SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 _________
Commission file number 0-10971
ABIGAIL ADAMS NATIONAL BANCORP, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 52-1508198
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(State or other jurisdiction of (I.R.S. Employer ID No.)
Incorporation or organization)
1627 K Street, N.W. Washington, D.C. 20006
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(Address of principal executive offices)
202-466-4090
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Issuer's telephone number including area code
N / A
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Former name, address, and fiscal year, if changes since last report
Indicate by check whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No .
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State the number of shares outstanding of each of the issuer's classes of
common equity as of April 25, 2000:
2,085,464 shares of Common Stock, Par Value $0.01/share
Transitional Small Business Disclosure Format (check one): Yes No X
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<PAGE>
PART I.
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Item 1 - Financial Statements
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<PAGE>
<TABLE>
<CAPTION>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
March 31, 2000 and 1999 and December 31, 1999
(Unaudited)
March 31, March 31, Dec 31,
2000 1999 1999
--------- --------- -------
<S> <C> <C> <C>
Assets
Cash and due from banks $ 5,287,425 $ 10,410,195 $ 4,707,226
Federal funds sold 5,049,833 460,000 6,005,707
Interest-bearing deposits in other banks 5,458,400 1,590,537 3,900,891
Investment securities available for sale at fair value 13,401,362 12,337,902 13,405,857
Investment securities held to maturity (market value of $2,961,699
at March 31, 2000, $6,058,118 at March 31, 1999 and $3,277,934
at December 31, 1999 3,041,436 6,975,770 3,355,421
Loans (net of deferred fees and unearned discounts) 107,577,069 98,205,769 108,823,012
Less: allowance for loan losses (1,316,479) (1,139,580) (1,137,009)
------------ ----------- ------------
Loans, net 106,260,590 97,066,189 107,686,003
------------ ----------- ------------
Bank premises and equipment, net
909,682 1,131,437 978,858
Other assets 2,987,590 1,718,519 1,730,256
------------ ----------- ------------
Total assets $142,396,318 $131,690,549 $141,770,219
============ =========== ============
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Noninterest-bearing deposits $ 37,050,142 $ 33,445,553 $ 36,816,624
Interest-bearing deposits 84,125,090 77,181,925 85,753,275
------------ ----------- ------------
Total deposits 121,175,232 110,627,478 122,569,899
------------ ----------- ------------
Short-term borrowings 4,921,292 5,121,051 3,193,166
Long-term debt 941,234 1,007,178 958,309
Other liabilities 605,425 1,188,989 590,185
------------ ----------- ------------
Total liabilities 127,643,183 117,944,696 127,311,559
------------ ----------- ------------
Commitments and contingencies (Note 2)
Stockholders' equity:
Common stock, par value $0.01 per share, authorized 5,000,000 shares;
issued 2,094,468 at March 31, 2000, 2,092,333 at March 31, 1999
and 2,094,468 shares at December 31, 1999; outstanding 2,085,464
shares at March 31, 2000, 2,086,483 shares at March 31, 1999 and
2,085,464 shares at December 31, 1999 20,945 20,924 20,945
Capital surplus 12,478,090 12,486,553 12,478,090
Retained earnings 2,825,545 1,565,792 2,528,366
Less: Employee Stock Ownership Plan shares, 15,654 shares at
March 31, 2000, 23,396 shares at March 31, 1999, and
15,654 shares at December 31, 1999, at cost (109,586) (204,716) (109,586)
Less: Treasury stock, 9,004 shares at March 31, 2000,
5,850 shares at March 31, 1999, and 9,004 shares at
December 31, 1999, at cost (70,989) (28,710) (70,989)
Accumulated other comprehensive income (loss) (390,870) (93,990) (388,166)
------------ ------------ ------------
Total stockholders' equity 14,753,135 13,745,853 14,458,660
------------ ------------ ------------
Total liabilities and stockholders' equity $142,396,318 $131,690,549 $141,770,219
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Income
For the Three Months Ended March 31, 2000 and 1999
(Unaudited)
2000 1999
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<S> <C> <C>
Interest income
Interest and fees on loans $2,431,305 $2,132,158
Interest and dividends on investment securities:
Taxable income 260,869 304,374
Nontaxable income 3,282 3,991
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Total interest and dividends on investment securities 264,151 308,365
Other interest income 154,629 60,103
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Total interest income 2,850,085 2,500,626
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Interest expense
Interest on deposits 878,991 788,475
Interest on short-term borrowings 38,044 44,515
Interest on long-term debt 16,481 17,382
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Total interest expense 933,516 850,372
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Net interest income 1,916,569 1,650,254
Provision for loan losses 173,000 15,000
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Net interest income after provision for loan losses 1,743,569 1,635,254
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Noninterest income
Service charges on deposit accounts 315,190 368,279
Other income 91,601 53,227
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Total noninterest income 406,791 421,506
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Noninterest expense
Salaries and employee benefits 583,199 591,456
Occupancy and equipment expense 313,291 324,435
Professional fees 67,695 60,078
Data processing fees 116,942 99,928
Other operating expense 231,681 249,379
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Total noninterest expense 1,312,808 1,325,276
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Income before provision for income taxes 837,552 731,484
Provision for income taxes 331,439 285,279
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Net income $ 506,113 $ 446,205
========== =========
Earnings per share:
Basic earnings $0.25 $0.22
Diluted earnings $0.24 $0.21
Average common shares outstanding:
Basic 2,069,810 2,062,966
Diluted 2,109,415 2,120,384
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
Three Months Ended March 31, 2000, and 1999
(Unaudited)
Employee Accumulated
Stock Other
Common Capital Retained Treasury Ownership Comprehensive
Stock Surplus Earnings Stock Plan Income (loss) Total
----- ------- -------- -------- --------- -------------- -----
<S> <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 -- -- 446,205 -- -- -- 446,205
Unrealized loss on investment securities
available for sale, net of tax -- -- -- -- -- (97,803) (97,803)
------- ----------- --------- --------- --------- -------- ----------
Total comprehensive income 446,205 (97,803) 348,402
Dividends declared -- -- (205,465) -- -- -- (205,465)
Issuance of shares under Employee
Incentive Stock Option Plan 6 3,627 -- -- -- -- 3,633
------- ----------- --------- --------- --------- -------- ----------
Balance at March 31, 1999 $20,924 $12,486,553 $1,565,792 $(28,710) $(204,716) $(93,990) $13,745,853
======= ============ ========= ========= ========= ======== ==========
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 -- -- 506,113 -- -- -- 506,113
Unrealized loss on investment securities
available for sale, net of tax -- -- -- -- -- (2,704) (2,704)
------- ----------- --------- --------- --------- -------- -----------
Total comprehensive income 506,113 (2,704) 503,409
Dividends declared -- -- (208,934) -- -- -- (208,934)
------- ----------- --------- --------- --------- -------- -----------
Balance at March 31, 2000 $20,945 $12,478,090 $2,825,545 $(70,989) $(109,586) $(390,870) $14,753,135
======= =========== ========== ========= ========== ========== ============
</TABLE>
See notes to consolidated financial statements.
4
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<TABLE>
<CAPTION>
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2000 and 1999
(Unaudited)
2000 1999
---- ----
<S> <C> <C>
Cash flows from Operating Activities
Net income $ 506,113 $ 446,205
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 173,000 15,000
Depreciation and amortization 89,796 118,418
Accretion of loan discounts and fees (27,238) (35,845)
Accretion and amortization of investment securities
discounts and premiums, net 31 2,185
Provision (benefit) for deferred income taxes 6,725 (74,646)
Increase in other assets (1,264,063) (240,768)
Increase in other liabilities 12,027 300,315
----------- ----------
Net cash (used in) provided by operating activities (503,609) 530,864
----------- ----------
Cash flows from Investing Activities
Proceeds from maturities of investment securities held to maturity 310,000 2,300,000
Proceeds from maturities of investment securities available for sale -- 1,000,000
Proceeds from repayment of mortgage-backed securities 8,956 9,765
Purchase of investment securities available for sale -- (991,869)
Net (increase) decrease in interest-bearing deposits in other banks (1,557,508) 223,547
Net decrease (increase) in loans 1,279,656 (3,959,727)
Purchase of bank premises and equipment (20,620) (90,028)
----------- -----------
Net cash provided by (used in) investing activities 20,484 (1,508,312)
----------- -----------
Cash flows from Financing Activities
Net (decrease) increase in transaction and savings deposits (1,830,161) 1,755,671
Net increase (decrease) in time deposits 435,494 206,723
Net increase in short-term borrowings 1,728,126 473,311
Payments on long-term debt (17,075) (15,533)
Proceeds from issuance of common stock, net of expenses -- 3,633
Cash dividends paid to common stockholders (208,934) (205,465)
------------ -----------
Net cash provided by (used in) financing activities 107,450 2,218,340
----------- -----------
Net increase (decrease) in cash and cash equivalents (375,675) 1,240,892
Cash and cash equivalents at beginning of year 10,712,933 9,629,303
----------- -----------
Cash and cash equivalents at end of period $10,337,258 $10,870,195
=========== ===========
Supplementary disclosures:
Interest paid on deposits and borrowings $ 904,225 $ 875,427
========= ===========
Income taxes paid $ 200,000 $ 150,000
========= ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
Abigail Adams National Bancorp, Inc.
Notes to Consolidated Financial Statements
March 31, 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 months
ended March 31, 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.
6
<PAGE>
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 on
or before June 20, 2000. These funds are held in a 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.
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.
7
<PAGE>
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 March 31, 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 March 31, 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
have not been exercised as of March 31, 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.
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
8
<PAGE>
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
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.
5. Year 2000 Issues
The Company developed and implemented a plan to monitor Year 2000 computer
issues. The Company did not experience any issues associated with the century
date change on January 1, 2000 or any date subsequent thereto. Management will
continue to monitor operations throughout 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.
PART I. FINANCIAL INFORMATION (Continued)
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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
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 $142,396,000 at March 31, 2000, as compared to $141,770,000 at
December 31, 1999, an increase of $626,000 or .44%. Total loans decreased by
$1,246,000 or 1.1% to $107,577,000 at March 31, 2000 from $108,823,000 at
December 31, 1999. Total deposits decreased by $1,395,000 or 1.1%, during the
same period to $121,175,000. Stockholders' equity at March 31, 2000 was
$14,753,000, an increase of $294,000 or 2.0 % from $14,459,000 at December 31,
1999. The book value per share of Common Stock at March 31, 2000 was $7.13, as
compared to $6.98 at December 31, 1999. On March 31, 2000, dividends of $0.10
per Common Share were paid to shareholders of record on March 15, 2000.
The Company reported net income for the first three months of 2000 of
$506,000, or $0.25 per share, for an annualized return on average assets of
1.43% and an annualized return on average equity of 13.77%. Net income for the
first three months of 1999 was $446,000 or $0.22 per share, with a return on
assets of 1.42% and a return on equity of 13.18%. Net income compared to the
first quarter 1999 increased 13.4%. Income taxes of $331,000 for the first three
months of 2000 reflects a 16.2% increase over the comparable 1999 period. The
increase in net interest income combined
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with 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.
Analysis of Net Interest Income
Net interest income, the most significant component of the Company's
earnings, increased by $266,000, or 16.1%, to $1,917,000 for the first three
months of 2000, as compared to $1,650,000 for the comparable 1999 period.
Average earning assets for the first three months of 2000 of $133,097,000
increased by $13,629,000, or 11.4%, over the comparable 1999 period. This
improvement in net interest income was the result of the increase and the change
in the mix of earning assets 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 three months of 2000, as
compared to 70.1% 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, more so than the same period in 1999. The average loan
portfolio for the first three months of 2000 was $105,382,000, an increase of
$12,059,000 or 12.9% over the comparable 1999 period. The yield on the loan
portfolio for the first quarter of 2000 was 9.25%, as compared to 9.27% for the
first quarter of 1999. The average investment security portfolio for the first
three months of 2000 was $16,692,000, a decrease of $4,027,000 or 19.4% from the
comparable 1999 period. The yield on total earning assets was 8.59% for the
first quarter of 2000, an increase of 10 basis points from the yield of 8.49%
for the first quarter of 1999. Average interest bearing deposits for the first
three months of 2000 were $85,147,000, an increase of $7,097,000, or 9.1%, from
the comparable 1999 period. The cost of funds for the first quarter of 2000 was
4.17%, an increase of 5 basis points from the yield of 4.12% for the first
quarter of 1999. These factors combined to produce a net interest spread (the
difference between the average interest rate earned on interest-earning assets
and interest paid on interest-bearing liabilities) of 4.42% and a net interest
margin (net interest income as a percentage of average interest-earning assets)
of 5.78% for the first three months of 2000, reflecting increases of 5 basis
points and 17 basis points, respectively, from the same period in 1999.
Noninterest Income
Total noninterest income for the first three months of 2000 was $407,000, a
decrease of $14,700 or 3.5% from the same period in 1999. The first three months
of 1999 included a one-time adjustment to ATM service fees and the recovery of
legal fees from prior years totaling $62,000. Noninterest income for the first
three months of 2000 included a gain on sale of $30,000 on the guaranteed
portion of SBA loans totaling $1,132,000.
Noninterest Expense
Total noninterest expense for the first three months of 2000 was
$1,313,000, a decrease of $12,500 or .94% from March 31, 1999. Salaries and
benefits of $583,000 for the first three months of 2000 decreased by $8,000 or
1.4%, as compared to the first three months of 1999. Net occupancy expense of
$313,000 for the first three months of 2000 reflects a decrease of $11,000, or
3.4%, from one year earlier due the costs associated with relocating the
Georgetown branch in 1999. Professional fees of $68,000 for the first three
months of 2000 increased by $8,000 as compared to the first three
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months of 1999, due to fees related to a loan portfolio review. Data processing
expense of $117,000 as of March 31, 2000 increased by $17,000 or 17.0% from the
prior year, due to higher transaction volume related to the growth in loans and
deposits from 1999. Other operating expense of $231,000 for the first three
months of 2000 decreased by $18,000 or 7.1% from the prior year, due primarily
to cost controls over general expenses.
Income Tax Expense
Income tax expense of $331,000 for the first three months of 2000 reflects
an increase of $46,000 over the $285,000 tax expense recorded one year earlier,
due to an increase in pretax income. The Company's effective tax rate for the
first three months of 2000 was 39.6%, as compared to 39.0% for the first three
months of 1999.
Analysis of Loans
The loan portfolio at March 31, 2000 of $107,577,000 decreased by
$1,246,000 or 1.1%, as compared to the December 31, 1999 balance of
$108,823,000. A sale totaling $1,132,000 of the SBA guaranteed portion of loans
accounted in part for the decrease from year-end. New loans of $5,463,000,
exclusive of short-term loans and lines of credit, were originated in the first
three months of 2000. The loan to deposit ratio at March 31, 2000 was 88.8% and
was unchanged from December 31, 1999, while the average loan to deposit ratio
for the first three months of 2000 was 87.7%, as compared to 87.0% for the first
three months of 1999.
Loan concentrations at March 31, 2000 and December 31, 1999 are summarized
as follows:
<TABLE>
<CAPTION>
Loan Concentrations
At March 31, 2000 and December 31, 1999
March 31 Dec 31,
2000 1999
-------- --------
<S> <C> <C>
Service industry 18% 17%
Commercial Real estate/finance 57 57
Wholesale/retail 13 14
Other 12 12
-------- -------
Total 100% 100%
======== =======
</TABLE>
Analysis of Investments
Investment securities classified as available for sale totaling $13,401,000
decreased $4,000 from December 31, 1999, due to market value adjustments. The
investment securities held to maturity of $3,041,000 decreased $314,000 from
December 31, 1999, due the maturity of a municipal bond. The average combined
investment security portfolio of $16,692,000 for the first three months of 2000,
decreased $4,027,000 or 19.4% from the average of $20,718,000 for the first
three 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.
11
<PAGE>
Federal funds sold of $5,050,000 at March 31, 2000, decreased $956,000 or
15.9% from $6,006,000 at December 31, 1999, due to a shift into higher yielding
short-term funds. Interest- bearing deposits in other banks increased $1,557,000
or 39.9% to $5,458,000 at March 31, 2000, from $3,901,000 at December 31, 1999.
Noninterest-Earning Assets
Cash and due from banks of $5,287,000 at March 31, 2000 increased by
$580,000 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.
Deposits
Total deposits of $121,175,000 at March 31, 2000 decreased by $1,395,000,
or 1.1%, from the December 31, 1999 balance of $122,570,000. Demand deposits of
$37,050,000 at March 31, 2000 reflect a $233,000, or .6%, increase from the
$36,817,000 balance at December 31, 1999. Now accounts grew 26.9% or $3,230,000
to $15,218,000 at March 31, 2000, as compared to $11,988,000 at December 31,
1999. Money market accounts of $22,568,000 at March 31, 2000 decreased by
$5,383,000 or 19.3% 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 $89,000 to $3,036,000 from
$2,947,000 at December 31, 1999. Certificates of deposit at March 31, 2000 of
$43,302,000 increased by $435,000 from the $42,867,000 balance at December 31,
1999, with certificates of deposit with balances greater than $100,000
decreasing by $449,000 and certificates of deposit with balances under $100,000
increasing by $884,000.
Average noninterest-bearing demand deposits for the first quarter of 2000
of $35,002,000 increased by $6,055,000, or 20.9%, from $28,947,000 for the first
quarter of 1999. Average interest- bearing deposits increased by $7,097,000 or
9.1% during the same period to $85,147,000 from $78,050,000 for the comparable
1999 period. For the first quarter of 2000, average NOW accounts of $13,633,000
increased by $4,049,000, and average money market deposits of $26,386,000
increased by $985,000 over the prior year's first quarter average balances.
Average certificates of deposit with balance greater than $100,000 decreased by
$3,231,000 to $16,396,000 for the first quarter of 2000, as compared to the
first quarter 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 quarter of 2000 of $25,754,000 increased
by $5,267,000 over the first quarter of 1999. Average noninterest-bearing
deposits to average total deposits during the first quarter of 2000 represent
41.1%, as compared to 37.1% one year earlier.
12
<PAGE>
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 quarter of 2000, the Bank added $173,000 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 March 31, 2000, the allowance for loan
losses as a percentage of outstanding loans was 1.22%, 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 $1,316,000 at March 31, 2000 to be adequate.
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 March 31, 2000
and December 31, 1999.
<TABLE>
<CAPTION>
Allocation of Allowance for Loan Losses
At March 31, 2000 and December 31, 1999
(Dollars in thousands)
March 31, December 31,
2000 1999
----------------------- ---------------------
Reserve % of loans Reserve % of loans
Amount to total loans Amountto total loans
----------------------- ---------------------
<S> <C> <C> <C> <C>
Commercial $ 438 35.9% $ 455 38.1%
Real estate- commercial mortgage 684 59.2 634 55.5
Real estate- residential mortgage -- -- -- --
Real estate- construction -- -- -- --
Installment 37 2.9 21 2.8
Unallocated 157 2.0 27 3.6
------- ------- ------- ------
Total $ 1,316 100.0% $ 1,137 100.0%
======= ======= ======= ======
</TABLE>
13
<PAGE>
Transactions in the allowance for loan losses for the three months ended
March 31, 2000 and 1999 are summarized as follows:
<TABLE>
<CAPTION>
Transactions in the Allowance for Loans Losses for the
Three Months Ended March 31, 2000 and 1999
(Dollars in thousands)
2000 1999
---- ----
<S> <C> <C>
Balance at January 1 $1,137 $1,134
Provision (benefit) 173 15
Recoveries:
Commercial 4 1
Real estate - mortgage -- --
Installment to individuals 10 13
------- ------
Total recoveries 14 14
Loans charged off:
Commercial -- (18)
Installment to individuals (8) (5)
------- ------
Total charge-offs (8) (23)
------- ------
Net recoveries (charge-offs) 6 (9)
------- ------
Balance at March 31 $1,316 $1,140
======= =======
Ratio of net (charge-offs) recoveries
to average loans (1) 0.006% ( 0.01)%
======= ========
</TABLE>
(1) Ratio of net charge-offs to average loans is computed on an annualized basis
for the three months ended March 31, 2000 and 1999.
Nonperforming Assets
Nonaccrual loans at March 31, 2000 of $47,000 decreased by $23,000 from the
$70,000 reported at December 31, 1999. Loans past due 90 days or more and still
accruing interest increased to $145,000 at March 31, 2000 from $8,000 at
December 31, 1999. There were no nonaccrual loans at March 31, 2000 guaranteed
by the U.S. Small Business Administration ("SBA"). The following table presents
nonperforming assets, by category, at March 31, 2000 and December 31, 1999.
14
<PAGE>
<TABLE>
<CAPTION>
Analysis of Nonperforming Assets
At March 31, 2000 and December 31, 1999
(Dollars in thousands)
March 31, December 31,
2000 1999
---------- ------------
<S> <C> <C>
Nonaccrual loans:
Commercial $ 38 $ 7
Real estate - commercial mortgage -- --
Installment - individuals 9 63
------ ------
Total nonaccrual loans (1) 47 70
------ ------
Past due loans:
Commercial 90 --
Real estate - commercial mortgage -- --
Credit Cards 55 --
Installment - individuals -- 8
------ ------
Total past due loans 145 8
------ ------
Total nonperforming assets $ 192 $ 78
====== ======
Total nonperforming assets exclusive of
SBA guaranteed balances $ 165 $ 78
====== ======
Ratio of nonperforming assets to gross loans .18% .07%
Ratio of nonperforming assets to total assets .14% .06%
Allowance for loan losses to nonperforming assets 684% 1455%
Ratio of net recoveries (charge-offs) to average loans .006% (.09)%
</TABLE>
Potential Problem Loans
At March 31, 2000 and December 31, 1999, respectively, loans totaling
$1,005,000 and $2,125,000 were classified as potential problem loans, which are
not reported in the table entitled "Analysis of Nonperforming Assets." These
loans were made to borrowers who subsequently experienced financial
difficulties. These loans are subject to management's attention and their
classification is reviewed on a quarterly basis. Of the problem loans at March
31, 2000, $27,000 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
15
<PAGE>
such as prepayments, repricing limits, and decay factors. The results are
compared to risk tolerance limits set by corporate policy. Based on the
Company's most recent interest rate sensitivity analysis, the net interest
income and the economic value of equity are well within the tolerance limits
for both a rising or declining interest rate environment.
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 $15,796,000 in cash and short-term investments at March 31, 2000,
the Company has an investment securities portfolio which can be pledged to raise
additional deposits and borrowings, if necessary. At March 31, 2000, the Company
had $11,337,000 in unpledged securities which were available for such use. As a
percentage of total assets, the amount of these cash equivalent assets at March
31, 2000 and December 31, 1999 was 19% and 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 86% of
average total deposits for the three months ended March 31, 2000, and 82% of
average total deposits for the three months ended March 31, 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 87.7% and 87.0% for the first quarter 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 $941,000 in long-term borrowings at March 31,
2000, a decrease of $66,000 from the balance at March 31, 1999 of $1,007,000.
The outstanding balances of the loans pledged as collateral for long-term
borrowings, as well as, future borrowings from the FHLB at March 31, 2000 and
1999 was $1,539,000 and $2,935,000, respectively. The Bank is eligible to borrow
up to approximately $16,164,000 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 March 31, 2000 of $14,753,000 increased by $294,000
from December 31, 1999. The net income of $506,000 for the first three months of
2000, offset with an unrealized loss on investment securities of $3,000 and the
dividends paid in the first quarter of $209,000, accounted for the increase.
Average stockholders' equity as a percentage of average total assets for 2000
was 10.5%, as compared to 10.8% for the comparable prior year period. Book value
per share was $7.13 at March 31, 2000, compared to $6.66 at March 31, 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 March 31, 2000 and 1999. At March 31, 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)
<S> <C> <C> <C> <C> <C>
March 31, 2000:
Leverage ratio $ 14,194 10.12% $ 15,144 10.80% 4.00%
Tier 1 risk-based ratio 14,194 12.15 15,144 12.98 4.00
Total risk-based ratio 15,511 13.28 16,461 14.11 8.00
March 31, 1999:
Leverage ratio $ 12,498 9.85% $ 13,840 10.90% 4.00%
Tier 1 risk-based ratio 12,498 12.03 13,840 13.28 4.00
Total risk-based ratio 13,637 13.13 14,979 14.37 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
17
<PAGE>
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
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to Vote of Security Holders
The Company did not conduct a solicitation of its security holders
during the period under report.
Item 5 - Other Matters
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description of Exhibit
- ----------- ----------------------
27 Financial Data Schedule
(b) On October 1, 1999, the Company filed a current report on Form 8-K to
report that it changed its outside auditing firm from Arthur Andersen
LLP to Keller Bruner & Company.
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: May 12, 2000 /s/ Jeanne D. Hubbard
----------------------
Jeanne D. Hubbard
Chairwoman of the Board,
President and Director
(Principal Executive Officer)
19
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-2000
<PERIOD-END> Mar-31-2000
<CASH> 5,287
<INT-BEARING-DEPOSITS> 5,458
<FED-FUNDS-SOLD> 5,050
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 13,401
<INVESTMENTS-CARRYING> 3,041
<INVESTMENTS-MARKET> 2,962
<LOANS> 107,577
<ALLOWANCE> 1,316
<TOTAL-ASSETS> 142,396
<DEPOSITS> 121,175
<SHORT-TERM> 4,921
<LIABILITIES-OTHER> 606
<LONG-TERM> 941
0
0
<COMMON> 12,499
<OTHER-SE> 2,254
<TOTAL-LIABILITIES-AND-EQUITY> 142,396
<INTEREST-LOAN> 2,431
<INTEREST-INVEST> 264
<INTEREST-OTHER> 155
<INTEREST-TOTAL> 2,850
<INTEREST-DEPOSIT> 879
<INTEREST-EXPENSE> 933
<INTEREST-INCOME-NET> 1,917
<LOAN-LOSSES> 173
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,313
<INCOME-PRETAX> 838
<INCOME-PRE-EXTRAORDINARY> 506
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 506
<EPS-BASIC> .25
<EPS-DILUTED> .24
<YIELD-ACTUAL> 5.78
<LOANS-NON> 47
<LOANS-PAST> 145
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,005
<ALLOWANCE-OPEN> 1,137
<CHARGE-OFFS> 8
<RECOVERIES> 14
<ALLOWANCE-CLOSE> 1,316
<ALLOWANCE-DOMESTIC> 1,159
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 157
</TABLE>
