UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
September 30, 2008
Or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
To
Commission File Number:
0-10971
ABIGAIL ADAMS NATIONAL BANCORP, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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52-1508198
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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1130 Connecticut Ave., NW, Washington, DC
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20036
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(Address of principal executive offices)
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(Zip Code)
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202.772.3600
(Registrants telephone number, including area code)
n/a
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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
þ
NO
o
Indicate by check
mark whether the
registrant is a
large accelerated filer, an accelerated filer, a non-accelerated
filer, or a
smaller reporting company.
See the definitions of large accelerated
filer, accelerated
filer
and smaller reporting company in
Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
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Smaller reporting company
þ
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Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).Yes
o
No
þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
As of November 13, 2008, there were 3,463,569 shares outstanding of Registrants Common Stock
TABLE OF CONTENTS
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PAGE
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PART I FINANCIAL INFORMATION
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Item 1- Condensed Consolidated Financial Statements (unaudited)
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Condensed Consolidated Balance Sheets
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1
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Condensed Consolidated Statements of Income
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2
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Condensed Consolidated Statements of Changes in Stockholders Equity
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3
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Condensed Consolidated Statements of Cash Flows
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4
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Notes to Unaudited Condensed Consolidated Financial Statements
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5
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Item 2 - Managements Discussion and Analysis of Financial Condition and Results of
Operations
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14
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Item 3 - Quantitative and Qualitative Disclosures about Market Risk
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21
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Item 4T Controls and Procedures
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21
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PART II OTHER INFORMATION
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Item 1 - Legal Proceedings
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22
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Item 1A Risk Factors
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22
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Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
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24
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Item 3 - Defaults upon Senior Securities
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24
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Item 4 - Submission of Matters to Vote of Security Holders
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24
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Item 5 - Other Information
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24
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Item 6 - Exhibits
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24
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Signatures
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25
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Exhibit 31.1
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26
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Exhibit 31.2
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27
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Exhibit 32
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28
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ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
September 30, 2008 (unaudited) and December 31, 2007
(Dollars in thousands)
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September 30, 2008
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December 31, 2007
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Assets
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Cash and due from banks
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$
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14,059
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$
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15,567
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Federal funds sold
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4,884
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12,816
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Interest-earning deposits in other banks
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4,171
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20,380
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Total cash and cash equivalents
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23,114
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48,763
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Investment securities available for sale, at fair value
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65,002
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66,392
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Investment securities held to maturity (market values of
$3,317 and $13,269 for 2008 and 2007 respectively)
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3,347
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13,309
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Loans
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335,299
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307,483
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Less: allowance for loan losses
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(9,983
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)
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(4,202
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)
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Loans, net
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325,316
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303,281
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Premises and equipment, net
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5,131
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4,985
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Other assets
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14,013
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9,145
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Total assets
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$
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435,923
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$
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445,875
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Liabilities and Stockholders Equity
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Liabilities:
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Deposits
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Noninterest-bearing deposits
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$
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64,392
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$
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74,833
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Interest-bearing deposits
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288,665
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312,109
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Total deposits
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353,057
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386,942
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Short-term borrowings
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34,988
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8,494
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Long-term debt
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18,155
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15,120
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Other liabilities
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3,437
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3,880
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|
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Total liabilities
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409,637
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414,436
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Commitments and contingencies (Note 2)
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Stockholdersequity:
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Common stock, $0.01 par value, authorized 5,000,000
shares; issued 3,492,633 shares in 2008 and 3,491,633
shares in
2007; outstanding 3,463,569 shares in 2008 and 3,462,569
shares in 2007
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35
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35
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Additional paid-in capital
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25,132
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25,127
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Retained earnings
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3,447
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7,196
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Treasury stock, 29,064 shares in 2008 and 2007, at cost
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(255
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)
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(255
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)
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Accumulated other comprehensive loss
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(2,073
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)
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(664
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)
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Total stockholders equity
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26,286
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31,439
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Total liabilities and stockholders equity
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$
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435,923
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$
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445,875
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See Notes to Unaudited Condensed Consolidated Financial Statements
1
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Income
For the Periods Ended September 30, 2008 and 2007
(In thousands, except per share data)
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For the three months ended
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For the nine months ended
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September 30,
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September 30,
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2008
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2007
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2008
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2007
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Interest Income
|
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|
|
|
|
|
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|
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Interest and fees on loans
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$
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5,531
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$
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6,206
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$
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16,587
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|
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$
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18,991
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Interest and dividends on investment securities
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|
941
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|
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|
909
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2,844
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|
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2,426
|
|
Other interest income
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50
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|
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|
725
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320
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|
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1,389
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|
|
|
|
|
|
|
|
|
|
|
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Total interest income
|
|
|
6,522
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|
|
|
7,840
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|
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19,751
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|
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22,806
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|
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|
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|
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|
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Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Interest on deposits
|
|
|
2,032
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|
|
|
3,516
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|
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|
6,811
|
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9,615
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Interest on short-term borrowings
|
|
|
120
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|
|
|
13
|
|
|
|
291
|
|
|
|
94
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Interest on long-term debt
|
|
|
200
|
|
|
|
217
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|
|
|
561
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|
|
581
|
|
|
|
|
|
|
|
|
|
|
|
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Total interest expense
|
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|
2,352
|
|
|
|
3,746
|
|
|
|
7,663
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|
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10,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
4,170
|
|
|
|
4,094
|
|
|
|
12,088
|
|
|
|
12,516
|
|
Provision for loan losses
|
|
|
6,395
|
|
|
|
75
|
|
|
|
7,470
|
|
|
|
235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest (loss) income after provision for
loan losses
|
|
|
(2,225
|
)
|
|
|
4,019
|
|
|
|
4,618
|
|
|
|
12,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Noninterest (Loss) Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service charges on deposit accounts
|
|
|
335
|
|
|
|
341
|
|
|
|
1,001
|
|
|
|
1,047
|
|
Other-than-temporary impairment of available
for sale securities
|
|
|
(517
|
)
|
|
|
|
|
|
|
(517
|
)
|
|
|
|
|
Other income
|
|
|
36
|
|
|
|
88
|
|
|
|
194
|
|
|
|
184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest (loss) income
|
|
|
(146
|
)
|
|
|
429
|
|
|
|
678
|
|
|
|
1,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
1,870
|
|
|
|
1,654
|
|
|
|
5,213
|
|
|
|
4,977
|
|
Occupancy and equipment expense
|
|
|
582
|
|
|
|
555
|
|
|
|
1,768
|
|
|
|
1,725
|
|
Professional fees
|
|
|
189
|
|
|
|
167
|
|
|
|
476
|
|
|
|
541
|
|
Data processing fees
|
|
|
214
|
|
|
|
239
|
|
|
|
611
|
|
|
|
819
|
|
Other operating expense
|
|
|
813
|
|
|
|
761
|
|
|
|
2,244
|
|
|
|
2,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense
|
|
|
3,668
|
|
|
|
3,376
|
|
|
|
10,312
|
|
|
|
10,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(6,039
|
)
|
|
|
1,072
|
|
|
|
(5,016
|
)
|
|
|
3,377
|
|
Income tax (benefit) provision
|
|
|
(2,509
|
)
|
|
|
419
|
|
|
|
(2,133
|
)
|
|
|
1,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(3,530
|
)
|
|
$
|
653
|
|
|
$
|
(2,883
|
)
|
|
$
|
2,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Earnings per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
$
|
(1.02
|
)
|
|
$
|
0.19
|
|
|
$
|
(0.83
|
)
|
|
$
|
0.59
|
|
See Notes to Unaudited Condensed Consolidated Financial Statements
2
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Changes in Stockholders Equity
Nine Months Ended September 30, 2008 and 2007
(In thousands except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
Common
|
|
Paid-in
|
|
Retained
|
|
Treasury
|
|
Comprehensive
|
|
|
|
|
Stock
|
|
Capital
|
|
Earnings
|
|
Stock
|
|
(Loss)Gain
|
|
Total
|
|
|
|
Balance at December 31, 2006
|
|
$
|
35
|
|
|
$
|
25,123
|
|
|
$
|
5,868
|
|
|
$
|
(210
|
)
|
|
$
|
(634
|
)
|
|
$
|
30,182
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
2,046
|
|
|
|
|
|
|
|
|
|
|
|
2,046
|
|
Unrealized gains during the period of
$171 on investment securities available
for sale, net of tax expense of $62.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109
|
|
|
|
109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares under stock option program
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
Acquisition and issuance of shares for ESOP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45
|
)
|
|
|
|
|
|
|
(45
|
)
|
Dividends declared at $0.375 per share
|
|
|
|
|
|
|
|
|
|
|
(1,299
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,299
|
)
|
|
|
|
Balance at September 30, 2007
|
|
$
|
35
|
|
|
$
|
25,127
|
|
|
$
|
6,615
|
|
|
$
|
(255
|
)
|
|
$
|
(525
|
)
|
|
$
|
30,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
35
|
|
|
$
|
25,127
|
|
|
$
|
7,196
|
|
|
$
|
(255
|
)
|
|
$
|
(664
|
)
|
|
$
|
31,439
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(2,883
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,883
|
)
|
Unrealized losses during the period of
$1.9 million on investment securities
available for sale, net of tax benefit of
$481,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,380
|
)
|
|
|
(1,380
|
)
|
Reclassification adjustment for
settlement loss of $43 during the period
on pension plan termination recognized in
income, net of tax benefit of $14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29
|
)
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,292
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares under stock option program
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
Dividends declared at $0.25 per share
|
|
|
|
|
|
|
|
|
|
|
(866
|
)
|
|
|
|
|
|
|
|
|
|
|
(866
|
)
|
|
|
|
Balance at September 30, 2008
|
|
$
|
35
|
|
|
$
|
25,132
|
|
|
$
|
3,447
|
|
|
$
|
(255
|
)
|
|
$
|
(2,073
|
)
|
|
$
|
26,286
|
|
|
|
|
See Notes to Unaudited Condensed Consolidated Financial Statements
3
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2008 and 2007
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(2,883
|
)
|
|
$
|
2,046
|
|
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
7,470
|
|
|
|
235
|
|
Depreciation
|
|
|
455
|
|
|
|
431
|
|
Accretion and amortization of deferred loan fees and costs, net
|
|
|
89
|
|
|
|
83
|
|
Accretion of purchase accounting adjustments
|
|
|
(80
|
)
|
|
|
(76
|
)
|
Accretion and amortization of securities premiums and discounts, net
|
|
|
13
|
|
|
|
2
|
|
Gain on sale of guaranteed portion of SBA loans
|
|
|
(38
|
)
|
|
|
(38
|
)
|
Other-than-temporary impairment of available for sale securities
|
|
|
517
|
|
|
|
|
|
Loss on the sale of foreclosed and other assets
|
|
|
19
|
|
|
|
29
|
|
Increase in other assets
|
|
|
(2,854
|
)
|
|
|
(755
|
)
|
(Decrease) increase in other liabilities
|
|
|
(443
|
)
|
|
|
963
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
2,265
|
|
|
|
2,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Proceeds from maturities of investment securities available for sale
|
|
|
39,500
|
|
|
|
8,000
|
|
Proceeds from maturities of investment securities held to maturity
|
|
|
11,500
|
|
|
|
3,000
|
|
Proceeds from repayment of mortgage-backed securities available for sale
|
|
|
1,381
|
|
|
|
723
|
|
Proceeds from repayment of mortgage-backed securities held to maturity
|
|
|
473
|
|
|
|
339
|
|
Proceeds from the sale of foreclosed and other assets
|
|
|
264
|
|
|
|
282
|
|
Purchase of investment securities available for sale
|
|
|
(41,880
|
)
|
|
|
(25,502
|
)
|
Purchase of investment securities held to maturity
|
|
|
(2,012
|
)
|
|
|
(3,734
|
)
|
Purchase of FHLB and FRB stock
|
|
|
(7,504
|
)
|
|
|
(1,534
|
)
|
Redemption of FHLB stock
|
|
|
6,341
|
|
|
|
892
|
|
Net increase in loans
|
|
|
(29,559
|
)
|
|
|
(1,112
|
)
|
Purchase of collateral and build out cost on foreclosed assets
|
|
|
(600
|
)
|
|
|
|
|
Purchase of premises and equipment, net
|
|
|
(601
|
)
|
|
|
(563
|
)
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(22,697
|
)
|
|
|
(19,209
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Net decrease in transaction and savings deposits
|
|
|
(56,243
|
)
|
|
|
(1,067
|
)
|
Net increase in time deposits
|
|
|
22,358
|
|
|
|
19,752
|
|
Net increase in short-term borrowings
|
|
|
26,494
|
|
|
|
1,601
|
|
Proceeds from long-term debt
|
|
|
8,115
|
|
|
|
10,000
|
|
Repayment of long-term debt
|
|
|
(5,080
|
)
|
|
|
(790
|
)
|
Proceeds from issuance of common stock in stock option program
|
|
|
5
|
|
|
|
4
|
|
Purchased treasury stock
|
|
|
|
|
|
|
(45
|
)
|
Cash dividends paid to common stockholders
|
|
|
(866
|
)
|
|
|
(1,299
|
)
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(5,217
|
)
|
|
|
28,156
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(25,649
|
)
|
|
|
11,867
|
|
Cash and cash equivalents at beginning of period
|
|
|
48,763
|
|
|
|
27,563
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
23,114
|
|
|
$
|
39,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary disclosures:
|
|
|
|
|
|
|
|
|
Interest paid on deposits and borrowings
|
|
$
|
8,760
|
|
|
$
|
9,854
|
|
Income taxes paid
|
|
$
|
1,078
|
|
|
$
|
1,093
|
|
4
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1 Basis of Presentation
Abigail Adams National Bancorp, Inc. (the Company) is the parent company of The Adams National
Bank (ANB) and Consolidated Bank and Trust (CB&T). As used herein, the term Company includes
ANB and CB&T, unless the context otherwise requires.
The Company prepares its consolidated financial statements on the accrual basis and in conformity
with accounting principles generally accepted in the United States for interim financial
information, the instructions for Form 10-Q, and Regulation S-X. The accompanying financial
statements are unaudited except for the balance sheet at December 31, 2007, which was derived from
the audited consolidated 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 statement of the results for the interim periods presented.
These statements should be read in conjunction with the consolidated financial statements and
accompanying notes included with the Companys 2007 Annual Report to Stockholders, since 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 and nine months ended
September 30, 2008 (unaudited) are not necessarily indicative of the results that may be expected
for the year ending December 31, 2008. Certain reclassifications may have been made to amounts
previously reported for 2007 to conform with the 2008 presentation.
Note 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. There were no material changes in outstanding commitments or
contingent liabilities since December 31, 2007.
Note 3 Earnings (loss) per Share
Basic earnings per share (EPS) computations are based upon the weighted average number of shares
outstanding during the periods. Diluted earnings per share computations are determined using the
treasury stock method and based upon the weighted average number of shares outstanding during the
periods plus the dilutive effect of outstanding stock options. The following table provides a
reconciliation of the number of shares between the computation of basic EPS and diluted EPS for the
three and nine months ended September 30, 2008 and 2007. For the three and nine month periods
ended September 30, 2008, the dilutive effects of options are excluded from the computation of the
loss per share because the inclusion of these are antidilutive.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months
|
|
|
For the nine months
|
|
|
|
ended September 30,
|
|
|
ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Weighted average shares
|
|
|
3,463,569
|
|
|
|
3,462,569
|
|
|
|
3,463,241
|
|
|
|
3,462,174
|
|
Effect of dilutive stock options
|
|
|
|
|
|
|
3,673
|
|
|
|
|
|
|
|
3,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential average common shares
|
|
|
3,463,569
|
|
|
|
3,466,242
|
|
|
|
3,463,241
|
|
|
|
3,465,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
Note 4 Securities
The amortized cost and estimated fair value of investment securities held to maturity and
investment securities available for sale at September 30, 2008 and December 31, 2007 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated Fair
|
|
(In thousands)
|
|
Cost Basis
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government sponsored agencies and corporations
|
|
$
|
47,191
|
|
|
$
|
189
|
|
|
$
|
371
|
|
|
$
|
47,009
|
|
Mortgage-backed securities
|
|
|
11,671
|
|
|
|
29
|
|
|
|
191
|
|
|
|
11,509
|
|
Municipal securities
|
|
|
953
|
|
|
|
|
|
|
|
60
|
|
|
|
893
|
|
Corporate debt securities
|
|
|
7,222
|
|
|
|
|
|
|
|
1,995
|
|
|
|
5,227
|
|
Marketable equity securities
|
|
|
1,003
|
|
|
|
|
|
|
|
639
|
|
|
|
364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
68,040
|
|
|
$
|
218
|
|
|
$
|
3,256
|
|
|
$
|
65,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Securities held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government sponsored agencies and corporations
|
|
$
|
2,009
|
|
|
$
|
|
|
|
$
|
46
|
|
|
$
|
1,963
|
|
Mortgage-backed securities
|
|
|
1,338
|
|
|
|
16
|
|
|
|
|
|
|
|
1,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,347
|
|
|
$
|
16
|
|
|
$
|
46
|
|
|
$
|
3,317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US government sponsored agencies and corporations
|
|
$
|
52,709
|
|
|
$
|
308
|
|
|
$
|
34
|
|
|
$
|
52,983
|
|
Mortgage-backed securities
|
|
|
7,105
|
|
|
|
50
|
|
|
|
64
|
|
|
|
7,091
|
|
Corporate debt securities
|
|
|
6,750
|
|
|
|
29
|
|
|
|
1,179
|
|
|
|
5,600
|
|
Marketable equity securities
|
|
|
1,005
|
|
|
|
|
|
|
|
287
|
|
|
|
718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
67,569
|
|
|
$
|
387
|
|
|
$
|
1,564
|
|
|
$
|
66,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Securities held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government sponsored agencies and corporations
|
|
$
|
11,498
|
|
|
$
|
|
|
|
$
|
57
|
|
|
$
|
11,441
|
|
Mortgage-backed securities
|
|
|
1,811
|
|
|
|
20
|
|
|
|
3
|
|
|
|
1,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,309
|
|
|
$
|
20
|
|
|
$
|
60
|
|
|
$
|
13,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company had no sales of securities in the three and nine month periods ended September 30, 2008
and September 30, 2007.
At September 30, 2008, a portion of our investment securities portfolio had unrealized losses. The
fair value of investment securities with unrealized losses by length of time that the individual
securities have been in a continuous loss position at September 30, 2008 and December 31, 2007, are
presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuous unrealized losses
|
|
Continuous unrealized losses
|
|
|
|
|
existing for less than 12 months
|
|
existing 12 months or more
|
|
Total
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
(In thousands)
|
|
Fair Value
|
|
Losses
|
|
Fair Value
|
|
Losses
|
|
Fair Value
|
|
Losses
|
|
|
|
September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government sponsored
agencies and corporations
|
|
$
|
22,572
|
|
|
$
|
417
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
22,572
|
|
|
$
|
417
|
|
Mortgage-backed securities
|
|
|
6,881
|
|
|
|
150
|
|
|
|
1,498
|
|
|
|
41
|
|
|
|
8,379
|
|
|
|
191
|
|
Municipal securities
|
|
|
893
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
893
|
|
|
|
60
|
|
Corporate debt securities
|
|
|
2,192
|
|
|
|
492
|
|
|
|
3,035
|
|
|
|
1,503
|
|
|
|
5,227
|
|
|
|
1,995
|
|
Marketable equity securities
|
|
|
|
|
|
|
|
|
|
|
364
|
|
|
|
639
|
|
|
|
364
|
|
|
|
639
|
|
|
|
|
Total
|
|
$
|
32,538
|
|
|
$
|
1,119
|
|
|
$
|
4,897
|
|
|
$
|
2,183
|
|
|
$
|
37,435
|
|
|
$
|
3,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government sponsored
agencies and corporations
|
|
$
|
999
|
|
|
$
|
1
|
|
|
$
|
19,407
|
|
|
$
|
90
|
|
|
$
|
20,406
|
|
|
$
|
91
|
|
Mortgage-backed securities
|
|
|
|
|
|
|
|
|
|
|
4,046
|
|
|
|
67
|
|
|
|
4,046
|
|
|
|
67
|
|
Corporate debt securities
|
|
|
2,981
|
|
|
|
697
|
|
|
|
1,580
|
|
|
|
482
|
|
|
|
4,561
|
|
|
|
1,179
|
|
Marketable equity securities
|
|
|
718
|
|
|
|
287
|
|
|
|
|
|
|
|
|
|
|
|
718
|
|
|
|
287
|
|
|
|
|
Total
|
|
$
|
4,698
|
|
|
$
|
985
|
|
|
$
|
25,033
|
|
|
$
|
639
|
|
|
$
|
29,731
|
|
|
$
|
1,624
|
|
|
|
|
6
Management evaluates securities for other-than-temporary impairment at least on a quarterly basis,
and more frequently when economic or market concerns warrant such evaluation. Analysis of the
available for sale securities for potential other-than-temporary impairment was considered under
the Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments
in Debt and Equity Securities
impairment model and included the following factors: the length of
time and extent to which the market value has been less than cost; the financial condition and
near-term prospects of the issuer including specific events; the Companys intent and ability to
hold the investment to the earlier of maturity or recovery in market value, the credit rating of
the security; the implied and historical volatility of the security; whether market decline was
affected by macroeconomic conditions or by specific information pertaining to an individual
security; and any downgrades by rating agencies. As applicable under SFAS No. 115, the Company
considers a decline in fair value to be other-than-temporary if it is probable that the Company
will not recover its recorded investment, including as applicable under the Emerging Issues Task
Force (EITF) Issue 99-20,
Recognition of Interest Income and Impairment on Purchased Beneficial
Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized
Financial Assets,
when an adverse change in cash flows has occurred.
The available for sale investment classified as marketable equity securities consists of perpetual
preferred securities which have been valued below cost for more than 19 months. These securities,
carried at fair value of $364,000 with an unrealized loss of $639,000, currently have a Moodys
rating of A1 and a Standard and Poors rating of BBB+. The securities are not required to be
redeemed by the issuer, nor are they redeemable at the option of the investor and are therefore
classified as equity securities under SFAS 115. On October 14, 2008, the SECs Office of the Chief
Accountant (OCA), clarified its views on the application of other-than-temporary impairment
guidance in FAS 115,
Accounting for Certain Investments in Debt and Equity Securities
, to certain
perpetual preferred securities. The OCA concluded that it would not object to a registrant
applying an other-than-temporary impairment model to investments in perpetual preferred securities
that possess significant debt-like characteristics that is similar to the impairment model applied
to debt securities, provided there has been no evidence of deterioration in credit of the issuer.
We noted no decline in the cash flows from holding the investment and the downgrade in the rating
of the securities since purchase was not below investment grade. An entity is permitted to apply
the OCAs views in its financial statements included in filings subsequent to the date of the
letter. At September 30, 2008, based on the OCA guidance, we recorded no other-than-temporary
impairment on the marketable equity securities since there was no evidence of credit deterioration
in the perpetual preferred securities and we have the intent and ability to hold the perpetual
preferred securities until their expected recovery in fair value.
At September 30, 2008, the Company had six corporate debt securities which had been valued below
cost for greater than 12 months. Of these, two corporate debt securities which had been downgraded
in 2005 to below investment grade and had been valued below cost for 56 months, were being carried
at fair value totaling $537,000 with an aggregate unrealized loss of $517,000. Based on the SFAS
No. 115 impairment model, management determined that it is probable that the
Company will be unable to collect all amounts due according to the contractual terms of the debt
securities and that an other-than-temporary impairment had occurred even though the issuers were
not in default and were paying interest at 7.0% and 7.125% as scheduled and the Company has the
intent and ability to hold the investments until their maturity in 2013. The two debt securities
were written down to fair value and the $517,000 unrealized loss was recorded as
other-than-temporary impairment in noninterest income at September 30, 2008. The other four
corporate debt securities, carried at fair value of $2.5 million with an unrealized loss of $1.5
million, currently have Moody ratings in the range of A1 to Aa2 and Standard and Poors ratings
ranging from A to AA-. Interest payments ranging from 5.625% to 5.900% continue to be received as
scheduled. Based on the analysis performed by applying the SFAS No. 115 impairment model and where
applicable, EITF Issue 99-20, the Company does not consider it probable that it will not recover
its recorded investments. Further, the Company has not experienced any adverse change in cash flows
from holding the investments and has the intent and ability to hold the investment to the earlier
of maturity or recovery in fair value and, therefore did not record any other-than-temporary
impairment charge at September 30, 2008 or at December 31, 2007 on these four corporate debt
securities.
The remaining unrealized losses that existed as of September 30, 2008 and December 31, 2007, are a
result of market changes in interest rates since the securities purchase. This factor, coupled
with the fact the Company has both the intent and the ability to hold these securities for a period
of time sufficient to allow for recovery in fair value substantiates that the remaining unrealized
losses in the held to maturity and available for sale portfolios are temporary.
7
Note 5 Comprehensive Income (Loss)
Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss).
Other comprehensive income (loss) includes unrealized gains and losses on securities available for
sale and unrealized gains and losses on pension plan assets and benefit obligations. There were two
reclassification adjustments realized in income for losses from components of other comprehensive
loss in the quarter ended September 30, 2008 and none in the quarter ended September 30, 2007. In
the third quarter of 2008, the Company recorded an other-than-temporary impairment charge on two
corporate debt securities in the amount of $517,000 with a deferred tax benefit of $210,000. In the
third quarter of 2008, the Company recognized a settlement loss in the amount of $43,000 with a
deferred tax benefit of $14,000 on the termination of the CBT pension plan.
The components of comprehensive income are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months
|
|
|
For the nine months
|
|
|
|
ended September 30,
|
|
|
ended September 30,
|
|
(In thousands)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Net (loss) income
|
|
$
|
(3,530
|
)
|
|
$
|
653
|
|
|
$
|
(2,883
|
)
|
|
$
|
2,046
|
|
Unrealized (losses) gains on securities
|
|
|
(1,523
|
)
|
|
|
537
|
|
|
|
(2,378
|
)
|
|
|
171
|
|
Reclassification adjustment for
other-than-temporary impairment
realized in noninterest income
|
|
|
517
|
|
|
|
|
|
|
|
517
|
|
|
|
|
|
Reclassification adjustment for
pension plan termination loss realized
in income
|
|
|
(43
|
)
|
|
|
|
|
|
|
(43
|
)
|
|
|
|
|
Income tax benefit (expense)
|
|
|
155
|
|
|
|
(209
|
)
|
|
|
495
|
|
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive (loss) income
|
|
$
|
(4,424
|
)
|
|
$
|
981
|
|
|
$
|
(4,292
|
)
|
|
$
|
2,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 6 Segments
Management regularly reviews the performance of the Companys operations on a reporting basis by
legal entity. The Company has two operating segments comprised of its subsidiaries, ANB and CB&T,
for which there is discrete financial information available. Both segments are engaged in
providing financial services in their respective market areas and are similar in each of the
following: the nature of their products, services, and processes; type or class of customer for
their products and services; methods used to distribute their products or provide their services;
and the nature of the banking regulatory environment. The parent company is deemed to represent an
overhead function rather than an operating segment and its financial information is presented as
the Other category in the schedules below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Results and Reconciliation
|
|
|
The Adams
|
|
Consolidated
|
|
|
|
|
|
Intercompany
|
|
Consolidated
|
(Dollars in thousands)
|
|
National Bank
|
|
Bank & Trust
|
|
Other
(1)
|
|
Eliminations
|
|
Totals
|
For three months ended
September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
5,153
|
|
|
$
|
1,369
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,522
|
|
Interest expense
|
|
|
1,948
|
|
|
|
315
|
|
|
|
89
|
|
|
|
|
|
|
|
2,352
|
|
Net interest income (expense)
|
|
|
3,205
|
|
|
|
1,054
|
|
|
|
(89
|
)
|
|
|
|
|
|
|
4,170
|
|
Provision for loan losses
|
|
|
5,630
|
|
|
|
15
|
|
|
|
750
|
|
|
|
|
|
|
|
6,395
|
|
Noninterest (loss) income
|
|
|
(223
|
)
|
|
|
102
|
|
|
|
(2,912
|
)
|
|
|
2,887
|
|
|
|
(146
|
)
|
Noninterest expense
|
|
|
2,447
|
|
|
|
1,044
|
|
|
|
202
|
|
|
|
(25
|
)
|
|
|
3,668
|
|
Net (loss) income
|
|
|
(2,977
|
)
|
|
|
66
|
|
|
|
(3,531
|
)
|
|
|
2,912
|
|
|
|
(3,530
|
)
|
Assets
|
|
|
340,945
|
|
|
|
91,983
|
|
|
|
34,456
|
|
|
|
(31,461
|
)
|
|
|
435,923
|
|
Annualized (loss) return on average assets
|
|
|
(3.42
|
)%
|
|
|
0.29
|
%
|
|
|
NM
|
(2)
|
|
|
|
|
|
|
(3.16
|
)%
|
Annualized (loss) return on average equity
|
|
|
(44.95
|
)%
|
|
|
3.02
|
%
|
|
|
NM
|
(2)
|
|
|
|
|
|
|
(46.63
|
)%
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Results and Reconciliation
|
|
|
The Adams
|
|
Consolidated
|
|
|
|
|
|
Intercompany
|
|
Consolidated
|
(Dollars in thousands)
|
|
National Bank
|
|
Bank & Trust
|
|
Other
(1)
|
|
Eliminations
|
|
Totals
|
For three months ended
September 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
6,345
|
|
|
$
|
1,495
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,840
|
|
Interest expense
|
|
|
3,175
|
|
|
|
471
|
|
|
|
100
|
|
|
|
|
|
|
|
3,746
|
|
Net interest income (expense)
|
|
|
3,170
|
|
|
|
1,024
|
|
|
|
(100
|
)
|
|
|
|
|
|
|
4,094
|
|
Provision for loan losses
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75
|
|
Noninterest income
|
|
|
348
|
|
|
|
106
|
|
|
|
789
|
|
|
|
(814
|
)
|
|
|
429
|
|
Noninterest expense
|
|
|
2,229
|
|
|
|
1,043
|
|
|
|
129
|
|
|
|
(25
|
)
|
|
|
3,376
|
|
Net income
|
|
|
729
|
|
|
|
60
|
|
|
|
653
|
|
|
|
(789
|
)
|
|
|
653
|
|
Assets
|
|
|
342,321
|
|
|
|
94,123
|
|
|
|
35,920
|
|
|
|
(35,588
|
)
|
|
|
436,776
|
|
Annualized return on average assets
|
|
|
0.77
|
%
|
|
|
0.25
|
%
|
|
|
NM
|
(2)
|
|
|
|
|
|
|
0.55
|
%
|
Annualized return on average equity
|
|
|
10.71
|
%
|
|
|
2.88
|
%
|
|
|
NM
|
(2)
|
|
|
|
|
|
|
8.39
|
%
|
|
|
|
(1)
|
|
Amounts represent parent company before intercompany eliminations.
|
|
(2)
|
|
Not considered a meaningful performance ratio for parent company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Results and Reconciliation
|
|
|
The Adams
|
|
Consolidated
|
|
|
|
|
|
Intercompany
|
|
Consolidated
|
(Dollars in thousands)
|
|
National Bank
|
|
Bank & Trust
|
|
Other
(1)
|
|
Eliminations
|
|
Totals
|
For nine months ended
September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
15,702
|
|
|
$
|
4,049
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
19,751
|
|
Interest expense
|
|
|
6,384
|
|
|
|
1,051
|
|
|
|
228
|
|
|
|
|
|
|
|
7,663
|
|
Net interest income (expense)
|
|
|
9,318
|
|
|
|
2,998
|
|
|
|
(228
|
)
|
|
|
|
|
|
|
12,088
|
|
Provision for loan losses
|
|
|
6,679
|
|
|
|
41
|
|
|
|
750
|
|
|
|
|
|
|
|
7,470
|
|
Noninterest income (loss)
|
|
|
457
|
|
|
|
296
|
|
|
|
(2,006
|
)
|
|
|
1,931
|
|
|
|
678
|
|
Noninterest expense
|
|
|
6,888
|
|
|
|
3,001
|
|
|
|
498
|
|
|
|
(75
|
)
|
|
|
10,312
|
|
Net (loss) income
|
|
|
(2,177
|
)
|
|
|
171
|
|
|
|
(2,883
|
)
|
|
|
2,006
|
|
|
|
(2,883
|
)
|
Assets
|
|
|
340,945
|
|
|
|
91,983
|
|
|
|
34,456
|
|
|
|
(31,461
|
)
|
|
|
435,923
|
|
Annualized (loss) return on average assets
|
|
|
(0.83
|
)%
|
|
|
0.26
|
%
|
|
|
NM
|
(2)
|
|
|
|
|
|
|
(0.87
|
)%
|
Annualized (loss) return on average equity
|
|
|
(10.68
|
)%
|
|
|
2.56
|
%
|
|
|
NM
|
(2)
|
|
|
|
|
|
|
(12.28
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For nine months ended
September 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
18,531
|
|
|
$
|
4,275
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
22,806
|
|
Interest expense
|
|
|
8,744
|
|
|
|
1,239
|
|
|
|
307
|
|
|
|
|
|
|
|
10,290
|
|
Net interest income
|
|
|
9,787
|
|
|
|
3,036
|
|
|
|
(307
|
)
|
|
|
|
|
|
|
12,516
|
|
Provision for loan losses
|
|
|
225
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
235
|
|
Noninterest income
|
|
|
993
|
|
|
|
313
|
|
|
|
2,487
|
|
|
|
(2,562
|
)
|
|
|
1,231
|
|
Noninterest expense
|
|
|
6,643
|
|
|
|
3,132
|
|
|
|
435
|
|
|
|
(75
|
)
|
|
|
10,135
|
|
Net income
|
|
|
2,342
|
|
|
|
145
|
|
|
|
2,046
|
|
|
|
(2,487
|
)
|
|
|
2,046
|
|
Assets
|
|
|
342,321
|
|
|
|
94,123
|
|
|
|
35,920
|
|
|
|
(35,588
|
)
|
|
|
436,776
|
|
Annualized return on average assets
|
|
|
0.89
|
%
|
|
|
0.22
|
%
|
|
|
NM
|
(2)
|
|
|
|
|
|
|
0.62
|
%
|
Annualized return on average equity
|
|
|
11.54
|
%
|
|
|
2.38
|
%
|
|
|
NM
|
(2)
|
|
|
|
|
|
|
8.92
|
%
|
|
|
|
(1)
|
|
Amounts represent parent company before intercompany eliminations.
|
|
(2)
|
|
Not considered a meaningful performance ratio for parent company.
|
9
Description of significant amounts included in the Intercompany Eliminations column in the
segment report schedules are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30,
|
|
Nine months ended September 30,
|
(In thousands)
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
Noninterest income
- elimination of
parent companys
undistributed
losses (earnings)
from subsidiaries
|
|
$
|
2,912
|
|
|
$
|
(789
|
)
|
|
$
|
2,006
|
|
|
$
|
(2,487
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
elimination of
parent companys
losses (earnings)
from subsidiaries
|
|
$
|
2,912
|
|
|
$
|
(789
|
)
|
|
$
|
2,006
|
|
|
$
|
(2,487
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets -
elimination of
parent companys
investment in
subsidiaries
|
|
$
|
(31,387
|
)
|
|
$
|
(35,233
|
)
|
|
$
|
(31,387
|
)
|
|
$
|
(35,233
|
)
|
Note 7 Fair Value Disclosures
Effective January 1, 2008, the Company adopted the Statement of Financial Accounting Standard No.
157,
Fair Value Measurements
(SFAS No. 157) issued by the Financial Accounting Standards Board
(FASB). SFAS No. 157 provides a framework for measuring fair value under generally accepted
accounting principles, outlines a fair value hierarchy based on inputs used to measure fair value
and enhances disclosure requirements for fair value meaurements. The statement applies to all
financial instruments that are being measured and reported on a fair value basis. In accordance
with FASB Staff Position No. 157-2,
Effective Date of FASB Statement No. 157,
the Company will
delay application of SFAS 157 for non-financial assets and non-financial liabilities, until January
1, 2009.
SFAS No. 157 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques
used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices
in active markets for identical assets or liabilities (Level 1 measurements) and the lowest
priority to unobservable inputs (Level 3 measurements). The three levels of the fair value
hierarchy under SFAS No. 157 are described below:
Basis of Fair Value Measurement
|
|
|
Level 1
|
|
Unadjusted quoted prices in active markets that are accessible at
the measurement date for identical, unrestricted assets or
liabilities.
|
|
|
|
Level 2
|
|
Quoted prices in markets that are not active, or inputs that are
observable, either directly or indirectly, for substantially the
full term of the asset or liability.
|
|
|
|
Level 3
|
|
Prices or valuation techniques that require inputs that are both
significant to the fair value measurement and unobservable (i.e.,
supported by little or no market activity).
|
The table below presents the Companys balances of financial instruments measured at fair value on
a recurring basis by level within the hierarchy at September 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
Active
|
|
Significant
|
|
|
|
|
|
|
Markets for
|
|
Other
|
|
Significant
|
|
|
|
|
Identical
|
|
Observable
|
|
Unobservable
|
|
|
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
|
(In thousands)
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total
|
Investment
securities
available for sale
|
|
$
|
|
|
|
$
|
65,002
|
|
|
$
|
|
|
|
$
|
65,002
|
|
The Company outsources the recordkeeping for investment securities held by ANB to FTN Financial and
for those held by CB&T to Suntrust Robinson Humphrey. For 42 of the 57 securities categorized in
Level 2 in the table above, FTN used the Interactive Data Corporation (IDC) as a pricing source.
IDCs evaluations are based on market data. IDC utilizes evaluated pricing models that vary based
by asset class and include available trade, bid, and other market information. Generally,
methodology includes broker quotes, proprietary modes, vast descriptive terms and conditions
databases, as well as extensive quality control programs. FTN also used, as a valuation source,
the FTN proprietary valuation Matrices model for the one municipal security included in Level 2.
The FTN Matrices model is used for valuing municipals. The model includes a separate curve
structure for the Bank-Qualified versus general market municipals. The grouping of municipals are
further broken down according to
insurer, credit support, state of issuance, and rating to incorporate additional spreads and
municipal curves. Suntrust uses the R Reuters DataScope for Fixed Income as the pricing source for
the remaining 14 securities included in Level 2 in the table above. If the inputs used to provide
the evaluation are unobservable and/or there is very little, if any, market activity for the
security or similar securities, the securities are categorized in Level 3.
10
The table below presents the Companys balances of financial instruments measured at fair value on
a nonrecurring basis by level within the hierarchy at September 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
Significant
|
|
|
|
|
|
|
|
|
Markets
|
|
Other
|
|
Significant
|
|
|
Balance at
|
|
for
|
|
Observable
|
|
Unobservable
|
|
|
September 30,
|
|
Identical Assets
|
|
Inputs
|
|
Inputs
|
(In thousands)
|
|
2008
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
Impaired loans
|
|
$
|
9,212
|
|
|
$
|
|
|
|
$
|
9,212
|
|
|
$
|
|
|
Impaired loans are collateral dependent loans in nonaccrual status that have been written down to
their fair value, less costs to sell, through the establishment of specific reserves or by
recording charge-offs when the carrying value exceeds the fair value. Valuation techniques
consistent with the market approach, income approach, and/or cost approach were used to measure
fair value and primarily included observable inputs for the individual nonaccrual loans being
evaluated such as recent sales of similar assets or observable market data for operational or
carrying costs.
Note 8 Written Agreement
On October 1, 2008, the Companys wholly owned subsidiary, The Adams National Bank (the Bank),
entered into a written agreement with its primary regulator, The Office of the Comptroller of the
Currency (the OCC). The Written Agreement was filed with the SEC as an exhibit to a Current
Report on Form 8-K, dated October 2, 2008.
Under the terms of the written agreement, the Bank has agreed to take certain actions relating to
the Banks lending operations and capital compliance. Specifically, the OCC is requiring the Bank
to take the following actions:
a) conduct a review of senior management to ensure that these individuals can perform the duties
required under the Banks policies and procedures and the requirements of the written agreement,
and where necessary, the Bank must provide a written program to address the training of the Banks
senior officers;
b) achieve certain regulatory capital levels, which are greater than the regulatory requirements to
be well capitalized under bank regulatory requirements. In particular, the Bank must achieve a:
12% total risk-based capital to total risk-weighted assets ratio; 11% Tier 1 capital to
risk-weighted assets ratio; and 9% Tier 1 capital to adjusted total assets ratio;
c) develop and implement a three-year capital program;
d) make additions to the allowances for loan and lease losses and adopt and implement written
policies and procedures for establishing and maintaining the allowance in a manner consistent with
the written agreement;
e) adopt and implement an asset diversification program consistent with OCC guidelines and to
perform an analysis of the Banks concentrations of credit;
f) take all necessary actions to protect the Banks interest in criticized assets, adopt and
implement a program to eliminate regulatory criticism of these assets, engage in an ongoing review
of the Banks criticized assets and develop and implement procedures for the effective monitoring
of the loan portfolio;
g) hire an independent appraiser to provide a written or updated appraisal of certain assets;
h) develop and implement a program to improve the management of the loan portfolio and to provide
the Board with monthly written reports on credit quality;
11
i) employ a loan review consultant acceptable to the OCC to perform a quarterly quality review of
the Banks assets;
j) revise the Banks lending policy in accordance with OCC requirements; and
k) maintain acceptable liquidity levels.
The written agreement includes time frames to implement the foregoing and on-going compliance
requirements for the Bank, including requirements to report to the OCC. The written agreement also
requires the Bank to establish a committee of the Board of Directors which will be responsible for
overseeing compliance with the written agreement.
The Bank has taken steps to comply with the requirements of the written agreement and expects that
it will address all areas of concern, except as discussed in Note 9.
Note 9
Regulatory Capital
The following table presents the Companys and the Banks capital position relative to their
various minimum statutory and regulatory capital requirements at September 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum To Be Well
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized Under Prompt
|
|
|
|
|
|
|
|
|
|
|
Minimum Capital
|
|
Corrective Action
|
|
|
Actual
|
|
Requirements
|
|
Provisions
|
(Dollars in thousands)
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital to risk weighted assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AANB Consolidated
|
|
$
|
33,046
|
|
|
|
8.92
|
%
|
|
$
|
29,632
|
|
|
|
8.00
|
%
|
|
|
(1
|
)
|
|
|
|
|
ANB
|
|
|
28,451
|
|
|
|
9.50
|
%
|
|
|
23,946
|
|
|
|
8.00
|
%
|
|
|
29,933
|
|
|
|
10.00
|
%
|
CB&T
|
|
|
9,711
|
|
|
|
13.51
|
%
|
|
|
5,750
|
|
|
|
8.00
|
%
|
|
|
7,188
|
|
|
|
10.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital to risk weighted assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AANB Consolidated
|
|
|
28,359
|
|
|
|
7.66
|
%
|
|
|
14,816
|
|
|
|
4.00
|
%
|
|
|
(1
|
)
|
|
|
|
|
ANB
|
|
|
24,653
|
|
|
|
8.24
|
%
|
|
|
11,973
|
|
|
|
4.00
|
%
|
|
|
17,960
|
|
|
|
6.00
|
%
|
CB&T
|
|
|
8,807
|
|
|
|
12.25
|
%
|
|
|
2,875
|
|
|
|
4.00
|
%
|
|
|
4,313
|
|
|
|
6.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I capital to average assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AANB Consolidated
|
|
|
28,359
|
|
|
|
6.39
|
%
|
|
|
17,753
|
|
|
|
4.00
|
%
|
|
|
(1
|
)
|
|
|
|
|
ANB
|
|
|
24,653
|
|
|
|
7.03
|
%
|
|
|
14,021
|
|
|
|
4.00
|
%
|
|
|
17,526
|
|
|
|
5.00
|
%
|
CB&T
|
|
|
8,807
|
|
|
|
9.76
|
%
|
|
|
3,609
|
|
|
|
4.00
|
%
|
|
|
4,512
|
|
|
|
5.00
|
%
|
As discussed in Note 8, the Written Agreement dated October 1, 2008 between the Adams National Bank
(ANB) and the Comptroller of the Currency (OCC), specifies that ANB must achieve by October 31,
2008 and thereafter maintain the following capital levels: total risk based capital equal to 12% of
risk-weighted assets; tier 1 capital at least equal to 11% of risk-weighted assets; and tier 1
capital at least equal to 9% of adjusted total assets. The Written Agreement specifies that the
Board will develop, implement, and thereafter ensure ANBs adherence to a three year capital
program. The program is to include: specific plans for the maintenance of adequate capital that
may in no event be less than the requirements noted above; projections for growth and capital
requirements based upon a detailed analysis of ANBs assets, liabilities, earnings, fixed assets,
and off-balance sheet activities; projections of the sources and timing of additional capital to
meet ANBs current and future needs; the primary source(s) from which ANB will strengthen its
capital structure to meet ANBs needs; contingency plans that identify alternative methods should
the primary source(s) not be available; and a dividend policy that permits the declaration of a
dividend only when ANB is in compliance with its approved capital program and will remain in
compliance with its approved capital program following the payment of any dividend; when ANB is in
compliance 12 U.S.C.
sections 56 and 60 and with the prior written determination of no supervisory objection by the
Assistant Deputy Comptroller.
12
As discussed in Note 10, the amount infused on November 7, 2008 of $3.2 million did not reach the
required levels and will therefore only allow the institution to be designated as adequately
capitalized under the Written Agreement. Under the framework, ANBs current capital levels do not
allow it to accept brokered deposits without prior approval from regulators. The impact of this
restriction on our operations as well as deteriorating credit markets may have an adverse impact on
the financial condition and operations including maintaining acceptable liquidity levels.
Note 10 Subsequent Event
On November 6, 2008, the parent company, Abigail Adams National Bancorp received a $3.4 million
loan of which $3.2 million was passed to its subsidiary ANB as a capital infusion in accordance
with item b of the Written Agreement, discussed in Note 8, which requires ANB to achieve certain
regulatory capital levels, which are greater than the regulatory requirements to be well
capitalized under bank regulatory requirements. The capital infusion was undertaken by a demand
note between Marshall T. Reynolds, a director and shareholder of the Company, and Abigail Adams
National Bancorp. The loan bears interest at the Prime Rate with interest payable quarterly.
13
Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
Abigail Adams National Bancorp, Inc. (the Company) is the parent of The Adams National Bank
(ANB), a national bank with six full-service branches located in the greater metropolitan
Washington, D.C. area and, Consolidated Bank and Trust (CB&T), a Virginia chartered commercial
bank, with two branches in Richmond and one in Hampton, Virginia. The Company reports its
financial results on a consolidated basis with ANB and CB&T.
The following analysis of financial condition and results of operations should be read in
conjunction with the Companys Consolidated Financial Statements and Notes thereto for the year
ended December 31, 2007.
Results of Operations
Overview
The Company recorded a net loss of $3.5 million for the three months ended September 30, 2008
compared to net income of $653,000 in the third quarter of 2007. The decrease was primarily due to
a charge of $6.4 million to the provision for loan losses in the third quarter of 2008 as compared
to $75,000 in the third quarter of 2007. The increase in the provision is intended to address
increased loan charge-offs during the three month period and the overall deterioration in the
national and local economy. For a detailed discussion of our asset quality, see the Asset Quality
section of the Managements Discussion and Analysis. Net interest income increased $76,000 or 1.9%
which was more than offset by a $575,000 decrease in noninterest income and a $292,000 increase in
noninterest expense. The 134.0% decrease in noninterest income was primarily due to a $517,000
other-than-temporary impairment charge taken in the third quarter resulting from a write-down of
two corporate debt securities to fair value.
The Company recorded a net loss of $2.9 million for the first nine months of 2008 compared to net
income of $2.0 million during the same period in 2007. The net loss reflects a $7.5 million
provision for loan losses during the first nine months of 2008 compared to $235,000 for the same
period last year. In addition, net interest income decreased $428,000 or 3.4%, noninterest income
decreased $553,000 or 44.9% reflecting the other-than-temporary impairment charge and noninterest
expense increased $177,000 or 1.7%. Book value per share decreased to $7.59 at September 30, 2008
from $8.95 at September 30, 2007. The key components of net income are discussed in the following
paragraphs.
Analysis of 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 Companys
earnings. Net interest income for the quarter ended September 30, 2008 increased 1.9% to $4.2
million from $4.1 million for the third quarter of 2007. The increase in net interest income was
attributable, for the most part, to a 142 basis point decline in the cost of liabilities, partially
offset by a 79 basis point decline in the yield on average earning assets. The average yield on
loans decreased to 6.48% from 7.77% during the third quarter of 2008 compared to the same period
last year reflecting a decline in the third quarter average Prime Rate from 8.18% to 5.00%, a key
index to which a substantial portion of our loan rates are tied. Average loans increased 7.1% to
$339.4 million compared to $316.9 million for the third quarter of 2007. Average total investments
decreased 36.8% to $83.6 million compared to $132.3 million in the prior year period. The yield on
average total investments decreased to 4.72%, compared to 4.90% in the third quarter of 2007,
reflecting the $50.8 million decrease in federal funds and other short term investment average
balances and a decrease in shorter and medium term interest rates in the third quarter of 2008
compared to the same period in 2007.
Average interest bearing liabilities decreased $15.5 million or 4.3% in the third quarter of 2008
compared to the same period last year, reflecting a $37.5 million decrease in deposits, partially
offset by a $22.0 million increase in borrowings. During the third quarter of 2008, the cost of
interest-bearing funds decreased to 2.73% from 4.15% in the third quarter of 2007. The decrease in
the cost of interest-bearing liabilities reflects deposits and FHLB borrowings bearing lower
interest rates as shorter and medium term interest rates in the third quarter of 2008 were
significantly lower than during the same quarter in 2007.
14
The net interest margin, which is net interest income as a percentage of average interest-earning
assets, was 3.92% for the third quarter of 2008, an increase of 30 basis points from 3.62% for the
third quarter of 2007. The net interest rate spread, which is the difference between the average
interest rate earned on interest-earning assets and interest paid on interest-bearing liabilities,
was 3.40% for the third quarter of 2008, reflecting an increase of 63 basis points from the 2.77%
reported in the third quarter of 2007. The improvement in the net interest margin and spread
reflects the decline in the cost of liabilities in a lower short-term interest rate environment.
The following table presents the average balances, net interest income and interest yields/rates
for the third quarters of 2008 and 2007.
Distribution of Assets, Liabilities and Stockholders Equity Yields and Rates
For the Three Months Ended September 30, 2008 and 2007
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
Average
|
|
|
Income/
|
|
|
Average
|
|
|
Average
|
|
|
Income/
|
|
|
Average
|
|
|
|
Balances
|
|
|
Expense
|
|
|
Rates
|
|
|
Balances
|
|
|
Expense
|
|
|
Rates
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
(1)
|
|
$
|
339,436
|
|
|
$
|
5,531
|
|
|
|
6.48
|
%
|
|
$
|
316,933
|
|
|
$
|
6,206
|
|
|
|
7.77
|
%
|
Investment securities
|
|
|
77,645
|
|
|
|
941
|
|
|
|
4.82
|
%
|
|
|
75,635
|
|
|
|
909
|
|
|
|
4.77
|
%
|
Federal funds sold
|
|
|
1,596
|
|
|
|
6
|
|
|
|
1.50
|
%
|
|
|
27,480
|
|
|
|
354
|
|
|
|
5.11
|
%
|
Interest-earning bank balances
|
|
|
4,330
|
|
|
|
44
|
|
|
|
4.04
|
%
|
|
|
29,197
|
|
|
|
371
|
|
|
|
5.04
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
423,007
|
|
|
|
6,522
|
|
|
|
6.13
|
%
|
|
|
449,245
|
|
|
|
7,840
|
|
|
|
6.92
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(3,878
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,629
|
)
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
11,864
|
|
|
|
|
|
|
|
|
|
|
|
16,114
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
12,821
|
|
|
|
|
|
|
|
|
|
|
|
11,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
443,814
|
|
|
|
|
|
|
|
|
|
|
$
|
471,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings, NOW and money market accounts
|
|
$
|
117,149
|
|
|
|
345
|
|
|
|
1.17
|
%
|
|
$
|
170,089
|
|
|
|
1,366
|
|
|
|
3.19
|
%
|
Certificates of deposit
|
|
|
184,852
|
|
|
|
1,687
|
|
|
|
3.63
|
%
|
|
|
169,447
|
|
|
|
2,150
|
|
|
|
5.03
|
%
|
Short term borrowings
|
|
|
22,940
|
|
|
|
120
|
|
|
|
2.08
|
%
|
|
|
3,033
|
|
|
|
13
|
|
|
|
1.70
|
%
|
Long-term debt
|
|
|
17,790
|
|
|
|
200
|
|
|
|
4.47
|
%
|
|
|
15,682
|
|
|
|
217
|
|
|
|
5.49
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
342,731
|
|
|
|
2,352
|
|
|
|
2.73
|
%
|
|
|
358,251
|
|
|
|
3,746
|
|
|
|
4.15
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits
|
|
|
67,277
|
|
|
|
|
|
|
|
|
|
|
|
78,015
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
3,688
|
|
|
|
|
|
|
|
|
|
|
|
4,738
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
30,118
|
|
|
|
|
|
|
|
|
|
|
|
30,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
443,814
|
|
|
|
|
|
|
|
|
|
|
$
|
471,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
4,170
|
|
|
|
|
|
|
|
|
|
|
$
|
4,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread
|
|
|
|
|
|
|
|
|
|
|
3.40
|
%
|
|
|
|
|
|
|
|
|
|
|
2.77
|
%
|
Net interest margin
|
|
|
|
|
|
|
|
|
|
|
3.92
|
%
|
|
|
|
|
|
|
|
|
|
|
3.62
|
%
|
|
|
|
(1)
|
|
The loan averages are stated net of unearned income and include loans on which the accrual of interest has
been discontinued.
|
The net interest income for the first nine months of 2008 totaled $12.1 million, a decrease of
$428,000 or 3.4%, as compared to $12.5 million for the same period in 2007. The decrease in the
year to date net interest income was primarily the result of a 94 basis point decrease in the yield
on average interest earning assets to 6.29% for nine months ended September 30, 2008 from 7.23% for
the period ending September 30, 2007, partially offset by an 111 basis point decrease in the cost
of interest bearing liabilities. The average yield on loans decreased 129 basis points to 6.75%
during the first nine months of 2008 compared to the same time last year reflecting a decline in
the year to date average Prime Rate from 8.23% to 5.43%, a key index to which a substantial portion
of our loan rates are tied. Average total investments decreased to $91.1 million from $106.0
million in the prior year reflecting a $24.0 million
decrease in federal funds and other short term investments, partially offset by a $9.0 million
increase in investment securities.
15
Average interest bearing liabilities increased $5.6 million or 1.7% during the first nine months of
2008 compared to the same period last year, reflecting a $9.3 million decrease in average interest
bearing deposits and a $14.9 million increase in total average borrowings. During the first nine
months of 2008, the cost of interest-bearing funds decreased 111 basis points to 3.03% from 4.14%
in the first nine months of 2007. The decrease in the cost of interest-bearing liabilities reflects
deposits and borrowings bearing lower interest rates as shorter and medium term interest rates
during the first nine months of 2008 were significantly lower than during the same period in 2007.
The net interest margin was 3.85% and the net interest spread was 3.26% for the first nine months
of 2008, reflecting a decrease of 12 basis points in net interest margin and an increase of 17
basis points in net interest spread compared to the same period in 2007. The decline in the net
interest margin reflects the decrease in the average loan yield in a declining rate environment and
the loss of income from the increase in nonaccrual loan balances. The improvement in the net
interest spread reflects the decrease in the cost of liabilities in a declining rate environment.
The following table presents the average balances, net interest income and interest yields/rates
for the first nine months of 2008 and 2007.
Distribution of Assets, Liabilities and Stockholders Equity Yields and Rates
For the Nine Months Ended September 30, 2008 and 2007
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
|
Average
|
|
|
Income/
|
|
|
Average
|
|
|
Average
|
|
|
Income/
|
|
|
Average
|
|
|
|
Balances
|
|
|
Expense
|
|
|
Rates
|
|
|
Balances
|
|
|
Expense
|
|
|
Rates
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
(1)
|
|
$
|
328,240
|
|
|
$
|
16,587
|
|
|
|
6.75
|
%
|
|
$
|
315,930
|
|
|
$
|
18,991
|
|
|
|
8.04
|
%
|
Investment securities
|
|
|
78,877
|
|
|
|
2,844
|
|
|
|
4.82
|
%
|
|
|
69,846
|
|
|
|
2,426
|
|
|
|
4.64
|
%
|
Federal funds sold
|
|
|
4,333
|
|
|
|
93
|
|
|
|
2.87
|
%
|
|
|
18,976
|
|
|
|
733
|
|
|
|
5.16
|
%
|
Interest-earning bank balances
|
|
|
7,872
|
|
|
|
227
|
|
|
|
3.85
|
%
|
|
|
17,204
|
|
|
|
656
|
|
|
|
5.10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets
|
|
|
419,322
|
|
|
|
19,751
|
|
|
|
6.29
|
%
|
|
|
421,956
|
|
|
|
22,806
|
|
|
|
7.23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(4,152
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,534
|
)
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
|
12,556
|
|
|
|
|
|
|
|
|
|
|
|
14,028
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
12,794
|
|
|
|
|
|
|
|
|
|
|
|
10,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
440,520
|
|
|
|
|
|
|
|
|
|
|
$
|
442,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings, NOW and money market accounts
|
|
$
|
128,997
|
|
|
|
1,425
|
|
|
|
1.48
|
%
|
|
$
|
147,037
|
|
|
|
3,375
|
|
|
|
3.07
|
%
|
Certificates of deposit
|
|
|
175,555
|
|
|
|
5,386
|
|
|
|
4.10
|
%
|
|
|
166,836
|
|
|
|
6,240
|
|
|
|
5.00
|
%
|
Short term borrowings
|
|
|
16,922
|
|
|
|
291
|
|
|
|
2.30
|
%
|
|
|
4,846
|
|
|
|
94
|
|
|
|
2.59
|
%
|
Long-term debt
|
|
|
16,343
|
|
|
|
561
|
|
|
|
4.59
|
%
|
|
|
13,479
|
|
|
|
581
|
|
|
|
5.76
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities
|
|
|
337,817
|
|
|
|
7,663
|
|
|
|
3.03
|
%
|
|
|
332,198
|
|
|
|
10,290
|
|
|
|
4.14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing deposits
|
|
|
67,373
|
|
|
|
|
|
|
|
|
|
|
|
74,912
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
3,969
|
|
|
|
|
|
|
|
|
|
|
|
4,583
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
31,361
|
|
|
|
|
|
|
|
|
|
|
|
30,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
440,520
|
|
|
|
|
|
|
|
|
|
|
$
|
442,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
12,088
|
|
|
|
|
|
|
|
|
|
|
$
|
12,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest spread
|
|
|
|
|
|
|
|
|
|
|
3.26
|
%
|
|
|
|
|
|
|
|
|
|
|
3.09
|
%
|
Net interest margin
|
|
|
|
|
|
|
|
|
|
|
3.85
|
%
|
|
|
|
|
|
|
|
|
|
|
3.97
|
%
|
|
|
|
(1)
|
|
The loan averages are stated net of unearned income and include loans on which the accrual of interest has
been discontinued.
|
16
Noninterest Income
Total noninterest income consists of service charges on deposits and other fee-based services, as
well as gains on the sales of investment securities and loans. Noninterest income decreased 134.0%
in the third quarter of 2008 consisting of a $6,000 decrease in service charges, a $517,000
other-than-temporary impairment charge in available for sale securities and a $52,000 decrease in
other income. The decrease in other income reflects a $19,000 loss on the sale of foreclosed
assets in the third quarter of 2008 and the nonrecurring $38,000 gains in the third quarter of 2007
from the sale of the guaranteed portion of SBA loans. There were no sales of investment securities
in the third quarter of 2008 or 2007.
Total noninterest income for the nine months ended September 30, 2008 decreased $553,000 or 44.9%
compared to the same period in 2007, reflecting a $46,000 decrease in service charges and a
$517,000 other-than-temporary impairment charge partially offset by a $10,000 increase in other
income. Gains from the sale of the guaranteed portion of SBA loans were $38,000 in 2008 and 2007.
There were no sales of investment securities in the first nine months of 2008 and 2007.
Noninterest Expense
Noninterest expense in the third quarter of 2008 increased $292,000 or 8.6% compared to the same
quarter last year. The most significant increase was in salary and employee benefits which
increased $216,000 or 13.1%, reflecting the addition of an executive position and pension
termination costs.
Total noninterest expense for the nine months ended September 30, 2008 increased $177,000 or 1.7%
to $10.3 million from $10.1 million for the same period in 2007. During the first nine months of
2008, professional fees decreased $65,000, primarily reflecting a $53,000 reduction in legal fees
and a $22,000 decrease in consulting fees partially offset by a $10,000 increase in audit and
consulting fees. Data processing expense decreased $208,000 predominately due to nonrecurring 2007
system deconversion costs at CB&T. These decreases were offset by a $236,000 increase in salaries
and employee benefits reflecting addition of staff and pension termination costs, a $43,000
increase in net occupancy costs, and a $171,000 net increase in other operating expenses. The most
significant increases in other operating expenses, during the first nine months of 2008 compared to
first nine months of 2007, included a $133,000 increase in FDIC insurance assessments and a
$103,000 increase in loan related expenses. The most significant decrease in other operating
expense was a $192,000 decrease in advertising and business development expense. The Companys
efficiency ratio was 80.8% at September 30, 2008 compared to 73.7% at September 30, 2007 reflecting
$428,000 decrease in net interest income and a $553,000 decrease in noninterest income. During
2009, we expect to experience a significant increase in noninterest expense as a result of higher
FDIC deposit insurance assessments. See our discussion of the FDIC insurance premiums in Part II
under Item 1A- Risk Factors.
Income Tax Expense
The Company recorded an income tax benefit in the third quarter of 2008 in the amount of $2.5
million based on a pretax net loss of $6.0 million for the three months ended September 30, 2008.
In the third quarter of 2007, income tax expense of $419,000 was based on pretax net income of $1.1
million. The effective tax rates for the third quarters of 2008 and 2007 were 41.5% and 39.1%,
respectively, reflecting the impact of tax exempt income on the Companys pretax loss in the third
quarter of 2008 compared to the impact of tax exempt income on pretax income in the same quarter of
2007.
For the first nine months ended September 30, 2008, the Company recorded an income tax benefit in
the amount of $2.1 million based on a pretax net loss of $5.0 million, compared to income tax
expense of $1.3 million on pretax net income of $3.4 million in the same period in 2007. The
effective tax rate for the third quarters of 2008 and 2007 were 42.5% and 39.4%, respectively.
17
Financial Condition
Overview
Total assets were $435.9 million at September 30, 2008, compared to $445.9 million at December 31,
2007, a decrease of $10.0 million or 2.2%. The decrease in total assets was attributable to a $25.6
million decrease in cash and cash equivalents, a $11.4 million decrease in investment securities, a
$5.8 million increase in the allowance for loan losses partially offset by $27.8 million increase
in gross loans and a $4.9 million increase in other assets. Total liabilities decreased $4.8
million from year end primarily due to an $33.9 million decrease in deposits partially offset by a
net increase of $29.5 million in borrowings. Total stockholders equity decreased $5.2 million or
16.4% from year end. The book value per share of common stock issued and outstanding at September
30, 2008 was $7.59, compared to $9.08 at December 31, 2007.
Short-term investments
Short-term investments, used to manage liquidity, decreased 72.7% from December 2007 due to a $7.9
million decrease in federal funds and a $16.2 million decrease in interest-earning deposits in
other banks.
Investment securities
Investment securities available for sale are carried at estimated fair value and totaled $65.0
million at September 30, 2008, decreasing $1.4 million or 2.1% since year end. Investment
securities classified as held to maturity were $3.3 million at September 30, 2008, decreasing $10.0
million or 74.9% from the balance at December 31, 2007. The decrease reflected normal maturities of
such investments. For further discussion of investment securities, see Note 4 in the Notes to
Unaudited Condensed Consolidated Financial Statements.
Loans
Total loans outstanding at September 30, 2008 increased $27.8 million or 9.0% from December 31,
2007 due to growth in commercial and real estate loans.
Other assets
Other assets increased $4.9 million from December 31, 2007. FHLB stock increased by $1.2 million
necessitated by the increase in FHLB borrowings. Accrued deferred tax assets increased $493,000
reflecting the increased unrealized losses on available for sale securities. Other real estate
owned increased $362,000 reflecting build out costs incurred on foreclosed property. Deferred
income tax benefits related to the pre tax net loss increased $2.4 million and the parent company
income tax benefit increased $399,000.
Deposits
Deposits are the Companys primary source of funds. Total deposits decreased $33.9 million from
December 31, 2007, a significant portion of which occurred in September 2008, following the Office
of the Comptroller of the Currency designating the Bank as in troubled condition.
Noninterest-bearing deposits decreased $10.4 million or 14.0%. Interest-bearing deposits decreased
$23.4 million or 7.5% from December 31, 2007 reflecting a $23.4 million decrease in NOW accounts, a
$21.8 million decrease in money market accounts and a $581,000 decrease in savings accounts
partially offset by a $22.4 million increase in certificate of deposits.
Short-term borrowings
Short-term borrowings, consisting of $10.5 million in customer repurchase agreements and $25.5
million in FHLB borrowings, increased by $26.5 million from December 31, 2007.
Long-term debt
Long-term debt increased $3.0 million from December 31, 2007, reflecting the use of a line of
credit by the Company. Payments on advances totaled $312,000.
Stockholders Equity
Stockholders equity at September 30, 2008 was $26.3 million, a decrease of $5.2 million or 16.4%
from December 31, 2007. The decrease reflected a net loss of $2.9 million for the period ended
September 30, 2008, a $1.4 million increase in accumulated other comprehensive loss from unrealized
losses on investment securities, and payment of $866,000 in dividends on the Companys common
stock.
18
Asset Quality
Adequacy of the Allowance for Loan Losses
The Company continuously monitors the quality of its loan portfolio and maintains an allowance for
loan and lease losses (ALLL) sufficient to absorb probable losses inherent in its total loan
portfolio. The ALLL 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 judgments, 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. 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 Companys ALLL framework has three basic components: a formula-based component for pools of
homogeneous loans; a specific allowance for loans reviewed for individual impairment; and a pool
specific allowance based upon other inherent risk factors and imprecision associated with the
modeling and estimation process. The first component, the general allocation to homogenous loans,
is determined by applying allowance factors to pools of loans that have similar characteristics in
terms of business and product type. The general factors are determined by using an analysis of
historical charge-off experience by loan pools. The second component of the ALLL analysis involves
the estimation of allowances specific to impaired loans. The third component of the ALLL addresses
inherent losses that are not otherwise captured in the other components and is applied to
homogenous pools of loans. The qualitative factors are subjective and depend on managements
judgment. These factors consider changes in nonperforming and past-due loans, concentrations of
loans to specific borrowers and industries, and general and regional economic conditions, as well
as other factors existing at the determination date.
The ALLL is established through provisions for loan losses as a charge to earnings based upon
managements ongoing evaluation. Loans deemed uncollectible are charged against the ALLL and any
subsequent recoveries are credited to the ALLL. The provision for loan losses increased during the
first nine months of 2008 to $7.5 million, compared to $235,000 for the same period in 2007. The
increase in the provision expense was primarily due to the increase in the allocated reserves for
probable incurred losses associated with real estate and construction loans, as a result of recent
appraisals received on the underlying properties. The as is appraisal values were impacted by the
softening of the local economy and the allowance for loan losses was adjusted accordingly. The
component of the ALLL related to homogenous pools of loans for real estate and construction loans
was also adjusted reflecting the local economy. The balance of the ALLL was $10.0 million or 2.98%
of total loans at September 30, 2008, compared to $4.2 million or 1.37% of total loans at December
31, 2007. Net loan charge-offs were $1.9 million in the first nine months of 2008 and was
predominantly due to the charge-off of one construction loan sold at foreclosure, the sale of which
was completed in July, 2008. The current level of the ALLL is intended to address known and
inherent losses that are both probable and estimable at September 30, 2008.
The following table presents an analysis of the ALLL for the three and nine months ended September
30, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended
|
|
|
For the nine months ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
(Dollars in thousands)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Balance at beginning of period
|
|
$
|
3,603
|
|
|
$
|
4,569
|
|
|
$
|
4,202
|
|
|
$
|
4,432
|
|
Loans charged off:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
32
|
|
|
|
|
|
|
|
94
|
|
|
|
85
|
|
Real estate commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate residential
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction and development
|
|
|
94
|
|
|
|
|
|
|
|
1,785
|
|
|
|
|
|
Installment individuals
|
|
|
1
|
|
|
|
9
|
|
|
|
10
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total charge-offs
|
|
|
127
|
|
|
|
9
|
|
|
|
1,889
|
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
15
|
|
|
|
57
|
|
|
|
43
|
|
|
|
90
|
|
Real estate commercial
|
|
|
94
|
|
|
|
|
|
|
|
94
|
|
|
|
|
|
Real estate residential
|
|
|
|
|
|
|
2
|
|
|
|
46
|
|
|
|
11
|
|
Construction and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Installment individuals
|
|
|
3
|
|
|
|
12
|
|
|
|
17
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recoveries
|
|
|
112
|
|
|
|
71
|
|
|
|
200
|
|
|
|
134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs (recoveries)
|
|
|
15
|
|
|
|
(62
|
)
|
|
|
1,689
|
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
6,395
|
|
|
|
75
|
|
|
|
7,470
|
|
|
|
235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
9,983
|
|
|
$
|
4,706
|
|
|
$
|
9,983
|
|
|
$
|
4,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of net charges-offs (recoveries) to average loans
|
|
|
0.01
|
%
|
|
|
(0.02
|
)%
|
|
|
0.51
|
%
|
|
|
(0.01
|
)%
|
19
Nonperforming Assets
Nonperforming assets include nonaccrual loans, restructured loans, past-due loans greater than 90
days and other real estate owned. Past due loans 90 days or more delinquent and still accruing
interest are well secured and in the process of collection. There were $27,000 in this category at
September 30, 2008 and $2.1 million at December 31, 2007 that were still accruing interest.
Nonaccrual loans at September 30, 2008 totaled $16.9 million, with balances of $1.0 million
guaranteed by the Small Business Association (SBA), compared to $8.8 million, with $1.2 million
guaranteed by the SBA at December 31, 2007. The largest component of the nonaccrual loans included
eight construction loans totaling $14.1 million. Other real estate owned at September 30, 2008
totaled $1.8 million compared to $1.4 million at December 31, 2007.
The following table presents nonperforming assets by category at September 30, 2008 and December
31, 2007.
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
Nonaccrual loans:
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
2,498
|
|
|
$
|
1,379
|
|
Real estate
|
|
|
14,398
|
|
|
|
7,384
|
|
Installment to individuals
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonaccrual loans
|
|
|
16,917
|
|
|
|
8,763
|
|
|
|
|
|
|
|
|
Past-due loans
|
|
|
27
|
|
|
|
2,123
|
|
Other real estate owned
|
|
|
1,772
|
|
|
|
1,410
|
|
|
|
|
|
|
|
|
Total nonperforming assets
|
|
$
|
18,716
|
|
|
$
|
12,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming assets exclusive of SBA guarantee
|
|
$
|
17,694
|
|
|
$
|
11,080
|
|
Ratio of nonperforming assets to gross loans
|
|
|
5.58
|
%
|
|
|
3.98
|
%
|
Ratio of nonperforming assets to total assets
|
|
|
4.29
|
%
|
|
|
2.76
|
%
|
Allowance for loan losses to nonperforming assets
|
|
|
53.30
|
%
|
|
|
34.17
|
%
|
Loans totaling $30.6 million and $7.2 million at September 30, 2008 and December 31, 2007,
respectively, were classified as monitored credits subject to managements attention and are not
reported in the preceding table. The increase in classified loans was predominately due to
construction and commercial real estate loans that may be impacted by the softening economy. The
classification of the monitored credits is reviewed on a quarterly basis or more frequently. The
balances of the monitored credits guaranteed by the SBA totaled $659,000 at September 30, 2008 and
$1.0 million at December 31, 2007, respectively. The increase in monitored credits was principally
due to recent appraisals obtained that showed a decrease in market values of the real estate
secured properties.
Liquidity
Liquidity is a product of the Companys operating, investing, and financing activities and is
represented by cash and cash equivalents. Principal sources of funds are from deposits, short and
long term debt, principal and interest payments on outstanding loans, maturity of investment
securities, and funds provided from operations. Overall, net cash and cash equivalents decreased
for the period ended September 30, 2008 to a balance of $23.1 million, from a balance of $48.8
million at December 31, 2007. Liquid assets represented 5.3% of total assets at September 30, 2008,
as compared to 10.9% of total assets at December 31, 2007.
The Company has additional sources of liquidity available through unpledged investment securities
totaling $22.3 million, and unsecured lines of credit available from correspondent banks, which can
provide up to $5.0 million, as well as a credit facility of $35.6 million through its membership in
the FHLB of Atlanta.
Following the public announcement of the Written Agreement with the OCC, ANB has become restricted
in its ability to renew or access deposits through brokers. Moreover, a number of our depositors
have sought to reduce their deposits at Adams National Bank. The impact of the Written Agreement
on our operations as well as deteriorating credit markets may have an adverse impact on the
financial condition and operations including maintaining acceptable liquidity levels.
20
Forward Looking Statements
When used in this Form 10-Q, 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 Companys market area, changes in policies by
regulatory agencies, fluctuations in interest rates, demand for loans in the Companys market areas
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 Companys financial
performance and could cause the Companys 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.
Item 3 Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to various market risks in the normal course of conducting its 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 Companys most recent
interest rate sensitivity analysis, the impact to the net interest income and 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 low. There has been no material change in market
risk as previously disclosed in the Companys 2007 Annual Report to Stockholders.
Item 4T Controls and Procedures
As of the end of the period covered by this report, the Company conducted an evaluation, under the
supervision and with the participation of the principal executive officer and principal financial
officer, of the Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act)). Based on this
evaluation, the principal executive officer and principal financial officer concluded that the
Companys disclosure controls and procedures are effective to ensure that information required to
be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in Securities and Exchange
Commission rules and forms. There was no change in the Companys internal control over financial
reporting during the Companys most recently completed fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the Companys internal control over financial
reporting.
21
PART II.
Item 1 Legal Proceedings
None
Item 1A Risk Factors
If Economic Conditions Deteriorate in our Primary Market, Our Results of Operations and Financial
Condition could be Adversely Impacted as Borrowers Ability to Repay Loans Declines and the Value
of the Collateral Securing Loans Decreases.
Our financial results may be adversely affected by changes in prevailing economic conditions,
including decreases in real estate values, changes in interest rates which may cause a decrease in
interest rate spreads, adverse employment conditions, the monetary and fiscal policies of the
federal government and other significant external events. Decreases in real estate values could
potentially adversely affect the value of property used as collateral for our mortgage loans. In
the event that we are required to foreclose on a property securing a mortgage loan, there can be no
assurance that we will recover funds in an amount equal to any remaining loan balance as a result
of prevailing general economic conditions, real estate values and other factors associated with the
ownership of real property. As a result, the market value of the real estate underlying the loans
may not, at any given time, be sufficient to satisfy the outstanding principal amount of the loans.
Consequently, we would sustain loan losses and potentially incur a higher provision for loan loss
expense. Adverse changes in the economy may also have a negative effect of the ability of
borrowers to make timely repayments of their loans, which could have an adverse impact on earnings.
Our Securities Portfolio may be Negatively Impacted by Fluctuations in Market Value.
Our securities portfolio may be impacted by fluctuations in market value, potentially reducing
accumulated other comprehensive income and/or earnings. Fluctuations in market value may be caused
by decreases in interest rates, lower market prices for securities and lower investor demand. Our
securities portfolio is evaluated for other-than-temporary impairment on at least a quarterly
basis. If this evaluation shows an impairment to cash flow connected with one or more securities,
a potential loss to earnings may occur.
We have entered into a written agreement with the OCC which may result in adverse results to our
operations
On October 1, 2008, the Companys wholly owned subsidiary, The Adams National Bank (the Bank),
entered into a written agreement with its primary regulator, The Office of the Comptroller of the
Currency (the OCC). Under the terms of the written agreement, the Bank has agreed to take
certain actions relating to the Banks lending operations and capital compliance. Specifically,
the OCC is requiring the Bank to take the following actions:
a) conduct a review of senior management to ensure that these individuals can perform the duties
required under the Banks policies and procedures and the requirements of the written agreement,
and where necessary, the Bank must provide a written program to address the training of the Banks
senior officers;
b) achieve certain regulatory capital levels, which are greater than the regulatory requirements to
be well capitalized under bank regulatory requirements. In particular, the Bank must achieve a:
12% total risk-based capital to total risk-weighted assets ratio; 11% Tier 1 capital to
risk-weighted assets ratio; and 9% Tier 1 capital to adjusted total assets ratio;
c) develop and implement a three-year capital program;
d) make additions to the allowances for loan and lease losses and adopt and implement written
policies and procedures for establishing and maintaining the allowance in a manner consistent with
the written agreement;
e) adopt and implement an asset diversification program consistent with OCC guidelines and to
perform an analysis of the Banks concentrations of credit;
22
f) take all necessary actions to protect the Banks interest in criticized assets, adopt and
implement a program to eliminate regulatory criticism of these assets, engage in an ongoing review
of the Banks criticized assets and develop and implement procedures for the effective monitoring
of the loan portfolio;
g) hire an independent appraiser to provide a written or updated appraisal of certain assets;
h) develop and implement a program to improve the management of the loan portfolio and to provide
the Board with monthly written reports on credit quality;
i) employ a loan review consultant acceptable to the OCC to perform a quarterly quality review of
the Banks assets;
j) revise the Banks lending policy in accordance with OCC requirements; and
k) maintain acceptable liquidity levels.
The written agreement includes time frames to implement the foregoing and on-going compliance
requirements for the Bank, including requirements to report to the OCC. The written agreement also
requires the Bank to establish a committee of the Board of Directors which will be responsible for
overseeing compliance with the written agreement.
The Bank has taken steps to comply with the requirements of the written agreement and expects that
it will address all areas of concern.
Following the public announcement of the written agreement, we have become restricted in our
ability to renew or access deposits through brokers. Moreover, a number of our depositors have
sought to reduce their deposits at Adams National Bank. The impact of the written Agreement on our
operations as well as deteriorating credit markets may have an adverse impact on the financial
condition and operations including maintaining acceptable liquidity levels.
Our noninterest expense will increase as a result of increases in FDIC insurance premiums
The Federal Deposit Insurance Corporation (FDIC) imposes an assessment against institutions for
deposit insurance. This assessment is based on the risk category of the institution and currently
ranges from 5 to 43 basis points of the institutions deposits. Federal law requires that the
designated reserve ratio for the deposit insurance fund be established by the FDIC at 1.15% to
1.50% of estimated insured deposits. If this reserve ratio drops below 1.15% or the FDIC expects
that it will do so within six months, the FDIC must, within 90 days, establish and implement a plan
to restore the designated reserve ratio to 1.15% of estimated insured deposits within five years
(absent extraordinary circumstances).
Recent bank failures coupled with deteriorating economic conditions have significantly reduced the
deposit insurance funds reserve ratio. As of June 30, 2008, the designated reserve ratio was
1.01% of estimated insured deposits at March 31, 2008. As a result of this reduced reserve ratio,
on October 16, 2008, the FDIC published a proposed rule that would restore the reserve ratios to
its required level. The proposed rule would raise the current deposit insurance assessment rates
uniformly for all institutions by 7 basis points (to a range from 12 to 50 basis points) for the
first quarter of 2009. The proposed rule would also alter the way the FDIC calculates federal
deposit insurance assessment rates beginning in the second quarter of 2009 and thereafter.
Under the proposed rule, the FDIC would first establish an institutions initial base assessment
rate. This initial base assessment rate would range, depending on the risk category of the
institution, from 10 to 45 basis points. The FDIC would then adjust the initial base assessment
(higher or lower) to obtain the total base assessment rate. The adjustments to the initial base
assessment rate would be based upon an institutions levels of unsecured debt, secured liabilities,
and brokered deposits. The total base assessment rate would range from 8 to 77.5 basis points of
the institutions deposits. There can be no assurance that the proposed rule will be implemented by
the FDIC or implemented in its proposed form.
23
In addition, the Emergency Economic Stabilization Act of 2008 (EESA) temporarily increased the
limit on FDIC insurance coverage for deposits to $250,000 through December 31, 2009, and the FDIC
took action to provide coverage for newly-issued senior unsecured debt and non-interest bearing
transaction accounts in excess of the $250,000 limit, for which institutions will be assessed
additional premiums.
These actions will significantly increase our non-interest expense in 2009 and in future years as
long as the increased premiums are in place.
Item 2- Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3- Defaults Upon Senior Securities
None
Item 4 Submission of Matters to Vote of Security Holders
None
Item 5 Other Information
By letter dated August 1, 2008, the Companys wholly owned subsidiary, The Adams National Bank (the
Bank) was advised by the Office of the Comptroller of the Currency that it is deemed to be in
troubled condition (as defined in Section 914 of the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989). As a result, the Bank must obtain prior regulator approval before adding
or replacing a director or employing any senior executive officers or changing the responsibilities
of a current employee to those of a senior executive officer. On October 1, 2008, the Bank entered
into a written agreement with its primary regulator, The Office of the Comptroller of the Currency
(the OCC). Under the terms of the written agreement, the Bank has agreed to take certain actions
relating to the Banks lending operations and capital compliance. For details, see our disclosure
in Note 8 to the Unaudited Condensed Consolidated Financial Statements.
Item 6 Exhibits
(a) Exhibits
|
|
|
Exhibit 31.1
|
|
Certification of the Chief Executive Officer
|
|
|
|
Exhibit 31.2
|
|
Certification of the Chief Financial Officer
|
|
|
|
Exhibit 32
|
|
Certification of Chief Executive Officer and Chief Financial Officer
|
24
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
ABIGAIL ADAMS NATIONAL BANCORP, INC.
Registrant
|
|
Date: November 19, 2008
|
/s/ Robert W. Walker
|
|
|
Robert W. Walker
|
|
|
Chairman of the Board,
President and Director
(Principal Executive Officer)
|
|
|
25
Abigail Adams National Bancorp (MM) (NASDAQ:AANB)
過去 株価チャート
から 8 2024 まで 9 2024
Abigail Adams National Bancorp (MM) (NASDAQ:AANB)
過去 株価チャート
から 9 2023 まで 9 2024