e10vk

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VqrRW42rLOY3XpLGlF9NqU/aPsqZd4veH0v0zhlNrqJErBSzyo5bUNe5gJthP4EB KSHmm5Na7cT2WhSruUkr5g== 0000950133-09-001161.txt : 20090417 0000950133-09-001161.hdr.sgml : 20090417 20090417110435 ACCESSION NUMBER: 0000950133-09-001161 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20081231 FILED AS OF DATE: 20090417 DATE AS OF CHANGE: 20090417 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ABIGAIL ADAMS NATIONAL BANCORP INC CENTRAL INDEX KEY: 0000356809 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 521508198 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-10971 FILM NUMBER: 09755634 BUSINESS ADDRESS: STREET 1: 1130 CONNECTICUT AVENUE, NW CITY: WASHINGTON STATE: DC ZIP: 20036 BUSINESS PHONE: 2027723600 MAIL ADDRESS: STREET 1: 1130 CONNECTICUT AVENUE, NW CITY: WASHINGTON STATE: DC ZIP: 20036 FORMER COMPANY: FORMER CONFORMED NAME: FIRST WNB CORP DATE OF NAME CHANGE: 19860702 10-K 1 w73596e10vk.htm 10-K e10vk

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)


þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal ended December 31, 2008.


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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)


Delaware		52-1508198

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1130 Connecticut Avenue, NW Washington, DC		20036

(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (202) 772-3600

Securities registered pursuant to Section 12(b) of the Act:


Title of each class		Name of each exchange on which registered

Common Stock, $0.01 par value		The NASDAQ Stock Market, LLC

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 o NO þ

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 o NO þ

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 registrant’s 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):

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o
(Do not check if a smaller reporting company)

Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES o 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, 2008, as reported by the Nasdaq Global Market, was approximately $20.7 million.

As of April 14, 2009, there were outstanding 3,463,569 shares of the Registrant’s Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE:
None

PART I

Item 1. Business.

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 nation’s 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 Company’s 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, 2008, the Company had consolidated assets of $423.7 million, deposits of $347.0 million and shareholders’ equity of $24.3 million.

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 Company reports two operating segments comprised of its subsidiaries, ANB and CBT, for which there is discrete financial information available. Both segments are engaged in providing financial services in their respective market areas and are similar in each of the following: the nature of their products, services; and processes; type or class of customer for their products and services; methods used to distribute their products or provide their services; and the nature of the banking regulatory environment. The Company is deemed to represent an overhead function rather than an operating segment. For additional information on segment reporting, see Note 22 of the Notes to Consolidated Financial Statements.

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.

Recent Developments

On December 31, 2008, the Company entered into a definitive agreement to be acquired by Premier Financial Bancorp, Inc., Huntington, West Virginia. Pursuant to the agreement, each shareholder of the Company will receive 0.4461 shares of Premier Financial common stock. The entire transaction is valued at approximately $10.9 million based upon Premier Financial’s closing price on December 31, 2008. The transaction is subject to regulatory and shareholder approval and is expected to be completed during the second quarter of 2009.

On October 1, 2008, the Company’s wholly owned subsidiary, The Adams National Bank (the “Bank”) entered into a written agreement with its primary regulator, The Office of the Comptroller of the Currency (the “OCC”). Under the terms of the written agreement, the Bank has agreed to take certain actions relating to the Bank’s lending operations and capital compliance. Specifically, the OCC is requiring the Bank to take certain enumerated actions. See “Supervision and Regulation—Written Agreement” for further information.

Recent Market Developments

In response to the financial crises affecting the banking system and financial markets and going concern threats to investment banks and other financial institutions, on October 3, 2008, the Emergency Economic Stabilization Act of 2008 (the “EESA”) was signed into law. EESA provides, among other things, for a Troubled Assets Relief Program (“TARP”), under which the U.S. Department of the Treasury has the authority to purchase up to $700 billion of securities and certain other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets.

On October 14, 2008, the Treasury Department announced a Capital Purchase Program (“CPP”) under the TARP pursuant to which it would acquire equity investments, usually preferred stock, in banks and thrifts and their holding companies. Participating financial institutions also were required to adopt the Treasury Department’s standards for executive compensation and corporate governance for the period during which the department holds equity issued under the CPP. We have not applied to receive an investment under the CPP.

On February 10, 2009, Treasury announced its Capital Assistance Program (“CAP”) under which Treasury will make capital available to financial institutions through Treasury’s purchase of cumulative mandatorily convertible preferred stock. The preferred shares will mandatorily convert to common stock after seven years. Prior to that time, the preferred shares are convertible in whole or in part at the option of the institution, subject to the approval of the institution’s primary federal regulator. Institutions that have received an investment from Treasury under the CPP may use proceeds from the CAP to redeem preferred shares issued in the CPP, effectively exchanging the preferred stock sold under the CPP for CAP convertible preferred stock.

On December 22, 2008, the FDIC published a final rule that raises the current deposit insurance assessment rates uniformly for all institutions by 7 basis points (to a range from 12 to 50 basis points) effective for the first quarter of 2009. On February 27, 2009, the FDIC also issued a final rule that revises the way the FDIC calculates federal deposit insurance assessment rates beginning in the second quarter of 2009. Under the new rule, the total base assessment rate will range from 7 to 77.5 basis points of the institution’s deposits, depending on the risk category of the institution and the institution’s levels of unsecured debt, secured liabilities, and brokered deposits. Additionally, the FDIC issued an interim rule that would impose a special 20 basis points assessment on June 30, 2009, which would be collected on September 30, 2009. However, the FDIC has indicated a willingness to decrease the special assessment to 10 basis points under certain circumstances concerning the overall financial health of the insurance fund. Special assessments of 10 and 20 basis points would result in additional expense of approximately $293,000 to $586,000, respectively. The interim rule also allows for additional special assessments.

On October 14, 2008, the FDIC announced the Temporary Liquidity Guarantee Program (“TLGP”). This program has two components. One guarantees newly issued senior unsecured debt of the participating organizations, up to certain limits established for each institution, issued between October 14, 2008 and June 30, 2009. The Company has opted not to participate in this component of the TLGP. The other component of the program provides full FDIC insurance coverage for non-interest bearing transaction deposit accounts, regardless of dollar amount, until December 31, 2009. An annualized 10 basis point assessment on balances in noninterest-bearing transaction accounts that exceed the existing deposit insurance limit of $250,000 will be assessed on a quarterly basis to insured depository institutions participating in this component of the TLGP. The Company has chosen to participate in this component of the TLGP.

The American Recovery and Reinvestment Act of 2009 (“ARRA”), more commonly known as the economic stimulus or economic recovery package, was signed into law on February 17, 2009, by President Obama. ARRA includes a wide variety of programs intended to stimulate the economy and provide for extensive infrastructure, energy, health, and education needs. In addition, ARRA imposes certain new executive compensation and corporate expenditure limits on all current and future TARP recipients until the recipient has repaid the Treasury, which is now permitted under ARRA without penalty and without the need to raise new capital, subject to the Treasury’s consultation with the recipient’s appropriate regulatory agency.

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, construction, 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.

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, construction and development 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, 2008, approximately $101.0 million or 31.1% 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 children’s 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 13 loan officers, 9 of which are ANB loan officers. The loan support staff includes the Loan Operations and Administration staff of 15, 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. ANB’s loan officers have individual lending authorities based on the individual’s 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.


	At December 31,
	2008			2007			2006			2005			2004
							(In thousands)

Commercial and industrial	$	43,733		$	38,606		$	39,323		$	39,876		$	28,756
Real estate:
Commercial mortgage		163,228			128,320			136,540			124,578			90,477
Residential mortgage		54,887			67,375			55,860			48,489			49,737
Construction and development		61,485			70,798			73,986			33,844			10,676
Installment to individuals		1,648			2,716			2,714			2,057			958

Total loans		324,981			307,815			308,423			248,844			180,604
Less: net deferred loan fees		(217	)		(332	)		(466	)		(557	)		(332	)

Total, net	$	324,764		$	307,483		$	307,957		$	248,287		$	180,272

For further information regarding the Banks’ loan portfolio composition, See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Financial Condition” filed as Exhibit 13 to the Form 10-K and Note 7 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, 2008, commercial loans (including SBA guaranteed loans) totaled $43.7 million, the largest of which had a principal balance of $3.2 million, and at December 31, 2008 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 loan’s balance. As lending requirements of small businesses grow to exceed either Bank’s 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, 2008, SBA-guaranteed loans totaled $3.8 million.

Real Estate Lending

At December 31, 2008, the Banks’ real estate loan portfolio consisted of commercial real estate mortgages totaling $163.2 million, and residential real estate mortgages totaling $54.9 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 borrower’s overall creditworthiness and capacity to service debt, secondary sources of repayment and any additional collateral or credit enhancements. Our largest commercial real estate loan had a principal balance of $4.5 million at December 31, 2008 and was secured by a first deed of trust. At December 31, 2008 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, 2008. The underwriting for a residential real estate loan is the same as for a commercial real estate loan.

The majority of the $61.5 million in construction and land development loans at December 31, 2008 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 completion and subsequent 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 borrower’s 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 borrower’s credit history, an analysis of the borrower’s income, expenses and ability to repay the loan and the value of the collateral. At December 31, 2008, consumer loans totaled $1.6 million.

Delinquencies and Classified Assets

Collection Procedures. Delinquent 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. Nonperforming assets consist of nonaccrual loans, loans past due 90 days or more, and other real estate owned. At December 31, 2008, the Banks had nonperforming assets of $37.9 million and a ratio of nonperforming assets to total assets of 8.95%. The increase in nonperforming assets is due to the general weakening of the economic conditions and decline in real estate values in the markets served by the Company. The increase in nonperforming loans is primarily attributable to our condominium and condo tenant association construction and multi-family residential real estate loan portfolios, which experienced deterioration in estimated collateral values and repayment abilities, where repayment is dependent upon the sale of condominium units. To assist in identifying weakness in the real estate loan portfolio, updated appraisals were ordered in the fourth quarter of 2008, and these appraisals have shown a decrease in market values of real estate secured properties. In addition, an independent loan review was conducted in the fourth quarter of 2008, to review all loans with balances greater than $150,000. The results of the appraisal updates and the results of the independent loan review were taken into account in increasing our provision for loan losses. The loan loss reserve is the amount required to maintain the allowance for loan losses at an adequate level to absorb probable loan losses. To address the increase in the nonperforming loans, the provision for loan losses was $11.8 million for the year ended December 31, 2008.

Allowance for Loan Losses. The allowance for loan losses is established through a provision for loan losses based on management’s 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, 2008, the total allowance was $12.5 million, which amounted to 3.85% of total loans and 33.01% 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.

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.


	At December 31,
	2008					2007						2006						2005						2004
			% of Loans						% of Loans						% of Loans						% of Loans						% of Loans
			in Each						in Each						in Each						in Each						in Each
			Category						Category						Category						Category						Category
			to total						to total						to total						to total						to total
	Amount		Loans			Amount			Loans			Amount			Loans			Amount			Loans			Amount			Loans
	(Dollars in thousands)
Balance at end of period applicable to:
Commercial and industrial	$	1,587		12.7	%	$	952			12.5	%	$	1,078			12.7	%	$	1,799			16.0	%	$	720			15.9	%
Commercial-mortgages		1,762		14.1			(a	)					(a	)					(a	)					(a	)
Residential -mortgages		1,212		9.7			(a	)					(a	)					(a	)					(a	)
Construction		7,922		63.3			(a	)					(a	)					(a	)					(a	)
Total real estate		10,896					3,235			86.4			3,334			86.4			2,418			83.2			1,826			83.6
Installment		31		0.2			15			0.9			20			0.9			60			0.8			12			0.5
Unallocated		—		—			—			—			—			—			68			—			—			—

Total allowance for loan losses	$	12,514		100.0	%	$	4,202			100.0	%	$	4,432			100.0	%	$	4,345			100.0	%	$	2,558			100.0	%


(a)		Information is not available by category for these years.

For the year ended December 31, 2008, gross interest income which would have been recorded had the nonaccruing loans of $33.8 million been current in accordance with their original terms amounted to $1.2 million.

We did not include any interest income on such loans for the year ended December 31, 2008. For further information regarding the Banks’ allowance for loan losses and asset quality see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Asset Quality” filed as Exhibit 13 to the Form 10-K and Note 7 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, 2008, investment securities totaled $66.0 million of which $62.8 million were classified as available for sale. Total investment securities classified as held to maturity were $3.2 million at December 31, 2008. For further information regarding the Banks’ investments see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Analysis of Investments” filed as Exhibit 13 to the Form 10-K and Note 6 to the Notes to the Consolidated Financial Statements.

Investment Portfolio. At December 31, 2008, the carrying value of our investment securities and interest earning deposits was approximately $68.7 million. The following table sets forth the carrying value of our investments at the dates indicated.


	At December 31,
	2008		2007		2006
	(In thousands)

U.S. Government and agency obligations	$	47,669	$	64,481	$	48,911
Mortgage-backed securities		12,699		8,902		6,517
Municipal securities		898		—		—
Corporate debt securities		4,404		5,600		6,634
Marketable equity securities		319		718		1,007
Interest-earning deposits		2,659		20,380		5,823

Total investments	$	68,648	$	100,081	$	68,892

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 $347.0 million at December 31, 2008. Demand deposits totaled $67.2 million and comprised 19.4% of total deposits. Savings, NOW, and money market accounts totaled $107.2 million and comprised 30.9% of total deposits. Certificates of deposit were 49.7% of the total deposits for a balance of $172.6 million. Certificates of deposit include brokered deposits totaling $79.7 million, of which $67.0 million or 84.0% are CDARS (Certificate of Deposit Account Registry Service) deposits. CDARS is a deposit placement service that allows us to place our customers’ funds in FDIC-insured certificates of deposits at other banks and to simultaneously receive an equal sum of funds from the customers of other banks in the CDARS Network. The majority of CDARS deposits are gathered within our geographic footprint through established customer relationships. For further information regarding the Banks’ deposits see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Deposits” and Note 9 to the Notes to the Consolidated Financial Statements in Exhibit 13 of Form 10-K.

As of December 31, 2008, the aggregate amount of outstanding certificates of deposit in amounts greater than or equal to $100,000 was approximately $47.3 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, 2008. These deposits represented 13.6% of our total deposits at December 31, 2008.


Remaining Maturity	Amount
	(In thousands)
Three months or less	$	18.8
Three through six months		12.9
Six through twelve months		11.2
Over twelve months		4.4

Total	$	47.3

Borrowed Funds

The Company’s short-term borrowings consist of securities sold under repurchase agreements and FHLB advances totaling $24.5 million at December 31, 2008. Long-term debt consists of a FHLB advance and various corporate term notes and lines of credit totaling $26.1 million at an average rate of 4.53% at December 31, 2008. For further information regarding the Banks’ borrowed funds see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Borrowed Funds, and Contractual Commitments” and Notes 12 and 13 in the Notes to the Consolidated Financial Statements in Exhibit 13 to the Form 10-K.

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.

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, 2008, the Company employed 102 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.

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 Board’s 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 company’s 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 Board’s 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 ANB’s 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 bank’s 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. On October 1, 2008, ANB entered into a written agreement with the OCC. The written agreement was filed with the SEC as an exhibit to a current report on Form 8-K dated October 2, 2008. Under the terms of the written agreement, ANB has agreed to take certain actions relating to its lending operations and capital compliance. For details, see our disclosure below in section “Written Agreement” and in Note 4 in the Notes to the Consolidated Financial Statements filed in Exhibit 13 to the Form 10-K.

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 CBT’s 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.

Insurance of Deposit Accounts

Our deposit accounts 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. However, pursuant to its statutory authority, the Board of the Federal Deposit Insurance Corporation recently increased the deposit insurance available on deposit accounts to $250,000 effective until December 31, 2009. Our deposits are subject to Federal Deposit Insurance Corporation deposit insurance assessments. The Federal Deposit Insurance Corporation has adopted a risk-based system for determining deposit insurance assessments.

On December 22, 2008, the FDIC published a final rule that raises the current deposit insurance assessment rates uniformly for all institutions by 7 basis points (to a range from 12 to 50 basis points) effective for the first quarter of 2009. On February 27, 2009, the FDIC also issued a final rule that revises the way the FDIC calculates federal deposit insurance assessment rates beginning in the second quarter of 2009. Under the new rule, the FDIC will first establish an institution’s initial base assessment rate. This initial base assessment rate will range, depending on the risk category of the institution, from 12 to 45 basis points. The FDIC will then adjust the initial base assessment (higher or lower) to obtain the total base assessment rate. The adjustments to the initial base assessment rate will be based upon an institution’s levels of unsecured debt, secured liabilities, and brokered deposits. The total base assessment rate will range from 7 to 77.5 basis points of the institution’s deposits. Additionally, the FDIC issued an interim rule that would impose a special 20 basis points assessment on June 30, 2009, which would be collected on September 30, 2009. However, the FDIC has indicated a willingness to decrease the special assessment to 10 basis points under certain circumstances concerning the overall financial health of the insurance fund. Special assessments of 10 and 20 basis points would result in additional expense to the Company of approximately $293,000 to $586,000, respectively. The interim rule also allows for additional special assessments.

On October 14, 2008, the FDIC announced a new program — the Temporary Liquidity Guarantee Program (“TLGP”). This program has two components. One guarantees newly issued senior unsecured debt of the participating organizations, up to certain limits established for each institution, issued between October 14, 2008 and June 30, 2009. The FDIC will pay the unpaid principal and interest on an FDIC-guaranteed debt instrument upon the uncured failure of the participating entity to make a timely payment of principal or interest in accordance with the terms of the instrument. The guarantee will remain in effect until June 30, 2012. On February 27, 2009, the FDIC issued an interim rule allowing participants to apply to have the FDIC guarantee newly issued senior unsecured debt that mandatorily converts into common shares on a specified date that is on or before June 30, 2012. In return for the FDIC’s guarantee, participating institutions will pay the FDIC a fee based on the amount and maturity of the debt. The Company has opted not to participate in this component of the TLGP. The other component of the program provides full FDIC insurance coverage for non-interest bearing transaction deposit accounts, regardless of dollar amount, until December 31, 2009. An annualized 10 basis point assessment on balances in noninterest-bearing transaction accounts that exceed the existing deposit insurance limit of $250,000 will be assessed on a quarterly basis to insured depository institutions participating in this component of the TLGP. The Company has chosen to participate in this component of the TLGP. The additional expense related to this coverage is not expected to be significant for either of the Banks.

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 former Federal Savings and Loan Insurance Corporation. The bonds issued by the FICO are due to mature in 2017 through 2019. For the quarter ended September 30, 2008, the annualized FICO assessment was equal to 1.12 basis points for each $100 in 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.

Written Agreement

On October 1, 2008, the Company’s wholly owned subsidiary, The Adams National Bank (the “Bank”), entered into a written agreement with its primary regulator, The Office of the Comptroller of the Currency (the “OCC”). Under the terms of the written agreement, the Bank has agreed to take certain actions relating to the Bank’s lending operations and capital compliance. Specifically, the OCC is requiring the Bank to take the following actions:

a) conduct a review of senior management to ensure that these individuals can perform the duties required under the Bank’s policies and procedures and the requirements of the written agreement, and where necessary, the Bank must provide a written program to address the training of the Bank’s senior officers;

b) achieve certain regulatory capital levels, which are greater than the regulatory requirements to be “well capitalized” under bank regulatory requirements by October 31, 2008. In particular, the Bank must achieve a: 12% total risk-based capital to total risk-weighted assets ratio; 11% Tier 1 capital to risk-weighted assets ratio; and 9% Tier 1 capital to adjusted total assets ratio;

c) develop and implement a three-year capital program;

d) make additions to the allowances for loan and lease losses and adopt and implement written policies and procedures for establishing and maintaining the allowance in a manner consistent with the written agreement;

e) adopt and implement an asset diversification program consistent with OCC guidelines and to perform an analysis of the Bank’s concentrations of credit;

f) take all necessary actions to protect the Bank’s interest in criticized assets, adopt and implement a program to eliminate regulatory criticism of these assets, engage in an ongoing review of the Bank’s criticized assets and develop and implement procedures for the effective monitoring of the loan portfolio;

g) hire an independent appraiser to provide a written or updated appraisal of certain assets;

h) develop and implement a program to improve the management of the loan portfolio and to provide the Board with monthly written reports on credit quality;

i) employ a consultant to perform a quarterly quality review of the Bank’s assets;

j) revise the Bank’s lending policy in accordance with OCC requirements; and

k) maintain acceptable liquidity levels.

The written agreement includes time frames to implement the foregoing and on-going compliance requirements for the Bank, including requirements to report to the OCC. The written agreement also requires the Bank to establish a committee of the Board of Directors which will be responsible for overseeing compliance with the written agreement.

The Bank has taken steps to comply with the requirements of the written agreement. At December 31, 2008, ANB’s capital ratios did not conform to the Written Agreement. See Note 16 in the Notes to the Consolidated Financial Statements filed as Exhibit 13 to the Form 10-K.

Restrictions on Transfers of Funds to the Company by the Banks

The Company is a legal entity separate and distinct from the Banks. The Company’s 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 bank’s 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. Pursuant to the terms of the Written Agreement, Adams National Bank may not make any capital distributions to the Company without written approval from the OCC.

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 Bank’s capital and surplus (as defined by federal regulations) and such secured loans and investments are limited, in the aggregate, to 20% of the Bank’s 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 organization’s 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.

A banking organization’s 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. Pursuant to the terms of the Written Agreement, Adams National Bank is required to maintain a total risk-based capital ratio of 12%, a Tier 1 risk-based capital ratio of 11%, and a leverage ratio of at least 9% in order to be considered “adequately capitalized”.

The current risk-based capital ratio analysis establishes minimum supervisory guidelines and standards. It does not evaluate all factors affecting an organization’s 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) management’s 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 organization—risk of loss stemming from movements in market prices—is not evaluated under the current risk-based capital ratio analysis (and is therefore analyzed by the bank regulators through a general assessment of an organization’s 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.

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 company’s 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.

Sarbanes-Oxley also increases the oversight of, and codifies certain requirements relating to audit committees of public companies and how they interact with the company’s “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 company’s registered public accounting firm is prohibited from performing statutorily mandated audit services for a company if such company’s 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 company’s 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 SEC’s requirement that auditors must provide an attestation of management’s 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 Company’s plans, expectations and unknown outcomes.

The Company’s 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 Company’s operations, markets, products, services and prices.

Item 1A. Risk Factors.

The Company experienced a net loss for the year ended December 31, 2008, the first net loss in the history of the Company.

We realized a net loss of $5.8 million for 2008, compared to net income of $3.1 million for 2007. The net loss was the direct result of an $11.8 million charge to the provision for loan losses. The loan loss reserve is the amount required to maintain the allowance for loan losses at an adequate level to absorb probable loan losses. The increase in the provision for loan losses is primarily attributable to our condominium and condo tenant association construction and multi-family residential real estate loan portfolios, which continue to experience deterioration in estimated collateral values and repayment abilities, where repayment is dependent upon the sale of condominium units. Other reasons for the increase in the provision for loan losses are attributable to an overall increase in nonperforming assets and the continuing general weakening of the economic conditions and decline in real estate values in the markets served by the Company.

Abigail Adams National Bancorp, Inc.’s Commercial Real Estate and Commercial Business Loans Expose it to Increased Lending Risks.

Our financial condition may be affected by a decline in the value of the real estate securing our loans. Real estate values have recently been declining in our market, which may affect our financial condition. If we continue to receive updated appraisals revealing significant additional weakness in our collateral, it will likely result in further losses. At December 31, 2008, the Company’s portfolio of commercial real estate loans totaled $163.2 million, and commercial business loans totaled $43.7 million. These two categories of loans represent 63.7% of the Company’s loan portfolio. The Company has curtailed 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 Company’s 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.

Abigail Adams National Bancorp, Inc.’s Current Concentration of Loans in its Primary Market Area May Increase its Risk.

The Company’s 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 Company’s control would impact these local economic conditions and could negatively affect the financial results of its banking operations.

During 2008, there has been a decline in the housing market and real estate markets and in the general economy, both nationally and locally, due to the recession that began in December 2007. Housing markets have deteriorated throughout 2008 and through the present day, as evidenced by reduced levels of sale, increasing inventories of houses and condominiums on the market, declining house prices and an increase in the length of time houses remain on the market. It is possible that these conditions will not improve or will worsen or that such conditions will result in a decrease in our interest income, an increase in our non-performing loans, and an increase in our provision for loan losses.

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 Company’s 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 operating results will be adversely affected.

The Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s results of operations and financial condition are significantly affected by changes in interest rates. The Company’s 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, 2008, the Company’s 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.

Changes in interest rates also affect the value of the Company’s interest-earning assets, and in particular the Company’s securities portfolio. Generally, the value of securities fluctuates inversely with changes in interest rates. At December 31, 2008, the Company’s available for sale securities totaled $62.8 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 Company’s 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 Company’s 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 and the ANB Written Agreement with the OCC.

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 bank’s 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 Company’s 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 Company’s business, financial condition or prospects.

If the Banks’ current capital ratios decline below the regulatory threshold for an “adequately capitalized” institution, the Banks’ will be considered “undercapitalized” which will have a material and adverse effect on the Company.

CBT has met the requisite capital ratios to be considered “well capitalized”. ANB can not be considered “well capitalized” while under the Written Agreement dated October 1, 2008, and must maintain the following capital levels: total risk based capital equal to 12% of risk-weighted assets; tier 1 capital at least equal to 11% of risk-weighted assets; and tier 1 capital at least equal to 9% of adjusted total assets. At December 31, 2008, ANB was considered to be “adequately capitalized” , however ANB’s capital ratio levels did not comply with those required by the Written Agreement. For the capital ratios of each Bank and that of the consolidated Company at December 31, 2008 and 2007 see tables in Note 16 to the Company’s consolidated financial statements.

The Federal Deposit Insurance Act (FDIA) requires each federal banking agency to take prompt corrective action with respect to banks that do no meet the minimum capital requirements. Once a bank becomes undercapitalized, it is subject to various requirements and restrictions, including a prohibition of the payment of capital distributions and management fees, restrictions on growth of the bank’s assets, and a requirement for prior regulatory approval of certain expansion proposals. In addition, an undercapitalized bank must file a capital restoration plan with its principal federal regulator.

If an undercapitalized bank fails in any material aspect to implement a plan approved by its regulator, the agency may impose additional restrictions on the bank. These include, among others, requiring the recapitalization or sale of the bank, restrictions with affiliates, and limiting the interest rates the bank my pay on deposits. Further, even after the bank has attained adequately capitalized status, the appropriate federal agency may, if it determines, after notice and hearing, that the bank is in an unsafe or unsound condition or has not corrected a deficiency from its most recent examination, treat the bank as if it were undercapitalized and subject the bank to the regulatory restrictions of such lower classification.

In addition to measures taken under the prompt corrective action provisions with respect to undercapitalized institutions, insured banks and their holding companies may be subject to potential enforcement actions by their regulators for unsafe and unsound practices in conducting their business or the violations of law or regulation, including the filing of false or misleading regulatory reports. Enforcement actions under this authority may include the issuance of cease and desist orders, the imposition of civil money penalties, the issuance of directives to increase capital, formal and informal agreements, or the removal and prohibition orders against “institution-affiliates parties”. Further, the Federal Reserve may bring an enforcement action against the bank holding company either to address the undercapitalization in the holding company or to require the holding company to implement measures to remediate undercapitalization in a subsidiary. It is possible that if ANB realizes losses over the next few quarters, ANB may fall into the “undercapitalized” regulatory classification, which would have a material and adverse effect on the bank and the Company.

The Company’s Expenses Will Increase As A Result Of Increases in FDIC Insurance Premiums.

On December 22, 2008, the FDIC published a final rule raising the current deposit insurance assessment rates uniformly for all institutions by seven basis points (to a range from 12 to 50 basis points) for the first quarter of 2009. On February 27, 2009, the FDIC issued a final rule changing the way that the FDIC calculates federal deposit insurance assessment rates beginning in the second quarter of 2009. Additionally, the FDIC issued an interim rule that would impose a special 20 basis points assessment on June 30, 2009, which would be collected on September 30, 2009. For more information on FDIC assessments, see “Regulation and Supervision—FDIC Insurance on Deposits”.

ANB is no longer considered “well capitalized” for regulatory capital purposes, which will cause the Bank to incur increased premiums for deposit insurance and require FDIC approval to gather brokered deposits including CDARS reciprocal deposits.

As of the date of the Written Agreement with the OCC, October 1, 2008, ANB is not considered “well capitalized” for regulatory purposes. As a result, the FDIC will assess higher deposit insurance premiums on ANB, which will negatively impact earnings. In addition, we will be required to obtain FDIC approval to gather or renew brokered deposits including CDARS reciprocal deposits, during such time as we remain “adequately capitalized” for regulatory purposes. Requiring us to obtain regulatory approval prior to accepting or renewing brokered deposits will affect our ability to improve our liquidity position.

ANB’s capital ratios will likely restrict our ability to grow our balance sheet as we have in the past, which could adversely affect our results of operations, financial condition, and liquidity.

The net loss in 2008 has reduced our stockholders’ equity. If we experience additional losses in the future, it will likely restrict our ability to grow the balance sheet as we have in the past. Accordingly, ANB’s short term strategy is to manage our credit quality and strengthen, rather than grow, our balance sheet. If our credit quality continues to deteriorate, additional decreases to stockholders’ equity may occur. Any future growth may subject ANB to risk that such growth, absent an increase in ANB regulatory capital, would cause ANB to remain below the minimum requirements to be considered “adequately capitalized”. If we are not able to grow our assets, our results of operations, financial condition and liquidity may be adversely affected.

Our business is subject to liquidity risk, and changes in our source of funds may adversely affect our performance and financial condition by increasing out cost of funds.

Our ability to make loans is directly related to our ability to secure funding. Core deposits are our primary source of liquidity. We rely on advances from the FHLB of Atlanta as a funding source. Beginning in the third quarter of 2008, ANB did not have access to purchase federal funds under agreements from other correspondent banks and it is possible that ANB will continue to not have access to purchase federal funds while under the Written Agreement with the OCC.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

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 ATM’s 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.		2014
Union Station ATM		2009
Union Station ATM		2009
802 7th Street, N.W.		2012
1729 Wisconsin Avenue, N.W.		2013
1604 17^th Street, N.W.		2016
1130 Connecticut Avenue, N.W.		2012
8121 Georgia Avenue		2013
1627 K Street, N. W.		2012
5214 Chamberlayne Avenue		2009

In 2008, the Company and the Banks incurred rental expense on leased real estate of approximately $1.2 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, 2008, 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 (other than the Written Agreement) 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.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

The Company’s 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 Company’s Common Stock for the prior eight calendar quarters and is based upon information provided by the Nasdaq Global Market.


	Prices of Common Stock
	High		Low		Dividends Paid
Calendar Quarter Ended

March 31, 2008	$	11.85	$	10.15	$	0.125
June 30, 2008		11.50		9.20		0.125
September 30, 2008		8.95		5.29		—
December 31, 2008		6.28		2.51		—
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

As of April 14, 2009, the Company had 834 shareholders of record, and there were 3,463,569 shares outstanding. Please see “Item 1. Business—Supervision and Regulation—Restrictions 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 2008.

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

(excluding securities

warrants and rights.

and 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

8,062

5.21

—

Total

8,062

5.21

178,218

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 Company’s 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, 2008, 20,676 options have been exercised and 1,512 options have been forfeited in the 2000 Stock Option Plan.

The Company sponsors a Nonqualified Stock Option Plan, originally adopted in 1987, and amended in 1989, pursuant to which non-statutory stock options for up to 170,156 shares, as adjusted, of the Company’s common stock can be awarded to officers of the Company. Since its inception in 1987, no awards have been made under the Nonqualified Stock Option Plan.

The stock performance graph, is found in the Notes to the Consolidated Financial Statements which are filed in Exhibit 13 of the Form 10-K.

Item 6. Selected Financial Data.

See the Management Discussion and Analysis in Exhibit 13 of the Form 10-K.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The Management’s Discussion and Analysis of Financial Condition and Results of Operations is incorporated by reference in Exhibit 13 of the Form 10-K.

Item 7a. Quantitative and Qualitative Disclosures About Market Risk.

For information regarding market risk, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations which is incorporated by reference in Exhibit 13 of the Form 10-K.

Item 8. Financial Statements and Supplementary Data.

The Financial Statements identified in Item 15(a)(1) hereof are included in Exhibit 13 of the Form 10-K.

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) Management’s Report on Internal Control Over Financial Reporting

Management’s 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 Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s 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 2008 or, to our knowledge, in other factors that has materially affected or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

See the Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Item 9B. Other Information.

None

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

The Company has adopted a Code of Ethics that applies to the Company’s 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 Company’s website at www.adamsbank.com.

Our Board of Directors is currently composed of eight members. Our bylaws provide that all directors are elected annually.

The table below sets forth certain information regarding the composition of our Board of Directors.


Name	Age(1)		Positions Held	Since
A. George Cook		75	Director		1998
Marshall T. Reynolds		72	Director		1995
Joseph L. Williams		64	Director		1998
Douglas V. Reynolds		33	Director		2002
Sandra C. Ramsey		48	Director		2006
Todd Shell		40	Director		2008
David Bradley		58	Director		2008
Robert W. Walker		62	President and		2008
			Chief Executive Officer


(1)		As of December 31, 2008.

The principal occupation during the past five years of each director and executive officer is set forth below. All directors and executive officers have held their present positions for five years unless otherwise stated.

A. George Cook is the Principal of George Cook & Co., Senior Fellow of the School of Public Policy at George Mason University, and Chairman Emeritus and retired Chief Executive Officer of Colonial Parking, Inc. Mr. Cook is currently a director of the Classica-Seneca Theater Company and a regional Board Member of the Sorenson Institute, University of Virginia. Mr. Cook is a former Chair of the National Policy Council of the Urban Land Institute, director and past Executive Committee member of the Greater Washington Board of Trade and member and past Chairman of the Board of the National Parking Association. He is a past Board Member of the Girl Scouts of the USA, a former member of the City Council of the City of Alexandria and a former Chairman of the Commission of Local Government for the Commonwealth of Virginia. Mr. Cook is a former member of the Board of Visitors of George Mason University and a former Vice Chairman of the Virginia State Electoral Board. He is a graduate of the George Washington University.

Sandra C. Ramsey is the Senior Vice President of Finance and Treasurer for Acosta, Inc., a sales, service and marketing company for major consumer product manufacturers and retailers. Mrs. Ramsey joined Acosta as Corporate Controller in February 1998. Mrs. Ramsey is a Certified Public Accountant with over 20 years of experience in accounting and finance. Mrs. Ramsey is a Member of the Board of Directors and President of Leadership Jacksonville and Treasurer of the Early Learning Coalition of Duval County. Mrs. Ramsey is a graduate of West Virginia University.

Marshall T. Reynolds is the Chairman of the Board, President and Chief Executive Officer of Champion Industries, Inc., a holding company for commercial printing and office products companies, a position he has held since 1992. Mr. Reynolds became Chairman of the Board of Premier Financial Bancorp in Huntington, West Virginia in 1996. In addition, Mr. Reynolds is Chairman of the Board of First Guaranty Bancshares, Inc. in Hammond, Louisiana, and Portec Rail Products, Inc. in Pittsburgh, Pennsylvania and a director of Summit State Bank. He also is the Chairman of the Board of Energy Services of America Corp. From 1964 to 1993, Mr. Reynolds was President and Manager of The Harrah and Reynolds Corporation (predecessor to Champion Industries, Inc.). From 1983 to 1993, he was Chairman of the Board of Banc One, West Virginia Corporation (formerly Key Centurion Bancshares, Inc.). Mr. Reynolds has served as Chairman of The United Way of the River Cities, Inc. and Boys and Girls Club of Huntington. Mr. Reynolds is the father of Director Douglas V. Reynolds.

Douglas V. Reynolds is an attorney for Reynolds & Brown, PLLC. Mr. Reynolds is the President of the Transylvania Corporation and is Chairman of C. J. Hughes Construction Company, and a director of The Harrah and Reynolds Corporation, and Portec Rail Products, Inc. Mr. Reynolds is a graduate of Duke University and holds a law degree from West Virginia University. Mr. Reynolds is the son of Director Marshall T. Reynolds.

Joseph L. Williams is a director of the Company and The Adams National Bank since 1995 and the Chairman, President and CEO of Consolidated Bank & Trust Company since February 2007. He is the Chairman and Chief Executive Officer of Basic Supply Company, Inc., which he founded in 1977. Mr. Williams was one of the organizers and is a director of First Sentry Bank, Huntington, West Virginia. Mr. Williams is a member of the West Virginia Governor’s Workforce Investment Council. He is a former director of Unlimited Future, Inc., a small business incubator, and a former Member of the National Advisory Council of the United States Small Business Administration. Mr. Williams is a former Mayor and City Councilman of the City of Huntington, West Virginia. He is a graduate of Marshall University with a degree in finance and is a former member of its Institutional Board of Governors.

Philip Todd Shell, is the Chief Investment Officer of Guyan Machinery Rebuilders and Caspian Holdings of Delaware, and is a director of Guyan Machinery Company, Portec Rail Products, Inc., St. Mary’s Medical Foundation, Consolidated Bank & Trust Company, Hospice of Huntington, Huntington Museum of Art, West Virginia Education Alliance, Marshall University Business Scholl, and United Way of the River Cities. Mr. Shell became a director of the Company in 2008 and is a member of the Audit Committee of the Company. He beneficially owns 2,320 shares of Company common stock.

David Bradley, has served as a director of The Adams National Bank since June of 2002, and as Director of the Company since November 2008. Mr. Bradley is the Founder and Executive Director of the National Community Action Foundation, a private, non-profit advocacy organization that represents a network of 1,100 community action agencies. Mr. Bradley is also the Chief Executive Officer of each of the National Workforce Association and USAWorks!, organizations that advocate for, and assist in the development of, job training systems in the United states. Mr. Bradley beneficially owns over 300 shares of Company common stock.

Robert W. Walker, is Chairman, President and Chief Executive Officer of the Company and is a Director of the Company and the Bank, positions he has held since September 2008. Mr. Walker serves as the President, Chief Executive Officer and Director of Premier Financial Bancorp, Inc. in Huntington, West Virginia and is a director of its wholly owned subsidiaries. Mr. Walker has held that position since October 2001. From September 1998 until October 2001, Mr. Walker was President of Boone County Bank, Inc. Prior to that time, Mr. Walker was a Regional Vice President at Bank One, West Virginia, N.A. Mr. Walker was also appointed as Acting Interim President and Chief Executive Officer of the Bank. The appointment was made subject to the authority of the Comptroller of the Currency to issue a notice of disapproval.

Executive Officers who are not Directors:

Karen E. Troutman, age 61, is our Senior Vice President and Chief Financial Officer of Abigail Adams National Bancorp and The Adams National Bank since 1998. Mrs. Troutman has over 30 years of experience in the financial services industry in the areas of financial management and accounting. Mrs. Troutman’s prior work experience included over twenty years at Household International (now HSBC) in the capacity of Division Controller for Household Bank and at the corporate headquarters in the Treasury Department serving in various management positions. Mrs. Troutman holds a Masters Degree from The Johns Hopkins University.

Item 11. Executive Compensation

Personnel Committee

The Personnel Committee reviews the performance of named executive officers, as well as other officers and employees, and determines the compensation programs of these individuals. Directors Cook and Shell comprise the Personnel Committee. Mr. Cook and Mr. Shell are independent and neither has ever been an officer or employee of us or any of our subsidiaries. The Personnel Committee met two times during 2008 to determine compensation and to review compensation programs.

The Board of Directors has appointed a Personnel Committee which administers the compensation program. The Committee strives to offer a fair and competitive policy to govern named executive officers’ base salaries and an incentive plan and to attract and retain competent, dedicated, and ambitious managers whose efforts will enhance our products and services and our subsidiary banks, resulting in higher profitability, increased dividends to our stockholders and appreciation in our common stock.

The elements of the compensation are base salary and a bonus plan. As each element of compensation is intended to accomplish a specific goal, payments under one element are not taken into account when determining the amount paid under a different element.

The compensation of the named executive officers is reviewed and approved annually by the Board of Directors upon the recommendation of the Personnel Committee. The Personnel Committee considers the views and recommendations of our Chief Executive Officer in making the compensation decisions affecting the executive officers who report to him. The Chief Executive Officer’s role in recommending compensation programs is to develop and recommend appropriate performance measures and targets for individual compensation levels and compile competitive benchmark data to assess the competitive labor market. The Chief Executive Officer does not participate in the decisions regarding changes in his compensation.

Summary Compensation Table

We do not provide any monetary compensation directly to our executive officers. Instead, the executive officers are paid by the lead bank, The Adams National Bank, for services rendered in their capacity as executive officers of Abigail Adams National Bancorp, Inc. and the Adams National Bank. The following table shows the compensation of Jeanne D. Hubbard, our principal executive officer until September 4, 2008, Robert Walker, our principal executive officer from September 4, 2008 through year end, and our two highest compensated executive officers who received total compensation of $100,000 for services to us or any of our subsidiaries during the years ended December 31, 2008, 2007 and 2006.

Summary Compensation Table


													Change in
													pension
													value and
													non-qualified
											Non-equity		deferred		All other
							Stock		Option		incentive plan		compensation		compensation
Name and			Salary		Bonus		awards		awards		compensation		earnings		($)		Total
Principal Position	Year		($)		($)		($)		($)		($)		($)		(1)(2)(3)		($)

Jeanne D. Hubbard		2008		146,667		—		—		—		—		—		21,717		168,383
Chairwoman of the		2007		218,333		25,000		—		—		—		—		30,883		274,216
Board, President and		2006		205,500		—		—		—		—		—		24,020		229,520
Chief Executive Officer through September 4, 2008
Robert Walker		2008		52,500		—		—		—		—		—		5,867		57,846
President, Chief Executive Officer and Director
Karen E. Troutman		2008		176,021		15,000		—		—		—		—		18,446		209,467
Senior Vice President		2007		168,333		25,000		—		—		—		—		18,178		211,511
and Chief Financial Officer		2006		155,000		20,000		—		—		—		—		17,185		192,185
John P. Shroads, Jr.		2008		136,000		—		—		—		—		—		16,815		152,815
Senior Vice President		2007		134,333		20,000		—		—		—		—		15,107		169,440
		2006		123,500		15,000		—		—		—		—		5,195		143,695


(1)		Includes Board of Director fees of $10,250 paid in 2008, $13,750 paid in 2007 and $13,000 in 2006 to Ms. Hubbard.

(2)		Includes The Adams National Bank’s matching contribution to the 401(k) plan accounts for Ms. Hubbard of $5,867 in 2008, $8,733 in 2007 and $8,220 in 2006; for Ms. Troutman of $7,041 in 2008, $6,733 in 2007 and $5,950 in 2006; and for Mr. Shroads of $5,440 in 2008, $5,107 in 2007 and $2,495 in 2006.

(3)		Includes parking and automobile allowances of $5,600 in 2008, $8,400 in 2007 and $2,800 in 2006 for Ms. Hubbard; and $11,405 in 2008, $11,445 in 2007 and $11,235 in 2006 for Ms. Troutman, and $11,375 in 2008, $10,000 in 2007 and $2,700 in 2006 for Mr. Shroads. Includes apartment rent of $5,867 in 2008 for Mr. Walker.

Benefit Plans

The banks offers a KSOP, an employee stock ownership plan with 401(k) provisions to all eligible employees. Participants may make pre-tax and after-tax contributions to the 401(k) up to the maximum allowable under Federal regulations. We match the pre-tax employee participant’s contributions at a rate of 100% of the first 3% of the employee’s qualifying salary and 50% up to the next 2% of salary. The employee stock ownership plan is a non-leveraged employee stock ownership plan and is a profit sharing plan based upon the earning performance of Abigail Adams National Bancorp, Inc. In addition, the Board of Directors may elect to pay a discretionary contribution on an annual basis. The employee stock ownership plan awards vest at the end of the third year. There were no awards in 2008, 2007 or 2006. At December 31, 2008, the employee stock ownership plan held 53,760 shares of our common stock.

Health insurance, group life insurance, and group disability insurance are available to all eligible employees and executive officers. All employees may elect to participate in voluntary dental and vision plans. Such plans are standard in the banking industry. These plans are not tied to our performance or individual performance. The cost of providing such plans to all eligible employees and executive officers is not taken into account when determining specific salaries of the named executive officers and is seen as a cost of doing business.

Pension Benefits

We assumed the obligations of Consolidated Bank & Trust Company’s noncontributory defined pension plan, as a result of the acquisition of Consolidated Bank & Trust Company on July 29, 2005. Pension benefits vest after five years of service, and were based on years of service and average final salary. During 1997, Consolidated Bank & Trust Company froze the accrual of future service benefits; however, benefits continued to accrue for future compensation adjustments. In 2003, the compensation levels were frozen for benefit calculation purposes. The defined benefit plan maintained a September 30 year end for computing benefit obligations. The Consolidated Bank & Trust Company Pension Plan terminated effective March 31, 2007 and was fully distributed in 2008. We have no other pension plans. The named executive officers do not participate in this plan.

Deferred Compensation

We do not offer a nonqualified deferred compensation plan.

Plan-Based Awards

We have two stock option plans for directors and key employees. A Nonqualified Stock Option Plan was originally adopted in 1987, and amended in 1989, pursuant to which non-statutory stock options for up to 170,156 shares, as adjusted, of our common stock can be awarded to our officers. Since its inception in 1987, no awards have been made under this Nonqualified Stock Option Plan. The 2000 Stock Option Plan, originally adopted in February 2000, is a nonqualified stock option plan that was awarded to directors and key officers, and has 8,062 shares under option outstanding. The options in the 2000 Plan were awarded at 90% of the fair market value of our common stock at the date of the grant and vested over three years. No options may be exercised beyond ten years from the date of the grant. There were no plan-based awards in 2008.

Outstanding Equity Awards at Year End

The following table sets forth information with respect to our outstanding equity awards for the 2000 Stock Option Plan as of December 31, 2008 for our named executive officers. No awards were made to Mr. Walker in 2008.

Outstanding Equity Awards at Fiscal Year-End

Option awards

Equity incentive

Number of

plan awards:

securities

number of

underlying

securities

Option

unexercised options

unexercised

underlying

exercise

expiration

(#) exercisable

options (#)

unexercised earned

price ($)

date

Name

(i)

unexercisable

options (#)

(i)

Jeanne D. Hubbard

—

Chairwoman of the Board,
President and Chief
Executive Officer,
through Sept. 4, 2008

Robert W. Walker

—

Chairman of the Board,
President and Chief
Executive Officer

Karen E. Troutman

3,025

—

5.21

2/15/2010

Senior Vice President and
Chief Financial Officer

John P. Shroads, Jr.

—

Senior Vice President


(i)		Includes options outstanding from the 2000 Directors and Officers Stock Option Plan. All options were fully vested on February 15, 2003. No options were exercised during 2008 by the named executive officers listed in the table above.

Payments Made Upon a Change of Control

Abigail Adams National Bancorp, Inc. and the Adams National Bank entered into Change of Control Agreements with Ms. Troutman on September 19, 2000. This agreement was amended in 2008 to comply with the requirements of IRS Code 409A. Pursuant to this agreement, if an executive officer’s employment is terminated following a change in control, the executive officer will receive severance pay in addition to regular pay, vacation pay and retirement benefits accrued through the date of termination and in addition to the continuation of health and pension benefits to the extent required by law:

Generally, pursuant to this agreement, the term “change in control” shall mean:

	(i)		any transaction or series of related transactions by which either Abigail Adams National Bancorp, Inc. or the Adams National Bank merge or are consolidated with another company, unless the stockholders of Abigail Adams National Bancorp, Inc. and the Adams National Bank, as the case may be, immediately before such event hold at least 80% of the outstanding voting stock of the surviving entity thereafter; or

	(ii)		the sale or other transfer of more than 50% of Abigail Adams National Bancorp, Inc. and the Adams National Bank assets in a single transaction or series or related transactions out of the ordinary course of business; or

	(iii)		any change in the membership of the Board of Directors in any two-year period such that those who constitute the Board at the beginning of such period are now less than a majority of the Board; or

	(iv)		any person shall become the beneficial owner of more than 50% of the voting stock of Abigail Adams National Bancorp, Inc. as a result of a tender or exchange offer, open market purchases, privately negotiated purchases or otherwise; or

	(v)		the occurrence of any other event that either Abigail Adams National Bancorp, Inc. or the Adams National Bank is or would be, if subject to Securities and Exchange Commission regulation, required to report as a change in control pursuant to Item 6 of Schedule 14A of Securities and Exchange Commission Regulation 14A.

As of December 31, 2008, the potential payment upon a Change in Control for the Chief Financial Officer, Ms. Troutman, would be $104,250.

Payments Made Upon Termination

Other than discussed above for payments under a change in control, the named executive officers would not receive any payments of any kind upon termination, except for accrued vacation, from Abigail Adams National Bancorp, Inc. or The Adams National Bank at December 31, 2008. The accrued vacation payments due the executive officers at December 31, 2008 are as follows: Mr. Walker $3,750, Ms. Troutman $3,719 and Mr. Shroads $2,833.

Directors’ Summary Compensation Table

The following table summarizes the total non-employee director compensation earned for services in 2008. Fees paid are for the Abigail Adams National Bancorp’s and the subsidiary banks’ board and committee meetings.

Director Compensation


									Change in
									pension
									value and
									non-qualified
							Non-equity		deferred
	Fees earned		Stock		Option		incentive plan		compensation		All other
	or paid in		awards		awards		compensation		earnings		compensation		Total
Name	cash ($)		($)		($)		($)		($)		($)		($)

A. George Cook		30,900		—		—		—		—		—		30,900
Sandra C. Ramsey		15,750		—		—		—		—		—		15,750
Marshall T. Reynolds		18,650		—		—		—		—		—		18,650
Douglas V. Reynolds		20,100		—		—		—		—		—		20,100
Patricia G. Shannon (1)		18,150		—		—		—		—		—		18,150
Marianne Steiner (1)		8,450		—		—		—		—		—		8,450
Bonita A. Wilson (1)		6,150		—		—		—		—		—		6,150
Todd Shell		25,350		—		—		—		—		—		25,350
David Bradley		19,450		—		—		—		—		—		19,450


(1)		Ms. Shannon, Ms. Steiner, and Ms. Wilson resigned from the Board of Directors on November 4, 2008, June 30, 2008, and June 01, 2008, respectively

During 2008, each director received $250 for each meeting of the Board of Directors, $1,000 for each meeting of the Adams National Bank’s Board of Directors, $350 for each meeting of Consolidated Bank & Trust Company’s Board of Directors, $200 for each Executive Committee meeting and $100 for all other committee meetings attended by such director.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Persons and groups who beneficially own in excess of five percent of our common stock are required to file certain reports with the Securities and Exchange Commission regarding such ownership pursuant to the Securities Exchange Act of 1934. The following table sets forth, as of December 31, 2008, the shares of common stock beneficially owned by directors and executive officers individually, by executive officers and directors as a group, and by each person who was the beneficial owner of more than five percent of our outstanding shares of common stock on the record date. The business address of each director is 1130 Connecticut Avenue, NW, Suite 200, Washington, DC 20036. None of the shares beneficially owned by directors or executive officers have been pledged as security or collateral for any loans.


	Number of Shares			Percent of All
Name of	Of Common Stock			Common Stock
Beneficial Owner	Beneficially Owned			Outstanding

Shirley A. Reynolds		596,481	⁽¹⁾⁽²⁾		17.2	%
PO Box 4040 Huntington, WV
P.S. D’Iberville Limited Partnership		262,400	⁽³⁾		7.6	%
1720 Harrison Street Hollywood, FL
Directors and Executive Officers:
A. George Cook		4,766			*
Sandra C. Ramsey		4,142			*
Douglas V. Reynolds		56,718			1.6	%
Marshall T. Reynolds		373,149	⁽¹⁾⁽²⁾		10.8	%
Karen E. Troutman		3,328	⁽⁴⁾		*
Joseph L. Williams		2,327			*
Todd Shell		5,511			*
David Bradley		300			*
Robert Walker		9,398			*
All directors and executive officers as a group (10) persons		459,639			13.2	%


*		Less than 1%

(1)		Based upon Amendment No. 4 to Schedule 13D dated March 11, 1998, filed on behalf of Marshall T. Reynolds, Shirley A. Reynolds, Thomas W. Wright, Deborah P. Wright, Robert L. Shell Jr., and Jeanne D. Hubbard.

(2)		Marshall T. Reynolds and Shirley A. Reynolds share voting and dispositive power with respect to 369,606 shares owned jointly.

(3)		Based upon the amended Schedule 13D dated August 19, 2008 filed on behalf of P.S. D’I’berville Limited Partnership which consists of P.S. Development, Inc., the general partner and limited partners who consist of Fred and Sara Chikovsky, Lakota Group Limited Partnership, Ronald and Maria Temkin, Mark J. Temkin Revocable Trust No. 1, and Temkin Investments, L.P. P.S. Development, Inc. has sole voting and dispositive power over all the shares.

(4)		Reflects vested options to purchase 3,025 shares of common stock granted to Ms. Troutman under the 2000 Stock Option Plan.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Affirmative Determinations Regarding Director Independence and Other Matters

The Board of Directors has reviewed each director’s relationships, both direct and indirect, with Abigail Adams National Bancorp, Inc. and its subsidiaries, the Adams National Bank and Consolidated Bank & Trust Company, and the compensation and other payments, if any, each director has received from or made to Abigail Adams National Bancorp, Inc. and its subsidiaries in order to determine whether such director qualifies as independent under Rule 4200(a)(15) of the Marketplace Rules of The NASDAQ Stock Market, Inc. The Board of Directors has determined that the Board of Directors has at least a majority of independent directors, and that each of the following directors has no financial or personal ties, either directly or indirectly, with Abigail Adams National Bancorp, Inc. or its subsidiaries other than compensation as a director of Abigail Adams National Bancorp, Inc. and its subsidiaries, banking relationships in the ordinary course of business with the subsidiary banks and ownership of Abigail Adams National Bancorp, Inc. common shares and thus qualifies as independent under the NASDAQ Marketplace Rules: A. George Cook, David Bradley, Todd Shell, Sandra Ramsey and Douglas V. Reynolds. There were no transactions required to be reported under “Transactions with Certain Related Persons” that were considered in determining the independence of our directors.

These five directors are referred to individually as an “Independent Director” and collectively as the “Independent Directors.” The Independent Directors constitute a majority of the Board of Directors.

The Board of Directors has also determined that each member of the Audit Committee of the Board meets the independence requirements applicable to that committee prescribed by the NASDAQ Marketplace Rules, the Securities and Exchange Commission and the Internal Revenue Service.

The Adams National Bank and Consolidated Bank & Trust Company intend that all transactions between the banks and their executive officers, directors, holders of 10% or more of the shares of any class of our common stock and affiliates thereof, will contain terms no less favorable to the banks than could have been obtained by them in arm’s-length negotiations with unaffiliated persons and will be approved by a majority of independent outside directors of the banks not having any interest in the transaction. Abigail Adams National Bancorp, Inc. and its subsidiary banks have had and expect to have in the future, banking transactions in the ordinary course of business with certain directors of Abigail Adams National Bancorp, Inc. and its subsidiary banks and their associates, as well as with corporations or organizations with which they are connected as directors, officers, stockholders, owners or partners. These banking transactions are made in the ordinary course of business, are made on substantially the same terms as those prevailing at Abigail Adams National Bancorp, Inc. and its subsidiary banks for comparable transactions with other persons, and do not involve more than the normal risk of collectibility or present other unfavorable features. During the year ended December 31, 2008, the Banks had no loans outstanding to directors and one to an executive officer totaling $69,000.

Related party transactions must be approved by the Board of Directors prior to any commitment by Abigail Adams National Bancorp, Inc. and its subsidiary banks to any such transactions. Directors do not participate in the discussions and are not present for voting on their own related party transaction. All of the material terms, conditions, and purpose of the transaction shall be in writing and provided to the Board of Directors, together with the written request for approval of any such transaction. The transaction shall be approved by the appropriate senior officer before being submitted to the Board for approval. Related party transactions for ongoing or continuing services can be reviewed and pre-approved within reasonable parameters by the Board of Directors on an as-needed basis. If the terms, pricing, or conditions change so as to go outside the parameters cited in the request, the transaction shall be resubmitted for review and approval after the fact.

Section 402 of the Sarbanes-Oxley Act of 2002 generally prohibits an issuer from: (1) extending or maintaining credit; (2) arranging for the extension of credit; or (3) renewing an extension of credit in the form of a personal loan for an officer or director. There are several exceptions to this general prohibition, one of which is applicable to us. Sarbanes-Oxley does not apply to loans made by a depository institution that is insured by the FDIC and is subject to the insider lending restrictions of the Federal Reserve Act. All loans to the banks’ directors and officers are made in conformity with Federal Reserve Act regulations.

Item 14. Principal Accountant Fees and Services.

Audit Fees. During the past two years the aggregate fees billed for professional services rendered by McGladrey & Pullen, LLP for the audit of our annual financial statements and for the review of our quarterly reports were $307,465 for 2008 and $189,150 for 2007.

Tax Fees. During the past two fiscal years the aggregate fees billed for professional services by McGladrey & Pullen, LLP for tax services were $16,350 for 2008 and $10,543 for 2007.

Audit Related Fees. During the past two years the aggregate fees billed for assurance and related services by McGladrey & Pullen, LLP were $30,270 for 2008 and $0 for 2007. These services pertain to the audit of employee benefit plans.

All Other Fees. During the past two years there were no fees billed for other products and services provided by McGladrey & Pullen, LLP.

Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services of Independent Auditor

The Audit Committee’s policy is to pre-approve all audit and non-audit services provided by the independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to particular service or category of services and is generally subject to a specific budget. The Audit Committee has delegated pre-approval authority to its Chair when expedition of services is necessary. The independent registered public accounting firm and management are required to periodically report to the full Audit Committee regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval, and the fees for the services performed to date. For the years ended December 31, 2008 and 2007, 100% of “Audit Fees” were approved under the pre-approval policy. All other services were approved by the Audit Committee prior to engagement.

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, 2008 and 2007

	•		Consolidated Statements of Income Years Ended December 31, 2008, 2007 and 2006

	•		Consolidated Statements of Changes in Shareholders’ Equity Years Ended December 31, 2008, 2007 and 2006

	•		Consolidated Statements of Cash Flows Years Ended December 31, 2008, 2007 and 2006

	•		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)

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		2008 Consolidated Financial Statements and Management Discussion and Analysis

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.


Exhibit
Number		Description of Exhibit

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 Company’s 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 Company’s Current Report on Form 8-K filed on October 22, 2008.

(4)		(reserved)

(5)		Incorporated by reference to Exhibits 1-3 to the Company’s Registration Statement on Form 8-A dated April 12, 1994.

(6)		Incorporated by reference to Exhibit 4 to the Company’s Registration Statement on Form 8-K/A dated April 21, 1995.

(7)		Incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-4 dated April 22, 2005.

(8)		Incorporated by reference to Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1996.

(9)		Incorporated by reference to Exhibit 10 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

(10)		Incorporated by reference to Exhibit 21 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

(b)

See the exhibits filed under Item 15(a)(3)

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: April 15, 2009	By:	/s/ Robert W. Walker
		Robert W. Walker

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/ Robert W. Walker

By:

/s/ Karen E. Troutman

Robert W. Walker
President and Chief Executive Officer

Karen E. Troutman, Principal Financial
and Accounting Officer

Date: April 15, 2009

By:

/s/ David Bradley

By:

/s/ A. George Cook

David Bradley, Director

A. George Cook, Director

Date: April 15, 2009

By:

/s/ Sandra C, Ramsey

By:

/s/ Douglas V. Reynolds

Sandra C. Ramsey, Director

Douglas V. Reynolds, Director

Date: April 15, 2009

By:

/s/ Marshall T. Reynolds

By:

/s/ Todd Shell

Marshall T. Reynolds, Director

Todd Shell, Director

Date: April 15, 2009

By:

/s/ Joseph L. Williams

Joseph L. Williams, Director

Date: April 15, 2009

EXHIBIT INDEX


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)

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		2008 Consolidated Financial Statements and Management Discussion and Analysis

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 Company’s 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 Company’s Current Report on Form 8-K filed on October 22, 2008.

(4)		(reserved)

(5)		Incorporated by reference to Exhibits 1-3 to the Company’s Registration Statement on Form 8-A dated April 12, 1994.

(6)		Incorporated by reference to Exhibit 4 to the Company’s Registration Statement on Form 8-K/A dated April 21, 1995.

(7)		Incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-4 dated April 22, 2005.

(8)		Incorporated by reference to Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1996.

(9)		Incorporated by reference to Exhibit 10 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2003.

(10)		Incorporated by reference to Exhibit 21 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.

(b)

See the exhibits filed under Item 15(a)(3)

EX-13 2 w73596exv13.htm EX-13 exv13

EXHIBIT 13

2008 Consolidated Financial Statements and Management Discussion and Analysis

EXHIBIT 13
ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARIES

CONTENTS



Selected Financial Data for Five-Year Period			1

Management’s Discussion and Analysis of Financial Condition and Results of Operations			2

Management’s Report on Internal Control over Financial Reporting			20

Summary of Operations by Quarter and Summary of Market Data			21

Report of Independent Registered Public Accounting Firm			22

Consolidated Balance Sheets			23

Consolidated Statements of Operations			24

Consolidated Statements of Changes in Stockholders’ Equity			25

Consolidated Statements of Cash Flows			26

Notes to Consolidated Financial Statements			28

Stock Performance Graph			58

ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(Dollars in thousands, except per share data)


	December 31,
	2008			2007			2006			2005⁽¹⁾			2004⁽¹⁾
Income Statement Data
Total interest income	$	25,302		$	30,251		$	26,145		$	18,461		$	13,829
Total interest expense		9,801			13,599			9,408			4,307			1,986
Net interest income		15,501			16,652			16,737			14,154			11,843
Provision (credit) for loan losses		11,822			260			(232	)		310			420
Total noninterest income		966			1,625			2,130			1,911			1,975
Total noninterest expense		14,549			13,862			13,107			10,240			7,415
(Benefit) provision for income taxes		(4,125	)		1,096			2,296			2,195			2,381
Net (loss) income		(5,779	)		3,059			3,696			3,320			3,602

Per Common Share Data
Basic net (loss) income per share		($1.67	)	$	0.88		$	1.07		$	0.98		$	1.09
Diluted net (loss) income per share		($1.67	)	$	0.88		$	1.07		$	0.98		$	1.08
Cash dividends	$	0.25		$	0.50		$	0.50		$	0.50		$	0.45

Selected Balance Sheet Data
Total assets	$	423,681		$	445,875		$	405,502		$	343,030		$	251,192
Investment securities		65,989			79,701			63,069			70,116			50,835
Loans		324,764			307,483			307,957			248,287			180,272
Allowance for loan losses		12,514			4,202			4,432			4,345			2,558
Deposits		346,961			386,942			363,590			292,032			215,367
Long-term debt		26,132			15,120			6,288			11,213			7,127
Stockholders’ equity		24,281			31,439			30,182			28,053			24,760

Selected Ratios
Return on average assets		(1.32	%)		0.69	%		0.99	%		1.15	%		1.55	%
Return on average stockholders’ equity		(19.14	%)		9.92	%		12.78	%		12.49	%		15.21	%
Average equity to average assets		6.89	%		6.95	%		7.77	%		9.17	%		10.18	%
Dividend payout ratio		(14.97	%)		56.82	%		46.89	%		51.02	%		41.28	%
Net charge-offs (recoveries) to average loans		1.07	%		0.16	%		(0.12	%)		(0.02	%)		(0.01	%)
Nonperforming assets to total loans		11.67	%		3.98	%		1.16	%		0.23	%		1.04	%
Allowance for loan losses to loans		3.85	%		1.37	%		1.44	%		1.75	%		1.42	%


⁽¹⁾		2005 includes CB&T results from July 30, 2005. Prior historical periods do not reflect CB&T results.

-1-

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Abigail Adams National Bancorp, Inc. (the “Company”) is the parent of The Adams National Bank (“ANB”), a national bank with six full-service branches located in the greater metropolitan Washington, D.C. area and, Consolidated Bank and Trust (CB&T), a Virginia chartered commercial bank, with two branches in Richmond and one in Hampton, Virginia. The Company reports its financial results on a consolidated basis with ANB and CB&T.

When used in this Annual Report the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties, including among other things, changes in economic conditions in the Company’s market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Company’s market area and competition that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company wishes to advise readers that the factors listed above could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.

The Company does not undertake, and specifically declines any obligation, to publicly release the results of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

The following analysis of financial condition and results of operations should be read in conjunction with the Company’s Consolidated Financial Statements and Notes thereto. For a discussion of risk factors that could affect the Company’s performance, see pages 17 through 19.

Critical Accounting Policies and Estimates

General

The discussion and analysis of the Company’s consolidated results of operations and financial condition are based upon the Company’s consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, income and expense, and the related disclosures of contingent assets and liabilities at the date of these consolidated financial statements. Accounting estimates are deemed critical when a different estimate could have reasonably been used or where changes in the estimate are reasonably likely to occur from period to period and would materially affect the Company’s consolidated financial statements as of or for the periods presented. Management believes that the estimates and assumptions contained in the Company’s consolidated financial statements are reasonable; however, actual results may differ significantly from these estimates and assumptions which could have a material affect on the carrying value of the Company’s assets and liabilities at the balance sheet dates and on the results of operations for the reporting periods. Critical accounting policies are considered to be those accounting policies that involve significant estimates and assumptions by management, which may have a material affect on the carrying value of certain assets and liabilities. Management has identified the Company’s critical accounting policies to be those related to the allowance for loan losses, deferred tax assets, fair value of securities, and other-than-temporary impairment. For a description of the Company’s significant accounting policies see Note 1 to the Company’s Consolidated Financial Statements

-2-

Allowance for loan losses

The provision for loan losses is based upon management’s evaluation of the adequacy of the allowance for loan losses. The evaluation process includes an assessment of known and inherent risks in the portfolio which considers the size and composition of the loan portfolio, actual loan loss experience, level of delinquencies, detailed analysis of individual loans for which full collectibility may not be assured, the existence and estimated net realizable value of any underlying collateral and guarantees securing the loans, and current economic and market conditions. Although management uses the best information available, the level of the allowance for loan losses remains an estimate, which is subject to significant judgment and short-term change. Various regulatory agencies periodically review the Company’s allowance for loan losses. Such agencies may require the Company to make additional provisions for loan losses based upon information available to them at the time of their examination. A majority of the Company’s loans are secured by real estate and accordingly, the ability to collect a substantial portion of the carrying value of the Company’s loan portfolio is susceptible to changes in local real estate market conditions and may be adversely affected should real estate values continue to decline. Future adjustments to the allowance for loan losses may be necessary due to economic, operating, regulatory and other conditions beyond the Company’s control. For further discussion of the allowance for loan losses see the Asset Quality section of management’s discussion and analysis.

Deferred Tax Assets

The Company accounts for income taxes according to the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the enacted tax rates applicable to taxable income for the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are recognized subject to management’s judgment that realization is more-likely-than-not. An estimate of probable income tax benefits that will not be realized in future years is required in determining the necessity for a valuation allowance for deferred tax assets. There was no deferred tax asset valuation allowance at December 31, 2008 or 2007. The information used by management to make this estimate is described later in management’s discussion and analysis under “Income Taxes”. A summary of the tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2008 and 2007 can be found in Note 11 to the Company’s Consolidated Financial Statements.

Fair Value of Securities

The Company carries its available for sale investment securities at fair value on a recurring basis. On January 1, 2008, the Company adopted SFAS 157, which established a three-level valuation hierarchy for disclosure of fair value measurements. The categorization of a security within the hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Therefore, securities classified in levels 1 and 2 of the hierarchy, where inputs are principally based on observable market data, there is less judgment applied in arriving at a fair value measurement. For securities classified within level 3 of the hierarchy, judgments are more significant. The Company reviews and updates the fair value hierarchy classifications on a quarterly basis. Changes from one quarter to the next related to the observability in inputs to a fair value measurement may result in a reclassification between hierarchy levels.

The following table summarizes the Company’s balances of investment securities measured at fair value on a recurring basis as of December 31, 2008, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value.

Quoted Prices in

Active Markets for

Significant Other

Significant

Identical Assets

Observable Inputs

Unobservable Inputs

(In thousands)

(Level 1)

(Level 2)

(Level 3)

Total

Investment securities available for sale

998

61,816

—

62,814

For further discussion of available for sale securities and fair value measurement under SFAS 157 see Note 6 and Note 20 to the Company’s consolidated financial statements.

-3-

Other-Than—Temporary Impairment

Management evaluates the Company’s available for sale securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Analysis of the available for sale securities for potential other-than-temporary impairment is considered under the SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities impairment model and includes the following factors: the length of time and extent to which the market value has been less than cost; the financial condition and near-term prospects of the issuer including specific events; the Company’s intent and ability to hold the investment to the earlier of maturity or recovery in market value, the credit rating of the security; the implied and historical volatility of the security; whether market decline was affected by macroeconomic conditions or by specific information pertaining to an individual security; and any downgrades by rating agencies. As applicable under SFAS No. 115, the Company considers a decline in fair value to be other-than-temporary if it is probable that the Company will not recover its recorded investment, including as applicable under the Emerging Issues Task Force (EITF) Issue 99-20, Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets, when an adverse change in cash flows has occurred. For further discussion of management’s evaluation of available for sale for other-than-temporary impairment see Note 6 to the Company’s consolidated financial statements.

Results of Operations

Overview

The Company recorded a net loss of $5.8 million in 2008, as compared to net income of $3.1 million in 2007 and $3.7 million in 2006. The net loss in 2008 is primarily due to a charge of $11.8 million to the loan loss provision compared to a charge of $260,000 in 2007 and a credit of $232,000 in 2006. The increase in the provision is intended to address increased loan charge-offs during 2008, the overall deterioration in the national and local economy, and specific weaknesses within segments of our loan portfolio. For a detailed discussion of our asset quality, see the Asset Quality section of Management’s Discussion and Analysis. Net interest income decreased $1.2 million or 6.9% from 2007 compared to an $85,000 decrease or 0.5% between the years ending 2007 and 2006. The net interest income decrease in 2008 reflected the decline in the loan portfolio yield to 6.47% from 7.96% in 2007 and 8.24% in 2006 as well as the increase in nonaccrual loans to $33.8 million from $8.8 million in 2007 and $1.5 million in 2006. Noninterest income for 2008 decreased to $966,000 from $1.6 million in 2007 reflecting a $655,000 impairment charge due to other-than-temporary losses resulting from a write-down of two corporate debt securities to fair value. The $637,000 or 17.2% decrease in net income in 2007 compared to 2006 was primarily attributable to a $492,000 increase in the provision for loan losses and a $505,000 decrease in noninterest income primarily reflecting a decrease in loan sales. Book value per share was $7.01, $9.08 and $8.72 at December 31, 2008, 2007 and 2006, respectively. Basic and diluted loss per share was $1.67 for 2008, compared to basic and diluted earnings per share of $0.88 for 2007 and $1.07 for 2006. Dividends paid per common share were $0.25 in 2008 and $0.50 in 2007 and 2006. The key components of revenue and expense are discussed in the following paragraphs.

-4-

Analysis of Net Interest Income

Net interest income, which is the sum of interest earned and certain fees generated by earning assets minus interest paid on deposits and other funding sources, is the principal source of the Company’s earnings. In 2008, net interest income totaled $15.5 million, a decline of $1.2 million from $16.7 million in 2007. Interest income decreased $5.0 million reflecting a 108 basis point decline in the average yield on earning assets to 6.08% in 2008 from 7.16% in 2007. The decrease in interest income was partially offset by a $3.8 million decrease in interest expense reflecting a 117 basis point decrease in the average cost of funds to 2.91% in 2008 from 4.08% in 2007. Average earning assets decreased $6.2 million or 1.46% in 2008 reflecting a $20.1 million decrease in average investment balances partially offset by a $13.9 million increase in average loans. Net interest income remained relatively flat at $16.7 million in 2007 and 2006. Interest income increased $4.1 million which was offset by a $4.2 million increase in the cost of funds. Average earning assets increased $68.6 million or 19.4% in 2007 compared to 2006.

Loans, the highest yielding component of earning assets, represented 78.8% of average earning assets in 2008, 74.4% in 2007 and 77.3% in 2006. The average yield on loans declined 149 basis points to 6.47% from 7.96% in 2007 compared to a decline of 28 basis points in 2007 from 2006. The primary factor for the decline in the loan yield between 2008 and 2007 was the 290 basis point decrease in the average prime rate and to a lesser extent the reversal of $551,000 in nonaccrual loan interest resulting from a $8.0 million increase in average nonaccrual loans. Prime rate, a key index to which a substantial portion of our loan rates are tied, averaged 5.1% in 2008 and 8.0% in 2007 and 2006. Nonaccrual loan interest totaled $1.2 million in 2008, $629,000 in 2007 and $180,000 in 2006. The primary factor contributing to the decrease in the average loan yield to 7.96% in 2007 from 8.24% in 2006 was the $3.2 million increase in average nonaccrual loans as well as competitive pricing pressures for loans in our market area.

Average investments, consisting of investment securities, federal funds and other short-term investments, decreased $20.1 million or 18.57% in 2008 from 2007, compared to increasing $28.0 million or 34.9% in 2007 from 2006. The decrease in average investments in 2008, primarily in the federal funds sold and interest earning bank balances, was to fund loan growth and the deposit outflow. The average yield on investments declined 20 basis points in 2008 from 2007 after increasing 34 basis points in 2007 from 2006 reflecting the decrease in federal funds and other short-term investments and the decrease in short and medium term interest rates in 2008 compared to generally higher market rates in 2007 and 2006.

Funding for earning assets comes from interest-bearing liabilities, non-interest-bearing liabilities and stockholders’ equity. The percentage of average earning assets funded by average interest-bearing liabilities increased to 81.0% in 2008, compared to 79.0% in 2007 and 74.4% in 2006. Deposits, which represent 89.2% of average interest bearing liabilities in 2008, decreased $13.6 million compared to increasing $77.1 million in 2007. Average borrowings increased $17.2 million in 2008 compared to decreasing $6.7 million in 2007. The cost of interest-bearing funds decreased 117 basis points to 2.91% in 2008 from 4.08% in 2007, compared to a 51 basis points increase in 2007 from a cost of 3.57%% in 2006. The decrease in the cost of funds reflects deposits and borrowings bearing lower interest rates as shorter and medium term interest rates in 2008 were significantly lower than those in 2007. The increases in the cost of deposits in 2007 reflected the increase in short-term interest rates, which are used to price our deposits, and the competitive pricing pressure for deposits in the local markets.

The net interest margin, which is net interest income as a percentage of average interest-earning assets, was 3.72%, 3.94% and 4.73% in 2008, 2007 and 2006 respectively. The compression in the net interest margin reflects the decline in the average earning asset yield and the increase in nonaccrual loans. The net interest spread, which is the difference between the average interest rate earned on interest-earning assets and the average interest paid on interest-bearing liabilities, was 3.17%, 3.08% and 3.82% in 2008, 2007 and 2006 respectively. The improvement in the net interest spread in 2008 reflects the significant decrease in the cost of funds compared to 2007.

-5-

The following tables present the average balances, net interest income and interest yields/rates for 2008, 2007 and 2006 and an analysis of the dollar changes in interest income and interest expense.

Distribution of Assets, Liabilities and Stockholders’ Equity Yields and Rates
For the Years Ended December 31, 2008, 2007, and 2006
(Dollars in thousands)


	2008								2007								2006
				Interest								Interest								Interest
	Average			Income/		Average			Average			Income/		Average			Average			Income/		Average
	Balances			Expense		Rates			Balances			Expense		Rates			Balances			Expense		Rates
Assets
Loans ⁽¹⁾	$	328,372		$	21,238		6.47	%	$	314,430		$	25,044		7.96	%	$	273,803		$	22,558		8.24	%
Investment securities		76,703			3,705		4.83	%		72,835			3,408		4.68	%		68,431			3,012		4.40	%
Federal funds sold		4,754			104		2.19	%		18,260			916		5.02	%		9,506			464		4.88	%
Interest-earning bank balances		6,636			255		3.84	%		17,091			883		5.17	%		2,275			111		4.88	%

Total earning assets		416,465			25,302		6.08	%		422,616			30,251		7.16	%		354,015			26,145		7.39	%

Allowance for loan losses		(5,558	)							(4,573	)							(4,609	)
Cash and due from banks		12,576								14,177								12,424
Other assets		14,567								11,361								10,497

Total assets	$	438,050							$	443,581							$	372,327

Liabilities and Stockholders’ Equity
Savings, NOW and money market accounts	$	121,671			1,601		1.32	%	$	146,287			4,314		2.95	%	$	136,251			3,623		2.66	%
Certificates of deposit		179,232			7,037		3.93	%		168,252			8,358		4.97	%		101,236			4,387		4.33	%
Short-term borrowings		18,867			372		1.97	%		5,175			144		2.78	%		16,216			765		4.72	%
Long-term debt		17,455			791		4.53	%		13,942			783		5.62	%		9,638			633		6.57	%

Total interest-bearing liabilities		337,225			9,801		2.91	%		333,656			13,599		4.08	%		263,341			9,408		3.57	%

Noninterest-bearing deposits		66,804								74,087								76,415
Other liabilities		3,835								5,001								3,653
Stockholders’ equity		30,186								30,837								28,918

Total liabilities and stockholders’ equity	$	438,050							$	443,581							$	372,327

Net interest income				$	15,501							$	16,652							$	16,737

Net interest spread							3.17	%							3.08	%							3.82	%
Net interest margin							3.72	%							3.94	%							4.73	%


⁽¹⁾		The loan averages are stated net of unearned income, and the averages include loans on which the accrual of interest has been discontinued. Net loan fees included in interest income were $447,000, $630,000, and $1.3 million for 2008, 2007 and 2006, respectively.

-6-

Interest Rates and Interest Differential
Analysis of Changes in Consolidated Net Interest Income
(In thousands)


	For the years ended December 31,									For the years ended December 31,
	2008 versus 2007									2007 versus 2006
	Net									Net
	Increase			Change per ⁽¹⁾						Increase			Change per ⁽¹⁾
	(Decrease)			Rate			Volume			(Decrease)			Rate			Volume
Interest income from:
Loans	$	(3,806	)	$	(4,916	)	$	1,110		$	2,486		$	(862	)	$	3,348
Investment securities		297			116			181			396			202			194
Federal funds sold		(812	)		(134	)		(678	)		452			25			427
Interest-earning bank balances		(628	)		(87	)		(541	)		772			49			723

Total interest income		(4,949	)		(5,021	)		72			4,106			(586	)		4,692

Interest expense on:
Savings, NOW and money market		(2,713	)		(1,924	)		(789	)		(691	)		(488	)		(203	)
Certificates of deposit		(1,321	)		(1,850	)		529			(3,971	)		(1,150	)		(2,821	)
Short-term borrowings		228			(153	)		381			621			100			521
Long-term debt		8			(189	)		197			(150	)		133			(283	)

Total interest expense		(3,798	)		(4,116	)		318			(4,191	)		(1,405	)		(2,786	)

Change in net interest income	$	(1,151	)	$	(905	)	$	(246	)	$	(85	)	$	(1,991	)	$	1,906


⁽¹⁾		The change in interest due to both rate and volume has been allocated to change due to rate.

Noninterest Income

Noninterest income consists primarily of service charges on deposits and other fee-based services, as well as gains on the sales of investment securities and loans. Noninterest income decreased $659,000 in 2008 primarily due to a $655,000 other than temporary impairment charge resulting from the write down of two corporate debt securities to fair value. In 2007, other income decreased $525,000 reflecting fewer loan sales and nonrecurring miscellaneous other income related to the acquisition of CB&T in 2006. The gain on sale of the guaranteed portion of SBA loans was $39,000 in 2008, $43,000 in 2007, and $386,000 in 2006. There were no sales of investment securities in 2008, 2007, or 2006.

Noninterest Expense

Noninterest expense totaled $14.5 million in 2008, an increase of $687,000 compared to an increase of $755,000 in 2007. Professional fees increased $442,000 in 2008 compared to 2007 reflecting a $146,000 increase in audit fees, a $123,000 increase in legal fees and a $173,000 increase in consulting fees. The most significant fluctuations in other expenses in 2008 were; a $418,000 reduction in advertising expense, a $340,000 increase in expenses related to other real estate owned, and a $191,000 increase in the FDIC deposit insurance charge. The most significant noninterest expense fluctuations in 2007 compared to 2006 were; professional fees which increased $141,000, and other operating expense which increased $493,000 primarily due to increases in advertising, employee recruitment, and loan expense. The increase in noninterest expense in combination with the decreases in net interest income and noninterest income resulted in a higher efficiency ratio in 2008; our efficiency ratio increased to 88.4% from 75.8% in 2007 and 69.5% in 2006. An increasing efficiency ratio means we have to spend more money in order to make $1.00 of net income.

-7-

Income Taxes

When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that ultimately would be sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. The evaluation of a tax position taken is considered by itself and not offset or aggregated with other positions. Tax positions that meet the more likely than not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest and penalties associated with unrecognized tax benefits are recognized in noninterest expense on the statements of operations.

The Company accounts for income taxes according to the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the enacted tax rates applicable to taxable income for the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established against certain deferred tax assets when it is more likely than not that the deferred tax assets will not be realized. Increases or decreases in the valuation allowances are charged or credited to the income tax provision. Application of this “critical accounting policy” involves judgments, estimates, and uncertainties that are susceptible to change.

There was no deferred tax valuation allowance at December 31,2008 and 2007. The Company has had a strong earnings history, no cumulative losses prior to 2008 and no history of operating losses or tax credit carryforwards expiring unused. In 2008, earnings were severely impacted by significant charges to the provision for loan losses due to the deterioration in the economy and the sudden steep decline in real estate values. These unsettled economic circumstances are not considered to adversely affect future profit levels on a continuing basis in the future years. Management has determined that it is more likely than not the deferred tax assets recorded at December 31, 2008 will be realized as their related temporary differences reverse in future periods as the Company returns to profitability. A summary of the tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2008 and 2007 can be found in Note 11 to the Company’s Consolidated Financial Statements.

The Company recorded an income tax benefit for the year ended December 31, 2008 in the amount of $4.1 million based on a pretax net loss of $9.9 million. In 2007 and 2006, the Company incurred income tax expense of $1.1 million and $2.3 million, respectively. Income tax expense decreased $1.2 million in 2007 compared to 2006, reflecting the $1.8 million decrease in net income before taxes and the $525,000 tax effect of a reversal in a deferred tax asset valuation allowance related to a net operating loss carryforward. In 2008, the Company’s effective tax rate was 41.6% compared to 26.4% in 2007 and 38.3% in 2006. The increase in the 2008 effective tax rate compared to 2007 is the nonrecurring reversal of the net operating loss valuation allowance. The reduction in the 2007 effective tax rate compared to 2006 reflects a reversal of the aforementioned valuation allowance related to the Consolidated Bank and Trust acquisition. The reversal occurred because management determined that it was more likely than not that CB&T will have sustainable future taxable earnings. In accordance with the Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, this resulted in a reduction of the remaining goodwill and core deposit intangible from the acquisition, with the excess credit of $525,000 to income tax expense in 2007.

Financial Condition

Overview

Total assets were $423.7 million at December 31, 2008, a decrease of $22.2 million or 5.0%, compared to $445.9 million at December 31, 2007. The decrease in our assets reflects a $38.9 decrease in cash, cash equivalents and investment securities offset by a $9.0 million net increase in loans and a $7.8 million increase in other assets. Total liabilities were $399.4 million at December 31, 2008, a decrease of $15.0 million or 3.6%, compared to $414.4 million at December 31, 2007, primarily due to a decrease of $40.0 million in deposits partially offset by a $27.0 million increase in borrowings. Total stockholders’ equity was $24.3 million at December 31, 2008, a decrease of $7.2 million or 22.8%, compared to December 31, 2007. The book value per share of common stock issued and outstanding at December 31, 2008 decreased to $7.01 per share from $9.08 per share at December 31, 2007.

-8-

Analysis of Loans

Gross loans at December 31, 2008 increased $17.3 million to a balance of $324.8 million, compared to $307.5 million at December 31, 2007. Commercial real estate loans totaling $163.2 million increased $34.9 million or 27.2% from the prior year, as a result of increased demand during the first half of 2008. Our residential real estate loans totaling $54.9 million decreased $12.5 million or 18.5%, due to repayments and a slowing in demand in the Washington, DC market. Construction loans totaling $61.5 million decreased $9.3 million or 13.2%, compared to 2007, primarily due to completion and sales in excess of new loan originations. Commercial loan balances totaling $43.7 million increased by $5.1 million or 13.3%, and installment loans decreased $1.1 million to a balance of $1.6 million. Average loans decreased 4.4% in 2008, compared to 2007. The following table presents the percentage composition of the loan portfolio.


	December 31,
Composition of loan portfolio:	2008			2007			2006			2005			2004
Commercial		13.5	%		12.5	%		12.7	%		16.0	%		15.9	%
Real Estate- commercial		50.2	%		41.7	%		44.3	%		50.1	%		50.1	%
Real Estate- residential		16.9	%		21.9	%		18.1	%		19.5	%		27.6	%
Real Estate- construction		18.9	%		23.0	%		24.0	%		13.6	%		5.9	%
Installment		0.5	%		0.9	%		0.9	%		0.8	%		0.5	%

Total		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

The Company’s loan portfolio does not include concentrations of credit risk in loan products that permit the deferral of principal payments or payments that are smaller than normal interest accruals (negative amortization); loans with high loan-to-value ratios; or loans, such as option adjustable-rate mortgages, that may expose the borrower to future increases in repayments that are in excess of increases that would result solely from increases in market interest rates.

The Company allows interest reserves on construction loans to fund the interest payments during the construction phase and are funded from loan proceeds. The interest reserve is part of the overall construction budget and must be sufficient to satisfy the interest costs through the sale of the units, or through occupancy and permanent financing if investment property.

In the underwriting process, the lenders must determine that the reserve is appropriately based on the feasibility of the project, the creditworthiness of the borrower and guarantors, and the protection provided by the real estate and other collateral. The reserve amount must be used and within loan-to-cost and loan-to-value ratios. If the borrower has substantial secondary income sources and an abundance of liquidity, the bank may move forward without an interest reserve.

The Company monitors all interest reserves using a construction loan spreadsheet. The spreadsheet discloses the full amount of the reserve, the individual payments made from the reserve, total amount funded and total amount remaining in the reserve. The construction loan spreadsheet is reviewed not less than monthly.

The Company is not replenishing interest reserve accounts from extensions, modifications and restructurings. Once the interest reserve is depleted the borrower must begin making the monthly payments. In no case shall there be an interest reserve advance made on a non accrual loan. Loans with interest reserves total $15.6 million at December 31, 2008.

According to the Company’s policy, loans that are past due over 90 days are placed on nonaccrual status unless the loans are adequately secured and in the process of collection.

-9-

The following table summarizes the maturity distribution and interest sensitivity of the Company’s loan portfolio at December 31, 2008. The balances exclude any adjustments for net deferred fees and unearned income. Included in the “Within 1 year” category are overdrafts, demand loans, loans having no stated maturity, and loans with no stated schedule of repayment.

Analysis of Loan Maturity and Interest Sensitivity
At December 31, 2008


(In thousands)	Within 1 Year		1 to 5 Years		After 5 Years		Total
Maturity of Loan
Commercial	$	19,891	$	13,763	$	10,079	$	43,733
Real estate — commercial		25,697		80,495		57,036		163,228
Real estate — residential		11,759		36,908		6,220		54,887
Real estate — construction		49,074		8,789		3,622		61,485
Installment		379		883		386		1,648

Total loans	$	106,800	$	140,838	$	77,343	$	324,981


Interest-Rate Sensitivity of Loans
Predetermined rates	$	42,231	$	129,450	$	52,304	$	223,985
Variable rates		91,899		5,637		3,460		100,996

Total loans	$	134,130	$	135,087	$	55,764	$	324,981

At December 31, 2008, loans due after December 31, 2009 with fixed rates totaled $181,754 and those with variable rates totaled $9,097. For additional information about loans, see Note 7 of the consolidated financial statements.

Analysis of Investment Securities

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concern warrants such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Application of this “critical accounting policy” involves judgments, estimates, and uncertainties that are susceptible to change. During 2008, the Company incurred an other-than-temporary impairment charge of $655,000 on two corporate debt securities. For additional information on other-than-temporary impairment, see Note 6 to the Consolidated Financial Statements.

The aggregate fair value of the investment securities portfolio was $66.0 million at December 31, 2008, a decrease of $13.7 million or 17.2% compared to the prior year end total of $79.7 million. The weighted average maturity of the portfolio at December 31, 2008 was 6.24 years.

Investment securities classified as available for sale are used to maintain adequate liquidity and to provide a base for executing management’s asset/liability strategy. These securities are carried at estimated fair value and totaled $62.8 million at December 31, 2008, a decrease of $3.6 million or 5.4% from the balance at December 31, 2007. The decrease in the available for sale portfolio was due to matured and call investment securities that were not replaced due to liquidity demands. Investment securities classified as available for sale consisted of U.S. government sponsored agencies, mortgage-backed securities, corporate securities, marketable equity securities and municipal securities.

Investment securities classified as held to maturity decreased $10.1 million or 75.9% at December 31, 2008 from $13.3 million at December 31, 2007. The decrease reflects maturities in US government sponsored agencies and repayments of mortgage-backed securities.

The table entitled “Analysis of Investment Securities Portfolio,” sets forth by major categories, the amortized cost basis, approximate market values and the weighted-average yields of investment securities held to maturity and available for sale at December 31, 2008. Expected maturities may differ from contractual maturities in mortgage-backed securities; therefore, these securities are not included in maturity categories in the following table.

-10-

Analysis of Investment Securities Portfolio
At December 31, 2008
(Dollars in thousands)


	Held to Maturity							Available for Sale
	Amortized		Market		Average			Amortized		Market		Average
	Cost Basis		Value		Yield			Cost Basis		Value		Yield
U.S. government sponsored agencies:
One year or less	$	—	$	—		—		$	5,000	$	5,062		5.13	%
After one, but within five years		2,007		2,034		3.40	%		27,090		27,497		4.46	%
After five, but within ten years		—		—		—			11,982		12,098		4.70	%
After ten years		—		—		—			1,000		1,005		6.00	%

Total federal agency securities		2,007		2,034		3.40	%		45,072		45,662		4.63	%

Mortgage-backed securities		1,168		1,192		5.50	%		11,243		11,531		4.69	%
Corporate securities:
After five, but within ten years		—		—		—			400		438		7.03	%
After ten years		—		—		—			5,684		3,966		6.29	%
Municipal securities:
After ten years		—		—		—			953		898		5.03	%
Marketable equity securities		—		—		—			1,002		319		5.45	%

Total investment securities	$	3,175	$	3,226		4.17	%	$	64,354	$	62,814		4.82	%

Management evaluates the portfolio for other-than-temporary impairment on a quarterly basis. For additional information about investment securities, see Note 1 (c) and Note 6 of the Notes to Consolidated Financial Statements.

Short-term investments

Short-term investments, consisting of federal funds and interest earning deposits in banks, decreased $23.8 million to $9.4 million at December 31, 2008 from the total of $33.2 million at December 31, 2007. Interest-earning deposits in other banks decreased $17.7 million and federal funds sold decreased $6.1 million reflecting the decrease in the Company’s liquidity.

Other Assets

Other assets increased $7.8 million or 85.7% to $16.9 million at December 31, 2008 from $9.1 million at December 31, 2007. The most significant increases in other assets in 2008 were; a $2.7 million increase in foreclosed assets, a $3.6 million increase in deferred tax assets, a $1.0 million increase in income taxes receivable, and a $775,000 increase in FHLB stock. The most significant decrease in other assets was a $549,000 decrease in accrued interest receivable reflecting the decrease in average investment balances and the decline in the yield on average interest earning assets.

Deposits

Deposits are the Company’s primary source of funds, providing funding for 88.3% of average earning assets in 2008 and 92.0% in 2007. Average interest-bearing deposits decreased 4.3% to $300.9 million in 2008 from $314.5 million in 2007. Total deposits decreased $39.9 million or 10.3% to $347.0 million at December 31, 2008 from $386.9 million at December 31, 2007. Money market accounts led the decline in deposits with a decrease of $28.5 million followed by a decrease of $7.6 million in noninterest bearing demand accounts, a $7.0 million decrease in NOW accounts and a $36,000 decrease in savings accounts. Certificates of deposit increased by $3.2 million from the balance at December 31, 2007.

-11-

The following table sets forth the dollar amounts in the various types of deposit programs.


	December 31,
	2008					2007					2006
(Dollars in thousands)	Amount		Percent			Amount		Percent			Amount		Percent
Demand deposits	$	67,193		19.4	%	$	74,833		19.3	%	$	76,887		21.1	%
Savings accounts		15,054		4.3	%		15,090		3.9	%		16,311		4.5	%
NOW accounts		71,823		20.7	%		78,829		20.4	%		64,391		17.7	%
Money market accounts		20,323		5.9	%		48,845		12.6	%		55,031		15.1	%

Total non-certificates		174,393		50.3	%		217,597		56.2	%		212,620		58.4	%

Total certificates		172,568		49.7	%		169,345		43.8	%		150,970		41.6	%

Total deposits	$	346,961		100.0	%	$	386,942		100.0	%	$	363,590		100.0	%

The following table summarizes certificates of deposit at December 31, 2008 by time remaining until maturity.


	Maturity
	3 Months		Over 3 to		Over 6 to		Over
(In thousands)	or Less		6 Months		12 Months		12 Months		Total

Certificates of deposit less than $100,000	$	41,518	$	23,061	$	42,765	$	17,967	$	125,311
Certificates of deposit of $100,000 or more		18,816		12,860		11,187		4,394		47,257

Total certificates of deposit	$	60,334	$	35,921	$	53,952	$	22,361	$	172,568

Certificates of deposit include brokered deposits totaling $79.7 million of which $67.0 million or 84.0% are CDARS (Certificate of Deposit Account Registry Service) deposits. CDARS is a deposit placement service that allows us to place our customers’ funds in FDIC-insured certificates of deposit at other banks and to simultaneously receive an equal sum of funds from the customers of other banks in the CDARS network. The majority of CDARS deposits are gathered within our geographic footprint through established customer relationships.

Borrowed Funds

Short-term borrowings, consisting of FHLB advances and customer repurchase agreements, totaled $24.5 million at December 31, 2008, compared to $8.5 million at December 31, 2007. Average short-term borrowings for 2008 were $18.9 million, compared to $5.2 million for 2007. For additional information on short-term borrowings, see Note 12 of the Notes to Consolidated Financial Statements.

Long-term debt was $26.1 million at December 31, 2008, a net increase of $11.0 million from December 31, 2007. The increase reflects loans acquired by the parent company to provide a $7.7 million capital infusion to ANB and to fund a loan participation in the amount of $3.5 million partially offset by principal payments of $351,000 on FHLB advances. For additional information on long-term debt, see Note 13 of the Notes to Consolidated Financial Statements.

-12-

Borrowed funds average balances and interest rates are presented in the following schedule:


	Years Ended December 31,
	Maximum									Average
	Outstanding at		Average		Average			Ending		Interest Rate
(Dollars in thousands)	Any Month End		Balance		Interest Rate			Balance		at Year End
2008:
Long-term debt	$	26,132	$	17,455		4.53	%	$	26,132		3.84	%
Short-term borrowings	$	35,957	$	18,867		1.97	%	$	24,477		0.64	%
2007:
Long-term debt	$	16,055	$	13,942		5.62	%	$	15,120		5.07	%
Short-term borrowings	$	12,578	$	5,175		2.78	%	$	8,494		3.32	%
2006:
Long-term debt	$	11,136	$	9,638		6.57	%	$	6,288		7.71	%
Short-term borrowings	$	30,026	$	16,216		4.72	%	$	2,378		1.32	%

Contractual Commitments

In the normal course of business, the Company enters into certain contractual obligations. Such obligations include obligations to make future payments on debt and lease arrangements. See Notes 9, 10, 12 and 13 of the Notes to Consolidated Financial Statements. The following table summarizes the Company’s significant contractual obligations at December 31, 2008.


	Payments due by period
			Less than 1						More than 5
(In thousands)	Total		year		1-3 years		3-5 years		years
Time deposit maturities	$	172,568	$	150,207	$	19,353	$	3,008	$	—
Short-term borrowings		24,477		24,477		—		—		—
Long-term debt		26,132		—		16,132		10,000		—
Operating lease obligations		4,759		1,151		2,245		1,202		161
Purchase obligations ⁽¹⁾		1,660		417		733		510		—

Total	$	229,596	$	176,252	$	38,463	$	14,720	$	161


⁽¹⁾		Purchase obligations consist primarily of a data processing service center contract in the amount of $1.5 million

See Note 14 of the Notes to the Consolidated Financial Statements for a summary of off balance sheet commitments.

Stockholders’ Equity

Stockholders’ equity at December 31, 2008 was $24.3 million, a decrease of $7.2 million from December 31, 2007 due to the net loss of $5.8 million, a $518,000 increase in unrealized losses on investment securities and payment of $866,000 in cash dividends. The ratio of average stockholders’ equity to average assets for 2008 was 6.89%, as compared to 6.95% for 2007. For a discussion of the Company’s capital, see “Capital Resources” in this section and Note 16 to the Company’s consolidated financial statements

-13-

Asset Quality

Adequacy of the Allowance for Loan Losses

The Company continuously monitors the quality of its loan portfolio and maintains an allowance for loan and lease losses (“ALLL”) sufficient to absorb probable losses inherent in its total loan portfolio. The ALLL policy is critical to the portrayal and understanding of our financial condition and results of operations. As such, selection and application of this “critical accounting policy” involves judgments, estimates, and uncertainties that are susceptible to change. In the event that different assumptions or conditions were to prevail, and depending upon the severity of such changes, the possibility of materially different financial condition or results of operations is a reasonable likelihood. Although credit policies are designed to minimize risk, management recognizes that loan losses will occur and that the amount of these losses will fluctuate depending on the risk characteristics of the loan portfolio.

The Company’s ALLL framework has three basic components: a formula-based component for pools of homogeneous loans (i.e. groups of loans with similar risk characteristics); a specific allowance for loans reviewed for individual impairment; and a pool specific allowance based upon other inherent risk factors and imprecision associated with the modeling and estimation process. The first component, the general allocation to homogenous loans, is determined by applying allowance factors to pools of loans that have similar characteristics in terms of business and product type. The general factors are determined by using an analysis of historical charge-off experience by loan pools. The second component of the ALLL analysis involves the estimation of allowances specific to impaired loans. The third component of the ALLL addresses inherent losses that are not otherwise captured in the other components and is applied to homogenous pools of loans. The qualitative factors are subjective and require a high degree of management judgment. These factors consider changes in nonperforming and past-due loans, concentrations of loans to specific borrowers and industries, and general and regional economic conditions, as well as other factors existing at the determination date.

The allowance for loan losses is established through provisions for loan losses as a charge to earnings based upon management’s ongoing evaluation. Loans deemed uncollectible are charged against the allowance for loan losses and any subsequent recoveries are credited to the allowance. The provision for loan losses increased in 2008 to $11.8 million, compared to a provision expense totaling $260,000 in 2007 and a recovery of $232,000 in 2006. The increase in the provision was to address the weaknesses primarily in the construction and commercial real estate portfolios, due to the softening in the economy and the deterioration in property values primarily in the Washington DC metropolitan area. To assist in identifying weakness in the real estate loan portfolio, updated appraisals were ordered in the fourth quarter of 2008, and these appraisals have shown a decrease in market values of real estate secured properties. In addition, an independent loan review was conducted in the fourth quarter of 2008 to review all loans with balances greater than $150,000. The results of the appraisal updates and the results of the independent loan review were taken into account in increasing our provision for loan losses. The balance of the allowance for loan losses was $12.5 million or 3.85% of loans at December 31, 2008, $4.2 million or 1.37% of loans at December 31, 2007, and $4.4 million or 1.44% of loans at December 31, 2006. Net loan charge-offs were $3.5 million or 1.07% of average loans, compared to net charge-offs totaling $490,000 or 0.16% of average loans for 2007, and net recoveries totaling $319,000 or 0.12% of average loans in 2006. Of the charge-off loans in 2008, three construction loans comprised 85.3% of the balance. The current level of the ALLL is intended to address known and inherent losses that are both probable and estimable at December 31, 2008. For additional information on the analysis of loan losses, see Note 7 of the Notes to Consolidated Financial Statements.

-14-

The following table presents the allocation of the allowance for loan losses by categories.


	December 31,
(In thousands)	2008		2007			2006			2005			2004
Allowance amount allocated to:
Commercial and industrial	$	1,587	$	952		$	1,078		$	1,799		$	720
Real estate:
Commercial mortgages		1,762			(a)			(a)			(a)			(a)
Residential mortgages		1,212			(a)			(a)			(a)			(a)
Construction and development		7,922			(a)			(a)			(a)			(a)

Total real estate		10,896		3,235			3,334			2,418			1,826
Installment		31		15			20			60			12
Unallocated		—		—			—			68			—

Total allowance for loan losses	$	12,514	$	4,202		$	4,432		$	4,345		$	2,558


(a)		Information is not available by category for these years.

Nonperforming Assets

Nonperforming assets include nonaccrual loans, restructured loans, past-due loans and other real estate owned (i.e. real estate acquired in foreclosure or in lieu of foreclosure). Past-due loans are loans that are 90 days or more delinquent and still accruing interest. There were no past-due loans at December 31, 2008 that were still accruing interest, compared to $2.1 million at December 31, 2007. Nonperforming assets at December 31, 2008 represented 8.95% of total assets and totaled $37.9 million, with balances of $306,000 guaranteed by the Small Business Association. In comparison, nonperforming assets at December 31, 2007 were 2.76% of total assets and totaled $12.3 million with balances of $1.2 million guaranteed by the SBA. Other real estate owned (“OREO”) increased this year due to three properties totaling $4.1 million, compared to $1.4 million in 2007. The significant increase in nonperforming loans since last year was due to the construction and commercial real estate portfolio. See Note 7 of the Notes to Consolidated Financial Statements.

The following table presents nonperforming assets by category for the last five years.


	December 31,
(Dollars in thousands)	2008			2007			2006			2005			2004
Nonaccrual loans:
Commercial	$	2,003		$	1,379		$	1,508		$	432		$	1,353
Real Estate		31,774			7,384			—			11			524
Installment — individuals		11			—			—			—			—

Total nonaccrual loans		33,788			8,763			1,508			443			1,877
Past-due loans		—			2,123			1,919			—			—
Other real estate owned		4,124			1,410			137			137			—

Total nonperforming assets	$	37,912		$	12,296		$	3,564		$	580		$	1,877


Nonperforming assets exclusive of SBA guarantee	$	37,606		$	11,080		$	2,544		$	263		$	871
Ratio of nonperforming assets to gross loans & OREO		11.53	%		3.98	%		1.16	%		0.23	%		1.04	%
Ratio of nonperforming assets to total assets		8.95	%		2.76	%		0.88	%		0.17	%		0.75	%
Allowance for loan losses to nonperforming assets		33.0	%		34.17	%		124	%		759	%		136	%

Loans totaling $29.1 million and $7.2 million at December 31, 2008 and 2007, respectively, were classified as monitored credits subject to management’s attention (i.e. potential problem loans) and are not reported in the preceding table. The increase in monitored credits, compared to 2007, was due largely to the deterioration in the economy that is affecting the market prices of real estate properties and putting pressure on the borrowers’ ability to repay loans. The classification of monitored credits is reviewed on a monthly basis. The balances of the monitored credits guaranteed by the SBA totaled $865,000 and $386,000 as of December 31, 2008 and 2007, respectively.

-15-

The following table sets forth an analysis of the allowance for loan losses for the periods indicated.


(Dollars in thousands)	2008			2007			2006			2005			2004

Balance at beginning of period	$	4,202		$	4,432		$	4,345		$	2,558		$	2,119
Allowance of acquired bank		—			—			—			1,430			—
Loans charged off:
Commercial		275			192			345			338			80
Real estate — commercial		18			481			—			47			—
Real estate — residential		38			—			—			—			—
Real estate — construction		3,400			—			—			—			—
Installment — individuals		39			15			12			14			22

Total charge-offs		3,770			688			357			399			102

Recoveries:
Commercial		147			133			594			415			120
Real estate — commercial		94			11			36			15			—
Real estate — residential		1			—			—			—			—
Installment — individuals		18			54			46			16			1

Total recoveries		260			198			676			446			121

Net charge-offs (recoveries)		3,510			490			(319	)		(47	)		(19	)

Provision for loan losses		11,822			260			(232	)		310			420

Balance at end of period	$	12,514		$	4,202		$	4,432		$	4,345		$	2,558

Ratio of net charge-offs (recoveries) to average loans		1.07	%		0.16	%		(0.12	%)		(0.02	%)		(0.01	%)

Liquidity and Capital Resources

Liquidity

Liquidity is a product of the Company’s operating, investing, and financing activities and is represented by cash and cash equivalents. Principal sources of funds are from deposits, short and long-term debt, principal and interest payments on outstanding loans, maturity of investment securities, and funds provided from operations. The impact of the Written Agreement on our operations as well as deteriorating credit markets have had an adverse impact on our financial condition and operations including maintaining acceptable liquidity levels. Following the public announcement of the Written Agreement with the OCC in the fourth quarter of 2008, ANB has become restricted in its ability to renew or access deposits through brokers. Moreover, a number of our depositors have sought to reduce their deposits at Adams National Bank.

Cash and cash equivalents decreased $25.2 million for the period ended December 31, 2008 compared to increasing $21.2 million in 2007 and $9.0 million in 2006. Liquid assets represented 5.6% of total assets at December 31, 2008, compared to 10.9% in 2007 and 6.8% in 2006. Cash flow from operations totaled $1.0 million in 2008 compared to $4.0 million in 2007 and $1.9 million in 2006. The decrease in 2008 operating cash flow was primarily due to the net loss of $5.8 million compared to net income of $3.1 million in 2007 and $3.7 million in 2006.

In 2008, the primary source of cash from investing activities was from maturing and called investment securities and was used primarily to fund loan growth and to help partially offset the outflow in deposits. Borrowings were the main source of cash from financing activities and provided $32.1 million of cash used to partially offset the $40.0 million decrease in deposits. In 2007, the proceeds from maturing investment securities was used primarily for reinvestment in other securities. The majority of cash from financing activities in 2007 and 2006 resulted from deposit growth of $23.4 million and $71.5 million, respectively. Borrowings provided an additional $16.1 million in 2007, which was used to replace higher costing certificates of deposit. In 2006, cash from financing activities was used to pay down long-term debt and to provide funding for loans. Cash dividends decreased by $865,000 in 2008, reflecting the Company’s strategy to preserve capital.

-16-

In the first quarter of 2009, the Company experienced deposit out flows, due to the matured brokered deposits and CDARs. ANB was not allowed to renew existing brokered deposits per the Written Agreement. The primary sources of cash to fund deposit out flows was from principal and interest payments on loans and the sale of loan participations. Borrowings from the FHLB remained flat compared to December 31, 2008. The FHLB increased the collateral requirement to 125% of advances effective February 1, 2009.

The Company has additional sources of liquidity available through unpledged investment securities with a market value totaling $4.3 million and unsecured lines of credit available from correspondent banks, which can provide up to $5.0 million, as well as available credit of $48.9 million through its membership in the FHLB at December 31, 2008. See Note 12 and Note 13 of the Notes to the Consolidated Financial Statements.

Capital Resources

Capital levels are monitored by management on a quarterly basis in relation to regulatory requirements and financial forecasts for the year. At December 31, 2008, CB&T was considered to be “well capitalized” under the regulatory framework for prompt corrective action. ANB can not be considered “well capitalized” while under the Written Agreement dated October 1, 2008, and must maintain the following capital levels: total risk based capital equal to 12% of risk-weighted assets; tier 1 capital at least equal to 11% of risk-weighted assets; and tier 1 capital at least equal to 9% of adjusted total assets. At December 31, 2008, ANB’s capital ratio levels did not comply with those required in the Written Agreement. ANB has taken steps to comply with the capital ratio requirements as stipulated in the Written Agreement. The Company provided a capital infusion to ANB of $7.7 million as of December 31, 2008. The Company has $1.75 million remaining on a credit facility to dividend to ANB in the future. ANB is not growing the balance sheet until the capital ratios are in compliance. ANB has also sold participations in loans during the first quarter of 2009 to shrink its assets and has also curtailed lines of credit on national credit facilities in which ANB participated. Additionally, ANB has reduced its operating expenses and is continuing to monitor spending. For the capital ratios of each Bank and that of the consolidated Company at December 31, 2008 and 2007 see tables in Note 16 to the Company’s consolidated financial statements.

Risk Factors

The Company has established control processes and uses various methods to manage risk throughout its organization. Although various controls, policies, personnel and committees establish limits for and monitor various aspects of the Banks’ risk profile, it remains exposed to risks, many of which are beyond its control and that could adversely impact its performance.

Market Risk

The Company is exposed to various market risks in the normal course of conducting business. Market risk is the potential loss arising from adverse changes in interest rates, prices, and liquidity. The Company has established the Asset/Liability Committee (ALCO) to monitor and manage those risks. ALCO meets periodically and is responsible for approving asset/liability policies, formulating and implementing strategies to improve balance sheet and income statement positioning, and monitoring interest rate sensitivity. The Company manages its interest-rate risk sensitivity through the use of a simulation model that projects the impact of rate shocks, rate cycles, and rate forecast estimates on the net interest income and economic value of equity (the net present value of expected cash flows from assets and liabilities). These simulations provide a test for embedded interest-rate risk and take into consideration factors such as maturities, reinvestment rates, prepayment speeds, repricing limits, decay rates and other factors. The results are compared to risk tolerance limits set by ALCO policy. The rate-shock risk simulation projects the impact of instantaneous parallel shifts in the yield curve. At December 31, 2008, an instantaneous rate increase of 100 basis points indicates a 4.2% increase in net interest income and a 1.80% increase in the economic value of equity. Likewise, an instantaneous decrease in rates of 100 basis points indicates a decrease of 3.7% in net interest income and a decrease of 1.95% in the economic value of equity.

-17-

The table below sets forth, as of December 31, 2008 and 2007, the estimated changes in the Company’s net interest income and economic value of equity, which would result from the designated instantaneous changes in the yield curve over the next twelve months. These results are not necessarily indicative of future actual results, nor do they take into account certain actions that management may undertake in response to future changes in interest rates.


As of December 31,		2008						2007
Change in interest rates		Net interest			Economic value of			Net interest			Economic value of
(basis points)		income			equity			income			equity
	+100		4.21	%		1.80	%		0.92	%		(4.70	)%
	-100		(3.71	)%		(1.95	)%		(1.44	)%		3.95	%

Interest Rate Fluctuation

The Company’s earnings are affected by the fiscal and monetary policies of the Federal government and its agencies. The Board of Governors of the Federal Reserve System regulates the supply of money and credit in the United States. Their policies significantly impact the Banks’ cost of funds for deposits and borrowings and the return earned on loans and investments. Changes in the Federal Reserve Board policies are difficult to predict or anticipate. During 2007, the Federal Reserve board lowered interest rates 100 basis points. The yield curve environment shifted from a predominately inverted yield curve environment at December 31, 2006 to a flat/inverted yield curve throughout 2007. Management evaluated rate changes that included the inversion of the yield curve throughout 2007. See discussion of Market Risk above.

Regulations

Extensive regulation by Federal banking authorities and various legislative bodies imposes requirements and restrictions which can impact the Company’s operations, as well as change its competitive environment. Periodic examinations conducted by regulatory authorities could result in various requirements or sanctions.

Economic Downturn

A significant majority of the Banks’ assets, deposits and fee income is generated in the Washington, D.C. metropolitan area and Richmond Virginia. As a result, deterioration of local economic conditions in these areas could expose the Company to losses associated with higher loan default rates and lower asset collateral values, deposit withdrawals and other factors that could adversely impact its financial condition and results of operations.

Business Disruption

Operations could be disrupted by various circumstances including damage or interruption from natural disasters, fire, terrorist attack, power loss, network failure, security breaches, computer viruses or intentional sabotage. The Company has controls and procedures in place to minimize its vulnerability and has developed a business recovery plan; however, any disruption in operations could affect its ability to conduct business and adversely impact its results from operations.

Competition

Banking is a highly competitive industry. Although the Banks compete on the basis of interest rates, convenient locations, quality of customer service, customized products and community involvement, they face strong competition from institutions that are larger and have greater financial resources. In addition, customers could bypass banks and other traditional financial institutions in favor of other financial intermediaries and thus cause a decrease in revenue.

Stock Price Volatility

The Company’s stock price can be volatile due to a variety of factors including: actual or anticipated variations in its quarterly operating results; recommendations by security analysts; acquisitions and mergers involving the Company or its competitors; news reports of trends, concerns, and other issues in the financial services industry; and changes in regulations. General market conditions, industry factors and economic trends, interest rate changes, or credit loss trends, could cause the Company’s stock price to decrease regardless of its operating results.

Dividend Payment Limitations

The Company receives substantially all of its revenue from dividends paid by its bank subsidiaries, Adams National Bank and Consolidated Bank and Trust. These dividends are the principal source of funds used to pay dividends on the Company’s common stock. Federal regulations limit the dividend amounts that subsidiary banks can pay to their holding company. See Note 15 of the Notes to Consolidated Financial Statements for further details of this limitation.

-18-

Credit Risk

The Company is exposed to credit risk on its loan portfolio. Even though the portfolio is closely monitored and evaluation of this risk is performed, unexpected credit losses may subsequently be identified as a result of additional analysis performed by the Company or comments received from regulatory examiners. Loss exposure could develop if collateral values were to deteriorate after the loan has been made. See asset quality discussion on pages 10 through 12 of this report.

Liquidity Risk

Changes in the stability of the economic environment or deterioration of the public’s confidence in the banking system could cause significant withdrawals by the Banks’ depositors and adversely impact the Company’s liquidity position. In addition, liquidating securities available for sale could result in the recognition of a loss. The Company closely monitors its liquidity position including its sources of funding and commitments to fund assets or deposit withdrawals and believes it has sufficient liquidity to fund its commitments. See the discussion on liquidity on page 12 of this report.

Reputation

The Company could suffer damage to its reputation if employees act unprofessionally or illegally. To mitigate this risk, the Company has instituted an employee code of conduct and implemented various personnel policies and procedures to ensure integrity and adherence to policies and procedures within its operations.

-19-

Management’s Report on Internal Control over Financial Reporting

Management of Abigail Adams National Bancorp (“the Company”) is responsible for establishing and maintaining adequate internal control over financial reporting. The internal control process over financial reporting was designed by the Company’s principal executive and principal financial officer with the objective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

The Company’s internal control process over financial reporting includes policies and procedures that: (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that corporate receipts and expenditures are being made only in accordance with authorizations of management and directors; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of corporate assets that could have a material effect on the financial statements. Due to inherent limitations, all internal control systems, no matter how well designed, may not prevent or detect misstatements. There is the risk that controls may become inadequate over time because of changes in conditions and the degree of compliance with the policies or procedures may deteriorate.

Management conducted an evaluation of the effectiveness of the internal control over financial reporting based on the Committee of Sponsoring Organizations (“COSO”) framework. The framework is intended to: include widely-accepted criteria designed to facilitate the establishment of internal control; define the role and responsibility of management; and provide for consistent and recognized means to monitor, evaluate and report on the effectiveness of the control structure. Based on the evaluation, management determined that there were no material weaknesses within the internal control structure and concluded that internal control over financial reporting for the Company as of December 31, 2008 was effective.

This annual report does not include an attestation report by the Company’s registered public accounting firm, McGladrey & Pullen, LLP, regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.



Robert A. Walker
Chairman, President and CEO
Abigail Adams National Bancorp, Inc.



Karen E. Troutman
Senior Vice President
Chief Financial Officer

-20-

SUMMARY OF QUARTERLY FINANCIAL INFORMATION
(Unaudited)
(In thousands, except per share data)


	Three Months Ended
	12/31			9/30			6/30		3/31

Summary of Operations by Quarter:

2008:
Interest income	$	5,551		$	6,522		$	6,524	$	6,705
Net interest income		3,413			4,170			4,078		3,840
Provision for loan losses		4,352			6,395			970		105
Net (loss) income		(2,896	)		(3,530	)		83		564
Per common share:
Basic and diluted (loss) earnings		($0.84	)		($1.02	)	$	0.02	$	0.16
Dividends declared		—			—		$	0.125	$	0.125
Average shares outstanding for:
Basic earnings per share		3,463			3,463			3,463		3,463
Diluted earnings per share		3,463			3,463			3,466		3,466

2007:
Interest income	$	7,445		$	7,840		$	7,659	$	7,307
Net interest income		4,136			4,094			4,239		4,183
Provision (credit) for loan losses		25			75			75		85
Net income		1,013			653			711		682
Per common share:
Basic earning	$	0.29		$	0.19		$	0.21	$	0.20
Diluted earnings	$	0.29		$	0.19		$	0.21	$	0.20
Dividends declared	$	0.125		$	0.125		$	0.125	$	0.125
Average shares outstanding for:
Basic earnings per share		3,463			3,463			3,462		3,462
Diluted earnings per share		3,467			3,467			3,466		3,466

Closing price per common share: ^(a)
2008 High	$	6.28		$	8.95		$	11.50	$	11.85
2008 Low	$	2.51		$	5.29		$	9.20	$	10.15
2007 High	$	13.91		$	14.00		$	14.34	$	14.39
2007 Low	$	10.37		$	13.42		$	13.50	$	13.31


(a)		The above market data presents the high and low closing prices for the respective periods as reported by NASDAQ.

At December 31, 2008 the Company had 837 shareholders of record.

-21-

McGladrey & Pullen, LLP

Report of Independent Registered Public Accounting Firm

To the Board of Directors
Abigail Adams National Bancorp, Inc.

We have audited the accompanying consolidated balance sheets of Abigail Adams National Bancorp, Inc. and subsidiaries (the “Company”) as of December 31, 2008 and 2007, and the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2008. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Abigail Adams National Bancorp, Inc. and subsidiaries as of December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157, “Fair Value Measurements.”

We were not engaged to examine management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008 included in the accompanying Management’s Report on Internal Control Over Financial Reporting and, accordingly, we do not express an opinion thereon.

Frederick, Maryland
April 15, 2009

-22-

ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2008 and 2007
(Dollars in thousands)


	2008			2007

Assets
Cash and due from banks	$	14,166		$	15,567
Federal funds sold		6,722			12,816
Interest-earning deposits in other banks		2,659			20,380

Total cash and cash equivalents		23,547			48,763


Investment securities available for sale, at fair value		62,814			66,392
Investment securities held to maturity, at amortized cost (market values of $3,226 and $13,269 for 2008 and 2007, respectively)		3,175			13,309

Loans		324,764			307,483
Less: allowance for loan losses		(12,514	)		(4,202	)

Loans, net		312,250			303,281

Premises and equipment, net		4,994			4,985
Other assets		16,901			9,145

Total assets	$	423,681		$	445,875


Liabilities and Stockholders’ Equity
Liabilities:
Deposits
Noninterest-bearing deposits	$	67,193		$	74,833
Interest-bearing deposits		279,768			312,109

Total deposits		346,961			386,942
Short-term borrowings		24,477			8,494
Long-term debt		26,132			15,120
Other liabilities		1,830			3,880

Total liabilities		399,400			414,436

Commitments and contingencies (Notes 10, 12 and 14)
Stockholders’ equity:
Common stock, $0.01 par value, authorized 5,000,000 shares; issued 3,492,633 shares in 2008 and 3,491,633 shares in 2007; outstanding 3,463,569 shares in 2008 and 3,462,569 shares in 2007		35			35
Additional paid-in capital		25,132			25,127
Retained earnings		551			7,196
Treasury stock, 29,064 shares in 2008 and 2007, at cost		(255	)		(255	)
Accumulated other comprehensive loss		(1,182	)		(664	)

Total stockholders’ equity		24,281			31,439

Total liabilities and stockholders’ equity	$	423,681		$	445,875

See Notes to Consolidated Financial Statements

-23-

ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31, 2008, 2007 and 2006
(Dollars in thousands except per share data)


	2008			2007		2006
Interest Income
Interest and fees on loans	$	21,238		$	25,044	$	22,558
Interest and dividends on investment securities — taxable		3,705			3,408		3,012
Other interest income		359			1,799		575

Total interest income		25,302			30,251		26,145


Interest Expense
Interest on deposits		8,638			12,672		8,010
Interest on short-term borrowings		372			144		765
Interest on long-term debt		791			783		633

Total interest expense		9,801			13,599		9,408

Net interest income		15,501			16,652		16,737
Provision (credit) for loan losses		11,822			260		(232	)

Net interest income after provision (credit) for loan losses		3,679			16,392		16,969


Noninterest Income
Service charges on deposit accounts		1,360			1,387		1,367
Other-than-temporary impairment of available for sale securities		(655	)		—		—
Other income		261			238		763

Total noninterest income		966			1,625		2,130


Noninterest Expense
Salaries and employee benefits		6,801			6,692		6,650
Occupancy and equipment expense		2,366			2,289		2,235
Professional fees		1,138			696		555
Data processing fees		843			971		946
Other operating expense		3,401			3,214		2,721

Total noninterest expense		14,549			13,862		13,107

(Loss) income before provision for income taxes		(9,904	)		4,155		5,992
Income tax (benefit) provision		(4,125	)		1,096		2,296

Net (loss) income		($5,779	)	$	3,059	$	3,696

(Loss) Earnings per Share:
Basic and diluted		($1.67	)	$	0.88	$	1.07

See Notes to Consolidated Financial Statements

-24-

ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity
Years Ended December 31, 2008, 2007 and 2006


												Accumulated
			Additional									Other
	Common		Paid-in			Retained			Treasury			Comprehensive
(Dollars in thousands except per share data)	Stock		Capital			Earnings			Stock			Income (Loss)			Total
Balance at December 31, 2005	$	35	$	24,865		$	3,903			($98	)		($652	)	$	28,053
Comprehensive income:
Net income		—		—			3,696			—			—			3,696
Unrealized gains during the period of $152 on investment securities available for sale, net of tax expense of $69		—		—			—			—			83			83
Unrealized net actuarial losses during the period of ($99) on pension plan, net of tax benefit of ($34)		—		—			—			—			(65	)		(65	)

Total comprehensive income																3,714

Acquisition and issuance of shares for ESOP		—		—			—			(112	)		—			(112	)
Retired shares		—		(12	)		—			—			—			(12	)
Dividends declared ($0.50 per share)		—		—			(1,731	)		—			—			(1,731	)
Final purchase price adjustments related to Consolidated Bank and Trust acquisition		—		270			—			—			—			270

Balance at December 31, 2006	$	35	$	25,123		$	5,868			($210	)		($634	)	$	30,182

Comprehensive income:
Net income		—		—			3,059			—			—			3,059
Unrealized losses during the period of ($336) on investment securities available for sale, net of tax benefit of ($147)		—		—			—			—			(189	)		(189	)
Unrealized net actuarial gain during the period of $241 on pension plan, net of tax expense of $82		—		—			—			—			159			159

Total comprehensive income																3,029

Issuance of shares under stock option program		—		4			—			—			—			4
Acquisition and issuance of shares for ESOP		—		—			—			(45	)		—			(45	)
Dividends declared ($0.50 per share)		—		—			(1,731	)		—			—			(1,731	)

Balance at December 31, 2007	$	35	$	25,127		$	7,196			($255	)		($664	)	$	31,439

Comprehensive loss:
Net loss		—		—			(5,779	)		—			—			(5,779	)
Unrealized losses during the period of ($363) on investment securities available for sale and a tax benefit decrease of ($126)		—		—			—			—			(489	)		(489	)
Reclassification adjustment for settlement loss of $43 during the period on pension plan termination recognized in loss, net of tax benefit of $14		—		—			—			—			(29	)		(29	)

Total comprehensive loss																(6,297	)

Issuance of shares under stock option program		—		5			—			—			—			5
Dividends declared at $0.25 per share		—		—			(866	)		—			—			(866	)

Balance at December 31, 2008	$	35	$	25,132		$	551			($255	)		($1,182	)	$	24,281

See Notes to Consolidated Financial Statements

-25-

ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 2008, 2007 and 2006
(In thousands)


	2008			2007			2006
Cash flows from operating activities:
Net (loss) income	$	(5,779	)	$	3,059		$	3,696
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Provision (credit) for loan losses		11,822			260			(232	)
Depreciation		611			589			541
Accretion and amortization of deferred loan fees and costs, net		113			(21	)		(560	)
Accretion and amortization of purchase accounting adjustments, net		(107	)		(102	)		(34	)
Gain on sale of guaranteed portion of SBA loans		(39	)		(43	)		(386	)
Net premium amortization (discount accretion) on investment securities		20			2			(185	)
Other-than-temporary impairment of available for sale securities		655			—			—
Other real estate owned valuation adjustment		131			—			—
Loss on the sale of foreclosed and other assets		19			29			—
Deferred income tax benefits		(3,697	)		(732	)		(91	)
Increase in other assets		(693	)		(144	)		(301	)
Contribution to pension plan		—			—			(700	)
(Decrease) increase in other liabilities		(2,050	)		1,056			190

Net cash provided by operating activities		1,006			3,953			1,938


Cash flows from investing activities:
Proceeds from maturities of investment securities held to maturity		11,500			4,000			1,000
Proceeds from maturities of investment securities available for sale		46,615			16,500			11,780
Proceeds from repayment of mortgage-backed securities held to maturity		642			418			227
Proceeds from repayment of mortgage-backed securities available for sale		1,805			1,062			822
Proceeds from the sale of foreclosed and other assets		264			282			—
Purchase of investment securities held to maturity		(2,011	)		(3,734	)		(1,455	)
Purchase of investment securities available for sale		(45,876	)		(35,218	)		(4,995	)
Purchase of FHLB and FRB stock		(18,456	)		(1,534	)		(2,532	)
Redemption of FHLB stock		17,689			892			2,760
Net increase in loans		(23,250	)		(1,279	)		(58,667	)
Purchase of collateral and build out cost on foreclosed assets		(676	)		—			—
Purchase of premises and equipment, net		(621	)		(670	)		(700	)

Net cash used in investing activities		(12,375	)		(19,281	)		(51,760	)


Cash flows from financing activities:
Net (decrease) increase in transaction and savings deposits		(43,203	)		4,977			(524	)
Net increase in time deposits		3,222			18,375			72,018
Net increase (decrease) in short-term borrowings		15,983			6,116			(5,878	)
Proceeds from long-term debt		16,132			10,000			—
Repayment of long-term debt		(5,120	)		(1,168	)		(4,925	)
Proceeds from issuance of common stock for stock option programs		5			4			—
Retired common stock		—			—			(12	)
Purchased treasury stock		—			(45	)		(112	)
Cash dividends paid to common stockholders		(866	)		(1,731	)		(1,731	)

Net cash (used) provided by financing activities		(13,847	)		36,528			58,836

Net (decrease) increase in cash and cash equivalents		(25,216	)		21,200			9,014
Cash and cash equivalents at beginning of year		48,763			27,563			18,549

Cash and cash equivalents at end of year	$	23,547		$	48,763		$	27,563

-26-

ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
Years Ended December 31, 2008, 2007 and 2006
(In thousands)


	2008		2007		2006
Supplemental disclosures:
Interest paid on deposits and borrowings	$	11,064	$	13,279	$	8,727
Income taxes paid		1,078		1,662		2,203
Non-cash transfer of loans to foreclosed assets		2,406		1,410		—

See Notes to Consolidated Financial Statements

-27-

ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements

Note 1 Summary of Significant Accounting Policies

Abigail Adams National Bancorp, Inc. (the “Company”) is a two-bank holding company that provides its customers with banking and non-banking financial services through its principal wholly-owned subsidiaries, The Adams National Bank (“ANB”) and Consolidated Bank and Trust (“CB&T”) and together the “Banks”. The Banks offer various loan, deposit, and other financial service products to their customers. The Banks’ customers include individuals, not-for-profit, and commercial enterprises. Their principal market areas encompass the cities of Washington, D.C., Richmond and Hampton, Virginia, and their surrounding metropolitan areas.

The Company prepares its consolidated financial statements on the accrual basis and in conformity with accounting principles generally accepted in the United States of America. The more significant accounting policies are explained below. As used herein, the term the Company includes the Banks, unless the context otherwise requires.

	(a)		Principles of Consolidation

			The consolidated financial statements include the accounts of the Company and the Banks. All significant intercompany accounts and transactions have been eliminated in consolidation.

	(b)		Cash and Cash Equivalents

			The Company has defined cash and cash equivalents as those amounts included in “Cash and due from banks,” “Federal funds sold,” and “Interest-earning deposits in other banks.” Federal funds sold generally mature in one day. Cash flows from loans and deposits are reported net. The Company maintains amounts due from banks and Federal funds sold which, at times, may exceed Federally insured limits. The Company has not experienced any losses from such concentrations.

	(c)		Securities

			Management determines the appropriate classification of securities at the time of purchase. Securities which the Company has the ability and the intent to hold until maturity are classified as investment securities held to maturity and are reported at amortized cost. Investment securities which are not classified as held to maturity or trading account assets are classified as available for sale and are reported at fair value with unrealized gains and losses reported in accumulated other comprehensive income (loss). Unrealized gains and losses reflect the difference between fair market value and amortized cost of the individual securities as of the reporting date. The market value of securities is generally based on quoted market prices or dealer quotes. The Company does not maintain a trading account. Declines in the fair value of held to maturity and available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method. Premiums and discounts are amortized using a method which approximates the effective interest method over the term of the security.

			The investment securities portfolio is evaluated for other-than-temporary impairment (“OTTI”) by segregating the portfolio into two general segments and applying the appropriate OTTI model. Investment securities classified as available for sale or held-to-maturity are generally evaluated for OTTI under Statement of Financial Accounting Standards (“SFAS”) No. 115, Accounting for Certain Investments in Debt and Equity Securities However, certain purchased beneficial interests, including non-agency mortgage-backed securities, asset-backed securities, and collateralized debt obligations, that had credit ratings at the time of purchase of below AA are evaluated using the model outlined in EITF Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests that Continue to be Held by a Transfer in Securitized Financial Assets. Securities determined to not have OTTI under EITF 99-20 are required to be evaluated using the guidance of SFAS No. 115.

-28-

			In determining other than temporary losses under the SFAS No. 115 model, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

			The second segment of the portfolio uses the OTTI guidance provided by EITF 99-20 that is specific to purchased beneficial interests that, on the purchase date, were rated below AA or those purchased at a significant premium (generally 10% or more) which might result in the Company not recovering substantially all of its investment. Under the EITF 99-20 model, the Company compares the present value of the remaining cash flows as estimated at the purchase date to the current expected remaining cash flows. An OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows.

			After a debt security classified as available for sale has been written down for other-than-temporary impairment, the Company accretes the resulting discount over the remaining life of the debt security based on the amount and timing of future estimated cash flows. In each period subsequent to the write-down, an unrealized holding gain or loss is determined by comparing the available for sale security’s fair value with its new amortized cost basis. Any recovery in fair value is recorded in earnings when the security is sold.

	(d)		Loans

			The Company originates commercial, commercial real estate and consumer loans in the Washington D.C. and Richmond and Hampton, Virginia metropolitan areas. Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are stated at the amount of unpaid principal, adjusted for deferred loan fees and origination costs, and reduced by an allowance for loan losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.

			The accrual of interest is discontinued at the time a loan becomes 90 days delinquent, unless the credit is well-secured and in the process of collection. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful. All interest accrued but not collected for loans placed on nonaccrual or charged-off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for the return to accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

	(e)		Allowance for Loan Losses

			The allowance for loan losses, a material estimate susceptible to significant change in the near-term, is maintained at a level that management determines is adequate to absorb inherent losses in the loan portfolio. The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Banks’ allowance for loan losses and may require the Banks to make changes to the allowance based on their judgments about information available to them at the time of their examinations.

			The allowance for loan losses is established through a provision for loan losses charged to operating expense. Loans are charged against the allowance for loan losses, when management believes that collectibility of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance.

			A loan is impaired when it is probable, based upon current information and events, the Company will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement. Impaired loans are valued based on the fair value of the related collateral, if the loans are collateral dependent. For all other impaired loans, the specific reserves approximate the present values of expected future cash flows discounted at the loan’s effective interest rate. The amount of the impairment, if any, and any subsequent changes are included in the allowance for loan losses.

-29-

			The allowance consists of specific, general and unallocated components. The specific component relates to loans identified for impairment testing and generally meeting the Company’s internal criteria for classification such as doubtful, substandard or special mention. For such loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and those loans classified as not impaired and is based on historical loss experience adjusted for qualitative factors. These factors consider changes in nonperforming and past-due loans, concentrations of loans to specific borrowers and industries, general and regional economic conditions, as well as other factors existing at the determination date. The qualitative factors are subjective and require a high degree of management judgment. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

	(f)		Loan Origination Fees and Costs

			Loan origination fees, net of costs directly attributable to loan originations, are deferred and recognized over the estimated lives of the loans using the interest method as an adjustment to the related loan’s yield. Deferred fees and costs are not amortized during periods in which interest income is not being recognized because of concerns about the realization of loan principal or interest.

	(g)		Foreclosed Assets

			Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in net expenses from foreclosed assets. Foreclosed assets net of a valuation allowance totaled $4.1 million at December 31, 2008 and $1.4 million at December 31, 2007.

	(h)		Transfers of Financial Assets

			Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right to pledge or exchange the transferred assets and no condition both constrains the transferee from taking advantage of that right and provides more than a trivial benefit for the transferor, and (3) the transferor does not maintain effective control over the transferred assets through either (a) an agreement that both entitles and obligates the transferor to repurchase or redeem the assets before maturity or (b) the ability to unilaterally cause the holder to return specific assets, other than through a cleanup call.

	(i)		Premises and Equipment

			Premises and equipment are carried at cost less accumulated depreciation and include additions that materially extend the useful lives of existing premises and equipment. All other maintenance and repair expenditures are expensed as incurred. Depreciation of equipment is computed using the estimated useful lives of the respective assets on the straight-line basis. Amortization of leasehold improvements is amortized on a straight-line basis over the estimated useful lives of the respective assets or the terms of the respective leases, whichever is shorter.

	(j)		Impairment of Assets

			Long-lived assets, which are held and used by the Company, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If impairment is indicated by that review, the asset is written down to its estimated fair value through a charge to noninterest expense.

-30-

	(k)		Federal Home Loan Bank Stock

			The Banks, as members of the Federal Home Loan Bank (FHLB) system, are required to maintain an investment in capital stock of the FHLB in an amount equal to the greater of 1% of their outstanding home loans or 5% of advances from the FHLB. No ready market exists for the FHLB stock, and it has no quoted market value. The FHLB stock is included in other assets and is carried at cost which equals the redemption value. At December 31, 2008, ANB owned 18,462 shares recorded at a cost of $1,846,200 and CB&T owned 1,597 shares recorded at a cost of $159,700. The Company views its investment in the FHLB stock as a long-term investment. Accordingly, when evaluating for impairment, the value is determined based on the ultimate recovery of the par value rather than recognizing temporary declines in value. The determination of whether a decline affects the ultimate recovery is influenced by criteria such as: 1) the significance of the decline in net assets of the Atlanta FHLB as compared to the capital stock amount and length of time a decline has persisted; 2) impact of legislative and regulatory changes on the Atlanta FHLB and 3) the liquidity position of the Atlanta FHLB. At December 31, 2008 and 2007, the Atlanta FHLB had retained earnings of $434.9 million and $468.8 million, respectively. The Atlanta FHLB did not pay dividends in the fourth quarter of 2008 primarily because of an other-than-temporary impairment loss of $186.1 million on their MBS portfolio. They expect to make future dividend determinations at each quarter end after quarterly results are known. The Atlanta FHLB was in compliance with the Finance Agency’s regulatory capital rules and requirements at December 31, 2008 and we did not consider our investment in FHLB stock to be impaired as of this date.

	(l)		Earnings (Loss) Per Share

			Basic earnings per share computations are based upon the weighted average number of shares outstanding during the periods. Diluted earnings per share computations in 2007 and 2006 were determined using the treasury stock method and based upon the weighted average number of shares outstanding during the period plus the dilutive effect of outstanding stock options. The following table provides a reconciliation of the number of shares between the computation of basic EPS and diluted EPS for the periods ended December 31, 2007 and 2006. For the period ending December 31, 2008, the dilutive effects of options are excluded from the computation of the loss per share because the inclusion is antidilutive.


	2008		2007		2006
Weighted average shares		3,463,323		3,462,274		3,462,126
Effect of dilutive stock options		—		3,684		3,950

Dilutive potential average common shares		3,463,323		3,465,958		3,466,076

	(m)		Stock-Based Compensation Plans

			The Company accounts for its stock-based compensation awards in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123R, Share-Based Payment (“Statement 123R”). Statement 123R requires public companies to recognize compensation expense related to stock-based compensation awards over the period during which an employee is required to provide service for the award. Compensation expense is equal to the fair value of the award, net of estimated forfeitures, and is recognized over the vesting period of such awards. For additional information on the Company’s stock-based compensation, see Note 17 to the consolidated financial statements.

	(n)		Comprehensive Income

			Accounting principles generally require that recognized revenue, expenses, gains, and losses be included in income. Certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities or pension plan unfunded liabilities, are reported as a separate component of the equity section of the balance sheet. Such items, along with net income, are components of comprehensive income.

	(o)		Risks and Uncertainties

			The Company is subject to competition from other financial institutions, and is also subject to the regulations of certain Federal agencies and undergoes periodic examination by those regulatory authorities.

			Most of the Company’s activities are with customers located within Washington, DC, Richmond, Virginia and their surrounding metropolitan areas. Note 6 discusses the types of securities in which the Company invests. Note 7 discusses the types of lending in which the Company engages. The Company does not have any significant concentrations to any one industry or customer.

-31-

			In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, as of the date of the balance sheet and revenues and expenses for the reporting period. Actual results could differ significantly from these estimates.

			Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for loan losses, the valuation of deferred tax assets, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, the determination of other-than-temporary impairment for securities, and the fair value disclosures of financial instruments. In connection with the determination of the allowances for loan losses and other real estate owned, management periodically obtains independent appraisals for significant properties owned or serving as collateral for loans.

	(p)		Income Taxes

			The Company records a provision for income taxes based upon the amounts of current taxes payable (or refundable) and the change in net deferred tax assets or liabilities during the year. Deferred tax assets and liabilities are recognized for the tax effects of differing carrying values of assets and liabilities for tax and financial statement reporting purposes that will reverse in future periods. Deferred tax assets and liabilities are included in the consolidated financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. It is the Company’s policy to recognize interest and penalties related to unrecognized tax liabilities within noninterest expense in the statements of operations.

	(q)		Fair Value

			Effective January 1, 2008, the Company adopted SFAS 157, Fair Value Measurements, which provides a framework for measuring fair value under generally accepted accounting principles. SFAS 157 applies to all financial instruments that are being measured and reported on a fair value basis. The Company also adopted SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities, on January 1, 2008. SFAS 159 allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement of certain financial assets on a contract-by-contract basis. SFAS 159 requires that the difference between the carrying value before election of the fair value option and the fair value of these instruments be recorded as an adjustment to beginning retained earnings in the period of adoption. The Company presently elected not to report any of its existing financial assets or liabilities at fair value and consequently did not have any adoption related adjustments.

			For additional information on the fair value of financial instruments, see Note 20 to the Consolidated Financial Statements.

	(r)		Recent Accounting Pronouncements

			SFAS Statement No. 157, Fair Value Measurements, became effective for fiscal years beginning after November 15, 2007. However, the Financial Accounting Standards Board (“FASB”) has deferred the effective date in SFAS 157 for nonfinancial assets and nonfinancial liabilities (except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis — at least annually) with the issuance of FASB Staff Position (“FSP”) FAS 157-2, Effective Date of FASB Statement No. 157, to fiscal years beginning after November 15, 2008. This deferral does not apply to entities that have issued interim or annual financial statements that include application of the measurement and disclosure provisions of Statement 157. This FSP lists examples of items for which deferral would apply, including nonfinancial assets and nonfinancial liabilities initially measured at fair value in a business combination or other new basis event, but not measured at fair value in subsequent periods (nonrecurring fair value measures). Financial Assets and Financial Liabilities are defined in FASB Statement No. 107, Disclosures About Fair Value of Financial Instruments. The Company does not expect that adoption of the FSP will have a material impact on its financial condition or results of operations.

-32-

			FSP 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active, was issued on October 10, 2008, and became effective upon issuance. This FSP applies to financial assets within the scope of accounting pronouncements that require or permit fair value measurements in accordance with Statement 157 and clarifies the application of Statement 157 in a market that is not active. This FSP was effective upon issuance, including prior periods for which financial statements have not been issued. Revisions resulting from a change in the valuation technique or its application are accounted for as a change in accounting estimate (FASB Statement No. 154, Accounting Changes and Error Corrections). The disclosure provisions of Statement 154 for a change in accounting estimate are not required for revisions resulting from a change in valuation technique or its application. The adoption of this FSP did not have a material impact on the Company’s financial condition or results of operations.

			FSP No. EITF 99-20-1 amends the impairment guidance in EITF Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets, to achieve more consistent determination of whether an other-than-temporary impairment has occurred. The FSP also retains and emphasizes the objective of an other-than-temporary impairment assessment and the related disclosure requirements in FASB statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, and other related guidance. The objective of an other-than-temporary impairment analysis is to determine whether it is probable that the holder will realize some portion of the unrealized loss on an impaired security. U.S. GAAP indicates that the holder may ultimately realize the unrealized loss on the impaired security because, for example, (a) it is probable that the holder will not collect all of the contractual or estimated cash flows, considering both the timing and amount or (b) the holder lacks the intent and ability to hold the security to recovery. In making its other-than-temporary impairment assessment, the holder should consider all available information relevant to the ability to collect the security, including information about past events, current conditions, and the value of underlying collateral. The EITF is effective for interim and annual reporting periods ending after December 15, 2008, and shall be applied prospectively. Retrospective application to a prior interim or annual reporting period is not permitted. The Company evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market concern warrants such evaluation. OTTI charges amounted to $.7 million during 2008. Additional OTTI charges may be realized in the future as the result of changes in the financial condition and near-term prospects of the issuer or the inability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

			In December 2007, FASB issued SFAS No. 141 (R), Business Combinations, and SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements. SFAS No. 141 revises the previous statement on business combinations and requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the financial effect of the business combination. As these Statements applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008, this Statement was not applicable to the Company for the year ended December 31, 2008. SFAS No. 160 requires all entities to report noncontrolling (minority) interests in subsidiaries in the same way — as equity in the consolidated financial statements.

			On April 9, 2009, the Financial Accounting Standards Board (FASB) recently issued three amendments to the fair value measurement, disclosure and other-than-temporary impairment standards:

	•		FASB Staff Position (FSP) No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly

	•		FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments

	•		FSP No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments

-33-

			FASB Statement 157, Fair Value Measurements, defines fair value as the price that would be received to sell the asset or transfer the liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. FSP FAS 157-4 provides additional guidance on determining when the volume and level of activity for the asset or liability has significantly decreased. The FSP also includes guidance on identifying circumstances when a transaction may not be considered orderly.

			FSP FAS 157-4 provides a list of factors that a reporting entity should evaluate to determine whether there has been a significant decrease in the volume and level of activity for the asset or liability in relation to normal market activity for the asset or liability. When the reporting entity concludes there has been a significant decrease in the volume and level of activity for the asset or liability, further analysis of the information from that market is needed and significant adjustments to the related prices may be necessary to estimate fair value in accordance with Statement 157.

			This FSP clarifies that when there has been a significant decrease in the volume and level of activity for the asset or liability, some transactions may not be orderly. In those situations, the entity must evaluate the weight of the evidence to determine whether the transaction is orderly. The FSP provides a list of circumstances that may indicate that a transaction is not orderly. A transaction price that is not associated with an orderly transaction is given little, if any, weight when estimating fair value.

			FSP FAS 115-2 and FAS 124-2 clarifies the interaction of the factors that should be considered when determining whether a debt security is other-than-temporarily impaired. For debt securities, management must assess whether (a) it has the intent to sell the security and (b) it is more likely than not that it will be required to sell the security prior to its anticipated recovery. These steps are done before assessing whether the entity will recover the cost basis of the investment. Previously, this assessment required management to assert it has both the intent and the ability to hold a security for a period of time sufficient to allow for an anticipated recovery in fair value to avoid recognizing an other-than-temporary impairment. This change does not affect the need to forecast recovery of the value of the security through either cash flows or market price.

			In instances when a determination is made that an other-than-temporary impairment exists but the investor does not intend to sell the debt security and it is not more likely than not that it will be required to sell the debt security prior to its anticipated recovery, FSP FAS 115-2 and FAS 124-2 changes the presentation and amount of the other-than-temporary impairment recognized in the income statement. The other-than-temporary impairment is separated into (a) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of the total other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income.

			FSP FAS 107-1 and APB 28-1 amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods.

			All three FSPs discussed herein include substantial additional disclosure requirements. The effective date for these new standards is the same: interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. However, early adoption is allowed only if certain FSPs are early adopted together. The Company is evaluating the effect of these amendments.

	(s)		Reclassifications

			Certain reclassifications have been made to amounts previously reported to conform with the 2008 presentation with no effect on net income, earnings per share, or stockholders equity.

-34-

Note 2 Restrictions on Cash Balances

Included in cash and due from banks are balances maintained within the Company to satisfy legally required reserves and to compensate for services provided from correspondent banks. Restricted balances maintained totaled $7.5 million and $7.6 million at December 31, 2008 and 2007, respectively. There were no other withdrawal usage restrictions or legally required compensating balances at December 31, 2008 or 2007.

Note 3 Operational Developments

In the second half of 2008, several events occurred that could have an adverse impact on our ongoing operations. On October 1, 2008, the Company’s wholly owned subsidiary, ANB, entered into a Written Agreement (see note 4) with its primary regulator, The Office of the Comptroller of the Currency (the “OCC”). Under the agreement, ANB is required to achieve and maintain significantly higher capital ratio levels. At December 31, 2008, ANB did not maintain the higher capital ratio levels required under the Written Agreement (see note 16). The Written Agreement also restricts the ability of ANB to pay dividends, the primary source of income for the Company (see note 15). Failure to meet regulatory capital requirements or the terms of the Written Agreement exposes ANB to regulatory sanctions that may include further restrictions on operations and growth, mandatory asset dispositions and seizure.

In order for ANB to comply with these increased capital ratio requirements, the Company obtained $7.7 million in borrowings (see note 13) and provided a capital infusion into ANB during the fourth quarter of 2008. ANB recorded a $5.8 million net loss in 2008 primarily due to a $11.8 million charge to the provision for loan losses as a result of the declining housing values and worsening local economic conditions. Given the rising unemployment, the continued downward pressure on housing prices and the elevated national inventory of unsold homes, management does not expect there to be a significant improvement in the Company’s business during 2009. These factors are likely to continue to adversely impact the Company’s revenue, credit costs, business volume and earnings.

At December 31, 2008, the Company has debt obligations totaling $16.1 million maturing in 2009. However, the Company has requested and received from the lenders forbearance agreements from enforcing their rights to demand repayment of the principal or any portion thereof until January 31, 2010. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets, or the amounts and classification of liabilities that may result from the outcome of the Company’s inability to renew the outstanding principal of its debt or from any extraordinary regulatory action, either of which could affect our operations.

In an effort to maintain safe and sound banking practices, on December 31, 2008, the Company entered into a definitive agreement (see note 5) to be acquired by Premier Financial Bancorp, Inc. (Premier) of Huntington, West Virginia (NASDAQ/GM-PFBI) which is expected to be completed in the second quarter of 2009. The Company has restricted growth and is improving liquidity through selling loan participations.

Note 4 Written Agreement

On October 1, 2008, the Company’s wholly owned subsidiary, The Adams National Bank (the “Bank”), entered into a Written Agreement with its primary regulator, The Office of the Comptroller of the Currency (the “OCC”). The Written Agreement was filed with the SEC as an exhibit to a Current Report on Form 8-K, dated October 2, 2008. Under the terms of the Written Agreement, the Bank has agreed to take certain actions relating to the Bank’s lending operations and capital compliance. Specifically, the OCC is requiring the Bank to take the following actions:

		a) conduct a review of senior management to ensure that these individuals can perform the duties required under the Bank’s policies and procedures and the requirements of the Written Agreement, and where necessary, the Bank must provide a written program to address the training of the Bank’s senior officers;

		b) achieve certain regulatory capital levels, which are greater than the regulatory requirements to be “well capitalized” under bank regulatory requirements. In particular, the Bank must achieve a: 12% total risk-based capital to total risk-weighted assets ratio; 11% Tier 1 capital to risk-weighted assets ratio; and 9% Tier 1 capital to adjusted total assets ratio;

		c) develop and implement a three-year capital program;

-35-

		d) make additions to the allowances for loan and lease losses and adopt and implement written policies and procedures for establishing and maintaining the allowance in a manner consistent with the Written Agreement;

		e) adopt and implement an asset diversification program consistent with OCC guidelines and to perform an analysis of the Bank’s concentrations of credit;

		f) take all necessary actions to protect the Bank’s interest in criticized assets, adopt and implement a program to eliminate regulatory criticism of these assets, engage in an ongoing review of the Bank’s criticized assets and develop and implement procedures for the effective monitoring of the loan portfolio;

		g) hire an independent appraiser to provide a written or updated appraisal of certain assets;

		h) develop and implement a program to improve the management of the loan portfolio and to provide the Board with monthly written reports on credit quality;

		i) employ a loan review consultant acceptable to the OCC to perform a quarterly quality review of the Bank’s assets;

		j) revise the Bank’s lending policy in accordance with OCC requirements; and

		k) maintain acceptable liquidity levels.

The Written Agreement includes time frames to implement the foregoing and on-going compliance requirements for the Bank, including requirements to report to the OCC. The Written Agreement also requires the Bank to establish a committee of the Board of Directors which will be responsible for overseeing compliance with the Written Agreement. The Bank has taken steps to comply with the requirements of the Written Agreement. At December 31, 2008, ANB’s capital ratio levels did not conform to the regulatory capital levels required in the Written Agreement. For further details see Note 16 “Regulatory Capital Requirements”.

Note 5 Merger Agreement

On December 31, 2008, the Company entered into a definitive agreement whereby Premier Financial Bancorp, Inc. (Premier) of Huntington, West Virginia (NASDAQ/GM-PFBI), will acquire it in a 100% stock exchange valued at approximately $10.9 million based on Premier’s closing stock price on December 31, 2008 of $7.03. Under terms of the definitive agreement, each share of the Company’s common stock will be converted into 0.4461 shares of Premier common stock. Premier anticipates that it will issue approximately 1,545,000 shares of its common stock. The transaction, which is subject to satisfaction of various contractual conditions and requires approval by regulatory agencies and the shareholders of the Company and Premier, is anticipated to close sometime in the second quarter of 2009.

-36-

Note 6 Securities

The amortized cost and estimated fair value of investment securities held to maturity and investment securities available for sale at December 31, 2008, and 2007 are as follows:


			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated Fair
(In thousands)	Cost Basis		Gains		Losses		Value
December 31, 2008:
Investment Securities — available for sale:
US government sponsored agencies and corporations	$	45,072	$	608	$	18	$	45,662
Mortgage-backed securities		11,243		288		—		11,531
Municipal securities		953		—		55		898
Corporate debt securities		6,084		38		1,718		4,404
Marketable equity securities		1,002		—		683		319

Total	$	64,354	$	934	$	2,474	$	62,814

Investment Securities — held to maturity:
U.S. government sponsored agencies and corporations	$	2,007	$	27	$	—	$	2,034
Mortgage-backed securities		1,168		25		1		1,192

Total	$	3,175	$	52	$	1	$	3,226


December 31, 2007:
Investment Securities — available for sale:
U.S. government sponsored agencies and corporations	$	52,709	$	308	$	34	$	52,983
Mortgage-backed securities		7,105		50		64		7,091
Corporate debt securities		6,750		29		1,179		5,600
Marketable equity securities		1,005		—		287		718

Total	$	67,569	$	387	$	1,564	$	66,392

Investment Securities — held to maturity:
U.S. government sponsored agencies and corporations	$	11,498	$	—	$	57	$	11,441
Mortgage-backed securities		1,811		20		3		1,828

Total	$	13,309	$	20	$	60	$	13,269

For years ended December 31, 2008, 2007, and 2006, the Company had no gains or losses on sales of securities.

The fair value of securities with unrealized losses by length of time that the individual securities have been in a continuous unrealized loss position at December 31, 2008 and 2007, are as follows:


	Continuous unrealized losses				Continuous unrealized losses
	existing for less than 12 months				existing 12 months or more				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(In thousands)	Value		Losses		Value		Losses		Value		Losses

December 31, 2008:
U.S. government sponsored agencies and corporations	$	1,983	$	18	$	—	$	—	$	1,983	$	18
Mortgage-backed securities		188		1		—		—		188		1
Municipal securities		898		55		—		—		898		55
Corporate debt securities		1,246		200		2,719		1,518		3,965		1,718
Marketable equity securities		—		—		319		683		319		683

Total	$	4,315	$	274	$	3,038	$	2,201	$	7,353	$	2,475


December 31, 2007:
U.S. government sponsored agencies and corporations	$	999	$	1	$	19,407	$	90	$	20,406	$	91
Mortgage-backed securities		—		—		4,046		67		4,046		67
Corporate debt securities		2,981		697		1,580		482		4,561		1,179
Marketable equity securities		718		287		—		—		718		287

Total	$	4,698	$	985	$	25,033	$	639	$	29,731	$	1,624

-37-

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Analysis of the available for sale securities for potential other-than-temporary impairment was considered under the SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities impairment model and included the following factors: the length of time and extent to which the market value has been less than cost; the financial condition and near-term prospects of the issuer including specific events; the Company’s intent and ability to hold the investment to the earlier of maturity or recovery in market value, the credit rating of the security; the implied and historical volatility of the security; whether the market decline was affected by macroeconomic conditions or by specific information pertaining to an individual security; and any downgrades by rating agencies. As applicable under SFAS No. 115, the Company considers a decline in fair value to be other-than-temporary if it is probable that the Company will not recover its recorded investment, including as applicable under the Emerging Issues Task Force (EITF) Issue 99-20, Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets, when an adverse change in cash flows has occurred.

At December 31, 2008, the available for sale investment classified as marketable equity securities consists of perpetual preferred securities which have been valued below cost for more than 22 months. These securities, carried at fair value of $319,000 with an unrealized loss of $683,000. The securities are not required to be redeemed by the issuer, nor are they redeemable at the option of the investor and are therefore classified as equity securities under SFAS 115. Based on the results of the analysis of these perpetual securities using the SFAS No.115 impairment model, we concluded that the decline in fair value has been the result of the liquidity conditions in the current market environment due to the sub-prime mortgage crisis and housing market recession and not from concerns regarding the credit quality or financial condition of the issuer. We continue to receive interest at 5.75% as scheduled and we have the intent and ability to hold the perpetual preferred securities until their expected recovery in fair value. The Company does not consider it probable that it will not recover its investment and recorded no other-than-temporary impairment on the marketable equity securities at December 31, 2008 or December 31, 2007.

The Company has two corporate debt securities which were purchased in 2004 and have been rated below investment grade since 2005. At December 31, 2007, these corporate debt securities were being carried at a combined fair value of $851,000 with an unrealized loss of $210,000. During 2008, based on the SFAS No. 115 impairment model, management determined that it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the debt securities and that an other-than-temporary impairment had occurred even though the issuers were not in default and were paying interest at 7.0% and 7.125% as scheduled and the Company has the intent and ability to hold the investments until their maturity in 2013. The unamortized cost of the two debt securities was written down to $400,000 and an other-than-temporary impairment of $655,000 was recorded in noninterest income during 2008. At December 31, 2008, the two corporate debt securities were carried at an aggregate fair value of $438,000 with an unrealized gain of $38,000.

The Company also has five other corporate debt securities which have been valued below cost for more than 12 months. At December 31, 2008, these were carried at a combined fair value of $2.7 million with an unrealized loss of $1.5 million and currently have Moody ratings in the range of A1 to A3 and Standard and Poors ratings ranging from A+ to BB+. Interest payments ranging from 5.625% to 6.100% continue to be received as scheduled. Based on the analysis performed by applying the SFAS No. 115 impairment model and where applicable, EITF Issue 99-20, the Company does not consider it probable that it will not recover the full contractual cost of these investments. Based on our analysis, we concluded that the decline in fair value has been the result of the liquidity conditions in the current market environment due to the sub-prime mortgage crisis and housing market recession and not from concerns regarding the credit quality or financial condition of the issuers. Further, the Company has not experienced any adverse change in cash flows from holding the investments and has the intent and ability to hold the investments to the earlier of maturity or recovery in fair value and, therefore did not record any other-than-temporary impairment charge at December 31, 2008 or at December 31, 2007 on these five corporate debt securities.

The remaining unrealized losses that existed as of December 31, 2008 and December 31, 2007, are a result of market changes in interest rates since the securities’ purchase. This factor, coupled with the fact the Company has both the intent and the ability to hold these securities for a period of time sufficient to allow for recovery in fair value substantiates that the remaining unrealized losses in the held to maturity and available for sale portfolios are temporary.

-38-

Securities with market values of $62.0 million and $61.7 million at December 31, 2008 and 2007, respectively, were pledged to collateralize public deposits and repurchase agreements.

The cost and estimated fair value of investment securities held to maturity and investment securities available for sale at December 31, 2008, by contractual maturity are shown on the following table. Expected maturities may differ from contractual maturities in mortgage-backed securities, because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties; therefore, these securities are not included in maturity categories in the following table.


	December 31, 2008
	Amortized		Estimated
(In thousands)	Cost		Fair Value
Investment Securities — available for sale:
Due in one year or less	$	5,000	$	5,062
Due after one year through five years		27,490		27,935
Due after five years through ten years		11,982		12,098
Due after ten years		7,637		5,869
Mortgage-backed securities		11,243		11,531
Marketable equity securities		1,002		319

Total		64,354		62,814

Investment Securities — held to maturity:
Due in one year or less		—		—
Due after one year through five years		2,007		2,034
Mortgage-backed securities		1,168		1,192

Total	$	3,175	$	3,226

Note 7 Loans

Loans at December 31, 2008 and 2007 were as follows:


(In thousands)	2008			2007
Commercial and industrial	$	43,733		$	38,606
Real estate:
Commercial mortgage		163,228			128,320
Residential mortgage		54,887			67,375
Construction and development		61,485			70,798
Installment to individuals		1,648			2,716

Subtotal		324,981			307,815
Less: net deferred loan fees		(217	)		(332	)

Total	$	324,764		$	307,483

At December 31, 2008, 2007 and 2006, $33.8 million, $8.8 million and $1.5 million, respectively, were considered nonaccrual loans (loans for which the accrual of interest has been discontinued). Interest income on nonaccrual loans that would have been recorded if accruing was $1.2 million, $649,000 and $180,000 in 2008, 2007 and 2006, respectively. There was no interest income recognized on a cash basis on nonaccrual loans in 2008 or 2007, and there was $21,000 recognized in 2006. At December 31, 2008, the Company had no loans that were greater than 90 days delinquent and still accruing interest, compared to one loan totaling $2.1 million at December 31, 2007, and two loans totaling $1.9 million at December 31, 2006 that were 90 days delinquent and accruing interest.

-39-

The activity in the allowance for loan losses follows:


(In thousands)	2008			2007			2006
Balance at beginning of the year	$	4,202		$	4,432		$	4,345
Provision (credit) for loan losses		11,822			260			(232	)
Recoveries		260			198			676
Charge-offs		(3,770	)		(688	)		(357	)

Balance at end of year	$	12,514		$	4,202		$	4,432

The following is a summary of information pertaining to impaired loans:


(In thousands)	2008		2007		2006
Impaired loans without a valuation allowance	$	17,284	$	454	$	1,508
Impaired loans with a valuation allowance		30,720		8,309		—


Total impaired loans	$	48,004	$	8,763	$	1,508

Valuation allowance related to impaired loans	$	8,343	$	1,518	$	—
Average investment in impaired loans	$	12,959	$	4,351	$	1,109
Interest income recognized on impaired loans on cash basis	$	0	$	0	$	21
Interest income recognized on impaired loans on accrual basis	$	119		-0-		-0-

The Company is currently committed to lend approximately $784,000 in additional funds on these impaired loans in accordance with the original terms of these loans; however, the Company is not legally obligated to, and will not, disburse additional funds on any loans while in nonaccrual status. Of the $784,000 in committed funds on impaired loans, $595,000 is applicable to nonaccrual loans. The Company will continue to monitor its portfolio on a regular basis and will lend additional funds as warranted on these impaired loans.

Approximately 92.3% of the impaired loans as of December 31, 2008 relate to commercial real estate and construction and development loans. As of December 31, 2008, $17.3 million of impaired loans do not have any specific valuation allowance under SFAS 114. Pursuant to SFAS 114, a loan is impaired when both the contractual interest payments and the contractual principal payments of a loan are not expected to be collected as scheduled in the loan agreement. The $17.3 million of impaired loans without a specific valuation allowance as of December 31, 2008 are generally impaired due to delays or anticipated delays in receiving payments pursuant to the contractual terms of the loan agreements.

The Company has experienced declines in the current valuations for real estate collateral supporting portions of its loan portfolio, primarily construction and development loans, throughout calendar year 2008, as reflected in recently received appraisals. Currently, $45.6 million, or approximately 93.7%, of impaired loans have recent appraisals (dated within two months of the balance date). If real estate values continue to decline and as updated appraisals are received, the Company may have to increase its allowance for loan losses appropriately.

Loan impairment is reported when full payment under the loan terms is not anticipated, which can include loans that are current or less than 90 days past due.

The Company has engaged in banking transactions in the ordinary course of business with some of its directors, officers, principal shareholders and their associates. Such loans are at normal credit terms, including interest rates and collateral, and do not represent more than the normal risk of collection. At December 31, 2008 and 2007, none of these loans were reported as nonaccrual, restructured or classified. The aggregate amount of loans to related parties for the years ended December 31, 2008 and 2007 were $1.4 million and $79,000, respectively.

-40-

Note 8 Bank Premises and Equipment

Bank premises and equipment at December 31, 2008 and 2007 are summarized as follows:


(Dollars in thousands)	2008			2007			Useful Life
Land	$	854		$	854
Building and leasehold improvements		4,279			4,237		3-20 years
Furniture and equipment		3,480			2,959		3-10 years

Subtotal, at cost		8,613			8,050
Accumulated depreciation and amortization		(3,619	)		(3,065	)

Total, net	$	4,994		$	4,985

Amounts charged to operating expenses for depreciation expense aggregated $611,000, $589,000 and $541,000 in 2008, 2007 and 2006, respectively.

Note 9 Deposits

The following table sets forth the dollar amounts in the various types of deposit programs.


(In thousands)	December 31, 2008		December 31, 2007
Demand deposits	$	67,193	$	74,833
Savings accounts		15,054		15,090
NOW accounts		71,823		78,829
Money market accounts		20,323		48,845

Total non-certificate deposits		174,393		217,597

Certificates of deposit		172,568		169,345

Total deposits	$	346,961	$	386,942

The following table summarizes certificates of deposit at December 31, 2008 by time remaining until maturity.


	Maturity
(In thousands)	3 Months or Less		Over 3 to 6 Months		Over 6 to 12 Months		Over 12 Months		Total

Certificates of deposit less than $100,000	$	41,518	$	23,061	$	42,765	$	17,967	$	125,311
Certificates of deposit of $100,000 or more		18,816		12,860		11,187		4,394		47,257

Total certificates of deposit	$	60,334	$	35,921	$	53,952	$	22,361	$	172,568

At December 31, 2008, the scheduled maturities on all time deposits are as follows:


Year	< $100,000		> $100,000		Total
	(In thousands)

2009	$	107,344	$	42,863	$	150,207
2010		7,323		2,775		10,098
2011		8,013		1,242		9,255
2012		1,810		277		2,087
2013		821		100		921


	$	125,311	$	47,257	$	172,568

-41-

Related party deposits totaled approximately $1.1 million and $1.3 million at December 31, 2008 and 2007, respectively. In management’s opinion, interest rates paid on these deposits, where applicable, are available to others at the same terms.

Note 10 Leasing Arrangements

The Company and banking subsidiaries have entered into various noncancelable operating leases for office and branch locations. These noncancelable operating leases are subject to renewal options under various terms. Some leases provide for periodic rate adjustments based on cost-of-living index changes. Rental expense in 2008, 2007 and 2006 was approximately $1.2 million, $1.1 million, and $1.1 million, respectively. Future minimum payments under noncancelable operating leases that have initial or remaining lease terms in excess of one year are as follows:


Years ending December 31,
(In thousands)	Amount
2009	$	1,151
2010		1,114
2011		1,131
2012		933
2013		269
2014 and thereafter		161


Total	$	4,759

Note 11 Income Taxes

Income tax expense for 2008, 2007 and 2006 consists of:


(In thousands)	2008			2007			2006
Current income tax (benefit) expense:
Federal		($428	)	$	1,415		$	1,925
District of Columbia		—			413			462

		(428	)		1,828			2,387

Deferred tax benefit:
Federal		(2,619	)		(653	)		(76	)
District of Columbia		(1,078	)		(79	)		(15	)

		(3,697	)		(732	)		(91	)

Total tax (benefit) expense:
Federal		(3,047	)		762			1,849
District of Columbia		(1,078	)		334			447

		($4,125	)	$	1,096		$	2,296

-42-

Income tax (benefit) expense differed from the amounts computed by applying the statutory Federal income tax rate of 34 % to pretax income, as a result of the following:


	2008						2007						2006
(Dollars in thousands)	Amount			%			Amount			%			Amount			%

Tax (benefit) expense at statutory rate		($3,367	)		34.0	%	$	1,413			34.0	%	$	2,037			34.0	%
State and local taxes based on income, net of Federal tax effect		(712	)		7.2	%		220			5.3	%		295			4.9	%
Reversal of NOL valuation allowance		—			—	%		(525	)		-12.6	%		—			—
Other, net		(46	)		0.4	%		(12	)		-0.3	%		(36	)		-0.6	%

Total		($4,125	)		41.6	%	$	1,096			26.4	%	$	2,296			38.3	%

The following is a summary of the tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2008 and 2007:


(In thousands)	2008		2007
Deferred tax assets:
Allowance for loan losses	$	4,661	$	1,548
Other real estate owned valuation		53		—
Purchase fair market value adjustments on loans		68		104
Other than temporary write down of investment securities		266		—
Unrealized loss on investment securities		358		485
Unrealized net actuarial gains — pension plan		—		(14	)
Compensated absences		24		27
Deferred rent		133		156
Interest on nonaccrual loans		468		262
Net operating loss carryforward		760		632
Other		44		49

Total deferred tax assets	$	6,835	$	3,249

Deferred tax liabilities:
Fixed assets	$	809	$	807

Total deferred tax liabilities	$	809	$	807

Net deferred tax assets	$	6,026	$	2,442

FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48) requires the Company to review outstanding tax positions and establish a liability in its balance sheet for those positions that more likely than not, based on technical merits, would not be sustained upon examination by taxing authorities. The Company files U.S. federal income tax returns and state income tax returns in Maryland and the District of Columbia. Based on the statute of limitations, the Company is no longer subject to U.S. federal and state examinations by tax authorities for years before 2005. Based on the review of the tax returns filed for the years 2005 through 2007 and the tax benefits accrued in the 2008 annual financial statements, management determined that 100% of the benefits accrued were expected to be realized and has a high confidence level in the technical merits of the positions. It believes that the deductions taken and benefits accrued are based on widely understood administrative practices and procedures and are based on clear and unambiguous tax law. As a result of this evaluation, management did not record a liability for unrecognized tax benefits in 2008 or 2007.

-43-

At December 31, 2008, the Company had a total of $1.9 million of federal net operating loss (NOL) carryforwards that expire in 2022 through 2024. Utilization of this NOL is limited under IRC Section 382 to approximately $109,000 per year. The Company also has a District of Columbia NOL carryforward of $1.9 million that expires in 2028.

Note 12 Short-term Borrowings

Short-term borrowings consist of securities sold under repurchase agreements, Federal funds purchased, and FHLB advances. Federal funds purchased represent funds borrowed overnight, and FHLB advances include overnight borrowings or advances with terms of three months or less. Unused Federal fund lines of credit at December 31, 2008 were $5.0 million. There were no outstanding Federal funds purchased at December 31, 2008 or December 31, 2007. FHLB advances totaled $16.8 million at December 31, 2008 and $0 at December 31, 2007. Outstanding repurchase agreements at December 31, 2008 were $7.7 million and $8.5 million at December 31, 2007. Securities sold under repurchase agreements generally involve the receipt of immediately available funds which mature in one business day or roll over under a continuing contract. In accordance with these contracts, the underlying securities sold are segregated from the Company’s other investment securities.

Short-term borrowings for 2008 and 2007 are summarized below:


(Dollars in thousands)	2008			2007
Year end balance	$	24,477		$	8,494
Average balance		18,867			5,175
Maximum month-end outstanding		35,957			12,578
Average interest rate for the year		1.97	%		2.78	%
Average interest rate at year end		0.64	%		3.32	%

Note 13 Long-term Debt

The Banks maintain a line of credit with the Federal Home Loan Bank of Atlanta (FHLB) for advances collateralized with a blanket floating lien on first mortgages and commercial real estate. Additional FHLB advances are available up to 20% of assets and would require the pledging of additional qualifying assets. ANB is required by the FHLB to provide collateral at 125% of advances. Unused borrowing capacity at December 31, 2008 is approximately $48.9 million.

Long-term debt at December 31, 2008 and 2007 consisted of the following:


(Dollars in thousands)	Rate			2008		2007
FHLB borrowings due on March 21, 2008		2.990	%	$	—	$	200
FHLB borrowings due on December 1, 2008		6.950	%		—		151
FHLB borrowings due on March 9, 2012		4.286	%		10,000		10,000
Term note due July 27, 2014	Daily WSJ Prime rate less ..50%				—		4,769
Corporate loan due on January 28, 2009	Daily WSJ prime rate less 1%				5,000	—
Revolving line of credit due on May 2, 2009	Daily WSJ prime rate less ..25% with a floor of 4.00%				3,482	—
Demand note	Daily WSJ prime rate				3,400	—
Draw note due on June 30, 2009	Daily JP Morgan Chase Bank NY prime rate with a floor of 5.00%				4,250

Total				$	26,132	$	15,120

-44-

In March of 2007, the Company obtained a convertible advance from the FHLB in the amount of $10.0 million at a fixed rate of 4.286% with a maturity date of March 9, 2012. Interest only payments are due quarterly. The FHLB has the option on any interest payment date to convert the interest rate on this advance from a fixed rate to a variable rate based on the three month Libor rate.

On July 27, 2007, the Company converted a $5.0 million term note from interest only payments due monthly at variable Prime rate to a variable Prime rate less 50 basis points with principal and interest payments due monthly and maturing on July 27, 2014. The interest rate at December 31, 2007 was 6.75%. The proceeds of the loan were used to fund a capital infusion to CB&T at acquisition on July 29, 2005 as required by its regulators. In February of 2008, this loan was replaced with a promissory note due on January 28, 2009 which is secured by 80,000 shares or 80% of ANB capital stock. The interest rate on this note at December 31, 2008 was 2.25%. The Company renewed the loan on January 28, 2009 with a maturity date of August 1, 2009 at a variable rate of 1% below Prime rate and an interest rate floor of 6.00%.

In May of 2008, the Company obtained a $4.0 million line of credit from the same institution holding the promissory note discussed above to fund a loan that exceeded the legal lending limit at its subsidiary bank, ANB. This line of credit is also secured by 80,000 shares or 80% of ANB capital stock, as noted above. At December 31, 2008, the line of credit balance was $3.5 million at an interest rate of 4.00%.

In November and December of 2008, the Company obtained a demand note and a $6.0 million line of credit, respectively, to provide for a capital infusion into its subsidiary bank, ANB in the amount of $7.7 million as required by a Written Agreement with ANB’s primary regulator, The Office of the Comptroller of the Currency (the “OCC”). The line of credit, with a balance of $4.3 million at December 31, 2008, is secured by 20,000 shares (20%) of ANB capital stock and 134,000 shares (100%) of CB&T capital stock and is guaranteed by Premier Financial Bancorp. At December 31, 2008, the unsecured demand note interest rate was 3.25% with interest only payments due quarterly and the draw note interest rate was 5.00% with interest only payments due on the 15^th of each quarter month.

In March of 2009, the Company requested and received from the lenders forbearance agreements from enforcing their rights to demand repayment of the principal or any portion thereof until January 31, 2010. Therefore, the amounts pertaining to these loans are included in 2010 for purposes of the table below.

Annual principal payments for the debt as of December 31, 2008 are as follows:


	Amount
Year ending December 31,	(In thousands)
2009		—
2010	$	16,132
2011		—
2012		10,000
2013		—
After 2013		—

Total	$	26,132

Note 14 Commitments and Contingent Liabilities

The Company is party to credit related financial instruments with off-balance-sheet risk in the ordinary course of business to meet the financing needs of its customers. These commitments include revolving credit agreements, term loan commitments, short-term borrowing agreements, and standby letters of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. The Company’s exposure to credit loss is represented by the contractual amount of these commitments. Both loan commitments and standby letters of credit have credit risk essentially the same as that involved in extending loans to customers and are subject to the normal credit approval procedures and policies.

-45-

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being funded, the total commitment amounts do not necessarily represent future liquidity requirements. Collateral is obtained based on management’s assessment of the customer’s credit. Unfunded commitments under commercial lines of credit, revolving credit lines, and overdraft protection agreements are commitments for possible future extension of credit to existing customers. These lines of credit are uncollateralized and usually do not contain a specific maturity date and may ultimately be drawn upon to the total extent to which the Company is committed.

Letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party and are primarily issued to support public and private borrowing arrangements. The majority of letters of credit issued have expiration dates of one year or less. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company generally holds collateral supporting those commitments, and at December 31, 2008 and 2007, such collateral amounted to $3.5 million and $3.6 million, respectively. The fair value of the standby letter of credit guarantees was nominal and the liability recorded at December 31, 2008 was $48,000, compared to $42,000 in 2007.

At December 31, 2008 and 2007, the following financial instruments were outstanding whose contracts represent credit risk:


(Dollars in thousands)	2008			2007
Commitment to originate loans	$	4,933		$	10,187
Unfunded commitments under lines of credit		76,401			104,134
Commercial and standby letters of credit		3,637			3,754
Portion of letters of credit collateralized		96.5	%		95.0	%

The Company and the Banks are defendants in litigation and claims arising from the normal course of business. Based upon consultation with legal counsel, management is of the opinion that the outcome of any claims and pending or threatened litigation will not have a material adverse impact on the Company’s financial position, results of operations or liquidity.

Note 15 Restrictions on Dividend Payments and Loans by Affiliated Banks

The primary source of dividends paid by the Company to its shareholders is dividends received from the Banks. Federal regulations restrict the total dividend payments that a banking association may make during any calendar year to the total net income of the banks for the current year plus retained net income for the preceding two years, without prior regulatory approval. Restrictions are also imposed upon the ability of the Banks to make loans to the Company, purchase stock in the Company or use the Company’s securities as collateral for indebtedness of the Banks. Due to the Written Agreement with the OCC dated October 1, 2008, the Bank must be in compliance with its approved capital plan and maintain the required capital level determined by the OCC and receive prior written determination of no supervisory objection, before a dividend is paid to the Company. ANB will not pay dividends to the Company for the foreseeable future due to the restrictions imposed by the Written Agreement. At December 31, 2008, approximately $646,000 of retained earnings of CB&T was available for dividend declarations.

-46-

Note 16 Regulatory Capital Requirements

The Company (on a consolidated basis) and the Banks are subject to various regulatory capital requirements administered by the Federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Banks must meet specific capital guidelines that involve quantitative measures of the Company’s and the Banks’ assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s and the Banks’ capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Banks to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). The most recent notification from the primary regulators for each of the Company’s affiliated banking institutions categorized CB&T as “well capitalized” under the regulatory framework for prompt corrective action and ANB as “adequately capitalized”. ANB can not be considered “well capitalized” while under the Written Agreement dated October 1, 2008, and must maintain the following capital levels: total risk based capital equal to 12% of risk-weighted assets; tier 1 capital at least equal to 11% of risk-weighted assets; and tier 1 capital at least equal to 9% of adjusted total assets. At December 31, 2008, ANB’s capital ratio levels did not comply with those required in the Written Agreement. ANB has taken steps to comply with the capital ratio requirements as stipulated in the Written Agreement. At December 31, 2008, the Company provided a capital infusion into ANB of $7.7 million. The Company has $1.75 million remaining on the credit facility to dividend to ANB in the future. ANB is not growing the balance sheet until the capital ratios are in compliance. ANB has also sold participations in loans during the first quarter of 2009 to shrink its assets and has also curtailed lines of credit on national credit facilities in which ANB participated. Additionally, ANB has reduced its operating expenses and is continuing to monitor spending.

The following table presents the capital position of the Company and the Banks relative to their various minimum statutory and regulatory capital requirements at December 31, 2008 and 2007.


											Minimum To Be Well Capitalized
											Under Prompt Corrective Action
											Provisions or Adequately
						Minimum Capital					Capitalized under terms of the
	Actual					Requirements					Written Agreement
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
December 31, 2008:
Total capital to risk weighted assets:
Consolidated	$	27,637		8.03	%	$	27,527		8.00	%		⁽¹⁾
ANB		31,694		11.67	%		21,724		8.00	%		32,587		12.00	%
CB&T		9.532		13.64	%		5,591		8.00	%		6,988		10.00	%

Tier 1 capital to risk weighted assets:
Consolidated		23,234		6.75	%		13,764		4.00	%		⁽¹⁾
ANB		28,226		10.39	%		10,862		4.00	%		29,871		11.00	%
CB&T		8,655		12.38	%		2,795		4.00	%		4,193		6.00	%

Tier I capital to average assets:
Consolidated		23,234		5.47	%		16,981		4.00	%		⁽¹⁾
ANB		28,226		8.63	%		13,083		4.00	%		24,440		9.00	%
CB&T		8,655		9.18	%		3,769		4.00	%		4,712		5.00	%


(1)		The Company is not subject to this requirement.

-47-


											Minimum To Be Well Capitalized
						Minimum Capital					Under Prompt Corrective Action
	Actual					Requirements					Provisions
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
December 31, 2007
Total capital to risk weighted assets:
Consolidated	$	36,305		10.42	%	$	27,875		8.00	%		⁽¹⁾
ANB		30,648		10.75	%		22,799		8.00	%		28,498		10.00	%
CB&T		9,724		15.49	%		5,023		8.00	%		6,279		10.00	%

Tier 1 capital to risk weighted assets:
Consolidated		32,103		9.21	%		13,937		4.00	%		⁽¹⁾
ANB		27,481		9.64	%		11,399		4.00	%		17,099		6.00	%
CB&T		8,936		14.23	%		2,512		4.00	%		3,767		6.00	%

Tier I capital to average assets:
Consolidated		32,103		7.21	%		17,807		4.00	%		⁽¹⁾
ANB		27,481		7.77	%		14,150		4.00	%		17,688		5.00	%
CB&T		8,936		9.81	%		3,643		4.00	%		4,554		5.00	%


⁽¹⁾		The Company is not subject to this requirement.

Note 17 Benefit Plans

The Company has various stock option plans for directors and certain key employees. At December 31, 2008, there were 178,218 shares of common stock reserved for future issuance under the stock option plans of which there were 8,062 shares under option outstanding. The terms of the options are determined by the Board of Directors. Options vest over three years, and no options may be exercised beyond ten years from the grant date. The option price for the 2000 Stock Option Plan was 90% of the fair market value at the date of the grant.

The fair value of each option grant is estimated on the date of the grant using a Black-Scholes option pricing model. At December 31, 2008, the options outstanding have a weighted remaining average contractual life of 1.1 years. Compensation expense for stock options was recorded in salary expense over the vesting period. There were no options granted and no compensation expense for stock option plans was recorded for the years 2008, 2007, and 2006. The 8,062 options outstanding had no aggregate intrinsic value at December 31, 2008 since the exercise price of the options exceeded the market value of the underlying stock. The aggregate intrinsic value of the options exercised in 2008 and 2007 was $6,000 and $7,000, respectively.

The following is a summary of activity of the Company’s stock option plans for 2008, 2007 and 2006:


	December 31,
	2008					2007					2006
				Weighted Average					Weighted Average				Weighted Average
	Shares Under Option			Exercise Price		Shares Under Option			Exercise Price		Shares Under Option		Exercise Price
Outstanding at beginning of year		9,818		$	5.21		10,588		$	5.21		10,588	$	5.21
Granted		—			—		—			—		—		—
Exercised		(1,000	)	$	5.21		(770	)	$	5.21		—		—
Forfeited/expired		(756	)	$	5.21		—			—		—		—

Outstanding at end of year		8,062		$	5.21		9,818		$	5.21		10,588	$	5.21

Exercisable at end of year		8,062		$	5.21		9,818		$	5.21		10,588	$	5.21
Weighted average fair value of options granted		—			—		—			—		—		—

-48-

The Company offers an Employee Stock Ownership Plan (“ESOP”) with 401(k) provisions. Participants may make pre-tax and after-tax contributions to the 401(k) up to the maximum allowable under Federal regulations. The Company matches the pre-tax employee participant’s contributions at a rate of 100% of the first 3% of the employee’s qualifying salary and 50% up to the next 2% of salary. The Company’s 401(k) contribution expense was $167,000, $156,000 and $136,000 for the years ended December 31, 2008, 2007 and 2006, respectively, which is included in “Salaries and Benefits” in the accompanying consolidated statements of operations. Employees participate in a nonleveraged ESOP through which common stock of the Company is purchased at its market price for the benefit of the employees. The Board of Directors may elect to pay a discretionary contribution on an annual basis, which vests at the end of the third year. There was no ESOP expense in 2008 and 2007 and $25,000 for 2006. At December 31, 2008, the ESOP held 53,760 shares of the Company’s common stock. The ESOP is accounted for in accordance with Statement of Position 93-6, Employers’ Accounting for Employee Stock Ownership Plans. Shares held by the ESOP are treated as outstanding in computing earnings per share.

Note 18 Pension Plan

On January 10, 2007, the CB&T Board of Directors adopted a resolution to terminate its noncontributory defined benefit pension plan effective March 31, 2007. All participants became 100% vested on that date and all benefits were distributed by June 30, 2008. The Company recognized a settlement expense of $43,000 in 2008 and $79,000 in 2007 which was accounted for under SFAS No. 88. The plan maintained a September 30 year-end for computing plan assets and benefit obligations.

Obligations and funded status of pension plan at plan termination and prior year measurement date:


	Plan termination			Plan year ending
(In thousands)	June 30, 2008			September 30, 2007
Change in benefit obligation:
Benefit obligation, beginning	$	730		$	4,859
Interest cost		16			270
Actuarial (gain) loss		41			(71	)
Benefits paid		(787	)		(4,328	)

Benefit obligation, ending	$	—		$	730


Change in plan assets:
Fair value of plan assets, beginning	$	850		$	4,755
Actual return on plan assets		(19	)		423
Employer contribution		—			—
Benefits paid		(787	)		(4,328	)
Reversion to employer		(44	)		—

Fair value of plan assets, ending	$	—		$	850


Funded status, ending	$	—		$	120

Assumed discount rate of 6.75% was used to determine the benefit obligation at September 30, 2007.

The amount recognized in accumulated other comprehensive income was $0 at December 31, 2008 and a net gain of $43,000 at December 31, 2007. The net gain was recorded net of a deferred tax expense of $14,000. Amounts recognized in the balance sheet consist of:


	Years ended December 31,
(In thousands)	2008		2007

Noncurrent assets	$	—	$	120
Accumulated other comprehensive (gain) loss-net of deferred tax (expense) benefit		—		(29	)

-49-

The accumulated benefit obligation for the pension plan was $0 as of the termination date of June 30, 2008 and $730,000 as of September 30, 2007.

Components of net periodic costs were as follows:


	Years ended December 31,
(In thousands)	2008			2007

Interest cost	$	16		$	270

Expected return on plan assets		(27	)		(331	)


Net periodic benefit cost		($11	)		($61	)

Assumptions used to determine net periodic pension cost were as follows:


	Years ended December 31,
Weighted-average assumptions	2008			2007

Discount rate		6.25	%		5.75	%

Expected long-term return on plan assets		7.00	%		7.00	%

The expected long-term rate of return on plan assets reflects the average rate of earnings expected on the funds invested or to be invested to provide for the benefits included in the projected benefit obligation. In estimating that rate, consideration was given to both historical returns and returns expected to be available for reinvestment.

The percentages of fair value of total plan assets held at June 30, 2008 and September 30, 2007 by asset category were as follows:


Asset Allocation	June 30, 2008			September 30, 2007

Cash and equivalents		0.0	%		100.0	%

There are no estimated future benefit payments.

Note 19 Other Operating Expense

The following is a summary of the significant components of noninterest expense “other operating expense.”


(In thousands)	2008		2007		2006
Advertising	$	299	$	717	$	642
Bank security		178		186		194
Director and committee fees		275		241		228
Insurance		339		193		172
OREO expense		340		—		—
Loan expense		212		214		76
Stationery and office supplies		190		188		183
Taxes, other		131		123		134
Telephone		174		168		149
Travel		228		190		158
Other		1,035		994		785

Total other operating expense	$	3,401	$	3,214	$	2,721

-50-

Note 20 Fair Value of Financial Instruments

Effective January 1, 2008, the Company adopted the provisions of SFAS No. 157, Fair Value Measurements, for financial assets and financial liabilities. In accordance with Financial Accounting Standards Board Staff Position (FSP) No. SFAS 157-2, Effective Date of FASB Statement No. 157, the Company will delay application of SFAS 157 for non-financial assets and non-financial liabilities, until January 1, 2009. SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principals and expands disclosures about fair value measurements. The application of SFAS 157 in situations were the market for a financial asset is not active was clarified by the issuance of FSP No. SFAS 157-3, Determining the Fair Value of a Financial Asset When the Market for that Asset Is Not Active, in October 2008. FSP No. SFAS 157-3 became effective immediately and did not significantly impact the methods by which the Company determines the fair value of its financial assets.

SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal (or most advantageous) market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are independent, knowledgeable, able to transact and willing to transact.

SFAS 157 requires the use of valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities. The income approach uses valuation techniques to convert future amounts, such as cash flows or earnings, to a single present amount on a discounted basis. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost). Valuation techniques should be consistently applied. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. In that regard, SFAS 157 establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:


Level 1 inputs-		Unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2 inputs		Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speed, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.

Level 3 inputs		Unobservable inputs for determining the fair values of assets or liabilities that reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

-51-

The following table summarizes the Company’s balances of financial instruments measured at fair value on a recurring basis as of December 31, 2008, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

Quoted Prices in

Active Markets for

Significant Other

Significant

Identical Assets

Observable Inputs

Unobservable Inputs

(In thousands)

(Level 1)

(Level 2)

(Level 3)

Total

Investment securities available for sale

998

61,816

—

62,814

The Company outsources the recordkeeping for investment securities held by ANB to FTN Financial and for those held by CB&T to Suntrust Robinson Humphrey. The security grouped in Level 1 was based on the actual trade price. For 40 of the 53 securities categorized in Level 2 in the table above, FTN used the Interactive Data Corporation (“IDC”) as a pricing source. IDC’s evaluations are based on market data. IDC utilizes evaluated pricing models that vary based by asset class and include available trade, bid, and other market information. Generally, the methodology includes broker quotes, proprietary modes, vast descriptive terms and conditions databases, as well as extensive quality control programs. FTN also used, as a valuation source, the FTN proprietary valuation Matrices model for the one municipal security included in Level 2. The FTN Matrices model is used for valuing municipals. The model includes a separate curve structure for the Bank-Qualified versus general market municipals. The grouping of municipals are further broken down according to insurer, credit support, state of issuance, and rating to incorporate additional spreads and municipal curves. Suntrust used the R Reuters DataScope for Fixed Income as the pricing source for the remaining 12 securities included in Level 2 in the table above.

The following table summarizes the Company’s balances of financial instruments measured at fair value on a nonrecurring basis by level within the hierarchy at December 31, 2008:

Quoted Prices in

Active Markets for

Significant Other

Significant

Balance at December

Identical Assets

Observable Inputs

Unobservable Inputs

(In thousands)

31, 2008

(Level 1)

(Level 2)

(Level 3)

Impaired loans

22,377

—

21,266

1,111

The fair value of impaired collateral dependent loans is derived in accordance with SFAS No. 114, Accounting by Creditors for Impairment of a Loan. Fair value is determined based on the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. The value of real estate collateral is determined based on appraisal by qualified licensed appraisers hired by the Company. The valuation allowance for impaired loans is included in the allowance for loan losses in the consolidated balance sheets. The valuation allowance for impaired loans at December 31, 2008 was $8.3 million. During the twelve months ended December 31, 2008, the valuation allowance for impaired loans increased $6.8 million from $1.5 million at December 31, 2007.

SFAS 107, Disclosures about Fair Value of Financial Instruments, requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis.

-52-

The following table presents the estimated fair values of the Company’s financial instruments at December 31, 2008 and 2007 and is followed by a general description of the methods and assumptions used to estimate such fair values.


	December 31, 2008				December 31, 2007
(In thousands)	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value

Financial Assets:

Cash and due from banks	$	14,166	$	14,166	$	15,567	$	15,567
Federal funds sold and interest-earning deposits in other banks		9,381		9,381		33,196		33,196

Investment securities available for sale		62,814		62,814		66,392		66,392

Investment securities held to maturity		3,175		3,226		13,309		13,269

Loans, net		312,250		315,879		303,281		318,408

Accrued interest receivable		1,683		1,683		2,231		2,231

Financial Liabilities:

Deposits		346,961		338,707		386,942		378,717

Short-term borrowings		24,477		24,477		8,494		8,494

Long-term debt		26,132		27,041		15,120		16,952

Accrued interest payable		697		697		1,960		1,960

The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments.

Cash and due from banks. The carrying amounts reported in the balance sheet approximate fair value due to the short-term nature of these assets.

Federal funds sold and interest-bearing deposits in other banks. The carrying amounts of short-term investments on the balance sheet approximate fair value.

Investments securities available for sale and investment securities held to maturity. For fair value methodologies used see discussion above.

Loans. Estimated fair values for variable rate loans, which reprice frequently and have no significant credit risk, are based on carrying value. Estimated fair value for all other loans are estimated using discounted cash flow analyses, based on current market interest rates offered on loans with similar terms to borrowers of similar credit quality.

Deposits. The fair value of deposits with no stated maturity, such as noninterest-bearing deposits, NOW accounts, savings and money market deposit accounts, is the amount payable on demand as of year end. Fair values for time deposits are estimated using discounted cash flow analyses, based on the current market interest rates offered for deposits of similar maturities.

Short-term borrowings. The carrying values of Federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings approximate fair values.

Long-term debt. The fair value of the long-term debt is estimated by using discounted cash flow analyses, based on the current market rates offered for similar borrowing arrangements.

Accrued interest receivable and accrued interest payable. The carrying value of accrued interest receivable and payable is deemed to approximate fair value.

Off-balance sheet credit-related instruments. Loan commitments on which the committed interest rate is less than the current market rate were insignificant at December 31, 2008 and 2007. The estimated fair value of fee income on letters of credit at December 31, 2008 and 2007 was insignificant.

-53-

Note 21 Parent Company Only Financial Statements

The Parent Company’s condensed balance sheets at December 31, 2008 and 2007, and related condensed statements of operations and cash flows for years ended 2008, 2007, and 2006 are as follows:

Condensed Balance Sheets
(In thousands)


	December 31,
	2008			2007

Assets:
Cash in bank	$	151		$	78
Investment in subsidiary banks		37,929			35,753

Loans		3,496			—
Less: allowance for loan losses		(2,049	)		—

Loans, net		1,447			—

Other assets		1,145			414

Total assets	$	40,672		$	36,245


Liabilities and Stockholders’ Equity
Long-term debt	$	16,132		$	4,769
Other liabilities		259			37
Stockholders’ equity		24,281			31,439

Total liabilities and stockholders’ equity	$	40,672		$	36,245

Condensed Statements of Operations
(In thousands)


	Years Ended December 31,
	2008			2007			2006
Income
Dividends from subsidiary banks	$	950		$	2,325		$	3,000

Total income		950			2,325			3,000

Expenses
Professional fees		397			79			47
Interest expense		348			394			435
Loan loss provision		2,049			—			—
Other		527			512			619

Total expenses		3,321			985			1,101

(Loss) income before taxes and equity in undistributed net (loss) income of subsidiaries		(2,371	)		1,340			1,899
Income tax benefit		(1,348	)		(400	)		(447	)

(Loss) income before equity in undistributed (loss) earnings of subsidiaries		(1,023	)		1,740			2,346
Equity in undistributed net (loss) income of subsidiaries		(4,756	)		1,319			1,350

Net (Loss) Income	$	(5,779	)	$	3,059		$	3,696

-54-

Condensed Statement of Cash Flows
(In thousands)


	Years Ended December 31,
	2008			2007			2006
Operating Activities:
Net (loss) income		($5,779	)	$	3,059		$	3,696
Adjustments to reconcile net(loss) income to net cash provided by operating activities:
Equity in undistributed net loss (income) of subsidiaries		4,756			(1,319	)		(1,350	)
Provision for loan losses		2,049
Other, net		(509	)		56			(215	)

Net cash provided by operating activities		517			1,796			2,131

Investing Activities:
Capital infusion in subsidiary		(7,450	)		—			—
Increase in loans		(3,496	)		—			—

Net cash used by investing activities		(10,946	)		—			—

Financing Activities:
Proceeds from issuance of common stock, net		5			4			—
Retired shares of common stock		—			—			(12	)
Purchased treasury stock		—			(45	)		(112	)
Proceeds from long-term debt		16,132			—			—
Repayment of long-term debt		(4,769	)		(231	)		—
Cash dividends paid to stockholders		(866	)		(1,731	)		(1,731	)

Net cash provided (used) in financing activities		10,502			(2,003	)		(1,855	)

Net increase (decrease) in cash and cash equivalents		73			(207	)		276
Cash and cash equivalents at beginning of year		78			285			9

Cash and cash equivalents at end of year	$	151		$	78		$	285

Note 22 Segment Reporting

Management regularly reviews the performance of the Company’s operations on a reporting basis by legal entity. The Company has two operating segments comprised of its subsidiaries, ANB and CB&T, for which there is discrete financial information available. Both segments are engaged in providing financial services in their respective market areas and are similar in each of the following: the nature of their products, services; and processes; type or class of customer for their products and services; methods used to distribute their products or provide their services; and the nature of the banking regulatory environment. The parent company is deemed to represent an overhead function rather than an operating segment and its financial information is presented as the Other category in the schedule below. The accounting policies of the segments are the same as those described in the summary of significant accounting policies in Note 1 of the Notes to the Consolidated Financial Statements. The Company does not have a single external customer from which it derives 10 percent or more of its revenues.

-55-

Information about the reportable segments and reconciliation of such information to the consolidated financial statements as of and for the years ended December 31, follows:


	Segment Results and Reconciliation for Years Ended December 31,
	The Adams			Consolidated						Intercompany			Consolidated
(Dollars in thousands)	National Bank			Bank & Trust			Other ⁽¹⁾			Eliminations			Totals
2008:
Interest income	$	19,973		$	5,329		$	—		$	—		$	25,302
Interest expense		8,112			1,341			348			—			9,801
Net interest income (expense)		11,861			3,988			(348	)		—			15,501
Provision for loan losses		9,478			295			2,049			—			11,822
Noninterest income (loss)		665			401			(3,806	)		3,706			966
Noninterest expense		9,653			4,072			924			(100	)		14,549
Net (loss) income		(3,825	)		19			(5,779	)		3,806			(5,779	)
Assets		330,010			91,172			40,672			(38,173	)		423,681
Return on average assets (annualized)		-1.11	%		0.02	%	NM⁽²⁾				—			-1.32	%
Return on average equity (annualized)		-14.40	%		0.21	%	NM⁽²⁾				—			-19.14	%
2007:
Interest income	$	24,483		$	5,768		$	—		$	—		$	30,251
Interest expense		11,531			1,674			394			—			13,599
Net interest income (expense)		12,952			4,094			(394	)		—			16,652
Provision (credit)for loan losses		300			(40	)		—			—			260
Noninterest income		1,311			414			3,644			(3,744	)		1,625
Noninterest expense		9,254			4,117			591			(100	)		13,862
Net income		2,823			821			3,059			(3,644	)		3,059
Assets		356,879			88,582			36,245			(35,831	)		445,875
Return on average assets (annualized)		0.80	%		0.91	%	NM⁽²⁾				—			0.69	%
Return on average equity (annualized)		10.39	%		10.01	%	NM⁽²⁾				—			9.92	%
2006:
Interest income	$	21,225			4,920		$	—			—		$	26,145
Interest expense		7,935			1,038			435			—			9,408
Net interest income (expense)		13,290			3,882			(435	)		—			16,737
Provision for loan losses		250			(482	)		—			—			(232	)
Noninterest income		1,694			536			4,350			(4,450	)		2,130
Noninterest expense		8,774			3,767			666			(100	)		13,107
Net income		3,565			785			3,696			(4,350	)		3,696
Assets		322,828			82,218			35,203			(34,747	)		405,502
Return on average assets (annualized)		1.22	%		0.99	%	NM⁽²⁾				—			0.99	%
Return on average equity (annualized)		13.68	%		9.96	%	NM⁽²⁾				—			12.78	%


⁽¹⁾		Amounts represent parent company before intercompany eliminations. See Note 21 of the Notes to Consolidated Financial Statements.

⁽²⁾		Not considered a meaningful performance ratio for parent company.

Description of significant amounts included in the intercompany eliminations column in the segment report schedule are as follows:


(In thousands)	2008			2007			2006
Noninterest income- elimination of parent company’s undistributed loss (earnings) from subsidiaries	$	3,806			($3,644	)		($4,350	)
Net (loss) income- elimination of parent company’s (loss) earnings from subsidiaries	$	3,806			($3,644	)		($4,350	)
Assets- elimination of parent company’s investment in subsidiaries		($37,929	)		($35,753	)		($34,462	)

-56-

Note 23 Comprehensive Income (loss)

Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on securities available for sale and unrealized gains and losses on pension plan assets and benefit obligations. There were two reclassification adjustments realized in income for losses from components of other comprehensive loss in the year ended December 31, 2008 and none in the year ended December 31, 2007. In 2008, the Company recorded an other-than-temporary impairment charge on two corporate debt securities in the amount of $655,000 with a deferred tax benefit of $266,000 and a settlement loss in the amount of $43,000 with a deferred tax benefit of $14,000 on the termination of the CB&T pension plan.

The components of comprehensive income (loss) are as follows:


	December 31,
(In thousands)	2008			2007

Net (loss) income		($5,779	)	$	3,059
Available for sale securities:
Net unrealized losses on securities		(1,018	)		(336	)
Reclassification adjustment for other-than-temporary impairment losses realized in noninterest income		655			—
Income tax (expense) benefit		(126	)		147

		(489	)		(189	)


Pension plan assets and benefit obligations:
Net unrealized gains		—			241
Realized loss on pension termination		(43	)		—
Income tax benefit (expense)		14			(82	)

		(29	)		159

Total comprehensive (loss) income		($6,297	)	$	3,029

-57-

Abigail Adams National Bancorp
Stock Performance Graph

Set forth hereunder is a performance graph comparing (a) the total return on the common stock of the Company for the period beginning on December 31, 2003, through December 31, 2008, (b) the cumulative total return on stocks included in the NASDAQ Composite over such period, and (c) the cumulative total return on stocks included in the SNL NASDAQ Bank Index over such period. The cumulative total return on the Company’s common stock was computed assuming the reinvestment of cash dividends.

Assuming an initial investment in the common stock of Abigail Adams National Bancorp, Inc. of $100.00 on December 31, 2003 with dividends reinvested, the cumulative total value of the investment on December 31, 2008 would be $17.03. There can be no assurance that the Company’s stock performance will continue in the future with the same or similar trend depicted in the graph. The Company will not make or endorse any predictions as to future stock performance.


*Index*	12/31/03		12/31/04		12/31/05		12/31/06		12/31/07		12/31/08

Abigail Adams National Bancorp, Inc.		100.00		115.06		86.07		85.08		68.88		17.03
NASDAQ Composite		100.00		108.59		110.08		120.56		132.39		78.72
SNL Bank NASDAQ		100.00		114.61		111.12		124.75		97.94		71.13

-58-

EX-31.1 3 w73596exv31w1.htm EX-31.1 exv31w1

Exhibit 31.1

Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Robert W. Walker, certify that:

I have reviewed this Annual Report on Form 10-K of Abigail Adams National Bancorp, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a)		designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)		designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c)		evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d)		disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

	a)		all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b)		any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


April 15, 2009		/s/ Robert W. Walker
Date		Robert W. Walker President and Chief Executive Officer

EX-31.2 4 w73596exv31w2.htm EX-31.2 exv31w2

Exhibit 31.2

Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

		I, Karen E. Troutman, certify that:

1.		I have reviewed this Annual Report on Form 10-K of Abigail Adams National Bancorp, Inc.;

2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.		The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	a)		designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)		designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	c)		evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	d)		disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	a)		all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b)		any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


April 15, 2009		/s/ Karen E. Troutman
Date		Karen E. Troutman Principal Financial and Accounting Officer

EX-32 5 w73596exv32.htm EX-32 exv32

Exhibit 32

Certification pursuant to
18 U.S.C. Section 1350,
as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

Robert W. Walker, Chairman of the Board, President and Chief Executive Officer and Karen E. Troutman, Principal Financial and Accounting Officer of Abigail Adams National Bancorp, Inc. (the “Company”) each certify in his or her capacity as an officer of the Company that he or she has reviewed the annual report of the Company on Form 10-K for the year ended December 31, 2008 and that to the best of his or her knowledge:

	(1)		the report fully complies with the requirements of Sections 13(a) of the Securities Exchange Act of 1934; and

	(2)		the information contained in the report fairly presents, in all material respects, the financial condition and results of operations.

The purpose of this statement is solely to comply with Title 18, Chapter 63, Section 1350 of the United States Code, as amended by Section 906 of the Sarbanes-Oxley Act of 2002.


April 15, 2009		/s/ Robert W. Walker
Date		Robert W. Walker, President and Chief Executive Officer

April 15, 2009		/s/ Karen E. Troutman
Date		Karen E. Troutman Principal Financial and Accounting Officer

GRAPHIC 6 w73596w7359601.gif GRAPHIC begin 644 w73596w7359601.gif M1TE&.#EA1P)Y`?<``']_?[^_OS\_/P```/O[^_#P\/W]_?7U]??W]_KZ^OGY M^?3T].OKZ]G9V?S\_.+BXMS?GY\#`P*VMK;2TM)^?GRTM+:FIJ924E-;6UH>'A[*RLNGI MZ=?7U^7EY=34U(B(B(Z.CK>WMWY^?I"0D/'Q\:6EI34U-9F9F<7%Q>#@X-O; MV]W=W;N[N[Z^ON[N[KR\O*"@H.;FYFMK:[&QL7IZ>LS,S*>GIZ*BHM[>WJ&A MH3L[.\'!P79V=MC8V)Z>GJJJJH.#@\W-S::FII:6ELG)R9R7E^WM[9V=G7Q\ M?-K:VKBXN-75U8J*BH^/CWEY>:^OKU]?7Y&1D82$A'U]?7M[>ZZNKKV]O:RL MK)J:FM'1T8R,C&UM;=/3T\K*RH&!@965E>/CX\?'Q^3DY+FYN:BHJ&]O;W)R M&%A86-C M8X6%A3X^/EE9671T=%U=73@X.("`@#P\/'5U=5965EM;6["PL"\O+TY.3FIJ M:E5555%14;:VMG%Q<5-34U!04"8F)D]/3PT-#61D9&=G9U=75S(R,DA(2%Y> M7CHZ.BLK*QH:&E)24C0T-%A86!86%D='1S$Q,41$1"(B(DE)23,S,TQ,3!$1 M$0L+"QX>'D-#0PP,#`$!`6)B8A,3$SDY.4!`0`\/#RHJ*C8V-@<'!S/($.*'$FRI,F3*%.J7,FRIO8,.*'4NVK%F"&@*H7//JWF^1$!:@$R0"TN!`"!`0IX,0HG6Q3@3PB1X+/,(`BX0(L` MD!3ACY0I#D!,#FJ1&D"N(20P!C6F5!/-)`FH:$\WI;R!"RZ_'$*PP0C[^8(WBES1AA4#V')% M.=0(<`0YZ&#@!R>1"-"*-L!&`/,1V`R@A3\QZ`+U,=>T,<$(D1S_\PL]@1C` MKTGY'K3OX!SY"[!`$J!SBPT'9$'-%OXX2:(C83`"@@@#%$"Q0%5VZ`H._KR2 M#!(3M'$-!5IRZ<_)*:_<\@D#O+)`!0`,T,(!#PQ@Q08\K\B.$P\8,TP!A>C2 MB@8JQB(!%1+,,`,#C3\>^>25XY)&`AQPC40"F.!2!0)A#$""#U.U[S@ M3P2X:'%`(\]\XL\%X5#"^Q4TQ##,-PU8P";0(0'$D:1P!CF<`3.BN(`E8@!! M<(`_2@",7A#`"!`7_$80`P0(`,D(&-9@S`?1'@HC]P<(55^,,.YV!. M$0Y0B`$4XP@"X&`B%I@>(DW'2'P,20,%`D4)K@`;G;C@DPCPBV+T(!&^Z-SG M_*&B#_6@&.)0@D!*>$)?+6&%K[L"Z3``C]G18P0"R1V6_*'#X*EK($(DHJ]N MH8-*@JB)TRND/PZ92`Q><0`"B<`S>.`/((#Q`XYR0@[&@<9P7&"-;7SC.5Q0 MJ0K$P(YX])68`OD1!!9$@=RDR"#]43W(I:$91/!'*.SAA04,X!8=6,$W)/G! MBGWH>J4`GNF00/\`%P#@`0A`A3@@X(]/<",/!]`"+F:7CA.D<@`4R.'O7%F0 MXAT/`1&`P@94%$5<4L]QYD1GY=C!!7_\,IC#+"8823"`,$Q@#\U`XY.@Z4;\ MW:$0#+@"&C(@`@`>8`X`>&4X-^)-@H!SJ!$9IP&<1C5D^,D([SC&(I!APE9X M8P`9F*0M_;IBC!03(023:<05W_((!!F"#,[*A`RUH0P1'`(8W9I=2&T)4 MHCOTQY>$ZH_47<,4J"@')&*@(B)Y=*D%.YA3*R>"!IB4:R@EIC%A@`%TD`-D M.7O?3-GHQKHE*QL#($0A]N"-8QQ,%3M"JD:*.I"CJM8A$AA6:IG%)W7_[2`( M`A@$'R`A``Q\@!,K>,`G`D$086V!``)Y@`#NX`,#E.%2+RB@/QYP*4E4P`0" MN`023(4J53A!("$0P`T$DJZ!7%<`"S`(`1+AJS%X2U@A$$@!*E$)/]'66?Z` MU@L+$"MR>9=CN55`#FC!!BYLHK[ETJ0/[N`&@;#+5V;(XGWY^EJ+L#:5@*RP MAC<\D@O;,,,<#K&(,^)AUX[XQ"@F2(E!G.(6N]@@*WZQC&<\D!AK9([^((`2 MU'*&!"3@#`%`*(V'W!\;8\0)ZG"L!4CQ"@#,X0!;L`IL'`!,3R"!J@L`QA2 MIN8^?X?-%O'R(5P!`##T0`R70"4.JL!G/SO:.H"NB)?%P(4)9(`0%\"S/_3< MZ#_YZM.@#K6H1TWJ4IOZU*A.M:I7S>I6N_K5L(ZUK&=-ZUK;^M:XSK6N7QW1 MU?IQ.RRFB)=1D`("2.`-*^B!$G5P9L,%^]'07HJ)$Q)I83LV#S]XP2F8L(`H M)P$31K#R-Y\=[7(;9=K!^?5XR!T1(2<``H?H@Y]^'(`HI-?9YLZWM-D-D6JG M!-WZ#OA,``YC=:^'WR4AN,`7WA*%J]C@\T$X21S.$J?A.("\3=*,&[QCH>$ MXQJ_N,0]3O)_CYPA(?\W"<=+SG*,@!SB^CGYQV7>\II[Y.7#>QH_S#4OPZ3L*>]YF0'MMG?3O=UK[WL;3][W9T>=[OG?>^` MM_K=Y?[WP!L^@7JO,=`1E'B7-_[P+>_[P><.^%K_SA+Q]SRFO>$P/ MNN<_#_C0,W[TI*^[Z06?^=2K_O$I3_CC7<_PU1\=];0'3^Y6-/N?V)Y-O6=[ M[LVS^PX%OR>_U]?Q"3_\\A2?0\O?2?+QW?KF=^<1+U!2]'4R?<3CWOK/,4#_ M`XA`$T`>6(()608(8]GTHV!4. M4``VH`-```/@0`+V=A$U0`8O=!4ZJ';KUX-:<0`W$``F0`2+P`)R<`-+E!$( ML`8L<&]5T81NMW]0F!4%$`50T`EI<`(>H`$%(#@=@0`@``9@.!5B^'@X]F[Q M9E\KH!9E($'>5X94@0`9D`)`T`4F``MS4`8G001;_Q`#8>B`64<12'9MV:8) M8W``*B`(@@``6,`DZB>(3\$`7+`&>R`#4M`"7N`#*A$#1-`#XA85=X@17#9L MQ=8`25`&-Y`&&7![HL@4#^`"2:`)/8`!==`!`<,2,3`%:T`5LW@1;@9GCC40 M#1`$1?`'H\`#1TA]OX@1*\`"L5@2A<`'%P`"1!`()N`!?E`3"L`"6+"%4/&, M&>%E`[$%/8``/<`);O`"]<*-W5@1"*`%W@`E(U&!+=`#1G`*:W`&'2@3'<`" M?R`5\H@1](@J;@`\*E!L-T`&'."/_S@1)<`+TJ`*\.@1"L`%1E`+51`'9@`! M#)!:.?$(9:`)I!./DBA\%/_I6#M``GHP@QQP)RD`!JR(@+X2":VP:TB9E$JY ME$S9E$XY:J(P#.?`(?`@"K:&"B+@#O40#UGSE$F)#>F`"E[YE)%PDW@WCXXU M`NR`"(^A`;+P"6^@!G%0DB7XD1)1`!:(!M3`(8]S$1-P`V8`!6-`!VZ`!!P` MBD7A!()P!D\QD1'8$!;@`6FP"1$@"UY@`P4`B$E!`%[P!6C6%(ZI=29H>`O``1[`"EKP"FOP M`,AU!M6P(L90!2]P`5F4$`@03T@`"'"`"!]0!C,8%2F@"7Q00_LV>'X7@9E9 M$`7_4`==0`=2``9(P`>QJ`1V,!D)@`T`)9T`5I M,`B&$`*30`02\*-`V@-$0*1'8:0;MYL\-P$K@`:90`,NX`0H4*+ZH22!P`08 M<`9BP"0.@`*L0`I,,!8[8`(,:*)FR7Q+AZ8DIP`JX`5F_P`#=T`"94"7#C$! M.V`#4<`&]H<0!<`$9,`#>>45"P`&.E*FA?J=A]I\$]``<4`#2X`&3``!DLH0 M[B<$'Z`'7;`(6=`)F9H0*;`%)G`!E\D5"Q`$(Q"EOE>JD_>$E<<%-+`)=(`% MC-`!","=#X$"C4`"S)`%AI<`U]@$1G`)"UF'"U$(18`$8+`%3R`%;9`#-Q"L M'S$!?]`")+".77$#IX`'$HM\[O_:>@`BJ+$"HX!Y!P M!U*`!690`A*``#4;$@:0`3G0!$_0G%LA!"9`4$)AIB+G%0[PM-A!`&)@"&9@ M!%\0"A?@L0>1`!;``5Z``43@!LP0`C5P@#)1`4\`!SF``OYY%7F@!KT8%%RK M*$Q)``G9@ M!@TK%0Y0I3`[L;XVB2A:N#3!-\D0D=WA!R,0""S`"E&@`0<`ME]6`R'`#&XP M?U[``1;PH#UM!!2/@#!LR#HM@L/TG!DJ` M!#(`"I;_T`@-:0`((`$E8`98(`5W``F+**="80,FD`84L#-7H0`R``-6RQ/1 M.W&L"Q,)(`,X(6BQ6%D`3OT"'T``4/`%"^T0$N0`Q5P`0\ M8`.%(+$(4`)8X`F9D`6LH`-G@`(+H+M'L0,!$`0]T)!/H0"A0`3N>Q/[.Q(I M"A,$4`",L`:3\`R@$`X<(@TSX`LF``/"(`"QT`0M0`-,\`$NX`%K<0$0``$J MD`$94`$'H+U-80`Q``%F,`)OD`1[.[D%\``7D`-SD`7,0`*-_V"W6@$$?LJW M55$!>Q`"45P34RP25=P28E`#6Y`&T)`-D[`'$>#%&R(-J#`+>_`N_I``.[`! M'%`"7(`$&'`"[:D%0W#+'P`(BS`$4O`8,H`!.E`')7`#*+`!0_L3#L``44`# M4A`!:.`%@2L0"9`!%,`$6;`(7:`''R`$/F"L5V$`$B`#3'J;4\%??]"W-G') M,P<5"I"@N9`+5P`)0)`'*#`!5;#"'.(,3%`'4V`'Y(P0"7``![`!&2`!<0QD M`<`#'H`!_R[%`9@ M`1`@"Z$0#)L@99)0APIP`G#PU%"-!3E&`93`!'Q@DC[P`"N`!-$9!F'@*U;0 M`BVP!1\P"!C@QFJ1"#>``W.\`0MPQQ?A`ZO0C`-A`!50!#7@"*F0"Q]@MP<@ M`3>@`UA``P3("DH@N;.!`E40"E$PPDZQTVB2$^H,$IDL$A5@"%"0B)W@!DT0 M!?TI$2C0!:%[S"N[`1M@`R6`!P&``4R@!0"`N4\`"!_`!%TP!"WP&&:-`250 M`D5@VO1[$!KP&(B`"ZBP''@)!200`C3@`1W@``N``S70`G00`DM@!W*0`DQL M&PG`"%FP!WC_0+Q*80!X8`(E(-DE?'HYVQ,34`9H``N@$`\O8-AB@,X0D0`: M8*[HZA(!O0!BD`$=$,>,H!8ZL-`?\`%T(-:Q(`"T,`EA``@!@`1<\``CH"21 M0`B?R9`+8`,N\`/$\*RZK0(8#!T5X`5-4`7_G,<0``#E+<7G#8&G&A0%``$Y M$`K90`NY4`51L-$4@;!6P`1%X-$Y,0%9'`)8BW6@:`DMP`!.FX>#M`!74`*U)3H/,`&=:Z;%/NNPFX3!G`` M..`!)&`-ZF`,4'`&MSZG'?*``F$#6C`)-Z``""#0`ET`=$S'$E`$<1S'4=`6 M'G#N'L`#:U#@!2X%4Q#K39#@GP8)JN[5I\[5P47J&>#-`:`D]W`(!%(`)!`$ M2'#B20$"+""@`P?FP,>#+9&J8P`&M!`+`-`#',@1X9H$&^`#N]WQ"XT!(#\( M`)`$UF`*D$`#MYSR@\#N3"`#*3\$[0D96?\`\C1/`1W/VQF0YSLPZ!:F)*/0 M:?[!!5*`XSPO%`@P`J$`Y&QNBN`VLA!UO`"W/0`''\`"CP[0Q0"-Q^`$J?$A;@%EU2(`O`"##``C;` M%`L0!ET0]]*;NC@)KRRQH@^`!&1L#*5`!Q``^`MAHPR@!(>@`W-``W<`"^#` MZ1*Q`"R@!Q2`QS57Y;LP"`R[%%(0`L'>M8)_EB^>$@GP`#(0!,R`"6JP!*5_ M$0OP`+1J`D;`!%(0"H,@!!R01>%*[0>A`'T`!6'``5KN<1/@"':P!(U>%!O0 M!H/J]!4!U%1KRY4`'H4:1)E2YEVO1GA2=ZN?K(@GXN2#%BC%5 MK%`L3XA@!Q]#&%P\41-KDIP2A9A[1!!'CYP"C^;OY]]?Y(T@6C@C-?\JPN&+ M%,A#+#N1J@N)0<4@K$B%.+0`Q9$86017!0XA`=F,@B M%D@`N0#BB&'FDC@PJ`$""19`5G/#$G@@"S5N@/YZ&2OP MX(5+:/XR(A`.8STAU1L:'Z'89Z_]]MQW[[T@`'[GNYQW4/D"!B!NUG]__OOW M_W\`!E"``R1@`0U80#F,(1XLR,$!'?A`"$90@A.D8`4M.,$,&C@!3WH M_S\@M&,$'_P?&\K6H%99YX0A<=L<*$$%%Z`4P*`&` M(/RB&%HD(P]KL0XRE/&'`EBA1\K'D/,=Q&V&H,0#D``'ETVC`"&8F>]^AP'L M%<@!?@"$("B0L$`F?$@!` M.:?SY)U2^*!B=L41L5"&/8ZA#&6$XI;]F4`?T-"%#O],4YN**4`R^!:.',2H M!&`H`3$_=LPA)?,JA?"#'P0!B'9F8)O\Z0`6U.$%1,Y3GTOI03WX)@]AV"!& M/*B"/)VBR8)P4B$(10I#]\F4!5SB!5$PW4,MZA$C&'#B03^(8P`-- M$,-!UD`48[:?_`'N0`60:BE:%(!4A@U7A8H?SB`H$``QAB*MG M/5N!"[0`!C=D3@5@(`._=A8L9A479IO"6=/2)PYJX$%/=U+G$.\@0F9^B]5+5"% M4_1AK)W9G1#R.U[9#N>Y!:;(LHB0!3/\DL(630`CLK`'T`6GADD0*'EGVUP) MZW?#1R'`[8(`M16W%+7<\UYG#.`%0;!VN29P:8D`9`;!DQ"1C"&VI<6P@C MT[]EHFM<@$FX@80H'G-:\Z'#.1_"U^][?+7>Y=2`,1!Z%VP&.``B4@?.$+KP0?;&`#10A"WZ1A M"R(,.@$4J((4,/D7/)`!#U3/#*!7!R0.Y.(2@L#`*Z)0)+!WA@HC<`;?KK`" MA2LD`4"G_0%VL'/<9\`&-N?]#1+_$4`=O%SX/%C#W8T_`BBTH`5WH,;OI`&, M3EN@!F00-5D(X(4O\`S652+CX2)[ZBHS`'E?0?JG#4`Z^ M22,9E7!$(E00VQ^GA0FCZ@H.?H`#OB`&B`"2D"#.L`_"B.`%*`#C+F*"<`" M%O`KP.HQ?YB`"W`!*O2`#6A`&R0U`E@P@Z``-+B#+JB!!R#"_T(!.Z@""O`Z MH%B#*2!!_W]X0BB3@%48AF'@AG"X`"S,0@<4`SD@@3#HP`_<,`20A`C(`B6( MMY(@@!X@`A*$0X`CB`2P@09H@#/P!'HS/SW,Q![\P2`T.CFDPV'`A(PC&UELQH)8@!KH@1"0`@^,,3[H`>3*MY!8`#WH`CHIQNZ+ MPBFD0F[#1&<\1P)@`"=8`P`00C(TK030@"W0`PI8BB(`!500@$AH!0$(@18,JC.$O.6(%`B((?Z`,3<`*1&`0!6$P!H(`=>('%A(&*(DFY MK+)T%((U8(&A+,JUF@`E&`(K4(*=W$B_I(ZR7"C00X8UJ(1`((9P^@DB^((" MT(`V0$'4K$S<-(@.8`)-(`(/Z,KA2"(&B_%,Q-["2(":@#(^@!&K!+TZJ1&\D15?S+TS3.*,@F`G``,=!& MAY"%'UB1.+"&6D"EV\S.['2``J@#%T"#S30M-?F"-IFRINPQ3>`%0O@`&R#% MBEB`7ZA'?S@!$ZB`$M`#';,J-D@#$MI0#NU0#_U0$`U1$1U1_P&$5U`$2Y`! M.2!1%OU0#/@!<.@!`C*A`9PR/L"`('`%57@%';!.BX``:%@P''@!EKPT'A(` M-E`C)5U2)FU2)WU2*(U2*04`.`"%<2`'*TBC*=U2-?($4S"%5"`B-JI1?RL( M!.``#)B&9="!_Y+(@20H"!G8`@)(!##HENO$3SQ%"/UDA#A@@5W(`3M=JQ:C M@3=8QCL]SD@*@B\ MA`B0R8XCT\\KB!=`@T2P`)'[.EMMUH/03T.0!2GXTT"MJ:,$`5T(@4DQ`#+H MMU4M4^&H56=%OQW(@5V0`ED055)-I`F(@R^0`PG``6M8AV7-R//4U&0;5WWM MD`98`CJ@`UZM5UO2`".H`CC0A@'H@V\MUH#;5XJ-F( M,8`(N(;?:08Y*%`HBP%($(4L<`58,-J1K$&R]`%%Z(41((1?/%K_U^W<$4B&I*6"#VB"&-"!4PA$Z%%><(6`;SB!-UB#:3#(P:5>ZB4` M.B$`62@%]XP:[V78@J@!7F`'<0`$@;TL]-U?@@"!4TFD^&5!@C"`!(A$1DB! M_-5?_D5?!,A,!H7?V^TQ-;@""J;@6-A`.:\$4`#9NB$*9@% M:/`1SM5@U]V#-'!#K/G@3C((#K@#HR"`*KBS%!87+MUA'N[A)BU2A&0U5^O> M"(:R%!``$%""1B@%D\WABFB%%HUB*9YB$:71GHR!)>B"!-X4&+[/@@`!<;!? M_)U>BA``%>:\GHP`_REX8&GI8N,LB!0XX"U^L)(PXS/VXI[,`#L`@LQQ8WR5 M@PJ^8#)V"#N^8WQ-2(B0",GQ8X_UAR/6@RF8`BA0@D%NB$(VY)^U2F\#MZMA MY$SF`$N88P46B4O&Y(TD7#GS`2WPUHGQY&%]1C>8A4B>Y$IFB%(V97&-,0-H M@$TP5(5QY5,V"`;(A4#&X/.MXY(H@)W<`6.8`I]0A"*5`$THS@*HA`4``!B` MV!!`!ATS@A]@7:`X`440J`VP@E=!@!6(`1!@4X]H3$A,@G80`%3`A/=-B@*8 M`0:P.KF,NJF+&&!&R_EUA#6(`X+&@O?)8(NX98I(&4:8021H`DZ`&&C>C/]L M+H@-^(07@,6"\&9P_HD32`8M.(!R?A4-F(*#;F<(38`D,()0`@4>.(Q[SN=P MK,S)J`Q_+N)'+(5@V.F==KA:7@B%;@A#8(9S,`=*;@@$"()!`("\%8$14(43 M4-1IE@!*\(4J")\;H`0!"((=J.9KKFB"J($F8`)(.``4@`0!F(9OK@-$$(`F MR"9,N%0/&`%."!]_D`58$`#!/0%-((0\&&D%R`%:X(0QJ``R2(8T6.>[SFMZ M6P$60&MZVX$@0%+K<>=57&E_,.P;((`<6,R.<8(("`)8P&$Y$(`[L($*&`-. M`"4S0`1:D($[4`52(H][A@!\$0`W((@5$`!$J(/_-ZY,`S`$5_"#FR96`?8' M`T``Y59NN>5)9-8()#@"5AH`8!!-AM``-^"`)YB9>5B#`O@"#^"`(V``*VB$ M#G"%"""`*7"""IB%+F"`&2@`;"X(*DB".2@"3[B!*?B-3/CF,+@`!4`$NWF& M/R@"`KB`"S@"*@`!)B``.F`#?[!LE8[G*Q"%.G@`/5@`/,`&UB"& M'9"#44`9`9``$AB#,;B#`NB"EC$"*]@`()B!**"`)`!B?[CG%)@!#V"`;%@! M%>`%+L"`*OAMW#R0!)F6_W_.Y1A^;H30`"%:!E[JFR-X@R#R1W]PA"-(`D2H M!03OG4NH@B(X@A)0!*[X@`C(;"&0@4Z(`/B6;[!^`%A`A"0X@D$(!$R2@6_> M`2$``FCH"'&```+X='^8:#`@A"3(@T0[@0BP`$+PCK_A`R'8`Q$(@`[_\!&8 M`SL@"#>(@PL@!7_@`'PF`"'`@#LP8QK'[`3H`43PAP>H@30(!@[@@5QO`!'P MASAX@8+0@A/P!SZPA!(P`DB8`"`H!3$0@Q\P$BR?@2L4@`N@`&-`8^SD$12. MEC1'Y?+4B*"V@/^A!(3E&V=0@_^!T$F8@@!P@57X@&6HW2RX!`TX@@8X!CIA M@O\(0`!$:`,90`1&C^_Y[M]2<($`F`(`R#5_8()O5@,MB(-2Z(B)7GFKL0!& MB``V\&V"4'5_N(%Q`(8`*`)+2(,A$`5:]W`0!P%I\H(,A MF`1C3VG,]H<+8`,E>(,(&`-;B/8V\`=J]P=6"(*"L(,/8'9/2`$CF!T@6(5R M_P)COO(9R/(R8?"#4M@#.:"$*R"`8_>$`#"#5&B$/TB%`!B# M9R@#'MCZKG\`<)@#%M`"$)@&$+`$-2B`LT\`(.`&.H""*F``"SB#T`&(`C-2 MS"C@3\"%`E;V+-%U(`4#?Q+]`0@P\2+&C!HW)$14,3PHT<\B@1C24;>IZ1&-A+Y))37,1DEE0;&T,,256(TI4=(DL2E M=V!.Y/^DEF6:^9*+9ZI)(`%=+#%DF6)NY.5(&31100!,"?`*91G;J"2BF/B::*:<<,0`&$(52=^AY?K;$ M``LI3,0**`5L(0B`X)E:8Z>U]KBIK;GZLP`8("!0):X3D0I2L!CQ08(*$]%! M@C]XP+&BK"U=JBNU`Q9;;:8+L+#&KU%>.^Q'UTY41R:=J!*%`22,X`\$)B0; M[4[8RCOCK//:ZX\/7S!!Y;N\,\\]^_PSSYLHX@G01?LLP,(A@5MDTB/I$"(':#S`RC0%A`#K11H$ M$``;:6S]-=AABQU`PS";'>X:8ZN]-MMMN_TVW''+/3?==<\-0BE5V+WWW&PT M_='2:&+G*B>CX-%4I&P4L9&E9SN>Y-^/4>`<#1_C\F.FIR'U'PD"C0W^-"#"1$8H\:(D!!-` M0%/1FY._H,,-$>E`4"P@A`!(P``*\P(4`6"`% M`3`(`2[`B`"HX'(^N,`3_:&`)39`(@/40"N&4`$;!,`0W:H5`A,(I1*0`0+) MPU'F)+BY!QZ$)!?$H$?:T`-,",&#_HC"#U9`BPJ48!9?((+M5B@1CK$0"4TH M0A)N\+'D$<`<,$Q`*IAU$0)HP1.D"`4?.&`+._B"!5#P!1@<4(!T_(`4+^!# M`0@!!UW`P?\"2+B#)VH!F0B<(`"1>`$&Z"<(#.0JC6I\DA/(P`$=Q1%R$Z1C MV3)R1PM^I`TYP((P\L`]?Y`A!Q/`!`4(8(,(S.(*15&D/\2PB@`HX`4RJ,`7 MYA"!=4UD%UU$P!>J('9>B.$I:A`G3R819X>``FCB"` M;&BB"VJ8@&5\H(CL&6`239A(#7B0!U'L90J6@,`1#L"!M*[U``7_:,7BVB"S M+$A$"X-8P!Y0@8E&^$.C`O#`)T10/5L9DZ0_,H`'3)#2&ZVT3BV-&33M.,UJ M\I011]"&`4(P"8D4H!-?`(-!+K`+"RB2`$MP@P4^PC!<@`!L$K M$9%+]4SW)K#)3R9IE*7`1(Q!F/&68QZT@!>]## ME2^4YG"M66/QHC/QY@QH'%5`#WM8$)J-W#S&]5ES)HGFH.M2A;K2K?Q2#21CAC012M>#: M^^E8.TS4O.Z0'TS@@;W0:]-^'G*;?VTO7RN;01D0MJV7I&A..Y;5)8%TLS/% M[&P7*`,M^$.TS?^#:^?!FKVMYO8!RXWN&W&`#'[!S[@9;>WTK%MXZJZWB0P` M`3*4P%K3/C:6DXUO--Y[X"5JEQ#@_6]'!YS+!B?XPVT5,A/TVS[Q5MB\1X+M MEA!.%1<@``/4,!E_K""G-2@*1I2`"0U18F0<*4`E7.X/24`"!1()A.U"/O(; M!$$`05A1#:CWFXDLP'`2J4`H#O/A$`' M)'@"`N2.@PN@W!]`$(4HRG`0%OH#!E)0!@-4P(O#^6,$*""\/QA`B4M_QT"Z.`4,A^1L1GNH9>*)`+7B`#7,7((9!R!!HM3 M0174`"W4`>SY`_9=A!!<@89@0W;%P1OD`"1\E0"8@`ZP013('1!\`?,97R70 MP"A4@-XM0"_8@!J`0`)$`#;X@@P`"/9-@"`L0K-0`@-H`@@\@2#`G3\T`?A0 MGM.I'X,00!]8POM!5OQ=7<-]'DA`P#8,@#7@_P!($$`C-`$J.`(`XL`BO`(( MQ)[:L1W)H<(#&(`*0``=\(0`1$%?18#<+<,-3@00_,`!W($,'`$+F0%][($5 MB$@!\``FB`(.8!\5W,$B$$`+!$(`I$):K*%$Z,'(44OZ^>!W,,$7^$!V<-Z6 M]""?95W6U(PJ.,,`:$,FU$P(2$3L.$`:N$L5X,`&4`(H:.'L<:$_V!,&:$$8 MK.)!4,`9RAT:?$(7240;'D`CY$(D7``"@,(7A`8LS`%/280@.`+V:9\.9``I M4`(`I,(OY,#X%8#JU0(7V)LCVLISL$"LP-^H4%N199Q(7(H%J$T/D,,%Z0,& MJ(TM^H,FI,&C`&(5(O\6-[`B`G+A"G1#!X##"11!*I"A+48`&@Z$((2.\;DA M%4Q".5Q`&>A"MZ`!(G1##?B#!!""(6!?&+Q"!AS"'8B!?/T`*["`%OC`'JQ# M$L09CW5CK2``"(!!.!+A.`+<_`G<1TS!.=Q1".0?9T4*+;A`\/56X9D<]8`" M4JV<`%!"_JR``"`"$&Q"!01"_I`/S$F`$I!!K$@"#/Q*!X#""H``TTG$"FR! M$U#"R00>]5R"9ZQ!\:W`%!1`TOE<)^0!-[JDK0`!&$2$2UF=N1WAN87$`K#C M'0G`$$J,#PP'(UHB7A9(#$`!';@/3E"B=#!FK@4F2"P`$6PF9P*!2#;FA%C_ M)FCB1PPL01=(YI$5X5_>)":.)K^(IFO>QQ+T@)"QF6IVFJYA9FQZ"VSNYG<\ MICZE9DW*GZ8AH6]B3F\>9W9(`!CLH&T.IQ&RIG$J)S,E)W5>AP*P`!;@8'2^ M"#EJ66Y>VW4^22..)TYT``GLF$UZYWKJ&4Z:)WK!)Y\\`A]H@ET2YX-\IYJ9 M8Y[(I_+X)Y]8P!=X`6J6(W2N9G&:1"08#8,VJ(,^*(1&J(2F#-(`*)^D@!NP M!H+F9WN&YH/P#8B&J(B.*(F6J(F"#7]8Z)D80`I\@1/B)DXL&L9=1P)`P"'T M@4$HP`IL31D06R6J*)#&IA^X@B'XY(S&J'Y>XG7D_\$/O(`FC,$!J(`@"`(` MK,61!BF6NJ07N(&J&"B2=JA+H$`*=%`2E,$-I,%BR5N6KJDC$H`7?$&*KMJ! MPBAV-$`0%,$?C`(/1,%,5B:;_JD/XL`F-("13@1E&JJZ;4$/($`/],8+#(+K M=!Z@3JK!8<%)[N><5EMVU(`;C(4*C.D-*--%A("&1$(KW!2JIJJJKBJKMJJK MOBJLQJJLSBJMUJJMWBJNYJJN[BJO]JJO_FJK5L,S#(.K1H)?TBEU[``)Z`&B M<8`;I0`82**D4BJUUMLAL$`'K`2YW::F6L<(L`,BA(8&R,(GO($:Q`%W(FJU MKBN^`8$=I.F5QH2,3BM.FGXI?GJHOQ[L MK[7)FPRL>"2IG'H>PD;LJ!%`#Q!!;:IKIGHI8$HLQPY:#*3!'L0K>Q9LJEEG MQYZLF?"*K_QHQH(GQ*(LS(Z7MG"+G[8LIKYLS.:L&G4`"Q1?3G"KQDJGS@YM MEY6"++C/H>Z(R6(LT3;MXTC`*>C`Q23MSX:GTU[MRT#`*?0!?-`!T+KLQF*M MV#J,!/S`-`R`,XP`%1!L=[KGV+ZMPQ3`*UQ0,BS"VLJKPUYFV,(MW]J*`DQ! M-%R0-"2#S[+$O+(LSO:MXF8*Q::#X`(#7^$MF!;;XE8NITR`%'#B``"#&12H M21S_;LTFKN6.KIHH`!HX@SXT@N=^;MYNJ]62+NR:B0*DPEBR[88:;.SFKIE0 M;7E6K>[^[FM^[VM)*+_;R M[O7Z+O9V+^XV;/7ZF_>.;\DB[\,2+_FF+W9H[_2JK_O>!/LV[_O.[W/:+K(F M*/WF;_V"[_-:K_[^;_@>2>LRK-`"L`&#K>3VK_@>,`,G+_^V[?[\`H? M:[=^1P*<00#H*P'+\/_"\'7L4!)8@0RL;N_R<,[ZL'7T_\#MY4`JQ*G2GDT( MQ"/,1+'CY)394/&KF:_>>@<-K$L9@,'H:;#$%'$+2\S&M23,('%U7,*ZX$`5 MA#'3O@P9QS#,G'%XG8T:4T<7^\,7P_$39S$@FXT=0UP@;W`->T#/WFK,Z&P@Z(]!SN$XAH$7L:/]/`]0!"3S&1!0"#1B%$$!`:/"5`W"!;$`) M`X2B/W2`4OR!ZQ@`#]R`(Z3%&36`(4S$#?!`(NC.C$G$8)R?CQ2!7^``#0"` M)-C6!`B!#>B>(TR$`WA!ES:+'T@"9F2//O]SE,C!6!Q`+`[=7^"!/>.S1.@S MT>&!"MSS:!`'2D/)._M#/`/`/#=``[3%$BP9"CAG17,`3:]`%:1,`/5(04L$ M2(NT;3&T0T/T1$AT6:\`3-,`U5T%#1RF/[0SK"%`&%A#1(P`&?R!)9@``BB` M'LA"+P`"$>Q"1"``&D3#1,0D)NS!(D###D!`)8!`%IS"DQ2`+ZC''ER"'+S! M'!A``53_00@@@AF\P1-XD16,D$0\P25H`B`L`2A,1!X`PRYKQ`/$@NS]P!/\ M`238I0_0`!J\@1D@@E]P`31TP41\@1R0P0FP0`NP2RELS3(]"0A80Q?]`2&X M0!N@@4&,P!#\=6`/=F%/Q`I,0A8```@@PS8^`0V4M^WXB%S3=?7==5[OM1Z$ M0"_,P1@@PL44@"<0PD0\@1&P@6(S-@I(0@#0`#CPI8]0MGK8-F[;96=_=FB/ M-KZ4MK(,`7(K=V180@#007!F!%QCQP&,P0?,`(+K$"GX``K`P(M60"O`T`B$ MP#;YPQ@LP3=(!"0@@40\`B-T`Y%L0`B,@)/$P2<4``1D0408_X`+C$)3L(`F MF,!$N,$3L(!25P-D'(`GS$!L8P0'$`$:"*Q$F%4"2,(I``@!3,%HP` M%!"#JA0`"OR`/KE`%[R!M4O`,!3`')`!5L"KCCA`!B!`GE^$(<"!'W1`%BR3 ML2.[/RA[C-/`'#3\M+]`"7!"[BQBCR0`K_OZ1`"[L!-[`F#!*$C!7CP`#W"Z MNG="'SR[/T2[1#3"'4BKCV"[ME_$OAO`MX?[N)<[`IQ[NJ=`+@3!PC?\!I`" M`/@"<4-0`)L$!\#\KE2"!Q@`$#B>/VC`'_Q`(K30-NV`.7A!)4B$1H4\$RA# MHY](`4[$`[C"XA"!##S"#8<`)N00NDL$!:C!"=B!1`@`!7!`"ZA`)F1Y1N3[ M1#B!&F#Z'K3_/14P0ANPP,4<@,%+A!I0@-5GWPSL`!C<00``@D(2R<4_^0D0 M`!>P@%"H/=N[_42\0A\L0VB]@!-DPR"8P0_D#Y&$/8(O`-F;O>,Y0!G$P83M M'<\G?AW,/8WYPR5,P>KFR-Y+!.9C.N`+_AD0ON&G^QK$P>G+70$H01($P!*D MNT;H.G8@_[O;`!I.H5QH"&WGV M](DQ0H2!"#S,VN%/0:8,$#EDV^#OP`\C_C(P4V"GC;\'J!9`;+#M_V=8L3Q1 M^C.`(L23G4,F,1R(1B!!@_YLJ&.P;:D+%A!T#00$:&Q@P?XXS&#@SX$--#4& M+I%#$8Z.@3R"M+R@D*%#LVSR#/8LMN/0HD?]E3R9&".!"B@Y M8[+*WBL@NNFJ\T<"7OSX$<3O!BR0///0\T<]]E1BR0\R"*CPPCO\D8$%`C10 MI8+;_ONFV*.$*")/[;PYX98AK(@DQXLY2[`'<( MQITK!("!A``,.$07`699$"JI#)AB!'\V..4(84XP(`!"!`#%$%J[*VL+>I81 M0(`H;LD`4$$)==$@`G:QP1\AUD&E%`8,<$*3*RR)TUK/[LQSSSX)*""7*ZR8 M8X(F_4G5K$4;5<#_'RY^*;1>ST*[-===/?@TU%%+/=4?.990EEEG_=DABRM6 MD24CW'2;M>&455Z9Y99=?AGFF&6>.6:3Z429YIQUWIGGGGW^&>B@!;,YL#J% M/AKII)5>FNFF@29Z+*.=GIKJJJV^&NNFH19+ZJR]_AKLL,4>.ZRMP^J:[+35 M7IOMMGDV^R>TW9Z;[KKMOKOL.8O&&>^^_?X;<+'A]DGNP`T_'/'$=QZ\I\(5 M?QSRR"7OCG&>`&`#@,PUWYSSSCW_'/3011^=]-)-/QWUU%5?G?7677\=]MAE MGYWVVFV_O7;,!],@@-Y]_QWXX(4?GOCBC3\>^>257Y[YYIU_'OKHI9^>3?KJ MK;\>^^RUWWY[#2;_'OSPQ1^?_/+-/Q_]]-5?G_WVW7\?_OCEGY_^^NV_'__\ @]=^?__[]_Q^``13@``E80`,>$($)5.`"&=A`\04$`#L_ ` end -----END PRIVACY-ENHANCED MESSAGE-----