SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-10971
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ABIGAIL ADAMS NATIONAL BANCORP, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 52-1508198
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(State or other jurisdiction of (I.R.S. Employer ID No.)
Incorporation or organization)
1627 K Street, N.W. Washington, D.C. 20006
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(Address of principal executive offices)
202-466-4090
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Issuer's telephone number including area code
N / A
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Former name, address, and fiscal year, if changes since last report
Indicate by check whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No .
State the number of shares outstanding of each of the issuer's classes of
common equity as of August 7, 2000:
2,179,214 shares of Common Stock, Par Value $0.01/share
Transitional Small Business Disclosure Format (check one): Yes No X
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<PAGE>
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
------------------------------ ----
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheets 2
Consolidated Statements of Income 3
Consolidated Statements of Changes in Stockholder's Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-9
Item 2 - Management's Discussion and Analysis 10-18
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 19
Item 4 - Submission of Matters to Vote of Securities Holders 19
Item 5 - Other Matters 20
Item 6 - Exhibits and Reports on Form 8-K 20
Signatures 20
1
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
June 30, 2000 and 1999 and December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
June 30, June 30, Dec 31,
2000 1999 1999
---------------- ------------- ---------------
Assets
<S> <C> <C> <C>
Cash and due from banks $ 4,958,942 $ 4,321,188 $ 4,707,226
Federal funds sold 6,097,504 3,558,000 6,005,707
Interest-bearing deposits in other banks 10,350,108 6,348,748 3,900,891
Investment securities available for sale at fair value 13,384,291 11,100,296 13,405,857
Investment securities held to maturity (market value of $2,955,585
at June 30, 2000, $5,941,224 at June 30, 1999 and $3,277,934
at December 31, 1999 3,033,578 5,959,230 3,355,421
Loans (net of deferred fees and unearned discounts) 110,943,067 98,941,793 108,823,012
Less: allowance for loan losses (1,401,621) (1,159,412) (1,137,009)
-------------- ------------- ---------------
Loans, net 109,541,446 97,782,381 107,686,003
------------- ------------ ---------------
Bank premises and equipment, net 884,114 1,060,934 978,858
Other assets 1,803,912 1,665,571 1,730,256
-------------- ------------ --------------
Total assets $150,053,895 $131,796,348 $141,770,219
============= ============= ============
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Noninterest-bearing deposits $ 37,218,963 $ 31,548,866 $ 36,816,624
Interest-bearing deposits 92,257,326 81,879,155 85,753,275
-------------- ------------- -------------
Total deposits 129,476,289 113,428,021 122,569,899
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Short-term borrowings 3,861,258 2,766,408 3,193,166
Long-term debt 923,749 991,271 958,309
Other liabilities 180,415 712,521 590,185
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Total liabilities 134,441,711 117,898,221 127,311,559
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Commitments and contingencies (Note 2)
Stockholders' equity:
Common stock, par value $0.01 per share, authorized 5,000,000 shares; issued
2,188,218 at June 30, 2000, 2,094,468 at June 30, 1999 and 2,094,468 shares
at December 31, 1999; outstanding 2,179,214 shares at June 30, 2000,
2,085,274 shares at June 30, 1999 and
2,085,464 shares at December 31, 1999 21,882 20,945 20,945
Capital surplus 12,982,402 12,503,895 12,478,090
Retained earnings 3,189,409 1,836,146 2,528,366
Less: Employee Stock Ownership Plan shares, 15,654 shares at
June 30, 2000, 23,396 shares at June 30, 1999, and
15,654 shares at December 31, 1999, at cost (109,586) (204,716) (109,586)
Less: Treasury stock, 9,004 shares at June 30, 2000,
5,850 shares at June 30, 1999, and 9,004 shares at
December 31, 1999, at cost (70,989) (28,710) (70,989)
Accumulated other comprehensive income (loss) (400,934) (229,433) (388,166)
---------------- --------------- -----------
Total stockholders' equity 15,612,184 13,898,127 14,458,660
-------------- -------------- -----------
Total liabilities and stockholders' equity $150,053,895 $131,796,348 $141,770,219
============= ============ ============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
For the Periods Ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
For the three months For the six months
Ended June 30, Ended June 30,
2000 1999 2000 1999
------ ------ ------ ------
Interest income
<S> <C> <C> <C> <C>
Interest and fees on loans $2,530,949 $2,299,912 $4,962,254 $4,432,069
Interest and dividends on investment securities:
Taxable income 260,451 261,226 521,320 565,600
Nontaxable income 0 3,991 3,282 7,982
Other interest income 164,170 81,307 318,800 141,411
----------- ------------ ----------- -----------
Total interest income 2,955,570 2,646,436 5,805,656 5,147,062
---------- ---------- ----------- ----------
Interest expense
Interest on deposits 871,886 754,888 1,750,877 1,543,362
Interest on short-term borrowings 45,175 47,618 83,219 92,133
Interest on long-term debt 16,344 17,615 32,826 34,998
------------ ------------ ------------- ------------
Total interest expense 933,405 820,121 1,866,922 1,670,493
----------- ----------- ----------- ----------
Net interest income 2,022,165 1,826,315 3,938,734 3,476,569
Provision for loan losses 140,000 15,000 313,000 30,000
------------ ------------ ----------- ------------
Net interest income after provision for loan losses 1,882,165 1,811,315 3,625,734 3,446,569
Noninterest income
Service charges on deposit accounts 325,129 329,614 640,319 697,892
Other income 138,299 45,705 229,900 98,932
------------ ------------ ------------ ------------
Total noninterest income 463,428 375,319 870,219 796,824
------------ ----------- ------------ -----------
Noninterest expense
Salaries and employee benefits 581,030 592,575 1,164,229 1,184,031
Occupancy and equipment expense 312,810 328,281 626,101 652,716
Professional fees 100,449 69,799 168,144 129,877
Data processing fees 118,333 133,133 235,275 233,060
Other operating expense 265,827 277,445 497,508 526,824
----------- ----------- ------------ -----------
Total noninterest expense 1,378,449 1,401,233 2,691,257 2,726,508
---------- ---------- ----------- ----------
Income before provision for income taxes 967,144 785,401 1,804,696 1,516,885
Provision for income taxes 384,973 306,306 716,413 591,585
----------- ----------- ------------ -----------
Net income $ 582,171 $ 479,095 $ 1,088,283 $ 925,300
=========== ========== ============ ==========
Earnings per share:
Basic earnings $0.27 $0.23 $0.51 $0.45
Diluted earnings $0.27 $0.23 $0.51 $0.44
Average common shares outstanding:
Basic 2,187,600 2,064,296 2,116,685 2,063,635
Diluted 2,198,060 2,117,054 2,141,718 2,118,710
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
Six Months Ended June 30, 2000, and 1999
(Unaudited)
<TABLE>
<CAPTION>
Employee Accumulated
Stock Other
Common Capital Retained Treasury Ownership Comprehensive
Stock Surplus Earnings Stock Plan Income (loss) Total
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $20,918 $12,482,926 $1,325,052 $(28,710) $(204,716) $3,813 $13,599,283
Comprehensive income:
Net income -- -- 925,300 -- -- -- 925,300
Unrealized loss on investment securities
available for sale, net of tax -- -- -- -- -- (233,246) (233,246)
---------
Total comprehensive income 692,054
Dividends declared -- -- (414,206) -- -- -- (414,206)
Issuance of shares under Employee
Incentive Stock Option Plan 27 20,969 -- -- -- -- 20,996
------------ -------------------------------------------------------------------------------
Balance at June 30, 1999 $20,945 $12,503,895 $1,836,146 $(28,710) $(204,716) $(229,433) $13,898,127
======== =========== =========== ========== ========== ========== ===========
Balance at December 31, 1999 $20,945 $12,478,090 $2,528,366 $ (70,989) $(109,586) $(388,166) $14,458,660
Comprehensive income:
Net income -- -- 1,088,283 -- -- -- 1,088,283
Unrealized loss on investment securities
available for sale, net of tax -- -- -- -- -- (12,768) (12,768)
-----------
Total comprehensive income 1,075,515
Dividends declared -- -- (427,240) -- -- -- (427,240)
Issuance of shares under Employee
Incentive Stock Option Plan 937 504,312 -- -- -- -- 505,249
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Balance at June 30, 2000 $21,882 $12,982,402 $3,189,409 $ (70,989) $(109,586) $(400,934) $15,612,184
======= =========== =========== ========= ========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
-------- --------
Cash flows from Operating Activities:
<S> <C> <C>
Net income $ 1,088,283 $ 925,300
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 313,000 30,000
Depreciation and amortization 178,431 243,104
Accretion of loan discounts and fees (59,814)
(106,866)
Accretion and amortization of investment securities
discounts and premiums, net 62 3,610
Benefit for deferred income taxes (47,703) (241,765)
Increase in other assets (25,953) (20,703)
Decrease in other liabilities (406,054) (82,936)
------------- ------------
Net cash provided by operating activities 1,040,252 749,744
------------ -----------
Cash flows from Investing Activities
Proceeds from maturities of investment securities held to maturity 310,000 6,300,000
Proceeds from repayment of mortgage-backed securities 16,863 25,704
Purchase of investment securities available for sale -- (1,983,744)
Net increase in interest-bearing deposits in other banks (6,449,217) (4,534,664)
Net increase in loans (2,108,629) (4,619,897)
Purchase of bank premises and equipment (83,686) (144,210)
-------------- -------------
Net cash used in investing activities (8,314,669) (4,956,811)
------------- -----------
Cash flows from Financing Activities
Net increase in transaction and savings deposits 4,314,637 545,938
Net increase in time deposits 2,591,753 4,216,996
Net increase (decrease) in short-term borrowings 668,092 (1,881,332)
Payments on long-term debt (34,560) (31,440)
Proceeds from issuance of common stock, net of expenses 505,249 20,996
Cash dividends paid to common stockholders (427,240) (414,206)
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Net cash provided by financing activities 7,617,931 2,456,952
------------- ------------
Net increase (decrease) in cash and cash equivalents 343,514 (1,750,115)
Cash and cash equivalents at beginning of year 10,712,933 9,629,303
------------ ------------
Cash and cash equivalents at end of period $ 11,056,446 $ 7,879,188
============= ===========
Supplementary disclosures:
Interest paid on deposits and borrowings $1,864,338 $ 1,685,871
=========== ===========
Income taxes paid $ 1,060,000 $ 685,000
============== ============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
Abigail Adams National Bancorp, Inc.
Notes to Consolidated Financial Statements
June 30, 2000 and 1999
1. General 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. As used herein, the term Company includes
the Bank, unless the context otherwise requires. The Company and the Bank
prepare their financial statements on the accrual basis and in conformity with
generally accepted accounting principals. The unaudited information at and for
the three month and six month periods ended June 30, 2000 and 1999 furnished
herein reflects all adjustments which are, in the opinion of management,
necessary to a fair statement of the results for the interim periods presented.
All adjustments are of a normal and recurring nature. Certain reclassifications
have been made to amounts previously reported in 1999 to conform with the 2000
presentation.
When used in this Form 10-QSB, the words or phrases "will likely result,"
"are expected to," "will continue", "is anticipated," "estimate," "project" or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties, including among other
things, changes in economic conditions in the Company's market area, changes in
policies by regulatory agencies, fluctuations in interest rates, demand for
loans in the Company's market area and competition that could cause actual
results to differ materially from historical earnings and those presently
anticipated or projected. The Company wishes to caution readers not to place
undue reliance on any such forward looking statements, which speak only as of
the date made. The Company wishes to advise readers that the factors listed
above could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods in any current
statements.
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.
2. Contingent Liabilities In the normal course of business, there are
various outstanding commitments and contingent liabilities such as commitments
to extend credit and standby letters of credit that are not reflected in the
accompanying consolidated financial statements. No material losses are
anticipated as a result of these transactions on either a completed or
uncompleted basis.
Under the terms of an employment agreement with the current President 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 the agreement
6
<PAGE>
on or before July 31, 2000. These funds are held in a grantor trust
established on February 25, 1998.
The Company maintains directors' and officers' liability insurance in the
amount of $5,000,000, subject to certain exclusions.
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.
3. Shareholder Rights Plan On April 12, 1994, the Board of Directors of the
Company adopted a Rights Agreement ("Rights Agreement"), which was amended April
20, 1995. Pursuant to the Rights Agreement, the Board of Directors of the
Company declared a dividend of one share purchase right for each share of the
Company's common stock outstanding on April 25, 1994 ("Right"). Among other
things, each Right entitles the holder to purchase one share of the Company's
common stock at an exercise price of $16.09.
Subject to certain exceptions, the Rights will be exercisable if a person
or group of persons acquires 25% or more of the Company's common stock
("Acquiring Person"), or announces a tender offer, the consummation of which
would result in ownership by a person or group of persons of 25% or more of the
common stock, or if the Board determines that a person or group of persons
holding 15% or more of the Company's common stock is an Adverse Person, as
defined in the Rights Agreement.
Upon the occurrence of one of the triggering events, all holders of Rights,
except the Acquiring Person or Adverse Person, would be entitled to purchase the
Company's common stock at 50% of the market price. If the Company is acquired in
a merger or business combination, each holder of a Right would be entitled to
purchase common stock of the Acquiring Person at a similar discount.
The Board of Directors may redeem the Rights for $0.01 per share or amend
the Plan at any time before a person becomes an Acquiring Person. The Rights
expire on December 31, 2003.
4. 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
7
<PAGE>
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 June 30, 2000, 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 become fully vested in 1998 and expire not later than
ten years after the date of grant. Options for a total of 27,641 shares of
common stock are available for grant under the above Plans. Options totaling
25,760 were granted in 1996 at a price of $7.30 for directors and $8.59 for
employees. Options totaling 1,881 were granted to employees in 1997 at prices
ranging from $9.37 to $9.46. As of June 30, 2000, 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 ($5.39). The option became fully vested at the time the former
President and CEO left the employment of Company and the Bank. These options
were exercised on April 27, 2000.
On February 15, 2000, the Company adopted a non-statutory stock option plan
( the "Stock Option Plan") to non-employee directors and key employees. A total
of 20,000 shares of the Company's Common Stock are authorized for issuance under
the Stock Option Plan. All options were granted at an exercise price of 85% of
fair value, or $7.30. Options expire after ten years from the date of grant, or
immediately upon leaving the Board. However, in the event of death or
disability, options expire after two years. These options have not been
exercised as of June 30, 2000.
On April 16, 1996, the Company and the Bank adopted an employee stock
ownership plan ("ESOP") with 401(k) provisions, replacing the Bank's former
401(k) Plan, which covered all full- time employees 21 years of age or older who
have completed 500 hours of service. Participants may elect to contribute to the
ESOP a portion of their salary, which may not be less than 1% nor more than 15%,
of their annual salary up to $10,500 for 2000. 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
8
<PAGE>
vest. The initial employer's discretionary contribution was immediately
vested. All future employer's discretionary contributions are vested as follows:
33 and 1/3% for one year of service; 66 and 2/3% for two years of service; 100%
for three years of service, however, an employee's vested percentage will not be
less than their vested percentage under the former 401(k) Plan.
PART I. FINANCIAL INFORMATION (Continued)
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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The following discussion should be read and reviewed in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations set forth in the Company's Form 10-KSB for the year ended December
31, 1999.
Overview
Total assets of Abigail Adams National Bancorp, Inc. and subsidiary (the
"Company") were $150,054,000 at June 30, 2000, as compared to $141,770,000 at
December 31, 1999 and $131,796,000 at June 30, 1999. Total loans increased by
$2,120,000 or 1.95% to $110,943,000 at June 30, 2000 from $108,823,000 at
December 31, 1999 and increased by $12,001,000 or 12.13%, as compared to June
30, 1999. Total deposits of $129,476,000 at June 30, 2000 increased by
$6,906,000 or 5.6% from the December 31, 1999 balance of $122,570,000 and
increased by $16,048,000 or 14.2% from the June 30, 1999 balance of
$113,428,000. Stockholders' equity at June 30, 2000 was $15,612,000, an increase
of $1,153,000 or 8.0 % from $14,459,000 at December 31, 1999 and an increase of
$1,714,000 or 12.3% from $13,898,000 at June 30, 1999. The book value per share
of Common Stock at June 30, 2000 was $7.22, as compared to $6.98 at December 31,
1999 and $6.73 at June 30, 1999. On June 30, 2000, dividends of $0.10 per Common
Share were paid to shareholders of record on June 15, 2000.
The Company reported net income for the three months ended June 30, 2000 of
$582,000, or $0.27 per share, for an annualized return on average assets of
1.63% and an annualized return on average equity of 15.15%. Net income for the
three months ended June 30, 1999 was $479,000 or $0.23 per share, with a return
on average assets of 1.51% and a return on average equity of 13.82%. Net income
for the second quarter of the current year increased 21.5%, as compared to the
same period in 1999.
The Company reported net income for the first six months of 2000 of
$1,088,000, or $0.51 per share, for an annualized return on average assets of
1.54% and an annualized return on average equity of 14.47%. Net income for the
first six months of 1999 was $925,000 or $0.45 per share, with a return on
assets of 1.47% and a return on equity of 13.50%. Net income for the first six
months of the current year increased 17.6%, as compared to the same period in
1999. Income taxes of $716,000 for the first six months of 2000 reflects a 21.1%
increase over the comparable 1999 period. An increase in net interest income
combined with an increase in noninterest income and a decrease in noninterest
expense was partially offset by the increase in the provision for loan losses.
The improved net earnings of the Company reflects greater profitability of the
Bank's core business operations and improved operating efficiency.
9
<PAGE>
Analysis of Net Interest Income
Net interest income, the most significant component of the Company's
earnings, increased by $196,000, or 10.7%, to $2,022,000 for the three months
ended June 30, 2000, as compared to $1,826,000 for the comparable 1999 period.
Average earning assets for the second quarter of 2000 of $135,912,000 increased
by $14,752,000, or 10.9%, over the comparable 1999 period. Average interest
bearing liabilities for the second quarter of 2000 of $88,906,000 increased by
$7,429,000, or 9.1%, over the comparable 1999 period. The yield on total earning
assets was 8.72% for the second quarter of 2000, a decrease of 4 basis points
from the yield of 8.76% for the second quarter of 1999, due to the higher loan
fee income recognized during the second quarter of 1999, as compared to the same
period in 2000. The cost of funds for the second quarter of 2000 was 4.21%, an
increase of 17 basis points from the yield of 4.04% for the second quarter of
1999, due to the higher yields on deposits resulting from the rise in interest
rates. The net interest margin (net interest income as a percentage of average
interest-earning assets) was 5.97% for the second quarter of 2000, as compared
to 6.05% for the same period in 1999, a decrease of 8 basis points. The net
interest spread (the difference between the average interest rate earned on
interest-earning assets and interest paid on interest-bearing liabilities) was
4.51% for the second quarter of 2000, as compared to 4.72% for the second
quarter of 1999, a decrease of 21 basis points.
Net interest income for the first six months of 2000 increased by $462,000,
or 13.3%, to $3,939,000, as compared to $3,477,000 for the comparable 1999
period. Average earning assets for the first six months of 2000 of $134,505,000
increased by $13,909,000, or 11.5%, over the comparable 1999 period. The
improvement in net interest income was the result of the increase in average
earning assets and the change in the mix of earning assets to higher yielding
loans combined with a less proportionate increase in 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 interest-bearing liabilities was 67.5% for the first
six months of 2000, as compared to 68.0% for the same period in 1999. The change
in the percentage of interest- bearing liabilities to earning assets had a
positive effect on the net interest income in 2000. The average loan portfolio
for the first six months of 2000 was $107,137,000, an increase of $11,626,000 or
12.2% over the comparable 1999 period. The yield on the loan portfolio for the
first six months of 2000 was 9.29%, down 7 basis point from the first six months
of 1999, due to higher loan fee income in 1999. The average investment security
portfolio for the first six months of 2000 was $16,547,000, a decrease of
$2,605,000 or 13.6% from the comparable 1999 period. The yield on total earning
assets was 8.66% for the first six months of 2000, an increase of 5 basis points
from the yield of 8.61% for the first six months of 1999. Average interest
bearing deposits for the first six months of 2000 were $84,315,000, an increase
of $7,560,000, or 9.8%, from the comparable 1999 period. The cost of funds for
the first six months of 2000 was 4.19%, an increase of 10 basis points from the
yield of 4.09% for the first six months of 1999. These factors combined to
produce a net interest spread of 4.47% and a net interest margin of 5.87% for
the first six months of 2000, reflecting a decrease of 6 basis points in net
interest spread and an increase of 6 basis points in net interest margin, from
the same period in 1999.
10
<PAGE>
Noninterest Income
Total noninterest income for the three months ended June 30, 2000 was
$463,000, an increase of $88,000 or 23.5% compared to the second quarter of
1999. Noninterest income for the second quarter of 2000 included a $16,000 gain
on the sale of the guaranteed portion of a SBA loan totaling $416,000.
Total noninterest income for the first six months of 2000 was $870,000, an
increase of $73,000 or 9.2% from the same period in 1999. Noninterest income for
the first six months of 2000 included a $46,000 gain on the sale of the
guaranteed portion of SBA loans totaling $1,473,000.
Noninterest Expense
Total noninterest expense for the three months ended June 30, 2000 was
$1,378,000, a decrease of $23,000 or 1.6% as compared to the second quarter of
1999. Salaries and benefits of $581,000 for the second quarter of 2000 decreased
by $12,000 or 1.9%, as compared to the second quarter of 1999. Net occupancy
expense of $313,000 for the second quarter of 2000 reflects a decrease of
$15,000, or 4.7%, from the same period one year earlier, due to the costs
associated with relocating the Georgetown branch in 1999. Professional fees of
$100,000 for the three months ended June 30, 2000 increased by $31,000, or 43.9%
as compared to the second quarter of 1999, due an increase in legal fees. Data
processing expense of $118,000 for the second quarter of 2000 decreased by
$15,000 or 11.1%, compared to the second quarter of 1999, which reflects the
cost savings resulting from performing the back office functions in-house, as
compared to the outsourcing of the backoffice function in 1999. Other operating
expense of $266,000 for the second quarter of 2000 decreased by $12,000 or 4.2%
from the second quarter of 1999.
Total noninterest expense for the first six months of 2000 was $2,691,000,
a decrease of $35,000 or 1.3% from June 30, 1999. Salaries and benefits of
$1,164,000 for the first six months of 2000 decreased by $20,000 or 1.7%, as
compared to the first six months of 1999. Net occupancy expense of $626,000 for
the first six months of 2000 reflects a decrease of $27,000, or 4.1%, from the
same period one year earlier, due to the costs associated with relocating the
Georgetown branch in 1999. Professional fees of $168,000 for the first six
months of 2000 increased by $38,000, as compared to the first six months of
1999, due to fees related to a loan portfolio review and legal fees. Data
processing expense of $235,000 as of June 30, 2000 increased slightly by $2,000
from the prior year. Other operating expense of $498,000 for the first six
months of 2000 decreased by $29,000 or 5.6% from the prior year, due primarily
to cost controls over general expenses.
Income Tax Expense
Income tax expense of $385,000 for the three months ended June 30, 2000
reflects an increase of $79,000 over the $306,000 income tax expense recorded
for the three months ended June 30, 1999, due to the increase in pretax income.
The Company's effective tax rate for the second quarter of 2000 was 39.8%, as
compared to 39.0% for the second quarter of 1999.
11
<PAGE>
Income tax expense of $716,000 for the first six months of 2000 increased
$124,000 over the $592,000 income tax expense recorded one year earlier, due to
the increase in pretax income. The Company's effective tax rate for the first
six months of 2000 was 39.7%, as compared to 39.0% for the first six months of
1999.
Analysis of Loans
The loan portfolio at June 30, 2000 of $110,943,000 increased by $2,120,000
or 1.95%, as compared to the December 31, 1999 balance of $108,823,000. The
guaranteed portion of SBA loans totaling $1,473,000 were sold during the first
six months of 2000. New loans of $17,101,000, exclusive of short-term loans and
lines of credit, were originated in the first six months of 2000. The loan to
deposit ratio at June 30, 2000 was 85.7% and was 308 basis points less than the
December 31, 1999 ratio of 88.8%. The average loan to deposit ratio for the
first six months of 2000 was 88.7% and was unchanged from the first six months
of 1999.
Loan concentrations at June 30, 2000 and December 31, 1999 are summarized as
follows:
Loan Concentrations
At June 30, 2000 and December 31, 1999
<TABLE>
<CAPTION>
June 30 Dec 31
2000 1999
--------- -------
<S> <C> <C>
Service industry 19% 17%
Commercial real estate/finance 56 57
Wholesale/retail 13 14
Other 12 12
------ -----
Total 100% 100%
===== ====
</TABLE>
Analysis of Investments
Investment securities classified as available for sale totaling $13,384,000
decreased $22,000 from December 31, 1999, due to amortization of premiums and
market value adjustments. The investment securities held to maturity of
$3,034,000 decreased $322,000 from December 31, 1999, due the maturity of a
municipal bond and the amortization of premiums. The average combined investment
security portfolio of $16,547,000 for the first six months of 2000, decreased
$2,605,000 or 13.6% from the average of $19,152,000 for the first six months of
1999. The net decrease in the combined investment security portfolio was due to
matured funds that were reinvested into higher yielding loans and changes in the
market value of the investment securities available for sale.
Federal funds sold of $6,098,000 at June 30, 2000, increased $92,000 or
1.5% from $6,006,000 at December 31, 1999. Interest-bearing deposits in other
banks increased $6,449,000 or 165.3% to $10,350,000 at June 30, 2000, from
$3,901,000 at December 31, 1999.
Noninterest-Earning Assets
Cash and due from banks of $4,959,000 at June 30, 2000 increased by
$252,000 from the December 31, 1999 balance of $4,707,000. This increase is due
to the fluctuations in cash balances in the normal course of business for the
Bank.
12
<PAGE>
Deposits
Total deposits of $129,476,000 at June 30, 2000 increased by $6,906,000, or
5.6%, from the December 31, 1999 balance of $122,570,000. Demand deposits of
$37,219,000 at June 30, 2000 reflect a $402,000, or 1.1%, increase from the
$36,817,000 balance at December 31, 1999. NOW accounts grew 83.6% or $10,027,000
to $22,015,000 at June 30, 2000, as compared to $11,988,000 at December 31,
1999. Money market accounts of $21,589,000 at June 30, 2000 decreased by
$6,362,000 or 22.8% from the $27,951,000 balance reported at December 31, 1999,
due primarily to normal fluctuations in the balances of some of the Company's
large corporate customers. Savings deposits increased $248,000 to $3,195,000
from $2,947,000 at December 31, 1999. Certificates of deposit at June 30, 2000
of $45,459,000 increased by $2,592,000 from the $42,867,000 balance at December
31, 1999, with certificates of deposit with balances greater than $100,000
increasing by $2,340,000 and certificates of deposit with balances under
$100,000 increasing by $252,000.
Average noninterest-bearing demand deposits for the first six months of
2000 of $36,545,000 increased by $6,146,000, or 20.2%, from $30,399,000 for the
first six of 1999. Average interest-bearing deposits increased by $7,560,000 or
9.8% during the same period to $84,315,000 from $76,755,000 for the comparable
1999 period. For the first six months of 2000, average NOW accounts of
$14,946,000 increased by $5,265,000, and average money market deposits of
$23,644,000 decreased by $900,000 over the prior year's six month average
balances. Average certificates of deposit with balance greater than $100,000
decreased by $1,565,000 to $17,321,000 for the first six months of 2000, as
compared to the first six months of 1999, due to the curtailment by the Bank of
participation in a government sponsored deposit program. Average certificates of
deposit with balances under $100,000 for the first six months of 2000 of
$25,398,000 increased by $4,676,000 for the same period in 1999. Average
noninterest-bearing deposits to average total deposits during the first six
months of 2000 represent 30.2%, as compared to 28.4% one year earlier.
Asset Quality
Loan Portfolio and Adequacy of Allowance for Loan Losses
The Company manages the risk characteristics of its loan portfolio through
various control processes, such as credit evaluation of individual borrowers,
establishment of lending limits to individuals and application of lending
procedures, such as the holding of adequate collateral and the maintenance of
compensating balances. Although credit policies are designed to minimize risk,
management recognizes that loan losses will occur and that the amount of these
losses will fluctuate depending on the risk characteristics of the loan
portfolio, as well as, general and regional economic conditions.
During the first six months of 2000, the Bank added $313,000 to the
loan loss reserve to support the high level and complexity of commercial and
commercial real estate loans in the loan portfolio, even though the level of
nonperforming and classified loans has remained low. At June 30, 2000, the
allowance for loan losses as a percentage of outstanding loans was 1.26%, as
compared to 1.04% at December 31, 1999. Throughout this process, the Company
continues to recognize the risk characteristics of the loan portfolio, including
specific reserves for problem credits and general reserves for the overall loan
portfolio, and deems the allowance for loan losses of $1,402,000 at June 30,
2000 to be adequate.
13
<PAGE>
The table entitled "Allocation for Loan Losses" on the next page sets forth
an analysis of the allocation for loan losses by categories as of June 30, 2000
and December 31, 1999.
Allocation of Allowance for Loan Losses
At June 30, 2000 and December 31, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-----------------------------------------------------
Reserve % of loans Reserve % of loans
Amount to total loans Amountto total loans
<S> <C> <C> <C> <C>
Commercial $ 540 39.4% $ 455 38.1%
Real estate- commercial mortgage 777 58.6 634 55.5
Real estate- residential mortgage -- -- -- --
Real estate- construction -- -- -- --
Installment 70 1.9 21 2.8
Unallocated 15 .1 27 3.6
---------- ------- ------- ------
Total $ 1,402 100.0% $ 1,137 100.0%
========= ====== ======= ======
</TABLE>
Transactions in the allowance for loan losses for the six months ended June 30,
2000 and 1999 are summarized as follows:
Transactions in the Allowance for Loans Losses for the
Six Months Ended June 30, 2000 and 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
2000 1999
-------- ------
<S> <C> <C> <C>
Balance at January 1 $1,137 $1,134
Provision (benefit) 313 30
Recoveries:
Commercial 5 2
Real estate - mortgage -- --
Installment to individuals 12 17
----- -----
Total recoveries 17 19
----- -----
Loans charged off:
Commercial -- (19)
Installment to individuals (65) (5)
--------- ------
Total charge-offs (65) (24)
--------- -------
Net recoveries (charge-offs) (48) (5)
--------- -------
Balance at June 30 $1,402 $1,159
======= ======
Ratio of net (charge-offs) recoveries
to average loans (1) (0.05)% ( 0.01)%
======== =========
</TABLE>
(1) Ratio of net charge-offs to average loans is computed on an annualized
basis for the six months ended June 30, 2000 and 1999.
Nonperforming Assets
Nonaccrual loans at June 30, 2000 of $194,000 increased by $124,000 from
the $70,000 reported at December 31, 1999. Loans past due 90 days or more and
still accruing interest increased to $36,000 at June 30, 2000 from $8,000 at
December 31, 1999. There was one nonaccrual loan at
14
<PAGE>
June 30, 2000 guaranteed by the U.S. Small Business Administration ("SBA")
totaling $28,000. The following table presents nonperforming assets, by
category, at June 30, 2000 and December 31, 1999.
Analysis of Nonperforming Assets
At June 30, 2000 and December 31, 1999
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- --------
Nonaccrual loans:
<S> <C> <C>
Commercial $ 194 $ 7
Real estate - commercial mortgage -- --
Installment - individuals -- 63
------- -----
Total nonaccrual loans (1) 194 70
------ -----
Past due loans:
Commercial 36 --
Real estate - commercial mortgage -- --
Credit Cards -- --
Installment - individuals -- 8
------- -----
Total past due loans 36 8
---- -----
Total nonperforming assets $ 230 $ 78
===== ====
Total nonperforming assets exclusive of
SBA guaranteed balances $ 202 $ 78
===== ====
Ratio of nonperforming assets to gross loans 0.22% 0.07%
Ratio of nonperforming assets to total assets 0.16% 0.06%
Allowance for loan losses to nonperforming assets 608.90% 1454.82%
Ratio of net charge-offs to average loans (0.045)% (0.09)%
</TABLE>
Potential Problem Loans
At June 30, 2000 and December 31, 1999, respectively, loans totaling
$3,759,000 and $2,125,000 were classified as monitored credits, which are not
reported in the table entitled "Analysis of Nonperforming Assets." These loans
are subject to management's attention and their classification is reviewed on a
quarterly basis. Of the monitored credits at June 30, 2000, $33,000 are
guaranteed by the SBA.
Interest Rate Sensitivity
Through the Bank's Asset/Liability Committee, sensitivity of the net
interest income and the economic value of equity to fluctuations in interest
rates is considered through analyses of the interest sensitivity positions of
major asset and liability categories. The company manages its interest rate risk
sensitivity through the use of a simulation model that project the impact of
rate shocks, rate cycles and rate forecast risk estimates on the net interest
income and economic value of equity. The rate shock risk simulation projects the
dollar change in the net interest margin and the economic value of equity should
the yield curve instantaneously shift up or down parallel to its beginning
position. This simulation provides a test for embedded interest rate risk
estimates and other factors such as prepayments, repricing limits, and decay
factors. The results are compared to risk tolerance limits set by corporate
policy. Based on the Company's most recent interest rate sensitivity analysis,
15
<PAGE>
the net interest income and the economic value of equity are well within the
tolerance limits for both a rising or declining interest rate environment.
Liquidity and Capital Resources
Liquidity
Principal sources of liquidity are cash and unpledged assets that can be
readily converted into cash, including investment securities maturing within one
year, the available for sale investment security portfolio and short-term loans.
In addition to $21,407,000 in cash and short-term investments at June 30, 2000,
the Company has an investment securities portfolio which can be pledged to raise
additional deposits and borrowings, if necessary. At June 30, 2000, the Company
had $7,349,000 in unpledged securities which were available for such use. As a
percentage of total assets, the amount of these cash equivalent assets at June
30, 2000 and December 31, 1999 was 19%, respectively. 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 85.7% of average total
deposits for the six months ended June 30, 2000, and 78% of average total
deposits for the six months ended June 30, 1999. In addition, the Bank has
unsecured line of credit from a correspondent financial institution which can
provide up to an additional $3,000,000 in liquidity, as well as, access to other
collateralized borrowing programs. The Company maintained an average loan to
deposit ratio of 88.7% for the first six months of 2000 and 1999, 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, the Bank has $924,000 in long-term debt at June 30, 2000, a
decrease of $67,000 from the balance at June 30, 1999 of $991,000. The
outstanding balances of the loans pledged as collateral for long-term debt, as
well as, future borrowings from the FHLB at June 30, 2000 and 1999 was
$1,514,000 and $2,935,000, respectively. The Bank is eligible to borrow up to
approximately $17,083,000 in funds from the FHLB collateralized by loans secured
by first liens on one-to-four family or multifamily dwellings and commercial
mortgages, as well as, investment securities. The Company has adequate resources
to meet its liquidity needs.
Stockholders' Equity
Stockholders' equity at June 30, 2000 of $15,612,000 increased by
$1,154,000 from December 31, 1999. The net income of $1,088,000 for the first
six months of 2000 and the issuance of common stock of $505,000, offset by an
unrealized loss on investment securities of $13,000 and the dividends paid in
the first and second quarters of $427,000, accounted for the increase. Average
stockholders' equity as a percentage of average total assets for the current
year was 10.7%, as compared to 10.9% for the comparable prior year period. Book
value per share was $7.22 at June 30, 2000, compared to $6.73 at June 30, 1999.
16
<PAGE>
The table below presents the capital position of the Company and the Bank
relative to their various minimum statutory and regulatory capital requirements
at June 30, 2000 and 1999. At June 30, 2000 and 1999, both the Company and the
Bank were considered "well-capitalized."
<TABLE>
<CAPTION>
Bank Company Minimum Capital
Amount Ratio Amount Ratio Requirements
(Dollars in thousands)
June 30, 2000:
<S> <C> <C> <C> <C> <C>
Leverage ratio $ 14,848 10.48% $ 16,013 11.31% 4.00%
Tier 1 risk-based ratio 14,848 12.24 16,013 13.21 4.00
Total risk-based ratio 16,250 13.39 17,415 14.36 8.00
June 30, 1999:
Leverage ratio $ 13,024 10.20% $ 14,128 11.12% 4.00%
Tier 1 risk-based ratio 13,024 12.19 14,128 13.20 4.00
Total risk-based ratio 14,183 13.27 15,287 14.28 8.00
</TABLE>
Factors Affecting Future Results
In addition to historical information, this Form 10-QSB includes certain
forward looking statements based on current management expectations which
involve risks and uncertainties such as statements of the Company's plans,
expectations and unknown outcomes. The Company's actual results could differ
materially from those management expectations. Factors that could cause future
results to vary from current management expectations include, but are not
limited to, general economic conditions, legislative and regulatory changes,
monetary and fiscal policies of the federal government, changes in tax policies,
rates and regulations of federal and local tax authorities, changes in interest
rates, deposit flows, the cost of funds, demand for loan products, demand for
financial services, competition, changes in the quality or composition of the
Bank's loan and investment portfolios, changes in ownership status resulting in
the loss of eligibility for participation in government and corporate programs
for minority and women-owned banks, uncertainties with respect to costs which
the Company may incur as result of litigation against the Company, changes in
accounting principles, policies or guidelines, and other economic, competitive,
governmental and technological factors affecting the Company's operations,
markets, products, services and prices.
PART II.
Item 1 - Legal Proceedings
The Company and the Bank are defendants in litigation and claims arising in
the normal course of business. Based upon 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.
Item 2 - Changes in Securities and Use of Proceeds
17
<PAGE>
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to Vote of Security Holders
On June 20, 2000, Abigail Adams National Bancorp, Inc. ( the Company) held
its Annual Meeting of Shareholders. At the meeting, the following persons were
elected to the Board of Directors to hold office until the next Annual Meeting
of Shareholders or until their respective successors have been elected and
qualified. The votes cast and withheld for each such director was as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Kathleen Walsh Carr FOR 1,319,885 WITHHELD 28,344
---------- ------
A. George Cook III FOR 1,319,885 WITHHELD 28,344
---------- ------
Jeanne D. Hubbard FOR 1,319,885 WITHHELD 28,344
---------- ------
Marshall T. Reynolds FOR 1,319,885 WITHHELD 28,344
---------- ------
Robert L. Shell FOR 1,319,885 WITHHELD 28,344
---------- ------
Marianne Steiner FOR 1,319,885 WITHHELD 28,344
---------- ------
Joseph L. Williams FOR 1,319,698 WITHHELD 28,531
---------- ------
Bonita A. Wilson FOR 1,319,829 WITHHELD 28,400
---------- ------
</TABLE>
In addition, the Company's stockholders approved the ratification of the
appointment of Keller Bruner & Co., LLP as the Company's independent certified
public accountants for the year ending December 31, 2000, as follows:
FOR 1,336,017 AGAINST 6,136 ABSTAIN 6,076
--------- ----- -----
Item 5 - Other Matters
On May 30, 2000, the Company issued a Formal Notice regarding "Joint Notice
of Pendency of Class and Derivative Actions, Temporary and Proposed Class Action
Determination, Proposed Settlement of Class and Derivative Actions Settlement
Hearings and Right to Appear" to all holders of common stock, excluding the
defendants and their affiliates. The purpose of this joint notice was to advise
the common stockholders of the pendency of this joint notice, the proposed
settlements of these actions, and their rights. .
Item 6 - Exhibits and Reports on Form 8-K
(a) None
18
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
ABIGAIL ADAMS NATIONAL BANCORP, INC.
Registrant
Date: August 11, 2000 /s/ Jeanne D. Hubbard
----------------- ----------------------
Jeanne D. Hubbard
Chairwoman of the Board,
President and Director
(Principal Executive Officer)
19
<PAGE>
