SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 1999
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| | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from __________ to __________
Commission file number 0-10971
____________________________________________
ABIGAIL ADAMS NATIONAL BANCORP, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 52-1508198
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(State or other jurisdiction of (I.R.S. Employer ID No.)
Incorporation or organization)
1627 K Street, N.W. Washington, D.C. 20006
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(Address of principal executive offices)
202-466-4090
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Issuer's telephone number including area code
N / A
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Former name, address, and fiscal year, if changes since last report
Indicate by check whether the issuer (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No .
--- ---
State the number of shares outstanding of each of the issuer's classes
of common equity as of April 29, 1999:
2,087,987 shares of Common Stock, Par Value $0.01/share
Transitional Small Business Disclosure Format (check one): Yes No X
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<PAGE>
PART I.
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Item 1 - Financial Statements
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1
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
March 31, 1999 and 1998 and December 31, 1998
(Unaudited)
<TABLE>
March 31, March 31, Dec 31,
1999 1998 1998
------------- -------------- --------------
Assets
<S> <C> <C> <C>
Cash and due from banks $ 10,410,195 $ 8,771,647 $ 5,836,099
Short-term investments:
Federal funds sold 460,000 10,175,000 3,793,204
Restricted CD's - Rabbi Trust -- 1,132,266 --
Interest-bearing deposits in other banks 1,590,537 1,880,000 1,814,084
---------- ---------- ----------
Total short-term investments 2,050,537 13,187,266 5,607,288
Securities available for sale 12,337,902 16,747,565 13,813,009
Investment securities (market value of $6,988,499, $6,058,118
and $8,027,302 at March 31,1999, March 31, 1998 and
December 31, 1998, respectively) 6,975,770 6,063,852 7,976,376
Loans (net of deferred fees and unearned discounts) 98,205,769 82,483,660 94,219,747
Less: Allowance for loan losses (1,139,580) (1,138,257) (1,134,128)
----------- ----------- -----------
Loans, net 97,066,189 81,345,403 93,085,619
----------- ---------- -----------
Bank premises and equipment, net 1,131,437 1,291,436 1,159,827
Other assets 1,718,519 1,850,289 1,403,106
------------- ------------ -------------
Total assets $ 131,690,549 $ 129,257,458 $ 128,881,324
============== ============= ==============
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Demand deposits $ 33,445,553 $ 30,422,028 $ 31,058,149
NOW accounts 9,321,501 10,721,978 9,499,197
Money market accounts 25,563,868 24,443,852 26,207,011
Savings accounts 2,986,983 2,156,873 2,797,881
Certificates of deposit of $100,000 or greater 19,087,623 23,085,404 18,158,496
Certificates of deposit less than $100,000 20,221,950 19,008,902 20,944,354
------------ ------------ ------------
Total deposits 110,627,478 109,839,037 108,665,088
------------- ------------ -------------
Short-term borrowings 5,121,051 4,288,796 4,647,740
Long-term borrowings/debt 1,007,178 1,067,168 1,022,711
Other liabilities 1,188,989 734,532 946,502
-------------- ------------ -----------
Total liabilities 117,944,696 115,929,533 115,282,041
------------ ----------- -------------
Stockholders' equity:
Common stock, par value $0.01 per share, authorized 6,250,000 shares; issued
2,092,333 at March 31, 1999, 2,076,144 at March 31, 1998
and 2,091,760 shares at December 31, 1998; outstanding 2,086,483 shares at
March 31, 1999, 2,070,864 shares at March 31, 1998 and
2,085,910 shares at December 31, 1998 20,924 20,762 20,918
Surplus 12,486,553 12,270,601 12,482,926
Retained earnings 1,565,792 1,309,085 1,325,052
----------- ------------ ------------
14,073,269 13,600,448 13,828,896
Less: Employee Stock Ownership Plan shares, 23,396 shares at cost (204,716) (219,687) (204,716)
Less: Treasury stock, 5,850 shares at cost (28,710) (28,710) (28,710)
Less: Unrealized gain (loss) on securities, net of taxes (93,990) (24,126) 3,813
------------- -------------- ------------
Total stockholders' equity 13,745,853 13,327,925 13,599,283
------------ ------------ ------------
Total liabilities and stockholders' equity $ 131,690,549 $ 129,257,458 $ 128,881,324
============== ============== =============
</TABLE>
2
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ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Operations and
Comprehensive Income
For the Three Months Ended March 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
-------------- -------------
Interest income
<S> <C> <C>
Interest and fees on loans $ 2,132,158 $2,124,451
Interest on securities available for sale:
U.S. Treasury 14,256 14,201
Obligations of U.S. government agencies and corporations 161,338 281,744
---------- ---------
Total interest on securities available for sale 175,594 295,945
Interest and dividends on investment securities:
U.S. Treasury 37,416 21,881
Obligations of U.S. government agencies and corporations 80,371 51,532
Mortgage-backed securities 2,022 4,014
Obligations of states and municipalities 3,991 3,991
Other securities 8,971 8,878
----------- --------
Total interest and dividends on investment securities 132,771 90,296
Interest on restricted interest-bearing deposits with other banks -- 3,849
Interest on short-term investments:
Federal funds sold 42,365 97,206
Deposits with other banks 17,738 26,304
---------- -----------
Total interest on short-term investments 60,103 123,510
---------- -----------
Total interest income 2,500,626 2,638,051
--------- -----------
Interest expense
Interest on deposits:
NOW accounts 46,047 56,190
Money market accounts 222,626 280,673
Savings accounts 19,381 12,935
Certificates of deposit:
$100,000 or greater 247,664 301,997
Less than $100,000 252,757 322,145
---------- ---------
Total interest on deposits 788,475 973,940
Federal funds purchased and
repurchase agreements 44,515 41,785
Interest on long-term borrowings/debt 17,382 18,467
----------- ---------
Total interest expense 850,372 1, 034,192
Net interest income 1,650,254 1,603,859
Provision (benefit) for loan losses 15,000 (25,000)
----------- ------------
Net interest income after benefit for loan losses 1,635,254 1,628,859
Other income
Service charges on deposit accounts 368,279 295,695
Other income 53,227 15,392
----------- -----------
Total other income 421,506 311,087
---------- ----------
Other expense
Salaries and employee benefits 591,456 586,641
Occupancy and equipment expense 324,435 285,209
Professional fees 60,078 183,238
Data processing fees 99,928 118,699
Other operating expense 249,379 328,012
----------- ------------
Total other expense 1,325,276 1,501,799
----------- -----------
Income before taxes 731,484 438,147
Applicable income tax expense 285,279 173,431
----------- -----------
Net income $ 446,205 $ 264,716
Continued:
</TABLE>
3
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ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Operations and
Comprehensive Income (Continued)
For the Three Months Ended March 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
-------------- -------------
Other Comprehensive income:
<S> <C> <C>
Unrealized (losses) gains on securities, before tax $(158,672) $(40,333)
Income tax expense related to items of other
Comprehensive income 64,682 16,207
------ ------
Other comprehensive income, net of tax (93,990) (24,126)
-------- --------
Comprehensive income $352,215 $240,590
======== ========
Earnings per common share:
Basic earnings per share $ .22 $ .13
========== ============
Diluted earnings per share $ .21 $ .13
========== ============
Weighted average number of shares used to compute EPS:
Basic 2,062,966 2,039,585
========= =========
Diluted 2,120,384 2,097,955
========= =========
</TABLE>
4
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ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
Three Months Ended March 31, 1999, and 1998
(Unaudited)
<TABLE>
<CAPTION>
Employee Accumulated
Additional Retained Stock Other
Common Paid-in Earnings Treasury Ownership Comprehensive
Stock Capital (Deficit) Stock Plan Income (loss) Total
------ ---------- --------- -------- --------- -------------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $ 20,699 $12,227,447 $1,044,369 $ (28,710) $(219,687) $ (14,380) $13,029,738
Net income --- --- 264,716 --- --- --- 264,716
Dividends declared --- --- --- --- --- --- ---
Issuance of shares under Employee
Incentive Stock Option Plan 63 43,154 --- --- --- --- 43,217
Release of shares under
Employee Stock Ownership
Plan --- --- --- --- --- --- ---
Unrealized gain on securities,
net of taxes --- --- --- --- --- (9,746) (9,746)
--------- --------- --------- --------- -------- ---------- ----------
Balance at March 31, 1998 $20,762 $12,270,601 $1,309,085 $(28,710) $(219,687) $(24,126) $13,327,925
======== =========== =========== ========== ========== ========= ===========
Balance at December 31, 1998 $20,918 $12,482,926 $1,325,052 $ (28,710) $(204,716) $ 3,813 $13,599,283
Net income --- --- 446,205 --- --- --- 446,205
Dividends declared --- --- (205,465) --- --- --- (205,465)
Issuance of shares under Employee
Incentive Stock Option Plan 6 3,627 --- --- --- --- 3,633
Release of shares under
Employee Stock Ownership
Plan --- --- --- --- --- --- ---
Unrealized gain on securities,
net of taxes --- --- --- --- --- (97,803) (97,803)
-------- --------- --------- --------- -------- ---------- ----------
Balance at March 31, 1999 $ 20,924 $12,486,553 $1,565,792 $ (28,710) $(204,716) $(93,990) $13,745,853
======== =========== =========== ========== ========== ========= ===========
</TABLE>
5
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ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
-------- ---------
Operating Activities
<S> <C> <C>
Net income $ 446,205 $ 264,716
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Provision (Benefit) for loan losses 15,000 (25,000)
Depreciation and amortization 118,418 107,879
Accretion of loan discounts and fees (35,845) (58,905)
Accretion of discounts and premiums on securities 2,185 (22,463)
(Benefit) provision for deferred income taxes (74,646) 17,283
(Increase) decrease in other assets (240,768) 100,161
Increase (decrease) in other liabilities 300,315 (631,464)
---------- -------------
Net cash provided by operating activities 530,864 (247,793)
---------- -------------
Investing Activities
Proceeds from repayment and maturity of investment securities 2,300,000 4,998,193
Proceeds from maturity of securities available for sale 1,000,000 7,500,000
Proceeds from repayment of mortgage-backed securities 9,765 12,185
Purchase of investment securities 0 (3,554,113)
Purchase of securities available for sale (991,869) (3,800,000)
Net decrease (increase)in short-term investments 223,547 (99,000)
Purchase of restricted investments 0 (1,132,266)
Principal collected on loans 3,784,820 8,695,087
Loans originated (4,677,552) (6,327,698)
Net decrease (increase) in short-term loans (290,036) 219,492
Net decrease (increase) in lines of credit (2,776,959) 323,493
Purchase of bank premises and equipment (90,028) (146,902)
---------- -------------
Net cash provided (used) by investing activities (1,508,312) 6,688,471
----------- ---------
Financing Activities
Net increase in transaction and savings deposits 1,755,671 1,811,316
Proceeds from issuance of time deposits 10,270,951 11,316,677
Payments for maturing time deposits (10,064,228) (15,550,353)
Net increase in short-term borrowings 473,311 799,533
Payments on long-term debt (15,533) (18,768)
Proceeds from issuance of common stock 3,633 43,217
Cash dividends paid to common stockholders (205,465) ---
------------- --------------
Net cash provided (used) by financing activities 2,218,340 (1,598,378)
------------- --------------
Increase in cash and cash equivalents 1,240,892 4,842,300
Cash and cash equivalents at beginning of year 9,629,303 14,104,347
------------- -----------
Cash and cash equivalents at end of year $10,870,195 $ 18,946,647
=========== =============
Supplementary disclosures:
Interest paid on deposits and borrowings $ 875,427 $ 1,120,039
========= =============
Income taxes paid $ 150,000 $ --
========== =============
</TABLE>
6
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Abigail Adams National Bancorp, Inc.
Notes to Consolidated Financial Statements
March 31, 1999 and 1998
1. General
The unaudited information at and for the three months ended March 31, 1999
and 1998 furnished herein reflects all adjustments which are, in the opinion of
management, necessary to a fair statement of the results for the interim periods
presented. All adjustments are of a normal and recurring nature. Certain
reclassifications have been made to amounts previously reported in 1998 to
conform with the 1999 presentation.
2. Year 2000 Issues
Like many financial institutions, the Bank relies upon computers for the
daily conduct of its business and for data processing in general. There is
concern that on January 1, 2000 computers will be unable to handle the century
date change, and as a consequence, there may be wide spread system malfunctions.
To address this situation the Bank developed a formal Year 2000 committee
comprised of the Bank's senior management and members of the Board of Directors.
The Bank developed a year 2000 project plan in June 1997, and diligent efforts
have been made to complete the project plan on schedule. The Bank's project plan
follows the guidelines set forth by the Federal Financial Institutions
Examination Council (FFIEC) and includes five phases; assessment, evaluation,
renovation, validation, and implementation. During the first quarter of 1999,
the project was substantially complete, including the process of client specific
testing with key vendors. Management of the Bank believes all "mission critical"
applications have been identified and appropriate renovations have been made.
The Bank has identified potential information and non information technology
applications including, for example, electrical utilities, telephone services,
alarm systems and building access systems, which may have problems associated
with the year 2000. To the extent applications suppliers assert their
applications are year 2000 ready, whether they are information technology or non
information technology related, the Bank is currently testing and validating
their claims, while working toward solutions with others. However, legal
recourse against the Bank's third party vendors may be limited to having the
third party vendor correct any service deficiency that fails in the event the
service is not year 2000 compliant. Management does not believe that it would be
able to obtain any material compensatory or punitive damages in the event a
vendor is not year 2000 compliant. All systems for which the Bank has control
have been tested and/or certified by vendors for year 2000 compliance.
Extraneous systems, such as electrical utilities and telephone services, should
they fail will have an impact on our ability to perform daily functions. The
progress of these vendors is being closely monitored. In the event that these
systems are not ready, the Bank has prepared a contingency plan that will enable
business to be conducted without them.
The Bank contracts with Fiserv Atlanta to provide all direct processing of
the Banks' loan and deposit transactions, together with calculations of interest
income and expense thereon. Fiserv Atlanta has completed all testing and
renovations of their systems. Proxy tests were conducted in
7
<PAGE>
December 1998 by several banks and the results were provided to the Bank for
review. The Bank performed client specific testing with Fiserv during the first
quarter of 1999. These tests confirmed the ability of Fiserv Atlanta systems and
software to handle the century date change.
Since the Bank's business relies on the ability of computers to track and
credit deposits and loan repayments, the failure of the Bank's computer systems
would materially and adversely affect the Bank's ability to conduct its
business. The Bank's loan portfolio primarily consists of commercial loans and
loans secured by residential and commercial real estate. The Bank does not
believe that its residential real estate lending operations are dependent on
borrowers' compliance with the year 2000 issue. With respect to outstanding
loans made to commercial borrowers, the Bank has reviewed all commercial loan
files and assigned risk factors to each loan relating to credit problems which
might arise with respect to year 2000 issues. In addition, the Bank's loan
officers have asked their commercial borrowers to advise the Bank of the
exposure of the borrower's business to the year 2000 issue and how the borrower
is addressing the year 2000 issue. In this regard, the Bank has sent its
commercial loan customers a letter asking them if they are aware of the year
2000 issue and the potential exposure of the customer's business to the year
2000 issue, and what steps they have taken to remediate any problems that they
might have in becoming year 2000 compliant. Bank personnel follow-up the letter
with a telephone call to its customers to discuss each customer's exposure to
the year 2000 and the customer's contingency plans to become year 2000
compliant. With respect to new commercial loans, all borrowers must describe how
dependent their business is on computer technology, the actions taken by the
borrower to ensure that their business or property will not be adversely
affected by the year 2000 issue, and the contingency planning the borrower is
undertaking to ensure their business is year 2000 compliant. As part of the loan
underwriting process, commercial borrowers must indicate in writing to the Bank
that they are aware of the year 2000 issue and are either year 2000 compliant,
or are taking steps to become year 2000 compliant. As a result of its actions,
the Bank believes that its commercial borrowers are aware of the year 2000 issue
and are taking actions to become year 2000 compliant.
Management has estimated the future remediation costs to be $15,000.
Incremental expenses for the Bank to address the Year 2000 issue are not
expected to materially impact operating results in any one period.
3. Contingent Liabilities
In the normal course of business, there are various outstanding
commitments and contingent liabilities such as commitments to extend credit and
standby letters of credit that are not reflected in the accompanying
consolidated financial statements. No material losses are anticipated as a
result of these transactions on either a completed or uncompleted basis.
Under the terms of an employment agreement with the current President
and Chief Executive Officer of the Bank, the Company is obligated to make
payments to her totaling approximately $140,000, in the event she chooses to
exercise her rights under a Severance Agreement on or before May 18, 1999, and
these funds are held in a grantor trust established on February 25, 1998.
8
<PAGE>
Under the terms of an employment agreement with the former President
and Chief Executive Officer, the Company is obligated to make payments up to
$12,000 for the continuation of her former benefits to May 18, 2000. These funds
are held in a grantor trust established on February 25, 1998.
The Company maintains directors' and officers' liability insurance in
the amount of $5,000,000, subject to certain exclusions. In addition, according
to the by-laws, the Company is obligated to indemnify any director or officer
for any losses incurred in the performance of their duties as director to the
full extent authorized or permitted by Delaware general corporation law. Three
directors put the present Board of Directors and current management on notice
that to the best of their belief and knowledge, they are entitled to
indemnification for their legal expenses in defending themselves in the lawsuits
as discussed in Part II, Item 1 "Legal Proceedings". During 1998, $240,000 was
accrued in other liabilities for such indemnification of these expenses.
4. 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 $16.09.
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.
5. Employee Benefits
The Company has adopted a Nonqualified Stock Option Plan for certain
officers and key employees and has reserved 112,500 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
9
<PAGE>
(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. All the options are fully vested as a result of a change in
control, which occurred in 1998. 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 20,520
shares of common stock available for grant under the above Plans were granted in
1996 at a price of $5.39 for directors and $6.34 for employees. As of March 31,
1999, 17,702 options have been exercised under these plans.
On November 19, 1996, the Company adopted a nonqualified Directors Stock
Option Plan (the "1996 Directors Plan") and a qualified Employee Incentive Stock
Option Plan covering key employees (the "1996 Employee Plan"). Shares subject to
options under these plans may be authorized but unissued shares or treasury
shares. Options under the 1996 Directors Plan are granted at a price not less
than 85% of the fair market value of the Company's common stock on the date of
grant. Options under the 1996 Employee Plan are granted at a price of 100% of
the fair market value of the Company's common stock on the date of grant. The
options granted under both the 1996 Directors Plan and the 1996 Employee Plan
vest beginning in 1997 at an annual rate of 33.3% to 100% at the end of each
year and become fully vested in the event of a Change in Control, as defined in
the 1996 Directors Plan and the 1996 Employee Plan. All options are fully vested
as a result of a change in control, which took place in 1998. Options under both
plans expire not later than ten years after the date of grant. Options for a
total of 27,641 shares of common stock are available for grant under the above
Plans. Options totaling 25,760 were granted in 1996 at a price of $7.30 for
directors and $8.59 for employees. Options totaling 1,881 were granted to
employees in 1997 at prices ranging from $9.37 to $9.46. As of March 31, 1999,
6,243 options have been exercised under these plans. No options were granted in
1997, 1998, or 1999.
On March 29, 1996, the Company granted the former President and Chief
Executive Officer a nonqualified stock option to purchase 93,750 shares at a
price equal to 85% of the fair market value of the Company's common stock on the
date of grant ($5.39). The option became fully vested at the time the former
President and CEO left the employment of Company and the Bank.
These options have not been exercised as of March 31, 1999.
On April 16, 1996, the Company and the Bank adopted an employee stock
ownership plan ("ESOP") with 401(k) provisions, replacing the Bank's former
401(k) Plan, which covered all full-time employees 21 years of age or older who
have completed 500 hours 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 $10,000 for 1999. In addition, the Bank may make
10
<PAGE>
a discretionary matching contribution equal to one-half of the percentage amount
of the salary reduction elected by each participant (up to a maximum of 3%),
which percentage will be determined each year by the Bank, and an additional
discretionary contribution determined each year by the Bank. Employee
contributions and the employer's matching contributions immediately vest. The
initial employer's discretionary contribution was immediately vested. All future
employer's discretionary contributions are vested as follows: 33 and 1/3% for
one year of service; 66 and 2/3% for two years of service; 100% for three years
of service, however, an employee's vested percentage will not be less than their
vested percentage under the former 401(k) Plan.
6. Earnings Per Common Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS
No. 128). SFAS No. 128 specifies the computation, presentation and disclosure
requirements for earning per share for entities with publicly held common stock
or potential common stock. Basic earnings per share is calculated by dividing
net income, after deduction for preferred stock dividends, by the weighted
average number of shares of common stock. Diluted earnings per share is
calculated by dividing net income, after deduction for preferred stock
dividends, by the weighted average number of shares of common stock and common
stock equivalents , unless determined to be anti-dilutive. SFAS No. 128 is
effective for financial statements for both interim and annual periods ending
after December 15, 1997.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
------------------- ---------------------
Basic Diluted Basic Diluted
EPS EPS EPS EPS
<S> <C> <C> <C> <C>
Net Income 446,205 446,205 264,716 264,716
Income Available to
Common Stockholders 446,205 446,205 264,716 264,716
Weighted average share
outstanding 2,062,966 2,062,966 2,039,585 2,039,585
Weighted average
dilutive effect of
Stock Option Plans n/a 57,418 n/a 58,370
Adjusted Weighted
average shares
Outstanding 2,062,966 2,120,384 2,039,585 2,097,955
Basic EPS 1 $.22 $.13
Diluted EPS $.21 $.13
</TABLE>
- -----------------------
1 The per share data and average shares outstanding give effect to a
five-for-four stock split in the form of a stock dividend that
occurred on December 31, 1998
11
<PAGE>
7. New Financial Accounting Standards
(a) Reporting Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
No. 130). SFAS No. 130 requires that certain financial activity typically
disclosed in stockholders' equity be reported in the financial statements as an
adjustment to net income in determining comprehensive income. Items applicable
to the Company would include unrealized gains and losses on securities available
for sale. Items identified as comprehensive income have been presented in the
statement of changes in stockholders' equity, under separate captions. SFAS No.
130 is effective for the Company on January 1, 1998 including the restatement of
prior periods reported consistent with this pronouncement. The implementation of
SFAS No. 130 has not had a material impact on the Company.
(b) 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 would have
been effective for the Company on January 1, 1998, including the restatement of
prior periods reported consistent with this pronouncement, if practical. The
Company did not have more than one reportable segment, thus the implementation
did not have an impact.
(c) Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". The Statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. SFAS No. 133
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualified hedges allows a derivative's gain and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting. SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999. The Company may also implement the Statement as
of the beginning of any fiscal quarter beginning June 16, 1998 and thereafter.
SFAS No. 133 cannot be applied retroactively. SFAS No. 133 must be applied to
(a) derivative instruments and (b) certain derivative instruments embedded in
hybrid contracts that were issued, acquired, or substantively modified after
December 31, 1997.
12
<PAGE>
The implementation of SFAS 133 is not expected to have a material impact on the
Company.
PART I. FINANCIAL INFORMATION (Continued)
- --------------------------------------------------------------------------------
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations
- --------------------------------------------------------------------------------
The following discussion should be read and reviewed in conjunction Management's
Discussion and Analysis of Financial Condition and Results of Operations set
forth in the Company's Form 10-KSB for the year ended December 31, 1998.
Overview
Total assets of Abigail Adams National Bancorp, Inc. and subsidiary (the
"Company") were $131,691,000 at March 31, 1999 as compared to $128,881,000 at
December 31, 1998. Total assets at March 31, 1999 increased by $2,809,000 from
December 31, 1998, due to the growth in the loan portfolio of $3,986,000. Total
deposits increased by $1,962,000 during the same period to $110,627,000 at March
31, 1999, due primarily to increases in demand deposits.
The Company reported net income for the first three months of 1999 of
$446,000, or $0.22 per share, for an annualized return on average assets of
1.42% and an annualized return on average equity of 13.18%. Net income for the
first three months of 1998 was $265,000 or $0.13 per share, with a return on
assets of .83% and a return on equity of 8.05%. Compared to the first three
months of 1998, net income increased 40.7%. Income taxes of $285,000 for the
first three months of 1999 reflects a 39.2% increase over the comparable 1998
period. The increases in net interest income, the increases other income, and
the decreases in operating expenses in general were partially offset by
increases in the provision for loan losses. The improved net earnings of the
Company reflect greater profitablity of the Bank's core business operations and
improved operating efficiency.
Analysis of Net Interest Income
Net interest income, the most significant component of the Company's
earnings, increased by $46,000, or 3%, to $1,650,000 for the first three months
of 1999, as compared to $1,604,000 for the comparable 1998 period. Average
earning assets for the first three months of 1999 of $119,747,000 increased by
$1,950,000, or 1.7%, over the comparable 1998 period. The increase in net
interest income resulted from the increase in higher yielding assets combined
with the decrease in the cost of funds. The average loan portfolio for the first
three months of 1999 was $93,601,000, an increase of $10,681,000 or 12.9% over
the comparable 1998 period. The average investment security portfolio for the
first three months of 1999 was $20,718,000, a decrease of $5,035,000 or 19.6%
from the comparable 1998 period. Average interest bearing deposits for the first
three months of 1999 were $78,335,000, a decrease of $6,552,000, or 7.7%, from
the comparable 1998 period. The net interest rate spread for the first three
months of 1999 of 4.33% and a net interest margin of 5.56% for the same period,
reflected increase of 16 basis points and 25 basis points, respectively, from
the prior year.
13
<PAGE>
Other Income
Total other income increased by approximately $110,000, or 26%, to
$422,000 for the first three months of 1999, primarily due to increased income
recognized on ATM transactions and service charges on deposit accounts.
Other Expense
Salaries and benefits of $591,000 for the first three months of 1999
increased by $5,000 or .8%, over the first three months of 1998, due primarily
to an increase in the number of employees. Net occupancy expense of $324,000 for
the first three months of 1999 reflects an increase of $39,000, or 12%, from one
year earlier due both to the relocation of the Georgetown branch in 1999 and the
additional depreciation associated with office renovations and technology
investments. Professional fees of $60,000 for the first three months of 1999
decreased by $123,000 as compared to the first three months of 1998, due to the
legal expenses in 1998 associated with a lawsuit against three directors and
other shareholders of the Company. Data processing expense of $100,000 for the
first three months of 1999 decreased by $19,000 from the prior year. Other
operating expense of $249,000 for the first three months of 1999 decreased by
$79,000 from the prior year, due primarily to cost controls over stationary,
advertising, and other expenses in general.
Income Tax Expense
Income tax expense of $285,000 for the first three months of 1999 reflects
an increase of $112,000 over the $173,000 tax expense recorded one year earlier,
due to an increase in pretax income. The Company's effective tax rate for the
first three months of 1999 was 39% as compared to 39.5% for the first three
months of 1998.
Analysis of Loans
The loan portfolio at March 31, 1999 of $98,206,000 increased by
$3,986,000 or 4.2%, as compared to the December 31, 1998 balance of $94,220,000.
New loans of $4,678,000, exclusive of short-term loans and lines of credit, were
originated in the first three months of 1999. Loan principal payments of
$3,785,000 offset this increase. The loan to deposit ratio at March 31, 1999 was
89% as compared to 87% at December 31, 1998. On average, the loan to deposit
ratio for the first three months of 1999 was 87%, as compared to 75% during the
comparable period of the prior year. The Bank has not experienced any
deterioration in its loan portfolio as a result of the Year 2000 issue.
Management will continue to monitor its loan portfolio for deterioration
associated with borrower's inability to be Year 2000 compliant.
Loan concentrations at March 31, 1999 and December 31, 1998 are summarized as
follows:
Loan Concentrations
At March 31, 1999 and December 31, 1998
March 31 Dec 31,
1999 1998
-------- -------
Service industry 35% 38%
Commercial Real estate/finance 30 32
Wholesale/retail 23 22
14
<PAGE>
Other 12 8
------ -----
Total 100% 100%
====== =====
Analysis of Investments
Securities classfied as available for sale totaling $2,300,000 matured
during the first three months of 1999 as compared to purchases of $992,000
during the same period. These securities transactions coupled with scheduled
accretion of discounts for the first three months and market value adjustments
accounted for the $1,475,000 decrease in the available for sale portfolio to
$12,338,000 at March 31, 1999 as compared to $13,813,000 at December 31, 1998.
Long-term investment maturities totaling $1,000,000 and normal pay downs on
mortgage-backed and other amortizing securities, account for the decrease in
long-term investments to $6,976,000 at March 31, 1999 from $7,976,000 at
December 31, 1998.
Short term investments decreased $3,557,000 from December 31, 1998 to
$2,051,000, primarily to fund new loans.
Noninterest-Earning Assets
Cash and due from banks of $10,410,000 at March 31, 1999 increased by
$4,574,000 from the December 31, 1998 balance of $5,836,000. This increase is
due to uninvested uncollected funds and the fluctuations in cash balances in the
normal course of business for the Bank.
Deposits
Total deposits of $110,627,000 at March 31, 1999 increased by
$1,962,000, or 1.8%, from the December 31, 1998 balance of $108,665,000. Demand
deposits of $33,446,000 at March 31, 1999 reflect a $2,388,000, or 7.7%,
increase from the $31,058,000 balance at December 31, 1998. Normal fluctuations
in the deposits of both personal and nonprofit accounts make up a significant
portion of the $177,000 decrease in NOW accounts to $9,322,000 at March 31,
1999, as compared to $9,499,000 at December 31, 1997. Money market accounts of
$25,564,000 at March 31, 1999 decreased by $643,000 from the $26,207,000 balance
reported at December 31, 1998, due primarily to normal fluctuations in the
balances of some of the Company's large corporate customers. Savings deposits
increased $189,000 to $2,987,000 from $2,798,000 at December 31,1 998.
Certificates of deposit at March 31, 1999 of $39,310,000 increased by $207,000
from the $39,103,000 balance at December 31, 1998, with certificates of deposit
$100,000 and over increasing by $929,000 and certificates of deposit under
$100,000 decreasing by $722,000.
Average noninterest-bearing demand deposits for the first three months
of 1999 of $28,947,000 increased by $1,408,000, or 5.1%, from the comparable
1998 period, while average interest-bearing deposits decreased by $6,006,000
during the same period to $77,513,000. For the first three months of 1999,
average NOW accounts of $9,584,000 decreased by $1,161,000, and average money
market deposits $24,863,000 decreased by $574,000 over the prior year's average
balance. Average certificates of deposit $100,000 and over decreased by
$2,199,000 to $19,628,000 for the first three months of 1999, as compared to the
first three months of 1998. Average
15
<PAGE>
certificates of deposit under $100,000 for the first three months of 1999 of
$20,487,000 decreased by $3,037,000 over the comparable period of the prior
year. Average noninterest-bearing deposits to average total deposits during the
first three months of 1999 represent 37% as compared to 25% one year earlier.
Asset Quality
Loan Portfolio and Adequacy of Allowance for Loan Losses
The Company manages the risk characteristics of its loan portfolio
through various control processes, such as credit evaluation of individual
borrowers, establishment of lending limits to individuals and application of
lending procedures, such as the holding of adequate collateral and the
maintenance of compensating balances. As part of the underwriting process,
commercial borrowers must indicate in writing that they are aware of the Year
2000 issue and are either Year 2000 compliant or in the process of becoming Year
2000 compliant. 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.
Loan growth during 1998, 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, 1998, as compared to earlier periods. During the first
quarter of 1998, the Adams National Bank (the "Bank") repurchased loan
participations from the Company on which the Company maintained a $25,000 loan
loss reserve. As a result, during the first quarter of 1998, with loans no
longer outstanding at the parent company, the parent company reversed the
$25,000 loan loss reserve recorded on its books. Due to the loan growth in the
first quarter of 1999, the Bank added $15,000 to the loan loss reserve.
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 $1,125,000 at March 31, 1999 to be adequate.
At March 31, 1999, the allowance for loan losses as a percentage of
outstanding loans was 1.16% as compared to 1.20% at December 31, 1998. The table
entitled "Allocation for Loan Losses" sets forth an analysis of the allocation
for loan losses by categories as of March 31, 1999 and December 31, 1998.
16
<PAGE>
Allocation of Allowance for Loan Losses
At March 31, 1999 and December 31, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------------------------ --------------------------
Reserve % of loans Reserve % of loans
Amount to total loans Amount to total loans
<S> <C> <C> <C> <C>
Commercial $ 540 46.5% $ 573 45.4%
Real estate- commercial mortgage 500 47.5 493 48.3
Real estate- residential mortgage 12 1.1 12 1.4
Real estate- construction 0 0 -- --
Installment 49 4.9 48 4.9
Unallocated 39 0 8 --
-------- ------ ---- ------
Total $ 1,140 100.0% $ 1,134 100.0%
========= ====== ======= ======
</TABLE>
Transactions in the allowance for loan losses for the three months
ended March 31, 1999 and 1998 are summarized as follows:
Transactions in the Allowance for Loans Losses for the
Three Months Ended March 31, 1999 and 1998
(Dollars in thousands)
1999 1998
-------- --------
Balance at January 1 $1,134 $1,142
Provision (benefit) 15 (25)
Recoveries:
Commercial 1 5
Real estate - mortgage -- 8
Installment to individuals 13 16
----- -----
Total recoveries 14 29
Loans charged off:
Commercial (18) --
Installment to individuals (5) (8)
------ ------
Total charge-offs (23) (8)
------ ------
Net recoveries (charge-offs) (10) 21
---------- ------
Balance at March 31 $ 1,140 $1,138
======= ======
Ratio of net (charge-offs) recoveries
to average loans (1) 0.04% 0.10%
====== =====
- ----------------------------
(1) Ratio of net charge-offs to average loans is computed on an annualized
basis for the three months ended March 31, 1999 and 1998.
17
<PAGE>
Nonperforming Assets
Nonaccrual loans at March 31, 1999 of $272,000 decreased by $23,000
from the $295,000 reported at December 31, 1998. There were no nonaccrual loans
at March 31, 1999 guaranteed by the U.S. Small Business Administration ("SBA"),
and if there were, banking regulations require that the full balance of these
loans be placed on nonaccrual status, despite the SBA guarantee. Loans past due
90 days or more and still accruing interest decreased to $133,000 at March 31,
1999 from $136,000 at December 31, 1998.
Analysis of Nonperforming Assets
At March 31, 1999 and December 31, 1998
(Dollars in thousands)
March 31, December 31,
1999 1998
------- ---------
Nonaccrual loans:
Commercial $ 24 $ 208
Real estate - commercial mortgage 87 87
Installment - individuals 161 --
---- -----
Total nonaccrual loans (1) 272 295
----- ------
Past due loans:
Commercial 81 --
Real estate - commercial mortgage -- --
Credit Cards 37
Installment - individuals 15 136
----- -------
Total past due loans 133 136
------ ------
Restructured loans:
Commercial -- --
--- ----
Total restructured loans -- --
--- ----
Total nonperforming assets $ 405 $431
===== ====
Total nonperforming assets exclusive of
SBA guaranteed balances $ 405 $ 383
===== =====
Ratio of nonperforming assets
to gross loans plus foreclosed properties .41% .46%
Ratio of nonperforming assets to total
assets (2) .31% .33
Percentage of allowance for loan losses to
nonperforming assets (2) 281% 262%
- ----------------------------
(1) There were no nonaccrual loans guaranteed by the SBA at March 31, 1999 and
December 31, 1998, respectively.
(2) Ratios include SBA guaranteed loan balances.
Potential Problem Loans
At March 31, 1999 and December 31, 1998, respectively, loans totaling
$1,617,000 and $1,139,000 were classified as potential problem loans, which are
not reported in the table entitled "Analysis of Nonperforming Assets." Of the
problem loans at March 31, 1999, 27% of the balance
18
<PAGE>
is guaranteed by the SBA for a total of $ 433,000, as compared to 38% and
$504,000 at December 31, 1998. The loans are subject to management attention as
a result of financial difficulties of the borrowers and their classification is
reviewed on a quarterly basis.
Interest Rate Sensitivity
Through the Bank's Asset/Liability Committee, sensitivity of net
interest income to fluctuations in interest rates is considered through analyses
of the interest sensitivity positions of major asset and liability categories.
The company manages its interest rate risk sensitivity through the use of a
simulation model that project the impact of rate shocks, rate cycles and rate
forecast risk estimates on the net interest income and economic value of equity.
The rate shock risk simulation projects the dollar change in the net interest
margin and the economic value of equity should the yield curve instantaneously
shift up or down parallel to its beginning position. This simulation provides a
test for embedded interest rate risk estimates and other factors such as
prepayments, repricing limits, and decay factors. Based on the Company's
interest sensitivity position and the analyses performed on the effect of
interest rate movements at March 31, 1999, net interest income and the economic
value of equity will not be materially impacted by either a rising or declining
interest rate environment.
Liquidity and Capital Resources
Liquidity
Principal sources of liquidity are cash and unpledged assets that can
be readily converted into cash, including investment securities maturing within
one year, the available for sale security portfolio and short-term loans. In
addition to $12,461,000 in cash and short-term investments at March 31, 1999,
the Company has a securities portfolio which can be pledged to raise additional
deposits and borrowings, if necessary. At March 31, 1999, the Company had
$5,287,000 in unpledged securities which were available for such use. As a
percentage of total assets, the amount of these cash equivalent assets at March
31, 1999 and December 31, 1998 was 13% and 16%, respectively. Normal
fluctuations in the deposit levels of some of the Company's large corporate
customers resulted in corresponding fluctuations in the Company's liquidity
position (short-term investments). The Bank's liquidity needs are mitigated by
the sizeable base of relatively stable funds which includes demand deposits, NOW
and money market accounts, savings deposits and nonbrokered certificates of
deposit under $100,000 (excluding financial institutions and custodial funds
raised under deposit acquisition programs) representing 82% of average total
deposits for the three months ended March 31, 1999 and 76% of average total
deposits for the three months ended March 31, 1998. In addition, the Bank has
unsecured lines of credit from correspondent financial institutions which can
provide up to an additional $2,000,000 in liquidity, as well as, access to other
collateralized borrowing programs. The Company maintained an average loan to
deposit ratio of 87% and 77% for the first three months of 1997 and 1998
respectively, and can access collateralized deposit programs through U.S.
government agencies to raise additional deposits, when liquidity needs dictate.
Through its membership in the Federal Home Loan Bank of Atlanta (the
"FHLB"), which serves as a reserve or central bank for member institutions
within its region, the Bank has $1,007,000
19
<PAGE>
in long term borrowings at March 31, 1999, a decrease of $60,000 from the
balance at March 31, 1998 of $1,067,000. The outstanding balances of the loans
pledged as collateral for long-term borrowings, as well as, future borrowings
from the FHLB at March 31, 1999 and 1997 was $2,935,000 and $3,973,000,
respectively. The excess collateral value of the loans pledged at March 31, 1999
was approximately $1,215,000. The Company has adequate resources to meet its
liquidity needs.
Increases in deposit levels and the repayment and maturity of loans and
investment securities comprise the majority of the Company's net cash inflows
from financing activities for the first three months of 1999. Loan originations,
the purchase of investment securities, and maturing time deposits, during the
first three months of 1999 constitute the majority of the Company's cash
outflows from investing activities.
Stockholders' Equity
Stockholders' equity at March 31, 1999 of $13,746,000 increased by
$147,000 from December 31, 1998. The net income of $446,000 for the first three
months of 1999, offset with an unrealized loss on investment securities of
$98,000 and the dividends paid in the first quarter of $205,000, accounted for
the increase. Average stockholders' equity as a percentage of average total
assets for 1999 was 10.8% as compared to 10.1% for the comparable prior year
period.
Under the risk based capital guidelines issued by the Federal Reserve
Board and the Comptroller of the Currency, total capital consists of core
capital (Tier 1) and supplementary capital (Tier 2). For the Company and the
Bank, Tier 1 capital consists of stockholders' equity, excluding unrealized
gains and losses on securities, and Tier 2 capital consists of long-term debt
and a portion of the allowance for loan losses. Assets include items both on and
off the balance sheet, with each item being assigned a "risk-weight" for the
determination of the ratio of capital to risk-adjusted assets. These guidelines
require a minimum of 8% total capital to risk-adjusted assets, with at least 4%
being in Tier 1 capital. At March 31, 1999, the Company's total risk-based
capital ratio and Tier 1 capital ratio of 14.37% and 13.28%, respectively, met
the regulatory definition of "well-capitalized." Under regulatory guidelines, an
institution is generally considered "well-capitalized" if it has a total
risk-based capital ratio of 10% or greater, a Tier 1 capital ratio of 6% or
greater and a leverage ratio of 5% or greater (discussed below). The Company's
March 31, 1999 ratios are based on total capital of $14,979,000, Tier 1 capital
of $13,840,000 and risk adjusted assets of $104,236,000. At March 31, 1999, the
Bank's total risk-based capital ratio and Tier 1 capital ratio of 13.13% and
12.03%, respectively, also met the definition of "well-capitalized." The March
31, 1999 ratios for the Bank are based on total capital of $13,637,000, Tier 1
capital of $12,498,000 and risk-adjusted assets of $103,878,000.
The Federal Reserve Board and the Comptroller of the Currency have also
adopted a minimum leverage ratio of Tier 1 capital to total assets which is
intended to supplement the risk-based capital guidelines. The minimum Tier 1
leverage ratio is 3% for the most highly rated institutions which meet certain
standards. For other banks and bank holding companies, the
20
<PAGE>
guidelines provide that the Tier 1 leverage ratio should be at least 1% to 2%
higher. At March 31, 1999, the Company's and the Bank's Tier 1 leverage ratios
based on annual average assets of $127,009,000 and $126,921,000 were 10.90% and
9.85%, respectively, meeting the regulatory definition of "well-capitalized."
Factors Affecting Future Results
In addition to historical information, this Form 10-QSB includes
certain forward looking statements based on current management expectations
which involve risks and uncertainties such as statements of the Company's plans,
expectations and unknown outcomes. The Company's actual results could differ
materially from those management expectations. Factors that could cause future
results to vary from current management expectations include, but are not
limited to, general economic conditions, legislative and regulatory changes,
monetary and fiscal policies of the federal government, changes in tax policies,
rates and regulations of federal and local tax authorities, changes in interest
rates, deposit flows, the cost of funds, demand for loan products, demand for
financial services, competition, changes in the quality or composition of the
Bank's loan and investment portfolios, changes in ownership status resulting in
the loss of eligibility for participation in government and corporate programs
for minority and women-owned banks, uncertainties with respect to costs which
the Company may incur as result of litigation against the Company, certain
directors of the Company and certain related stockholders brought by two
minority shareholders, changes in accounting principles, policies or guidelines,
and other economic, competitive, governmental and technological factors
affecting the Company's operations, markets, products, services and prices.
21
<PAGE>
PART II.
Item 1 - Legal Proceedings
Although the Bank, from time to time, is involved in various legal
proceedings in the normal course of business, there are no material legal
proceedings to which the Company or the Bank is a party or to which any of their
property is subject, except for the matters discussed below.
On May 29, 1998 a suit was filed in The Court of Chancery of the State
of Delaware by Rose Z. Thorman and Martha Burke as custodian for Holly McMackin,
Jake McMackin, Ashtyn Talley and Casey Talley against Marshall T. Reynolds,
Jeanne D. Hubbard, Robert H. Shell, Jr. and Ferris Baker Watts, defendants, and
Abigail Adams National Bancorp, Inc., Nominal Defendant asserting claims for
individual, derivative and class action for: (1) breach of fiduciary duties of
loyalty and disclosure; (2) aiding and abetting breach of fiduciary duties; and
(3) tortious interference with economic and contractual relations. The Company
has hired Delaware counsel and is vigorously defending this suit. A motion to
dismiss this suit was filed on or before July 31, 1998 by the Company and the
stockholders/directors. The Court of Chancery has granted the plaintiffs leave
to file an amended complaint. The plaintiffs have agreed to dismiss Ferris Baker
Watts, Inc. from the state action. The Company is awaiting the judge's ruling on
the Motion to Dismiss.
On June 8, 1998 a second suit was filed in United States District
Court, District of Delaware by Rose Z. Thorman,and Martha Burke, individually
and as custodian for Holly McMackin, Jake McMackin, Ashtyn Talley and Casey
Talley, Plaintiffs against the Company, Nominal Defendant, and Marshall T.
Reynolds, Jeanne D. Hubbard, Robert L. Shell, Jr. and Ferris Baker Watts, Inc.
The federal action is based on the same facts underlying the State action, and
asserts both derivative claims on behalf of the Bank and individual claims on
behalf of stockholders of the Bank. The complaint in the Federal action alleges
that certain stockholders/directors of the Bank, and Marshall T. Reynolds,
Jeanne D. Hubbard and Robert H. Shell, Jr., as well as the investment banking
firm, Ferris Baker Watts, Inc., violated the Securities Exchange Act of 1934 (
the "Exchange Act") in soliciting proxies against the proposed merger between
the Bank and Ballston, which was not approved by the shareholders at a special
meeting held December 31, 1997, and also alleges that the individual
stockholder/directors violated the Exchange Act in soliciting proxies to remove
four directors of the Bank. The Company has hired Delaware counsel and is
vigorously defending this suit. The District Court has stayed the Federal action
pending a decision in the State action.
Management and the Board of Directors of the Company have reviewed the above
described litigation and believe that it will prevail on the merits.
Consequently, the Company has not accrued for a potential adverse result.
22
<PAGE>
Item 2 - Changes in Securities and Use of Proceeds
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to Vote of Security Holders
The Company did not conduct a solicitation of its security holders
during the period under report.
Item 5 - Other Matters
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description of Exhibit
- ---------- ----------------------
13 Abigail Adams National Bancorp, Inc. Financial Summary
for September 30, 1998
27 Financial Data Schedule
(b) On May 22, 1998, the Company filed a report on Form 8-K (earliest event
reported May 22, 1998) reporting that the resignation of three
directors pursuant to Item 6. Resignations of the Registrant's
Directors.
23
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
ABIGAIL ADAMS NATIONAL BANCORP, INC.
-----------------------------------
Registrant
Date: May 7, 1999 /s/ Jeanne D. Hubbard
------------- ---------------------------
Jeanne D. Hubbard
Chairwoman of the Board,
President and Director
(Principal Executive Officer)
24
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000356809
<NAME> o2tm$mqx
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Mar-31-1999
<CASH> 10,410
<INT-BEARING-DEPOSITS> 1,591
<FED-FUNDS-SOLD> 460
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 12,338
<INVESTMENTS-CARRYING> 6,976
<INVESTMENTS-MARKET> 6,988
<LOANS> 98,206
<ALLOWANCE> 1,140
<TOTAL-ASSETS> 131,691
<DEPOSITS> 110,628
<SHORT-TERM> 5,121
<LIABILITIES-OTHER> 1,189
<LONG-TERM> 1,007
12,508
0
<COMMON> 0
<OTHER-SE> 1,238
<TOTAL-LIABILITIES-AND-EQUITY> 136,691
<INTEREST-LOAN> 2,132
<INTEREST-INVEST> 369
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 2,501
<INTEREST-DEPOSIT> 788
<INTEREST-EXPENSE> 851
<INTEREST-INCOME-NET> 1,650
<LOAN-LOSSES> 15
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,325
<INCOME-PRETAX> 731
<INCOME-PRE-EXTRAORDINARY> 731
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 446
<EPS-PRIMARY> .22
<EPS-DILUTED> .21
<YIELD-ACTUAL> 5.56
<LOANS-NON> 272
<LOANS-PAST> 133
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,617
<ALLOWANCE-OPEN> 1,134
<CHARGE-OFFS> 23
<RECOVERIES> 14
<ALLOWANCE-CLOSE> 1,140
<ALLOWANCE-DOMESTIC> 1,140
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 39
</TABLE>
