UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal ended December 31, 2007.
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:
000-10971
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 Avenue, 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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Registrants telephone number, including area code:
(202) 772-3600
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered
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Common Stock, $0.01 par value
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The NASDAQ Stock Market, LLC
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. YES
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NO
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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. YES
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NO
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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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
(§229.405 of this chapter) is not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K.
þ
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
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). YES
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NO
þ
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the
Registrant, computed by reference to the last sale price on June 30, 2007, as reported by the
Nasdaq Global Market, was approximately $33.8 million.
As of March 28, 2008, there were outstanding 3,462,569 shares of the Registrants Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE:
(1) Proxy Statement for the 2008 Annual Meeting of Stockholders of the Registrant (Part III).
(2) Annual Report to Stockholder (Part II and IV).
PART I
General
Abigail Adams National Bancorp, Inc. (the Company) is a Delaware-chartered bank holding
company which conducts business through its two wholly-owned bank subsidiaries, The Adams National
Bank (ANB) and Consolidated Bank & Trust Company (CBT) (collectively, the Banks). ANB serves
the nations capital through six full-service offices located in Washington, D.C. and Maryland. CBT
serves the Richmond and Hampton, Virginia market areas through three full service offices. The
Company is subject to regulation by the Board of Governors of the Federal Reserve System (the
Federal Reserve Board) and ANB is regulated by the Office of the Comptroller of the Currency. CBT
is regulated by the Federal Reserve Board and the Bureau of Financial Institutions of the
Commonwealth of Virginia (Bureau of Financial Institutions). The Companys assets consist
primarily of its ownership in the shares of the Banks common stock and cash it receives from the
Banks in the form of dividends or other capital distributions. At December 31, 2007, the Company
had consolidated assets of $445.9 million, deposits of $386.9 million and shareholders equity of
$31.4 million. Each of the Banks exceed all applicable regulatory capital requirements. See
Supervision and Regulation.
ANB was founded in 1977 as a national bank. CBT was founded in 1903 as a Virginia chartered
commercial bank that is a member of the Federal Reserve System. Both Banks deposits are federally
insured to the maximum amount permitted by law.
On July 29, 2005, the Company acquired CBT as a wholly-owned subsidiary by an Agreement and
Plan of Merger, dated February 10, 2005 for approximately $3.0 million. Pursuant to the agreement,
CBT shareholders received 0.534 shares of Company common stock for each of their CBT shares.
The executive office of the Company is located at 1130 Connecticut Avenue, N.W., Washington,
D.C. 20036. The telephone number is (202) 772-3600.
Market Area
The Banks draw most of their customer deposits and conduct most of their lending activities
from and within the Washington, D.C. metropolitan region, including suburban Virginia and Maryland
along with Richmond and Hampton, Virginia. The Washington, D.C. and Richmond metropolitan markets
attract a significant number of businesses of all sizes, professional corporations and national
nonprofit organizations. The Banks actively solicit banking relationships with these firms and
organizations, as well as their professional staff, and with the significant population of high net
worth individuals who live and work in these regions.
Services of the Bank
The Banks are community-oriented financial institutions offering a full range of banking
services to their customers. The Banks attract deposits from the general public and historically
have used such deposits, together with other funds to provide a broad level of commercial and
retail banking services in Washington, D.C., Richmond, Hampton and the surrounding communities.
The services offered by the Banks can be broadly characterized as being commercial or retail
in nature. Commercial services offered by the Banks include offering a variety of commercial real
estate and commercial business loans, cash management services, letters of credit and
collateralized repurchase agreements. Commercial business loans are typically made on a secured
basis to corporations, partnerships and individual businesses. To a lesser extent, the Banks offer
consumer loans to their retail customers. The Banks retail banking services also include a variety
of deposit account products including transaction
accounts, money market accounts, certificates of deposit and Individual Retirement Accounts.
The Banks use funds they have on hand, as well as borrowings, in order to fund their lending and
investment activities.
2
The Banks have automated teller machine access to the STAR, AMEX, PLUS and CIRRUS systems.
The Banks offer their customers traditional on-line banking services and 24 hour telephone banking.
Lending Activities
The Banks provide a range of commercial and retail lending services to individuals, small to
medium-sized businesses, professional corporations, nonprofit organizations and other
organizations. These services include, but are not limited to, commercial business loans,
commercial real estate loans, renovation and mortgage loans, SBA loans, loan participations,
consumer loans, revolving lines of credit and letters of credit. Consumer lending primarily
consists of personal loans made on a direct, secured basis. Real estate loans are originated
primarily for commercial purposes. To a lesser extent, the Banks originate construction loans. The
Banks offer loans which have fixed rates, as well as loans with rates which adjust periodically. At
December 31, 2007, approximately $98.9 million or 32.1% of the Banks total loan portfolio
consisted of loans with adjustable rates.
The Banks provide financing to nonprofit organizations for construction and renovation of
local headquarters, working capital lines of credit and equipment financing. Current nonprofit
customers of the Banks include organizations which focus on issues relating to childrens rights,
community housing, religion, education and health care.
Commercial and real estate lending is performed by the ANB and CBT Lending Divisions, which
are comprised of 15 loan officers, 11 of which are ANB loan officers. The loan support staff
includes the Loan Operations and Administration staff of 17, who are responsible for preparing loan
documents, recording and processing new loans and loan payments, ensuring compliance with
regulatory requirements, and working with the Lending Divisions, in order to ensure the timely
receipt of all initial and ongoing loan documentation and the prompt reporting of any exceptions.
Credit analysis on loans is performed by the individual loan officers, using a credit analysis
computer program, which provides not only the flexibility necessary to analyze loans but also the
structure to ensure that all documentation requirements are appropriately met.
Policies and procedures have been established by the Banks to promote safe and sound lending.
ANBs loan officers have individual lending authorities based on the individuals seniority and
experience. Loans in excess of individual officers lending limits are presented to the Officers
Loan Committee (OLC), which meets weekly, and is comprised of all loan officers and the
President. The President of ANB has authority to approve unsecured loans up to $1.0 million and
secured loans up to $2.0 million. The OLC of ANB has authority to approve unsecured loans up to
$1.0 million and secured loans up to $2.0 million. Loans over $1.0 million on an unsecured basis
and over $2.0 million on a secured basis are brought to the Directors Loan Committee (DLC) of
ANB, which meets approximately twice per month. The DLC of ANB is comprised of six outside
directors. In addition to approving new loans, these Committees approve renewals, modifications
and extensions of existing loans and reviews past due problem loans.
The DLC of CBT is comprised of four out of seven outside directors and has authority to
approve unsecured and secured loans greater than $500,000, up to the legal lending limit. The OLC
has the authority to approve unsecured and secured loans up to $500,000. Additionally, the Vice
President of Credit Administration has authority to approve unsecured and secured loans up to
$100,000. The DLC of CBT meets approximately twice per month.
Loan Portfolio Composition.
The following information concerning the composition of the
Banks loan portfolio on a consolidated basis in dollar amounts is presented (before deductions for
allowances for losses) as of the dates indicated.
3
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At December 31,
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2007
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2006
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2005
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2004
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2003
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(In thousands)
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Commercial business
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$
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38,606
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$
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39,323
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$
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39,876
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$
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28,756
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$
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31,979
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Real estate:
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Commercial mortgage
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128,320
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136,540
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124,578
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90,477
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81,001
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Residential mortgage
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67,375
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55,860
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48,489
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49,737
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34,184
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Construction and land development
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70,798
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73,986
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33,844
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10,676
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8,529
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Installment to individuals
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2,716
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2,714
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2,057
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958
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659
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Total loans
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307,815
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308,423
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248,844
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180,604
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156,352
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Less: net deferred loan fees
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(332
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)
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(466
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)
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(557
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)
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(332
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(318
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Total, net
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$
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307,483
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$
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307,957
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$
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248,287
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$
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180,272
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$
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156,034
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For further information regarding the Banks loan portfolio composition, See Managements
Discussion and Analysis of Financial Condition and Results of Operations Financial Condition in
the Annual Report to Shareholders filed as Exhibit 13 to the Annual Report on Form 10-K and Note 5
to the Notes to the Consolidated Financial Statements.
Commercial Business Lending
The Banks provide a wide range of commercial business loans, including lines of credit for
working capital purposes and term loans for the acquisition of equipment and other purposes. In
most cases, the Banks have collateralized these loans and/or taken personal guarantees to help
assure repayment. Collateral for these loans generally includes accounts receivable, inventory,
equipment and real estate. Terms of commercial business loans generally range from one year to
five years. These loans often require that borrowers maintain deposits with the Banks as
compensating balances. Commercial business lending generally involves greater risk than
residential mortgage lending and involves risks that are different from those associated with
residential, commercial and multi-family real estate lending. Although commercial business loans
are often collateralized by real estate, equipment, inventory, accounts receivable or other
business assets, the liquidation of collateral in the event of a borrower default is often not a
sufficient source of repayment, because accounts receivable may be uncollectible and inventories
and equipment may be obsolete or of limited use. The primary repayment risk for commercial loans is
the failure of the business due to economic or financial factors. As of December 31, 2007,
commercial loans totaled $38.6 million, the largest of which had a principal balance of $4.0
million, and at December 31, 2007 was performing in accordance with its terms.
The Banks also offer Small Business Administration (SBA) guaranteed loans, which provide
better terms and more flexible repayment schedules than conventional financing. SBA loans are
guaranteed up to a maximum of 85% of the loans balance. As lending requirements of small
businesses grow to exceed either Banks lending limit, the Banks have the ability to sell
participations in these larger loans to other financial institutions on a servicing retained basis.
The Banks believe that such participations will help to preserve lending relationships while
providing a high level of customer service. At December 31, 2007, SBA-guaranteed loans totaled $4.6
million.
Real Estate Lending
At December 31, 2007, the Banks real estate loan portfolio consisted of commercial real
estate mortgages totaling $128.3 million, and residential real estate mortgages totaling $67.4
million. Commercial real estate loans are generally for terms of five years and amortize over a
15- and 25-year period. Commercial real estate loans are generally originated in amounts up to 80%
loan to value of the underlying collateral. In underwriting commercial real estate loans, the
Banks consider the borrowers overall creditworthiness and capacity to service debt, secondary
sources or repayment and any additional collateral or credit enhancements. Our largest commercial
real estate loan had a principal balance of $3.7 million at December 31, 2007 and was secured by a
first deed of trust. At December 31, 2007 this loan was performing in accordance with its terms.
Residential real estate loans are generally originated for terms of five years, amortize over
a 25 year period, with a balloon payment at the term end. Residential real estate loans are
generally originated in amounts up to 80% loan to value of the underlying collateral. Our largest
residential real estate loan had a principal balance of $4.3 million at December 31, 2007. At
December 31, 2007 this loan was performing in accordance with its terms. The underwriting for a
residential real estate loan is the same as for a commercial real estate loan.
4
The majority of the $70.8 million in construction and land development loans at December 31,
2007 are primarily for construction and renovation of commercial real estate properties.
Construction financing generally is considered to involve a higher degree of risk of loss than
long-term financing on improved, occupied real estate. Multi-family and commercial real estate
lending involves significant additional risks, as compared to one- to four-family residential
lending. For example, such loans typically involve large loans to single borrowers or related
borrowers. The payment experience on such loans is typically dependent on the successful operation
of the project, and these risks can be significantly affected by the supply and demand conditions
in the market for commercial property and multi-family residential units. To minimize these risks,
the Banks limit the aggregate amount of outstanding construction loans to one borrower, and
generally make such loans only in their market area and to borrowers with which the Banks have
substantial experience or who are otherwise well known to the Banks. It is the Banks current
practice to obtain personal guarantees and current financial statements from all principals
obtaining commercial real estate loans. The Banks also obtain appraisals on each property in
accordance with applicable regulations.
Consumer Lending
The Banks consumer lending includes loans for motor vehicles, and small personal credit
lines. Consumer loans generally involve more risk than residential real estate mortgage and
commercial real estate loans. Repossessed collateral for a defaulted loan may not provide an
adequate source of repayment of the outstanding loan balance as a result of damage, loss or
depreciation, and the remaining deficiency often does not warrant further substantial collection
efforts against the borrower. In addition, loan collections are dependent on the borrowers
continuing financial stability. Further, the application of various federal and state laws,
including federal and state bankruptcy and insolvency laws, may limit the amount which can be
recovered. In underwriting consumer loans, the Banks consider the borrowers credit history, an
analysis of the borrowers income, expenses and ability to repay the loan and the value of the
collateral. At December 31, 2007, consumer loans totaled $2.7 million.
Delinquencies and Classified Assets
Collection Procedures.
Outstanding loans are reviewed on a weekly basis. When a loan becomes
10 days past due, loan officers attempt to contact the borrower. Generally, loans that are 30 days
delinquent will receive a default notice from the Banks. With respect to consumer loans, the Banks
will commence efforts to repossess the collateral after the loan becomes 30 days delinquent.
Generally, after 90 days the Banks will commence legal action.
Loans Past Due and Nonperforming Assets
. Loans are reviewed on a regular basis and are placed
on nonaccrual status when, in the opinion of management, the collection of additional interest is
doubtful. Loans are placed on nonaccrual status when either principal or interest is 90 days or
more past due. Interest accrued and unpaid at the time a loan is placed on a nonaccrual status is
reversed from interest income. At December 31, 2007, the Banks had nonperforming assets of $12.3
million and a ratio of nonperforming assets to total assets of 2.76%.
Allowance for Loan Losses
. The allowance for loan losses is established through a provision
for loan losses based on managements evaluation of the risk inherent in the loan portfolio and
current economic conditions. Such evaluation also includes a review of all loans on which full
collectibility may not be reasonably assured, including among other matters, the estimated net
realizable value or the fair value of the underlying collateral, economic conditions, historical
loan loss experience, geographic concentrations and other factors that warrant recognition in
providing for an adequate loan loss allowance.
In addition, various regulatory agencies, as an integral part of their examination process,
periodically review the Banks allowance for loan losses and valuation of other real estate owned.
Such agencies may require us to recognize additions to the allowance based on their judgment about
information available to them at the time of their examination. At December 31, 2007, the total
allowance was $4.2 million, which amounted to 1.37% of total loans and 34.17% of nonperforming
assets. Management considers whether the allowance should be adjusted to protect against risks in
the loan portfolio. Management will continue to monitor and modify the level of the allowance for
loan losses in order to maintain it at a level which management considers adequate to provide for
probable loan losses.
5
Allocation of Allowance for Loan Losses.
The following table sets forth the allocation of
allowance for loan losses by loan category for the periods indicated. Management believes that the
allowance can be allocated by category only on an approximate basis. The allocation of the
allowance by category is not necessarily indicative of future losses and does not restrict the use
of the allowance to absorb losses in any category.
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At December 31,
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2007
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2006
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2005
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2004
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2003
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% of
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% of
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% of
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% of
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% of
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Loans in
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Loans in
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Loans in
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Loans in
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Loans in
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Each
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Each
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Each
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Each
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Each
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Category
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Category
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Category
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Category
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Category
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to total
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to total
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to total
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to total
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to total
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Amount
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Loans
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Amount
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Loans
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Amount
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Loans
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Amount
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Loans
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Amount
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Loans
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(Dollars in thousands)
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Balance at end of
period applicable to:
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Commercial business
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$
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952
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12.5
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%
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$
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1,078
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12.7
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%
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$
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1,799
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16.0
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%
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$
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720
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15.9
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%
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$
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740
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20.5
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%
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Real estate-mortgages
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3,235
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86.6
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3,334
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86.4
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2,418
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83.2
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1,826
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83.6
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1,372
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79.1
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Installment
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15
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0.9
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20
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0.9
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60
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0.8
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12
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0.5
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7
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0.4
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Unallocated
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68
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Total allowance for
loan losses
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$
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4,202
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100.0
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%
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$
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4,432
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100.0
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%
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$
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4,345
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100.0
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%
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$
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2,558
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100.0
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%
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$
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2,119
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100.0
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%
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For the year ended December 31, 2007, gross interest income which would have been recorded had
the nonaccruing loans of $8.8 million been current in accordance with their original terms amounted
to $649,000. We did not include any interest income on such loans for the year ended December 31,
2007. For further information regarding the Banks allowance for loan losses and asset quality see
Managements Discussion and Analysis of Financial Condition and Results of OperationsAsset
Quality in the Annual Report to Shareholders filed as Exhibit 13 to the Annual Report on Form 10-K
and Note 5 to the Notes to the Consolidated Financial Statements.
Investment Activities
The Banks investment portfolio consists of obligations of U.S. Government sponsored agencies
and corporations, U.S. Treasuries, mortgage-backed securities, corporate debt securities, and
marketable equity securities. At December 31, 2007, investment securities totaled $79.7 million of
which $66.4 million were classified as available for sale. Total investment securities classified
as held to maturity were $13.3 million at December 31, 2007. For further information regarding the
Banks investments see Managements Discussion and Analysis of Financial Condition and Results of
OperationsAnalysis of Investments in the Annual Report to Shareholders filed as Exhibit 13 to
the Annual Report on Form 10-K and Note 4 to the Notes to the Consolidated Financial Statements.
Investment Portfolio.
At December 31, 2007, the market value of our investment securities and
interest earning deposits was approximately $100.0 million. The following tables set forth the
carrying value of our investments at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and agency obligations
|
|
$
|
64,481
|
|
|
$
|
48,911
|
|
|
$
|
54,464
|
|
U.S. treasuries
|
|
|
|
|
|
|
|
|
|
|
998
|
|
Mortgage-backed securities
|
|
|
8,902
|
|
|
|
6,517
|
|
|
|
6,118
|
|
Corporate debt securities
|
|
|
5,600
|
|
|
|
6,634
|
|
|
|
7,529
|
|
Marketable equity securities
|
|
|
718
|
|
|
|
1,007
|
|
|
|
1,007
|
|
Interest-earning deposits
|
|
|
20,380
|
|
|
|
5,823
|
|
|
|
441
|
|
|
|
|
Total investments
|
|
$
|
100,081
|
|
|
$
|
68,892
|
|
|
$
|
70,557
|
|
|
|
|
6
Deposits
The Banks offer a variety of deposit accounts with a range of interest rates and terms. The
flow of deposits is influenced by a variety of factors including general economic conditions,
changes in market rates, prevailing interest rates and competition. The Banks rely on competitive
pricing of its deposit products and customer service to attract and retain deposits, however market
interest rates and rates offered by competing financial institutions significantly affect the
Banks ability to attract and retain deposits.
The Banks deposits totaled $386.9 million at December 31, 2007. Demand deposits totaled
$74.8 million and comprised 19.3% of total deposits. Savings, NOW, and money market accounts
totaled $142.8 million and comprised 36.9% of total deposits. Certificates of deposit were 43.8%
of the total deposits for a balance of $169.3 million. For further information regarding the
Banks deposits see Managements Discussion and Analysis of Financial Condition and Results of
Operations-Deposits in the Annual Report to Shareholders filed as Exhibit 13 to the Annual Report
on Form 10-K and Note 8 to the Notes to the Consolidated Financial Statements.
As of December 31, 2007, the aggregate amount of outstanding certificates of deposit in
amounts greater than or equal to $100,000 was approximately $69.9 million. The following table
indicates the amount of our certificates of deposit of $100,000 or more by time remaining until
maturity as of December 31, 2007. These deposits represented 18.1% of our total deposits at
December 31, 2007.
|
|
|
|
|
Remaining Maturity
|
|
Amount
|
|
|
|
(In thousands)
|
|
Three months or less
|
|
$
|
16,771
|
|
Three through six months
|
|
|
22,134
|
|
Six through twelve months
|
|
|
15,690
|
|
Over twelve months
|
|
|
15,332
|
|
|
|
|
|
Total
|
|
$
|
69,927
|
|
|
|
|
|
Borrowed Funds
The Companys short-term borrowings consist of securities sold under repurchase agreements
totaling $8.5 million at December 31, 2007. Long-term debt consists of a term note and term
advances from the FHLB at an average rate of 5.62% at
December 31, 2007. Long-term debt totaled
$15.1 million at December 31, 2007. For further information regarding the Banks borrowed funds
see Managements Discussion and Analysis of Financial Condition and Results of Operations-Borrowed
Funds in the Annual Report to Shareholders filed as Exhibit 13 to the Annual Report on Form 10-K
and Notes 11 and 12 to the Notes to the Consolidated Financial Statements.
Competition
The Banks face strong competition among financial institutions in Washington, D.C., Northern
Virginia, Richmond and Hampton, Virginia and suburban Maryland for both deposits and loans.
Principal competitors include other community commercial banks and larger financial institutions
with branches in the Banks service area. Intense competition is expected to continue as bank
mergers and acquisitions of smaller banks by larger institutions in the Washington, D.C., Richmond
and Hampton, Virginia metropolitan regions may be expected to continue for the foreseeable future.
The primary factors in competing for deposits are interest rates, personalized services, the
quality and range of financial services, convenience of office locations and office hours.
Competition for deposits comes primarily from other commercial banks, savings associations, credit
unions, money market funds and other investment alternatives. The primary factors in competing for
loans are interest rates, loan origination fees, the quality and range of lending services and
personalized services. Competition for loans comes primarily from other commercial banks, savings
associations, mortgage banking firms, credit unions and other financial intermediaries. The Banks
face competition for deposits and loans throughout their market areas not only from local
institutions but also from out-of-state financial intermediaries which have
opened loan production offices or which solicit deposits in its market areas. Many of the
financial intermediaries operating in the Banks market areas offer certain services, such as
trust
,
investment and international banking services, which the Banks do not offer. Additionally,
banks with larger capitalization and financial intermediaries not subject to bank regulatory
restrictions have larger lending limits and are thereby able to serve the needs of larger
customers.
7
In order to compete with other financial services providers, the Banks principally rely upon
local promotional activities, personal relationships established by officers, directors and
employees with its customers, and specialized services tailored to meet its customers needs.
Employees
At December 31, 2007, the Company employed 107 people on a full time basis. The employees are
not represented by a union and management believes that its relations with its employees are good.
SUPERVISION AND REGULATION
The commercial banking business is not only affected by general economic conditions but is
also influenced by the monetary and fiscal policies of the federal government and the policies of
regulatory agencies, particularly the Federal Reserve Board. The Federal Reserve Board implements
national monetary policies by its open-market operations in U.S. Government securities, by
adjusting the required level of reserves for financial institutions subject to its reserve
requirements and by varying the discount rates applicable to borrowings by depository institutions.
The actions of the Federal Reserve Board in these areas influence the growth of bank loans,
investments and deposits and also affect interest rates charged on loans and paid on deposits. The
nature and impact of any future changes in monetary policies cannot be predicted.
Bank holding companies and banks are extensively regulated under both federal and state law.
Set forth below is a summary description of certain provisions of certain laws which relate to the
regulation of the Company and the Bank. The description does not purport to be complete and is
qualified in its entirety by reference to the applicable laws and regulations.
The Company
The Company, as a registered bank holding company, is subject to regulation under the Bank
Holding Company Act of 1956, as amended (the BHCA). Such regulations include prior approval of
Company affiliates and subsidiaries. The Company is required to file quarterly reports and annual
reports with the Federal Reserve Board and such additional information as the Federal Reserve Board
may require pursuant to the BHCA. The Federal Reserve Board may conduct examinations of the
Company and its subsidiaries.
The Federal Reserve Board may require that the Company terminate an activity or terminate
control of or liquidate or divest certain subsidiaries or affiliates when the Federal Reserve Board
believes the activity or the control of the subsidiary or affiliate constitutes a significant risk
to the financial safety, soundness or stability of any of its banking subsidiaries. The Federal
Reserve Board also has the authority to regulate provisions of certain bank holding company debt,
including authority to impose interest ceilings and reserve requirements on such debt. Under
certain circumstances, the Company must file written notice and obtain approval from the Federal
Reserve Board prior to purchasing or redeeming its equity securities.
Under the BHCA and regulations adopted by the Federal Reserve Board, a bank holding company
and its nonbanking subsidiaries are prohibited from requiring certain tie-in arrangements in
connection with any extension of credit, lease or sale of property or furnishing of services.
Further, the Company is required by the Federal Reserve Board to maintain certain levels of
capital.
The Company is required to obtain the prior approval of the Federal Reserve Board for the
acquisition of more than 5% of the outstanding shares of any class of voting securities, or
substantially all of the assets, of any bank or bank holding company. Prior approval of the Federal
Reserve Board is also required for the merger or consolidation of the Company and another bank
holding company.
8
The Company is prohibited by the BHCA, except in certain statutorily prescribed instances,
from acquiring direct or indirect ownership or control of more than 5% of the outstanding voting
shares of any company that is not a bank or bank holding company and from engaging directly or
indirectly in activities other than those of banking, managing or controlling banks or furnishing
services to its subsidiaries. However, the Company, subject to the prior approval of the Federal
Reserve Board, may engage in any activities, or acquire shares of companies engaged in activities,
that are deemed by the Federal Reserve Board to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. Additionally, bank holding companies that
elect to be treated as financial holding companies may engage in insurance, securities and, under
certain circumstances, merchant banking activities. The Company has not made the financial holding
company election with the Federal Reserve Board.
Under Federal Reserve Board policy, a bank holding company is required to serve as a source of
financial and managerial strength to its subsidiary banks and may not conduct its operations in an
unsafe or unsound manner. In addition, it is the Federal Reserve Boards policy that in serving as
a source of strength to its subsidiary banks, a bank holding company should stand ready to use
available resources to provide adequate capital funds to its subsidiary banks during periods of
financial stress or adversity and should maintain the financial flexibility and capital-raising
capacity to obtain additional resources for assisting its subsidiary banks. A bank holding
companys failure to meet its obligations to serve as a source of strength to its subsidiary banks
will generally be considered by the Federal Reserve Board to be an unsafe and unsound banking
practice or a violation of the Federal Reserve Boards regulations or both. This doctrine has
become known as the source of strength doctrine. The validity of the source of strength doctrine
has been and is likely to continue to be the subject of litigation-until definitively resolved by
the courts or by Congress.
The Banks
ANB, as a national banking association, is subject to primary supervision, examination and
regulation by the Office of the Comptroller of the Currency (the OCC). If, as a result of an
examination of ANB, the OCC should determine that the financial condition, capital resources, asset
quality, earnings prospects, management, liquidity or other aspects of the ANBs operations are
unsatisfactory or that ANB or its management is violating or has violated any law or regulation,
various remedies are available to the OCC. Such remedies include the power to enjoin unsafe or
unsound practices, to require affirmative action to correct any conditions resulting from any
violation of law or unsafe or unsound practice, to issue an administrative order that can be
judicially enforced, to direct an increase in capital, to restrict the growth of ANB, to assess
civil monetary penalties, and to remove officers and directors. The FDIC has similar enforcement
authority, in addition to its authority to terminate a banks deposit insurance, in the absence of
action by the OCC and upon a finding that a bank is in an unsafe or unsound condition, is engaging
in unsafe or unsound activities, or that its conduct poses a risk to the deposit insurance fund or
may prejudice the interest of its depositors. ANB is not subject to any such actions by the OCC or
the FDIC.
CBT is a Virginia chartered bank and a member of the Federal Reserve System, and its
depositors are insured by the FDIC. The Federal Reserve and the Virginia State Corporation
Commission and its Bureau of Financial Institutions regulate and monitor CBTs operations. CBT is
required to file with the Federal Reserve quarterly financial reports on the financial condition
and performance of the organization. The Federal Reserve and State conduct periodic onsite and
offsite examinations of CBT. CBT must comply with a wide variety of reporting requirements and
banking regulations. The laws and regulations governing CBT generally have been promulgated to
protect depositors and the deposit insurance funds and not to protect various shareholders.
Deposit accounts in the Banks are insured by the Federal Deposit Insurance Corporation
generally up to a maximum of $100,000 per separately insured depositor and up to a maximum of
$250,000 for self-
directed retirement accounts. The Banks deposits, therefore, are subject to Federal Deposit
Insurance Corporation deposit insurance assessments.
The Federal Deposit Insurance Corporation regulations assess insurance premiums based on an
institutions risk. Under this assessment system, the Federal Deposit Insurance Corporation
evaluates the risk of each financial institution based on its supervisory rating, financial ratios,
and long-term debt issuer rating. The rates for nearly all of the financial institutions industry
vary between five and seven cents for every $100 of domestic deposits. The assessment to be paid
during the year ending December 31, 2007 will be offset by a credit from the Federal Deposit
Insurance Corporation to the Banks of $43,000. Federal law requires the Federal Deposit Insurance
Corporation to establish a deposit reserve ratio for the deposit insurance fund of between 1.15%
and 1.50% of estimated deposits. The Federal Deposit Insurance Corporation has designated the
reserve ratio for the deposit insurance fund through the first quarter of 2008 at 1.25% of
estimated insured deposits.
9
Effective March 31, 2006, the Federal Deposit Insurance Corporation merged the Bank Insurance
Fund and the Savings Association Insurance Fund into a single fund called the Deposit Insurance
Fund. In addition to the Federal Deposit Insurance Corporation assessments, the Financing
Corporation (FICO) is authorized to impose and collect, with the approval of the Federal Deposit
Insurance Corporation, assessments for anticipated payments, issuance costs and custodial fees on
bonds issued by the FICO in the 1980s to recapitalize the Federal Savings and Loan Insurance
Corporation. The bonds issued by the FICO are due to mature in 2017 through 2019. For the quarter
ended December 31, 2007, the annualized FICO assessment was equal to 1.14 basis points for all
domestic deposits maintained at an institution.
Various other requirements and restrictions under the laws of the United States affect the
operations of the Banks. Federal statutes and regulations relate to many aspects of the Banks
operations, including reserves against deposits, interest rates payable on deposits, loans,
investments, mergers and acquisitions, borrowings, dividends, locations of branch offices, capital
requirements and disclosure obligations to depositors and borrowers. Further, the Banks are
required to maintain certain levels of capital.
Restrictions on Transfers of Funds to the Company by the Banks
The Company is a legal entity separate and distinct from the Banks. The Companys ability to
pay cash dividends is limited by Delaware corporate law. In addition, the prior approval of the
Banks primary regulator is required if the total of all dividends declared by the individual Banks
in any calendar year exceeds that banks net income for the year combined with its retained net
profits for the preceding two years, less any transfers to surplus, that is still available for
dividends.
The Banks regulators have authority to prohibit the Banks from engaging in activities that,
in the regulators opinion, constitute unsafe or unsound practices in conducting its business. It
is possible, depending upon the financial condition of the bank in question and other factors, that
the regulator could assert that the payment of dividends or other payments might, under some
circumstances, be such an unsafe or unsound practice. Further, the OCC and the Federal Reserve
Board have established guidelines with respect to the maintenance of appropriate levels of capital
by banks or bank holding companies under their jurisdiction. Compliance with the standards set
forth in such guidelines and the restrictions that are or may be imposed under the prompt
corrective action provisions of federal law could limit the amount of dividends which the Banks or
the Company may pay.
The Banks are subject to certain restrictions imposed by federal law on any extensions of
credit to, or the issuance of a guarantee or letter of credit on behalf of, the Company or other
affiliates, the purchase of or investments in stock or other securities thereof, the taking of such
securities as collateral for loans and the purchase of assets of the Company or other affiliates.
Such restrictions prevent the Company and such other affiliates from borrowing from the Banks,
unless the loans are secured by marketable obligations of designated amounts. Further, such
secured loans and investments by the Banks to or in the Company or to or in any other affiliate is
limited to 10% of the individual Banks capital and surplus (as defined by federal regulations) and
such secured loans and investments are limited, in the aggregate, to 20% of the Banks
capital and surplus (as defined by federal regulations). Additional restrictions on
transactions with affiliates may be imposed on the Banks under the prompt corrective action
provisions of federal law.
Capital Standards
The Federal Reserve Board and the OCC have adopted risk-based minimum capital rules intended
to provide a measure of capital that reflects the degree of risk associated with a banking
organizations operations for both transactions reported on the balance sheet as assets and
transactions, and those which are recorded as off balance sheet items. Under these rules, nominal
dollar amounts of assets and credit equivalent amounts of off balance sheet items are multiplied by
one of several risk adjustment percentages, which range from 0% for assets with low credit risk,
such as certain U.S. Treasury securities, to 100% for assets with relatively high credit risk, such
as business loans.
10
A banking organizations risk-based capital ratios are obtained by dividing its qualifying
capital by its total risk adjusted assets. The regulators measure risk-adjusted assets, which
include off balance sheet items, against both total qualifying capital (the sum of Tier 1 capital
and limited amounts of Tier 2 capital) and Tier 1 capital. Tier 1 capital consists primarily of
common stock, retained earnings, noncumulative perpetual preferred stock (cumulative perpetual
preferred stock for bank holding companies) and minority interests in certain subsidiaries, less
most intangible assets. Tier 2 capital may consist of a limited amount of the allowance for
possible loan and lease losses, cumulative preferred stock, long-term preferred stock, eligible
term subordinated debt and certain other instruments with some characteristics of equity. The
inclusion of elements of Tier 2 capital is subject to certain other requirements and limitations of
the federal banking agencies. The federal banking agencies require a minimum ratio of qualifying
total capital to risk-adjusted assets of 8% and a minimum ratio of Tier 1 capital to risk-adjusted
assets of 4%. In addition to the risk-based guidelines, federal banking regulators require banking
organizations to maintain a minimum amount of Tier 1 capital to total assets, referred to as the
leverage ratio.
Under federal regulations, an institution is generally considered well capitalized if it has
a total risk-based capital ratio of at least 10%, a Tier I risk-based capital ratio of at least 6%,
and a Tier I capital (leverage) ratio of at least 5%. Federal law generally requires full-scope
on-site annual examinations of all insured depository institutions by the appropriate federal bank
regulatory agency, although the examination may occur at longer intervals for small
well-capitalized or state chartered banks.
The current risk-based capital ratio analysis establishes minimum supervisory guidelines and
standards. It does not evaluate all factors affecting an organizations financial condition.
Factors which are not evaluated include (i) overall interest rate exposure; (ii) quality and level
of earnings; (iii) investment or loan portfolio concentrations; (iv) quality of loans and
investments; (v) the effectiveness of loan and investment policies; (vi) certain risks arising from
nontraditional activities and (vii) managements overall ability to monitor and control other
financial and operating risks, including the risks presented by concentrations of credit and
nontraditional activities. The capital adequacy assessment of federal bank regulators will,
however, continue to include analyses of the foregoing considerations and in particular, the level
and severity of problem and classified assets. Market risk of a banking organizationrisk of loss
stemming from movements in market pricesis not evaluated under the current risk-based capital
ratio analysis (and is therefore analyzed by the bank regulators through a general assessment of an
organizations capital adequacy) unless trading activities constitute 10% of $1 billion or more of
the assets of such organization. Such an organization (unless exempted by the banking regulators)
and certain other banking organization designated by the banking regulators must include in their
risk-based capital ratio analysis charges for, and hold capital against, general market risk of all
positions held in their trading account and of foreign exchange and commodity positions wherever
located, as well as against specific risk of debt and equity positions located in their trading
account. Currently, the Company does not calculate a risk-based capital charge for its market risk.
Future changes in regulations or practices could further reduce the amount of capital
recognized for purposes of capital adequacy. Such a change could affect the ability of the Banks
to grow and could restrict the amount of profits, if any, available for the payment of dividends.
Prompt Corrective Action and Other Enforcement Mechanisms
Federal law requires each federal banking agency to take prompt corrective action to resolve
the problems of insured depository institutions, including but not limited to those that fall below
one or more prescribed minimum capital ratios. The law requires each federal banking agency to
promulgate regulations defining the following five categories in which an insured depository
institution will be placed, based on the level of its capital ratios: well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized.
An institution that, based upon its capital levels, is classified as well capitalized,
adequately capitalized or undercapitalized may be treated as though it were in the next lower
capital category if the appropriate federal banking agency, after notice and opportunity for
hearing, determines that an unsafe or unsound condition or an unsafe or unsound practice warrants
such treatment. At each successive lower capital category, an insured depository institution is
subject to more restrictions. The federal banking agencies, however, may not treat an institution
as critically undercapitalized unless its capital ratio actually warrants such treatment.
11
In addition to restrictions and sanctions imposed under the prompt corrective action
provisions, commercial banking organizations may be subject to potential enforcement actions by the
federal regulators for unsafe or unsound practices in conducting their businesses or for violations
of any law, rule, regulation or any condition imposed in writing by the agency or any written
agreement with the agency. Enforcement actions may include the imposition of a conservator or
receiver, the issuance of a cease and desist order that can be judicially enforced, the termination
of insurance of deposits (in the case of a depository institution), the imposition of civil money
penalties, the issuance of directives to increase capital, the issuance of formal and informal
agreements, the issuance of removal and prohibition orders against institution-affiliated parties
and the enforcement of such actions through injunctions or restraining orders based upon a judicial
determination that the agency would be harmed if such equitable relief was not granted.
Community Reinvestment Act
The Banks are subject to the provisions of the Community Reinvestment Act (CRA) which
requires banks to assess and help meet the credit needs of the community in which the bank
operates. The OCC examines the Bank to determine its level of compliance with CRA and the Federal
Reserve Board examines CBT to determine its level of compliance with CRA. The OCC and the Federal
Reserve Board are required to consider the level of CRA compliance when their regulatory
applications are reviewed. The Banks each received a satisfactory Community Reinvestment Act
rating in its most recent federal examination
.
Interstate Banking and Branching
Under the Riegel-Neal Interstate Banking and Branching Efficiency Act of 1994, as amended (the
Interstate Act), a bank holding company that is adequately capitalized and managed may obtain
approval under the BHCA to acquire an existing bank located in another state generally without
regard to state law prohibitions on such acquisitions. A bank holding company, however, can not be
permitted to make such an acquisition if, upon consummation, it would control (a) more than 10% of
the total amount of deposits of insured depository institutions in the United States or (b) 30% or
more of the deposits in the state in which the bank is located. A state may limit the percentage of
total deposits that may be held in that state by any one bank or bank holding company if
application of such limitation does not discriminate against out of state banks. An out of state
bank holding company may not acquire a state bank in existence for less than a minimum length of
time that may be prescribed by state law except that a state may not impose more than a five year
existence requirement. Since June 1, 1997 (and prior to that date in some instances), banks have
been able to expand across state lines where qualifying legislation adopted by certain states prior
to that date prohibits such interstate expansion. Banks may also expand across state lines through
the acquisition of an individual branch of a bank located in another state or through the
establishment of a
de novo
branch in another state where the law of the state in which the
branch is to be acquired or established specifically authorizes such acquisition or
de novo
branch establishment.
The USA PATRIOT Act
The USA PATRIOT Act, which was signed into law on October 26, 2001, gave the federal
government new powers to address terrorist threats through enhanced domestic security measures,
expanded surveillance powers, increased information sharing and broadened anti-money laundering
requirements. Financial institutions, such as the Bank, have been subject to a federal anti-money
laundering obligation for years. The USA PATRIOT Act has no material adverse impact on the Banks
operations.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley), which implemented legislative reforms
intended to address corporate and accounting fraud. In addition to the establishment of a new
accounting oversight board that will enforce auditing, quality control and independence standards
and will be funded by fees from all publicly traded companies, Sarbanes-Oxley places certain
restrictions on the scope of services that may be provided by accounting firms to their public
company audit clients. Any non-audit service being provided to a public company audit client will
require preapproval by the companys audit committee. In addition, Sarbanes-Oxley makes certain
changes to the requirements for audit partner rotation after a period of time. Sarbanes-Oxley
requires chief executive officers and chief financial officers, or their equivalent, to certify to
the accuracy of periodic reports filed with the Securities and Exchange Commission (SEC), subject
to civil and criminal penalties if they knowingly or willingly violate this certification
requirement.
12
Sarbanes-Oxley also increases the oversight of, and codifies certain requirements relating to
audit committees of public companies and how they interact with the companys registered public
accounting firm. Audit Committee members must be independent and are absolutely barred from
accepting consulting, advisory or other compensatory fees from the issuer. In addition, companies
must disclose whether at least one member of the committee is a financial expert (as such term is
defined by the Securities and Exchange Commission) and if not, why not. Under Sarbanes-Oxley, a
companys registered public accounting firm is prohibited from performing statutorily mandated
audit services for a company if such companys chief executive officer, chief financial officer,
comptroller, chief accounting officer or any person serving in equivalent positions had been
employed by such firm and participated in the audit of such company during the one-year period
preceding the audit initiation date. Sarbanes-Oxley also prohibits any officer or director of a
company or any other person acting under their direction from taking any action to fraudulently
influence, coerce, manipulate or mislead any independent accountant engaged in the audit of the
companys financial statements for the purpose of rendering the financial statements materially
misleading.
Although we have incurred additional expense in complying with the provisions of the
Sarbanes-Oxley Act and the resulting regulations, such compliance has not had a material impact on
our results of operations or financial condition to date. However, the Company expects audit costs
will increase in the future as it complies with the SECs requirement that auditors must provide an
attestation of managements report on internal control over financial reporting. On January 31,
2008, the SEC proposed a one-year extension of the auditor attestation requirement for smaller
public companies. Under the extension, the Company would be required to have the auditor
attestation beginning with the year ending December 31, 2009.
Factors Affecting Future Results
In addition to historical information, this Form 10-K includes certain forward looking
statements that involve risks and uncertainties such as statements of the Companys plans,
expectations and unknown outcomes. The Companys actual results could differ materially from
management expectations. Factors that could contribute to those differences include, but are not
limited to, general economic conditions, legislative and regulatory changes, monetary and fiscal
policies of the federal government, changes in tax policies, rates and regulations of federal and
local tax authorities, changes in interest rates, deposit flows, the cost of funds, demand for loan
products, demand for financial services, competition, changes in the quality or composition of the
Banks loan and investment portfolios, changes in ownership status resulting
in, among other things, the loss of eligibility for participation in government and corporate
programs for minority and women-owned banks, change in accounting principles, policies or
guidelines, and other economic, competitive, governmental and technological factors affecting the
Companys operations, markets, products, services and prices.
Abigail Adams National Bancorp, Inc.s Commercial Real Estate and Commercial Business Loans
Expose it to Increased Lending Risks.
At December 31, 2007, the Companys portfolio of commercial real estate loans totaled $128.3
million, and commercial business loans totaled $38.6 million. These two categories of loans
represent 54.2% of the Companys loan portfolio. The Company plans to continue its emphasis on the
origination of these types of loans. These types of loans generally expose a lender to greater
risk of non-payment and loss than one- to four-family residential mortgage loans because repayment
of the loans often depends on the successful operations and the income stream of the borrowers.
Such loans typically involve larger loan balances to single borrowers or groups of related
borrowers compared to one- to four-family residential mortgage loans. Also, many of the Companys
borrowers have more than one commercial real estate or commercial business loan outstanding with
the Company. Consequently, an adverse development with respect to one loan or one credit
relationship can expose the Company to a significantly greater risk of loss compared to an adverse
development with respect to a one- to four-family residential mortgage loan.
13
Abigail Adams National Bancorp, Inc.s Current Concentration of Loans in its Primary Market
Area May Increase its Risk.
The Companys success depends primarily on the general economic conditions in Washington, D.C.
and to a lesser extent the Richmond and Hampton, Virginia market areas. Unlike larger banks that
are more geographically diversified, the Company provides banking and financial services to
customers primarily in Washington, D.C. The local economic conditions in the Washington, D.C.
metropolitan area have a significant impact on its loans, the ability of the borrowers to repay
these loans and the value of the collateral securing these loans. A significant decline in general
economic conditions caused by inflation, recession, unemployment or other factors beyond the
Companys control would impact these local economic conditions and could negatively affect the
financial results of its banking operations.
The Company targets its business lending and marketing strategy for loans to serve primarily
the banking and financial services needs of small to medium size businesses. These small to medium
size businesses generally have fewer financial resources in terms of capital or borrowing capacity
than larger entities. If general economic conditions negatively impact these businesses, the
Companys results of operations and financial condition may be adversely affected.
If Abigail Adams National Bancorp, Inc.s Allowance for Credit Losses is Not Sufficient to
Cover Actual Loan Losses, its Earnings Could Decrease.
The Companys loan customers may not repay their loans according to the terms of the loans,
and the collateral securing the payment of these loans may be insufficient to pay any remaining
loan balance. The Company may experience significant loan losses, which could have a material
adverse effect on its operating results. The Company makes various assumptions and judgments about
the collectibility of its loan portfolio, including the creditworthiness of its borrowers and the
value of the real estate and other assets serving as collateral for the repayment of many of its
loans. In determining the amount of the allowance for credit losses, the Company relies on its
loan quality reviews, its experience and its evaluation of economic conditions, among other
factors. If the Companys assumptions and judgments prove to be incorrect, its allowance for
credit losses may not be sufficient to cover losses in its loan portfolio, resulting in additions
to its allowance. Material additions to its allowance would materially decrease its net income.
The Companys emphasis on continued diversification of its loan portfolio through the
origination of commercial real estate and commercial business loans is one of the more significant
factors it takes into account in evaluating its allowance for credit losses and provision for
credit losses. As the Company further increases the amount of such types of loans in its
portfolio, the Company may determine to make additional or increased provisions for credit losses,
which could adversely affect its earnings.
In addition, bank regulators periodically review the Companys loan portfolio and credit
underwriting procedures as well as its allowance for credit losses and may require the Company to
increase its provision for credit losses or recognize further loan charge-offs. Any increase in
its allowance for credit losses or loan charge-offs as required by these regulatory authorities
could have a material adverse effect on the Companys results of operations and financial
condition.
Changes in Interest Rates Could Adversely Affect Abigail Adams National Bancorp, Inc.s
Results of Operations and Financial Condition.
The Companys results of operations and financial condition are significantly affected by
changes in interest rates. The Companys results of operations depend substantially on its net
interest income, which is the difference between the interest income earned on its interest-earning
assets and the interest expense paid on its interest-bearing liabilities. At December 31, 2007,
the Companys interest rate risk profile indicated that net interest income would increase in a
rising interest rate environment, but would decrease in a declining interest rate environment.
14
Changes in interest rates also affect the value of the Companys interest-earning assets, and
in particular the Companys securities portfolio. Generally, the value of securities fluctuates
inversely with changes in interest rates. At December 31, 2007, the Companys available for sale
securities totaled $66.4 million. Decreases in the fair value of securities available for sale
could have an adverse effect on shareholders equity or earnings.
The Company also is subject to reinvestment risk associated with changes in interest rates.
Changes in interest rates may affect the average life of loans and mortgage-related securities.
Decreases in interest rates can result in increased prepayments of loans and mortgage-related
securities, as borrowers refinance to reduce borrowing costs. Under these circumstances, the
Company is subject to reinvestment risk to the extent that it is unable to reinvest the cash
received from such prepayments at rates that are comparable to the rates on existing loans and
securities. Additionally, increases in interest rates may decrease loan demand and make it more
difficult for borrowers to repay adjustable rate loans.
Strong Competition Within Abigail Adams National Bancorp, Inc.s Market Area May Limit its
Growth and Profitability.
Competition in the banking and financial services industry is intense. In the Companys market
area, the Company competes with commercial banks, savings institutions, mortgage brokerage firms,
credit unions, finance companies, mutual funds, insurance companies, and brokerage and investment
banking firms operating locally and elsewhere. Many of these competitors (whether regional or
national institutions) have substantially greater resources and lending limits than the Company
does and may offer certain services that the Company does not or cannot provide. The Companys
profitability depends upon its continued ability to successfully compete in its market area.
Abigail Adams National Bancorp, Inc. Operates in a Highly Regulated Environment and May Be
Adversely Affected By Changes in Laws and Regulations.
The Company is subject to regulation, supervision and examination by the Federal Reserve
Board. ANB is subject to regulation by the OCC and by the FDIC, as insurer of its deposits. CBT is
subject to regulation by the Federal Reserve Board, the Bureau of Financial Institutions and by the
FDIC, as insurer of its deposits. Such regulation and supervision govern the activities in which a
bank and its holding company may engage and are intended primarily for the protection of the
deposit insurance funds and
depositors. These regulatory authorities have extensive discretion in connection with their
supervisory and enforcement activities, including the imposition of restrictions on the operation
of a bank, the classification of assets by a bank and the evaluation of the adequacy of a banks
allowance for loan losses. Any change in such regulation and oversight, whether in the form of
regulatory policy, regulations, or legislation, could have a material impact on the Company and its
operations.
The Companys operations are also subject to extensive regulation by other federal, state and
local governmental authorities and are subject to various laws and judicial and administrative
decisions imposing requirements and restrictions on part or all of its operations. The Company
believes that it is in substantial compliance in all material respects with applicable federal,
state and local laws, rules and regulations. Because its business is highly regulated, the laws,
rules and regulations applicable to the Company are subject to regular modification and change.
There are currently proposed various laws, rules and regulations that, if adopted, would impact its
operations, including, among other things, matters pertaining to corporate governance, requirements
for listing and maintenance on national securities exchanges and over the counter markets, and
Securities and Exchange Commission rules pertaining to public reporting disclosures. There can be
no assurance that these proposed laws, rules and regulations, or any other laws, rules or
regulations, will not be adopted in the future, which could make compliance more difficult or
expensive or otherwise adversely affect the Companys business, financial condition or prospects.
15
|
|
|
Item 1B.
|
|
Unresolved Staff Comments.
|
None.
The principal executive office of the Company is located in leased space at 1130 Connecticut
Avenue, N.W., Washington, D.C. 20036. The Banks lease seven branch offices, located at: 1) 1501 K
Street, N.W., Washington, D.C. 20006; 2) 1729 Wisconsin Avenue, N.W., Washington, D.C. 20007; 3)
Union Station, 50 Massachusetts Avenue, N.E., Washington, D.C. 20002; 4) 1604 17
th
Street, N.W., Washington, D.C. 20009; 5) 8121 Georgia Avenue, Silver Spring, Maryland, 20910; 6)
802 7th Street, N.W., Washington, D.C. 20001, and 7) 5214 Chamberlayne Avenue, Richmond, Virginia,
23227. The Bank owns two branch office buildings at 320 North First Street, Richmond, Virginia,
23227 and at 101 North Armistead Avenue, Hampton, Virginia, 23669. The Company leases space for
Deposit Operations at 1627 K Street, N.W., Washington, D.C.. The Union Station branch has two
additional ATMs located in Union Station. Leases for these facilities expire as follows:
|
|
|
|
|
Location
|
|
Expiration of Lease
|
|
1501 K Street, N.W.
|
|
|
2012
|
|
50 Massachusetts Avenue, N.E.
|
|
|
2008
|
|
Union Station ATM
|
|
|
2009
|
|
Union Station ATM
|
|
|
2009
|
|
802 7th Street, N.W.
|
|
|
2012
|
|
1729 Wisconsin Avenue, N.W.
|
|
|
2008
|
|
1604 17
th
Street, N.W.
|
|
|
2016
|
|
1130 Connecticut Avenue, N.W.
|
|
|
2012
|
|
8121 Georgia Avenue
|
|
|
2008
|
|
1627 K Street, N. W.
|
|
|
2012
|
|
5214 Chamberlayne Avenue
|
|
|
2008
|
|
In 2007, the Company and the Banks incurred rental expense on leased real estate of
approximately $1.1 million. The Company considers all of the properties leased by the ANB and CBT
to be suitable and adequate for their intended purposes. At December 31, 2007, the book value of
the Banks premises and equipment was $5.0 million.
|
|
|
Item 3.
|
|
Legal Proceedings.
|
Although the Banks, from time to time, are involved in various legal proceedings in the normal
course of business, there are no material legal proceedings to which the Company, ANB and CBT are a
party or to which any of their property is subject.
|
|
|
Item 4.
|
|
Submission of Matters to a Vote of Security Holders.
|
None.
16
PART II
|
|
|
Item 5.
|
|
Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
|
The Companys Common Stock is currently listed on the Nasdaq Global Market under the symbol
AANB, and there is an established market for such common stock.
The following table sets forth the range of the high and low sales prices of the Companys
Common Stock for the prior eight calendar quarters and is based upon information provided by the
Nasdaq Global Market.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices of Common Stock
|
Calendar Quarter Ended
|
|
High
|
|
Low
|
|
Dividends Paid
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2007
|
|
$
|
14.39
|
|
|
$
|
13.31
|
|
|
$
|
0.125
|
|
June 30, 2007
|
|
|
14.34
|
|
|
|
13.50
|
|
|
|
0.125
|
|
September 30, 2007
|
|
|
14.00
|
|
|
|
13.42
|
|
|
|
0.125
|
|
December 31, 2007
|
|
|
13.91
|
|
|
|
10.37
|
|
|
|
0.125
|
|
March 31, 2006
|
|
|
14.40
|
|
|
|
12.85
|
|
|
|
0.125
|
|
June 30, 2006
|
|
|
14.45
|
|
|
|
12.87
|
|
|
|
0.125
|
|
September 30, 2006
|
|
|
14.45
|
|
|
|
13.50
|
|
|
|
0.125
|
|
December 31, 2006
|
|
|
13.90
|
|
|
|
13.20
|
|
|
|
0.125
|
|
As of December 31, 2007, the Company had 845 shareholders of record, and there were 3,462,569
shares outstanding. Please see Item 1. BusinessSupervision and RegulationRestrictions on
Transfers of Funds to the Company by the Banks for a discussion of restrictions on the ability of
the Banks to pay the Company dividends.
The Company did not have any common stock repurchase activity during the fourth quarter of
2007.
Equity Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities
|
|
|
|
|
|
|
|
|
|
|
remaining available for
|
|
|
Number of securities to be
|
|
Weighted-average exercise
|
|
future issuance under
|
|
|
issued upon exercise of
|
|
price of outstanding
|
|
equity compensation plans
|
|
|
outstanding options,
|
|
options, warrants and
|
|
(excluding securities
|
|
|
warrants and rights.
|
|
rights.
|
|
reflected in column (a)).
|
Plan Category
|
|
(a)
|
|
(b)
|
|
(c)
|
Equity compensation plans
approved by security holders
|
|
|
|
|
|
$
|
|
|
|
|
170,156
|
|
Equity compensation plans not
approved by security holders
|
|
|
9,818
|
|
|
$
|
5.21
|
|
|
|
|
|
Total
|
|
|
9,818
|
|
|
$
|
5.21
|
|
|
|
170,156
|
|
The Company adopted a non-statutory stock option plan (2000 Stock Option Plan) on February 15,
2000 that was not submitted for approval to the shareholders. A total of 30,250 shares of common
stock were authorized for issuance to key employees and non-employee directors. All options were
granted at an exercise price of $5.21 per share, representing 90% of the fair market value of the
Companys common stock at the date of the grant. The options vested over three years and expire
after ten years from the date of grant. As of December 31, 2007, 19,676 options have been
exercised and 756 options have been forfeited in the 2000 Stock Option Plan.
Please see the Annual Report to Shareholders, which is filed as Exhibit 13 hereto for the
stock performance graph.
|
|
|
Item 6.
|
|
Selected Financial Data.
|
See the Annual Report to Shareholders which is filed at Exhibit 13 hereto.
17
|
|
|
Item 7.
|
|
Managements Discussion and Analysis of Financial Condition and Results of Operations.
|
The Managements Discussion and Analysis of Financial Condition and Results of Operations is
incorporated by reference to the Companys Annual Report to Shareholders, which is filed as Exhibit
13 hereto.
|
|
|
Item 7a.
|
|
Quantitative and Qualitative Disclosures About Market Risk.
|
For information regarding market risk, see Managements Discussion and Analysis of Financial
Condition and Results of Operations which is incorporated by reference to the Companys Annual
Report to Shareholders at Exhibit 13 hereto.
|
|
|
Item 8.
|
|
Financial Statements and Supplementary Data.
|
The Financial Statements identified in Item 15(a)(1) hereof are included with the Annual
Report to Shareholders at Exhibit 13 hereto.
|
|
|
Item 9.
|
|
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
|
None.
|
|
|
Item 9A.
|
|
Controls and Procedures.
|
(a) Evaluation of disclosure controls and procedures.
Under the supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)
under the Exchange Act) as of the end of the fiscal year (the Evaluation Date). Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the
Evaluation Date, our disclosure controls and procedures were effective in timely alerting them to
the material information relating to us (or our consolidated subsidiaries) required to be included
in our periodic SEC filings.
|
|
|
Item 9A (T)
|
|
Controls and Procedures
|
(a) Managements Report on Internal Control Over Financial Reporting
Managements Annual Report on Internal Control over Financial Reporting is included in Exhibit
13 and is incorporated by reference herein. This annual report does not include an attestation
report of the Companys registered public accounting firm regarding internal control over financial
reporting. Managements report was not subject to attestation by the Companys registered public
accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit
the Company to provide only managements report in this annual report.
(b) Changes in internal controls over financial reporting.
There were no significant changes made in our internal controls during the fourth quarter of
2007 or, to our knowledge, in other factors that has materially affected or is reasonably likely to
materially affect, the Companys internal control over financial reporting.
See the Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
Item 9B.
|
|
Other Information.
|
None
18
PART III
Except as set forth below, the information called for by Items 10, 11, 12, 13 and 14 is
incorporated herein by reference to the Companys definitive Proxy Statement for the 2008 Annual
Meeting of Shareholders to be filed within 120 days after the end of the fiscal year covered by the
Form 10-K.
|
|
|
Item 10.
|
|
Directors, Executive Officers and Corporate Governance.
|
The Company has adopted a Code of Ethics that applies to the Companys principal executive
officer, principal financial officer, principal accounting officer or controller or persons
performing similar functions. The Code of Ethics may be accessed on the Companys website at
www.adamsbank.com
.
|
|
|
Item 11.
|
|
Executive Compensation.
|
|
|
|
Item 12.
|
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
|
|
|
|
Item 13.
|
|
Certain Relationships and Related Transactions, and Director Independence.
|
|
|
|
Item 14.
|
|
Principal Accountant Fees and Services.
|
PART IV
|
|
|
Item 15.
|
|
Exhibits and Financial Statement Schedules.
|
(a)(1)
Financial Statements
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
|
|
Consolidated Balance Sheets, December 31, 2007 and 2006
|
|
|
|
|
Consolidated Statements of Income
Years Ended December 31, 2007, 2006 and 2005
|
|
|
|
|
Consolidated Statements of Changes in Shareholders Equity
Years Ended December 31, 2007, 2006 and 2005
|
|
|
|
|
Consolidated Statements of Cash Flows
Years Ended December 31, 2007, 2006 and 2005
|
|
|
|
|
Notes to Consolidated Financial Statements
|
(a)(2)
Financial Statement Schedule
No financial statement schedules are filed because the required information is not applicable
or is included in the consolidated financial statements or related notes.
(a)(3) Exhibits
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
|
3.1
|
|
Certificate of Incorporation of the Company, as amended (1)
|
|
|
|
3.1.1
|
|
Amendment to the Certificate of Incorporation of the Company (2)
|
|
|
|
3.2
|
|
By-laws of the Company, as amended
(3)
|
|
|
|
3.3
|
|
Amendment to the By-laws of the
Company (4)
|
19
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Exhibit
|
|
|
|
4.1.1
|
|
Rights Agreement dated as of April 12, 1994, between the Company and The First National Bank
of Maryland, as Rights Agent (Right Certificate attached as Exhibit A to Rights Agreement and
Summary of Rights to Purchase Common Shares attached as
Exhibit B to Rights Agreement) (5)
|
|
|
|
4.1.2
|
|
First Amendment dated April 20, 1995 between the Company and The First National Bank of
Maryland, as Rights Agent (6)
|
|
|
|
4.2
|
|
Form of Common Stock Certificate of
the Company (7)
|
|
|
|
10.1
|
|
Agreement, dated April 20,
1995 between the Company and Marshall T. Reynolds (8)
|
|
|
|
13
|
|
Annual Report to Shareholders
|
|
|
|
14
|
|
Code of Ethics (9)
|
|
|
|
21
|
|
Subsidiaries of the Registrant (10)
|
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
32
|
|
Certification of Chief Executive Officer and Principal Financial and Accounting Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
(1)
|
|
Incorporated by reference to Exhibit 3 to the Companys Annual Report on Form 10-K for the
fiscal year ended December 31, 1987.
|
|
(2)
|
|
Incorporated by reference to Exhibit 3.2 to Amendment No. 2 to Form SB-2 filed July 9, 1996.
|
|
(3)
|
|
Incorporated by reference to Exhibit 3.1 to the
Companys Annual Report on Form 10-K for the fiscal year
ended December 31, 1987.
|
|
(4)
|
|
Incorporated by reference to Exhibit 3.1 to the Current
Report on Form 8-K filed October 18, 2007.
|
|
(5)
|
|
Incorporated by reference to Exhibits 1-3 to the Companys Registration Statement on Form 8-A
dated April 12, 1994.
|
|
(6)
|
|
Incorporated by reference to Exhibit 4 to the Companys Registration Statement on Form 8-K/A
dated April 21, 1995.
|
|
(7)
|
|
Incorporated by reference to Exhibit 4.2 to the Companys Registration Statement on Form S-4
dated April 22, 2005.
|
|
(8)
|
|
Incorporated by reference to Exhibit 10.7 to the Companys Annual Report on Form 10-K for the
fiscal year ended December 31, 1996.
|
|
(9)
|
|
Incorporated by reference to Exhibit 10 to the Companys Annual Report on Form 10-K for the
year ended December 31, 2003.
|
|
(10)
|
|
Incorporated by reference to Exhibit 21 to the Companys Annual Report on Form 10-K for the
year ended December 31, 2006.
|
(b) See the exhibits filed under Item 15(a)(3)
20
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report
to be signed on its behalf by the undersigned, hereunto duly authorized.
|
|
|
|
|
|
ABIGAIL ADAMS NATIONAL BANCORP, INC.
|
|
Date: March 28, 2008
|
By:
|
/s/ Jeanne D. Hubbard
|
|
|
|
Jeanne D. Hubbard, Chairwoman of the Board,
|
|
|
|
President and Chief Executive Officer
|
|
|
In accordance with the Exchange Act, this report has been signed below by the following Behalf
of the Registrant and in the capacities and on the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Jeanne D. Hubbard
|
|
|
|
By:
|
|
/s/ Karen E. Troutman
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeanne D. Hubbard, Chairwoman of the Board,
President and Chief Executive Officer
|
|
|
|
|
|
Karen E. Troutman, Principal Financial
and Accounting Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date: March 28, 2008
|
|
|
|
Date: March 28, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ A George Cook.
|
|
|
|
By:
|
|
/s/ Patricia G. Shannon
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A. George Cook, Director
|
|
|
|
|
|
Patricia G. Shannon, Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date: March 28, 2008
|
|
|
|
Date: March 28, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Marianne Steiner
|
|
|
|
By:
|
|
/s/ Douglas V. Reynolds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marianne Steiner, Director
|
|
|
|
|
|
Douglas V. Reynolds, Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date: March 28, 2008
|
|
|
|
Date: March 28, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Joseph L. Williams
|
|
|
|
By:
|
|
/s/ Marshall T. Reynolds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph L. Williams, Director
|
|
|
|
|
|
Marshall T. Reynolds, Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date: March 28, 2008
|
|
|
|
Date: March 28, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Bonita A. Wilson
|
|
|
|
By:
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/s/ Sandra C, Ramsey
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Bonita A. Wilson, Director
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Sandra C. Ramsey, Director
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Date: March 28, 2008
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Date: March 28, 2008
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EXHIBIT INDEX
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Exhibit
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Number
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Description of Exhibit
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3.1
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Certificate of Incorporation of the Company, as amended (1)
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3.1.1
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Amendment to the Certificate of Incorporation of the Company (2)
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3.2
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By-laws of the Company, as amended
(3)
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3.3
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Amendment to the By-laws of the
Company (4)
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4.1.1
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Rights Agreement dated as of April 12, 1994, between the Company and The First National Bank
of Maryland, as Rights Agent (Right Certificate attached as Exhibit A to Rights Agreement and
Summary of Rights to Purchase Common Shares attached as
Exhibit B to Rights Agreement) (5)
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4.1.2
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First Amendment dated April 20, 1995 between the Company and The First National Bank of
Maryland, as Rights Agent (6)
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4.2
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Form of Common Stock Certificate of
the Company (7)
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10.1
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Agreement, dated April 20,
1995 between the Company and Marshall T. Reynolds (8)
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13
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Annual Report to Shareholders
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14
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Code of Ethics (9)
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21
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Subsidiaries of the Registrant (10)
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31.1
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Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
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31.2
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Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
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32
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Certification of Chief Executive Officer and Principal Financial and Accounting Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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(1)
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Incorporated by reference to Exhibit 3 to the Companys Annual Report on Form 10-K for the
fiscal year ended December 31, 1987.
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(2)
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Incorporated by reference to Exhibit 3.2 to Amendment No. 2 to Form SB-2 filed July 9, 1996.
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(3)
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Incorporated by reference to Exhibit 3.1 to the
Companys Annual Report on Form 10-K for the fiscal year
ended December 31, 1987.
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(4)
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Incorporated by reference to Exhibit 3.1 to the Current
Report on Form 8-K filed October 18, 2007.
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(5)
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Incorporated by reference to Exhibits 1-3 to the Companys Registration Statement on Form 8-A
dated April 12, 1994.
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(6)
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Incorporated by reference to Exhibit 4 to the Companys Registration Statement on Form 8-K/A
dated April 21, 1995.
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(7)
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Incorporated by reference to Exhibit 4.2 to the Companys Registration Statement on Form S-4
dated April 22, 2005.
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(8)
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Incorporated by reference to Exhibit 10.7 to the Companys Annual Report on Form 10-K for the
fiscal year ended December 31, 1996.
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(9)
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Incorporated by reference to Exhibit 10 to the Companys Annual Report on Form 10-K for the
year ended December 31, 2003.
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(10)
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Incorporated by reference to Exhibit 21 to the Companys Annual Report on Form 10-K for the
year ended December 31, 2006.
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(b) See the exhibits filed under Item 15(a)(3)
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