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, 2003
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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)
1130 Connecticut Avenue, N.W. Washington, D.C. 20036
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(Address of principal executive offices)
202-772-3600
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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 the issuer's class of common equity as
of May 12, 2003:
3,007,811 shares of Common Stock, Par Value $0.01/share
Transitional Small Business Disclosure Format (check one): Yes No X
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TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
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Item 1 - Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets 2
Condensed Consolidated Statements of Income 3
Condensed Consolidated Statements of Changes in Stockholder's Equity 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis 7-13
Item 3 - Controls and Procedures 14
PART II - OTHER INFORMATION
Item 4 - Submissions of Matters to Vote of Security Holders 14
Item 5 - Other Matters 14
Item 6 - Exhibits and Reports on Form 8-K 14
Signatures 14
Certification of Chief Executive Officer 15
Certification of Chief Financial Officer 16
Exhibit 99-1 17
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
March 31, 2003 (unaudited) and December 31, 2002
March 31, December 31,
2003 2002
----------------- ------------------
Assets
Cash and due from banks $8,161,451 $7,507,145
Federal funds sold 13,195,156 8,469,016
Interest-bearing deposits in other banks 7,390,565 3,486,332
Investment securities available for sale at fair value 16,366,216 16,314,939
Investment securities held to maturity (market value of $9,111,420 and
$10,272,046 for 2003 and 2002, respectively 9,086,475 10,229,905
Loans 152,214,185 156,536,280
Less: allowance for loan losses (2,376,135) (2,296,608)
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Loans, net 149,838,050 154,239,672
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Bank premises and equipment, net 1,446,969 1,211,943
Other assets 3,495,235 3,490,692
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Total assets $208,980,117 $204,949,644
================= ==================
Liabilities and Stockholders' equity
Liabilities:
Deposits
Noninterest-bearing deposits $47,653,127 $46,890,447
Interest-bearing deposits 121,037,363 127,877,743
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Total deposits 168,690,490 174,768,190
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Short-term borrowings 6,209,881 7,312,776
Long-term debt 10,701,470 724,151
Other liabilities 1,681,154 952,686
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Total liabilities 187,282,995 183,757,803
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Commitments and contingencies (Note 2) Stockholders' equity:
Common stock, $0.01 par value, authorized 5,000,000 shares; issued 3,024,251
shares in 2003 and 3,021,119 shares in 2002; outstanding 3,007,811 shares in 2003
and 3,004,679 in 2002. 30,243 30,211
Additional paid-in capital 17,201,936 17,185,310
Retained earnings 4,432,717 3,886,313
Less: Treasury stock, 16,440 shares in 2003 and 2002, at cost (98,349) (98,349)
Accumulated other comprehensive income (loss) 130,575 188,356
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Total stockholders' equity 21,697,122 21,191,841
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Total liabilities and stockholders' equity $208,980,117 $204,949,644
================= ==================
See notes to consolidated financial statements.
2
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Income
For the Three Months Ended March 31, 2003 and 2002
(Unaudited)
2003 2002
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Interest income
Interest and fees on loans $2,781,993 $2,691,950
Interest and dividends on investment securities:
Taxable 327,393 342,431
Other interest income 25,964 39,580
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Total interest income 3,135,350 3,073,961
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Interest expense
Interest on deposits 482,810 663,278
Interest on short-term borrowings 16,121 18,741
Interest on long-term debt 20,465 13,764
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Total interest expense 519,396 695,783
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Net interest income 2,615,954 2,378,178
Provision for loan losses 70,000 100,000
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Net interest income after provision for loan losses 2,545,954 2,278,178
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Noninterest income
Service charges on deposit accounts 419,190 391,041
Gain on sale of investment securities 29,252 --
Other income 71,486 96,601
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Total noninterest income 519,928 487,642
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Noninterest expense
Salaries and employee benefits 809,196 712,225
Occupancy and equipment expense 276,514 284,272
Professional fees 49,636 49,172
Data processing fees 110,214 109,669
Other operating expense 311,038 285,342
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Total noninterest expense 1,556,598 1,440,680
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Income before provision for income taxes 1,509,284 1,325,140
Provision for income taxes 606,781 532,140
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Net income $902,503 $793,000
================== ===================
Earnings per share:
Basic $0.30 $0.26
Diluted $0.30 $0.26
Average common shares outstanding:
Basic 3,005,315 3,000,924
Diluted 3,021,673 3,016,893
See notes to consolidated financial statements.
3
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Changes in Stockholders' Equity
Three Months Ended March 31, 2003 and 2002
(Unaudited)
Accumulated
Other
Additional Comprehensive
Common Paid-in Retained Treasury Income
Stock Capital Earnings Stock (Loss) Total
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Balance at December 31, 2001 $27,426 $13,047,784 $5,884,201 ($98,349) $27,200 $18,888,262
Comprehensive income:
Net income -- -- 793,000 -- -- 793,000
Change in net unrealized gain on investment securities
available for sale, net of taxes of $103,263 -- -- -- -- (151,183) (151,183)
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Total comprehensive income -- -- -- -- -- 641,817
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Dividends declared ($0.11 per share) (323,149) (323,149)
Issuance of shares under Stock Option Programs 13 7,863 -- -- -- 7,876
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Balance at March 31, 2002 $27,439 $13,055,647 $6,354,052 ($98,349) ($123,983) $19,214,806
===============================================================================
Balance at December 31, 2002 $30,211 $17,185,310 $3,886,313 ($98,349) $188,356 $21,191,841
Comprehensive income:
Net income -- -- 902,503 -- -- 902,503
Change in net unrealized gain on investment securities
available for sale, net of taxes of $39,467 -- -- -- -- (57,781) (57,781)
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Total comprehensive income -- -- -- -- -- 844,722
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Dividends declared ($0.12 per share) -- -- (356,099) -- -- (356,099)
Issuance of shares under Stock Option Programs 32 16,626 -- -- -- 16,658
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Balance at March 31, 2003 $30,243 $17,201,936 $4,432,717 ($98,349) $130,575 $21,697,122
===============================================================================
See notes to consolidated financial statements
4
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2003 and 2002
(Unaudited)
2003 2002
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Cash flows from Operating Activities:
Net Income $902,503 $793,000
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 70,000 100,000
Depreciation and amortization 70,439 63,171
Accretion of loan discounts and fees (70,962) (27,639)
Net discount (accretion)/premium amortization on investment securities 9,542 4,637
(Increase) decrease in other assets 34,921 (241,452)
Increase in other liabilities 728,469 305,936
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Net cash provided by operating activities 1,744,912 997,653
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Cash flows from Investing Activities:
Proceeds from maturities of investment securities held to maturity 6,000,000 500,000
Proceeds from maturities of investment securities available for sale 6,000,000 --
Proceeds from repayment of mortgage-backed securities available for sale 930,513 304,082
Proceeds from sales of investment securities available for sale 500,000 --
Purchase of investment securities available for sale (7,445,148) --
Purchase of investment securities held to maturity (5,000,000) --
Net (increase) decrease in interest-bearing deposits in other banks (3,904,233) 2,345,850
Net (increase) decrease in loans 4,402,585 (2,897,685)
Purchase of bank premises and equipment (305,465) (12,477)
Net cash provided by investing activities 1,178,252 239,770
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Cash flows from Financing Activities:
Net increase (decrease) in transaction and savings deposits (1,042,372) 8,216,379
Net (decrease) in time deposits (5,035,329) (5,902,026)
Net (decrease) in short-term borrowings (1,102,895) (553,730)
Proceeds from FHLB Advances 10,000,000 --
Payments on long-term debt (22,681) (20,633)
Proceeds from issuance of common stock, net of expenses 16,658 7,876
Cash dividends paid to common stockholders (356,099) (323,149)
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Net cash provided by financing activities 2,457,282 1,424,717
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Net increase in cash and cash equivalents 5,380,446 2,662,140
Cash and cash equivalents at beginning of year 15,976,161 9,771,711
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Cash and cash equivalents at end of period $21,356,607 $12,433,851
================= =================
Supplementary disclosures:
Interest paid on deposits and borrowings $478,641 $691,621
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Income taxes paid $-- $100,000
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See notes to consolidated financial statements.
-5-
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
1. Basis of presentation
Abigail Adams National Bancorp, Inc. (the "Company") is the parent company of
The Adams National Bank (the "Bank"). As used herein, the term Company includes
the Bank, unless the context otherwise requires.
The Company and the Bank prepare their financial statements on the accrual basis
and in conformity with accounting principles generally accepted in the United
States, the instructions for Form 10-QSB, and Regulation S-B. The accompanying
financial statements are unaudited except for the balance sheet at December 31,
2002, which was derived from the audited financial statements as of that date.
The unaudited information furnished herein reflects all adjustments (consisting
of normal recurring accruals) which are, in the opinion of management, necessary
for a fair presentation of the results for the interim periods presented. They
do not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America. Operating results
for the three months ended March 31, 2003 (unaudited) are not necessarily
indicative of the results that may be expected for the year ending December 31,
2003. Certain reclassifications may have been made to amounts previously
reported in 2002 to conform with the 2003 presentation.
2. Contingent Liabilities
In the normal course of business, there are various outstanding commitments and
contingent liabilities, such as commitments to extend credit and standby letters
of credit that are not reflected in the accompanying consolidated financial
statements. No material losses are anticipated as a result of these transactions
on either a completed or uncompleted basis.
3. Stockholders' Equity
All per share data presented has been retroactively adjusted for the 10% stock
dividend declared on December 17, 2002 and issued on December 31, 2002.
4. Earnings per share
Earnings per share computations are based upon the weighted average number of
shares outstanding during the periods. Diluted earnings per share computations
are based upon the weighted average number of shares outstanding during the
period plus the dilutive effect of outstanding stock options and stock
performance awards. Per share amounts are based on the weighted average number
of shares outstanding during each period, as adjusted for the 10 % stock
dividend in 2002, as follows:
For the 3 Months
Ended March 31,
(unaudited)
------------------------------------
2003 2002
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Basic EPS weighted average shares outstanding 3,005,315 3,000,924
Dilutive effect of stock options 16,358 15,969
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Diluted EPS weighted average shares outstanding 3,021,673 3,016,893
================ ===============
No adjustments were made to net income in the computation of earnings per share
for either of the periods presented.
5. Stock-Based Compensation Plans
During 2002, the Company adopted FASB Statement No. 148 "Accounting for
Stock-Based Compensation." The Company accounts for grants of stock options
plans based on the recognition and measurement principals of APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations.
Accordingly, compensation expense was recorded equal to the difference between
the quoted market price of the underlying common stock on the date of grant and
the exercise price. The following table illustrates the effect on net income and
earnings per share had compensation cost for all of the stock-based compensation
plans been determined based on the grant date fair values of awards. (The method
described in FASB Statement No. 123, Accounting for Stock Based Compensation.)
-6-
Three months ended March 31,
2003 2002
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Dollars in thousands, except per share data
Net income as reported $903 $793
Deduct total stock based compensation expense determined
under fair value based method, net of related tax effects -- (2)
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Pro forma net income 903 791
================= =================
Basic earnings per share, as reported $0.30 $0.26
Basic earnings per share, pro forma $0.30 $0.26
Diluted earnings per share, as reported $0.30 $0.26
Diluted earnings per share, pro forma $0.30 $0.26
6. Long-term debt
The Bank maintains a $11,600,000 line of credit with the Federal Home Loan Bank
("FHLB") collateralized with a blanket floating lien of first real estate
mortgages and commercial real estate. In March 2003, the Bank borrowed three
advances totaling $10,000,000 from the FHLB with terms ranging from 18 months to
5 years at an average rate of 2.71%. In addition, the Bank has a FHLB advance
with a balance of $701,000 at March 31, 2003 that matures in December 2008, at a
fixed rate of 6.95% that was borrowed in 1996 and is collateralized by first
real estate mortgages. Additional advances are available in excess of the line
of credit and would require the pledging of additional qualifying assets. At
March 31, 2003, the Bank has sufficient collateral to borrow an additional
$6,100,000 from the FHLB.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The following discussion provides information about the results of operations
and financial condition, liquidity, and capital resources of the Company and
should be read in conjunction with our consolidated financial statements and
footnotes thereto for the year ended December 31, 2002.
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.
Overview
The Company reported a 13.87% increase in net income for the three months ended
March 31, 2003, as compared to the first quarter of 2002. Net income was
$903,000 or $0.30 per share (diluted), an increase of $110,000 from the net
income reported for the three months ended March 31, 2002 of $793,000 or $0.26
per share (diluted). The increase in net income reflects increases in net
interest income and noninterest income, partially offset by increases in
noninterest expense. The Company's operating results produced an annualized
return on average assets of 1.84% and an annualized return on average equity of
16.98%, compared to a return on average assets of 1.79% and a return on average
equity of 16.74% for the same period in 2002.
-7-
Net Interest Income
Net interest income, which is the sum of interest and certain fees generated by
earning assets minus interest paid on deposits and other funding sources, is the
principal source of the Company's earnings. Net interest income increased by
$238,000, or 10.0%, to $2,616,000 for the three months ended March 31, 2003, as
compared to $2,378,000 for the comparable period in 2002.The improvement in the
net interest margin was due to the growth in earning assets combined with the
management of the interest rates paid on deposits. Average earning assets of
$188,961,000 increased by $16,846,000, or 9.79%, as compared to average assets
of $172,115,000 for the first quarter of 2002. Average interest bearing
liabilities for the first quarter of 2003 of $130,797,000 increased by
$15,645,000, or 13.59%, as compared to the average of $115,152,000 for the first
quarter of 2002. The yield on total earning assets was 6.73%, a decrease of 51
basis points from the yield of 7.24% during the first quarter of 2002. The
average cost of interest-bearing funds was 1.61%, a decrease of 84 basis points
from the cost of funds of 2.45%, during the first quarter of 2002. The decrease
in average yield was due to the decrease in market interest rates for the
comparable periods. The net interest margin (net interest income as a percentage
of average interest-earning assets) was 5.61% for the first quarter of 2003, as
compared to 5.60% for the same period in 2002, a decrease of 1 basis point. The
net interest spread (the difference between the average interest rate earned on
interest-earning assets and interest paid on interest-bearing liabilities) was
5.12% for the first quarter of 2003, as compared to 4.79% for the first quarter
of 2002, an increase of 33 basis points.
Average balances and rates for each major category of interest-earning assets
and interest-bearing liabilities for the first quarter of 2003 and 2002 are
presented on a comparative basis in the following table.
Distribution of Assets, Liabilities and Stockholders' Equity Yields and Rates
For the Three Months Ended March 31, 2003 and 2002
(Dollars in Thousands)
2003 2002
Interest Interest
Average Income/ Average Average Income/ Average
Balances Expense Rates Balances Expense Rates
----------- ----------- ----------- ----------- ------------ -----------
Assets
Loans (a) $153,103 $2,782 7.37% $138,001 $2,692 7.91%
Investment securities 26,445 327 5.01% 24,874 342 5.58%
Federal funds sold 4,460 12 1.09% 4,122 17 1.61%
Interest-bearing bank balances 4,953 14 1.15% 5,118 23 1.84%
----------- ----------- ----------- ------------
Total earnings assets 188,961 3,135 6.73% 172,115 3,074 7.24%
----------- ----------- ----------- ------------
Allowance for loan losses (2,335) (1,943)
Cash and due from banks 7,626 6,342
Other assets 4,499 2,868
Total assets 198,751 179,382
=========== ===========
Liabilities and Stockholders' Equity
Savings, NOW and Money market $70,964 201 1.15% $53,490 183 1.39%
Certificates of deposit 50,364 282 2.27% 56,186 480 3.46%
Customer repurchase agreements 7,419 16 0.87% 4,673 19 1.63%
Long- term debt 2,050 20 3.96% 803 14 6.95%
Total interest-bearing liabilities 130,797 519 1.61% 115,152 696 2.45%
----------- ----------- ----------- ------------
Noninterest bearing deposits 45,099 43,897
Other liabilities 1,298 1,122
Stockholders' equity 21,557 19,211
Total liabilities and stockholders
equity $198,751 $179,382
=========== ===========
Net interest income $2,616 $2,378
=========== ============
Net interest spread 5.12% 4.79%
Net interest margin 5.61% 5.60%
a) The loan averages are stated net of unearned income and include loans on
which the accrual of interest has been discontinued.
-8-
Noninterest Income
Total noninterest income for the three months ended March 31, 2003 was $520,000,
an increase of $32,000 or 6.56%, compared $488,000 reported for the first
quarter of 2002. Service charges on deposit accounts increased 7.20% for the
first quarter of 2003, as compared to the same period in 2002, as a result of
the increase in the volume of transactions. Other income totaled $71,000, a
decrease of $26,000 or 26.81%, as compared to the first quarter of 2002, and
included a $33,000 gain on the sale of the guaranteed portion of Small Business
Administration ("SBA") loans, as compared to a $55,000 gain on sale of SBA loans
for the same period in 2002. Also included in noninterest income for the first
quarter of 2003 was a $29,000 gain on sale of an investment security
available-for-sale.
Noninterest Expense
Total noninterest expense for the three months ended March 31, 2003 increased
$116,000 or 8.05% to $1,557,000, as compared $1,441,000 for the first quarter of
2002. The Company's efficiency ratio (ratio of noninterest expense to the sum of
net interest income and noninterest income) improved to 49.64% for the first
quarter of 2003, as compared to 50.27% for the same quarter in 2002. Salaries
and benefits of $809,000 increased by $97,000 or 13.62%, as compared to the
first quarter of 2002, due to increases in staff. Net occupancy expense of
$277,000 for the first quarter of 2003 decreased $7,000, from the same period
one year earlier. Professional fees and data processing expense were relatively
unchanged, compared to the first quarter of 2002. Other operating expense
increased $26,000 or 9.12% to $311,000 compared to the prior year, due to
increases in supplies, charitable contributions, and courier costs.
Income Tax Expense
Income tax expense of $607,000 for the three months ended March 31, 2003
increased $75,000 from the same period in 2002, due primarily to the increase in
pretax income. The Company's effective tax rate was 40.2% during each of the
three month periods ended March 31..
Financial Condition
Overview
Total assets increased to $208,980,000 at March 31, 2003 from $204,950,000 at
December 31, 2002, an increase of $4,030,000 or 1.97%. The increase in assets
was primarily attributable to the increase in Federal funds sold and
interest-bearing deposits in other banks totaling $8,630,000. Total loans
decreased by $4,322,000 and total deposits decreased by $6,078,000, from the
prior year end. Long term debt increased by $9,977,000, as a result of borrowing
$10,000,000 from the Federal Home Loan Bank. Total stockholders' equity
increased $505,000 or 2.38% to $21,697,000. The book value per common share at
March 31, 2003 was $7.21, as compared to $7.05 at December 31, 2002.
Loans
The loan portfolio at March 31, 2002 was $152,214,000, a decrease of $4,322,000
or 2.76%, as compared to the December 31, 2002 balance of $156,536,000. Loans
secured by commercial real estate increased 3.78% or $4,169,000, while
commercial loans decreased 29.23% or $8,313,000, from December 31, 2002. The
guaranteed portion of SBA loans totaling $276,000 were sold during the first
three months of 2003.
Investment securities
Total investment securities decreased by $1,092,000 or 4.11% to $25,453,000 at
March 31, 2003 from $26,545,000 at December 31, 2002. This net decrease reflects
$6,000,000 in investment securities classified as available for sale that were
called or matured and $6,000,000 in investment securities classified as
hold-to-maturity that were called. Repayments on mortgage backed securities
totaled $931,000. Sales of investment securities available for sale totaled
$500,000. Purchases of investment securities classified as available for sale
totaled $7,445,000 and purchases of investment securities classified as held-
to-maturity totaled $5,000,000.
-9-
Short-term investments
Short term investments consisting of federal funds and interest-bearing deposits
in banks increased by $8,631,000, or 72.19% to a total of $20,586,000, compared
the balance of $11,955,000 at December 31, 2002. The overall increase was due to
the repayment of loans and the proceeds from FHLB advances, offset by the
outflow of deposits.
Deposits
Total deposits decreased by $6,078,000, or 3.48% to $168,690,000 at March 31,
2003 from the December 31, 2002 balance of $174,768,000. Demand deposits
totaling $47,653,000 increased $763,000, or 1.63% and money market accounts
totaling $52,269,000 increased $5,293,000 or 11.27% from the balances reported
at year end. NOW accounts decreased $7,309,000 or 31.52% from the previous year
end, due to fluctuations in the balances of large not-for-profit customers.
Savings deposits increased $211,000 to $5,275,000. Total certificates of deposit
decreased by $5,035,000 or 9.56% to $47,613,000 from December 31, 2002.
Short-term borrowings and long-term debt
Short-term borrowings consisting of customer repurchase agreements decreased
$1,103,000 or 15.08% to $6,210,000 at March 31, 2003 from the December 31, 2002
balance of $7,313,000, as a result of normal fluctuations in the balances of the
Bank's large corporate customers.
Long-term debt consisting of Federal Home Loan Bank (FHLB) advances increased
$9,977,000 to a balance of $10,701,000 in the first quarter of 2003, as a result
of the Bank drawing on three FHLB advances with an average rate of 2.71% and
with terms ranging from 18 months to 5 years.
Stockholders' equity
Stockholders' equity at March 31, 2003 was $21,697,000, an increase of $505,000
or 2.38% from December 31, 2002. This increase was largely attributable to net
income of $903,000 for the quarter, offset by dividends paid on the Company's
common stock totaling $356,000.
Asset Quality
Allowance for Loan Losses
Management believes the allowance for loan losses accounting policy is critical
to the portrayal and understanding of our financial condition and results of
operations. As such, selection and application of this "critical accounting
policy" involves judgements, estimates, and uncertainties that are susceptible
to change. In the event that different assumptions or conditions were to
prevail, and depending upon the severity of such changes, the possibility of
materially different financial condition or results of operations is a
reasonable likelihood.
The Company manages the risk characteristics of its entire loan portfolio in an
effort to identify problem loans so that the risks in the portfolio can be
identified on a timely basis and to maintain an adequate allowance for loans
losses. Management performs a periodic analysis of risk factors that includes
the primary sources of repayment on individual loans, liquidity and financial
condition of borrowers and guarantors, and the adequacy of collateral. Loans
subject to individual reviews are analyzed and segregated by risk according to
the Company's internal risk rating scale. Management also considers changes in
the size and character of the loan portfolio, changes in nonperforming and past
due loans, historical loss experience, concentrations of loans to specific
borrowers and industries, and general and regional economic conditions, as well
as, other factors existing at the determination date. This review takes into
account the judgment of the individual loan officers, the credit risk manager,
senior management and the Board of Directors. The Company also has a quarterly
loan review performed by an independent outside consultant. 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.
The allowance for loan losses is established through provisions for loan losses
as a charge to earnings based upon management's on-going evaluation. The balance
of the allowance for loan losses was $2,376,000 or 1.56% of total loans at March
31, 2003 and $2,297,000 or 1.47% of total loans at December 31, 2002. The
provision for loan losses was $70,000 for the first quarter of 2003, compared to
$100,000 for the first quarter of 2002. Net loan recoveries for the period were
$9,000.
-10-
Even thought the Bank's loan portfolio has declined 2.76% this quarter, most of
the change in the allowance was attributable to higher reserves for commercial
loans and commercial real estate loans. Significant geopolitical and economic
uncertainty persisted in the first quarter of 2003. The repayment of loans may
be significantly impacted by the ongoing economic stagnation. While historical
losses have been modest, the current economic conditions of the market area and
the concentration of loans in the higher risk classifications (e.g. commercial
and commercial real estate mortgages) warrant maintenance of the allowance for
loan losses at its current level. Management believes that the allowance for
loan losses at March 31, 2003 is adequate given past experience and the
underlying concerns surrounding the Company's loan portfolio.
The following table sets forth an analysis of the allocation for loan losses by
categories as of March 31, 2003 and December 31, 2002.
Allocation of Allowances for Loan Losses
For the Periods Ended March 31, 2003 and December 31, 2002
March 31, 2003 December 31, 2002
-------------------------------- -------------------------------
% of Loans % of Loans
Reserve to Total Reserve to Total
Amount Loans Amount Loans
-------------- -------------- ------------- --------------
(Dollars in thousands)
-------------- -------------- ------------- --------------
Commercial $776 23.1% $817 23.1%
Real estate - mortgages 1,477 76.3% 1,361 76.2%
Installment 13 0.6% 13 0.7%
Unallocated 110 -- 106 --
Total loans $2,376 100.0% $2,297 100.0%
============== ============== ============= ==============
The following table summarizes the transactions in the allowance for loan losses
for the three months ended March 31, 2003 and 2002.
Transactions in the Allowance for Loans Losses for the
Three Months Ended March 31, 2003 and 2002
(Dollars in thousands)
2003 2002
------------ ------------
Balance at January 1 $2,297 $1,911
------------ ------------
Provision for loan losses 70 100
------------ ------------
Recoveries:
Commercial 8 2
Installment to individuals 1 1
------------ ------------
Total recoveries 9 3
------------ ------------
Charge-offs:
Installment to individuals -- (3)
------------ ------------
Total charge-offs -- (3)
------------ ------------
Net (charge-offs) recoveries 9 --
------------ ------------
Balance at end of period $2,376 $2,011
============ ============
Ratio of net charge-offs (recoveries) to average .006% --
total loans
Average total loans outstanding during the period $153,103 $138,001
-11-
Nonperforming Assets
Nonperforming assets include nonaccrual loans, restructured loans, past-due
loans and other real estate owned. Past due loans are loans that are 90 days or
more delinquent and still accruing interest. Nonperforming assets at March 31,
2003 were $1,437,000 of which $802,000 was guaranteed by the SBA. Nonperforming
loans at December 31, 2002 were $460,000 of which $295,000 was guaranteed by the
SBA. Nonperforming assets at March 31, 2003 and December 31, 2002 represented
0.69% and 0.22% of total assets, respectively.
The following table presents a breakdown of our nonperforming assets, by
category, at March 31, 2003 and December 31, 2002.
Analysis of Nonperforming Assets
At March 31, 2003 and December 31, 2002
(Dollars in thousands)
2003 2002
------ -----
Nonaccrual loans:
Commercial $1,042 $460
------------ -----------
Total nonaccrual loans $1,042 460
------------ -----------
Past due loans
Commercial 395 --
Total nonperforming assets $1,437 $460
============ ===========
Nonperforming assets exclusive of SBA guarantee $635 $165
Nonperforming assets to gross loans 0.94% 0.29%
Nonperforming assets to total assets 0.69% 0.22%
Allowance for loan losses to nonperforming assets 165% 500%
Loans classified as monitored credits, which are not reported in the preceding
table, totaled $3,981,000 and $3,468,000 at March 31, 2003 and December 31, 2002
respectively. The balances of classified credits guaranteed by the SBA totaled
$2,642,000 and $1,989,000 at March 31, 2003 and December 31, 2002, respectively.
Classified loans are subject to management's attention and their classification
is reviewed on a quarterly basis.
Liquidity and Capital Resources
Liquidity
Principal sources of liquidity are cash, cash equivalents, and short term
investments. Liquid assets totaled $28,747,000 or 13.8% of total assets at March
31, 2003, as compared to $19,463,000 or 9.50% of total assets at December31,
2002. The Company has additional sources of liquidity available through
unpledged investment securities available-for-sale totaling $5,203,000,
unsecured lines of credit available from correspondent banks, which can provide
up to $10,000,000, as well as, a credit facility through its membership in the
Federal Home Loan Bank of Atlanta ("FHLB").The Bank has approximately $1,000,000
available under a blanket floating lien of first real estate mortgages and
commercial loans through the FHLB. The Bank has sufficient collateral to borrow
an additional $5,100,000 from the FHLB secured by qualifying assets.
Capital Resources
The following table presents the capital position of the Company and the Bank
relative to their various minimum statutory and regulatory capital requirements
at March 31, 2003 and December 31, 2002. Both the Company and the Bank continue
to be considered "well capitalized" and exceed regulatory requirements.
-12-
Minimum To Be Well
Capitalized Under
Minimum Capital Prompt Corrective
Actual Requirements Action Provisions
-------------------------- ------------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
----------- ----------- ---------- ----------- ---------- ----------
(Dollars in Thousands)
March 31, 2003:
Total Capital to Risk Weighted Assets:
Consolidated $23,677 14.02% $13,506 8.00% N/A N/A
Bank 23,553 13.97% 13,484 8.00% 16,855 10.00%
Tier 1 Capital to Risk Weighted Assets:
Consolidated 21,567 12.77% 6,753 4.00% N/A N/A
Bank 21,193 12.57% 6,742 4.00% 10,113 6.00%
Leverage Ratio:
Consolidated 21,567 10.85% 7,950 4.00% N/A N/A
Bank 21,193 10.67% 7,946 4.00% 9,932 5.00%
December 31, 2002:
Total Capital to Risk Weighted Assets:
Consolidated $23,171 13.37% $13,882 8.00% N/A N/A
Bank 23,009 13.26% 13,961 8.00% 17,326 10.00%
Tier 1 Capital to Risk Weighted Assets:
Consolidated 21,003 12.12% 6,941 4.00% N/A N/A
Bank 20,592 11.87% 6,930 4.00% 10,396 6.00%
Leverage Ratio:
Consolidated 21,003 10.42% 8,063 4.00% N/A N/A
Bank 20,592 10.22% 8,061 4.00% 10,076 5.00%
N/A = not applicable
Market Risk
The Company is exposed to various market risks in the normal course of
conducting business. Market risk is the potential loss arising from adverse
changes in interest rates, prices, and liquidity. The Company has established
the Asset/Liability Committee (ALCO) to monitor and manage those risks. ALCO
meets periodically and is responsible for approving asset/liability policies,
formulating and implementing strategies to improve balance sheet and income
statement positioning, and monitoring the interest rate sensitivity. The company
manages its interest rate risk sensitivity through the use of a simulation model
that projects the impact of rate shocks, rate cycles, and rate forecast
estimates on the net interest income and economic value of equity (the net
present value of expected cash flows from assets and liabilities). These
simulations provide a test for embedded interest rate risk and takes into
consideration factors such as maturities, reinvestment rates, prepayment speeds,
repricing limits, decay rates and other factors. The results are compared to
risk tolerance limits set by ALCO policy. Based on the Company's most recent
interest rate sensitivity analysis, the impact to 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 and sensitivity to market risk is
moderate.
-13-
Item 3 - Controls and Procedures
The Company's Chief Executive Officer and Chief Financial Officer have
concluded, based on their evaluation within 90 days prior to the filing date of
this report, that the Company's disclosure controls and procedures (as defined
in Securities Exchange Act Rules 13a-14(c) and 15d-14(c)) are effective to
ensure that information required to be disclosed in the reports that the Company
files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commissions rules and forms. There have been no
significant changes in the Company's internal controls or in other factors that
could significantly affect these controls subsequent to the date of the
foregoing evaluation.
PART II.
Item 4 - Submission of Matters to Vote of Security Holders
None.
Item 5 - Other Matters
None.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Exhibits- 99.1 Officers' Certification Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
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 13, 2003 /s/ Jeanne D. Hubbard
---------------------
Jeanne D. Hubbard
Chairwomen of the Board, President
and Director
(Principal Executive Officer)
-14-
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Jeanne D. Hubbard, President and Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of The Abigail Adams
National Bancorp;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, not misleading with respect to the period covered
by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made know to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of the date within 90 days prior to the filing date
of this quarterly report (the "evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weakness in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6) The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 13, 2003 /s/ Jeanne D. Hubbard
------------ ---------------------
President and Chief Executive Officer
-15-
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Karen E. Troutman, Sr. Vice President and Chief Financial Officer, certify
that:
1. I have reviewed this quarterly report on Form 10-QSB of The Abigail Adams
National Bancorp;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, not misleading with respect to the period covered
by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made know to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of the date within 90 days prior to the filing date
of this quarterly report (the "evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weakness in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6) The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 13, 2003 /s/ Karen E. Troutman
------------ ---------------------
Sr. Vice President
and Chief Financial Officer
-14-
Exhibit 99.1
Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Jeanne D. Hubbard, President and Chief Executive Officer, and Karen E. Troutman,
Senior Vice President and Chief Financial Officer of Abigail Adams National
Bancorp, Inc. (the "Company") each certify in her capacity as an officer of the
Company that she has reviewed the quarterly report of the Company on Form 10-QSB
for the quarter ended March 31, 2003 and that to the best of her knowledge:
1. the report fully complies with the requirements of Section 13(a) of the
Securities Exchange Act of 1934; and
2. the information contained in the report fairly presents, in all material
respects, the financial condition and results of operations.
The purpose of this statement is solely to comply with Title 18, Chapter 63,
Section 1350 of the Unites States Code, as amended by Section 906 of the
Sarbanes-Oxley Act of 2002.
Date: May 13, 2003 /s/ Jeanne D. Hubbard
-------------- ----------------------------------------
Jeanne D. Hubbard
President and Chief Executive Officer
Date: May 13, 2003 /s/ Karen E. Troutman
-------------- -----------------------------------------
Karen E. Troutman
Sr. Vice President
and Chief Financial Officer
-17-