Abigail Adams National Bancorp (AANB) 10-Q 2008 Q2 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ quarterly report pursuant to section 13 or 15(d) of the securities exchange act of 1934

For the quarterly period ended June 30, 2008

Or

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: 0-10971

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 Ave., NW, Washington, DC	20036
(Address of principal executive offices)	(Zip Code)

202.772.3600

(Registrant’s telephone number, including area code)

n/a

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YESþ NOo

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filero	Accelerated filero	Non-accelerated filero	Smaller reporting companyþ
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).YESo NOþ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

     As of August 13, 2008, there were 3,463,569 shares outstanding of Registrant’s Common Stock.

TABLE OF CONTENTS

	PAGE
PART I — FINANCIAL INFORMATION
Item 1 — Condensed Consolidated Financial Statements (unaudited)
Condensed Consolidated Balance Sheets		1
Condensed Consolidated Statements of Income		2
Condensed Consolidated Statements of Changes in Stockholders’ Equity		3
Condensed Consolidated Statements of Cash Flows		4
Notes to Unaudited Condensed Consolidated Financial Statements		5
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
Item 3 — Quantitative and Qualitative Disclosures about Market Risk		19
Item 4T — Controls and Procedures		20
PART II — OTHER INFORMATION
Item 1 — Legal Proceedings		21
Item 1A Risk Factors		21
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds		21
Item 3 — Defaults Upon Senior Securities		21
Item 4 — Submission of Matters to Vote of Security Holders		22
Item 5 — Other Information		22
Item 6 — Exhibits		22
Signatures		23
Exhibit 31.1		24
Exhibit 31.2		25
Exhibit 32		26

ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

June 30, 2008 (unaudited) and December 31, 2007

(Dollars in thousands)

	June 30, 2008			December 31, 2007
Assets
Cash and due from banks	$	14,035		$	15,567
Federal funds sold		34			12,816
Interest-earning deposits in other banks		8,872			20,380
Total cash and cash equivalents		22,941			48,763
Investment securities available for sale, at fair value		70,992			66,392
Investment securities held to maturity (market values of $3,356 and $13,269 for 2008 and 2007, respectively)		3,390			13,309
Loans		337,774			307,483
Less: allowance for loan losses		(3,603	)		(4,202	)
Loans, net		334,171			303,281
Premises and equipment, net		5,177			4,985
Other assets		10,911			9,145
Total assets	$	447,582		$	445,875
Liabilities and Stockholders’ Equity
Liabilities:
Deposits
Noninterest-bearing deposits	$	67,355		$	74,833
Interest-bearing deposits		301,473			312,109
Total deposits		368,828			386,942
Short-term borrowings		27,506			8,494
Long-term debt		17,288			15,120
Other liabilities		3,250			3,880
Total liabilities		416,872			414,436
Commitments and contingencies (Note 2)
Stockholders’ equity:
Common stock, $0.01 par value, authorized 5,000,000 shares; issued 3,492,633 shares in 2008 and 3,491,633 in 2007; outstanding 3,463,569 shares in 2008 and 3,462,569 in 2007		35			35
Additional paid-in capital		25,132			25,127
Retained earnings		6,977			7,196
Less: Treasury stock, 29,064 shares in 2008 and 2007, at cost		(255	)		(255	)
Accumulated other comprehensive loss		(1,179	)		(664	)
Total stockholders’ equity		30,710			31,439
Total liabilities and stockholders’ equity	$	447,582		$	445,875

See Notes to Unaudited Condensed Consolidated Financial Statements

1

ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Income

For the Periods Ended June 30, 2008 and 2007

(In thousands except per share data)

	For the three months ended				For the six months ended
	June 30,				June 30,
	2008		2007		2008		2007
Interest Income
Interest and fees on loans	$	5,523	$	6,383	$	11,056	$	12,785
Interest and dividends on investment securities		940		802		1,903		1,517
Other interest income		61		474		270		664
Total interest income		6,524		7,659		13,229		14,966
Interest Expense
Interest on deposits		2,159		3,181		4,779		6,099
Interest on short-term borrowings		108		17		171		81
Interest on long-term debt		179		222		361		364
Total interest expense		2,446		3,420		5,311		6,544
Net interest income		4,078		4,239		7,918		8,422
Provision for loan losses		970		75		1,075		160
Net interest income after provision for loan losses		3,108		4,164		6,843		8,262
Noninterest Income
Service charges on deposit accounts		334		344		666		706
Other income		83		48		158		96
Total noninterest income		417		392		824		802
Noninterest Expense
Salaries and employee benefits		1,651		1,630		3,343		3,323
Occupancy and equipment expense		576		600		1,186		1,170
Professional fees		122		204		287		374
Data processing fees		220		297		397		580
Other operating expense		852		660		1,431		1,312
Total noninterest expense		3,421		3,391		6,644		6,759
Income before provision for income taxes		104		1,165		1,023		2,305
Provision for income taxes		21		454		376		912
Net Income	$	83	$	711	$	647	$	1,393
Earnings per share:
Basic	$	0.02	$	0.21	$	0.19	$	0.40
Diluted	$	0.02	$	0.21	$	0.19	$	0.40

See Notes to Unaudited Condensed Consolidated Financial Statements

2

ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity

Six Months Ended June 30, 2007 and 2008

(In thousands except per share data))

											Accumulated
			Additional								Other
	Common		Paid-in		Retained			Treasury			Comprehensive
	Stock		Capital		Earnings			Stock			Loss			Total
Balance at December 31, 2006	$	35	$	25,123	$	5,868			($210	)		($634	)	$	30,182
Comprehensive income:
Net income		—		—		1,393			—			—			1,393
Unrealized losses during the period of ($366) on investment securities available for sale, net of tax benefit of ($147)		—		—		—			—			(219	)		(219	)
Total comprehensive income															1,174
Issuance of shares under stock option program		—		4		—			—			—			4
Acquisition and issuance of shares for ESOP		—		—		—			(45	)		—			(45	)
Dividends declared ($0.25 per share)		—		—		(866	)		—			—			(866	)
Balance at June 30, 2007	$	35	$	25,127	$	6,395			($255	)		($853	)	$	30,449
Balance at December 31, 2007	$	35	$	25,127	$	7,196			($255	)		($664	)	$	31,439
Comprehensive income:
Net income		—		—		647			—			—			647
Unrealized losses during the period of ($855) on investment securities available for sale, net of tax benefit of ($340)		—		—		—			—			(515	)		(515	)
Total comprehensive income															132
Issuance of shares under stock option program		—		5		—			—			—			5
Dividends declared ($0.25 per share)		—		—		(866	)		—			—			(866	)
Balance at June 30, 2008	$	35	$	25,132	$	6,977			($255	)		($1,179	)	$	30,710

See Notes to Unaudited Condensed Consolidated Financial Statements

3

ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2008 and 2007

(In thousands)

	2008			2007
Cash flows from operating activities:
Net income	$	647		$	1,393
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		1,075			160
Depreciation		304			279
Net amortization (accretion) of deferred loan costs and fees		35			(99	)
Net accretion of purchase accounting adjustments		(63	)		(51	)
Gain on sale of guaranteed portion of SBA loans		(38	)		—
Net premium amortization/discount (accretion) on investment securities		7			(2	)
Loss on the sale of foreclosed and other assets		—			29
Increase in other assets		(340	)		(921	)
(Decrease) increase in other liabilities		(630	)		784
Net cash provided by operating activities		997			1,572
Cash flows from investing activities:
Proceeds from maturities of investment securities available for sale		28,500			6,000
Proceeds from maturities of investment securities held to maturity		11,500			3,000
Proceeds from repayment of mortgage-backed securities available for sale		921			465
Proceeds from repayment of mortgage-backed securities held to maturity		431			286
Proceeds from the sale of foreclosed and other assets		—			282
Purchase of investment securities available for sale		(34,882	)		(18,498	)
Purchase of investment securities held to maturity		(2,011	)		—
Purchase of FHLB and FRB stock		(3,238	)		(1,534	)
Redemption of FHLB stock		2,744			892
Net increase in loans		(31,984	)		(12,223	)
Purchase of collateral and build out cost of foreclosed assets		(509	)		—
Purchase of premises and equipment, net		(497	)		(358	)
Net cash used in investing activities		(29,025	)		(21,688	)
Cash flows from financing activities:
Net (decrease) increase in transaction and savings deposits		(28,211	)		25,932
Net increase in time deposits		10,097			17,438
Net increase (decrease) in short-term borrowings		19,013			(111	)
Proceeds from long-term debt		7,210			10,000
Repayment of long-term debt		(5,042	)		(467	)
Proceeds from issuance of common stock in stock option program		5			4
Purchased treasury stock		—			(45	)
Cash dividends paid to common stockholders		(866	)		(866	)
Net cash provided by financing activities		2,206			51,885
Net (decrease) increase in cash and cash equivalents		(25,822	)		31,769
Cash and cash equivalents at beginning of period		48,763			27,563
Cash and cash equivalents at end of period	$	22,941		$	59,332
Supplementary disclosures:
Interest paid on deposits and borrowings	$	5,413		$	6,345
Income taxes paid	$	910		$	520

See Notes to Unaudited Condensed Consolidated Financial Statements

4

ABIGAIL ADAMS NATIONAL BANCORP, INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1 Basis of presentation

Abigail Adams National Bancorp, Inc. (the “Company”) is the parent company of The Adams National Bank (“ANB”) and Consolidated Bank and Trust (“CB&T”). As used herein, the term Company includes ANB and CB&T, unless the context otherwise requires.

The Company prepares its condensed consolidated financial statements on the accrual basis and in conformity with accounting principles generally accepted in the United States for interim financial information, the instructions for Form 10-Q, and Regulation S-X. The accompanying financial statements are unaudited except for the balance sheet at December 31, 2007, which was derived from the audited consolidated financial statements as of that date. The unaudited information furnished herein reflects all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. These statements should be read in conjunction with the consolidated financial statements and accompanying notes included with the Company’s 2007 Annual Report to Stockholders, since they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America. Operating results for the three and six months ended June 30, 2008 (unaudited) are not necessarily indicative of the results that may be expected for the year ending December 31, 2008. Certain reclassifications may have been made to amounts previously reported for 2007 to conform with the 2008 presentation.

Note 2 Contingent Liabilities

In the normal course of business, there are various outstanding commitments and contingent liabilities, such as commitments to extend credit and standby letters of credit that are not reflected in the accompanying consolidated financial statements. No material losses are anticipated as a result of these transactions. There were no material changes since December 31, 2007.

Note 3 Earnings per share

Basic earnings per share (“EPS”) computations are based upon the weighted average number of shares outstanding during the periods. Diluted earnings per share computations are determined using the treasury stock method and based upon the weighted average number of shares outstanding during the periods plus the dilutive effect of outstanding stock options. The following table provides a reconciliation of the number of shares between the computation of basic EPS and diluted EPS for the three and six months ended June 30, 2008 and 2007.

	For the three months				For the six months
	ended June 30,				ended June 30,
	2008		2007		2008		2007
Weighted average shares		3,463,569		3,462,146		3,463,074		3,461,973
Effect of dilutive stock options		2,694		3,834		2,865		3,887
Dilutive potential average common shares		3,466,263		3,465,980		3,465,939		3,465,860

5

Note 4 Securities

The amortized cost and estimated fair value of investment securities held to maturity and investment securities available for sale at June 30, 2008 and December 31, 2007 are as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Estimated Fair
(In thousands)	Cost Basis		Gains		Losses		Value
June 30, 2008:
Investment Securities — available for sale:
U.S. government sponsored agencies and corporations	$	51,193	$	255	$	305	$	51,143
Mortgage-backed securities		12,132		21		274		11,879
Municipal securities		953		—		41		912
Corporate debt securities		7,742		—		1,329		6,413
Marketable equity securities		1,004		—		359		645
Total	$	73,024	$	276	$	2,308	$	70,992
Investment Securities — held to maturity:
U.S. government sponsored agencies and corporations	$	2,010	$	—	$	49	$	1,961
Mortgage-backed securities		1,380		15		—		1,395
Total	$	3,390	$	15	$	49	$	3,356
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

The Company had no gains or losses on sales of securities in the three and six month periods ended June 30, 2008 or June 30, 2007.

At June 30, 2008, a portion of our investment securities portfolio has unrealized losses. The fair value of investment securities with unrealized losses by length of time that the individual securities have been in a continuous loss position at June 30, 2008 and December 31, 2007, are presented in the following table:

	Continuous unrealized losses				Continuous unrealized losses
	existing for less than 12 months				existing 12 months or more				Total
			Unrealized				Unrealized				Unrealized
(In thousands)	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
June 30, 2008:
U.S. government sponsored agencies and corporations	$	23,637	$	354	$	—	$	—	$	23,637	$	354
Mortgage-backed securities		8,605		218		1,545		56		10,150		274
Municipal securities		912		41		—		—		912		41
Corporate debt securities		1,620		55		3,783		1,274		5,403		1,329
Marketable equity securities		—		—		645		359		645		359
Total	$	34,774	$	668	$	5,973	$	1,689	$	40,747	$	2,357
December 31, 2007:
U.S. government sponsored agencies and corporations	$	999	$	1	$	19,407	$	90	$	20,406	$	91
Mortgage-backed securities		—		—		4,046		67		4,046		67
Corporate debt securities		2,981		697		1,580		482		4,561		1,179
Marketable equity securities		718		287		—		—		718		287
Total	$	4,698	$	985	$	25,033	$	639	$	29,731	$	1,624

6

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. 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.

The Company had six corporate debt securities and one marketable equity security which have been valued below cost for greater than 12 months. Two corporate debt securities, carried at fair value totaling $686,000 with an aggregate unrealized loss of $371,000 at June 30, 2008, were downgraded in 2005 to below investment grade. The other four corporate debt securities, carried at fair value of $3.1 million with an unrealized loss of $903,000, currently have Moody ratings in the range of A1 to Aa2 and Standard and Poors ratings ranging from A to AA-. The marketable equity security, carried at fair value of $645,000 with an unrealized loss of $359,000, currently has a Moody’s rating of A1 and a Standard and Poors rating of A. Interest payments continue to be received as scheduled and the Company has the intent and ability to hold these securities until their maturity or recovery. Based on an evaluation of the creditworthiness of the issuers, the Company believes the issuers will not default and that the Company will receive all contractual interest payments and the entire principal at maturity; therefore, management did not record any other-than-temporary impairment charge at June 30, 2008 or at December 31, 2007.

The other unrealized losses that existed as of June 30, 2008 and December 31, 2007, are a result of market changes in interest rates since the securities’ purchase. This factor, coupled with the fact the Company has both the intent and the ability to hold these securities for a period of time sufficient to allow for any anticipated recovery in fair value substantiates that the unrealized losses in the held to maturity and available-for-sale portfolios are temporary.

Note 5 Comprehensive Income

Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on securities available for sale and unrealized gains and losses on pension plan assets and benefit obligations. There were no reclassification adjustments realized in income for gains or losses from components of other comprehensive income in the three and six month periods ended June 30, 2008 and June 30, 2007.

The components of comprehensive income are as follows:

	For the three months						For the six months
	ended June 30,						ended June 30,
(In thousands)	2008			2007			2008			2007
Net income	$	83		$	711		$	647		$	1,393
Unrealized losses on securities		(1,589	)		(425	)		(855	)		(366	)
Income tax benefit		627			170			340			147
Total comprehensive (loss) income		($879	)	$	456		$	132		$	1,174

7

Note 6 Segments

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 schedules below.

	Segment Results and Reconciliation
	Adams National			Consolidated						Intercompany			Consolidated
(Dollars in thousands)	Bank			Bank & Trust			Other(1)			liminations			Totals
For three months ended June 30, 2008:
Interest income	$	5,185		$	1,339		$	—		$	—		$	6,524
Interest expense		2,027			350			69			—			2,446
Net interest income		3,158			989			(69	)		—			4,078
Provision for loan losses		959			11			—			—			970
Noninterest income		350			92			216			(241	)		417
Noninterest expense		2,292			999			155			(25	)		3,421
Net income		168			48			83			(216	)		83
Assets		355,809			89,065			37,957			(35,249	)		447,582
Return on average assets (annualized)		0.19	%		0.22	%		NM	(2)		—			0.08	%
Return on average equity (annualized)		2.44	%		2.22	%		NM	(2)		—			1.05	%
For three months ended June 30, 2007:
Interest income	$	6,225		$	1,434		$	—		$	—		$	7,659
Interest expense		2,911			405			104			—			3,420
Net interest income		3,314			1,029			(104	)		—			4,239
Provision for loan losses		75			—			—			—			75
Noninterest income		318			99			866			(891	)		392
Noninterest expense		2,215			1,044			157			(25	)		3,391
Net income		803			63			711			(866	)		711
Assets		360,785			98,114			35,466			(35,020	)		459,345
Return on average assets (annualized)		0.91	%		0.29	%		NM	(2)		—			0.65	%
Return on average equity (annualized)		11.83	%		3.11	%		NM	(2)		—			9.30	%

(1)	Amounts represent parent company before intercompany eliminations.
(2)	Not considered a meaningful performance ratio for parent company.

8

	Segment Results and Reconciliation
	Adams National			Consolidated						Intercompany			Consolidated
(Dollars in thousands)	Bank			Bank & Trust			Other(1)			liminations			Totals
For six months ended June 30, 2008:
Interest income	$	10,549		$	2,680		$	—		$	—		$	13,229
Interest expense		4,436			736			139			—			5,311
Net interest income		6,113			1,944			(139	)		—			7,918
Provision for loan losses		1,049			26			—			—			1,075
Noninterest income		680			194			906			(956	)		824
Noninterest expense		4,441			1,957			296			(50	)		6,644
Net income		800			106			647			(906	)		647
Assets		355,809			89,065			37,957			(35,249	)		447,582
Return on average assets (annualized)		0.46	%		0.24	%		NM	(2)		—			0.30	%
Return on average equity (annualized)		5.85	%		2.37	%		NM	(2)		—			4.07	%
For six months ended June 30, 2007:
Interest income	$	12,187		$	2,779		$	—		$	—		$	14,966
Interest expense		5,569			768			207			—			6,544
Net interest income		6,618			2,011			(207	)		—			8,422
Provision for loan losses		150			10			—			—			160
Noninterest income		645			207			1,698			(1,748	)		802
Noninterest expense		4,414			2,089			306			(50	)		6,759
Net income		1,613			85			1,393			(1,698	)		1,393
Assets		360,785			98,114			35,466			(35,020	)		459,345
Return on average assets (annualized)		0.96	%		0.20	%		NM	(2)		—			0.66	%
Return on average equity (annualized)		11.97	%		2.11	%		NM	(2)		—			9.19	%

(1)	Amounts represent parent company before intercompany eliminations.
(2)	Not considered a meaningful performance ratio for parent company.

Description of significant amounts included in the “Intercompany Eliminations” column in the segment report schedules are as follows:

	Three months ended June 30,						Six months ended June 30,
(In thousands)	2008			2007			2008			2007
Noninterest income — elimination of parent company’s undistributed earnings from subsidiaries	$	(241	)	$	(891	)	$	(956	)	$	(1,748	)
Net income — elimination of parent company’s earnings from subsidiaries	$	(216	)	$	(866	)	$	(906	)	$	(1,698	)
Assets — elimination of parent company’s investment in subsidiaries	$	(35,249	)	$	(35,020	)	$	(35,249	)	$	(35,020	)

9

Note 7 Fair Value Disclosures

Effective January 1, 2008, the Company adopted the Statement of Financial Accounting Standard No. 157,Fair Value Measurements(“SFAS No. 157”) issued by the Financial Accounting Standards Board (“FASB”). SFAS No. 157 provides a framework for measuring fair value under generally accepted accounting principles, outlines a fair value hierarchy based on inputs used to measure fair value and enhances disclosure requirements for fair value meaurements. The statement applies to all financial instruments that are being measured and reported on a fair value basis. In accordance with FASB Staff Position No. 157-2,Effective Date of FASB Statement No. 157,the Company will delay application of SFAS 157 for non-financial assets and non-financial liabilities, until January 1, 2009.

SFAS No. 157 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under SFAS No. 157 are described below:

Basis of Fair Value Measurement

Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2 Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

The table below presents the Company’s balances of financial instruments measured at fair value on a recurring basis by level within the hierarchy at June 30, 2008.

	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Assets		Inputs		Inputs
In thousands	(Level 1)		(Level 2)		(Level 3)		Total
Investment securities available for sale	$	—	$	70,226	$	766	$	70,992

The Company outsources the recordkeeping for investment securities held by ANB to FTN Financial and for those held by CB&T to Suntrust Robinson Humphrey. For 55 of the 58 securities categorized in Level 2 in the table above, the source utilized by FTN and Suntrust for valuation was the Interactive Data Corporation (“IDC”). 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, methodology includes broker quotes, proprietary modes, vast descriptive terms and conditions databases, as well as extensive quality control programs. For the remaining three securities categorized in Level 2, FTN used, as valuation sources, the FTN proprietary valuation Matrices model, and FTN Financial capital market trading staff. The security in Level 3 was valued by an FTN capital market trading staff. 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. The FTN Financial capital markets trading staff offers valuations for certain securities not available from the other sources. If the inputs used to provide the evaluation are “unobservable” and/or there is very little, if any, market activity for the security or similar securities, the securities are categorized in Level 3.

10

The table below presents the Company’s balances of financial instruments measured at fair value on a nonrecurring basis by level within the hierarchy at June 30, 2008.

			Quoted
			Prices in
			Active		Significant
			Markets for		Other		Significant
	Balance at		Identical		Observable		Unobservable
	June 30,		Assets		Inputs		Inputs
In thousands	2008		(Level 1)		(Level 2)		(Level 3)
Impaired loans	$	7,765	$	—	$	7,765	$	—

Impaired loans that are collateral dependent are written down to their fair value, less costs to sell, through the establishment of specific reserves or by recording charge-offs when the carrying value exceeds the fair value. Valuation techniques consistent with the market approach, income approach, and/or cost approach were used to measure fair value and primarily included observable inputs for the individual nonaccrual loans being evaluated such as recent sales of similar assets or observable market data for operational or carrying costs.

Note 8 Subsequent Event

By letter dated August 1, 2008, the Adams National Bank was advised by the Office of the Comptroller of the Currency that it is deemed to be in “troubled condition” (as defined in Section 914 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989). As a result, the Bank must obtain prior regulator approval before adding or replacing a director or employing any senior executive officers or changing the responsibilities of a current employee to those of a senior executive officer.

11

Item 2 — 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.

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 the year ended December 31, 2007.

Results of Operations

Overview

The Company recorded net income of $83,000 during the three months ending June 30, 2008, as compared to $711,000 for the second quarter of 2007. Net income decreased $628,000 or 88.3% compared to the same quarter period in 2007 primarily due to a $895,000 increase in the provision for loan losses. The increase in the provision is intended to address increased loan charge-offs during the three month period and the overall deterioration in the local economy. In addition, net interest income decreased $161,000. For a detailed discussion of our asset quality, see the “Asset Quality” section of the Management’s Discussion and Analysis. The second quarter return on average assets was 0.08% and the return on average equity was 1.05% compared to 0.65% and 9.30%, respectively, for the same period last year. Basic and diluted earnings per share were $0.02 for the second quarter of 2008 and $0.21 for the second quarter of 2007.

The Company recorded $647,000 in net income for the first six months of 2008 compared to $1.4 million during the same period in 2007. During the first half of 2008, net income decreased $746,000 or 53.6% primarily due to a $915,000 increase in the provision for loan losses and a decrease of $504,000 in net interest income. The year to date return on average assets decreased 36 basis points to 0.30% and the return on average equity decreased to 4.07% from 9.19% for the same period in 2007. Book value per share increased to $8.87 at June 30, 2008 from $8.79 at June 30, 2007. The key components of net income are discussed in the following paragraphs.

Analysis of Net Interest Income

Net interest income, which is the sum of interest and certain fees generated by earning assets minus interest paid on deposits and other funding sources, is the principal source of the Company’s earnings. Net interest income for the quarter ended June 30, 2008 decreased $161,000 or 3.8% from $4.2 million for the second quarter of 2007. The decrease in net interest income was attributable, for the most part, to the decline in the average yield on loans and the increase in average nonaccrual loans, partially offset by an increase in average loans and a decline in the cost of liabilities. Average loans increased $18.4 million to $334.5 million during the second quarter of 2008 from $316.1 million in the second quarter of 2007. The average yield on loans decreased 146 basis point to 6.64% in the second quarter of 2008 from 8.10% in the second quarter of 2007, primarily as a result of decreases in the Prime rate, a key index to which a substantial portion of our loan rates are tied. During the second quarter of 2008, the average Prime rate was 5.08% compared to 8.25% during the same time last year. The second quarter 2008 yield on average earning assets was 6.23%, a decrease of 105 basis points from the second quarter of 2007. Average total investments decreased 18.25% to $86.7 million from $106.0 million in the prior year reflecting a $28.8 million decrease in federal funds sold and other short-term investments partially offset by a $9.4 million increase in investment securities.

Funding for earning assets comes from deposits, short and long-term borrowings, and stockholders’ equity. Average interest bearing liabilities increased $6.1 million or 1.9% during the second quarter of 2008 compared to the same period last year, reflecting a $15.2 million increase in total average borrowings partially offset by a $9.1 million decrease in average interest bearing deposits. During the second quarter of 2008, the cost of interest-bearing funds decreased 123 basis points to 2.92% from 4.15% in the second quarter of 2007. The decrease in the cost of interest-bearing liabilities reflects deposits and borrowings bearing lower interest rates as shorter and medium term interest rates in the second quarter of 2008 were significantly lower than during the second quarter of 2007.

12

The net interest margin, which is net interest income as a percentage of average interest-earning assets, was 3.89% for the second quarter of 2008, a decrease of 14 basis points from 4.03% for the second quarter of 2007. The decline in the net interest margin reflects the decrease in the average loan yield, and the decrease in the federal funds sold and other short-term investments yields in a declining interest rate environment. The net interest spread, which is the difference between the average interest rate earned on interest-earning assets and interest paid on interest-bearing liabilities, was 3.31% for the second quarter of 2008, reflecting an increase of 18 basis points from 3.13% reported in the second quarter of 2007. The increase in the net interest spread reflects the decrease in the cost of liabilities in a declining interest rate environment.

The following table presents the average balances, net interest income and interest yields/rates for the second quarters of 2008 and 2007.

Distribution of Assets, Liabilities and Stockholders’ Equity Yields and Rates
For the Three Months Ended June 30, 2008 and 2007
(Dollars in thousands)

	2008								2007
				Interest								Interest
	Average			Income/		Average			Average			Income/		Average
	Balances			Expense		Rates			Balances			Expense		Rates
Assets
Loans (1)	$	334,535		$	5,523		6.64	%	$	316,122		$	6,383		8.10	%
Investment securities		78,667			940		4.81	%		69,228			802		4.65	%
Federal funds sold		2,719			13		1.92	%		20,080			260		5.19	%
Interest-earning bank balances		5,304			48		3.64	%		16,735			214		5.13	%
Total interest-earning assets		421,225			6,524		6.23	%		422,165			7,659		7.28	%
Allowance for loan losses		(4,322	)							(4,514	)
Cash and due from banks		11,516								13,148
Other assets		13,764								10,623
Total assets	$	442,183							$	441,422
Liabilities and Stockholders’ Equity
Savings, NOW and money market accounts	$	129,169			414		1.29	%	$	143,114			1,096		3.07	%
Certificates of deposit		172,661			1,745		4.06	%		167,823			2,085		4.98	%
Short-term borrowings		18,945			108		2.29	%		3,899			17		1.75	%
Long-term debt		16,137			179		4.46	%		15,945			222		5.58	%
Total interest-bearing liabilities		336,912			2,446		2.92	%		330,781			3,420		4.15	%
Noninterest-bearing deposits		68,768								75,685
Other liabilities		4,656								4,297
Stockholders’ equity		31,847								30,659
Total liabilities and stockholders’ equity	$	442,183							$	441,422
Net interest income				$	4,078							$	4,239
Net interest spread							3.31	%							3.13	%
Net interest margin							3.89	%							4.03	%

(1) The loan averages are stated net of unearned income and include loans on which the accrual of interest has been discontinued.

The net interest income for the first six months of 2008 totaled $7.9 million, a decrease of $504,000 or 6.0%, as compared to $8.4 million for the same period in 2007. The decrease in the year to date net interest income was primarily the result of the 103 basis point decrease in the yield on average interest earning assets to 6.37% at June 30, 2008 from 7.40% in the six months ending June 30, 2007 partially offset by a 96 basis point decrease in the cost of interest bearing liabilities. The average yield on loans decreased 128 basis points to 6.89% during the first six months of 2008 compared to the same time last year reflecting a decline in the average Prime rate from 8.25% to 5.65%, a key index to which a substantial portion of our loan rates are tied, and an increase in average nonaccrual loans. Average total investments increased to $94.9 million from $92.7 million in the prior year reflecting a $12.6 million increase in investment securities, an $8.9 million decrease in federal funds sold and a $1.4 million decrease on other short-term investments.

13

Average interest bearing liabilities increased $16.4 million or 5.1% during the first half of 2008 compared to the same period last year, reflecting a $5.0 million increase in average interest bearing deposits and an $11.4 million increase in total average borrowings. During the first half of 2008, the cost of interest-bearing funds decreased 96 basis points to 3.18% from 4.14% in the first half of 2007. The decrease in the cost of interest-bearing liabilities reflects deposits and borrowings bearing lower interest rates as shorter and medium term interest rates in the first half of 2008 were significantly lower than during the first half of 2007.

The net interest margin was 3.81% and the net interest spread was 3.19% for the first six months of 2008, reflecting a decrease of 35 basis points in net interest margin and an increase of 7 basis points in net interest spread compared to the same period in 2007. The decline in the net interest margin reflects the decrease in the average loan yield in a declining rate environment and the loss of income from the increase in nonaccrual loan balances. The improvement in the net interest spread reflects the decrease in the cost of liabilities in a declining rate environment.

The following table presents the average balances, net interest income and interest yields/rates for the first half of 2008 and 2007.

Distribution of Assets, Liabilities and Stockholders’ Equity Yields and Rates
For the Six Months Ended June 30, 2008 and 2007
(Dollars in thousands)

	2008								2007
				Interest								Interest
	Average			Income/		Average			Average			Income/		Average
	Balances			Expense		Rates			Balances			Expense		Rates
Assets
Loans (1)	$	322,588		$	11,056		6.89	%	$	315,421		$	12,785		8.17	%
Investment securities		79,500			1,903		4.81	%		66,904			1,517		4.57	%
Federal funds sold		5,717			87		3.06	%		14,653			379		5.22	%
Interest-earning bank balances		9,662			183		3.81	%		11,108			285		5.17	%
Total interest-earning assets		417,467			13,229		6.37	%		408,086			14,966		7.40	%
Allowance for loan losses		(4,290	)							(4,486	)
Cash and due from banks		12,906								12,967
Other assets		13,258								10,405
Total assets	$	439,341							$	426,972
Liabilities and Stockholders’ Equity
Savings, NOW and money market accounts	$	134,987			1,080		1.61	%	$	135,320			2,009		2.99	%
Certificates of deposit		170,856			3,699		4.35	%		165,509			4,090		4.98	%
Short-term borrowings		13,880			171		2.48	%		5,767			81		2.83	%
Long-term debt		15,620			361		4.65	%		12,359			364		5.94	%
Total interest-bearing liabilities		335,343			5,311		3.18	%		318,955			6,544		4.14	%
Noninterest-bearing deposits		67,422								73,334
Other liabilities		4,594								4,113
Stockholders’ equity		31,982								30,570
Total liabilities and stockholders’ equity	$	439,341							$	426,972
Net interest income				$	7,918							$	8,422
Net interest spread							3.19	%							3.26	%
Net interest margin							3.81	%							4.16	%

(1) The loan averages are stated net of unearned income and include loans on which the accrual of interest has been discontinued.

14

Noninterest Income

Total 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 totaled $417,000 in the second quarter of 2008, an increase of $25,000 from the second quarter of 2007. We had $19,000 in gains from sales of the guaranteed portion of SBA loans in the second quarter of 2008 and no gains in the second quarter of 2007. There was no gain on the sale of investment securities in the second quarter of 2008 or 2007.

Total noninterest income for the six months ended June 30, 2008 was $824,000, an increase of $22,000, compared to the same period in 2007. Service charges on deposit accounts for the period ending June 30, 2008 totaled $666,000, a decrease of $40,000 or 5.7% from the same period in the 2007, reflecting a decline in savings, checking, overdraft, and debit card fees. Other income, consisting of other fee-based services and the gain on the sale of loans, increased by $62,000 during the first six months of 2008 compared to the same period in 2007. Gains from sales of the guaranteed portion of SBA loans in the first half of 2008 totaled $38,000 and there were no gains during the same period in 2007. There was no gain on the sale of investment securities in the first six months of 2008 or 2007.

Noninterest Expense

Noninterest expense for the second quarter of 2008 totaled $3.4 million, an increase of $30,000 or 0.9%, compared to the second quarter of 2007. During the three months ended June 30, 2008, salaries and employee benefits increased $21,000 and other operating expense increased $192,000 compared to the same period in 2007. These increases were partially offset by a $24,000 decrease in net occupancy expense, an $82,000 decrease in professional fees, and a $77,000 decrease in data processing fees.

Total noninterest expense for the six months ended June 30, 2008 decreased $115,000 or 1.7% to $6.6 million from $6.8 million for the same period in 2007. During the first half of 2008, professional fees decreased $87,000, primarily reflecting a $94,000 reduction in legal fee expense partially offset by a $7,000 increase in audit and consulting fees. Data processing expense decreased $183,000 predominately due to nonrecurring 2007 system deconversion costs at CB&T. These decreases were partially offset by a $20,000 increase in salaries and employee benefits, a $16,000 increase in net occupancy costs, and a $119,000 net increase in other operating expenses. The most significant increases in other operating expenses, during the first six months of 2008 compared to first six months of 2007, included a $134,000 increase in loan related expenses and a $71,000 increase in FDIC insurance assessments which were partially offset by a $115,000 decrease in advertising expense. The Company’s efficiency ratio was 76.0% at June 30, 2008 compared to 73.3% at June 30, 2007 predominately due to the $504,000 decrease in net interest income.

Income Tax Expense

Income tax expense totaled $21,000 for the second quarter of 2008, a decrease of $433,000 or 95.4% from the income tax expense reported for the second quarter of 2007. The decrease in income tax expense was a result of the $1.1 million or 91.1% decrease in the Company’s pretax net income for the second quarter 2008, as compared to the second quarter of 2007. The effective tax rate for the second quarter of 2008 decreased to 20.2% from 39.0% in the second quarter of 2007, reflecting the impact of a higher percentage of tax exempt income in relation to the Company’s pretax income.

Income tax expense for the first six months of 2008 decreased $536,000 or 58.8% to a total of $376,000, compared to the same period in 2007, reflecting the effect of a $1.3 million or 55.6% decrease in Company’s pretax net income. The Company’s effective tax rates for the first half of 2008 and 2007 were 36.8% and 39.6%, respectively.

15

Financial Condition

Overview

Total assets were $447.6 million at June 30, 2008, compared to $445.9 million at December 31, 2007, an increase of $1.7 million. Total liabilities increased $2.4 million and stockholders’ equity decreased $729,000 from December 31, 2007. The book value per share of common stock issued and outstanding at June 30, 2008 was $8.87, compared to $9.08 at December 31, 2007.

Short-term investments

Short-term investments, used to manage liquidity, decreased a total of $24.3 million at June 30, 2008 from year end. Investments in federal funds sold decreased $12.8 million and interest-earning deposits in other banks decreased $11.5 million.

Investment securities

Investment securities available-for-sale are carried at estimated fair value and totaled $71.0 million at June 30, 2008, an increase of $4.6 million or 6.9% since year end. Investment securities classified as held-to-maturity were $3.4 million at June 30, 2008, a decrease of $9.9 million or 74.5% from the balance at December 31, 2007. For further discussion of investment securities, see Note 4 in the Notes to Unaudited Condensed Consolidated Financial Statements.

Loans

Total loans outstanding at June 30, 2008 increased $30.3 million or 9.9% to $337.8 million from December 31, 2007, reflecting growth in business and commercial real estate loans.

Other assets

Other assets increased $1.8 million at June 30, 2008 from December 31, 2007. FHLB stock increased by $501,000 necessitated by the increase in FHLB borrowings. Accrued deferred tax assets increased $340,000 due to increases in unrealized losses on investment securities and the parent company income tax benefit increased $177,000. Other real estate owned increased $555,000 reflecting build out costs incurred on foreclosed property.

Deposits

Deposits are the Company’s primary source of funds. Total deposits decreased $18.1 million during the first six months of 2008. Noninterest-bearing deposits decreased $7.5 million or 10.0%, and interest-bearing deposits decreased $10.6 million or 3.4% from December 31, 2007. NOW accounts decreased by $20.6 million predominately due to outflow of seasonal funds from large governmental accounts which were partially offset by a $13.1 increase in certificates of deposits with balances greater than $100,000.

Short-term borrowings

Short-term borrowings, consisting of repurchase agreements, federal funds, and short-term FHLB borrowings, increased $19.0 million from December 31, 2007 to help offset the outflow in deposits.

Long-term debt

Long-term debt increased $2.2 million during the first six months of 2008. The parent company obtained a line of credit to fund the purchase of a loan participation.

Stockholders’ equity

Stockholders’ equity at June 30, 2008 was $30.7 million, an decrease of $729,000 from December 31, 2007. Net income of $647,000 and a $5,000 increase in additional paid in capital was more than offset by payment of $866,000 in dividends and a $515,000 increase in accumulated other comprehensive loss.

16

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

The ALLL is established through provisions for loan losses as a charge to earnings based upon management’s ongoing evaluation. Loans deemed uncollectible are charged against the ALLL and any subsequent recoveries are credited to the ALLL. The provision for loan losses increased during the first six months of 2008 to $1.1 million, compared to $161,000 for the same period in 2007. The increase in the provision expense was primarily due to the increase in a specific reserve for one construction loan. This loan was originated in 2005 for the principal amount of $4.8 million, and is for the construction of 20 condo units. This loan experienced delays in construction due to a fallout between the partners on the loan. The balance of the ALLL was $3.6 million or 1.07% of total loans at June 30, 2008, compared to $4.2 million or 1.37% of total loans at December 31, 2007. Net loan charge-offs were $1.8 million in the first half of 2008 and was predominantly due to the charge-off of one construction loan sold at foreclosure, the sale of which was completed in July, 2008. The current level of the ALLL is intended to address known and inherent losses that are both probable and estimable at June 30, 2008.

The following table presents an analysis of the ALLL for three and six months ended June 30, 2008 and 2007.

	For the three months ended						For the six months ended
	June 30,						June 30,
(Dollars in thousands)	2008			2007			2008			2007
Balance at beginning of period	$	4,414		$	4,479		$	4,202		$	4,432
Loans charged off:
Commercial		62			—			62			85
Real estate — commercial		—			—			—			—
Real estate — residential		—			—			—			—
Construction and development		1,691			—			1,691			—
Installment — individuals		6			—			9			—
Total charge-offs		1,759			0			1,762			85
Recoveries:
Commercial		—			6			29			33
Real estate — commercial		—			—			—			—
Real estate — residential		(31	)		2			46			8
Construction and development		—			—			—			—
Installment — individuals		9			7			13			21
Total recoveries		(22	)		15			88			62
Net charge-offs (recoveries)		1,781			(15	)		1,674			23
Provision for loan losses		970			75			1,075			160
Balance at end of period	$	3,603		$	4,569		$	3,603		$	4,569
Ratio of net charge-offs (recoveries) to average loans		0.53	%		(0.005	%)		0.52	%		0.01	%

17

Nonperforming Assets

Nonperforming assets include nonaccrual loans, restructured loans, past-due loans and other real estate owned. Past due loans are loans that are 90 days or more delinquent and still accruing interest. Total nonperforming loans were $10.3 million or 2.29% of total assets at June 30, 2008, compared to $12.3 million or 2.76% of total assets at December 31, 2007. There were no past-due loans that were still accruing interest at June 30, 2008, and $2.1 million at December 31, 2007. Nonaccrual loans at June 30, 2008 totaled $8.3 million, with balances of $1.1 million guaranteed by the Small Business Association (SBA), compared to $8.8 million at December 31, 2007, with $1.2 million guaranteed by the SBA. Two construction loans comprise 68.0% of nonaccrual loans. Other real estate owned totaled $2.0 million at June 30, 2008, compared to $1.4 million at December 31, 2007.

The following table presents nonperforming assets by category at June 30, 2008 and December 31, 2007.

	June 30,			December 31,
	2008			2007
	(Dollars in thousands)
Nonaccrual loans:
Commercial	$	2,613		$	1,379
Real estate		5,693			7,384
Installment — individuals		—			—
Total nonaccrual loans		8,306			8,763
Past-due loans		—			2,123
Other real estate owned		1,965			1,410
Total nonperforming assets	$	10,271		$	12,296
Nonperforming assets exclusive of SBA guarantee	$	9,138		$	11,080
Ratio of nonperforming assets to gross loans		3.04	%		3.98	%
Ratio of nonperforming assets to total assets		2.29	%		2.76	%
Allowance for loan losses to nonperforming assets		35.08	%		34.17	%

Assets totaling $20.3 million and $7.2 million at June 30, 2008 and December 31, 2007, respectively, were classified as monitored credits subject to management’s attention and are not reported in the preceding table. The classification of monitored credits is reviewed on a quarterly basis. The balances of the monitored credits guaranteed by the SBA totaled $318,000 and $386,000 as of June 30, 2008 and December 31, 2007, respectively.

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. Overall, net cash and cash equivalents decreased $25.8 million or 53.0% to a balance of $22.9 million for the six month period ended June 30, 2008 from a balance of $48.8 million at December 31, 2007. Liquid assets represented 5.1% of total assets at June 30, 2008, as compared to 10.9% of total assets at December 31, 2007.

The Company has additional sources of liquidity available through unpledged investment securities totaling $19.1 million, and unsecured lines of credit available from correspondent banks, which can provide up to $25 million, as well as a credit facility of $47.6 million through its membership in the FHLB of Atlanta.

Capital Resources

Capital levels are monitored by management on a quarterly basis in relation to financial forecasts for the year and regulatory requirements. The Company and the Banks continue to be capitalized well in excess of required levels. The following table presents the Company’s and the Banks’ capital position relative to their various minimum statutory and regulatory capital requirements at June 30, 2008. The Company and the Banks are considered “well-capitalized” under regulatory guidelines.

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											Minimum To Be Well
											Capitalized Under
						Minimum Capital					Prompt Corrective Action
	Actual					Requirements					Provisions
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount			Ratio
June 30, 2008:
Total capital to risk weighted assets:
AANB Consolidated	$	35,492		9.38	%	$	30,264		8.00	%		(1	)		(1	)
ANB		30,440		10.01	%		24,318		8.00	%		30,397			10.00	%
CB&T		9,534		13.34	%		5,719		8.00	%		7,148			10.00	%
Tier 1 capital to risk weighted assets:
AANB Consolidated		31,890		8.43	%		15,132		4.00	%		(1	)		(1	)
ANB		27,631		9.09	%		12,159		4.00	%		18,238			6.00	%
CB&T		8,741		12.23	%		2,859		4.00	%		4,289			6.00	%
Tier I capital to average assets:
AANB Consolidated		31,890		7.21	%		17,687		4.00	%		(1	)		(1	)
ANB		27,631		7.86	%		14,061		4.00	%		17,576			5.00	%
CB&T		8,741		9.87	%		3,544		4.00	%		4,430			5.00	%

(1) The Company is not subject to this requirement

Forward Looking Statements

When used in this Form 10-Q, the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties, including, among other things, changes in economic conditions in the Company’s market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Company’s market areas and competition, that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company wishes to advise readers that the factors listed above could affect the 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.

Item 3 — Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to various market risks in the normal course of conducting its business. Market risk is the potential loss arising from adverse changes in interest rates, prices, and liquidity. The Company has established the Asset/Liability Committee (ALCO) to monitor and manage those risks. ALCO meets periodically and is responsible for approving asset/liability policies, formulating and implementing strategies to improve balance sheet and income statement positioning, and monitoring the interest rate sensitivity. The Company manages its interest rate risk sensitivity through the use of a simulation model that projects the impact of rate shocks, rate cycles, and rate forecast estimates on the net interest income and economic value of equity (the net present value of expected cash flows from assets and liabilities). These simulations provide a test for embedded interest rate risk and takes into consideration factors such as maturities, reinvestment rates, prepayment speeds, repricing limits, decay rates and other factors. The results are compared to risk tolerance limits set by ALCO policy. Based on the Company’s most recent interest rate sensitivity analysis, the impact to the net interest income and economic value of equity are well within the tolerance limits for both a rising or declining interest rate environment and sensitivity to market risk is low.

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Item 4T — Controls and Procedures

As of the end of the period covered by this report, the Company conducted an evaluation, under the supervision and with the participation of the principal executive officer and principal financial officer, of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on this evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There was no change in the Company’s internal control over financial reporting during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II.

Item 1 — Legal Proceedings

     None

Item 1A — Risk Factors

If Economic Conditions Deteriorate in our Primary Market, Our Results of Operations and Financial Condition could be Adversely Impacted as Borrowers’ Ability to Repay Loans Declines and the Value of the Collateral Securing Loans Decreases.

Our financial results may be adversely affected by changes in prevailing economic conditions, including decreases in real estate values, changes in interest rates which may cause a decrease in interest rate spreads, adverse employment conditions, the monetary and fiscal policies of the federal government and other significant external events. Decreases in real estate values could potentially adversely affect the value of property used as collateral for our mortgage loans. In the event that we are required to foreclose on a property securing a mortgage loan, there can be no assurance that we will recover funds in an amount equal to any remaining loan balance as a result of prevailing general economic conditions, real estate values and other factors associated with the ownership of real property. As a result, the market value of the real estate underlying the loans may not, at any given time, be sufficient to satisfy the outstanding principal amount of the loans. Consequently, we would sustain loan losses and potentially incur a higher provision for loan loss expense. Adverse changes in the economy may also have a negative effect of the ability of borrowers to make timely repayments of their loans, which could have an adverse impact on earnings.

Our Securities Portfolio may be Negatively Impacted by Fluctuations in Market Value.

Our securities portfolio may be impacted by fluctuations in market value, potentially reducing accumulated other comprehensive income and/or earnings. Fluctuations in market value may be caused by decreases in interest rates, lower market prices for securities and lower investor demand. Our securities portfolio is evaluated for other-than-temporary impairment on at least a quarterly basis. If this evaluation shows an impairment to cash flow connected with one or more securities, a potential loss to earnings may occur.

Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds

     None

Item 3 — Defaults Upon Senior Securities

     None

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Item 4 — Submission of Matters to Vote of Security Holders

On May 15, 2008, the Company held its Annual Meeting of Stockholders. At the meeting, the following persons were elected to the Board of Directors to hold office until the next Annual Meeting of Stockholders or until their respective successors have been elected and qualified. The votes cast and withheld for each such director was as follows:

	FOR		WITHHELD
A. George Cook		3,045,439		40,046
Jeanne D. Hubbard		3,042,128		38,591
Marshall T. Reynolds		2,911,257		169,462
Marianne Steiner		3,046,982		35,626
Joseph L. Williams		3,028,800		51,919
Bonita A. Wilson		3,033,176		47,743
Douglas V. Reynolds		3,027,397		53,322
Patricia G. Shannon		3,044,054		38,100
Sandra C. Ramsey		3,045,093		35,626

In addition, the Company’s stockholders approved the ratification of the appointment of McGladrey & Pullen, LLP as the Company’s independent certified public accountants for the year ending December 31, 2008, as follows:

FOR 3,078,836 AGAINST 7,919 ABSTAIN 3,935

Item 5 — Other Information

By letter dated August 1, 2008, the Adams National Bank was advised by the Office of the Comptroller of the Currency that it is deemed to be in “troubled condition” (as defined in Section 914 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989). As a result, the Bank must obtain prior regulator approval before adding or replacing a director or employing any senior executive officers or changing the responsibilities of a current employee to those of a senior executive officer.

Item 6 — Exhibits

(a) Exhibits

Exhibit 31.1	Certification of the Chief Executive Officer
Exhibit 31.2	Certification of the Chief Financial Officer
Exhibit 32	Certification of Chief Executive Officer and Chief Financial Officer

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SIGNATURES

In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ABIGAIL ADAMS NATIONAL BANCORP, INC.
Registrant

Date: August 13, 2008	/s/ Jeanne D. HubbardJeanne D. Hubbard
	Chairwoman of the Board,
	President and Director
	(Principal Executive Officer)

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