the opportunity to seek independent legal
advice. Each of the Executive and the Bank specifically waives any actual or
apparent conflict of interest of Ober Kaler, Grimes & Shriver in connection with
the preparation and negotiation of this Amended and Restated Severance
Agreement.
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
THE ADAMS NATIONAL BANK
By: _____________________________________
Barbara Davis Blum
Chairwoman, President and
Chief Executive Officer
-------------------------------------
Name: _____________________________
4
Exhibit 10.29
March 5, 1998
Ms. Kate Carr
3702 Curtis Court
Chevy Chase, MD 20815
Dear Ms. Carr:
This letter contains amended and restated terms of The Adams National
Bank's (the "Bank") offer to employ you as the Bank's Senior Vice President,
Lending, and this letter agreement supersedes our original agreement dated
January 21, 1998. The Board of Directors believes that the interests of the Bank
and its parent, Abigail Adams National Bancorp, Inc. (the "Company") will best
be served by providing you with economic assurances which will help to relieve
you of uncertainty about your personal economic interests in the event of any
actual or proposed Change in Control, and thereby permit you to devote your
uninterrupted attention to the performance of your duties to the Bank.
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.
You shall be entitled to resign from the Bank within one year following a
"Change in Control" (hereinafter defined) of the Bank or
<PAGE>
Ms. Kate Carr
Page 2
March 5, 1998
the Company and if such Change in Control has not been approved by a majority of
the Board of Directors then in office, you shall receive a lump sum payment
equal to one year's full base salary at the rate applicable to you in effect
immediately prior to the Change in Control (the "Severance Payment"). You shall
also receive the Severance Payment in the event you are asked to resign or your
employment with the Bank is "Terminated" (hereinafter defined) as a condition
to, in preparation for, or otherwise in connection with a Change in Control, or
within the one year period following a Change in Control, prior to your
resignation, whether or not such Change in Control was approved by a majority of
the Board of Directors.
Change in Control means any ofthe following events:
(a) when the Company or the Bank acquires actual knowledge that any
person (as such term is used in Section 13(d) and 15(d)(2) of the
Securities and Exchange Act of 1934 (the "Exchange Act")), other than
an employee benefit plan established or maintained by the Company or
the Bank, is or becomes the beneficial owner (as defined in Rule 13d-3
of the Exchange Act) directly or indirectly, or record owner of
securities of the Company representing 20% or more of the combined
voting power of the Company's then outstanding securities;
(b) upon the first purchase of the Company's common stock pursuant to a
tender or exchange offer (other than a tender or exchange offer made by
an employee benefit plan established or maintained by the Company or
the Bank);
(c) upon the approval by the Company's stockholders of (1) a merger or
consolidation of the Company with or into another corporation (other
than a merger or consolidation the definitive agreement for which
provides that at least two-thirds of the directors of the surviving or
resulting corporation immediately after the transaction are Continuing
Directors (hereinafter defined)), (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
<PAGE>
Ms. Kate Carr
Page 3
March 5, 1998
(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.
The events described above shall be deemed a Change in Control
regardless of whether such event was approved by a majority of the Continuing
Directors then in office.
Your employment will be deemed to be "Terminated" upon the occurrence
of any one of the following events:
(a) the involuntary termination without cause of your employment with
the Bank;
(b) the relocation of the principal place at which your duties are to
be performed to a location outside a 35-mile radius of the District of
Columbia;
(c) a reduction in the your compensation;
(d) a change in benefits or perquisites provided to you which is deemed
materially adverse by you;
(e) a change in your responsibilities, authorities or functions which
is deemed materially adverse by you; or
(f) you are requested by management or the Board of Directors to engage
in conduct which you can demonstrate is illegal.
In conjunction with the execution of this letter agreement, the Bank
shall establish a grantor trust, as that term is defined in Section 671 of the
Internal Revenue Code, in order to fund its Severance Payment obligations under
this letter agreement. This grantor trust, which shall be irrevocable, will be
governed by the terms of a trust agreement entered into between the Bank and
NationsBank, the terms of which are incorporated by reference. To the extent
that you acquire a right to receive benefits under this letter agreement, your
right shall be no greater than the right of any unsecured general creditor of
the Bank.
Any Severance Payment payable in accordance with this letter agreement
shall be reduced to the extent that any such payment constitutes an "Excess
Parachute Payment," as such term is defined in the Internal Revenue Code of
1986, as amended.
This amended and restated letter agreement is for the purpose of
inducing you to continue your employment with the Bank and in consideration of
the services rendered by you to the Bank
<PAGE>
Ms. Kate Carr
Page 4
March 5, 1998
from and after the date of this letter agreement, which consideration the Bank
hereby acknowledges is fair and adequate.
This letter agreement shall inure to your benefit and the benefit of
your heirs, personal representatives and assigns and shall bind the Bank and its
successors.
The parties hereto acknowledge that this amended and restated letter
agreement and the related grantor trust was prepared pursuant to their mutual
request by the law firm of Ober, Kaler, Grimes & Shriver, counsel solely to the
Company and the Bank. You acknowledge that you are sophisticated in business
matters (including, but not limited to, employment agreements) and that you have
had the opportunity to seek independent legal advice. You and we specifically
waive any actual or apparent conflict of interest of Ober Kaler, Grimes &
Shriver in connection with the preparation and negotiation of this amended and
restated letter agreement.
Please confirm for me your acceptance of these amended and restated
terms of your employment.
Sincerely,
Barbara Davis Blum
Chairwoman & CEO
ACCEPTED March ___, 1998:
- ------------------------------
Kate Carr
Exhibit 10.30
GRANTOR TRUST
OF
ABIGAIL ADAMS NATIONAL BANCORP, INC.
THIS GRANTOR TRUST AGREEMENT, is made by and between Abigail Adams
National Bancorp, Inc., a Delaware corporation (the "Employer"), and
NationsBank, N.A. (the "Trustee"), and is effective March 4, 1998.
WITNESSETH:
-----------
WHEREAS, the Employer has entered into an Amendment To Employment
Agreement ("Agreement") with Barbara Davis Blum, effective as of March 5, a copy
of which is attached hereto as Exhibit A; and
WHEREAS, the Employer deems it advisable to adopt a grantor trust in
connection with the Agreement; and
WHEREAS, the Employer desires the Trustee to hold and administer the
Trust Fund under this Trust Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I
---------
ESTABLISHMENT OF THE TRUST
--------------------------
1.1 Definitions.
(a) Bank. The term "Bank" means The Adams National Bank, a
national banking association.
(b) Board of Directors. The term "Board of Directors" means
the Board of Directors of the Employer.
(c) Employment Agreement or Agreement. The term "Employment
Agreement" or "Agreement" means the original Employment Agreement dated as of
February 20, 1996 and amended as of March 29, 1996 and the Amendment To
Employment Agreement entered into as of March 5, 1998, between the Employer, the
Bank, and the Executive, which sets forth the terms and conditions of the
receipt of a Severance Payment.
(d) Executive. The term "Executive" means Barbara Davis Blum.
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(e) Severance Payment. The term "Severance Payment" means a
cash payment payable to the Executive pursuant to the terms of Sections
10(a)(i)(i) and 10(a)(i)(ii) of the Agreement. The amount of cash payment paid
from this Trust shall be twenty percent (20%) of the total amount required under
Sections 10(a)(i)(i) and 10(a)(i)(ii) of the Agreement. The amount of any
Severance Payment is determined by the terms of the Agreement and excludes any
assets in the Trust Fund in excess of the amount of the Severance Payment.
(f) The Trustee. The term "Trustee" means NationsBank, N.A.,
which has accepted the responsibilities herein, unless the Employer designates
another person or entity to serve as trustee for the Trust Agreement. If more
than one person acts as a Trustee hereunder, the term "Trustee" shall be deemed
to include all trustees.
(g) Valuation Date. The term "Valuation Date" means the last
day of each quarter of a calendar year, or a more frequent date as agreed upon
by the Trustee and the Employer.
1.2 Description of Trust.
(a) The Employer hereby establishes with the Trustee the
Grantor Trust of the Abigail Adams National Bancorp, Inc. (the "Trust") which
shall be a part of the Agreement. The Trust shall consist of such sums of money
or property (acceptable to the Trustee) as shall be paid to the Trustee under
the Agreement, and any earnings, profits, increments, additions and appreciation
thereto. The Trustee shall be subject only to the terms of this Trust. All such
sums of money, all investments made therewith or proceeds thereof, and all
earnings, profits, increments, appreciation and additions thereto, less the
payments which shall have been made by the Trustee, as authorized herein, are
referred to herein as the "Trust Fund" or the "Fund".
(b) The Trust is an irrevocable grantor trust within the
meaning of Section 671 of the Internal Revenue Code. Notwithstanding the
foregoing, on March 1st of 1999 and March 1st of each subsequent year: (i) the
Board of Directors shall have a thirty (30) day period in which to reevaluate
this Trust Fund; and (ii) unless the Board passes a resolution stating otherwise
during the thirty (30) day period, the Trust Fund shall continue in effect and
remain irrevocable until the following March 1st.
(c) No portion of the Trust will revert to the Employer
except: (i) if necessary to discharge the claims of creditors; (ii) the
Executive has not satisfied the conditions for receipt of a Severance Payment in
accordance with Sections 10(a)(i)(i) and 10(a)(i)(ii) of the Agreement; (iii) or
the amount of the Severance Payment constitutes an "Excess Parachute Payment,"
as such term is defined in the Internal Revenue Code of 1986, as amended; (iv)
the amount in the Trust exceeds the Severance Payment; or (v) in the case of an
"Interest Transfer" as described in Section 2.4.
(d) If the Employer is unable to pay its debts as they mature
or is a party as a debtor in any bankruptcy proceeding, the Employer will be
considered insolvent. The insolvency of the Bank will not impact the payment of
benefits under the Agreement. The Board must inform the
2
<PAGE>
Trustee of either or both of these conditions. Upon receipt of this information
regarding the Employer's insolvency, the Trustee must suspend distribution of
any Severance Payments and must hold assets for the benefit of the Employer's
general creditors. If the Trustee receives other written notice of the
Employer's insolvency, the Trustee must notify the Board in writing and must
suspend all Severance Payments. The Trustee must also hold trust assets for the
benefit of the Employer's general creditors and must determine within 30
calendar days whether the Employer is insolvent. The Trustee must consult with
the Employer as part of the determination of the Employer's insolvency. If the
Trustee determines the Employer is solvent, it must resume the distribution of
any Severance Payment. If the Trustee has knowledge of the Employer's insolvency
or has determined that the Employer is insolvent, the Trustee must deliver trust
assets to satisfy the claims of the Employer's general creditors as directed by
a court of competent jurisdiction.
ARTICLE II
----------
CONTRIBUTIONS AND DISTRIBUTIONS
-------------------------------
2.1 Contributions. As soon as administratively feasible after the
execution of the Agreement, the Employer shall pay to the Trustee an amount (in
cash) equal to twenty percent (20%) of the total Severance Payments under the
Agreement as set forth in Exhibit B. In determining the amount and frequency of
any subsequent contributions to be made in cash or other property acceptable to
the Trustee, the Board may, but is not required to, take into account any
increase in the Executive's base salary and the earnings and/or losses of the
Trust Fund. The Trustee is under no obligation to compel deposits to the Trust
Fund.
2.2 Distributions. Generally, the Trustee must hold, invest, reinvest,
manage, and administer the Trust Fund in accordance with the provisions of the
Trust Agreement, and from time to time, on the written direction of the Board,
make payments from the Trust Fund for the purposes specified in a written
direction. The Trustee shall be under no liability for any payment made by it
pursuant to such a direction.
2.3 Payments to Executive.
(a) Whenever the Trustee shall be advised by the Board or the
Employer that the Executive has become entitled to a Severance Payment, it shall
distribute to such Executive the Severance Payment due in the amount and manner
provided by the Agreement.
(b) If the Executive is physically or mentally incapable of
receiving and acknowledging a Severance Payment from the Agreement, the Trustee
may, upon direction from the Board or the Employer, make the Severance Payment,
without the interposition of a guardian, to such institution, trustee,
conservator, committee or person who shall be entitled to receive such Severance
Payment for the use, benefit or support of said incompetent. Such Severance
Payment shall constitute a full acquittance of the Trustee and of all claims
against the Trust Fund.
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<PAGE>
(c) In the event that any dispute shall arise as to the
persons to whom a Severance Payment and the delivery of any fund or property
shall be made by the Trustee, or the amount thereof, the Trustees shall retain
the Severance Payment and/or postpone such delivery until actual adjudication of
such dispute shall have been made pursuant to the procedures set forth in the
Agreement.
(d) If the Employer determines that the amount in the Trust
Fund, and any earnings thereon, are not sufficient to distribute a Severance
Payment in accordance with the terms of the Agreement, the Employer may correct
this deficiency by making an additional irrevocable deposit to the Trust Fund
out of its general assets.
(e) If the Employer determines at the time of distribution
that the amount in the Trust Fund exceeds the amount of the Severance Payment,
the excess amount will be forfeited and returned to the Employer.
(f) The entitlement of an Executive to a Severance Payment
under the Agreement shall be determined by the Employer or such party as it
shall designate under the Agreement, and any dispute shall be resolved in a
court of competent juridiction.
2.4 Interest Transfer. To the extent that the amount in the Trust Fund
exceeds the amount of the Severance Payment, the excess amount will be forfeited
and returned to the Employer as soon as administratively feasible after the
determination has been made and to the extent allowable by the terms of the
underlying investments in the Trust Fund. This determination shall be made by
the Employer as soon as possible after the end of each calendar quarter by
determining the amount in the Trust Fund on the last day of each calendar year
quarter and subtracting from that amount the Severance Payment set forth in
Exhibit B.
ARTICLE III
-----------
INVESTMENT OF THE FUND
----------------------
3.1 General Rules. The Trustee shall invest and reinvest the principal
and income of the Trust Fund and keep the same invested without distinction
between principal and income. The selection and retention or disposition of any
investment shall be made by the Trustee at the direction of the Employer or any
investment manager appointed by the Board, or its delegate. The Employer and/or
its designated investment manager shall have the authority to acquire, manage,
retain and dispose of assets of the Trust Fund.
3.2 Trustee Powers. The Trustee shall have the following powers in
addition to the powers customarily vested in trustees by law and in no way in
derogation thereof:
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<PAGE>
(a) With any cash at any time held by it, to purchase or
subscribe for any Authorized Investment (as defined in Section 3.3 herein), and
to retain such Authorized Investment in the Trust Fund.
(b) To sell for cash or on credit, convert, redeem, exchange
for another Authorized Investment, or otherwise dispose of, any Authorized
Investment at any time held by it.
(c) To retain uninvested any part of the Trust Fund necessary
for the current operational need of the Agreements or Trust, and to deposit any
cash in any banking or savings institution, including a savings account or
similar interest-bearing account in the Trustee's own savings department.
(d) To exercise any option appurtenant to any Authorized
Investment in which the Trust Fund is invested for conversion thereof into
another Authorized Investment, or to exercise any rights to subscribe for
additional Authorized Investments, and to make all necessary payments therefor.
(e) At the direction of the Employer, to vote, in person or by
general or limited proxy, at any election of any corporation in which the Trust
Fund is invested, and similarly to exercise, personally or by a general or
limited power of attorney, any right appurtenant to any Authorized Investment
held in the Trust Fund.
(f) To purchase Authorized Investments at a premium or
discount.
(g) With the approval of the Employer, to employ suitable
agents, actuaries, accountants and counsel and to pay their reasonable expenses
and compensation from the Trust Fund if not paid by the Employer within ninety
(90) days.
(h) To cause any investment in the Trust Fund to be registered
in, or transferred into, its name as Trustee or the name of its nominee or
nominees or to retain them unregistered or in a form permitting transfer by
delivery, or to utilize the Federal Reserve Book Entry System for securities of
the United States Government or its agencies, or to utilize the services of a
depository clearing corporation to the extent permitted by State law. The books
and records of the Trustee shall at all times show that all such investments are
part of the Trust Fund, and the Trustee shall be fully responsible for any
misappropriation or defalcation in respect of any investment held by its nominee
or held in unregistered form. The indicia of ownership of all Trust Fund assets
shall be maintained within the jurisdiction of the district courts of the United
States.
(i) To do all acts which it may deem necessary or proper and
to exercise any and all powers of the Trust under this Trust upon such terms and
conditions which it may deem are for the best interests of the Trust Fund.
5
<PAGE>
(j) To apply for, purchase, hold, transfer, pay premiums on,
surrender, and exercise all incidents of ownership of any annuity contract.
(k) To invest in proprietary mutual funds of the Trustee or
its affiliates.
(l) To provide appropriate disclosure regarding trade
confirmations. The Employer is aware that Federal Regulations require that the
Trustee, without charge and within five business days of its receipt of a
broker/dealer confirmation for each security transaction in the Employer's name,
forward a copy to the Employer of such broker/dealer confirmation or a written
notification which discloses: the Trustee's name; the Employer's name; the
capacity in which the Trustee is acting; the date of execution and a statement
that the time of execution will be furnished on the request; the identity,
price, number of shares or units or principal amount of debt securities
purchased or sold by the Employer; the name of the broker/dealer and the amount
of any remuneration received by such broker/dealer from the Employer; the amount
of any remuneration received by the Trustee from the Employer, and the source
and amount of any other remuneration received by the Trustee for the
transaction.
The Employer is also aware that under the preceding paragraph, the
Trustee shall provide periodic statements (not more frequently than monthly) to
the Employer including a listing of all securities transactions, receipts and
disbursements during that period, together with a current listing of the assets
held in the account. Accordingly, because the Employer believes that the
periodic statements provided by the Trustee will constitute sufficient notice of
such transactions, the Employer hereby agrees to accept such periodic statements
in satisfaction of the Trustee's obligation to provide the written notification
as described in the preceding paragraph.
3.3 Authorized Investments. "Authorized Investment" means bonds,
debentures, notes, commercial paper, bankers' acceptances, money market
certificates, or other evidences of indebtedness, including by way of
illustration and not by way of limitation, corporate bonds, savings accounts,
certificates of deposit, variable note arrangements and obligations of the
United States Government; stocks (regardless of class), or other evidences of
ownership, in any corporation, mutual investment fund, investment company,
association, or business trust; combined, common or commingled trust funds;
retirement income or annuity contracts; real and personal property of all kinds,
including leaseholds on improved and unimproved real estate. Authorized
Investment includes any investment vehicle of the Trustee including without
limitation any interest-bearing account, certificate of deposit or variable note
arrangement.
3.4 Custodian. If the Trustee is not a bank or trust company, the
Trustee may delegate, with the approval of the Board, by an instrument in
writing, to a person (individual, corporation or other entity) who is appointed
as agent or custodian by it, any power or function of the Trustee hereunder
(other than the investment of the Trust assets), including without limitation
the following:
(a) custodianship of all or any part of the assets of the
Trust;
6
<PAGE>
(b) maintaining and accounting for the Trust Fund;
(c) distribution of benefits as directed by the Board;
and
(d) preparation of the annual report on the status of
the Trust Fund.
The agent or custodian so appointed may act as agent for the Trustee,
without investment responsibility, for fees to be mutually agreed upon by the
Board and the agent or custodian and paid in the same manner as Trustee's fees.
The Trustee shall review and monitor the functions of the custodian, but it
shall not be responsible for any act or omission of the agent or custodian
arising from any such delegation, except to the extent provided in Section 5.8
herein.
ARTICLE IV
----------
ACCOUNTS TO BE KEPT AND RENDERED BY THE TRUSTEE
-----------------------------------------------
4.1 Records and Accounts. The Trustee shall keep accurate and detailed
accounts of all investments, receipts and disbursements and other transactions
hereunder, including such specific records as shall be required by law and such
additional records as may be agreed upon in writing between the Board and the
Trustee. The Trustee shall file with the appropriate taxing authority such forms
as may be required in connection with the payments of benefits and shall file
with the appropriate taxing authority such additional forms as may be agreed
upon in writing between the Employer and the Trustee. All accounts, books and
records relating thereto shall be open to inspection and audit by any person or
persons designated by the Employer, at all reasonable times.
4.2 Annual Accounting. Within ninety (90) days following the close of
each calendar year, and within ninety (90) days after the effective date of the
removal or resignation of the Trustee, the Trustee shall file with the Board a
written account, setting forth all investments, receipts and disbursements, and
other transactions effected by them during such year or during the period from
the close of the last preceding year to the date of such removal or resignation,
including a description of all securities and investments purchased and sold
with the cost or net proceeds of such purchases or sales, and showing all cash,
securities and other property held at the end of such year or as of the date of
removal or resignation, as the case may be. The Trustee shall include in such
report a valuation of the Trust Fund in accordance with Section 4.4 herein.
Neither the Employer nor any other person shall have the right to demand or to
be entitled to any further or different accounting by the Trustee, except as may
be required by statute or by regulations published by federal government
agencies with respect to reporting and disclosure. The Board has 60 days
following the receipt of the annual accounting to provide written notice to the
Trustee of any disputed items. Absent such timely notice by the Board, the Board
is deemed to accept the Trustee's annual accounting.
4.3 Acceptance of Trustee's Accounting. The acceptance by the Board of
the written account of the Trustee shall not relieve the Trustee of any
liability or accountability for breaches of
7
<PAGE>
fiduciary responsibility for negligence or willful misconduct or lack of good
faith on the part of the Trustee. In the event that the Board files a statement
claiming any exception or objection to the written account of the Trustee, and
any such exception or objection are not compromised by agreement between the
Board and the Trustee, the Trustee shall file its account covering the period
from the date of the last account to which no objection was made in any court of
competent jurisdiction for audit or adjudication.
4.4 Valuation of the Trust Fund.
(a) As of each Valuation Date, the Trustee shall determine the
net worth of the assets of the Fund, and report such value to the Board in
writing. In determining such net worth, the Trustee shall evaluate the assets of
the Fund at their fair market value as of such Valuation Date and shall deduct
all expenses chargeable to the Fund.
(b) In determining and valuing the assets and liabilities of
the Fund for any purpose, securities held in the Fund shall be valued at their
last published sale price on the Valuation Date. If no sale price shall have
been reported on the Valuation Date, or if a security is listed on two or more
exchanges, or if any irregularity occurs, the Trustee shall make a determination
of value within the custom and practice at such time and will so advise the
Board as to its method of valuation.
ARTICLE V
---------
THE TRUSTEE
-----------
5.1 Trustee's Conditions. The Trustee accepts the Trust hereby created
and agrees to perform the duties hereby required by it, subject, however, to the
following conditions:
(a) The Trustee shall incur no liability to anyone for any
action taken pursuant to a direction, request or approval given by the Board,
the Employer or by any other party to whom authority to give such directions,
requests or approvals is delegated. Any such direction, request, or approval
shall be evidenced by delivery to the Trustee of a statement in writing signed
by the authorized initiator thereof.
(b) The Trustee shall receive as compensation for its services
such amounts as may be agreed upon at the time of execution of this Trust
Agreement, subject to change at any time and from time to time by agreement
between the Employer and the Trustee. No compensation shall be paid to the
Trustee if he is a full-time employee of the Employer. The Trustee's
compensation (if any) and the expenses incurred by the Trustee in administering
the Trust shall be paid by the Employer. If the Trustee's compensation and
expenses are not paid by the Employer within 90 days of receipt, the Trustee
reserves the right to withdraw the amounts due from the assets of the Trust.
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<PAGE>
(c) The Trustee shall be indemnified by the Employer against
its prospective costs, expenses, and liability in connection with all litigation
relating to the Agreement, the Trust or the Trust Fund, except where the
litigation is occasioned by the fault of the Trustee.
5.2 Board. The Employer shall advise the Trustee in writing of the
names of each of the individuals who serve on the Board and the Trustee shall be
fully protected in assuming that there has been no change until so advised by
the Employer.
5.3 Resignation or Removal of Trustee. The Trustee may be removed by
the Employer at any time upon sixty (60) days notice in writing to the Trustee.
The Trustee may resign at any time upon sixty (60) days notice in writing to the
Employer. In the case of any such removal or resignation, the Employer shall
appoint a successor Trustee who may be either one or more individuals or a
corporation empowered to act as trustee. Upon the resignation or removal of a
Trustee, it, he/she or they shall assign, transfer and pay over to the successor
Trustee its, his/her or their right, title and interest in and to the cash,
securities and other properties then constituting the Trust Fund and shall, at
the time of such transfer, render an account of its, his/her or their
transactions to the Board but the Trustee shall be under no duty to account to
anyone other than the Board or to make such a formal accounting as is required
of a trustee of an express trust. Any successor Trustee shall have the same
rights, powers and duties as those conferred upon the Trustee named in this
Trust Agreement. The removal of the Trustee or the appointment of a successor
Trustee shall be by instrument in writing, signed by an appropriate officer of
the Employer and shall become effective on the date specified in such
instrument. A certificate of the Board as to who is or was the duly appointed
and acting Trustee at any time may be accepted as conclusive by all parties
dealing with the Trustee. The Trustee shall be entitled to request a court of
competent jurisdiction to name a trustee should the Employer fail to name a
successor trustee within the notice period. The costs to have a court-appointed
successor Trustee can be charged to the Trust if not paid by the Employer within
ninety (90) days.
5.4 Provision for Co-Trustee. The Employer may select one or more
individuals (who may be employees of the Employer) or a corporation to act as a
trustee hereunder. In such event, the powers granted to the Trustee under the
provisions of this Trust Agreement shall be vested in all such trustees jointly
and shall be exercised by a majority of the Trustees.
5.5 Trustee Vote By Majority. Acts and decisions of the Trustee, if
there be more than one, involving trust interpretations or matters of policy
shall be by majority vote evidenced by an executed writing either in a meeting
or without a meeting. Any Trustee may sign on behalf of the Trustees any
documents or papers which may be required in the routine operation of the Trust.
5.6 Non-Participation of Trustee. No Executive may be a Trustee under
this Trust Agreement.
5.7 Bonding of Trustee. The Trustee is not required to be bonded.
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5.8 Liability of Trustee.
(a) The Trustee shall discharge its duties with the care,
skill, prudence and diligence under the circumstances then prevailing that a
prudent man acting in a like capacity and familiar with such matters would use
in the conduct of an enterprise of a like character and with like aims. If it
exercises investment powers, the Trustee shall diversify the investments of the
Fund so as to minimize the risk of large losses, unless under the circumstances
it is clearly prudent not to do so. The Trustee shall not be responsible in any
way for any action or omission of the Employer or the Board or the investment
manager with respect to their duties and obligations as set forth in the Trust.
The Trustee shall also not be responsible for any action or omission of any of
its agents or with respect to reliance upon the advice of counsel (whether or
not such counsel is also counsel to the Employer), provided that such agents or
counsel were prudently chosen by the Trustee and that the Trustee relied in good
faith upon the action of such agent or the advice of such counsel. The Trustee
shall not be relieved from responsibility or liability for any responsibility,
obligation or duty imposed upon it under the Agreement, the Trust or law.
Nothing herein shall preclude the indemnification of the Trustee by the
Employer.
(b) To the extent the Trustee is found liable to any person
for any action taken or omitted in connection with the interpretation and
administration of this Trust Agreement, the Employer shall indemnify the Trustee
for all amounts attributable to such imposition of liability, unless liability
is determined to have been attributable to willful or gross misconduct.
(c) The Trustee is a party to this Trust Agreement solely for
the purposes set forth in this Trust Agreement and the Agreement, and to perform
the acts set forth therein, and no obligation or duty shall be expected or
required of it except as stated in the Agreement or the Trust Agreement.
ARTICLE VI
----------
DUTIES OF THE EMPLOYER AND THE BOARD
------------------------------------
6.1 Information and Data to be Furnished the Trustee. The Employer
agrees to furnish the Trustee with such information and data relative to the
Agreement as is necessary for the proper administration of the Fund established
hereunder.
6.2 Limitation of Duties. Neither the Employer nor the Board shall have
any duties or obligations with respect to this Trust Agreement, except those
expressly set forth herein and in the Agreement.
6.3 Limitation of Liability. Except as otherwise provided by law, the
Employer and the Board shall not in any way be liable or responsible to the
Executive, Trustee or any other person, firm or corporation whatsoever for any
acts of omission or commission in connection with their duties
10
<PAGE>
herein, unless such act of omission or commission is due to his or its own
individual, willful and intentional nonfeasance, malfeasance or misfeasance.
ARTICLE VII
-----------
DELEGATION OF DUTIES AND RESPONSIBILITIES
-----------------------------------------
7.1 Investment Manager. The Board reserves the right to appoint an
investment manager to manage, acquire or dispose of assets of the Trust Fund. To
the extent an investment manager is appointed and the Trustee receives written
notification of such appointment, the Trustee shall not be liable for its act
and conduct in the administration of the Agreement and Trust pursuant to the
investment manager's direction, except for acts of willful misconduct; provided,
however, that the foregoing shall not relieve the Trustee from any
responsibility or liability for any obligation or duty that they may have
pursuant to ERISA. The selection and retention or disposition of any investment
shall be made by the Trustee at the direction of the Employer or any investment
manager appointed by the Board, or its delegate.
7.2 Duty to Monitor. If an investment manager is appointed to manage
the assets of the Trust Fund, the Board shall have the responsibility and
authority to monitor the performance of the investment manager and to terminate
such appointment if necessary.
7.3 Investment Manager Powers. To the extent the investment manager
manages, acquires, or disposes of assets of the Trust Fund, the investment
manager shall assume the responsibilities and liabilities of the Trustee with
regard to the management of the assets of the Trust Fund, and the Trustee shall
be relieved of such liabilities.
ARTICLE VIII
------------
AMENDMENT AND TERMINATION
-------------------------
8.1 Amendment of Trust. The provisions of the Trust may be amended at
any time and from time to time by the Employer, provided that, no such amendment
may be made which is prohibited under the Agreement or which increases the
duties or the obligations of the Trustee without its consent.
8.2 Procedure for Amendment of the Trust. Notwithstanding the
provisions of Section 8.1 or of any other provision of the Trust or of the
Agreement, if any amendment of the Trust or the Agreement is required to meet
the requirements of any law, government regulation or ruling, or if an amendment
is otherwise permissible under state or federal law, either express or implied,
such amendment may be made retroactively and shall be accomplished by the
Employer and effected by written notice to the Trustee. If the Trustee does not
approve an amendment of the Trust, the Trustee shall immediately notify the
Employer.
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8.3 Termination of the Agreement or Trust. The Agreement shall
terminate automatically upon the final distribution or forfeiture of the
Severance Payment thereunder. Upon the final distribution or forfeiture of a
Severance Payment under the Agreement, the Trust shall also terminate.
ARTICLE IX
----------
MISCELLANEOUS PROVISIONS
------------------------
9.1 Reliance on Trust Agreement. Any person dealing with the Trustee
may rely upon a copy of this Trust Agreement and any amendments thereto,
certified to be a true and correct copy by the Trustee or any officer of the
Trustee.
9.2 Invalidity. In the event any provision of this Trust Agreement
shall be held illegal or invalid for any reason, said illegality or invalidity
shall not affect the remaining provisions hereof, and this Trust Agreement shall
thereafter be construed and enforced as if said illegal or invalid provisions
had never been included herein.
9.3 Agreement's Provisions. The Agreement and each provision thereof is
hereby incorporated by reference and shall, for all purposes, be deemed a part
of the Trust, provided, however, that in the event of any conflict between the
provisions of the Agreement and the Trust, the former shall control.
9.4 Agreement's Terms. Any term used herein which is defined in the
Agreement shall be considered to have the same meaning as in the Agreement
unless the contrary is clearly indicated.
9.5 Applicable Law. This Trust Agreement shall be construed, enforced
and regulated under federal law, and to the extent (if any) not preempted
thereby, under the laws of the District of Columbia.
9.6 Counterparts. This Trust may be executed in multiple counterparts,
each of which shall be deemed to be an original.
IN WITNESS WHEREOF, as evidence of the adoption of this Trust
Agreement, the Employer and the Trustee have caused this Trust Agreement to be
executed as of this day of March, 1998.
ATTEST: ABIGAIL ADAMS NATIONAL BANCORP, INC.
____________________________ By: _______________________________________
12
<PAGE>
ATTEST: NATIONSBANK, N.A.
_______________________________ By:_____________________________________
NOTARIZATION FOR AGREEMENTS SPONSOR
-----------------------------------
DISTRICT OF COLUMBIA, __________________________, to wit:
I HEREBY CERTIFY that on this day of , before me, the
subscriber, a Notary Public of the , in and for
,personally appeared and known to me
(or satisfactorily proven to be) , and duly acknowledged
the foregoing Trust Agreement to be the act and deed of said Employer.
WITNESS my hand and Notarial Seal.
______________________________________
Notary Public
My Commission Expires:__________________
NOTARIZATION FOR NATIONSBANK, N. A.
-----------------------------------
DISTRICT OF COLUMBIA, ________________________, to wit:
I HEREBY CERTIFY that on this day of , before me,
the subscriber, a Notary Public of the , in and for
, personally appeared and known to me (or satisfactorily
proven to be) , Trustee and duly acknowledged the foregoing Trust
Agreement to be the act and deed of said Trustee.
WITNESS my hand and Notarial Seal.
______________________________________
Notary Public
My Commission Expires:_______________
13
Exhibit 10.31
GRANTOR TRUST
OF
THE ADAMS NATIONAL BANK
THIS GRANTOR TRUST AGREEMENT, is made by and between The Adams National
Bank, a national banking association, (the "Employer"), and NationsBank, N.A.
(the "Trustee"), and is effective March 4, 1998.
WITNESSETH:
-----------
WHEREAS, the Employer has entered into severance agreements with six
key employees effective March 5, 1998 and a letter agreement with Kate Carr
effective March 5, 1998 (the "Agreements"), copies of which are attached hereto
as Exhibit A; and
WHEREAS, the Employer deems it advisable to adopt a grantor
trust in connection with the Agreements; and
WHEREAS, the Employer desires the Trustee to hold and administer the
Trust Fund under this Trust Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I
---------
ESTABLISHMENT OF THE TRUST
--------------------------
1.1 Definitions.
------------
(a) Agreement or Agreements. The term "Agreement" or
---------------------------
"Agreements" means the (i) severance agreements entered into between the Bank
and Alexander Beltran, Devin Blum, Joyce Hertz, Kimberly Levine, Melrose Nathan
and Bijan Partovi (ii) the letter agreement entered into between the Bank and
Kate Carr which sets forth the terms and conditions of the receipt of a
Severance Payment and (iii) the original Employment Agreement dated as of
February 20, 1996 and amended as of March 29, 1996 and the Amendment To
Employment Agreement entered into as of March 5, 1998, between the Employer, the
Abigail Adams National Bancorp, Inc., and Barbara Davis Blum which sets forth
the terms and conditions of the receipt of a Severance Payment.
(b) Board of Directors. The term "Board of Directors" means
-------------------
the Board of Directors of the Employer.
(c) Executive. The term "Executive" means those individuals
-----------
who are listed on the attached Exhibit B.
1
<PAGE>
(d) Executive Account. The term "Executive Account" means the
-----------------
separate sub-account established for each Executive pursuant to the terms of
this Trust Agreement which is credited with amounts contributed by the Employer
to the Trust Fund, and any earnings and losses attributable to such Employer
contributions. Each Executive Account will be segregated within the Trust to
prevent the commingling of the Trust Fund's assets.
(e) Holding Company. The term "Holding Company" means Abigail
-----------------
Adams National Bancorp, Inc., a Delaware corporation, and any successor.
(f) Severance Payment. The term "Severance Payment" means (i)
-------------------
with regard to all Executives except Barbara Davis Blum, a lump sum payment
payable to the Executive from his Executive Account pursuant to the terms of the
Agreement and (ii) with regard to Barbara Davis Blum, a cash payment equal to
eighty percent (80%) of the total amount required under Sections 10(a)(i)(i) and
10(a)(i)(ii) of the Agreement. The amount of any Severance Payment is determined
by the terms of the Agreement and excludes any assets in the Executive Account
in excess of the amount of the Severance Payment.
(g) The Trustee. The term "Trustee" means NationsBank, N.A.
-------------
which has accepted the responsibilities herein, unless the Employer designates
another person or entity to serve as trustee for the Trust Agreement. If more
than one person acts as a Trustee hereunder, the term "Trustee" shall be deemed
to include all trustees.
(h) Valuation Date. The term "Valuation Date" means the last
---------------
day of each quarter of a calendar year, or a more frequent date as agreed upon
by the Trustee and the Employer.
1.2 Description of Trust.
----------------------
(a) The Employer hereby establishes with the Trustee the
Grantor Trust of The Adams National Bank (the "Trust") which shall be a part of
the Agreements. The Trust shall consist of such sums of money or property
(acceptable to the Trustee) as shall be paid to the Trustee under the
Agreements, and any earnings, profits, increments, additions and appreciation
thereto. The Trustee shall be subject only to terms of this Trust. All such sums
of money, all investments made therewith or proceeds thereof, and all earnings,
profits, increments, appreciation and additions thereto, less the payments which
shall have been made by the Trustee, as authorized herein, are referred to
herein as the "Trust Fund" or the "Fund".
(b) The Trust is an irrevocable grantor trust within the
meaning of Section 671 of the Internal Revenue Code. Notwithstanding the
foregoing, on March 1st of 1999 and March 1st of each subsequent year: (i) the
Board of Directors shall have a thirty (30) day period in which to reevaluate
this Trust Fund; and (ii) unless the Board passes a resolution stating otherwise
during the thirty (30) day period, the Trust Fund shall continue in effect and
remain irrevocable until the following March 1st.
2
<PAGE>
(c) No portion of the Trust will revert to the Employer except
if: (i) necessary to discharge the claims of creditors; (ii) the Executive has
not satisfied the conditions for receipt of a Severance Payment in accordance
with the Agreement; (iii) the amount of the Severance Payment constitutes an
"Excess Parachute Payment," as such term is defined in the Internal Revenue Code
of 1986, as amended; (iv) the amount in the Executive Account exceeds the
Severance Payment; or (v) in the case of an "Interest Transfer" as described in
Section 2.5.
(d) If the Employer is unable to pay its debts as they mature
or is a party as a debtor in any bankruptcy proceeding, the Employer will be
considered insolvent. The insolvency of the Holding Company of the Employer will
not impact the distribution of any Severance Payment under the Agreements. The
Board must inform the Trustee of either or both of these conditions. Upon
receipt of this information regarding the Employer's insolvency, the Trustee
must suspend distribution of any Severance Payments and must hold assets for the
benefit of the Employer's general creditors. If the Trustee receives other
written notice of the Employer's insolvency, the Trustee must notify the Board
in writing and must suspend all Severance Payments. The Trustee must also hold
trust assets for the benefit of the Employer's general creditors and must
determine within 30 calendar days whether the Employer is insolvent. The Trustee
must consult with the Employer as part of the determination of the Employer's
insolvency. If the Trustee determines the Employer is solvent, it must resume
the distribution of any Severance Payment. If the Trustee has knowledge of the
Employer's insolvency or has determined that the Employer is insolvent, the
Trustee must deliver trust assets to satisfy the claims of the Employer's
general creditors as directed by a court of competent jurisdiction.
ARTICLE II
----------
CONTRIBUTIONS AND DISTRIBUTIONS
-------------------------------
2.1 Contributions. As soon as administratively feasible after the
--------------
execution of the Agreements, the Employer shall pay to the Trustee an amount (in
cash) equal to the total Severance Payments under the Agreements as set forth in
Exhibit C. The aggregate contribution will be allocated among the Executive
Accounts. In determining the amount and frequency of any subsequent
contributions to be made in cash or other property acceptable to the Trustee,
the Board may, but is not required to, take into account an increase in an
Executive's base salary and the earnings and/or losses of the Trust Fund. The
Trustee is under no obligation to compel deposits to the Trust Fund.
2.2 Distributions. Generally, the Trustee must hold, invest, reinvest,
--------------
manage, and administer the Trust Fund in accordance with the provisions of the
Trust Agreement, and from time to time, on the written direction of the Board,
make payments from the Trust Fund for the purposes specified in a written
direction. The Trustee shall be under no liability for any payment made by it
pursuant to such a direction.
3
<PAGE>
2.3 Information Supplied by Employer. All contributions made to the
----------------------------------
Trust Fund shall be accompanied by a written statement giving the Trustee the
identity of the Executives for the year to which the contribution is applicable
and the identity of any previous Executive in respect to whom a forfeiture has
arisen.
2.4 Payments to Executives.
----------------------
(a) Whenever the Trustee shall be advised by the Board or the
Employer that an Executive has become entitled to a Severance Payment, it shall
distribute to such Executive the Severance Payment due in the amount and manner
provided by the Agreement.
(b) If an Executive is physically or mentally incapable of
receiving and acknowledging a Severance Payment from the Agreement, the Trustee
may, upon direction from the Board or the Employer, make the Severance Payment,
without the interposition of a guardian, to such institution, trustee,
conservator, committee or person who shall be entitled to receive such Severance
Payment for the use, benefit or support of said incompetent. Such Severance
Payment shall constitute a full acquittance of the Trustee and of all claims
against the Trust Fund.
(c) In the event that any dispute shall arise as to the
persons to whom a Severance Payment and the delivery of any fund or property
shall be made by the Trustee, or the amount thereof, the Trustees shall retain
the Severance Payment and/or postpone such delivery until actual adjudication of
such dispute shall have been made in a court of competent jurisdiction.
(d) If the Employer determines that the amount in the
Executive Account, and any earnings thereon, are not sufficient to distribute a
Severance Payment in accordance with the terms of the Agreement, the Employer
may correct this deficiency by making an additional irrevocable deposit to the
Executive's Account out of its general assets.
(e) If the Employer determines that the amount in the
Executive Account exceeds the amount of the Severance Payment, the excess amount
will be forfeited and returned to the Employer at the time of distribution.
(f) The entitlement of an Executive to a Severance Payment
under the Agreement shall be determined by the Employer or such party as it
shall designate under the Agreement, and any dispute shall be adjudicated in a
court of competent jurisdiction.
2.5 Interest Transfers.
------------------
To the extent that the amount in the Trust Fund exceeds the
amount of the Severance Payment, the excess amount will be forfeited and
returned to the Employer as soon as administratively feasible after the
determination has been made and to the extent allowable by the terms of the
underlying investments in the Trust Fund. This determination shall be made by
the Employer as soon as possible after the end of each calendar quarter by
determining the amount in the
4
<PAGE>
Trust Fund on the last day of each calendar year quarter and subtracting from
that amount the Severance Payment set forth in Exhibit B.
ARTICLE III
-----------
INVESTMENT OF THE FUND
----------------------
3.1 General Rules. The Trustee shall invest and reinvest the principal
--------------
and income of the Trust Fund and keep the same invested without distinction
between principal and income. The selection and retention or disposition of any
investment shall be made by the Trustee at the direction of the Employer or any
investment manager appointed by the Board, or its delegate. The Employer and/or
its designated investment manager shall have the authority to acquire, manage,
retain and dispose of assets of the Trust Fund.
3.2 Trustee Powers. The Trustee shall have the following powers in
----------------
addition to the powers customarily vested in trustees by law and in no way in
derogation thereof:
(a) With any cash at any time held by it, to purchase or
subscribe for any Authorized Investment (as defined in Section 3.3 herein), and
to retain such Authorized Investment in the Trust Fund.
(b) To sell for cash or on credit, convert, redeem, exchange
for another Authorized Investment, or otherwise dispose of, any Authorized
Investment at any time held by it.
(c) To retain uninvested any part of the Trust Fund necessary
for the current operational need of the Agreements or Trust, and to deposit any
cash in any banking or savings institution, including a savings account or
similar interest-bearing account in the Trustee's own savings department.
(d) To exercise any option appurtenant to any Authorized
Investment in which the Trust Fund is invested for conversion thereof into
another Authorized Investment, or to exercise any rights to subscribe for
additional Authorized Investments, and to make all necessary payments therefor.
(e) At the direction of the Employer, to vote, in person or by
general or limited proxy, at any election of any corporation in which the Trust
Fund is invested, and similarly to exercise, personally or by a general or
limited power of attorney, any right appurtenant to any Authorized Investment
held in the Trust Fund.
(f) To purchase Authorized Investments at a premium or
discount.
5
<PAGE>
(g) With the approval of the Employer, to employ suitable
agents, actuaries, accountants and counsel and to pay their reasonable expenses
and compensation from the Trust Fund if not paid by the Employer within ninety
(90) days.
(h) To cause any investment in the Trust Fund to be registered
in, or transferred into, its name as Trustee or the name of its nominee or
nominees or to retain them unregistered or in a form permitting transfer by
delivery, or to utilize the Federal Reserve Book Entry System for securities of
the United States Government or its agencies, or to utilize the services of a
depository clearing corporation to the extent permitted by State law. The books
and records of the Trustee shall at all times show that all such investments are
part of the Trust Fund, and the Trustee shall be fully responsible for any
misappropriation or defalcation in respect of any investment held by its nominee
or held in unregistered form. The indicia of ownership of all Trust Fund assets
shall be maintained within the jurisdiction of the district courts of the United
States.
(i) To do all acts which it may deem necessary or proper and
to exercise any and all powers of the Trust under this Trust upon such terms and
conditions which it may deem are for the best interests of the Trust Fund.
(j) To apply for, purchase, hold, transfer, pay premiums on,
surrender, and exercise all incidents of ownership of any annuity contract.
(k) To invest in proprietary mutual funds of the Trustee or
its affiliate.
(l) To provide appropriate disclosure regarding trade
confirmations. The Employer is aware that Federal Regulations require that the
Trustee, without charge and within five business days of its receipt of a
broker/dealer confirmation for each security transaction in the Employer's name,
forward a copy to the Employer of such broker/dealer confirmation or a written
notification which discloses: the Trustee's name; the Employer's name; the
capacity in which the Trustee is acting; the date of execution and a statement
that the time of execution will be furnished on the request; the identity,
price, number of shares or units or principal amount of debt securities
purchased or sold by the Employer; the name of the broker/dealer and the amount
of any remuneration received by such broker/dealer from the Employer; the amount
of any remuneration received by the Trustee from the Employer, and the source
and amount of any other remuneration received by the Trustee for the
transaction.
The Employer is also aware that under the preceding paragraph, the
Trustee shall provide periodic statements (not more frequently than monthly) to
the Employer including a listing of all securities transactions, receipts and
disbursements during that period, together with a current listing of the assets
held in the account. Accordingly, because the Employer believes that the
periodic statements provided by the Trustee will constitute sufficient notice of
such transactions, the Employer hereby agrees to accept such periodic statements
in satisfaction of the Trustee's obligation to provide the written notification
as described in the preceding paragraph.
6
<PAGE>
3.3 Authorized Investments. "Authorized Investment" means bonds,
------------------------
debentures, notes, commercial paper, bankers' acceptances, money market
certificates, or other evidences of indebtedness, including by way of
illustration and not by way of limitation, corporate bonds, savings accounts,
certificates of deposit, variable note arrangements and obligations of the
United States Government; stocks (regardless of class), or other evidences of
ownership, in any corporation, mutual investment fund, investment company,
association, or business trust; combined, common or commingled trust funds;
retirement income or annuity contracts; real and personal property of all kinds,
including leaseholds on improved and unimproved real estate. Authorized
Investment includes any investment vehicle of the Trustee including without
limitation any interest-bearing account, certificate of deposit or variable note
arrangement.
3.4 Segregated Accounts. The Trustee will establish on behalf of each
--------------------
Executive a segregated Executive Account.
3.5 Custodian. If the Trustee is not a bank or trust company, the
----------
Trustee may delegate, with the approval of the Board, by an instrument in
writing, to a person (individual, corporation or other entity) who is appointed
as agent or custodian by it, any power or function of the Trustee hereunder
(other than the investment of the Trust assets), including without limitation
the following:
(a) custodianship of all or any part of the assets of the Trust;
(b) maintaining and accounting for the Trust Fund and for
Executives' Accounts as part thereof;
(c) distribution of benefits as directed by the Board; and
(d) preparation of the annual report on the status of the Trust
Fund.
The agent or custodian so appointed may act as agent for the Trustee,
without investment responsibility, for fees to be mutually agreed upon by the
Board and the agent or custodian and paid in the same manner as Trustee's fees.
The Trustee shall review and monitor the functions of the custodian, but it
shall not be responsible for any act or omission of the agent or custodian
arising from any such delegation, except to the extent provided in Section 5.8
herein.
ARTICLE IV
----------
ACCOUNTS TO BE KEPT AND RENDERED BY THE TRUSTEE
-----------------------------------------------
4.1 Records and Accounts. The Trustee shall keep accurate and detailed
--------------------
accounts of all investments, receipts and disbursements and other transactions
hereunder, including such specific records as shall be required by law and such
additional records as may be agreed upon in writing between the Board and the
Trustee. The Trustee shall file with the appropriate taxing authority such forms
as may be required in connection with the payments of benefits and shall file
with the
7
<PAGE>
appropriate taxing authority such additional forms as may be agreed upon in
writing between the Employer and the Trustee. All accounts, books and records
relating thereto shall be open to inspection and audit by any person or persons
designated by the Employer, at all reasonable times.
4.2 Annual Accounting. Within ninety (90) days following the close of
-------------------
each calendar year, and within ninety (90) days after the effective date of the
removal or resignation of the Trustee, the Trustee shall file with the Board a
written account, setting forth all investments, receipts and disbursements, and
other transactions effected by them during such year or during the period from
the close of the last preceding year to the date of such removal or resignation,
including a description of all securities and investments purchased and sold
with the cost or net proceeds of such purchases or sales, and showing all cash,
securities and other property held at the end of such year or as of the date of
removal or resignation, as the case may be. The Trustee shall include in such
report a valuation of the Trust Fund in accordance with Section 4.5 herein.
Neither the Employer nor any other person shall have the right to demand or to
be entitled to any further or different accounting by the Trustee, except as may
be required by statute or by regulations published by federal government
agencies with respect to reporting and disclosure. The Board has 60 days
following the receipt of the annual accounting to provide written notice to the
Trustee of any disputed items. Absent such timely notice by the Board, the Board
is deemed to accept the Trustee's annual accounting.
4.3 Acceptance of Trustee's Accounting. The acceptance by the Board of
----------------------------------
the written account of the Trustee shall not relieve the Trustee of any
liability or accountability for breaches of fiduciary responsibility for
negligence or willful misconduct or lack of good faith on the part of the
Trustee. In the event that the Board files a statement claiming any exception or
objection to the written account of the Trustee, and any such exception or
objection are not compromised by agreement between the Board and the Trustee,
the Trustee shall file its account covering the period from the date of the last
account to which no objection was made in any court of competent jurisdiction
for audit or adjudication.
4.4 Establishment of Accounts. The Trustee shall establish and maintain
--------------------------
as part of the Fund segregated Executive Accounts for each Executive. The
establishment of each Executive Account will require a segregation of the assets
of the Fund. No Executive shall acquire any right to or interest in any specific
asset of the Fund as a result of the allocations to his Executive Account.
4.5 Valuation of the Trust Fund.
----------------------------
(a) As of each Valuation Date, the Trustee shall determine the
net worth of the assets of the Fund, and report such value to the Board in
writing. In determining such net worth, the Trustee shall evaluate the assets of
the Fund at their fair market value as of such Valuation Date and shall deduct
all expenses chargeable to the Fund. Any increase or decrease in the net worth
of the assets of the Fund shall be allocated as of each Valuation Date among the
Executive Accounts established as a part of the Fund in the manner specified by
the Board.
8
<PAGE>
(b) In determining and valuing the assets and liabilities of
the Fund for any purpose, securities held in the Fund shall be valued at their
last published sale price on the Valuation Date. If no sale price shall have
been reported on the Valuation Date, or if a security is listed on two or more
exchanges, or if any irregularity occurs, the Trustee shall make a determination
of value within the custom and practice at such time and will so advise the
Board as to its method of valuation.
ARTICLE V
---------
THE TRUSTEE
-----------
5.1 Trustee's Conditions. The Trustee accepts the Trust hereby created
---------------------
and agrees to perform the duties hereby required by it, subject, however, to the
following conditions:
(a) The Trustee shall incur no liability to anyone for any
action taken pursuant to a direction, request or approval given by the Board,
the Employer or by any other party to whom authority to give such directions,
requests or approvals is delegated. Any such direction, request, or approval
shall be evidenced by delivery to the Trustee of a statement in writing signed
by the authorized initiator thereof.
(b) The Trustee shall receive as compensation for its services
such amounts as may be agreed upon at the time of execution of this Trust
Agreement, subject to change at any time and from time to time by agreement
between the Employer and the Trustee. No compensation shall be paid to the
Trustee if he is a full-time employee of the Employer. The Trustee's
compensation (if any) and the expenses incurred by the Trustee in administering
the Trust shall be paid by the Employer. If the Trustee's compensation and
expenses are not paid by the Employer within 90 days of receipt, the Trustee
reserves the right to withdraw the amounts due from the assets of the Trust.
(c) The Trustee shall be indemnified by the Employer against
its prospective costs, expenses, and liability in connection with all litigation
relating to the Agreements, the Trust or the Trust Fund, except where the
litigation is occasioned by the fault of the Trustee.
5.2 Board. The Employer shall advise the Trustee in writing of the
------
names of each of the individuals who serve on the Board and the Trustee shall be
fully protected in assuming that there has been no change until so advised by
the Employer.
5.3 Resignation or Removal of Trustee. The Trustee may be removed by
-----------------------------------
the Employer at any time upon sixty (60) days notice in writing to the Trustee.
The Trustee may resign at any time upon sixty (60) days notice in writing to the
Employer. In the case of any such removal or resignation, the Employer shall
appoint a successor Trustee who may be either one or more individuals or a
corporation empowered to act as trustee. Upon the resignation or removal of a
Trustee, it, he/she or they shall assign, transfer and pay over to the successor
Trustee its, his/her or their right, title and interest in and to the cash,
securities and other properties then constituting the Trust Fund and shall, at
the time of such transfer, render an account of its, his/her or their
transactions
9
<PAGE>
to the Board but the Trustee shall be under no duty to account to anyone other
than the Board or to make such a formal accounting as is required of a trustee
of an express trust. Any successor Trustee shall have the same rights, powers
and duties as those conferred upon the Trustee named in this Trust Agreement.
The removal of the Trustee or the appointment of a successor Trustee shall be by
instrument in writing, signed by an appropriate officer of the Employer and
shall become effective on the date specified in such instrument. A certificate
of the Board as to who is or was the duly appointed and acting Trustee at any
time may be accepted as conclusive by all parties dealing with the Trustee. The
Trustee shall be entitled to request a court of competent jurisdiction to name a
Trustee if the Employer should fail to name a successor Trustee within the
notice period. The costs to name a court-appointed successor Trustee can be
charged to the Trust if not paid by the Employer within ninety (90) days.
5.4 Provision for Co-Trustee. The Employer may select one or more
--------------------------
individuals (who may be employees of the Employer) or a corporation to act as a
trustee hereunder. In such event, the powers granted to the Trustee under the
provisions of this Trust Agreement shall be vested in all such trustees jointly
and shall be exercised by a majority of the Trustees.
5.5 Trustee Vote By Majority. Acts and decisions of the Trustee, if
---------------------------
there be more than one, involving trust interpretations or matters of policy
shall be by majority vote evidenced by an executed writing either in a meeting
or without a meeting. Any Trustee may sign on behalf of the Trustees any
documents or papers which may be required in the routine operation of the Trust.
5.6 Non-Participation of Trustee. No Executive may be a Trustee under
------------------------------
this Trust Agreement.
5.7 Bonding of Trustee. The Trustee is not required to be bonded.
------------------
5.8 Liability of Trustee.
---------------------
(a) The Trustee shall discharge its duties with the care,
skill, prudence and diligence under the circumstances then prevailing that a
prudent man acting in a like capacity and familiar with such matters would use
in the conduct of an enterprise of a like character and with like aims. If it
exercises investment powers, the Trustee shall diversify the investments of the
Fund so as to minimize the risk of large losses, unless under the circumstances
it is clearly prudent not to do so. The Trustee shall not be responsible in any
way for any action or omission of the Employer or the Board or the investment
manager with respect to their duties and obligations as set forth in the Trust.
The Trustee shall also not be responsible for any action or omission of any of
its agents or with respect to reliance upon the advice of counsel (whether or
not such counsel is also counsel to the Employer), provided that such agents or
counsel were prudently chosen by the Trustee and that the Trustee relied in good
faith upon the action of such agent or the advice of such counsel. The Trustee
shall not be relieved from responsibility or liability for any responsibility,
obligation or duty imposed upon it under the Agreements, the Trust or law.
Nothing herein shall preclude the indemnification of the Trustee by the
Employer.
10
<PAGE>
(b) To the extent the Trustee is found liable to any person
for any action taken or omitted in connection with the interpretation and
administration of this Trust Agreement, the Employer shall indemnify the Trustee
for all amounts attributable to such imposition of liability, unless liability
is determined to have been attributable to willful or gross misconduct.
(c) The Trustee is a party to this Trust Agreement solely for
the purposes set forth in this Trust Agreement and the Agreements, and to
perform the acts set forth therein, and no obligation or duty shall be expected
or required of it except as stated in the Agreements or the Trust Agreement.
ARTICLE VI
----------
DUTIES OF THE EMPLOYER AND THE BOARD
------------------------------------
6.1 Information and Data to be Furnished the Trustee. The Employer
----------------------------------------------------
agrees to furnish the Trustee with such information and data relative to the
Agreements as is necessary for the proper administration of the Fund established
hereunder.
6.2 Limitation of Duties. Neither the Employer nor the Board shall have
---------------------
any duties or obligations with respect to this Trust Agreement, except those
expressly set forth herein and in the Agreements.
6.3 Limitation of Liability. Except as otherwise provided by law, the
------------------------
Employer and the Board shall not in any way be liable or responsible to any
Executive, Trustee or any other person, firm or corporation whatsoever for any
acts of omission or commission in connection with their duties herein, unless
such act of omission or commission is due to his or its own individual, willful
and intentional nonfeasance, malfeasance or misfeasance.
ARTICLE VII
-----------
DELEGATION OF DUTIES AND RESPONSIBILITIES
-----------------------------------------
7.1 Investment Manager. The Board reserves the right to appoint an
--------------------
investment manager to manage, acquire or dispose of assets of the Trust Fund. To
the extent an investment manager is appointed and the Trustee receives written
notification of such appointment, the Trustee shall not be liable for its act
and conduct in the administration of the Agreements and Trust pursuant to the
investment manager's direction, except for acts of willful misconduct; provided,
however, that the foregoing shall not relieve the Trustee from any
responsibility or liability for any obligation or duty that they may have
pursuant to ERISA. The selection and retention or disposition of any investment
shall be made by the Trustee at the direction of the Employer or any investment
manager appointed by the Board, or its delegate.
11
<PAGE>
7.2 Duty to Monitor. If an investment manager is appointed to manage
---------------
the assets of the Trust Fund, the Board shall have the responsibility and
authority to monitor the performance of the investment manager and to terminate
such appointment if necessary.
7.3 Investment Manager Powers. To the extent the investment manager
----------------------------
manages, acquires, or disposes of assets of the Trust Fund, the investment
manager shall assume the responsibilities and liabilities of the Trustee with
regard to the management of the assets of the Trust Fund, and the Trustee shall
be relieved of such liabilities.
ARTICLE VIII
------------
AMENDMENT AND TERMINATION
-------------------------
8.1 Amendment of Trust. The provisions of the Trust may be amended at
------------------
any time and from time to time by the Employer, provided that, no such amendment
may be made which is prohibited under the Agreements or which increases the
duties or the obligations of the Trustee without its consent.
8.2 Procedure for Amendment of the Trust. Notwithstanding the
------------------------------------------
provisions of Section 8.1 or of any other provision of the Trust or of the
Agreements, if any amendment of the Trust or the Agreements is required to meet
the requirements of any law, government regulation or ruling, or if an amendment
is otherwise permissible under state or federal law, either express or implied,
such amendment may be made retroactively and shall be accomplished by the
Employer and effected by written notice to the Trustee. If the Trustee does not
approve an amendment of the Trust, the Trustee shall immediately notify the
Employer.
8.3 Termination of the Severance Agreements or Trust. Each Agreement
-------------------------------------------------
shall terminate automatically upon distribution or forfeiture of the Severance
Payment thereunder. Upon the final distribution or forfeiture of a Severance
Payment under the Agreement, the Trust shall also terminate.
ARTICLE IX
----------
MISCELLANEOUS PROVISIONS
------------------------
9.1 Reliance on Trust Agreement. Any person dealing with the Trustee
-----------------------------
may rely upon a copy of this Trust Agreement and any amendments thereto,
certified to be a true and correct copy by the Trustee or any officer of the
Trustee.
9.2 Invalidity. In the event any provision of this Trust Agreement
----------
shall be held illegal or invalid for any reason, said illegality or invalidity
shall not affect the remaining provisions hereof, and this Trust Agreement shall
thereafter be construed and enforced as if said illegal or invalid provisions
had never been included herein.
12
<PAGE>
9.3 Agreements' Provisions. The Agreements and each provision thereof
-----------------------
is hereby incorporated by reference and shall, for all purposes, be deemed a
part of the Trust, provided, however, that in the event of any conflict between
the provisions of the Agreements and the Trust, the former shall control.
9.4 Agreements' Terms. Any term used herein which is defined in the
-------------------
Agreements shall be considered to have the same meaning as in the Agreements
unless the contrary is clearly indicated.
9.5 Applicable Law. This Agreement shall be construed, enforced and
----------------
regulated under federal law, and to the extent (if any) not preempted thereby,
under the laws of the District of Columbia.
9.6 Counterparts. This Trust may be executed in multiple counterparts,
------------
each of which shall be deemed to be an original.
IN WITNESS WHEREOF, as evidence of the adoption of this Trust
Agreement, the Employer and the Trustee have caused this Trust Agreement to be
executed as of this day of March, 1998.
ATTEST: THE ADAMS NATIONAL BANK
___________________________________ By:_______________________________
ATTEST: NATIONSBANK, N.A.
____________________________________ _________________________________
NOTARIZATION FOR AGREEMENTS SPONSOR
-----------------------------------
DISTRICT OF COLUMBIA, __________________________, to wit:
I HEREBY CERTIFY that on this day of , before me, the
subscriber, a Notary Public of the , in and for
,personally appeared and known to me (or satisfactorily proven
to be) , and duly acknowledged the foregoing Trust Agreement to
be the act and deed of said Employer.
WITNESS my hand and Notarial Seal.
------------------------------------------
Notary Public
My Commission Expires:____________________
13
<PAGE>
NOTARIZATION FOR NATIONSBANK, N.A.
----------------------------------
DISTRICT OF COLUMBIA, ________________________, to wit:
I HEREBY CERTIFY that on this day of , before me, the
subscriber, a Notary Public of the ,
in and for , personally appeared and known to me
or satisfactorily proven to be) , Trustee and duly acknowledged
the foregoing Trust Agreement to be the act and deed of said Trustee.
WITNESS my hand and Notarial Seal.
_________________________________________
Notary Public
My Commission Expires:____________________
14
<PAGE>
EXHIBIT B
Alexander Beltran
Barbara Davis Blum
Devin Blum
Kate Carr
Joyce Hertz
Kimberly Levine
Melrose Nathan
Bijan Partovi
15
Exhibit 23
The Board of Directors
Abigail Adams National Bancorp, Inc.
We consent to incorporation by reference in the registration statements (Nos.
333-19155, 333- 33537, 333-33539 and 333-47061) on Form S-8 of Abigail Adams
National Bancorp, Inc. and subsidiary of our report dated January 26, 1996, with
respect to the consolidated statements of operations, changes in stockholders'
equity, and cash flows of Abigail Adams National Bancorp, Inc. and subsidiary
for the year ended December 31, 1995, which report appears in the annual report
filed on Form 10-KSB.
/s/ KPMG Peat Marwick LLP
- -------------------------
KPMG Peat Marwick LLP
Washington, D.C.
March 31, 1998
Exhibit 23.1
As independent public accountants, we hereby consent to the incorporation of our
reports included (or incorporated by reference) in this Form 10-KSB, into the
Company's previously filed Registration Statements File Nos. 333-19155,
333-33537, 333-33539 and 333-47061.
Washington, D.C. /s/ Arthur Andersen LLP
March 30, 1998
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