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 September 30, 2000
------------------
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
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ABIGAIL ADAMS NATIONAL BANCORP, INC.
------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 52-1508198
-------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer ID No.)
Incorporation or organization)
1627 K Street, N.W., Washington, D.C. 20006
--------------------------------------------
(Address of principal executive offices)
202-466-4090
---------------------------------------
Issuer's telephone number including area code
N/A
---------------------------
Former name, address, and fiscal year, if changes since last report
Indicate by check whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No .
--- ---
State the number of shares outstanding of each of the issuer's classes of
common equity as of November 10, 2000:
2,178,225 shares of Common Stock, Par Value $0.01/share
Transitional Small Business Disclosure Format (check one): Yes No X .
--- ---
<PAGE>
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
------------------------------ ----
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheets 2
Consolidated Statements of Income 3
Consolidated Statements of Changes in Stockholder's Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-7
Item 2 - Management's Discussion and Analysis 8-17
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 17
Item 4 - Submission of Matters to Vote of Securities Holders 18
Item 5 - Other Matters 18
Item 6 - Exhibits and Reports on Form 8-K 18
Signatures 18
<PAGE>
<TABLE>
<CAPTION>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
September 30, 2000 and December 31, 1999
(Unaudited)
September 30, 2000 December 31, 1999
------------------ -----------------
Assets
<S> <C> <C>
Cash and due from banks $ 4,544,711 $ 4,707,226
Federal funds sold 8,696,742 6,005,707
Interest-bearing deposits in other
banks 5,517,659 3,900,891
Investment securities available-for
-sale at fair value 26,140,213 13,405,857
Investment securities held-to-maturity
(market value of $2,982,708 at
Sept 30, 2000 and $3,277,934 at
Dec 31, 1999) 3,026,045 3,355,421
Loans (net of deferred fees and
unearned discounts) 111,545,625 108,823,012
Less: allowance for loan losses (1,571,666) (1,137,009)
----------------- ----------------
Loans, net 109,973,959 107,686,003
----------------- ----------------
Bank premises and equipment, net 836,878 978,858
Other assets 2,159,508 1,730,256
----------------- ----------------
Total assets $ 160,895,715 $ 141,770,219
================= ================
Liabilities and Stockholders' equity
Liabilities:
Deposits:
Noninterest-bearing deposits $ 47,837,581 $ 36,816,624
Interest-bearing deposits 91,165,290 85,753,275
---------------- ----------------
Total deposits 139,002,871 122,569,899
---------------- ----------------
Short-term borrowings 4,150,122 3,193,166
Long-term debt 905,846 958,309
Other liabilities 369,513 590,185
---------------- ----------------
Total liabilities 144,428,352 127,311,559
---------------- ----------------
Commitments and contingencies (Note 2)
Stockholders' equity:
Preferred stock, $10 par value,
authorized 25,000 shares 250,000 --
Common stock, $0.01 par value,
authorized 5,000,000 shares; issued
2,188,218 at September 30, 2000 and
2,094,468 shares at December 31, 1999;
outstanding 2,178,225 shares at
September 30, 2000 and 2,085,464 at
December 31, 1999 21,883 20,945
Capital surplus 12,982,402 12,478,090
Retained earnings 3,625,701 2,528,366
Less: Employee Stock Ownership Plan
shares, 15,654 shares at Sept. 30,
2000 and 15,654 shares at Dec. 31, 1999 (109,586) (109,586)
Less: Treasury stock, 9,993 shares at
Sept. 30, 2000 and 9,004 shares at
Dec. 31, 1999 (81,265) (70,989)
Accumulated other comprehensive income
(loss) (221,772) (388,166)
--------------- ---------------
Total stockholders' equity 16,467,363 14,458,660
--------------- ---------------
Total liabilities and stockholders'
equity $ 160,895,715 $ 141,770,219
=============== ===============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
For the Periods Ended September 30, 2000 and 1999
(Unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
---- ---- ---- ----
Interest income
<S> <C> <C> <C> <C>
Interest and fees on loans $2,733,097 $2,336,862 $7,779,326 $6,768,931
Interest and dividends on investment securities:
Taxable income 416,812 272,459 938,132 838,058
Nontaxable income -- 3,991 3,282 11,974
Other interest income 280,662 75,453 599,462 216,864
---------- ---------- ---------- ----------
Total interest income 3,430,571 2,688,765 9,320,202 7,835,827
---------- ---------- ---------- ----------
Interest expense
Interest on deposits 1,039,092 766,664 2,789,969 2,310,027
Interest on short-term borrowings 41,862 30,079 125,081 122,212
Interest on long-term debt 16,035 17,269 48,861 52,266
---------- ---------- ---------- ----------
Total interest expense 1,096,989 814,012 2,963,911 2,484,505
---------- ---------- ---------- ----------
Net interest income 2,333,582 1,874,753 6,356,291 5,351,322
Provision for loan losses 140,000 40,000 453,000 70,000
---------- ---------- ---------- ----------
Net interest income after provision for loan losses 2,193,582 1,834,753 5,903,291 5,281,322
---------- ---------- ---------- ----------
Noninterest income
Service charges on deposit accounts 332,109 329,527 972,428 1,027,420
Other income 29,644 30,833 175,569 121,431
---------- ---------- ---------- ----------
Total noninterest income 361,753 360,360 1,147,997 1,148,851
---------- ---------- ---------- ----------
Noninterest expense
Salaries and employee benefits 676,668 672,195 1,840,897 1,861,364
Occupancy and equipment expense 296,202 303,595 922,303 956,311
Professional fees 75,980 29,597 244,124 159,474
Data processing fees 87,545 41,974 322,821 275,034
Other operating expense 314,234 288,061 811,742 801,415
---------- ---------- ---------- ----------
Total noninterest expense 1,450,629 1,335,422 4,141,887 4,053,598
---------- ---------- ---------- ----------
Income before provision for income taxes 1,104,706 859,691 2,909,401 2,376,575
Provision for income taxes 434,526 335,280 1,150,938 926,864
---------- ---------- --------- ----------
Net income $ 670,180 $ 524,411 $1,758,463 $1,449,711
========== ========== ========= ==========
Earnings per share:
Basic $ 0.31 $ 0.25 $ 0.83 $ 0.70
Diluted $ 0.30 $ 0.25 $ 0.82 $ 0.68
Average common shares outstanding:
Basic 2,163,034 2,065,222 2,123,352 2,064,170
Diluted 2,202,295 2,127,010 2,153,127 2,121,507
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
Nine Months Ended September 30, 2000, and 1999
(Unaudited)
Employee Accumulated
Retained Stock Other
Preferred Common Capital Earnings Treasury Ownership Comprehensive
Stock Stock Surplus (Deficit) Stock Plan Income (Loss) Total
--------- -------- ----------- ---------- -------- --------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at Dec 31, 1998 -- $20,918 $12,482,926 $1,325,052 ($28,710) ($204,716) $3,813 $13,599,283
Comprehensive income:
Net income -- -- -- 1,449,711 -- -- -- 1,449,711
Unrealized loss on
investment securities
available for sale, net
of tax -- -- -- -- -- -- (289,574) (289,574)
Total comprehensive
income -- -- -- -- -- -- -- 1,160,137
Dividends declared -- -- -- (619,883) -- -- -- (619,883)
Issuance of shares under
Employee Incentive Stock
Option Plan -- 27 20,969 -- -- -- -- 20,996
Release of shares under ESOP -- -- -- -- -- 56,825 -- 56,825
Distribution from ESOP -- -- -- -- (37,543) -- -- (37,543)
-------- ------- ----------- ---------- -------- --------- --------- -----------
Balance at Sept 30, 1999 -- $20,945 $12,503,895 $2,154,880 ($66,253) ($147,891) ($285,761) $14,179,815
======== ======= =========== ========== ======== ========= ========= ===========
Balance at Dec 31, 1999 -- $20,945 $12,478,090 $2,528,366 ($70,989) ($109,586) ($388,166) $14,458,660
Comprehensive income:
Net income -- -- -- 1,758,463 -- -- -- 1,758,463
Unrealized loss on
investment securities
available for sale, net
of tax -- -- -- -- -- -- 166,394 166,394
Total comprehensive
income -- -- -- -- -- -- -- 1,924,858
Issuance of preferred
stock 250,000 -- -- -- -- -- -- 250,000
Dividends declared -- -- -- (661,130) -- -- -- (661,130)
Issuance of shares under
Employee Incentive Stock
Option Plan -- 938 504,312 -- -- -- -- 505,250
Distribution from ESOP -- -- -- -- (10,276) -- -- (10,276)
________ _______ ___________ __________ ________ _________ _________ ___________
Balance at Sept 30, 2000 $250,000 $21,883 $12,982,402 $3,625,701 ($81,265) ($109,586) ($221,772) $16,467,363
======== ======= =========== ========== ========= ========== ========= ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2000 and 1999
(Unaudited)
2000 1999
---- ----
<S> <C> <C>
Cash flows from Operating Activities:
Net Income $1,758,463 $1,449,711
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 453,000 70,000
Depreciation and amortization 266,921 353,138
Accretion of loan discounts and fees (136,177) (187,073)
Accretion and amortization of investment
securities discounts and premiums, net (15,098) 3,924
Benefit for deferred income taxes 38,196 (327,486)
Increase in other assets (467,448) (459,136)
(Increase) decrease in other liabilities (318,381) 191,833
---------- ---------
Net cash provided by operating activities 1,579,476 1,094,911
---------- ---------
Cash flows from Investing Activities:
Proceeds from maturities of investment
securities held to maturity 310,000 8,300,000
Proceeds from repayment of mortgage-backed
securities 24,474 37,632
Purchase of investment securities available
for sale (12,438,378) (3,984,508)
Net increase in interest-bearing deposits in
other banks (1,616,768) 301,342
Net increase in loans (2,604,779) (8,641,449)
Purchase of bank premises and equipment (124,941) (181,158)
----------- ----------
Net cash used in investing activities (16,450,392) (4,168,141)
----------- ----------
Cash flows from Financing Activities:
Net increase in transaction and savings
deposits 13,750,550 4,535,137
Net increase (decrease) in time deposits 2,682,424 (2,940,553)
Net increase in short-term borrowings 956,956 1,906,605
Payments on long-term debt (52,463) (47,727)
Proceeds from issuance of common stock,
net of expenses 505,250 20,996
Proceeds from issuance of preferred stock 250,000 --
Payment on ESOP loan -- 56,825
Payment of distributions from ESOP (32,151) (37,543)
Cash dividends paid to common stockholders (661,130) (619,883)
---------- ---------
Net cash provided by financing activities 17,399,436 2,873,857
---------- ---------
Net increase (decrease) in cash and cash
equivalents 2,528,520 (199,373)
Cash and cash equivalents at beginning of year 10,712,933 9,629,303
---------- ---------
Cash and cash equivalents at end of period 13,241,453 9,429,930
========== =========
Supplementary disclosures:
Interest paid on deposits and borrowings $2,936,752 $2,602,474
Income taxes paid $1,555,582 $910,000
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Abigail Adams National Bancorp, Inc.
Notes to Consolidated Financial Statements
September 30, 2000 and 1999
1. Basis of presentation
Abigail Adams National Bancorp, Inc. (the "Company") is the parent company of
The Adams National Bank (the "Bank"). As used herein, the term Company includes
the Bank, unless the context otherwise requires.
The Company and the Bank prepare their financial statements on the accrual basis
and in conformity with generally accepted accounting principals. The unaudited
information furnished herein reflects all adjustments (consisting of normal
recurring accruals) which are, in the opinion of management, necessary to a fair
statement of the results for the interim periods presented. They do not include
all of the information and footnotes required by generally accepted accounting
principals for complete financial statements. Operating results for the three
and nine month periods ended September 30, 2000 are not necessarily indicative
of the results that may be expected for the year ended December 31, 2000.
Certain reclassifications have been made to amounts previously reported in 1999
to conform with the 2000 presentation.
The unaudited financial statements presented herein should be read and reviewed
in conjunction with 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, 1999.
When used in this Form 10-QSB, the words or phrases "will likely result," "are
expected to," "will continue", "is anticipated," "estimate," "project" or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties, including among other
things, changes in economic conditions in the Company's market area, changes in
policies by regulatory agencies, fluctuations in interest rates, demand for
loans in the Company's market area and competition that could cause actual
results to differ materially from historical earnings and those presently
anticipated or projected. The Company wishes to caution readers not to place
undue reliance on any such forward looking statements, which speak only as of
the date made. The Company wishes to advise readers that the factors listed
above could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods in any current
statements.
<PAGE>
2. Contingent Liabilities
In the normal course of business, there are various outstanding commitments and
contingent liabilities, such as commitments to extend credit and standby letters
of credit that are not reflected in the accompanying consolidated financial
statements. No material losses are anticipated as a result of these transactions
on either a completed or uncompleted basis.
3. Preferred Stock
During the third quarter of 2000, the Bank issued 25,000 shares of nonvoting
perpetual preferred stock, par value of $10.00 per share. Dividends are payable
quarterly at 6.00% per annum. The preferred stock was issued and sold in
connection with the Company's agreement to work with Shell Oil Community
Financing Company to provided lending assistance to minority and women-owned
businesses.
4. Earnings per share
Earnings per share computations are based upon the weighted average number of
shares outstanding during the periods. Diluted earnings per share computations
are based upon the weighted average number of shares outstanding during the
period plus the dilutive effect of outstanding stock options and stock
performance awards. Per share amounts are based on the weighted average number
of shares outstanding during each period as follows:
<TABLE>
<CAPTION>
For the 3 months For the 9 months
ended September 30 ended September 30
---------------------- ---------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic EPS weighted
average shares
outstanding 2,163,034 2,065,222 2,123,352 2,064,170
Dilutive effect of stock
options 39,261 61,788 29,775 87,112
Diluted EPS weighted
average shares outstanding 2,202,295 2,127,010 2,153,127 2,121,507
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Overview
The Company reported net income for the three months ended September 30, 2000 of
$670,000, or $0.31 per share, for an annualized return on average assets of
1.66% and an annualized return on average equity of 16.44%. Net income for the
third quarter of the current year increased 27.80%, as compared to the same
period in 1999. In comparison, net income for the three months ended September
30, 1999 was $524,000 or $0.25 per share, with a return on average assets of
1.60% and a return on average equity of 14.72%.
The Company reported net income for the first nine months of 2000 of $1,758,000,
or $0.83 per share, for an annualized return on average assets of 1.58% and an
annualized return on average equity of 15.17%. Net income for the first nine
months of the current year increased 21.3%, as compared to the same period in
1999. Net income for the same period in 1999 was $1,450,000 or $0.70 per share,
with a return on assets of 1.51% and a return on equity of 13.92%.
Net Interest Income
Net interest income, which is the sum of interest and certain fees generated by
earning assets minus interest paid on deposits and other funding sources, is the
principal source of the Company's earnings. Net interest income increased by
$459,000, or 24.5%, to $2,334,000 for the three months ended September 30, 2000,
as compared to $1,875,000 for the comparable 1999 period. Average earning assets
for the third quarter of 2000 of $153,665,000 increased by $29,837,000, or
24.1%, as compared to the third quarter of 1999. Average interest bearing
liabilities for the third quarter of 2000 of $104,107,000 increased by
$23,921,000, or 29.8%, over the comparable 1999 period. The yield on total
earning assets was 8.86% for the third quarter of 2000, an increase of 25 basis
points from the yield of 8.61% for the third quarter of 1999. The cost of funds
for the third quarter of 2000 was 4.18%, an increase of 15 basis points from the
yield of 4.03% for the third quarter of 1999, due to the higher yields on
deposits resulting from the rise in interest rates. The net interest margin (net
interest income as a percentage of average interest-earning assets) was 6.02%
for the third quarter of 2000, as compared to 6.01% for the same period in 1999.
The net interest spread (the difference between the average interest rate earned
on interest-earning assets and interest paid on interest-bearing liabilities)
was 4.68% for the third quarter of 2000, as compared to 4.59% for the third
quarter of 1999, an increase of 9 basis points.
Net interest income for the first nine months of 2000 increased by $1,005,000,
or 18.8%, to $6,356,000, as compared to $5,351,000 for the comparable 1999
period. Average earning assets for the first nine months of 2000 of $140,938,000
increased by $19,190,000, or 15.8%, over the comparable 1999 period. This
increase was primarily funded with a 15.4% increase in the Company's average
interest-bearing liabilities. The improvement in net interest income was the
result of the increase in average earning assets and the change in the mix of
earning assets to higher yielding loans. The net interest spread was 4.62% and
the net interest margin was 6.01% for the first nine months of 2000, reflecting
an increase of 8 basis points in net interest spread and an increase of 13 basis
points in net interest margin, from the same period in 1999.
<PAGE>
Average balances and rates for each major category of interest-earning assets
and interest-bearing liabilities for the third quarter and year-to-date periods
are presented on a comparative basis in the following table.
<TABLE>
<CAPTION>
Three months ended September 30,
2000 1999
-------------------------------------- ------------------------------------------
(Dollars in thousands) Average Average Average Average
Balances Interest rate/yield Balances Interest rate/yield
-------- -------- ---------- -------- -------- ----------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans 111,565 2,733 9.72% 99,835 2,337 9.29%
Investment securities 25,133 417 6.58% 17,888 276 6.13%
Federal funds 8,758 147 6.64% 2,527 31 4.93%
Interest-bearing deposits 8,209 134 6.48% 3,578 45 4.87%
------- ------ -------- ------
Total interest-earning assets 153,665 3,431 8.86% 123,828 2,689 8.61%
------- ------ -------- ------
Total noninterest-earning assets 6,881 6,537
------- --------
Total assets 160,546 130,365
======= ========
LIABILITIES & EQUITY
Interest-bearing liabilities:
Interest-bearing deposits 99,018 1,039 4.16% 76,263 767 3.99%
Short-term borrowings 4,172 42 3.98% 2,807 30 4.25%
Long-term debt 917 16 6.93% 1,116 17 6.14%
------- ------ -------- ------
Total interest-bearing liabilities 104,107 1,097 4.18% 80,186 814 4.03%
------- ------ -------- ------
Non-interest bearing deposits 40,218 35,412
Other liabilities 52 631
Stockholders' equity 16,169 14,136
------- --------
Total Liabilities & Equity 160,546 130,365
======= ========
Net interest income 2,334 1,875
====== ======
Net interest spread 4.68% 4.59%
Net interest margin 6.02% 6.01%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Nine months ended September 30,
2000 1999
------------------------------------- -------------------------------------
(Dollars in thousands) Average Average Average Average
Balances Interest rate/yield Balances Interest rate/yield
-------- -------- ---------- -------- -------- ----------
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans 108,624 7,779 9.54% 97,031 6,769 9.33%
Investment securities 19,430 941 6.45% 18,726 850 6.07%
Federal funds 6,554 305 6.21% 3,647 129 4.75%
Interest-bearing deposits 6,330 295 6.19% 2,344 88 4.99%
-------- ------ -------- ------
Total interest-earning assets 140,938 9,320 8.81% 121,748 7,836 8.61%
-------- ------ -------- ------
Total noninterest-earning assets 6,992 6,443
-------- --------
Total assets 147,930 128,191
======== ========
LIABILITIES & EQUITY
Interest-bearing liabilities:
Interest-bearing deposits 89,251 2,790 4.16% 76,563 2,310 4.03%
Short-term borrowings 4,143 125 4.02% 4,195 123 3.90%
Long-term debt 935 49 6.96% 1,001 52 6.98%
-------- ------- -------- ------
Total interest-bearing liabilities 94,329 2,964 4.19% 81,759 2,485 4.06%
-------- ------- -------- ------
Non-interest bearing deposits 37,779 32,088
Other liabilities 376 420
Stockholders' equity 15,446 13,924
-------- --------
Total Liabilities & Equity 147,930 128,191
======== ========
Net interest income 6,356 5,351
======= ======
Net interest spread 4.62% 4.54%
Net interest margin 6.01% 5.88%
</TABLE>
Noninterest Income
Total noninterest income for the three months ended September 30, 2000 was
$362,000, an increase of $1,000 or .4% compared to the third quarter of 1999.
Total noninterest income for the first nine months of 2000 was $1,148,000, a
decrease of $1,000 from the same period in 1999. Noninterest income for the
period ended September 30, 2000 included a $46,000 gain on the sale of the
guaranteed portion of SBA loans totaling $1,473,000.
Noninterest Expense
Total noninterest expense for the three months ended September 30, 2000
increased $115,000 or 8.6% to $1,451,000, as compared to the third quarter of
1999. Salaries and benefits of $677,000 increased by $4,000 or .7%, as compared
to the third quarter of 1999. Net occupancy expense of $296,000 for the third
quarter of 2000 reflects a decrease of $7,000, or 2.4%, from the same period one
year earlier. Professional fees of $76,000 increased by $46,000, or 156.7%, as
compared to the third quarter of 1999, due the recovery of legal fees on
charged-off loans received in 1999. Data processing expense of $88,000 increased
by $46,000 or 108.6%, compared to the
<PAGE>
third quarter of 1999, as a result of the reimbursement of data processing fees
from the Bank's back-office service provider in 1999. Other operating expense of
$314,000 for the third quarter of 2000 increased by $26,000 or 9.19% from the
third quarter of 1999. The Company's efficiency ratio (ratio of noninterest
expense to the sum of net interest income and noninterest income) improved to
53.8% for the quarter, as compared to 59.7% in 1999.
Total noninterest expense for the first nine months of 2000 was $4,142,000,
which was an increase of $88,000 or 2.1% from September 30, 1999. Salaries and
benefits of $1,841,000 decreased by $20,000 or 1.1%. Net occupancy expense of
$922,000 decreased $34,000, or 3.6%, from the same period one year earlier, due
to the costs associated with relocating the Georgetown branch in 1999.
Professional fees of $244,000 increased by $85,000, or 53.1%, as compared to the
first nine months of 1999. Data processing expense of $323,000 increased by
$48,000 from the prior year. Other operating expense of $812,000 increased by
$10,000 or 1.3% from the prior year. The efficiency ratio for the first nine
months of 2000 was 55.2%, which was an improvement from 62.4% for the comparable
period in 1999.
Income Tax Expense
Income tax expense of $435,000 for the three months ended September 30, 2000
reflects an increase of $99,000 from the same period in 1999, due to the
increase in pretax income. The Company's effective tax rate for the third
quarter of 2000 was 39.3%, as compared to 39.0% for the third quarter of 1999.
Income tax expense of $1,151,000 for the first nine months of 2000 increased
$224,000 or 24.2% from the same period in 1999, due to the increase in pretax
income. The Company's effective tax rate for the first nine months of 2000 was
39.6%, as compared to 39.0% for the first nine months of 1999.
Financial Condition
Overview
Total assets increased to $160,896,000 at September 30, 2000 from $141,770,000
at December 31, 1999, an increase of $19,126,000 or 13.5%. Asset growth was
primarily attributable to increases in the investment securities portfolio,
short-term investments, and loans, as described below. The book value per share
of common stock at September 30, 2000 was $7.61, as compared to $6.90 at
December 31, 1999. On September 30, 2000, the quarterly dividend paid was
increased by 10.0% to $0.11 per share.
<PAGE>
Loans
The loan portfolio at September 30, 2000 was $111,546,000, an increase of
$2,723,000 or 2.5%, as compared to the December 31, 1999 balance of
$108,823,000. The guaranteed portion of SBA loans totaling $1,473,000 were sold
during the first nine months of 2000. Commercial real estate secured loans grew
8.4% or $5,131,000 from the previous year end.
Investment securities
Total investment securities increased by $12,405,000 or 74.0% to $29,166,000 at
September 30, 2000 from $16,761,000 at December 31, 2000. This net increase
reflects a $12,734,000 increase in available-for-sale securities resulting from
purchases in the third quarter, partially offset by a decrease in the held to
maturity securities of $329,000, due to a matured mutual fund.
Short-term investments
Federal funds sold of $8,697,000 at September 30, 2000 increased $2,691,000 or
44.8% from $6,006,000 at December 31, 1999. Interest-bearing deposits in other
banks increased $1,617,000 or 41.5% to $5,518,000 from $3,901,000 at December
31, 1999.
Deposits
Total deposits increased by $16,433,000, or 13.4% to $139,003,000 at September
30, 2000 from the December 31, 1999 balance of $122,570,000. Demand deposits of
$47,838,000 increased $11,021,000, or 29.9% from $36,817,000 at December 31,
1999. NOW accounts grew 51.3% or $6,149,000 to $18,138,000, as compared to
$11,988,000 at December 31, 1999. Money market accounts of $24,104,000 decreased
by $3,847,000 or 13.8% from the $27,951,000 balance reported at December 31,
1999, due primarily to normal fluctuations in the balances of some of the
Company's large corporate customers. Savings deposits increased $428,000 to
$3,375,000 from $2,947,000 at December 31, 1999. Total certificates of deposit
increased by $2,682,000 or 6.3% to $45,549,000 from the December 31, 1999
balance of $42,867,000.
Short-term borrowings and long-term debt
Short-term borrowings consisting entirely of customer repurchase agreements
increased $957,000 or 30% to $4,150,000 at September 30, 2000 from the December
31, 1999 balance of $3,193,000. Long-term debt consisting of a Federal Home Loan
advance decreased $52,000 or 5.5% to $906,000 from the balance of $958,000 at
December 31, 1999.
Stockholders' equity
Stockholders' equity at September 30, 2000 was $16,467,000, an increase of
$2,009,000 or 13.9% from December 31, 1999. This increase was attributable to
net income of $1,758,000, the issuance
<PAGE>
of common stock of $505,000, the issuance of preferred stock of $250,000, and a
decrease in the unrealized loss on investment securities of $166,000, partially
offset by dividends paid of $661,000.
Asset Quality
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.
During the first nine months of 2000, the Bank added $453,000 to the loan loss
reserve, although the level of nonperforming and classified loans has remained
low. At September 30, 2000, the allowance for loan losses as a percentage of
outstanding loans was 1.41%, as compared to 1.04% at December 31, 1999.
Throughout this process, management 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 $1,572,000 at September 30, 2000 to be adequate.
The table entitled "Allocation of Allowances for Loan Losses" sets forth an
analysis of the allocation for loan losses by categories as of September 30,
2000 and December 31, 1999.
<TABLE>
<CAPTION>
Allocation of Allowance for Loan Losses
At September 30, 2000 and December 31, 1999
(Dollars in thousands)
September 30, December 31,
2000 1999
---------------------- ----------------------
Reserve % of loans Reserve % of loans
Amount to total loans Amount to total loans
------- -------------- ------- --------------
<S> <C> <C> <C> <C>
Commercial $ 482 39.0% $ 455 38.1%
Real estate- commercial 770 59.1 634 55.5
Installment 66 1.8 21 2.8
Unallocated 254 .1 27 3.6
------- -------------- ------- --------------
Total $ 1,572 100.0% $ 1,137 100.0%
</TABLE>
<PAGE>
The following table summarizes the transactions in the allowance for loan losses
for the nine months ended September 30, 2000 and 1999 are summarized as follows:
<TABLE>
<CAPTION>
Transactions in the Allowance for Loans Losses for the
Nine Months Ended September 30, 2000 and 1999
(Dollars in thousands)
2000 1999
---- ----
<S> <C> <C>
Balance at beginning of year $1,137 $1,134
Recoveries:
Commercial 5 27
Installment 45 23
------ ------
Total recoveries 50 50
------ ------
Charge-offs:
Commercial -- 19
Installment 68 90
------ ------
Total charge-offs 68 109
------ ------
Net charge-offs 18 59
------ ------
Additions to provision charged to
operating expense 453 70
------ ------
Balance at end of period $1,572 $1,145
====== ======
Net charge-offs to average loans
outstanding 0.02% 0.08%
</TABLE>
Nonperforming Assets
Nonperforming assets, which consists entirely of nonaccrual loans, were $125,000
at September 30, 2000, an increase of $55,000 from the $70,000 reported at
December 31, 1999. One nonaccrual loan in the amount of $29,000 is guaranteed by
the U.S. Small Business Administration ("SBA"). The table on the following page
presents nonperforming assets, by category, at September 30, 2000 and December
31, 1999.
Past Due and Potential Problem Loans
There were no loans contractually past due 90 days or more and still accruing
interest at September 30, 2000, as compared to $8,000 at December 31, 1999.
Loans totaling $517,000 were classified as monitored credits, a decrease of
$1,608,000 from December 31, 1999. These loans are subject to management's
attention and their classification is reviewed on a quarterly basis.
<PAGE>
<TABLE>
<CAPTION>
Analysis of Nonperforming Assets
At September 30, 2000 and December 31, 1999
(Dollars in thousands)
2000 1999
---- ----
<S> <C> <C>
Nonaccrual loans:
Commercial $ 36 $ 7
Installment 89 63
---- ----
Total nonaccrual loans 125 70
---- ----
Past due loans:
Installment -- 8
---- ----
Total past due loans -- 8
---- ----
Total nonperforming assets $125 $ 78
==== ====
Nonperforming assets to gross loans 0.11% 0.07%
Nonperforming assets to total assets 0.08% 0.06%
Allowance for loan losses to nonperforming assets 1258% 1455%
</TABLE>
Liquidity and Capital Resources
Liquidity
Principal sources of liquidity are cash and cash equivalents. On September 30,
2000, liquid assets totaled $18,759,000 or 11.7% of total assets. In comparison,
liquid assets were $14,614,000 or 10.3% of total assets at December 31, 1999.
The Company has additional sources of liquidity, consisting of unpledged
investment securities available for sale. At September 30, 2000, there was
$11,000,000 in unpledged investment securities available for such use. In
addition, the Bank has an unsecured line of credit from a correspondent
financial institution which can provide up to $3,000,000 in liquidity and a line
of credit through its membership in the Federal Home Loan Bank of Atlanta (the
"FHLB"), which serves as a reserve or central bank for member institutions
within its region. The Bank is eligible to borrow up to approximately
$19,000,000 in funds from the FHLB collateralized by loans secured by first
liens on one-to-four family or multifamily dwellings and commercial mortgages,
as well as, investment securities.
Capital Resources
The following table presents the capital position of the Company and the Bank
relative to their various minimum statutory and regulatory capital requirements
at September 30, 2000 and December 31, 1999. Both the Company and the Bank
continue to be considered "well capitalized" and exceed the regulatory
guidelines.
<PAGE>
<TABLE>
<CAPTION>
Capital Ratios
Minimum Capital Minimum to be
Actual Requirements Well Capitalized
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
September 30, 2000:
<S> <C> <C> <C> <C> <C> <C>
Total Capital to Risk Weighted Assets:
Consolidated $18,261 14.57% $10,028 8.00% -- --
Bank 17,398 13.85% 10,049 8.00% 12,561 10.00%
Tier 1 Capital to risk Weighted Assets:
Consolidated 16,689 13.31% 5,014 4.00% -- --
Bank 15,826 12.60% 5,025 4.00% 7,537 6.00%
Leverage Ratio:
Consolidated 16,689 10.40% 6,422 4.00% -- --
Bank 15,876 9.85% 6,428 4.00% 8,035 5.00%
December 31, 1999:
Total Capital to Risk Weighted Assets:
Consolidated 15,984 13.79% 9,271 8.00% -- --
Bank 14,984 12.92% 9,276 8.00% 11,595 10.00%
Tier 1 Capital to risk Weighted Assets:
Consolidated 14,847 12.81% 4,636 4.00% -- --
Bank 13,847 11.94% 4,638 4.00% 6,957 6.00%
Leverage Ratio:
Consolidated 14,847 11.20% 5,302 4.00% -- --
Bank 13,847 10.45% 5,298 4.00% 6,622 5.00%
</TABLE>
Interest Rate Sensitivity
Through the Bank's Asset/Liability Committee, sensitivity of the net interest
income and the economic value of equity 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. The
results are compared to risk tolerance limits set by corporate policy. Based on
the Company's most recent interest rate sensitivity analysis, the net interest
income and the economic value of equity are well within the tolerance limits for
both a rising or declining interest rate environment. The table below sets
forth, as of September 30, 2000, the estimated changes in the Company's net
interest income and economic value of equity, which would result from the
instantaneous changes in the yield curve.
<PAGE>
<TABLE>
<CAPTION>
Change in Interest Rate Assumption
(Dollars in thousands) +100 bp +200 bp -100 bp -200 bp
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net interest income - $ change $406 $ 813 ($540) ($1,151)
Net interest income - % change 4.4% 8.82% -5.86% -12.49%
Economic value of equity - $ change $511 $1,010 ($255) ($595)
Economic value of equity - % change 3.45% 6.81% -1.72% -4.01%
</TABLE>
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, 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.
PART II.
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities and Use of Proceeds
None
Item 3 - Defaults Upon Senior Securities
None
<PAGE>
Item 4 - Submission of Matters to Vote of Security Holders
None.
Item 5 - Other Matters
None.
Item 6 - Exhibits and Reports on Form 8-K
(a) None
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: November 10, 2000 /s/Jeanne D. Hubbard
----------------- -----------------------------------------------
Jeanne D. Hubbard
Chairwoman of the Board, President and Director
(Principal Executive Officer)
