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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
-----------------
[ ] 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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(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
incorporation or organization) Identification Number)
1627 K Street, N.W., Washington, D C. 20006
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(Address of principal executive offices) (Zip Code)
(202) 466-4090
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(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock par value $.01 per share
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period as the registrant was required to file such reports) and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No__
--
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year $12,187,000.
The aggregate market value of the voting stock held by non-affiliates of the
registrant, computed by reference to the average of the bid and asked prices of
such stock on the NASDAQ Market as of March 9, 2000, was $14.4 million. (The
exclusion from such amount of the market value of the shares owned by any person
shall not be deemed an admission by the registrant that such person is an
affiliate of the registrant.)
As of March 10, 2000, the Company had issued and outstanding 2,086,753 shares of
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2000 Annual Meeting of Stockholders of
Abigail Adams National Bancorp, Inc., to be filed with the Securities and
Exchange Commission on or before April 30, 2000, are incorporated herein by
reference in Part III of this Annual Report on Form 10-KSB.
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PART I
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Item 1. Business
General
Abigail Adams National Bancorp, Inc. (the "Company") is a Delaware-
chartered bank holding company which conducts business through its wholly-owned
bank subsidiary, The Adams National Bank (the "Bank"). The Bank serves the
nation's capital through five full-service offices located in Washington, D.C.
The Company is subject to regulation by the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board"). The Company's assets consist
primarily of shares of the Bank's common stock and cash it receives from the
Bank in the form of dividends or other capital distributions. At December 31,
1999, the Company had consolidated assets of $141,770,000, deposits of
$122,570,000 and stockholders' equity of $14,459,000. The Bank exceeds all
applicable regulatory capital requirements. See "Supervision and Regulation."
The Bank was founded in 1977 as a national bank. Its deposits are
federally insured to the maximum amount permitted by law.
The executive office of both the Company and the Bank is located at 1627 K
Street, N.W., Washington, D.C. 20006. The telephone number is (202) 466-4090.
Market Area
The Bank draws most of its customer deposits and conducts most of its
lending activities from and within the Washington, D.C. metropolitan region,
including suburban Virginia and Maryland. The nation's capital attracts a
significant number of businesses of all sizes, professional corporations and
national nonprofit organizations. The Bank actively solicits banking
relationships with these firms and organizations, as well as their professional
staff, and with the significant population of high net worth individuals who
live and work in the region.
Services of the Bank
The Bank is a community oriented financial institution offering a full
range of banking services to its customers. The Bank attracts deposits from the
general public and historically has used such deposits, together with other
funds to provide a broad level of commercial and retail banking services in
Washington, D.C. and the surrounding communities.
The services offered by the Bank can be broadly characterized as being
commercial or retail in nature. Commercial services offered by the Bank include
offering a variety of commercial real estate and commercial business loans, cash
management services, letters of credit and collateralized repurchase agreements.
Commercial business loans are typically made on a secured basis to corporations,
partnerships and individual businesses. To a lesser extent, the Bank offers
consumer loans to its retail customers. The Bank's retail banking services also
include offering a variety of deposit account products including transaction
accounts, money market accounts, certificates of deposit and Individual
Retirement Accounts. The Bank uses funds it has on hand as well as borrowings
in order to fund its lending and investment activities.
The Bank has automated teller machine access to the MOST and CIRRUS
systems. The Bank also offers its customers computer banking and 24 hour
telephone banking services, VISA credit card services and custodial services.
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Lending Activities
The Bank provides a range of commercial and retail lending services to
individuals, small to medium-sized businesses, professional corporations,
nonprofit organizations and other organizations. These services include, but are
not limited to, commercial business loans, commercial real estate loans,
renovation and mortgage loans, loan participations, consumer loans, revolving
lines of credit and letters of credit, with an emphasis on commercial real
estate lending. Consumer lending primarily consists of automobile, home equity
and personal loans made on a direct, secured basis. Real estate loans are
originated for both commercial and consumer purposes. To a lesser extent, the
Bank originates one-to-four family mortgage or residential loans and
construction loans. The Bank offers loans which have fixed rates as well as
loans with rates which adjust periodically. At December 31, 1999, approximately
61% of the Bank's total loan portfolio was comprised of loans with adjustable
rates.
The Bank provides financing to nonprofit organizations for construction and
renovation of local headquarters, working capital lines of credit and equipment
financing. Current nonprofit customers of the Bank include organizations which
focus on issues relating to children's rights, community housing, education and
health care. At December 31, 1999, commercial and real estate loans to these
customers totaled $1,175,000.
Commercial and real estate lending is performed by the Bank's Lending
Division, which is comprised of five loan officers and a credit analyst. The
Treasury Division includes the Loan Operations' staff of five, who are
responsible for preparing loan documents, recording and processing new loans and
loan payments, ensuring compliance with regulatory requirements, and working
with the Lending Division, in order to ensure the timely receipt of all initial
and ongoing loan documentation and the prompt reporting of any exceptions.
Credit analysis on loans is performed by either individual loan officers or the
credit analyst, using a credit analysis computer program, which provides not
only the flexibility necessary to analyze loans but also the structure to ensure
that all documentation requirements are appropriately met.
Policies and procedures have been established by the Bank to promote safe
and sound lending. Loan officers have individual lending authorities based on
the individual's seniority and experience. Loans in excess of individual
officers' lending limits are presented to the Officers' Loan Committee ("OLC"),
which meets weekly, and is comprised of all loan officers and the President of
the Bank. While a maximum of three loan officers may pool their loan authorities
to approve a loan, most loans over $100,000 are brought to the OLC. The OLC has
authority to approve unsecured loans up to $250,000 and secured loans up to
$500,000. Loans over $250,000 on an unsecured basis and over $500,000 on a
secured basis are brought to the Executive Loan Committee ("ELC"), which meets
approximately twice per month. The ELC is comprised of two outside directors and
the President of the Bank. In addition to approving new loans, this Committee
approves the restructuring of existing loans, reviews past due loans and
approves the charge-off of loans.
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Loan Portfolio Composition. The following information concerning the
composition of the Bank's loan portfolio in dollar amounts is presented (before
deductions for allowances for losses) as of the dates indicated.
At
December 31,
----------------------------
1999 1998
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Commercial........................... $ 28,646,000 $23,094,000
Real Estate:
Commercial mortgage................. 50,752,000 43,924,000
Residential mortgage................ 20,991,000 20,190,000
Construction and development......... 6,540,000 5,154,000
Installment to individuals........... 2,135,000 2,069,000
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Total Loans: 109,064,000 94,431,000
Less: Deferred income and unearned (241,000) (211,000)
discounts ------------ -----------
Total, net........................... $108,823,000 $94,220,000
============ ===========
Commercial Business Lending
The Bank provides a wide range of commercial business loans, including
lines of credit for working capital purposes and term loans for the acquisition
of equipment and other purposes. In most cases, the Bank has collateralized
these loans and/or taken personal guarantees to help assure repayment.
Collateral for these loans generally includes accounts receivable, inventory,
equipment and real estate. Terms of commercial business loans generally range
from one year to three years. These loans often require that borrowers maintain
certain levels of deposits with the Bank as compensating balances. Commercial
business lending generally involves greater risk than residential mortgage
lending and involves risks that are different from those associated with
residential, commercial and multi-family real estate lending. Although
commercial business loans are often collateralized by real estate, equipment,
inventory, accounts receivable or other business assets, the liquidation of
collateral in the event of a borrower default is often not a sufficient source
of repayment because accounts receivable may be uncollectible and inventories
and equipment may be obsolete or of limited use. The primary repayment risk for
commercial loans is the failure of the business due to economic or financial
factors. As of December 31, 1999, commercial loans totaled $28,646,000.
The Bank also offers SBA-guaranteed loans which provide better terms and
more flexible repayment schedules than conventional financing. As lending
requirements of small businesses grow to exceed the Bank's lending limit, the
Bank has the ability to sell participations in these larger loans to other
financial institutions. The Bank believes that such participations will help to
preserve lending relationships while providing a high level of customer service.
At December 31, 1999, SBA-guaranteed loans totaled $4,745,000.
Real Estate Lending
At December 31, 1999, the Bank's real estate loan portfolio consisted of
commercial real estate mortgages totaling $50,752,000, and residential real
estate mortgages totaling $20,991,000. The majority of these loans have
adjustable rates. Commercial real estate loans are generally for terms of five
years and amortize over a 15- and 25-year period. Commercial real estate loans
are generally originated in amounts up to 75% loan to value of the underlying
collateral.
The majority of the $6,540,000 in loans classified as construction and land
development loans at December 31, 1999 are primarily for construction and
renovation of commercial real estate properties. Construction financing
generally is considered to involve a higher degree of risk of loss than long-
term financing on improved, occupied real
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estate. Multi-family and commercial real estate lending involves significant
additional risks as compared to one- to four-family residential lending. For
example, such loans typically involve large loans to single borrowers or related
borrowers. The payment experience on such loans is typically dependent on the
successful operation of the project, and these risks can be significantly
affected by the supply and demand conditions in the market for commercial
property and multi-family residential units. To minimize these risks, the Bank
limits the aggregate amount of outstanding construction loans, and generally
makes such loans only in its market area and to borrowers with which it has
substantial experience or who are otherwise well known to the Bank. It is the
Bank's current practice to obtain personal guarantees and current financial
statements from all principals obtaining commercial real estate loans. The Bank
also obtains appraisals on each property in accordance with applicable
regulations.
Consumer Lending
The Bank's consumer lending includes loans for motor vehicles, home
improvement, home equity, small personal credit lines and credit card
borrowings. Consumer loans generally involve more risk than first mortgage
residential and commercial real estate loans. Repossessed collateral for a
defaulted loan may not provide an adequate source of repayment of the
outstanding loan balance as a result of damage, loss or depreciation, and the
remaining deficiency often does not warrant further substantial collection
efforts against the borrower. In addition, loan collections are dependent on the
borrower's continuing financial stability. Further, the application of various
federal and state laws, including federal and state bankruptcy and insolvency
laws, may limit the amount which can be recovered. In underwriting consumer
loans, the Bank considers the borrower's credit history, an analysis of the
borrower's income, expenses and ability to repay the loan and the value of the
collateral. At December 31, 1999, consumer loans totaled $2,135,000.
Delinquencies and Classified Assets
Collection Procedures. Outstanding loans are reviewed on a weekly basis.
When a loan becomes 10 days past due, loan officers attempt to contact the
borrower. Generally, loans that are 30 days delinquent will receive a default
notice from the Bank. With respect to consumer loans, the Bank will commence
efforts to repossess the collateral after the loan becomes 30 days delinquent.
Generally, after 90 days the Bank will commence legal action.
Loans Past Due and Nonperforming Assets. Loans are reviewed on a regular
basis and are placed on nonaccrual status when, in the opinion of management,
the collection of additional interest is doubtful. Loans are placed on
nonaccrual status when either principal or interest is 90 days or more past due.
Interest accrued and unpaid at the time a loan is placed on a nonaccrual status
is reversed from interest income. At December 31, 1999, the Bank had
nonperforming loans of $78,000 and a ratio of nonperforming loans to total
assets of 0.06%.
Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the risk
inherent in the loan portfolio and current economic conditions. Such evaluation
also includes a review of all loans on which full collectibility may not be
reasonably assured, considers among other matters, the estimated net realizable
value or the fair value of the underlying collateral, economic conditions,
historical loan loss experience, geographic concentrations and other factors
that warrant recognition in providing for an adequate loan loss allowance. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the Bank's allowance for loan losses and valuation
of other real estate owned. Such agencies may require us to recognize additions
to the allowance based on their judgment about information available to them at
the time of their examination. At December 31, 1999, the total allowance was
$1,137,000, which amounted to 1.04% of total loans and 14.55% of nonperforming
loans. Management considers whether the allowance should be adjusted to protect
against risks in the loan portfolio. Management will continue to monitor and
modify the level of the allowance for loan losses in order to maintain it at a
level which management considers adequate to provide for potential loan losses.
For the year ended December 31, 1999, gross interest income which would
have been recorded had the non-accruing loans of $70,000 been current in
accordance with their original terms amounted to $18,000. The amounts
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that were included in interest income on such loans was $23,000 for the year
ended December 31, 1999. For further information regarding the Bank's allowance
for loan losses and asset quality see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Asset Quality" in the Annual
Report to Shareholders and Note 4 to the Notes to the Consolidated Financial
Statements.
Investment Activities
The Bank's investment portfolio consists of obligations of U.S. Government
agencies and corporations, mortgage-backed securities, equity securities, and
obligations of states and political subdivisions. At December 31, 1999,
investments in obligations of U.S. Government agencies and corporations totaled
$15,833,000 of which $12,834,000 were classified as available for sale. Total
investment securities were $16,761,000 at December 31, 1999. For further
information regarding the Bank's investments see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Analysis of
Investments" in the Annual Report to Shareholders.
Deposits
The Bank offers a variety of deposit accounts with a range of interest
rates and terms. The flow of deposits is influenced by a variety of factors
including general economic conditions, changes in market rates, prevailing
interest rates and competition. The Bank relies on competitive pricing of its
deposit products and customer service to attract and retain deposits, however
market interest rates and rates offered by competing financial institutions
significantly affect the Bank's ability to attract and retain deposits.
The following table sets forth the dollar amount of deposits in the various
types of deposit programs offered by the Bank as of the dates indicated.
December 31,
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1999 1998
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Amount Percent Amount Percent
-------- -------- -------- --------
(Dollars in Thousands)
Demand deposits.......... $ 36,817 30.0% $ 31,058 28.6%
Savings accounts......... 2,947 2.4 2,798 2.6
NOW accounts............. 11,988 9.8 9,499 8.7
Money market accounts.... 27,951 22.8 26,207 24.1
-------- ----- -------- -----
Total non-certificates... 79,703 65.0 69,562 64.0
-------- ----- -------- -----
Total certificates....... 42,867 35.0 39,103 36.0
-------- ----- -------- -----
Total deposits........... $122,570 100.0% $108,665 100.0%
======== ===== ======== =====
The following table shows weighted average rate and maturity information
for the Bank's certificates of deposit as of December 31, 1999.
<TABLE>
<CAPTION>
Certificate accounts maturing in quarter ending: Total Weighted Percent of
- ----------------------------------------------- Balance Average Rate Total
------- ------------- -----------
<S> <C> <C> <C>
(Dollars in Thousands)
Less than 3 months............................... $ 9,868 4.80% 23.0%
More than 3 months............................... 10,954 4.98 25.6
More than 6 months............................... 18,080 5.34 42.1
More than 1 year................................. 3,444 5.33 7.5
More than 3 years................................ 711 6.13 1.7
More than 5 years................................ 50 5.98 0.1
------- ---- -----
Total............................................ $42,867 5.14% 100.0%
======= ==== =====
</TABLE>
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The following table indicates the amount of the Bank's certificates of
deposit and other deposits by time remaining until maturity as of December 31,
1999.
<TABLE>
<CAPTION>
Maturity
----------------------------------------------
Over Over
3 Months 3 to 6 6 to 12 Over
or Less Months Months 12 Months Total
-------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
(In Thousands)
Certificates of deposit less than $100,000... $5,753 $ 6,606 $10,406 $2,035 $24,800
Certificates of deposit of $100,000 or more.. 4,115 4,348 7,674 1,930 18,067
------ ------- ------- ------ -------
Total certificates of deposit................ $9,868 $10,954 $18,080 $3,965 $42,867
====== ======= ======= ====== =======
</TABLE>
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/(1)/Deposits from governmental and other public entities.
Borrowed Funds
The Company's short-term borrowings consist of federal funds purchased,
FHLB advances of one year or less, and securities sold under repurchase
agreements. Long-term debt consists of a term advance from the FHLB entered
into on October 1, 1996, maturing on December 1, 2008, at a fixed rate of 7.95%.
The following table sets forth the maximum month-end balance and average
balance of long-term debt and short-term borrowings for the periods indicated.
<TABLE>
<CAPTION>
At December 31,
---------------------------
1999 1998
--------- -------
(In Thousands)
Maximum Balance:
- ---------------
<S> <C> <C>
Long-term debt..................................................... $ 1,023 $ 1,086
Short-term borrowings.............................................. 5,413 4,899
Average Balance:
Long-term debt..................................................... $ 993 $ 1,052
Short-term borrowings.............................................. 4,127 3,920
</TABLE>
The following table sets forth certain information as to the Bank's
borrowings at the dates indicated. The Bank had no other borrowings outstanding
at the date indicated.
<TABLE>
<CAPTION>
At December 31,
-----------------------------
1999 1998
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( Dollars in Thousands)
<S> <C> <C>
FHLB advances....................................................... $ 958 $1,023
Securities sold under agreements to repurchase...................... 3,193 4,648
-------- ------
Total borrowings................................................... $ 4,151 $5,671
======== ======
Weighted average interest rate of FHLB advances..................... 6.95% 6.99%
Weighted average interest rate of securities sold under agreements
to repurchase...................................................... 4.25% 4.70%
</TABLE>
Competition
The Bank faces strong competition among financial institutions in
Washington, D.C., Northern Virginia and suburban Maryland for both deposits and
loans. Principal competitors include other community commercial banks and larger
financial institutions with branches in the Bank's service area. Intense
competition is expected to continue as bank mergers and acquisitions of smaller
banks by larger institutions in the Washington, D.C. metropolitan region may be
expected to continue for the foreseeable future.
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The primary factors in competing for deposits are interest rates,
personalized services, the quality and range of financial services, convenience
of office locations and office hours. Competition for deposits comes primarily
from other commercial banks, savings associations, credit unions, money market
funds and other investment alternatives. The primary factors in competing for
loans are interest rates, loan origination fees, the quality and range of
lending services and personalized services. Competition for loans comes
primarily from other commercial banks, savings associations, mortgage banking
firms, credit unions and other financial intermediaries. The Bank faces
competition for deposits and loans throughout its market areas not only from
local institutions but also from out-of-state financial intermediaries which
have opened loan production offices or which solicit deposits in its market
areas. Many of the financial intermediaries operating in the Bank's market areas
offer certain services, such as trust, investment and international banking
services, which the Bank does not offer. Additionally, banks with larger
capitalization and financial intermediaries not subject to bank regulatory
restrictions have larger lending limits and are thereby able to serve the needs
of larger customers.
In order to compete with other financial services providers, the Bank
principally relies upon local promotional activities, personal relationships
established by officers, directors and employees with its customers, and
specialized services tailored to meet its customers' needs. In those instances
where the Bank is unable to accommodate a customer's needs, the Bank will
arrange for those services to be provided by its correspondents.
Employees
At December 31, 1999, the Company employed 52 people on a full time basis.
The employees are not represented by a union and management believes that its
relations with its employees are good.
Supervision and Regulation
The commercial banking business is not only affected by general economic
conditions but is also influenced by the monetary and fiscal policies of the
federal government and the policies of regulatory agencies, particularly the
Federal Reserve Board. The Federal Reserve Board implements national monetary
policies by its open-market operations in U.S. Government securities, by
adjusting the required level of reserves for financial institutions subject to
its reserve requirements and by varying the discount rates applicable to
borrowings by depository institutions. The actions of the Federal Reserve Board
in these areas influence the growth of bank loans, investments and deposits and
also affect interest rates charged on loans and paid on deposits. The nature and
impact of any future changes in monetary policies cannot be predicted.
Bank holding companies and banks are extensively regulated under both
federal and state law. Set forth below is a summary description of certain
provisions of certain laws which relate to the regulation of the Company and the
Bank. The description does not purport to be complete and is qualified in its
entirety by reference to the applicable laws and regulations.
The Company
The Company, as a registered bank holding company, is subject to regulation
under the Bank Holding Company Act of 1956, as amended (the "BHCA"). Such
regulations include prior approval of Company affiliates and subsidiaries. The
Company is required to file quarterly reports and annual reports with the
Federal Reserve Board and such additional information as the Federal Reserve
Board may require pursuant to the BHCA. The Federal Reserve Board may conduct
examinations of the Company and its subsidiaries.
The Federal Reserve Board may require that the Company terminate an
activity or terminate control of or liquidate or divest certain subsidiaries or
affiliates when the Federal Reserve Board believes the activity or the control
of the subsidiary or affiliate constitutes a significant risk to the financial
safety, soundness or stability of any of its banking subsidiaries. The Federal
Reserve Board also has the authority to regulate provisions of certain bank
holding company debt, including authority to impose interest ceilings and
reserve requirements on such debt. Under certain
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circumstances, the Company must file written notice and obtain approval from the
Federal Reserve Board prior to purchasing or redeeming its equity securities.
Under the BHCA and regulations adopted by the Federal Reserve Board, a bank
holding company and its nonbanking subsidiaries are prohibited from requiring
certain tie-in arrangements in connection with any extension of credit, lease or
sale of property or furnishing of services. Further, the Company is required by
the Federal Reserve Board to maintain certain levels of capital.
The Company is required to obtain the prior approval of the Federal Reserve
Board for the acquisition of more than 5% of the outstanding shares of any class
of voting securities or substantially all of the assets of any bank or bank
holding company. Prior approval of the Federal Reserve Board is also required
for the merger or consolidation of the Company and another bank holding company.
The Company is prohibited by the BHCA, except in certain statutorily
prescribed instances, from acquiring direct or indirect ownership or control of
more than 5% of the outstanding voting shares of any company that is not a bank
or bank holding company and from engaging directly or indirectly in activities
other than those of banking, managing or controlling banks or furnishing
services to its subsidiaries. However, the Company, subject to the prior
approval of the Federal Reserve Board, may engage in any activities, or acquire
shares of companies engaged in activities that are deemed by the Federal Reserve
Board to be so closer, related to banking or managing or controlling banks as to
be a proper incident thereto.
Under Federal Reserve Board regulations, a bank holding company is required
to serve as a source of financial and managerial strength to its subsidiary
banks and may not conduct its operations in an unsafe or unsound manner. In
addition, it is the Federal Reserve Board's policy that in serving as a source
of strength to its subsidiary banks, a bank holding company should stand ready
to use available resources to provide adequate capital funds to its subsidiary
banks during periods of financial stress or adversity and should maintain the
financial flexibility and capital-raising capacity to obtain additional
resources for assisting its subsidiary banks. A bank holding company's failure
to meet its obligations to serve as a source of strength to its subsidiary banks
will generally be considered by the Federal Reserve Board to be an unsafe and
unsound banking practice or a violation of the Federal Reserve Board's
regulations or both. This doctrine has become known as the "source of strength"
doctrine. The validity of the source of strength doctrine has been and is likely
to continue to be the subject of litigation-until definitively resolved by the
courts or by Congress.
The Bank
The Bank, as a national banking association, is subject to primary
supervision, examination and regulation by the Office of the Comptroller of the
Currency (the"OCC"). If, as a result of an examination of the Bank, the OCC
should determine that the financial condition, capital resources, asset quality,
earnings prospects, management, liquidity or other aspects of the Bank's
operations are unsatisfactory or that the Bank or its management is violating or
has violated any law or regulation, various remedies are available to the OCC.
Such remedies include the power to enjoin "unsafe or unsound practices,'' to
require affirmative action to correct any conditions resulting from any
violation of law or unsafe or unsound practice, to issue an administrative order
that can be judicially enforced, to direct an increase in capital, to restrict
the growth of the Bank, to assess civil monetary penalties, and to remove
officers and directors. The FDIC has similar enforcement authority, in addition
to its authority to terminate a bank's deposit insurance, in the absence of
action by the OCC and upon a finding that a bank is in an unsafe or unsound
condition, is engaging in unsafe or unsound activities, or that its conduct
poses a risk to the deposit insurance fund or may prejudice the interest of its
depositors. The Bank is not subject to any such actions by the OCC or the FDIC.
The deposits of the Bank are insured by the FDIC in the manner and to the
extent provided by law. For this protection, the Bank pays a semiannual
statutory assessment. Various other requirements and restrictions under the
laws of the United States affect the operations of the Bank. Federal statutes
and regulations relate to many aspects of the Bank's operations, including
reserves against deposits, interest rates payable on deposits, loans,
investments,
9
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mergers and acquisitions, borrowings, dividends, locations of branch offices,
capital requirements and disclosure obligations to depositors and borrowers.
Further, the Bank is required to maintain certain levels of capital.
Restrictions on Transfers of Funds to the Company by the Bank
The Company is a legal entity separate and distinct from the Bank. The
Company's ability to pay cash dividends is limited by Delaware corporate law. In
addition, the prior approval of the OCC is required if the total of all
dividends declared by the Bank in any calendar year exceeds the Bank's net
profits (as defined) for that year combined with its retained net profits (as
defined) for the preceding two years, less any transfers to surplus.
The OCC also has authority to prohibit the Bank from engaging in activities
that, in the OCC's opinion, constitute unsafe or unsound practices in conducting
its business. It is possible, depending upon the financial condition of the bank
in question and other factors, that the OCC could assert that the payment of
dividends or other payments might, under some circumstances, be such an unsafe
or unsound practice. Further, the OCC and the Federal Reserve Board have
established guidelines with respect to the maintenance of appropriate levels of
capital by banks or bank holding companies under their jurisdiction. Compliance
with the standards set forth in such guidelines and the restrictions that are or
may be imposed under the prompt corrective action provisions of federal law
could limit the amount of dividends which the Bank or the Company may pay.
The Bank is subject to certain restrictions imposed by federal law on any
extensions of credit to, or the issuance of a guarantee or letter of credit on
behalf of, the Company or other affiliates, the purchase of or investments in
stock or other securities thereof, the taking of such securities as collateral
for loans and the purchase of assets of the Company or other affiliates. Such
restrictions prevent the Company and such other affiliates from borrowing from
the Bank unless the loans are secured by marketable obligations of designated
amounts. Further, such secured loans and investments by the Bank to or in the
Company or to or in any other affiliate is limited to 10% of the Bank's capital
and surplus (as defined by federal regulations) and such secured loans and
investments are limited, in the aggregate, to 20% of the Bank's capital and
surplus (as defined by federal regulations). Additional restrictions on
transactions with affiliates may be imposed on the Bank under the prompt
corrective action provisions of federal law.
Capital Standards
The Federal Reserve Board and the OCC have adopted risk-based minimum
capital guidelines intended to provide a measure of capital that reflects the
degree of risk associated with a banking organization's operations for both
transactions reported on the balance sheet as assets and transactions, which are
recorded as off balance sheet items. Under these guidelines, nominal dollar
amounts of assets and credit equivalent amounts of off balance sheet items are
multiplied by one of several risk adjustment percentages, which range from 0%
for assets with low credit risk, such as certain U.S. Treasury secures, to 100%
for assets with relatively high credit risk, such as business loans.
A banking organization's risk-based capital ratios are obtained by dividing
its qualifying capital by its total risk adjusted assets. The regulators measure
risk-adjusted assets, which include off balance sheet items, against both total
qualifying capital (the sum of Tier 1 capital and limited amounts of Tier 2
capital) and Tier 1 capital. Tier 1 capital consists primarily of common stock,
retained earnings, noncumulative perpetual preferred stock (cumulative perpetual
preferred stock for bank holding companies) and minority interests in certain
subsidiaries, less most intangible assets. Tier 2 capital may consist of a
limited amount of the allowance for possible loan and lease losses, cumulative
preferred stock, long-term preferred stock, eligible term subordinated debt and
certain other instruments with some characteristics of equity. The inclusion of
elements of Tier 2 capital is subject to certain other requirements and
limitations of the federal banking agencies. The federal banking agencies
require a minimum ratio of qualifying total capital to risk-adjusted assets of
8% and a minimum ratio of Tier 1 capital to risk-adjusted assets of 4%. In
addition to the risk-based guidelines, federal banking regulators require
banking organizations to maintain a minimum amount of Tier 1 capital to total
assets, referred to as the leverage ratio.
10
<PAGE>
Only a well-capitalized depository institution may accept brokered deposits
without prior regulatory approval. Under FDIC regulations, an institution is
generally considered "well capitalized" if it has a total risk-based capital
ratio of at least 10%, a Tier I risk-based capital ratio of at least 6%, and a
Tier I capital (leverage) ratio of at least 5%. Federal law generally requires
full-scope on-site annual examinations of all insured depository institutions by
the appropriate federal bank regulatory agency although, the examination may
occur at longer intervals for small well-capitalized or state chartered banks.
Federally supervised banks and savings associations are currently required
to report deferred tax assets in accordance with SFAS No. 109. See Note 8 of the
Notes to Consolidated Financial Statements. The federal banking agencies issued
final rules, effective April 1, 1995, which limit the amount of deferred tax
assets that are allowable in computing an institution's regulatory capital.
The current risk-based capital ratio analysis establishes minimum
supervisory guidelines and standards. It does not evaluate all factors affecting
an organization's financial condition. Factors which are not evaluated include
(i) overall interest rate exposure; (ii) quality and level of earnings; (iii)
investment or loan portfolio concentrations; (iv) quality of loans and
investments; (v) the effectiveness of loan and investment policies; (vi) certain
risks arising from nontraditional activities and (vii) management's overall
ability to monitor and control other financial and operating risks, including
the risks presented by concentrations of credit and nontraditional activities.
The capital adequacy assessment of federal bank regulators will, however,
continue to include analyses of the foregoing considerations and in particular,
the level and severity of problem and classified assets. Market risk of a
banking organization--risk of loss stemming from movements in market prices--is
not evaluated under the current risk-based capital ratio analysis (and is
therefore analyzed by the bank regulators through a general assessment of an
organization's capital adequacy) unless trading activities constitute 10% of $1
billion or more of the assets of such organization. Such an organization (unless
exempted by the banking regulators) and certain other banking organization
designated by the banking regulators must, beginning on or before January 1,
1998, include in its risk-based capital ratio analysis charges for, and hold
capital against, general market risk of all positions held in its trading
account and of foreign exchange and commodity positions wherever located, as
well as against specific risk of debt and equity positions located in its
trading account. Currently, the Company does not calculate a risk-based capital
charge for its market risk.
Future changes in regulations or practices could further reduce the amount
of capital recognized for purposes of capital adequacy. Such a change could
affect the ability of the Bank to grow and could restrict the amount of profits,
if any, available for the payment of dividends.
Prompt Corrective Action and Other Enforcement Mechanisms
Federal law requires each federal banking agency to take prompt corrective
action to resolve the problems of insured depository institutions, including but
not limited to those that fall below one or more prescribed minimum capital
ratios. The law requires each federal banking agency to promulgate regulations
defining the following five categories in which an insured depository
institution will be placed, based on the level of its capital ratios: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized. In September 1992, the federal
banking agencies issued uniform final regulations implementing the prompt
corrective action provisions of federal law.
An institution that, based upon its capital levels, is classified as "well
capitalized," "adequately capitalized" or "undercapitalized" may be treated as
though it were in the next lower capital category if the appropriate federal
banking agency, after notice and opportunity for hearing, determines that an
unsafe or unsound condition or an unsafe or unsound practice warrants such
treatment. At each successive lower capital category, an insured depository
institution is subject to more restrictions. The federal banking agencies,
however, may not treat an institution as "critically undercapitalized" unless
its capital ratio actually warrants such treatment.
11
<PAGE>
In addition to restrictions and sanctions imposed under the prompt
corrective action provisions, commercial banking organizations may be subject to
potential enforcement actions by the federal regulators for unsafe or unsound
practices in conducting their businesses or for violations of any law, rule,
regulation or any condition imposed in writing by the agency or any written
agreement with the agency. Enforcement actions may include the imposition of a
conservator or receiver, the issuance of a cease and desist order that can be
judicially enforced, the termination of insurance of deposits (in the case of a
depository institution), the imposition of civil money penalties, the issuance
of directives to increase capital, the issuance of formal and informal
agreements, the issuance of removal and prohibition orders against institution-
affiliated parties and the enforcement of such actions through injunctions or
restraining orders based upon a judicial determination that the agency would be
harmed if such equitable relief was not granted.
Safety and Soundness Standards
In July 1995, the federal banking agencies adopted final guidelines
establishing standards for safety and soundness. The guidelines set forth
operational and managerial standards relating to internal controls, information
systems and internal audit systems, loan documentation, credit underwriting,
interest rate exposure, asset growth and compensation, fees and benefits.
Guidelines for asset quality and earnings standards will be adopted in the
future. The guidelines establish the safety and soundness standards that the
agencies will use to identify and address problems at insured depository
institutions before capital becomes impaired. If an institution fails to comply
with a safety and soundness standard, the appropriate federal banking agency may
require the institution to submit a compliance plan. Failure to submit a
compliance plan or to implement an accepted plan may result in enforcement
action.
Premiums for Deposit Insurance
Federal law has established several mechanisms to increase funds to protect
deposits insured by the Bank Insurance Fund ("BIF") administered by the FDIC.
The FDIC is authorized to borrow up to $30 billion from the United States
Treasury; up to 90% of the fair market value of assets of institutions acquired
by the FDIC as receiver from the Federal Financing Bank; and from depository
institutions that are members of the BIF. Any borrowings not repaid by asset
sales are to be repaid through insurance premiums assessed to member
institutions. The result of these provisions is that the assessment rate on
deposits of BIF members could increase in the future. The FDIC also has
authority to impose special assessments against insured deposits.
The FDIC implemented a final risk-based assessment system, effective
January 1, 1994, under which an institution's premium assessment is based on the
probability that the deposit insurance fund will incur a loss with respect to
the institution, the likely amount of any such loss, and the revenue needs of
the deposit insurance fund. On August 8, 1995, the FDIC issued final regulations
adopting an assessment rate schedule for BIF members of 4 to 31 basis points
effective on June 1, 1995. On November 14, 1995, the FDIC further reduced
deposit insurance premiums to a range of 0 to 2 basis points effective for the
semi-annual period beginning January 1, 1996.
Under the risk-based assessment system, a BIF member institution such as
the Bank is categorized into one of three capital categories (well capitalized,
adequately capitalized, and undercapitalized) and one of three categories based
on supervisory evaluations by its primary federal regulator (in the Bank's case,
the FDIC). The three supervisory categories are: financially sound with only a
few minor weaknesses (Group A), demonstrates weaknesses that could result in
significant deterioration (Group B), and poses a substantial probability of loss
(Group C). The capital ratios used by the FDIC to define well-capitalized,
adequately capitalized and undercapitalized are the same in the FDIC's prompt
corrective action regulations. The Bank was not required to pay a deposit
insurance premium for 1998.
In addition to the payment of deposit insurance assessments, depository
institutions are required to make quarterly assessment payments to the FDIC on
their BIF assessable deposits, which will be paid FICO to enable it to pay
interest and certain other expenses on bonds which it issued pursuant to the
Financing Institutions Reform, Recovery and Enforcement Act of 1989, as amended,
to facilitate the resolution of failed savings associations. Pursuant to the
Federal Home Loan Bank Act, FICO, with the approval of the FDIC, establishes
assessment rates
12
<PAGE>
based upon estimates of (i) expected operating expenses, case resolution
expenditures and income of FICO; (ii) the effect of assessments upon members'
earnings and capital; and (iii) any other factors deemed appropriate by it.
Assessment rates for 1998 were set at 1.2 basis points annually for BIF-
assessable deposits, subject to quarterly review and adjustment.
Community Reinvestment Act
The Bank is subject to the provisions of the Community Reinvestment Act
("CRA") which requires banks to assess and help meet the credit needs of the
community in which the bank operates. The OCC examines the Bank to determine its
level of compliance with CRA. The OCC and the Federal Reserve Board are required
to consider the level of CRA compliance when regulatory applications are
reviewed.
Interstate Banking and Branching
Under the Riegel-Neal Interstate Banking and Branching Efficiency Act of
1994, as amended (the "Interstate Act"), beginning one year after the date of
enactment, a bank holding company that is adequately capitalized and managed may
obtain approval under the BHCA to acquire an existing bank located in another
state generally without regard to state law prohibitions on such acquisitions. A
bank holding company, however, can not be permitted to make such an acquisition
if, upon consummation, it would control (a) more than 10% of the total amount of
deposits of insured depository institutions in the United States or (b) 30% or
more of the deposits in the state in which the bank is located. A state may
limit the percentage of total deposits that may be held in that state by any one
bank or bank holding company if application of such limitation does not
discriminate against out of state banks. An out of state bank holding company
may not acquire a state bank in existence for less than a minimum length of time
that may be prescribed by state law except that a state may not impose more than
a five year existence requirement. Since June 1, 1997 (and prior to that date in
some instances), banks have been able to expand across state lines where
qualifying legislation adopted by certain states prior to that date prohibits
such interstate expansion. Banks may also expand across state lines through the
acquisition of an individual branch of a bank located in another state or
through the establishment of a de novo branch in another state where the law of
--------
the state in which the branch is to be acquired or established specifically
authorizes such acquisition or de novo branch establishment.
--------
Factors Affecting Future Results
In addition to historical information, this Form 10-KSB includes certain
forward looking statements that involve risks and uncertainties such as
statements of the Company's plans, expectations and unknown outcomes. The
Company's actual results could differ materially from management expectations.
Factors that could contribute to those differences include, but are not limited
to, general economic conditions, legislative and regulatory changes, monetary
and fiscal policies of the federal government, changes in tax policies, rates
and regulations of federal and local tax authorities, changes in interest rates,
deposit flows, the cost of funds, demand for loan products, demand for financial
services, competition, changes in the quality or composition of the Bank's loan
and investment portfolios, changes in ownership status resulting in, among other
things, the loss of eligibility for participation in government and corporate
programs for minority and women-owned banks, change in accounting principles,
policies or guidelines, and other economic, competitive, governmental and
technological factors affecting the Company's operations, markets, products,
services and prices.
13
<PAGE>
Item 2. Properties.
The principal executive office of the Company and the main office of the
Bank are located in leased space at 1627 K Street, N.W., Washington, D.C. 20006.
The Bank leases four other offices, located at 2905 M Street, N.W., Washington,
D.C. 20007; Union Station, 50 Massachusetts Avenue, N.E., Washington, D.C.
20002; 1604 17th Street, N.W., Washington, D.C. 20009 and 802 7th Street,:N.W.,
Washington, D.C. 20001. An additional ATM was opened in Union Station in 1989
and a third ATM was opened in Union Station in May 1994. Leases for these
facilities expire as follows:
Location Expiration of Lease
--------------------------------------------------------------
1627 K Street, N.W. 2002
2905 M Street, N.W. 2008
50 Massachusetts Avenue, N.E. 2009
Union Station ATM 2009
Union Station ATM 2009
802 7th Street, N.W. 2007
1604 17th Street, N.W. 2016
In 1999, the Company and the Bank incurred rental expense on leased real
estate of approximately $622,000. The Company considers all of the properties
leased by the Bank to be suitable and adequate for their intended purposes.
Item 3. Legal Proceedings
Although the Bank, from time to time, is involved in various legal
proceedings in the normal course of business, there are no material legal
proceedings to which the Company or the Bank is a party or to which any of their
property is subject, except for the matter 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, Inc.,
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 compliant. 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 Court 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 H. 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 the 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, 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 Bancorp, which was not approved by the
shareholders at a special meeting held December 31, 1997, and also alleges that
the individual stockholders/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.
14
<PAGE>
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.
Item 4. Submission of Matters to a Vote of Security-Holders.
None
PART II
-------
Item 5. Market for Registrant's Equity and Related Stockholder Matters.
(a) The Company's Common Stock is quoted on the Nasdaq Market under the
symbol AANB.
The following table sets forth the range of the high and low bid prices of
the Company's Common Stock for the prior eight calendar quarters and is based
upon information provided by Nasdaq.
Prices of Common Stock
-------------------------------------
Dividends
High Low Paid
------- ------ -----------
Calendar Quarter Ended/(1)/
March 31, 1998 $11.50 $11.20 $.08
June 30, 1998 11.80 11.60 --
September 30, 1998 12.20 12.00 .08
December 31, 1998 14.20 13.60 .08
March 31, 1999 11.13 10.81 .10
June 30, 1999 13.63 12.88 .10
September 30, 1999 13.13 12.75 .10
December 31, 1999 10.75 10.13 .10
/(1)/ Common Stock market data gives effect to a five-for-four stock spilt in
the form of a stock dividend which took place on December 31, 1998.
(b) As of December 31, 1999, the Company had 632 stockholders of record.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The Management's Discussion and Analysis is incorporated by reference to
the Company's Annual Report to Shareholders, which is filed as Exhibit 13
hereto.
Item 7. Financial Statements and Supplementary Data.
See Annual Report to Shareholders which is filed at Exhibit 14 hereto.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
On September 30, 1999, the Board of Directors of the Company determined to
change their outside accounting firm to Keller Bruner & Company, LLP from Arthur
Andersen LLP. During each of the past two years the opinion of Arthur Andersen
LLP did not contain any adverse opinion or a disclaimer of opinion and was not
qualified or modified as to uncertainty, audit scope, or accounting principles.
During the preceding two years, the Company did not have any disagreements with
Arthur Andersen LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure which, if not
resolved to Arthur Andersen's satisfaction would have caused it to make
reference to the subject matter of the disagreements in connection with its
report. On September 30, 1999, the Board of Directors retained Keller Bruner &
Company, LLP.
15
<PAGE>
PART III
The information called for by Items 9, 10, 11 and 12 is incorporated herein
by reference to the Registrant's definitive Proxy Statement for the 2000 Annual
Meeting of Stockholders to be filed within 120 days after the end of the fiscal
year covered by the Form 10-KSB.
Item 9. Directors and Executive Officers of the Registrant.
Item 10. Executive Compensation.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
Item 12. Certain Relationships and Related Transactions.
Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description of Exhibit
- ------ ----------------------
3.1 Certificate of Incorporation of the Company, as amended (1)
3.1.1 Amendment to the Certificate of Incorporation of the Company (2)
3.2 By-laws of the Company, as amended (3)
4.1.1 Rights Agreement dated as of April 12, 1994, between the Company and
The First National Bank of Maryland, as Rights Agent (Right
Certificate attached as Exhibit A to Rights Agreement and Summary of
Rights to Purchase Common Shares attached as Exhibit B to Rights
Agreement) (4)
4.1.2 First Amendment dated April 20, 1995 between the Company and The First
National Bank of Maryland, as Rights Agent (5)
10.1 Non-qualified Stock Option Plan, as amended (6)
10.2 Employee Incentive Stock Option Plan and Agreement (7)
10.3 Directors Stock Option Plan and Agreement (8)
10.4 Non-Qualified Stock Option Agreement (9)
10.5 1996 Employee Incentive Stock Option Plan and Agreement (10)
10.6 1996 Directors Stock Option Plan and Agreement (11)
10.7 Amendment to The Adams National Bank Employee Stock Ownership Plan
with 401(k) provisions, dated February 18, 1997 (12)
10.7.1 Second Amendment to The Adams National Bank Employee Stock
Ownership Plan with 401(k) Provisions
16
<PAGE>
10.8 Lease Agreement dated November 1, 1992 between Chase Manhattan Bank,
N.A. as Trustee and The Adams National Bank (14)
10.9 Lease Agreement dated November I, 1992 between Chase Manhattan Bank,
N.A. as Trustee and The Adams National Bank (15)
10.10 Lease Agreement dated April 21, 1988 between Union Station Joint
Venture, Ltd. and The Adams National Bank (16)
10.11 Lease Agreement dated April 21, 1989, as amended on August 1, 1989
between Union Station Joint Venture, Ltd. and The Adams National Bank
(17)
10.12 Amendment dated December 20, 1993 to Lease Agreement dated April 21,
1989, as amended on August 1, 1989 between Union Station Joint
Venture, Ltd. and The Adams National Bank (18)
10.13 Lease Agreement dated December 20, 1993 between Union Station Joint
Venture,~Ltd., and The Adams National Bank (19)
10.14 Sublease Agreement dated September 1, 1981, as amended September 1,
1984, between 2909 M Associates and The Adams National Bank (20)
10.15 Lease Agreement dated March 6, 1996 between 1604 17th Street Limited
Partners and The Adams National Bank (21)
10.16 Lease Agreement dated January 8, 1997 between Riverdale International,
Inc. and The Adams National Bank (22)
10.17 Agreement for Information Technology Services between Electronic Data
Systems Corporation and The Adams National Bank (23)
10.17.1 Amendment to Agreement for Information Technology Services between
Electronic Data Systems Corporation and The Adams National Bank
10.18 Special Program Financial Services Agreement dated December 30, 1993
between IBAA Bancard, Inc. and The Adams National Bank (24)
10.19 Deposit Insurance Transfer and Asset Purchase Agreement dated as of
May 1, 1992 by and among the Federal Deposit Insurance Corporation as
Receiver of Metropolitan Bank, N.A., the Federal Deposit Insurance
Corporation and The Adams National Bank (25)
10.20 Asset Pool Proposal Form and the Asset Pool Sale Agreement dated as of
July 6, 1993 by and among the Federal Deposit Insurance Corporation as
Receiver of City National Bank, the Federal Deposit Insurance
Corporation and The Adams National Bank (26)
10.21 Agreement, dated April 20, 1995 between the Company and Marshall T.
Reynolds (27)
10.22 Employment Agreement between the Bank and Kate Walsh Carr
10.23 Grantor Trust of Abigail Adams National Bancorp, Inc. dated March 4,
1998
10.24 Grantor Trust of The Adams National Bank dated March 4, 1998
17
<PAGE>
13 Annual Report to Shareholders
21 Subsidiaries of the Registrant (28)
27 Financial Data Schedule for Bank Holding Companies
99.1 Consent of Arthur Andersen
99.2 Consent of Keller Bruner & Company, LLP
____________________________
(1) Incorporated by reference to Exhibit 3 of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1987.
(2) Incorporated by reference to Exhibit 3.2 of Amendment No. 2 to Form
SB-2 filed July 9, 1996.
(3) Incorporated by reference to Exhibit 3 of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1987.
(4) Incorporated by reference to Exhibits 1-3 of the Company's
Registration Statement on Form 8-A dated April 12, 1994.
(5) Incorporated by reference to Exhibit 4 to the Company's Registration
Statement on Form 8-K/A dated April 21, 1995.
(6) Incorporated by reference to Exhibit l0(b) of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1987 and
Exhibit l0(i) of the Company's Annual Report on Form 10K for fiscal
year ended December 31, 1989.
(7) Incorporated by reference to Exhibit 10.2.2 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.
(8) Incorporated by reference to Exhibit 10.2.3 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.
(9) Incorporated by reference to Exhibit 10.2.4 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.
(10) Incorporated by reference to Exhibit 10.5 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.
(11) Incorporated by reference to Exhibit 10.6 of the Company's Annual
Report on Form10-K for the fiscal year ended December 31, 1996.
(12) Incorporated by reference to Exhibit 10.7 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.
(14) Incorporated by reference to Exhibit l0(d) of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992.
(15) Incorporated by reference to Exhibit l0(e) of the Company's Annual
Report on Form 10-K for the fiscal year ended. December 31, 1992.
(16) Incorporated by reference to Exhibit l0(f) of the Company's Quarterly
Report on Form10-Q for the quarter ended September 30, 1988.
18
<PAGE>
(17) Incorporated by reference to Exhibit l0(g) of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1989.
(18) Incorporated by reference to Exhibit 10.7.2 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993.
(19) Incorporated by reference to Exhibit 10.8 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993.
(20) Incorporated by reference to Exhibit 10.9 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994.
(21) Incorporated by reference to Exhibit 10.10 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.
(22) Incorporated by reference to Exhibit 10.17 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.
(23) Incorporated by reference to Exhibit 10 of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992.
(24) Incorporated by reference to Exhibit 10.1 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994.
(25) Incorporated by reference to Exhibit 10 of the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1992.
(26) Incorporated by reference to Exhibit 10 of the Company s Quarterly
Report on Form 10-Q for the quarter ended June 30, 1992.
(27) Incorporated by reference to Exhibit 5 of the Company's Registration
Statement on Form 8-K/A, dated April 21, 1995.
(28) Incorporated by reference to Exhibit 22 of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1987.
(b) One report on Form 8-K were filed during the last quarter of the
fiscal year ended December 31, 1999
On October 1, 1999 the Company filed a current report on Form 8-K
to report its change of accountants from Arthur Andersen, LLP to
Keller Bruner & Company, LLP.
19
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersized, "hereunto duly
authorized.
ABIGAIL ADAMS NATIONAL BANCORP, INC.
------------------------------------
Date: March 24, 2000 By: /s/Jeanne D. Hubbard
--------------------
Jeanne D. Hubbard, Chairwoman of the Board,
President and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by
the following Behalf of the Registrant and in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
<S> <C>
By: /s/Jeanne D. Hubbard By: /s/Karen Schafke
----------------------------------- ---------------------------------------
Jeanne D. Hubbard, Chairwoman of the Board Karen Schafke, Principal Financial
and Chief Executive Officer and Accounting Officer
Date: March 24, 2000 Date: March 24, 2000
By: /s/A. George Cook By: /s/Marshall T. Reynolds
----------------------------------- ----------------------------------------
A.George Cook, Director Marshall T. Reynolds, Director
Date: March 24, 2000 Date: March 24, 2000
By: /s/Robert L. Shell, Jr. By: /s/Marianne Steiner
------------------------------------- ----------------------------------------
Robert L. Shell, Jr., Director Marianne Steiner, Director
Date: March 24, 2000 Date: March 24, 2000
By: /s/Joseph L. Williams By: /s/Bonita A. Wilson
------------------------------------- ---------------------------------------
Joseph L. Williams, Director Bonita A. Wilson, Director
Date: March 24, 2000 Date: March 24, 2000
By: /s/Kathleen W. Carr
-------------------------------------
Kathleen W. Carr, Director
Date: March 24, 2000
</TABLE>
20
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------ ----------------------
3.1 Certificate of Incorporation of the Company,as amended (1)
3.1.1 Amendment to the Certificate of Incorporation of the Company (2)
3.2 By-laws of the Company, as amended (3)
4.1.1 Rights Agreement dated as of April 12, 1994, between the Company and
The First National Bank of Maryland, as Rights Agent (Right
Certificate attached as Exhibit A to Rights Agreement and Summary of
Rights to Purchase Common Shares attached as Exhibit B to Rights
Agreement) (4)
4.1.2 First Amendment dated April 20, 1995 between the Company and The First
National Bank of Maryland, as Rights Agent (5)
10.1 Non-qualified Stock Option Plan, as amended (6)
10.2 Employee Incentive Stock Option Plan and Agreement (7)
10.3 Directors Stock Option Plan and Agreement (8)
10.4 Non-Qualified Stock Option Agreement (9)
10.5 1996 Employee Incentive Stock Option Plan and Agreement (10)
10.6 1996 Directors Stock Option Plan and Agreement (11)
10.7 Amendment to The Adams National Bank Employee Stock Ownership Plan
with 401(k) provisions, dated February 18, 1997 (12)
10.7.1 Second Amendment to The Adams National Bank Employee Stock Ownership
Plan with 401(k) Provisions
10.8 Lease Agreement dated November 1, 1992 between Chase Manhattan Bank,
N.A. as Trustee and The Adams National Bank (14)
10.9 Lease Agreement dated November I, 1992 between Chase Manhattan Bank,
N.A. as Trustee and The Adams National Bank (15)
10.10 Lease Agreement dated April 21, 1988 between Union Station Joint
Venture, Ltd. and The Adams National Bank (16)
10.11 Lease Agreement dated April 21, 1989, as amended on August 1, 1989
between Union Station Joint Venture, Ltd. and The Adams National Bank
(17)
10.12 Amendment dated December 20, 1993 to Lease Agreement dated April 21,
1989, as amended on August 1, 1989 between Union Station Joint
Venture, Ltd. and The Adams National Bank (18)
21
<PAGE>
10.13 Lease Agreement dated December 20, 1993 between Union Station Joint
Venture,~Ltd., and The Adams National Bank (19)
10.14 Sublease Agreement dated September 1, 1981, as amended September 1,
1984, between 2909 M Associates and The Adams National Bank (20)
10.15 Lease Agreement dated March 6, 1996 between 1604 17th Street Limited
Partners and The Adams National Bank (21)
10.16 Lease Agreement dated January 8, 1997 between Riverdale International,
Inc. and The Adams National Bank (22)
10.17 Agreement for Information Technology Services between Electronic Data
Systems Corporation and The Adams National Bank (23)
10.17.1 Amendment to Agreement for Information Technology Services between
Electronic Data Systems Corporation and The Adams National Bank
10.18 Special Program Financial Services Agreement dated December 30, 1993
between IBAA Bancard, Inc. and The Adams National Bank (24)
10.19 Deposit Insurance Transfer and Asset Purchase Agreement dated as of
May 1, 1992 by and among the Federal Deposit Insurance Corporation as
Receiver of Metropolitan Bank, N.A., the Federal Deposit Insurance
Corporation and The Adams National Bank (25)
10.20 Asset Pool Proposal Form and the Asset Pool Sale Agreement dated as of
July 6, 1993 by and among the Federal Deposit Insurance Corporation as
Receiver of City National Bank, the Federal Deposit Insurance
Corporation and The Adams National Bank (26)
10.21 Agreement, dated April 20, 1995 between the Company and Marshall T.
Reynolds (27)
10.22 Employment Agreement between the Bank and Kate Walsh Carr
10.23 Grantor Trust of Abigail Adams National Bancorp, Inc. dated March 4,
1998
10.24 Grantor Trust of The Adams National Bank dated March 4, 1998
21 Subsidiaries of the Registrant (28)
27 Financial Data Schedule for Bank Holding Companies
____________________________
(1) Incorporated by reference to Exhibit 3 of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1987.
(2) Incorporated by reference to Exhibit 3.2 of Amendment No. 2 to Form
SB-2 filed July 9, 1996.
(3) Incorporated by reference to Exhibit 3 of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1987.
(4) Incorporated by reference to Exhibits 1-3 of the Company's
Registration Statement on Form 8-A dated April 12, 1994.
22
<PAGE>
(5) Incorporated by reference to Exhibit 4 to the Company's Registration
Statement on Form 8-K/A dated April 21, 1995.
(6) Incorporated by reference to Exhibit l0(b) of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1987 and
Exhibit l0(i) of the Company's Annual Report on Form 10K for fiscal
year ended December 31, 1989.
(7) Incorporated by reference to Exhibit 10.2.2 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.
(8) Incorporated by reference to Exhibit 10.2.3 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.
(9) Incorporated by reference to Exhibit 10.2.4 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.
(10) Incorporated by reference to Exhibit 10.5 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.
(11) Incorporated by reference to Exhibit 10.6 of the Company's Annual
Report on Form10-K for the fiscal year ended December 31, 1996.
(12) Incorporated by reference to Exhibit 10.7 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996.
(13) Reserved
(14) Incorporated by reference to Exhibit l0(d) of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992.
(15) Incorporated by reference to Exhibit l0(e) of the Company's Annual
Report on Form 10-K for the fiscal year ended. December 31, 1992.
(16) Incorporated by reference to Exhibit l0(f) of the Company's Quarterly
Report on Form10-Q for the quarter ended September 30, 1988.
(17) Incorporated by reference to Exhibit l0(g) of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1989.
(18) Incorporated by reference to Exhibit 10.7.2 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993.
(19) Incorporated by reference to Exhibit 10.8 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993.
(20) Incorporated by reference to Exhibit 10.9 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1994.
(21) Incorporated by reference to Exhibit 10.10 of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995.
23
<PAGE>
(22) Incorporated by reference to Exhibit 10.17 of the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996.
(23) Incorporated by reference to Exhibit 10 of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992.
(24) Incorporated by reference to Exhibit 10.1 of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994.
(25) Incorporated by reference to Exhibit 10 of the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1992.
(26) Incorporated by reference to Exhibit 10 of the Company s Quarterly Report
on Form 10-Q for the quarter ended June 30, 1992.
(27) Incorporated by reference to Exhibit 5 of the Company's Registration
Statement on Form 8-KA, dated April 21, 1995.
(28) Incorporated by reference to Exhibit 22 of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1988.
(b) One report on Form 8-K were filed during the last quarter of the
fiscal year ended December 31, 1999
On October 1, 1999 the Company filed a current report on Form 8-K
to report its change of accountants from Arthur Andersen LLP to
Keller Bruner & Company, LLP.
24
<PAGE>
The Adams National Bank . . . committed to achieving excellence
as a community financial institution focused on meeting the needs of
women, minorities, not-for-profit organizations and the business and
professional community. . .
FINANCIAL HIGHLIGHTS
(In thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Averages
Assets $129,478 $130,965
Loans, net 98,570 84,000
Deposits 109,145 111,627
Stockholders' equity 14,089 13,190
At Year-End
Assets $141,770 $128,881
Loans, net 108,823 93,086
Deposits 122,570 108,665
Stockholders' equity 14,459 13,599
Book value per share 6.98 6.60
For the Year
Net income $ 2,029 $ 816
Cash dividends 826 536
Per Common Share
Basic earnings $ .98 $ .40
Diluted earnings .96 .39
Cash dividends .40 .24
</TABLE>
<PAGE>
FINANCIAL CONTENTS
- ------------------
<TABLE>
<CAPTION>
Page
<S> <C>
Letter to Shareholders and Friends.............................................................................. 2
Five Year Condensed Consolidated Balance Sheet, Asset Quality and Capital Ratio Data............................ 3
Five Year Condensed Consolidated Income Statement Data and Selected Performance Ratios.......................... 4
Management's Discussion and Analysis of Financial Condition and Results of Operations........................... 5
Summary of Operations by Quarter and Summary of Market Data..................................................... 15
Consolidated Balance Sheets..................................................................................... 16
Consolidated Statements of Income............................................................................... 17
Consolidated Statements of Changes in Stockholders' Equity...................................................... 18
Consolidated Statements of Cash Flows........................................................................... 19
Notes to Consolidated Financial Statements...................................................................... 20
Independent Auditors' Report.................................................................................... 38
</TABLE>
- 1 -
<PAGE>
March 27, 2000
Dear Shareholders, Customers, and Friends:
1999 was a year of solid performance for Abigail Adams National Bancorp, Inc.
and The Adams National Bank. Our commitment to you in our annual report last
year was to make this a year of successes, rewards and profits for our company
and our bank. We are pleased to report to you that we achieved these goals, as
you can readily see from the following financial reports.
Last year, our company and our bank realized record earnings. We had four solid
quarters of strong income, dividend payments and growth in both loans and core
deposits. Our loan portfolio grew over 15% from year end 1998, while our
nonperforming loans and delinquency percentages declined to .06% of total
assets. Our deposit accounts have continued to increase in the core deposits
categories, while our management team has continued to decrease our bank's
higher cost non-core deposit portfolio. These planned balance sheet
restructuring measures have contributed to our company's impressive net interest
margin of 5.97% and net income of $2,029,000.
The result in your investment and confidence in our company is not just measured
in numbers, however. Adams has expanded its customer base and banking reputation
in our community to become a leader in small business lending, including
receiving the 1999 Top Lender Bronze Award from the U.S. Small Business
Administration. Our lenders are committed to our bank's mission to meet the
needs of our community, especially the needs of women, minorities, not-for-
profit organizations and small businesses.
Meeting the needs of our community for our company, means giving back to our
community. As a result, our employees have been recognized for their volunteer
activities throughout 1999. Our bank team -- from tellers to managers -- walked
and jogged to raise money for organizations in our community, cooked hot dogs in
the blazing sun of the Washington, D.C. summer to promote support for a school
serving those with special needs, and collected numerous boxes of food, clothing
and books for distribution to those in need. Employees with technical expertise
volunteered throughout the year to set up donated computers for our schools and
to provide training on the donated equipment and software for both children and
adults. Our managers donated their time and energies to mentor students in our
inner city neighborhoods. Our employees proudly supported the United Way
campaign and those of many other organizations in our community with the
knowledge that a strong community leads to a stronger bank.
We look forward to future achievements in the year 2000, building our company
with the firm foundations that have been created in 1999. We, the employees of
your bank and company, are proud to work for you.
Jeanne Delaney Hubbard Kathleen Walsh Carr
Chairwoman, President & CEO President & CEO
Abigail Adams National Bancorp, Inc. The Adams National Bank
- 2 -
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Five Year Condensed Consolidated Balance Sheet,
Asset Quality and Capital Ratio Data
December 31, 1999-1995
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets $141,770 $128,881 $131,239 $112,162 $92,365
Short-term investments 9,907 5,607 8,231 5,579 9,962
Investment securities available for sale 13,406 13,813 20,453 11,205 5,508
Investment securities held to maturity 3,355 7,976 7,509 11,641 8,193
Loans, net 107,686 93,086 84,172 71,965 62,318
Total deposits 122,570 108,665 112,261 95,155 83,063
Short-term borrowings 3,193 4,648 3,489 1,916 1,786
Long-term debt 958 1,023 1,086 1,139 186
Stockholders' equity 14,459 13,599 13,030 13,140 6,619
Asset Quality Ratios:
Net charge-offs (recoveries) to average loans 0.09% -0.01% -0.12% -0.08% 0.03%
Nonperforming loans to period-end loans 0.07% 0.46% 0.60% 2.31% 4.42%
Allowance for loan losses to period-end loans 1.04% 1.20% 1.34% 1.44% 2.00%
Allowance for loan losses to period-end non-
performing loans 1455% 261.56% 222.12% 62.05% 45.30%
Consolidated Capital Ratios:
Tier 1 risk-based 12.81% 12.66% 13.76% 16.22% 9.77%
Total risk-based 13.79% 13.72% 14.97% 17.47% 11.06%
Leverage 11.20% 10.38% 11.09% 13.81% 8.09%
</TABLE>
- 3 -
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Five Year Condensed Consolidated Income Statement Data
and Selected Performance Ratios
Years Ended December 31, 1999-1995
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Total interest income $10,645 $10,753 $9,603 $7,573 $6,914
Total interest expense 3,338 3,930 3,822 2,933 2,747
----------- ----------- ---------- ---------- -----------
Net interest income 7,307 6,823 5,781 4,640 4,167
Provision (benefit) for loan losses 90 (15) -- (275) --
----------- ----------- ---------- ---------- -----------
Net interest income after provision (benefit)
for loan losses 7,217 6,838 5,781 4,915 4,167
Total noninterest income 1,542 1,335 1,204 953 841
Total noninterest expense 5,407 6,838 6,419 4,093 3,781
----------- ----------- ---------- ---------- -----------
Income before taxes 3,352 1,335 566 1,775 1,227
Provision for income taxes 1,323 519 224 648 268
----------- ----------- ---------- ---------- -----------
Net income $2,029 $816 $342 $1,127 $959
=========== =========== ========== ========== ===========
Per Common Share Data:
Basic net income per share $0.98 $0.40 $0.17 $0.75 $0.90
Diluted net income per share $0.96 $0.39 $0.16 $0.74 $0.90
Cash dividends $0.40 $0.24 $0.24 $0.30 $0.30
Selected Performance Ratios:
Return on average assets 1.57% 0.63% 0.29% 1.18% 1.17%
Return on average stockholders' equity 14.46% 6.19% 2.55% 11.75% 15.53%
Average stockholders' equity to average assets 10.86% 10.38% 11.38% 10.06% 7.50%
Dividend payout ratio 40.69% 65.62% 143.10% 41.46% 14.85%
</TABLE>
- 4 -
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations Overview
Abigail Adams National Bancorp, Inc. (the "Company") is the parent of The Adams
National Bank (the "Bank"), a bank with five full-service branches located in
Washington, D.C. The Company reports its financial results on a consolidated
basis with the Bank.
When used in this Annual Report 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.
The Company does not undertake, and specifically declines any obligation, to
publicly release the results of any revisions which may be made to any forward
looking statements to reflect events or circumstances after the date of such
statements or to reflect the occurrence of anticipated or unanticipated events.
The Company reported a 148.5% increase in net income and a 15.5% increase in
total loans for 1999, as compared to 1998. Total assets at December 31, 1999,
were $141,770,000, up from $128,881,000 one year ago, while total loans of
$108,823,000 at year-end were up from $94,220,000 at the end of 1998. The
Company reported net income of $2,029,000, or $.98 per share, for 1999, an
increase of $1,213,000 from the $816,000, or $.40 per share, reported for the
year ended December 31, 1998. The increase in net income was attributable
principally to the increase in higher yielding assets combined with a lower cost
of funds, which resulted in an increase in net interest income of 7.1% to
$7,307,000 at December 31, 1999, as compared to $6,824,000 at year end 1998.
The Company continues to maintain a "well-capitalized" status with a total
risk-based capital ratio (total capital divided by assets weighted for risk
elements) of 13.79% at December 31, 1999, of which 12.81% was Tier 1 capital.
The leverage ratio (based on quarterly average assets) was 11.20% at December
31, 1999. The following analysis of financial condition and results of
operations should be read in conjunction with the Company's Consolidated
Financial Statements and Notes thereto.
Analysis of Net Interest Income
Net interest income, the most significant component of the Company's earnings,
increased by $484,000, or 7.1%, to $7,307,000 in 1999, as compared to $6,824,000
in 1998. This improvement in net interest income was a result of the change in
the mix of earning assets combined with the decrease in the cost of funds on
interest-bearing liabilities. Loans, the highest yielding component of earning
assets, represented approximately 80.5% of total average earning assets for
1999, as compared to approximately 69.5% for 1998. Average loans increased to
$98.6 million for the year ended 1999 from $85.1 million, while average earning
assets were unchanged at $122.5 million for 1999 and 1998. The average loan to
deposit ratio increased to 90.3% from 76.3% in 1998. The other factor affecting
the net interest margin is the percentage of earning assets funded by
interest-bearing liabilities. Funding for earning assets comes from interest-
bearing liabilities, non-interest-bearing liabilities and stockholders' equity.
The percentage of earning assets funded by
- 5 -
<PAGE>
interest-bearing liabilities was 66.4% in 1999, 68.5 % in 1998 and 73.8% in
1997. The changes in the percentage of interest-bearing liabilities to earning
assets had a positive effect on net interest income in 1999 and a negative
effect in 1998 and 1997. The decline in market interest rates in late 1998
effected the interest-bearing liabilities to a greater extent than the
interest-bearing assets. The yield on the interest-bearing liabilities was 4.07%
in 1999, 4.59% in 1998, and 4.85% in 1997, a decrease of 52 basis points and 26
basis points for 1999 and 1998, respectively. These factors combined to produce
a net interest margin ( net interest income as a percentage of average
interest-earning assets) of 5.97% for 1999, and a net interest spread (the
difference between the average interest rate earned on interest-earning assets
and interest paid on interest-bearing liabilities) of 4.63% for 1999, reflecting
increases of 40 basis points and 45 basis points, respectively, from 1998.
In 1998, net interest income increased by $1,043,000, or 18%, to $6,824,000, as
compared to $5,781,000 in 1997. This improvement in net interest income was a
result of an 11% increase in average earning assets and an increase in average
net non-interest bearing sources of funds. The average loan to deposit ratio
decreased to 76% from 81% in 1997. These factors combined to produce a net
interest spread of 4.18% and a net interest margin of 5.57% for 1998, reflected
an increase of 32 basis point and 32 basis points, respectively, from 1997.
Loans represented approximately 69% of total average earning assets for 1998 as
compared to approximately 73% for 1997.
Distribution of Assets, Liabilities and Stockholders' Equity Yields and Rates
For the Years Ended December 31, 1999, 1998 and 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998
------------------------------------- -------------------------------------
Interest Interest
Average Income/ Average Average Income/ Average
Balances Expense Rates Balances Expense Rates
------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Loans (a) $98,570 $9,246 9.38% $85,124 $8,594 10.10%
Investment securities (b) 18,258 1,117 6.12% 25,734 1,523 5.92%
Federal funds sold 3,133 149 4.76% 8,643 486 5.62%
Interest-bearing bank balances 2,502 134 5.36% 3,039 152 5.00%
------------ ------------ ------------ ------------
Total earning assets 122,463 10,646 8.69% 122,540 10,755 8.78%
------------ ------------ ------------ ------------
Allowance for loan losses (1,146) (1,124)
Cash and due from banks 5,351 6,373
Other assets 2,810 3,176
------------ ------------
Total assets $129,478 $130,965
------------ ------------
Liabilities and Stockholders' Equity
Savings, NOW and Money market accounts $37,320 1,142 3.06% $38,953 1,386 3.56%
Certificates of deposit 39,654 1,966 4.96% 41,658 2,286 5.49%
Customer repurchase agreements 3,867 150 3.88% 3,920 184 4.69%
Federal funds purchased and other borrowings 260 11 4.23% -- -- --
Long term debt 993 69 6.95% 1,052 74 7.03%
------------ ------------ ------------ ------------
Total interest-bearing liabilities 82,094 3,338 4.07% 85,583 3,930 4.59%
------------ ------------ ------------ ------------
Noninterest bearing deposits 32,171 31,016
Other liabilities 1,124 1,176
Stockholders' equity 14,089 13,190
------------ ------------
Total liabilities and
stockholders' equity $129,478 $130,965
============ ============
FTE net interest income $7,308 $6,825
============ ============
Net interest spread 4.63% 4.18%
Net interest margin 5.97% 5.57%
<CAPTION>
1997
------------------------------------
Interest
Average Income/ Average
Balances Expense Rates
------------------------------------
<S> <C> <C> <C>
Assets
Loans (a) $80,460 $7,880 9.79%
Investment securities (b) 21,837 1,285 5.88%
Federal funds sold 6,378 352 5.52%
Interest-bearing bank balances 1,509 89 5.90%
------------ ------------
Total earning assets 110,184 9,606 8.72%
------------ ------------
Allowance for loan losses (1,100)
Cash and due from banks 6,042
Other assets 2,441
------------
Total assets $117,567
------------
Liabilities and Stockholders' Equity
Savings, NOW and Money market accounts $34,051 1,355 3.98%
Certificates of deposit 40,849 2,255 5.52%
Customer repurchase agreements 2,724 135 4.96%
Federal funds purchased and other borrowings -- -- --
Long term debt 1,111 77 6.93%
------------ ------------
Total interest-bearing liabilities 78,735 3,822 4.85%
------------ ------------
Noninterest bearing deposits 24,468
Other liabilities 979
Stockholders' equity 13,385
------------
Total liabilities and stockholders' equity $117,567
============
FTE net interest income $5,784
============
Net interest spread 3.86%
Net interest margin 5.25%
</TABLE>
(a) The loan averages are stated net of unearned income, and the averages
include loans on which the accrual of interest has been discontinued.
(b) Taxable equivalent adjustments for tax-exempt securities were $2,000, $2,000
and $3,000 for 1999, 1998, and 1997, respectively.
- 6 -
<PAGE>
Interest Rates and Interest Differential
Analysis of Changes in Fully Taxable Equivalent Net Interest Income
(in thousands)
<TABLE>
<CAPTION>
For the years ended December 31, For the years ended December 31,
1999 verses 1998 1998 verses 1997
----------------------------------------- -----------------------------------------
Net Change per: Net Change per:
Increase -------------------------- Increase ---------------------------
(Decrease) Rate Volume (Decrease) Rate Volume
------------- ------------ ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Interest income from:
Loans 652 (688) 1,340 $714 $257 $457
Investment securities (407) 36 (443) 238 9 229
Federal funds sold (337) (27) (310) 134 9 125
Interest-bearing bank balances (18) 9 (27) 63 (27) 90
------------- ------------ ------------ ------------- ------------- -------------
Total interest income (110) (670) 560 1,149 248 901
Interest expense on:
Savings, NOW and Money markets (243) (173) (70) 32 (115) 147
Certificates of deposit (321) (208) (113) 30 (15) 45
Short-term borrowings (23) (21) (2) 49 (10) 59
Long-term debt (4) -- (4) (3) 1 (4)
------------- ------------ ------------ ------------- ------------- -------------
Total interest expense (591) (402) (189) 108 (139) 247
Net interest income $481 ($268) $749 $1,041 $387 $654
============= ============ ============ ============= ============= =============
</TABLE>
Note: The change in interest due to both rate and volume has been allocated to
change due to rate.
Noninterest Income
Total noninterest income, which consists primarily of service charges on
deposits and other fee income, increased by approximately $207,000, or 15.5%, to
$1,542,000 in 1999, as compared to $1,335,000 in 1998. Service charges on
deposit accounts increased by approximately $179,000, or 15.4%, to $1,339,000 in
1999, as compared to $1,160,000 in 1998, principally due to the increase in
income recognized on ATM transactions and cash services. Other fee income
increased by approximately $28,000, or 16.2%, to $203,000 in 1999, as compared
to $175,000 in 1998, due in part to the fee income for the increase in wire
transfer activity.
In 1998, total noninterest income increased by approximately $131,000, or 10.9%,
to $1,335,000 as compared to $1,204,000 in 1997. Service charges on deposit
accounts increased by approximately $35,000, or 3.1%, to $1,160,000 in 1998, as
compared to $1,126,000 in 1997, principally due to the increase in income
recognized on ATM transactions. Other fee income increased by approximately
$96,000 or 123.1% to $175,000 in 1998, as compared to $78,000 in 1997, primarily
due to income recognized in 1998 related to the recovery of expenses on
nonaccrual loans paid in prior years.
Noninterest Expense
Total noninterest expense decreased by $1,431,000, or 20.9%, to $5,407,000 in
1999 from $6,838,000 in 1998. Salaries and benefits for 1999 decreased by
$703,000, or 22.3%, to $2,454,000 from $3,158,000 in 1998. The decrease in
salaries and benefits in 1999 reflects a one time severance payment in 1998 to
the Company's former chief executive officer and six executive officers.
Occupancy and equipment expense increased by $4,000, or .3%, to $1,235,000 in
1999 from $1,231,000 in 1998. Professional fees decreased by $539,000, or 67.8%,
to $256,000 in 1999 from $796,000
- 7 -
<PAGE>
in 1998, due primarily to legal fees incurred in 1998. Data processing expense
decreased by $162,000, or 29.0%, to $398,000 in 1999 from $560,000 in 1998, due
to the cost savings associated with the conversion to new data processing
service provider in the fourth quarter of 1998. Other operating expense
decreased by $29,000, or 2.7%, to $1,064,000 in 1999 from $1,093,000 in 1998,
due cost control measures in place in 1999.
In 1998, total other expense increased by $419,000, or 6.5%, to $6,838,000 from
$6,419,000 in 1997. Salaries and benefits for 1998 increased by $902,000, or
40%, to $3,158,000 from $2,255,000 in 1997. The increase in salaries and
benefits was primarily the result of a one time severance payment of $766,400 to
the Company's former chief executive officer and six executive officers, and a
full year's impact of employees hired for the new branch opened in late 1997.
Occupancy and equipment expense increased by $222,000, or 22.0%, to $1,231,000
in 1998 from $1,009,000 in 1997, primarily due to the full year's effect of the
new branch opened in late 1997. Professional fees decreased by $494,000, or 38%,
to $796,000 in 1998 from $1,290,000 in 1997, due primarily to approximately
$991,000 in professional fees incurred in connection with a proposed acquisition
in 1997. Data processing expense increased by $65,000, or 13.1%, to $560,000 in
1998 from $495,000 in 1997, due to the conversion costs associated with the
changing to a new data processing service provider. Other operating expense
decreased by $276,000, or 20%, to $1,093,000 in 1998 from $1,369,000 in 1997,
due primarily to decreases in printing costs associated with public disclosures.
Income Tax Expense
Income tax expense of $1,323,000 for 1999 increased $804,000 over the $519,000
tax expense recorded one year earlier, due to the Company's increase of
$2,016,000 in income before taxes. The effective tax rate for 1999 was 39%.
The 1998 income tax expense of $519,000 increased $295,000 over the $225,000 tax
expense recorded in 1997, due to a $770,000 increase in income before taxes. The
Company's effective tax rate for 1998 was 39%
Analysis of Loans
The loan portfolio at December 31, 1999 increased by $14,603,000, or 15.5%, to
$108,823,000 from $94,220,000 at December 31, 1998. The majority of this growth
was in commercial real estate mortgages. Commercial real estate loans provided
the Company with the means to obtain higher interest income, and the larger loan
balances can be underwritten in the same amount of time as lesser amounts of
other types of loans. Commercial real estate loans are secured by real estate
and are less likely to result in losses to the Company than loans that are
dependent upon the operation of a business or which are secured by a rapidly
depreciating asset. On average, the Company's loans increased by $13,446,000, or
15.8%, to $98,570,000 for 1999 from $85,124,000 for 1998. The average loan to
deposit ratio increased to 90.3% in 1999 from 76.3% in 1998. Average loan growth
exceeded the average deposit portfolio growth and was funded in part by maturing
investment securities. The loan to deposit ratio at December 31, 1999 was 88.8%,
while the ratio at December 31, 1998 was 86.7%. See "Liquidity and Capital
Resources" for a further discussion of this ratio. For a summary of loans by
category and by industry concentration at December 31, 1999 and 1998, see Note 4
of the Notes to Consolidated Financial Statements.
The table entitled "Analysis of Loan Maturity and Interest Sensitivity" below,
summarizes the maturity distribution and interest sensitivity of the Company's
loan portfolio at December 31, 1999. Loans having no stated maturity, no stated
schedule of repayment, overdrafts, and demand loans are included in the "Within
1 Year" category.
- 8 -
<PAGE>
Analysis of Loan Maturity and Interest Sensitivity
At December 31, 1999
(In thousands)
<TABLE>
<CAPTION>
Within 1 to 5 After
1 Year Years 5 Years Total
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Maturity of Loans:
Commercial $23,754 $4,858 $98 $28,710
Real estate - commercial 14,320 26,089 10,103 50,512
Real estate - residential 9,229 8,628 3,133 20,990
Real estate - construction 6,540 -- -- 6,540
Installment 1,776 295 -- 2,071
---------- ----------- ----------- ----------
Total loans $55,619 $39,870 $13,334 $108,823
========== =========== =========== ==========
Interest Rate Sensitivity of Loans:
Predetermined rates $15,304 $23,487 $3,193 $41,984
Variable rates 40,315 16,383 10,141 66,839
---------- ----------- ----------- ----------
Total loans $55,619 $39,870 $13,334 $108,823
========== =========== =========== ==========
</TABLE>
Analysis of Investments
The investment securities available for sale portfolio is used to maintain
adequate liquidity and to provide a base for executing asset/liability
management strategy. These investment securities may be sold in response to
changes in interest rates, restructuring of maturity distributions, need for
additional funds for loans, tax planning and regulatory needs, as well as, other
purposes. Investment securities available for sale were $13,406,000 at December
31, 1999, a decrease of $407,000 or 3.0% from $13,813,000 at December 31, 1998.
The investment securities available for sale portfolio consists of U.S.
government agencies and corporations and equity securities. The average maturity
of the portfolio is 5.2 years at December 31, 1999.
The investment securities held to maturity were $3,355,000 at December 31, 1999,
a decrease of $4,621,000 or 57.9% from $7,976,000 at December 31, 1998, due
primarily to matured investments. The investment securities held to maturity
portfolio consists of U.S. government agencies and corporations, mortgage-backed
securities, and obligations of states and political subdivisions. The average
maturity of the portfolio is 2.8 years at December 31, 1999, using expected
maturities.
On average for 1999, the combined investment security portfolio decreased
$7,476,000, or 29%, to $18,258,000 for 1999 from $25,734,000 for 1998. The net
decrease in the combined investment securities portfolio is due to the
reinvestment of matured funds into higher yielding loans.
The table entitled "Analysis of Securities Portfolio," sets forth by major
categories, the adjusted cost bases, approximate market values and the
weighted-average yields of investment securities and securities available for
sale at December 31, 1999.
- 9 -
<PAGE>
Analysis of Investment Securities Portfolio
At December 31, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
Held to Maturity Available for Sale
----------------------------------- -----------------------------------
Adjusted Market Average Adjusted Market Average
Cost Basis Value Yield Cost Basis Value Yield
---------- ----------- ----------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
U.S. government agencies and corporations:
One year or less $500 $484 6.04% $1,501 $1,492 6.02%
After one, but within five years 2,499 2,436 6.13% 5,996 5,790 6.02%
After five, but within ten years 0 -- -- 5,992 5,551 6.09%
---------- ----------- ----------- -----------
Total federal agency securities $2,999 $2,920 6.12% $13,489 $12,833 6.05%
Mortgage-backed securities:
After one, but within five years 46 47 7.61% -- -- --
Obligations of states and municipalities:
After five, but within ten years 310 311 5.15% -- -- --
Federal Reserve Bank stock -- -- -- 173 173 6.00%
Federal Home Loan Bank stock -- -- -- 387 387 7.50%
Equity securities -- -- -- 13 13 --
---------- ----------- ----------- -----------
Total investment securities $3,355 $3,278 6.05% $14,062 $13,406 6.08%
========== =========== =========== ===========
</TABLE>
For additional information about investment securities at December 31, 1999
and 1998, see Note 1 (c) and Note 3 of the Notes to Consolidated Financial
Statements.
Financial Condition
Assets
Total assets increased to $141,770,000 at December 31, 1999 from
$128,881,000 at December 31, 1998, an increase of $12,889,000 or 10.0%. The
net increase in total assets is attributable to an increase of $14,603,000
in the loan portfolio, an increase of $4,299,000 in short term investments,
and increase in other assets of $327,000, which was offset by the decrease
in the investment securities portfolio of $5,028,000, the decrease in cash
and due from banks of $1,129,000, and the decrease of $181,000 in bank
premises and equipment. The changes in the composition of assets, with an
emphasis on loan growth, reflects management's decision to maximize the
income received from higher yielding assets.
Liabilities
The Bank's liabilities consist of deposits, short-term borrowings and long-
term debt. At December 31, 1999, liabilities totaled $127,312,000, an
increase of $12,030,000 or 10.4%. The increase in liabilities resulted from
an increase in deposits of $13,905,000, or 12.8%, partially offset by a
decrease in short-term borrowings of $1,455,000 and long term debt of
$65,000. Short-term borrowings, consisting of repurchase agreements, totaled
$3,193,000 at December 31, 1999, as compared to $4,648,000 at December 31,
1998. Long-term borrowings consisted of a term loan from the FHLB, which had
a principal balance of $958,000 at December 31, 1999, as compared to
$1,023,000 at December 31, 1998.
- 10 -
<PAGE>
Stockholders' Equity
Stockholders' equity at December 31, 1999 of $14,459,000 increased $859,000
from the balance at December 31, 1998 of $13,599,000 or 6.32%. The Company
paid $826,000 in dividends to common stockholders in 1999 compared to
$536,000 in 1998. At December 31, 1999, stockholders' equity included a
$388,000 net unrealized after-tax loss on available for sale investment
securities. Average stockholders' equity as a percentage of average total
assets for 1999 was 10.88%, as compared to 10.07% for the comparable prior
year period. The return on average equity was 14.4% for 1999 and 6.19% for
1998.
The following table presents the Company's and the Bank's capital position
relative to their various minimum statutory and regulatory capital
requirements at December 31, 1999. The Company and the Bank are considered
"well-capitalized" under regulatory guidelines.
<TABLE>
<CAPTION>
Company Bank Minimum
----------------------- ---------------------- Capital
Amount Ratio Amount Ratio Requirements
---------- ----------- ---------- ---------- ----------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
December 31, 1999:
Leverage ratio $14,847 11.20% $13,847 10.45% 4.00%
Tier 1 risk-based 14,847 12.81% 13,847 11.94 4.00%
Total risk-based ratio 15,984 13.79% 14,984 12.92 8.00%
</TABLE>
Asset Quality
Loan Portfolio and Adequacy of the Allowance for Loan Losses
The Company manages the risk characteristics of its loan portfolio through
various control processes, such as credit evaluation of individual
borrowers, establishment of lending limits to individuals and application of
lending procedures, such as the holding of adequate collateral and the
maintenance of compensating balances. Although credit policies are designed
to minimize risk, management recognizes that loan losses will occur and that
the amount of these losses will fluctuate depending on the risk
characteristics of the loan portfolio, as well as, general and regional
economic conditions.
The allowance for loan losses was $1,137,000 at December 31, 1999 and
$1,134,000 at December 31, 1998. The provision for loan losses was $90,000
for 1999 and a benefit of $15,000 for 1998. The allowance as a percentage of
loans decreased to 1.05% at December 31, 1999 from 1.20% at December 31,
1998, reflecting the continued strength in credit quality, as evidenced by
low net loan losses of $87,000 in 1999. In assessing the adequacy of the
allowance for loan losses, management primarily relies on its ongoing review
of the loan portfolio, which is undertaken both to determine whether there
are probable losses which must be written off and to assess the risk
characteristics of the loan portfolio as a whole. In addition to actual loss
experience, management considers factors such as industry-specific
composition of the loan portfolio and the general and regional economic
conditions. This review takes into account the judgment of the individual
loan officer, senior management and the Board of Directors. The Board of
Directors reviews the Company's Classified and Criticized Loans Quarterly
Report and quarterly loan loss analyses. In addition, the Company's review
takes into account the judgment of the regulatory agencies that review the
loan portfolio as a part of the regular examination process. Such regulatory
agencies may require the Company to recognize additions to the allowance
based on their judgments about information available to them at the time of
their examination. The
- 11 -
<PAGE>
Company also has an independent loan review performed by a consultant on an
annual basis. While management uses available information to recognize
losses on loans, future additions may be necessary based on changes in
economic conditions and other factors. See analysis of "Nonperforming
Assets" for a further discussion of asset quality.
The table entitled "Allocation of Allowance for Loan Losses" sets forth an
analysis of the allocation of the allowance for loan losses by categories as
of December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
1999 1998 1997
----------------------- ---------------------- -----------------------
% of Loans % of Loans % of Loans
Reserve to Total Reserve to Total Reserve to Total
Amount Loans Amount Loans Amount Loans
----------- ----------- ---------- ---------- ---------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial $455 38.1% $573 45.4% $486 45.6%
Real estate - commercial 634 55.5% 493 48.3% 464 45.1%
Real estate - residential -- -- 12 1.4% 23 2.3%
Real estate - construction -- -- -- -- 49 4.9%
Installment 21 2.8% 48 4.9% 59 2.1%
Unallocated 27 3.6% 8 -- 61 --
----------- ----------- ---------- ---------- ---------- -----------
Total $1,137 100.0% $1,134 100.0% $1,142 100.0%
=========== =========== ========== ========== ========== ===========
</TABLE>
Nonperforming Assets
Nonperforming assets include nonaccrual loans, restructured loans, past due
loans and other real estate. Nonaccrual loans at December 31, 1999 of
$70,000 decreased by $225,000 from $295,000 at December 31, 1998. Past due
loans decreased by $128,000 to $8,000 at December 31, 1999 from $136,000 at
December 31, 1998. See Note 4 of the Notes to Consolidated Financial
Statements.
The table entitled "Analysis of Nonperforming Assets" presents nonperforming
assets, by category, at December 31, 1999 and 1998.
<TABLE>
<CAPTION>
1999 1998
-------- ---------
(dollars in thousands)
<S> <C> <C>
Nonaccrual loans:
Commercial $7 $208
Real estate - commercial -- 87
Installment- individuals 63 --
-------- ---------
Total nonaccrual loans 70 295
Past due loans:
Installment- individuals 8 136
-------- ---------
Total past due loans 8 136
-------- ---------
Total nonperforming assets $78 $431
======== =========
Nonperforming assets exclusive
of SBA guaranteed balances $78 $383
Ratio of nonperforming assets to gross loans 0.07% 0.46%
Ratio of nonperforming assets to total assets 0.06% 0.33%
Allowance for loan losses to nonperforming assets 1455% 262%
Ratio of net charge-offs (recoveries) to average loans 0.09% -0.01%
</TABLE>
- 12 -
<PAGE>
Potential Problem Loans
At December 31, 1999 and 1998, loans totaling $2,125,000 and $1,339,000,
respectively, were classified as potential problem loans which are not
reported in the table entitled "Analysis of Nonperforming Assets". These
loans were made to borrowers who subsequently experienced financial
difficulties. The loans are subject to management attention and their
classification is reviewed on a quarterly basis. Of the problem loans at
December 31, 1999, none of the balances are guaranteed by the SBA.
Market Risk
The Company is exposed to various market risks, and like most financial
institutions, its greatest market risk is the exposure to fluctuations in
interest rates. The Company has established the Asset/Liability Committee to
monitor and manage those risks. The company manages its interest rate risk
sensitivity through the use of a simulation model that projects the impact of
rate shocks, rate cycles, and rate forecast estimates on the net interest income
and economic value of equity (the net present value of expected cash flows from
assets, liabilities, and off-balance sheet contracts). The results are compared
to risk tolerance limits set by corporate policy. The rate shock risk simulation
projects the dollar change in the net interest margin and the economic value of
equity should the U.S. Treasury yield curve instantaneously shift up or down
parallel to its beginning position. The base case rate scenario is defined by
projecting forward the current rate environment. This simulation provides a test
for embedded interest rate risk, and takes into consideration factors such as
maturities, reinvestment rates, prepayment speeds, repricing limits, decay rates
and other factors. At December 31, 1999, an instantaneous rate increase of 100
basis points indicates a positive change of $411,000 or a 5.27% increase in net
interest income and indicates a negative change of $358,000 or 2.56% decrease on
the economic value of equity, from the base case. Likewise, an instantaneous
decrease in rates of 100 basis points indicates a negative change of $554,000 or
a 7.10% decrease in the net interest income and indicates a negative change of
$17,000 or .12% decrease in the economic value of equity, from the base case.
The rate forecast risk analysis projects changes in the net interest margin and
the economic value of equity should rates follow the forecasted future paths
defined by each scenario. A "most likely" scenario is a true economic forecast,
based on current market conditions and expectations. At December 31, 1999, the
forecasted impact of the "most likely" scenario over a one year time frame was a
change in net interest margin of a positive $147,000 or a 1.96% increase, and
the impact on the economic value of equity projected one year forward was a
positive $66,000 or a .4% increase. The results of the simulation modeling at
December 31, 1999 indicates that the Company maintains an asset sensitive
position and that the current interest rate sensitivity level is manageable and
moderate.
The table below sets forth, as of December 31, 1999, the estimated changes in
the Company's net interest income and economic value of equity which would
result from the designated instantaneous changes in the yield curve.
<TABLE>
<CAPTION>
Net Interest Income Economic Value of Equity
Changes in ----------------------------------- -----------------------------------
Interest Rates Estimated Amount of Percent Estimated Amount of Percent
( basis points) Value Change Change Value Change Change
- --------------------- ---------- ----------- ----------- ---------- ----------- -----------
( dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
+200 $8,621 $822 10.54 % $13,274 ($713) -5.10 %
+100 8,210 411 5.27 13,629 (358) -2.56
base 7,799 -- -- 13,987 -- --
-100 7,245 (554) -7.10 13,971 (17) -0.12
-200 6,714 (1,085) -13.91 13,653 (334) -2.39
</TABLE>
- 13 -
<PAGE>
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 $14,614,000 in cash and short-term investments at December 31,
1999, the Company has a securities portfolio which can be pledged to raise
additional deposits and borrowings, if necessary. At December 31, 1999, the
Company had $12,092,000 in unpledged securities which were available for
such use. This compares with cash and short-term investments of $11,443,000
and unpledged securities of $8,845,000 at December 31, 1998. As a percentage
of total assets, the amount of these cash equivalent assets at December 31,
1999 and 1998 was 19% and 16%, respectively. On average, the Company's
short-term investments, which consist of Federal funds sold and interest-
bearing deposits in other banks, decreased during 1999 by $6,047,000, or
52%, to $5,635,000 for 1999, as compared to $11,682,000 for 1998. 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,
representing 81% and 84% of the average total deposit base in 1999 and 1998,
respectively. In addition, the Bank has unsecured lines of credit from
correspondent financial institutions which can provide up to an additional
$3,000,000 in liquidity, as well as, access to other collateralized
borrowing programs. The Bank maintained an average loan to deposit ratio of
90% and 76% during 1999 and 1998, respectively.
Through its membership in the Federal Home Loan Bank of Atlanta (the
"FHLB"), which serves as a reserve or central bank for member institutions
within its region, at December 31, 1999, the Bank was eligible to borrow up
to approximately $16,054,000 in funds from the FHLB collateralized by loans
secured by first liens on one to four family, multifamily and commercial
mortgages, as well as, investment securities. At December 31, 1999, $958,000
in borrowings from the FHLB were outstanding. The Company has adequate
resources to meet its liquidity needs.
Year 2000
The Company developed and implemented a plan to monitor Year 2000 computer
issues. The Company did not experienced any issues associated with the
century date change on January 1, 2000 or any date subsequent thereto.
Management will continue to monitor operations thoughout the year 2000, and
although no assurances can be given, it is not expected that any future
adverse developments will arise with respect to Year 2000. Any additional
costs associated with Year 2000 are not expected to be material.
- 14 -
<PAGE>
Summary of Operations by Quarter and Summary of Market Data
(Unaudited)
Summary of Operations by Quarter
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------
3/31 6/30 9/30 12/31
------------ ------------ ------------ ------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
1999
Interest income $2,500,626 $2,646,436 $2,688,765 $2,809,129
Net interest income 1,650,254 1,826,315 1,874,753 1,955,727
Provision for loan losses (15,000) (15,000) (40,000) (20,000)
Net income 446,205 479,095 524,411 579,224
Per common share:
Basic earnings 0.22 0.23 0.25 0.28
Diluted earnings 0.21 0.23 0.25 0.27
Dividends declared 0.10 0.10 0.10 0.10
Average shares outstanding for:
Basic earnings per share 2,062,966 2,064,296 2,065,222 2,062,314
Diluted Earnings per share 2,120,384 2,117,054 2,126,654 2,116,206
1998
Interest income $2,638 $2,645 $2,788 $2,682
Net interest income 1,604 1,702 1,771 1,747
Benefit (provision) for loan losses 25 -- -- (10)
Net income (loss) 265 (642) 700 493
Per common share (a):
Basic earnings (loss) 0.13 (0.31) 0.34 0.24
Diluted earnings (loss) 0.13 (0.30) 0.33 0.23
Dividends declared 0.08 -- 0.08 0.08
Average shares outstanding (a):
Basic earnings per share 2,039,585 2,056,352 2,061,850 2,061,850
Diluted Earnings per share 2,097,955 2,121,303 2,116,649 2,126,836
</TABLE>
Summary of Market Data
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------------------------
3/31 6/30 9/30 12/31
---------------- ---------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Common stock price: (a)(b)
1999 11 1/8- 10 13/16 13 5/8 - 12 7/8 13 1/8- 12 3/4 10 3/4- 10 1/8
1998 11 1/5- 11 1/2 11 3/5 - 11 4/5 12 - 12 1/5 13 3/5- 14 1/5
</TABLE>
(a) Common stock market data for 1998 gives the effect to a five-for-four
stock dividend that occured on December 31, 1998.
(b) The above data presents the range of high and low bid quotations for the
shares as reported by the Nasdaq National Market.
- 15 -
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
<S> <C> <C>
Assets
Cash and due from banks $4,707,226 $5,836,099
Federal funds sold 6,005,707 3,793,204
Interest-bearing deposits in other banks 3,900,891 1,814,084
Investment securities available for sale at fair value 13,405,857 13,813,009
Investment securities held to maturity (market value of $3,277,934 3,355,421 7,976,376
and $8,027,302 for 1999 and 1998, respectively)
Loans (net of deferred fees and costs and unearned discounts) 108,823,012 94,219,747
Less: Allowance for loan losses (1,137,009) (1,134,128)
------------------- -------------------
Loans, net 107,686,003 93,085,619
------------------- -------------------
Bank premises and equipment, net 978,858 1,159,827
Other assets 1,730,256 1,403,106
------------------- -------------------
Total assets $141,770,219 $128,881,324
=================== ===================
Liabilities and Stockholders' Equity
Liabilities:
Deposits
Noninterest-bearing deposits $36,816,624 $31,058,149
Interest-bearing deposits 85,753,275 77,606,939
------------------- -------------------
Total deposits 122,569,899 108,665,088
------------------- -------------------
Short-term borrowings 3,193,166 4,647,740
Long-term debt 958,309 1,022,711
Other liabilities 590,185 946,502
------------------- -------------------
Total liabilities 127,311,559 115,282,041
------------------- -------------------
Commitments and contingencies (Note 7 and 11)
Stockholders' equity:
Common stock, par value of $.01 per share, authorized 5,000,000 shares;
issued 2,094,468 shares in 1999 and 2,091,760 in 1998; outstanding
2,085,464
shares in 1999 and 2,085,910 in 1998 20,945 20,918
Capital Surplus 12,478,090 12,482,926
Retained earnings 2,528,366 1,325,052
Less: Employee Stock Ownership Plan shares, 15,654 shares
in 1999 and 23,396 shares in 1998, at cost (109,586) (204,716)
Less: Treasury stock, 9,004 shares in 1999 and 5,850 shares
in 1998, at cost (70,989) (28,710)
Accumulated other comprehensive income (loss) (388,166) 3,813
------------------- -------------------
Total stockholders' equity 14,458,660 13,599,283
------------------- -------------------
Total liabilities and stockholders' equity $141,770,219 $128,881,324
=================== ===================
</TABLE>
See notes to consolidated financial statements.
-16-
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
Years ended December 31, 1999, 1997 and 1998
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Interest Income
Interest and fees on loans $9,246,267 $8,593,850 $7,879,610
Interest and dividends on investment securities:
Taxable income 1,098,988 1,505,518 1,266,087
Nontaxable income 15,965 15,965 15,965
------------- ------------- -------------
Total interest and dividends on investment securities 1,114,953 1,521,483 1,282,052
Other interest income 283,736 637,944 440,868
------------- ------------- -------------
Total interest income 10,644,956 10,753,277 9,602,530
------------- ------------- -------------
Interest expense
Interest on deposits 3,107,804 3,672,077 3,609,533
Interest on short-term borrowings 161,038 184,134 134,909
Interest on long-term debt 69,065 73,535 77,162
------------- ------------- -------------
Total interest expense 3,337,907 3,929,746 3,821,604
------------- ------------- -------------
Net interest income 7,307,049 6,823,531 5,780,926
(Provision) benefit for loan losses (90,000) 15,000 --
------------- ------------- -------------
Net interest income after (provision) benefit for loan losses 7,217,049 6,838,531 5,780,926
------------- ------------- -------------
Noninterest income
Service charges on deposit accounts 1,338,995 1,160,262 1,125,694
Other income 203,118 174,852 78,403
------------- ------------- -------------
Total noninterest income 1,542,113 1,335,114 1,204,097
------------- ------------- -------------
Noninterest expense
Salaries and employee benefits 2,454,207 3,157,693 2,255,446
Occupany and equipment expense 1,234,990 1,230,854 1,008,792
Professional fees 256,484 795,854 1,289,650
Data processing fees 397,690 560,053 495,455
Other operating expense 1,063,704 1,093,373 1,369,346
------------- ------------- -------------
Total noninterest expense 5,407,075 6,837,827 6,418,689
------------- ------------- -------------
Income before provision for income taxes 3,352,087 1,335,818 566,334
Provision for income taxes 1,323,152 519,449 224,507
------------- ------------- -------------
Net income $2,028,935 $816,369 $341,827
============= ============= =============
Earnings per share:
Basic earnings $0.98 $0.40 $0.17
Diluted earnings $0.96 $0.39 $0.16
Average common share outstanding:
Basic 2,063,679 2,055,014 2,038,331
Diluted 2,119,154 2,115,791 2,092,371
</TABLE>
See notes to consolidated financial statements.
-17-
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity Years
ended December 31, 1999, 1997 and 1998
<TABLE>
<CAPTION>
Common Capital Retained Treasury
Stock Surplus Earnings Stock
--------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 $20,684 $12,212,749 $1,191,706 ($28,710)
Comprehensive income:
Net Income 341,827
Unrealized gain on investment securities
available for sale, net of tax
-----------
Total comprehensive income 341,827
Dividends declared (489,164)
Issuance of shares under Employee Incentive
Stock Option Plan 15 9,752
Release of shares under Employee Stock
Ownership Plan, 292 shares 4,946
--------- ------------ ----------- ---------
Balance at December 31, 1997 20,699 12,227,447 1,044,369 (28,710)
--------- ------------ ----------- ---------
Comprehensive income:
Net Income 816,369
Unrealized gain on investment securities
available for sale, net of tax
-----------
Total comprehensive income 816,369
Dividends declared (535,686)
Issuance of shares under Employee Incentive
Stock Option Plan 219 253,028
Release of shares under Employee Stock
Ownership Plan, 1,711 shares 2,451
--------- ------------ ----------- ---------
Balance at December 31, 1998 20,918 12,482,926 1,325,052 (28,710)
--------- ------------ ----------- ---------
Comprehensive income:
Net Income 2,028,935
Unrealized loss on investment securities
available for sale, net of tax
-----------
Total comprehensive income 2,028,935
Dividends declared (825,621)
Issuance of shares under Employee Incentive
Stock Option Plan 27 20,969
Release of shares under Employee Stock
Ownership Plan, 7,742 shares 15,131
Redemption of shares under Employee
Stock Ownership Plan (42,279)
Other Employee Stock Ownership Plan transactions (40,936)
--------- ------------ ----------- ---------
Balance at December 31, 1999 20,945 12,478,090 2,528,366 (70,989)
========= ============ =========== =========
<CAPTION>
Accumulated
Employee Other
Stock Comprehensive
Ownership Income
Plan (loss) Total
----------- --------- ------------
<S> <C> <C> <C>
Balance at December 31, 1996 ($222,242) ($33,990) $13,140,197
Comprehensive income:
Net Income 341,827
Unrealized gain on investment securities
available for sale, net of tax 19,610 19,610
--------- ------------
Total comprehensive income 19,610 361,437
Dividends declared (489,164)
Issuance of shares under Employee Incentive
Stock Option Plan 9,767
Release of shares under Employee Stock
Ownership Plan, 292 shares 2,555 7,501
----------- --------- ------------
Balance at December 31, 1997 (219,687) (14,380) 13,029,738
----------- --------- ------------
Comprehensive income:
Net Income 816,369
Unrealized gain on investment securities
available for sale, net of tax 18,193 18,193
--------- ------------
Total comprehensive income 18,193 834,562
Dividends declared (535,686)
Issuance of shares under Employee Incentive
Stock Option Plan 253,247
Release of shares under Employee Stock
Ownership Plan, 1,711 shares 14,971 17,422
----------- --------- ------------
Balance at December 31, 1998 (204,716) 3,813 13,599,283
----------- --------- ------------
Comprehensive income:
Net Income 2,028,935
Unrealized loss on investment securities
available for sale, net of tax (391,979) (391,979)
--------- ------------
Total comprehensive income (391,979) 1,636,956
Dividends declared (825,621)
Issuance of shares under Employee Incentive
Stock Option Plan 20,996
Release of shares under Employee Stock
Ownership Plan, 7,742 shares 54,194 69,325
Redemption of shares under Employee
Stock Ownership Plan (42,279)
Other Employee Stock Ownership Plan transactions 40,936 0
----------- --------- ------------
Balance at December 31, 1999 (109,586) (388,166) 14,458,660
=========== ========= ============
</TABLE>
See notes to consolidated financial statements.
-18-
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1997 and 1998
<TABLE>
<CAPTION>
1999 1998 1997
-------------- ------------ --------------
<S> <C> <C> <C>
Cash flows from Operating Activities
Net Income $2,028,935 $816,369 $341,827
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision (benefit) for loan losses 90,000 (15,000) --
Depreciation and amortization 427,786 434,304 308,584
Profit sharing contribution of ESOP shares 59,966 11,925 6,203
Accretion of loan discounts and fees (253,728) (166,543) (194,242)
Accretion and amortization of investment securities 3,957 (35,142) (164,508)
discounts and premiums, net
Provision (benefit) for deferred income taxes 61,687 (69,335) (54,351)
(Increase) decrease in other assets (124,128) 631,282 (766,282)
(Decrease) increase in other liabilities (346,316) (426,179) 709,748
-------------- ------------ --------------
Net cash provided by operating activites 1,948,159 1,181,681 186,979
-------------- ------------ --------------
Cash flows from Investing Activities
Proceeds from maturities of investment securities held to maturity 4,000,000 6,498,192 6,150,000
Proceeds from maturities of investment securities available for sale 4,300,000 25,000,000 18,810,000
Proceeds from the repayment of mortgage-backed securities 51,328 93,715 64,762
Purchase of investment securities held to maturity -- (7,003,891) (2,058,500)
Purchase of investment securities available for sale (3,984,508) (18,359,738) (27,884,125)
Net increase in interest-bearing deposits in other banks (2,086,807) (33,084) (302,000)
Net increase in loans (14,436,656) (8,732,202) (12,012,703)
Purchase of bank premises and equipment (246,817) (341,718) (720,946)
-------------- ------------ --------------
Net cash (used in) investing activites (12,403,460) (2,878,726) (17,953,512)
-------------- ------------ --------------
Cash Flows from Financing Activities
Net increase in transaction and savings deposits 10,140,763 3,628,824 3,302,282
Net increase (decrease) in time deposits 3,764,048 (7,225,132) 13,804,374
Net (decrease) increase in short-term borrowings (1,454,574) 1,158,477 1,572,574
Payments on long-term debt (64,402) (63,225) (52,879)
Proceeds from issuance of common stock, net of expenses 20,996 258,743 9,767
Distributions from ESOP (42,279) -- --
Cash dividends paid to common stockholders (825,621) (535,686) (650,370)
-------------- ------------ --------------
Net cash (used in) provided by financing activites 11,538,931 (2,777,999) 17,985,748
-------------- ------------ --------------
Net (decrease) increase in cash and cash equivalents 1,083,630 (4,475,044) 219,215
Cash and cash equivalents at beginning of year 9,629,303 14,104,347 13,885,132
-------------- ------------ --------------
Cash and cash equivalents at end of year $10,712,933 $9,629,303 $14,104,347
============== ============ ==============
Supplementary disclosures:
Interest paid on deposits and borrowings $3,448,412 $4,022,522 $3,659,897
============== ================= ===================
Income taxes paid $1,185,000 $0 $798,600
============== ================= ===================
</TABLE>
See notes to consolidated financial statements
-19-
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Abigail Adams National Bancorp, Inc. (the "Company") is a one bank
holding company that provides its customers with banking and
non-banking financial services through its principal wholly-owned
subsidiary, The Adams National Bank (the "Bank"). The Bank offers
various loan, deposit, and other financial service products to their
customers. The Bank's customers include individuals, nonprofit, and
commercial enterprises. Its principal market areas encompass
Washington, D.C. and the surrounding metropolitan area.
The Company and the Bank prepare their financial statements on the
accrual basis and in conformity with generally accepted accounting
principles. The more significant accounting policies are explained
below. As used herein, the term the Company includes the Bank, unless
the context otherwise requires.
(a) Principles of Consolidation
The consolidated financial statements include the accounts of
the Company and the Bank. All significant intercompany
accounts and transactions have been eliminated in
consolidation.
(b) Cash and Cash Equivalents
The Company has defined cash and cash equivalents as those
amounts included in cash and due from banks and Federal funds
sold.
(c) Securities
Management determines the appropriate classification of
securities at the time of purchase. Securities which the
Company has the ability and the intent to hold until maturity
are classified as investment securities to be held to maturity
and are reported at amortized cost. Investment securities
which are not classified as held to maturity or trading
account assets are classified as available for sale and are
reported at fair value with unrealized gains and losses
reported as a separate component of stockholders' equity.
Unrealized gains and losses reflect the difference between
fair market value and amortized cost of the individual
securities as of the reporting date. The market value of
securities is generally based on quoted market prices or
dealer quotes. The Company does not maintain a trading
account. Premiums and discounts are amortized using a method
which approximates the effective interest method over the term
of the security.
(d) Loans
Loans are stated at their unpaid principal amount, net of
unearned discount and deferred loan fees and costs. Interest
on loans is generally accrued based upon the principal amount
outstanding. The Company discontinues the accrual of interest,
when the timely collection of principal or interest is
doubtful, when a loan which is well secured becomes 90 days
past due, or management becomes aware of other circumstances
which indicate that accrual of interest is no longer
appropriate. Accrued interest at that date on such loans is
either charged against current income or the allowance for
loan losses. Interest accruals are resumed on such loans, when
they are brought fully current with respect to interest and
principal, or when in the judgment of management, the loans
have demonstrated a new period of performance and are
estimated to be fully collectible as to both principal and
interest. Loans, and the related accrued interest, which are
past due 90 days or more which are not well- secured are
charged to the allowance for loan losses.
The Company follows SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan", as amended by FASB statement No. 118,
"Accounting by Creditors For Impairment of a Loan - Income
Recognition and Disclosures, defines impaired loans as those
loans for which it is probable that the
-20-
<PAGE>
Company will be unable to collect all amounts due according to
the terms of the loan agreement. The Company's impaired loans
generally consist of nonaccrual, restructured, and potential
problem loans as detailed in Note 4. According to SFAS No.
114, impaired loans do not include large groups of smaller
balance loans with similar collateral characteristics such as
residential mortgage and consumer installment loans, which are
evaluated collectively for impairment. Impaired loans are
therefore primarily commercial and industrial loans, real
estate commercial mortgage, and construction and development
loans.
(e) Allowance for Loan Losses
The allowance for loan losses is a current estimate of the
anticipated losses in the present loan portfolio. The
allowance is increased by recoveries and provisions charged to
operating expense and is decreased by loans charged-off. The
allowance for loan losses is based on management's evaluation
of several factors, including loan loss experience,
composition and volume of the loan portfolio, overall
portfolio quality, review of specific problem loans and
current economic trends and specific conditions that may
effect the borrower's ability to pay. In addition, various
regulatory agencies, as an integral part of their examination
process, periodically review the Company's allowance for loan
losses. Such agencies may require the Company to recognize
additions to the allowance based on their judgments about
information available to them at the time of their
examination. Management believes that the current allowance
for loan losses is adequate to absorb losses that are inherent
in the current loan portfolio.
The specific reserves for impaired loans, under SFAS No. 114,
as amended, at December 31, 1999, are included in the
allowance for loan losses discussed above. Impaired loans are
valued based on the fair value of the related collateral, if
the loans are collateral dependent, and for all other impaired
loans, the specific reserves approximate the present values of
expected future cash flows discounted at each loan's initial
effective interest rate.
(f) Loan Origination Fees and Costs
All fee income received from loan origination and purchases,
as well as, costs directly attributable to the loan
origination are deferred. The net deferred fees are amortized
into interest income on loans as a yield adjustment over the
estimated life of the loan. Deferred fees and costs are not
amortized during periods in which interest income is not being
recognized because of concerns about the realization of loan
principal or interest.
(g) Depreciation
Depreciation of Bank premises and equipment is computed over
the estimated useful lives of the respective assets, ranging
from three to five years, on the straight-line basis.
Leasehold improvements are amortized on a straight-line basis
over the estimated useful lives of the respective assets or
the terms of the respective leases, whichever is shorter.
Expenditures for major renewals and betterments of Bank
premises and equipment are capitalized at cost.
(h) 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.
(i) Stockholders' Equity
Financal information presented for 1998 and 1997 gives
retroactive effect to the issuance on December 31, 1998 of a
five-for-four stock split in the form of a stock dividend of
five shares of Common stock for each four shares of Common
stock outstanding.
-21-
<PAGE>
(j) Reporting Comprehensive Income
On January 1, 1998 the Company adopted 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 include unrealized gains and losses on
securities available for sale. Items identified as
comprehensive income are reported in the financial statements,
under separate captions. The implementation of SFAS 130 has
not had a material impact on the Company.
(k) Risks and Uncertainties
The Company is subject to competition from other financial
institutions, and is also subject to the regulations of
certain federal agencies and undergoes periodic examination by
those regulatory authorities.
The financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the
financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenues
and expenses for the period. Actual results could differ
significantly from those estimates.
Material estimates that are particularly susceptible to
significant change in the near-term relate to the
determination of the allowance for loan losses and the
valuation of real estate acquired in connection with
foreclosures or in satisfaction of loans. In connection with
the determination of the allowances for loan losses and other
real estate, management periodically obtains independent
appraisals for significant properties owned or serving as
collateral for loans.
(l) Reclassifications
Certain reclassifications have been made to amounts previously
reported in 1998 and 1997 to conform with the 1999
presentation.
(m) Income Taxes
The Corporation records a provision for income taxes based
upon the amounts of current taxes payable (or refundable) and
the change in net deferred tax assets or liabilities during
the year. Deferred tax assets and liabilities are recognized
for the tax effects of differing carrying values of assets and
liabilities for tax and financial statement reporting purposes
that will reverse in future periods. Deferred tax assets and
liabilities are included in the financial statements at
currently enacted income tax rates applicable to the period in
which the deferred tax assets and liabilities are expected to
be realized or settled.
2. Restrictions on Cash Balances
Included in cash and due from banks are balances maintained within the
Company to satisfy legally required reserves and to compensate for
services provided from correspondent banks. Restricted balances
maintained totaled $1,933,000 and $1,785,000 at December 31, 1999 and
1998, respectively. There were no other withdrawal, usage restrictions
or legally required compensating balances at December 31, 1999 or 1998.
3. Securities
The amortized cost and estimated fair value of investment securities to
be held to maturity and investment securities available for sale at
December 31, 1999, and 1998 are as follows:
-22-
<PAGE>
<TABLE>
<CAPTION>
1999
------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Basis Gains Losses Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investment Securities - held to maturity:
U.S. government agencies and corporations $2,999,236 $ -- $79,391 $2,919,845
Obligations of states and political subdivisions 310,000 701 -- 310,701
Mortgage-backed securities 46,185 1,203 -- 47,388
------------ ------------ ------------ ------------
Total Total investment securities $3,355,421 $1,904 $79,391 $3,277,934
============ ============ ============ ============
Investment Securities - available for sale:
U.S. government agencies and corporations $13,488,555 $ -- $655,298 12,833,257
Equity securities 572,600 -- -- 572,600
------------ ------------ ------------ ------------
Total Total investment securities $14,061,155 $0 $655,298 $13,405,857
============ ============ ============ ============
<CAPTION>
1998
---------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Basis Gains Losses Value
------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Investment Securities - held to maturity:
U.S. Treasury and other U.S. government
agencies and corporations $7,001,370 $40,443 $-- $7,041,813
Obligations of states and political subdivisions 310,000 6,423 -- 316,423
Mortgage-backed securities 93,106 4,060 -- 97,166
Corporate securities 571,900 -- -- 571,900
------------- ---------- ----------- -------------
Total Total investment securities $7,976,376 $50,926 $0 $8,027,302
============= ========== =========== =============
Investment Securities - available for sale:
U.S. Treasury and other U.S. government
agencies and corporations $13,806,571 $35,231 $28,793 $13,813,009
------------- ---------- ----------- -------------
Total Total investment securities $13,806,571 $35,231 $28,793 $13,813,009
============= ========== =========== =============
</TABLE>
The cost and estimated fair value of investment securities to be held
to maturity and investment securities available for sale at December
31, 1999, by contractual maturity are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
December 31, 1999
--------------------------
Estimated
Cost Fair Value
------------ ------------
<S> <C> <C>
Investment Securities - held to maturity:
Due in one year or less $500,210 $483,595
Due after one year through five years 2,499,026 2,436,250
Due after five years through ten years 310,000 310,701
Mortgage backed securities 46,185 47,389
------------ ------------
Total $3,355,421 $3,277,935
============ ============
Investment Securities - available for sale:
Due in one year or less $1,500,752 $1,491,630
Due after one year through five years 5,996,006 5,789,747
Due after five years through ten years 5,991,797 5,551,880
Equity securities 572,600 572,600
------------ ------------
Total $14,061,155 $13,405,857
============ ============
</TABLE>
Securities with carrying values of $4,105,000 and $13,033,000 at
December 31, 1999 and 1998, respectively, were pledged to collateralize
public deposits and repurchase agreements. During 1999 and 1998, the
Company held one security totaling $310,000, which was exempt from
federal taxation.
-23-
<PAGE>
4. Loans
The loans portfolio at December 31, 1999 and 1998, consisted of the
following:
<TABLE>
<CAPTION>
1999 1998
---------------- --------------
<S> <C> <C>
Commercial and industrial $28,645,577 $23,093,031
Real estate:
Commercial mortgage 50,752,222 43,923,775
Residential mortgage 20,990,822 20,189,915
Construction and development 6,540,169 5,153,839
Installment to individuals 2,134,730 2,069,753
---------------- --------------
109,063,520 94,430,313
Less: Unearned income (240,508) (210,566)
---------------- --------------
Total $108,823,012 $94,219,747
================ ==============
</TABLE>
Loan concentrations at December 31, 1999 and 1998, are summarized as
follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Service industry 17 % 38 %
Real estate development/finance 57 32
Wholesale/retail 14 22
Other 12 8
--------- ---------
Total 100 % 100 %
========= =========
</TABLE>
A substantial portion, $78,283,000, or approximately 72%, at December
31, 1999, and $69,268,000, or approximately 74%, at December 31, 1998,
of the Company's loans are secured by real estate in the Washington,
D.C. metropolitan area. Accordingly, the Company's loan portfolio is
susceptible to changes in market conditions in the Washington
metropolitan area.
An analysis of the allowance for loan losses for the years ended
December 31, 1999, 1998 and 1997, follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Balance at January 1 $1,134,128 $1,141,719 $1,048,487
Provision (Benefit) for loan losses 90,000 (15,000) --
Recoveries:
Commercial 28,845 21,836 103,533
Real estate- Commercial mortgage -- 13,278 56,277
Installment to individuals 25,426 98,019 34,878
-------------- -------------- --------------
Total recoveries 54,271 133,133 194,688
-------------- -------------- --------------
Charge-offs:
Commercial (18,500) (67,861) (3,000)
Installment to individuals (122,890) (57,863) (98,456)
-------------- -------------- --------------
Total charge-offs (141,390) (125,724) (101,456)
-------------- -------------- --------------
Net (charge-offs) recoveries (87,119) 7,409 93,232
-------------- -------------- --------------
Balance at December 31 $1,137,009 $1,134,128 $1,141,719
============== ============== ==============
Ratio of net (charge-offs) recoveries to average total loans -0.09% 0.01% 0.12%
Average total loans outstanding during the year $98,570,000 $85,124,000 $80,460,000
</TABLE>
-24-
<PAGE>
Included in the accompanying consolidated balance sheets are certain
loans that are accounted for on a nonaccrual basis. These nonaccrual
loans totaled approximately $70,000, $295,000 and $411,000 at December
31, 1999, 1998 and 1997, respectively. Had the loans been current in
accordance with their original terms, gross interest income for these
loans would have been $18,000, $32,000 and $54,000 in 1999, 1998 and
1997, respectively. At December 31, 1999, 1998 and 1997, the Company
had $6,000, $136,000 and $103,000, respectively, in loans greater than
90 days delinquent which were still accruing interest. These loans
consisted primarily of loans which were both adequately secured and in
the process of collection.
At December 31, 1999, 1998 and 1997, impaired loans, which include
nonaccrual loans amounted to $70,000, $295,000 and $698,000,
respectively. Included in the allowance for loan losses is $3,000,
$70,000 and $116,000 related to impaired loans of $70,000, $295,000 and
$544,000 at December 31, 1999, 1998, and 1997, respectively. The
average recorded investment in impaired loans was $226,000, $426,000
and $1,587,000 during 1999, 1998 and 1997, respectively. Interest
income recognized on impaired loans during the years ended December 31,
1998, 1997 and 1996, which has not been disclosed above in the
discussion of nonaccrual and restructured loans was $23,000, $0 and
$23,000, respectively. The allowance for credit losses contains
additional amounts for impaired loans as deemed necessary to maintain
allowances at levels considered adequate by management.
The Company has engaged in banking transactions in the ordinary course
of business with some of its directors, officers, principal
shareholders and their associates. Management believes that all loans
or commitments to extend loans and the payment of overdrafts included
in such transactions are made on the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
loans with other persons and do not involve more than the normal risk
of collectibility. At December 31, 1999 and 1998, none of these loans
are either reported as nonaccrual, restructured or classified. The
aggregate amount of loans to related parties for the years ended
December 31, 1999 and 1998 was $5,000 and $5000, respectively.
5. Bank Premises and Equipment
Bank premises and equipment at December 31, 1999 and 1998 is summarized
as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Furniture and equipment $2,100,938 $1,386,047
Leasehold improvements 1,336,574 2,441,120
------------ ------------
Subtotal, at cost 3,437,512 3,827,167
Accumulated depreciation
and amortization (2,458,654) (2,667,340)
------------ ------------
Total, net $978,858 $1,159,827
============ ============
</TABLE>
Amounts charged to operating expenses for depreciation and amortization
expense aggregated $427,786, $434,304 and $308,584 in 1999, 1998 and
1997, respectively.
6. Interest-Bearing Deposits
Related party deposits totaled approximately $250,000 and $188,000 at
December 31, 1999 and 1998, respectively. In management's opinion,
rates paid on these deposits, where applicable, are available to others
at the same terms. At December 31, 1999, and 1998 brokered deposit
totaled approximately $0 and $495,000,
-25-
<PAGE>
respectively. The decrease in the balance of brokered deposits was due
to maturities during 1999. No brokered deposits were made during 1999
or 1998.
At December 31, 1999, time deposits totaling $3,965,000 have scheduled
maturities greater than one through five years. The aggregate amount of
maturities on all time deposits in each of the next five years is as
follows:
<TABLE>
<CAPTION>
Less than Greater than
Year 100,000 100,000 Total
- ----------- -------------- -------------- --------------
<S> <C> <C> <C>
2000 $22,765,000 $16,137,000 $38,902,000
2001 1,375,000 1,829,000 3,204,000
2002 240,000 0 240,000
2003 106,000 0 106,000
2004 314,000 101,000 415,000
-------------- -------------- --------------
$24,800,000 $18,067,000 $42,867,000
============== ============== ==============
</TABLE>
7. Leasing Arrangements
The Company leases its main office space under two leases which expire
in 2007. The Company also leases space for four branch offices and two
automated teller machines. The leases on the Union Station branch and
the two automated teller machines expire in 2009. The lease on the
Dupont Circle East branch expires in 2016, the lease on the Chinatown
branch expires in 2007, and the lease on the Georgetown branch expires
in 2008. All leases are classified as operating leases.
The following is a schedule of future minimum payments under operating
leases that have initial or remaining noncancelable lease terms in
excess of one year as of December 31, 1999:
2000 $ 600,046
2001 604,172
2002 605,822
2003 605,823
2004 605,823
2005 and thereafter 2,354,175
------------
Total $ 5,375,861
============
Rental expense in 1999, 1998 and 1997 was approximately $622,000,
$582,000 and $505,000, respectively.
8. Income Taxes
Income tax expense for 1999, 1998 and 1997 consists of:
-26-
<PAGE>
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------- -------------
<S> <C> <C> <C>
Current:
Federal $996,085 $520,648 $235,260
District of Columbia 265,580 68,136 43,598
------------ ------------- -------------
1,261,665 588,784 278,858
------------ ------------- -------------
Deferred:
Federal 48,544 (52,279) (37,060)
District of Columbia 12,943 (17,056) (17,291)
------------ ------------- -------------
61,487 (69,335) (54,351)
------------ ------------- -------------
Total:
Federal 1,044,629 468,369 198,200
District of Columbia 278,523 51,080 26,307
------------ ------------- -------------
$1,323,152 $519,449 $224,507
============ ============= =============
</TABLE>
Income tax expense differed from the amounts computed by applying the
U.S. Federal income tax rate of 34 percent to pretax income as a result
of the following:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------- ---------------------- -----------------------
Amount % Amount % Amount %
------------ --------- ------------ -------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Tax expense at statutory rate $1,142,892 34.0% $454,178 34.0% $192,554 34.0%
Increase in taxes resulting from
District of Columbia franchise
tax, net of Federal tax effect 182,958 5.5% 46,185 3.5% 14,186 2.5%
Other (2,698) -0.1% 19,086 1.4% 17,767 3.1%
------------ --------- ------------ -------- ------------ ---------
Total $1,323,152 39.4% $519,449 38.9% $224,507 39.6%
============ ========= ============ ======== ============ =========
</TABLE>
The following is a summary of the tax effects of temporary differences
that give rise to significant portions of the deferred tax assets and
deferred tax liabilities at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $132,963 $148,780
Interest income on nonaccrual loans 5,205 5,253
Deferred loan fees 50,711 93,397
Furniture and equipment 154,018 181,194
Unrealized losses on securities 267,133 2,624
Compensated absences 8,927 (4,277)
---------------- ----------------
Total gross deferred tax assets 618,957 426,971
---------------- ----------------
Deferred tax liabilities:
Prepaid expenses -- (8,821)
Other (712) (2,927)
---------------- ----------------
Total gross deferred tax liabilities (712) (11,748)
---------------- ----------------
Net deferred tax assets $618,245 $415,223
================ ================
</TABLE>
-27-
<PAGE>
The net deferred income tax asset at December 31, 1999 and 1998 was
$618,245 and $415,223, respectively, and are included in other assets
in the accompanying financial statements. Also included in other
liabilities at December 31, 1999 and 1998, were current tax payables of
$75,900 and $0, respectively.
9. Long-term Debt
The Bank entered into an agreement to borrow funds from the Federal
Home Loan Bank of Atlanta on October 1, 1996, maturing on December 1,
2008, at a fixed rate of 6.95%. The outstanding balance of loans
pledged at December 31, 1999 and 1998, to collateralize this debt is
$1,552,000 and $3,755,000, respectively, and consists of loans secured
by first liens on one- to-four family, multifamily and commercial
mortgages. The maximum amount that could be borrowed from the Federal
Home Loan Bank under the current borrowing agreement is approximately
$16,054,000 collateralized by qualifying loans or investment
securities. Annual principal maturities as of December 31, 1999 are as
follows:
2000 $ 70,794
2001 77,821
2002 85,544
2003 94,034
2004 103,366
2005 and thereafter 526,750
------------
Total $ 958,309
============
10. Short-term Borrowings
Short-term borrowings consist primarily of Federal funds purchased and
securities sold under repurchase agreements. Federal funds purchased
represent funds borrowed overnight, while securities sold under
repurchase agreements generally involve the receipt of immediately
available funds which mature in one business day or roll over under a
continuing contract. The balance of securities sold under repurchase
agreements at December 31, 1999 and 1998 was $3,193,000 and $4,648,000,
respectively. In accordance with these contracts, the underlying
securities sold are U.S. Treasuries or government agencies which are
segregated from the Company's other investment securities in the Bank's
Federal Reserve Bank account. The book value of the underlying
securities sold under these repurchase agreements at December 31, 1999
and 1998 was approximately $3,792,000 and $4,700,000, respectively.
Other short-term borrowings may consist of borrowings from the FHLB for
liquidity purposes. Borrowings are collateralized by investment
securities. No short-term FHLB borrowings are outstanding at December
31, 1999 and 1998.
Short-term borrowings for 1999 and 1998 are summarized below:
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
Balance at end of year $3,193,166 $4,647,740
Daily average balance outstanding during year 4,126,957 3,919,783
Maximum balance outstanding as of any month-end during year 5,413,074 4,898,836
Daily average interest rate during year 3.90% 4.70%
Average interest rate on balance at end of year 4.25% 4.24%
</TABLE>
-28-
<PAGE>
11. Commitments and Contingent Liabilities
In the normal course of business, there are various outstanding
commitments and contingent liabilities, such as commitments to extend
credit, that are not reflected in the accompanying consolidated
financial statements. These commitments include (among others)
revolving credit agreements, term loan commitments, and short- term
borrowing agreements. Commitments generally have fixed expiration dates
or other termination clauses and may require payment of a fee. Since
many of the commitments are expected to expire without being funded,
the total commitment amounts do not necessarily represent future
liquidity requirements. Both loan commitments and standby letters of
credit have credit risk essentially the same as that involved in
extending loans to customers and are subject to the normal credit
approval procedures and policies. Collateral is obtained based on
management's assessment of the customer's credit. The Company had
outstanding letters of credit aggregating approximately $1,286,000 and
$697,000 and commitments to originate loans aggregating approximately
$20,373,000 and $19,239,000, at December 31, 1999 and 1998,
respectively. The portion of letters of credit which are collateralized
was 44% and 86% at December 31, 1999 and 1998, respectively.
Under the terms of an employment agreement with the current President
and CEO of the Bank, the Bank is obligated to make payments totaling
approximately $150,000, in the event she chooses to exercise her rights
under a severance agreement on or before June 20, 2000. These funds are
held in the grantor trust established on February 25, 1998. Under the
terms of an employment agreement with the former President and CEO of
the Bank, the Bank is obligated to continue her benefits to May 18,
2000.
The Company maintains directors' and officers' liability insurance in
the amount of $5,000,000, subject to certain exclusions.
The Company and the Bank are defendants in litigation and claims
arising from the normal course of business. Based on consultation with
legal counsel, management is of the opinion that the outcome of pending
and threatened litigation will not have a material effect on the
Company's consolidated financial statements.
12. Restrictions on Dividend Payments and Loans by Affiliated Bank
Any dividends payable by the Company are dependent on dividends payable
from the Bank to the Company. Federal banking laws restrict the total
dividend payments that a national banking association may make during
any calendar year to the total net income of the bank for the current
year plus retained net income for the preceding two years, except with
the prior written approval of the Office of the Comptroller of the
Currency. At December 31, 1999, approximately $4,068,447 of retained
earnings of the Bank was available for dividend declarations without
prior regulatory approval. The Federal Reserve Board has issued a
statement effective November 14, 1985 which indicates that dividends
should only be paid out of net income available to common shareholders
over the past year. As of December 31, 1999, dividends paid did not
exceed the net income available to common shareholders for 1999 by
approximately $1,203,000. Restrictions are also imposed upon the
ability of the Bank to make loans to the Company, purchase stock in the
Company or use the Company's securities as collateral for indebtedness
of the Bank. At December 31, 1999, the Company and the Bank were in
compliance with regulatory requirements.
13. Parent Company Information
On April 1, 1982, the Company acquired, through merger, all of the
outstanding shares of the Bank, becoming the parent and sole
stockholder. The earnings of the Bank are recorded by the Company using
the equity method of accounting. Earnings are recorded as an increase
in the Company's investment, and dividends
-29-
<PAGE>
declared by the Bank are recorded as reductions in the Company's
investment in the Bank. Presented below are the condensed financial
statements of Abigail Adams National Bancorp:
<TABLE>
<CAPTION>
Condensed Balance Sheets
December 31
---------------- ----------------
1999 1998
---------------- ----------------
<S> <C> <C>
Assets:
Interest-bearing balances with bank subsidiary $35,149 $1,009,157
Investment in subsidiary bank 13,458,843 12,019,925
Loans 75,858 --
Other assets 1,056,663 879,245
---------------- ----------------
Total assets $14,626,513 $13,908,327
================ ================
Liabilities and Stockholders' Equity:
Other liabilities $167,855 $309,044
Stockholders' equity 14,458,660 13,599,283
---------------- ----------------
Total liabilities and stockholders' equity $14,626,515 $13,908,327
================ ================
</TABLE>
<TABLE>
<CAPTION>
Condensed Statement of Income
Year Ended December 31
---------------------------------------------------
1999 1998 1997
---------------- --------------- ----------------
<S> <C> <C> <C>
Income
Interest earned on balances with subsidiary bank $5,404 $41,460 $110,920
Interest on loans 13,158 48,464 233,800
Dividends from subsidiary bank 400,000 -- --
Other 15,000 -- --
---------------- ---------------- ----------------
Total income 433,562 89,924 344,720
---------------- ---------------- ----------------
Expenses
Salaries and benefits 9,359 111,173 6,203
Professional fees 69,045 563,085 1,043,450
Benefit from loan loss -- (25,000) --
Other 292,417 246,338 431,327
---------------- ---------------- ----------------
Total expenses 370,821 895,596 1,480,980
---------------- ---------------- ----------------
Income (loss) before taxes and equity in
undistributed net income of subsidiary 62,741 (805,672) (1,136,260)
Income tax benefit 135,296 325,721 447,693
---------------- ---------------- ----------------
Income (loss) before equity in undistributed earnings
of subsidiary 198,037 (479,951) (688,567)
Equity in undistributed net income of subsidiary 1,830,898 1,296,320 1,030,394
---------------- ---------------- ----------------
Net Income $2,028,935 $816,369 $341,827
---------------- ---------------- ----------------
</TABLE>
-30-
<PAGE>
<TABLE>
<CAPTION>
Condensed Statement of Cash Flows
Years Ended December 31
--------------------------------------------------
1999 1998 1997
--------------- ---------------- ---------------
<S> <C> <C> <C>
Operating Activities:
Net Income $2,028,935 $816,369 $341,827
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Equity in undistibuted net income of subsidiary (1,830,898) (1,296,320) (1,030,394)
Benefit for loan losses -- (25,000) --
ESOP compensation expense paid in stock 9,359 5,496 6,203
Other, net (470,672) (515,247) 73,888
--------------- ---------------- ---------------
Net Cash used in operating activities (263,276) (1,014,702) (608,476)
Investing Activities:
Net decrease (increase) in lines of credit 75,858 474,007 848,339
Loans originated -- (470,000) (2,394,500)
Principal collected on loans -- 2,030,271 1,706,913
--------------- ---------------- ---------------
Net Cash provided by investing activities 75,858 2,034,278 160,752
Financing Activities:
Proceeds from issuance of common stock, net 20,996 253,247 9,767
Loan to Employee Stock Ownership Plan (ESOP) 59,966 11,926 --
Rabbi Trust contribution, net 348 (96,173) --
Redemptions of shares from ESOP (42,279) --
Contribution of capital to subsidiary -- (2,000,000) (350,000)
Cash dividends paid to stockholders (825,621) (535,686) (650,370)
--------------- ---------------- ---------------
Net Cash used in financing activities (786,590) (2,366,686) (990,603)
--------------- ---------------- ---------------
Net decrease in cash and cash equivalents (974,008) (1,347,110) (1,438,327)
Cash and cash equivalents at beginning of year 1,009,157 2,356,267 3,794,594
--------------- ---------------- ---------------
Cash and cash equivalents at end of year $35,149 $1,009,157 $2,356,267
=============== ================ ===============
</TABLE>
-31-
<PAGE>
14. Regulatory Capital Requirements
The Company and the Bank are subject to regulatory capital requirements
administered by federal banking agencies. These regulatory capital
requirements involve quantitative measures of the Company's assets,
liabilities and certain off-balance sheet items, and also qualitative
judgements by the regulators. Failure to meet minimum capital
requirements can subject the Company to a series of increasingly
restrictive actions. To be considered "well-capitalized," an
institution must generally have a leverage ratio of at least 5%, a Tier
1 risk- based capital ratio of at least 6% and a total risk-based
capital ratio of at least 10%. At December 31, 1999 and 1998, both the
Company and the Bank were considered "well-capitalized." The table
below presents the capital position of the Company and the Bank
relative to their various minimum statutory and regulatory capital
requirements at December 31, 1999 and 1998.
<TABLE>
<CAPTION>
Minimum Capital Minimum To Be
Actual Requirements Well Capitalized
-------------------- ----------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
--------- --------- --------- ------------ -------------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
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%
December 31, 1998:
Total Capital to Risk Weighted Assets:
Consolidated 14,730 13.72% 8,590 8.00% -- --
Bank 13,150 12.26% 8,584 8.00% 10,729 10.00%
Tier 1 Capital to Risk Weighted Assets:
Consolidated 13,595 12.66% 4,295 4.00% -- --
Bank 12,016 11.20% 4,292 4.00% 6,438 6.00%
Leverage Ratio
Consolidated 13,595 10.39% 5,232 4.00% -- --
Bank 12,016 9.29% 5,176 4.00% 6,470 5.00%
</TABLE>
-32-
<PAGE>
15. 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 (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. All the options became fully vested
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 December 31, 1999, 18,379 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. Options under both plans became fully vested in 1998. 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 in 1997 at prices ranging from $9.37 to
$9.46 for employees. As of December 31, 1999, 7,770 options have been
exercised under these plans.
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 at $5.39. The options are fully
vested and expire on May 17, 2000. No options have been exercised as of
December 31, 1999.
The Company accounts for its stock option plans under APB Opinion No.
25. In accordance with APB Opinion No. 25, no compensation expense has
been recorded for the January 23, 1996 Employee Plan and the November
19, 1996 Employee Plan. Compensation expense of approximately $0,
$67,000 and $24,000 in 1999, 1998 and 1997, respectively, has been
recorded for the Directors Plan, the 1996 Directors Plan and the
options granted to the President and Chief Executive Officer, which is
an amount equal to the difference between the quoted market price of
the stock at the date of grant and the amount the employee/director is
required to pay. The compensation expense was accelerated in 1998, at
which time all the options vested.
Had compensation cost for these plans been determined consistent with
the Statement of Financial Accounting Standards No. 123, "Accounting
for Stock Based Compensation" (SFAS No. 123), the Company's net income
and basic earnings per share for 1998 and 1997 would have been $849,000
and $.41 per share and $344,000 and $.17 per share, respectively. There
was no effect on 1999 net income or earnings per share. Diluted
earnings per share for 1998 and 1997 would have been $.40 per share and
$.16 per share, respectively.
A summary of the status of the Company's four stock option plans and
the one out-of-plan stock option grant at December 31, 1999 and 1998
and changes during the years then ended is presented in the table and
narrative below:
-33-
<PAGE>
<TABLE>
<CAPTION>
1999
--------------------------------------------------------
Directors plans and
CEO grants Employee plans
-------------------------- --------------------------
Wtg Avg Wtg Avg
Shares Ex Price Shares Ex Price
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 102,797 $5.53 4,657 $8.32
Granted -- -- -- --
Exercised -- -- (2,709) $7.76
Forfeited/Expired -- -- (698) $8.59
Outstanding at end of year 102,797 $5.53 1,250 $9.37
Exercisable at end of year 102,797 $5.53 1,250 $9.37
Weighted average fair value of options granted -- -- -- --
<CAPTION>
1998
--------------------------------------------------------
Directors plans and
CEO grants Employee plans
-------------------------- --------------------------
Wtg Avg Wtg Avg
Shares Ex Price Shares Ex Price
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 111,686 $5.56 28,733 $7.78
Granted -- -- -- --
Exercised (8,889) $5.89 (12,989) $7.02
Forfeited/Expired -- -- (11,087) $8.45
Outstanding at end of year 102,797 $5.53 4,657 $8.32
Exercisable at end of year 102,797 $5.53 4,657 $8.32
Weighted average fair value of options granted -- -- -- --
</TABLE>
At December 31, 1999, options granted under the Directors Plan and the
1996 Directors Plan and under the Non-Qualified Stock Option Agreement
between the Company and the President and Chief Executive Officer have
exercise prices between $5.39 and $7.30, with a weighted average
exercise price of $5.53 and a weighted average remaining contractual
life of 6.12 years. Of these options, 102,797 are exercisable. At
December 31, 1999, options granted under the Employee Plan and the 1996
Employee Plan have an exercise price of $9.37, with a weighted average
exercise price of $9.37 and a weighted average remaining contractual
life of 6.88 years. Of these options, 1,250 are exercisable.
The fair value of each option grant is estimated on the date of grant
using a Black-Scholes based option pricing model. There were no grants
in 1999 or 1998.
On April 16, 1996, the Company and the Bank adopted an employee stock
ownership plan ("ESOP") with 401(k) provisions. Participants may elect
to contribute to the ESOP a portion of their salary, which may not be
less than 1% or more than 15%, of their annual salary (up to $10,000
for 1999 and 1998). In addition, the Bank may make a discretionary
matching contribution equal to one-half of the percentage amount of the
salary reduction elected by each participant (up to a maximum of 3%),
which percentage will be determined each year by the Bank, and an
additional discretionary contribution determined each year by the Bank.
Employee contributions and the employer's matching contributions
immediately vest. The employer's discretionary contributions are vested
as follows: 33.33% for one year of service; 66.67% for two years of
service; and 100% for three years of service.
The Company made matching contributions to the Plan of $36,600, $18,000
and $41,000 in 1999, 1998 and 1997, respectively. These amounts are
included in salaries and employee benefits in the accompanying
consolidated statements of income. In accordance with the terms of the
ESOP, dividends paid on all shares allocated to the participants'
accounts are reflected as dividends declared in the accompanying
consolidated statement of changes in stockholders' equity. Dividends
paid on all remaining unallocated shares owned by the ESOP are also
allocated to the participants' accounts and are included in salaries
and benefits for 1999 in
-34-
<PAGE>
the accompanying consolidated statements of operations and
comprehensive income. As of December 31, 1999, 7,854 shares were
allocated to participants' accounts, 7,742 shares were committed to be
released and the remaining 15,654 shares are unearned ESOP shares held
in suspense. In 1999, the Company paid $12,000 on the ESOP shares and
made a capital contribution of $56,825. The capital contribution was
directly applied toward the ESOP loan. Dividends paid on allocated
shares may be paid to participants or used to repay the ESOP loan, with
an equivalent number of shares allocated to participants' accounts.
Dividends on unallocated shares are expected to be used to repay the
ESOP loan with the equivalent number of shares allocated to
participants' accounts. The participating employee has certain put
rights in the event that the common stock distributed cannot be readily
sold. Only shares which are allocated or committed to be released are
considered for purposes of computing earnings per share. The fair value
of the unearned ESOP shares at December 31, 1999, 1998 and 1997 is
$158,500, $403,700 and $351,300, respectively.
16. Other Operating Expense
Other operating expense for the years ended December 31, 1999, 1998 and
1997, is summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------ ------------
<S> <C> <C> <C>
Courier service and bank security $162,204 $132,504 $157,116
Stationery and office supplies 98,901 146,836 159,638
Printing 29,542 39,332 152,189
Advertising 46,919 97,790 97,534
FDIC insurance premiums 12,654 14,538 10,271
Other 713,484 662,373 792,598
------------- ------------ ------------
Total other operating expense $1,063,704 $1,093,373 $1,369,346
============= ============ ============
</TABLE>
Cost control measures have reduced the other operating expenses by
2.7%, even though assets have grown by 10% for 1999. The reduction in
operating expenses for 1998 as compared to 1997, was due in part to
cost control measures and the reduction in expenses related to costs
written-off in connection with a failed acquisition in 1997 of
$222,000.
17. Shareholder Rights Plan
On April 12, 1994, the Board of Directors of the Company adopted a
Rights Agreement ("Rights Agreement"), which was amended April 20,
1995. Pursuant to the Rights Agreement, the Board of Directors of the
Company declared a dividend of one share purchase right for each share
of the Company's common stock outstanding on April 25, 1994 ("Right").
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.
-35-
<PAGE>
Upon the occurrence of one of the triggering events, all holders of
Rights, except the Acquiring Person or Adverse Person, would be
entitled to purchase the Company's common stock at 50% of the market
price. If the Company is acquired in a merger or business combination,
each holder of a Right would be entitled to purchase common stock of
the Acquiring Person at a similar discount.
The Board of Directors may redeem the Rights for $0.01 per share or
amend the Plan at any time before a person becomes an Acquiring Person.
The Rights expire on December 31, 2003.
18. Fair Value of Financial Instruments
The following are the estimated fair values of the Company's financial
instruments at December 31, 1999 and 1998 followed by a general
description of the methods and assumptions used to estimate such fair
values.
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
------------------------------ ------------------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and due from banks $4,707,226 $4,707,226 $5,836,099 $5,836,099
Federal funds sold and interest-bearing
deposits in other banks 9,906,598 9,906,598 5,607,288 5,607,288
Investment securities available for sale 12,833,257 12,833,257 13,813,009 13,813,009
Investment securities held to maturity 3,928,021 3,850,534 7,976,376 8,027,302
Loans 108,823,012 94,219,747
Less: Allowance for loan losses (1,137,009) (1,134,128)
-------------- --------------
Net Loans 107,686,003 108,709,000 93,085,619 94,750,000
Financial Liabilities:
Deposits 122,569,899 122,640,001 108,665,088 108,764,238
Short-term borrowings 3,193,166 3,193,166 4,647,740 4,647,740
Long-term debt 958,309 942,000 1,022,711 1,105,000
</TABLE>
The following methods and assumptions were used by the Company in
estimating the fair value of its financial instruments:
Cash and due from banks. The carrying amounts reported in the balance
sheet approximate fair value due to the short-term nature of these
assets.
Federal funds sold and interest-bearing deposits in other banks. The
carrying amounts of short-term investments on the balance sheet with
maturities of 90 days or less approximate fair value.
Investments securities available for sale and investment securities to
be held to maturity. The estimated fair values of securities by type
are based on quoted market prices, when available. If a quoted market
price is not available, fair value is estimated using quoted market
prices for similar securities.
-36-
<PAGE>
Loans. Estimated fair values for variable rate loans, which reprice
frequently and have no significant credit risk, are based on carrying
value. Estimated fair value for all other loans are estimated using
discounted cash flow analyses, based on interest rates currently
offered on loans with similar terms to borrowers of similar credit
quality. The fair value of nonperforming loans is calculated by
estimating the timing and amount of cash flows. These cash flows are
discounted using estimated market yields commensurate with the risk
associated with such cash flows. Estimated cash flows are made using
data specific to the borrower and available market data.
Deposits. The fair value of deposits with no stated maturity, such as
noninterest-bearing deposits, NOW accounts, savings and money market
deposit accounts, is the amount payable on demand as of year-end. Fair
values for time deposits are estimated using discounted cash flow
analyses, based on the current interest rates offered for deposits of
similar maturities.
Short-term borrowings. The carrying values of federal funds purchased,
securities sold under agreements to repurchase and other short-term
borrowings approximate fair values.
Long-term debt. The fair value of the long-term debt is estimated by
using discounted cash flow analyses, based on the current rates offered
for similar borrowing arrangements.
Loan commitments, standby and commercial letters of credit. The
estimated fair value of these off-balance- sheet instruments are based
on cost. Carrying amounts which are comprised of the unamortized fee
income and where necessary, reserves for any expected credit losses
from these financial instruments, are immaterial.
-37-
<PAGE>
Independent Auditor's Report
The Board of Directors and Stockholders
Abigail Adams National Bancorp, Inc.
Washington, D.C.
We have audited the accompanying consolidated balance sheet of Abigail Adams
National Bancorp, Inc. and subsidiary (the Company) as of December 31, 1999, and
the related consolidated statements of income, changes in stockholders' equity
and cash flows for the year then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as, evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Abigail Adams
National Bancorp, Inc. and subsidiary as of December 31, 1999 and the
consolidated results of their operations and their cash flows for the year then
ended December 31, 1999, in conformity with generally accepted accounting
principles.
Keller Bruner & Company, L.L.C.
Frederick, Maryland
January 24, 2000
-38-
<PAGE>
Independent Auditor's Report
The Board of Directors and Stockholders of
Abigail Adams National Bancorp, Inc.
We have audited the accompanying consolidated balance sheet of Abigail Adams
National Bancorp, Inc. and subsidiary (the Company) as of December 31, 1998, and
the related consolidated statements of income, changes in stockholders' equity
and cash flows for the two years ended December 31, 1998 and December 31, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Abigail Adams
National Bancorp, Inc. and subsidiary as of December 31, 1998, and the results
of its operations and its cash flows for the two years ended December 31, 1998
and December 31, 1997, in conformity with accounting principles generally
accepted in the United States.
Arthur Andersen LLP
Vienna, Virginia
February 2, 1999
-39-
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC.
OFFICERS:
Jeanne D. Hubbard....................................Chairwoman, President & CEO
Karen E. Schafke.................Senior Vice President & Chief Financial Officer
THE ADAMS NATIONAL BANK
OFFICERS:
Jeanne D. Hubbard.....................................................Chairwoman
Kathleen Walsh Carr..............................................President & CEO
Karen E. Schafke.................Senior Vice President & Chief Financial Officer
Betty J. Serrano...............................Senior Vice President, Operations
David M. Glaser.................... Senior Vice President, Retail Administration
Hanh D. Nguyen.......................................Vice President & Controller
Arthur C. Smith III......................................Vice President, Lending
Patrice G. Goss..........................................Vice President, Lending
Kathryn R. Speakman............................Assistant Vice President, Lending
Mary Queen..................................Assistant Vice President, Operations
Everett Hitchner...................Assistant Vice President, Assistant Treasurer
Mary E. Mills...................Assistant Vice President, Information Technology
-40-
<PAGE>
DIRECTORS OF ABIGAIL ADAMS NATIONAL BANCORP, INC.
AND
THE ADAMS NATIONAL BANK
Jeanne D. Hubbard
Chairwoman, President and Chief Executive Officer
Abigail Adams National Bancorp., Inc.
Kathleen Walsh Carr
President & Chief Executive Officer
The Adams National Bank
Michelle D. Bernard
Partner
Patton Boggs, L.L.P.
A. George Cook, III
Principal
George Cook & Company
Carl E. Hecht
Chairman
US Tag
Lynne M. Miller
Chief Executive Officer
Environmental Strategies Corporation
Marshall T. Reynolds
Chairman & Chief Executive Officer
Champion Industries, Inc.
Patricia G. Shannon
President & Chief Executive Officer
Boys & Girls Clubs of Greater Washington
Robert L. Shell, Jr.
Chief Executive Officer
Guyan International
Marianne Steiner
Principal
Larkspur Marketing
Joseph L. Williams
Chairman & Chief Executive Officer
Basic Supply Company, Inc.
Bonita A. Wilson
Principal
Bonnie Wilson & Company
-41-
<PAGE>
- --------------------------------------------------------------------------------
Form 10-KSB
Copies of the Annual Report as filed with the Securities and Exchange Commission
on Form 10-KSB are available without charge, upon written request to Ms. Karen
E. Schafke, Senior Vice President and Chief Financial Officer, Abigail Adams
National Bancorp, Inc. 1627 K Street, NW Washington, D.C. 20006.
EXECUTIVE OFFICES:
1627 K Street, NW
Washington, D.C. 20006
(202) 466-4090
TRANSFER AGENT:
American Stock Transfer & Trust Company
40 Wall Street
New York, N.Y. 10005
SPECIAL COUNSEL:
Luse Lehman Gorman Pomerenk & Schick, P.C.
5335 Wisconsin Avenue. NW
Suite 400
Washington, D.C. 20015
ONLINE:
http://www.adamsbank.com
STOCK LISTING:
Abigail Adams National Bancorp, Inc. Common Stock is listed on the National
Market under the symbol AANB.
-42-
<PAGE>
Branch Locations:
Main Office
1627 K Street, NW
Washington, D.C. 20006-1782
(202) 466-4090
(202) 833-8875 fax
Dupont Circle East
1604 17th Street, NW
Washington, D.C. 20009-2441
(202) 466-4090
(202) 387-4110 fax
Georgetown
1729 Wisconsin Avenue, NW
Washington, D.C. 20007-2379
(202) 466-4090
(202) 338-1889 fax
Union Station
50 Massachusetts Avenue, NE
Washington, D.C. 20002-4214
(202) 466-4090
(202) 371-6590 fax
MCI Center/Chinatown
802 7th Street, NW
Washington, D.C. 20001-3718
(202) 466-4090
(202) 842-0076 fax
-43-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,707
<INT-BEARING-DEPOSITS> 3,901
<FED-FUNDS-SOLD> 6,006
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 13,406
<INVESTMENTS-CARRYING> 3,355
<INVESTMENTS-MARKET> 3,273
<LOANS> 108,823
<ALLOWANCE> 1,137
<TOTAL-ASSETS> 141,770
<DEPOSITS> 122,570
<SHORT-TERM> 3,193
<LIABILITIES-OTHER> 590
<LONG-TERM> 958
0
0
<COMMON> 12,499
<OTHER-SE> 1,960
<TOTAL-LIABILITIES-AND-EQUITY> 141,770
<INTEREST-LOAN> 9,246
<INTEREST-INVEST> 1,115
<INTEREST-OTHER> 284
<INTEREST-TOTAL> 10,645
<INTEREST-DEPOSIT> 3,108
<INTEREST-EXPENSE> 3,338
<INTEREST-INCOME-NET> 7,307
<LOAN-LOSSES> 90
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,407
<INCOME-PRETAX> 3,352
<INCOME-PRE-EXTRAORDINARY> 3,352
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,029
<EPS-BASIC> .98
<EPS-DILUTED> .96
<YIELD-ACTUAL> 5.97
<LOANS-NON> 70
<LOANS-PAST> 8
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,125
<ALLOWANCE-OPEN> 1,134
<CHARGE-OFFS> 141
<RECOVERIES> 54
<ALLOWANCE-CLOSE> 1,137
<ALLOWANCE-DOMESTIC> 1,110
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 27
</TABLE>
<PAGE>
EHIBIT 99.1
[Letterhead of ARTHUR ANDERSEN]
As independent public accountants, we hereby consent to the incorporation of our
reports, incorporated by reference in this Form 10-KSB, into Abigail Adams
National Bancorp, Inc.'s previously filed Registration Statement File No.
333-47061.
/s/ Arthur Andersen LLP
Vienna, Virginia
March 27, 2000
<PAGE>
EXHIBIT 99.2
[Letterhead of KELLER BRUNER & COMPANY, LLP appears here]
The Board of Directors
Abigail Adams National Bancorp, Inc.
We consent to incorporation by reference of our report dated January 24, 2000
relating to the consolidated balance sheet of Abigail Adams National Bancorp,
Inc. and its subsidiary as of December 31, 1999, and the related consolidated
statements of income, changes in shareholders' equity and cash flows for the
year then ended, which report appears on page 38 of the 1999 Abigail Adams
National Bancorp, Inc. Annual Report in this Annual Report on Form 10-K, and in
the following Registration Statements of Abigail Adams National Bancorp, Inc.:
Number 333-19155 on Form S-8, Number 333-33537 on Form S-8, Number 333-33539 on
Form S-8 and Number 333-47061 on Form S-8.
/s/ Keller Bruner & Company, LLP
Frederick, Maryland
March 27, 2000
