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EXHIBIT 99.1
GREATER ATLANTIC FINANCIAL CORP.
10700 Parkridge Boulevard - Suite P50 - Reston, Virginia 20191 - (703) 391-1300
- - Fax: (703) 391-1506
NEWS RELEASE
Date: May 28, 2004
Contact: David E. Ritter
(703) 390-0344
GREATER ATLANTIC FINANCIAL RELEASES
SECOND QUARTER RESULTS
Reston, Virginia - May 28, 2004 - Charles W. Calomiris, Chairman of the Board of
Greater Atlantic Financial Corp. (NASDAQ: GAFC), the holding company for Greater
Atlantic Bank, announced today that the Company had a net loss for the three
months ended March 31, 2004, of $1.3 million or $.42 per diluted share compared
to net earnings of $4,000 for the three months ended March 31, 2003. The net
earnings per diluted share for the three months ended March 31, 2003 would be
zero. For the six months ended March 31, 2004, the Company had a net loss of
$1.6 million or $.52 per diluted share, compared to net earnings of $564,000 or
$.17 per diluted share for the comparable period one year ago.
Mr. Calomiris noted that the earnings release was delayed until the Company
restated earnings for fiscal years 2002 and 2003 and for the fiscal quarter
ended December 31, 2003, to reflect the correction of errors in accounting for
the Company's mortgage loan hedge program and its purchase of interest rate
swaps and caps. He also stated that, following its initial review, the Board had
directed the Audit Committee to engage an independent accounting firm to perform
a review of the hedging transactions, the accounting treatment for those
transactions and matters related to those transactions.
In discussing the changes resulting from the errors in accounting for the
hedges, Carroll E. Amos, President and CEO pointed out that, "as indicated in
our May 18, 2004 press release on this subject, the Company was required to
restate previously reported stockholders' equity and net earnings through
December 31, 2003 which amounted to $1.2 million and $3.1 million,
respectively." Continuing Mr. Amos stated, "of the $3.1 million of losses
recognized on the derivative instruments, $1.7 million was related to the
mortgage loan hedge on approximately $36 million of fixed rate loans, and $1.4
million of losses related to approximately $107 million of interest rate swaps
and caps." Mr. Amos further stated, "when the strict requirements for hedge
accounting are not met, gains and losses on such instruments are included
currently in the statement of operations. Therefore, during the three and six
months ended March 31, 2004 the statement of operations includes net losses of
$830,000 and $441,000 on those instruments, respectively."
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Mr. Amos continued: "the Company still owns the derivative instruments, and, as
a result of the increase in long-term interest rates that has occurred since
March 31, 2004, as of May 27, 2004, the fair value of those instruments has
improved by approximately $1.5 million. Continuing, Mr. Amos added: "if rates
remain at current levels, that improvement would be recognized in earnings
during the quarter ending June 30, 2004." He cautioned that any change in the
fair value of the instruments, up or down, would depend upon market interest
rates at the end of June.
In commenting on the operating activities, Mr. Amos, stated that "a decline in
loan origination and sales volumes at the Bank's mortgage banking subsidiary,
coupled with a decrease in net interest income due to prepayments that have
occurred in the Bank's loan and investment securities portfolios had a negative
impact on net earnings for the three and six months ended March 31, 2004, from
the comparable periods one year ago." Continuing, Mr. Amos stated: "The decline
in both net interest income and net interest margin from 2003 is primarily the
result of low interest rates and the resulting prepayment and refinancing of
higher yielding assets."
Regarding the Mortgage Corporation's operations, Mr. Amos said that "the impact
of reduced mortgage origination activity and increased competitive pricing
pressures resulted in a significant reduction in gain on sale of loans and
earnings from the Mortgage Corporation during the three months and six months
ended March 31, 2004, from comparable periods one year ago. The volume of loan
sales was down more than 38 percent from the quarter ended March 31, 2003, and
down 40 percent from the comparable six month period one year ago."
Continuing, Mr. Amos stated: "Our primary focus continues to be on increasing
our commercial loan portfolio and transaction-based deposits. Transaction-based
deposits increased $5.0 million during the quarter and loans receivable, net,
increased by $4.6 million, primarily as a result of a $9.5 million increase in
commercial loans and a $753,000 increase in the consumer loan portfolio." "The
increases in commercial and consumer lending were offset in part by a $5.6
million decrease in the Bank's single-family loan portfolio," he added.
Net interest income for the quarter ended March 31, 2004, amounted to $1.9
million, a decrease of $62,000 or 3 percent from the comparable period one year
ago. That decrease was a direct result of a 17 basis point decrease in net
interest margin from 1.64% for the three months ended March 31, 2003, to 1.47%
for the recently completed quarter. The prepayment of higher yielding
interest-earning assets was the primary reason for the decline in net interest
margin as the yield on interest earning assets declined by 43 basis points from
4.32% for the three months ended March 31, 2003, to 3.89% for the three months
ended March 31, 2004. The decline in the yield on interest earnings assets was
offset in part by a 31 basis point decrease in the cost of interest-bearing
liabilities.
05/28/04 Greater Atlantic Financial Corp. Page 2 of 8
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Net interest income for the six months ended March 31, 2004, amounted to $3.3
million, a decrease of $920,000 or 22 % from the comparable period one year ago.
That decrease was a direct result of a 43 basis point decrease in net interest
margin from 1.72% for the six months ended March 31, 2003, to 1.29% for the six
month ended March 31, 2004. The prepayment of higher yielding interest-earning
assets was the primary reason for the decline in net interest margin as the
yield on interest earning assets declined by 72 basis points from 4.45% for the
six months ended March 31, 2003, to 3.73% for the six months ended March 31,
2004. The decline in the yield on interest earnings assets was offset in part by
a 35 basis point decrease in the cost of interest-bearing liabilities.
Non-interest income for the three months ended March 31, 2004, decreased 52
percent or $1.7 million from the level earned for the three months ended March
31, 2003. The decrease for the period was primarily attributable to a $812,000
decrease in gain on sale of loans by Greater Atlantic Mortgage Corporation,
coupled with a $622,000 increase in the loss on the derivative instruments that
were used in the Bank's hedging program that are now free floating and marked up
or down through earnings as the fair value of those instruments change. In
addition, due to lower loan production levels, service fees on loans decreased
by $109,000 during the three months ended March 31, 2004. Loan sales decreased
by 38 percent or $61.0 million from the comparable period one year ago, offset
in part by a 37 basis point increase in the net margin earned on those sales
from 2.01% for the three months ended March 2003, to 2.39% for the three months
ended March 31, 2004. During the three months ended March 31, 2004, the loss on
sale of investment securities increased $140,000 from the comparable period one
year ago.
Non-interest income for the six months ended March 31, 2004, decreased 42
percent or $3.2 million from the $7.7 million earned for the six months ended
March 31, 2003. The decrease for the period was primarily attributable to a $3.0
million decrease in gain on sale of loans by Greater Atlantic Mortgage
Corporation, coupled with an $89,000 increase in the loss on the derivative
instruments that were used in the Bank's hedging program. In addition, due to
lower loan production levels, service fees on loans decreased by $287,000 during
the six months ended March 31, 2004. Loan sales decreased by 40 percent or
$138.0 million from the comparable period one year ago, coupled with a 2 basis
point decrease in the net margin earned on those sales from 2.14% for the six
months ended March 31, 2003, to 2.12% for the six months ended March 31, 2004.
Offsetting those decreases was an increase of $172,000 in the gain on sale of
investment securities from the comparable period one year ago.
Non-interest expense decreased $442,000 or 9 percent to $4.7 million for the
three months ended March 31, 2004, from the comparable period one year ago. The
decrease was primarily attributable to a $478,000 decrease in expenses at the
Bank's mortgage banking subsidiary as a result of decreased loan origination and
sales activity. While the increase of $36,000 in non-interest expense at the
Bank was distributed over various non-interest expense categories, the decrease
at the mortgage banking subsidiary level was primarily in compensation of
$735,000, offset in part by a $327,000 increase in advertising.
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Non-interest expense decreased $1.4 million or 13 percent to $9.3 million for
the six months ended March 31, 2004, from $10.6 million for the six months ended
March 31. The decrease was primarily attributable to a $1.6 million decrease in
expenses at the Bank's mortgage banking subsidiary as a result of decreased loan
origination and sales activity. While the increase of $187,000 in non-interest
expense at the Bank was distributed over various non-interest expense
categories, the decrease in non-interest expense at the mortgage banking
subsidiary level was primarily the result of a $2.2 million reduction in
compensation, offset in part by a $565,000 increase in advertising.
Non-performing assets amounted to $937,000 at March 31, 2004, or .17 percent of
total assets, compared to $1.7 million or .35 percent of total assets at March
31, 2003. The primary reason for the decrease over the comparable period
one-year ago was the reduction of the outstanding balance on a previously noted
problem commercial business loan. The Bank decreased its provision for loan
losses by $64,000 in the three months ended March 31, 2004, and by $632,000 in
the six months ended March 31, 2004, from the provisions made for the three- and
six-month periods one year ago due in part because the Bank no longer had to
make a specific provision for that one credit.
At March 31, 2004, Greater Atlantic Financial Corp. had total assets of $538
million, an increase of $47 million or 9 percent from the $491 million recorded
at the close of the comparable period one-year ago. Loans receivable at March
31, 2004, amounted to $259 million, an increase of $3 million from the $256
million held at March 31, 2003. Deposits amounted to $292 million at March 31,
2004, an increase of $5 million from the $287 million held one year ago.
Stockholders' equity at March 31, 2004, amounted to $19.0 million or $6.31 per
share. Notwithstanding the net loss of $1.3 million, or $.42 per share for the
quarter ended March 31, 2004, book value per share decreased $.40 per share as
accumulated other comprehensive income increased by $55,000 or $.02 per share
from December 31, 2003, the Company's prior quarter end. The increase in
accumulated other comprehensive income during the quarter was due to an increase
in unrealized gain on investment securities available-for-sale. As a result of
the restatement, because the Company no longer qualifies to use hedge
accounting, the Company's Stockholders' equity was reduced by $1.6 million to
$21.3 million or $7.08 per share at September 30, 2003 and by $1.2 million to
$20.2 million or $6.71 per share at December 31, 2003.
Greater Atlantic Financial Corp. conducts its business operations through its
wholly-owned subsidiary, Greater Atlantic Bank and the Bank's independent
wholly-owned subsidiary, Greater Atlantic Mortgage Corporation. The Bank offers
traditional banking services to customers through nine branches located in
Washington, D.C., Rockville and Pasadena, Maryland, and Front Royal, New Market,
Reston, South Riding, Sterling and Winchester, Virginia.
05/28/04 Greater Atlantic Financial Corp. Page 4 of 8
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PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT
This release contains forward-looking statements within the meaning of the
federal securities laws. These statements are not historical facts, but
statements based on the Company's current expectations regarding its business
strategies and their intended results and its future performance.
Forward-looking statements are preceded by terms such as "expects," "believes,"
"anticipates," "intends" and similar expressions.
Forward-looking statements are not guarantees of future performance. Numerous
risks and uncertainties could cause or contribute to the Company's actual
results, performance and achievements to be materially different from those
expressed or implied by the forward-looking statements. Factors that may cause
or contribute to these differences include, without limitation, general economic
conditions, including changes in market interest rates and changes in monetary
and fiscal policies of the federal government; legislative and regulatory
changes; and other factors disclosed periodically in the Company's filings with
the Securities and Exchange Commission.
Because of the risks and uncertainties inherent in forward-looking statements,
readers are cautioned not to place undue reliance on them, whether included in
this report or made elsewhere from time to time by the Company or on its behalf.
The Company assumes no obligation to update any forward-looking statements.
05/28/04 Greater Atlantic Financial Corp. Page 5 of 8
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GREATER ATLANTIC FINANCIAL CORP.
SECOND QUARTER RESULTS
(NASDAQ:GAFC)
(DOLLARS IN THOUSANDS EXCEPT EARNINGS PER SHARE)
At or for the At or for the
Three Months Ended Six Months Ended
March 31, March 31,
---------------------------------------------------------
CONSOLIDATED STATEMENT OPERATIONS 2004 2003 2004 2003
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INTEREST INCOME
Loans $ 3,375 $ 3,511 $ 6,517 $ 7,400
Investments 1,614 1,642 3,010 3,546
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TOTAL INTEREST INCOME 4,989 5,153 9,527 10,946
INTEREST EXPENSE
Deposits 1,377 1,683 2,845 3,583
Borrowed money 1,720 1,516 3,380 3,141
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TOTAL INTEREST EXPENSE 3,097 3,199 6,225 6,724
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NET INTEREST INCOME 1,892 1,954 3,302 4,222
PROVISION FOR LOAN LOSSES 2 66 81 713
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,890 1,888 3,221 3,509
NONINTEREST INCOME
Gain on sale of loans 2,307 3,150 4,264 7,260
Fees and service charges 247 354 481 785
Gain (loss) on sale of investment securities (156) (16) 156 (16)
Gain (loss) on derivative transaction (830) (208) (441) (352)
Gain on sale of real estate owned - - - -
Other operating income 5 10 10 14
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TOTAL NONINTEREST INCOME 1,573 3,290 4,470 7,691
NONINTEREST EXPENSE
Compensation and employee benefits 2,181 2,916 4,174 6,141
Occupancy 510 498 1,010 973
Professional services 259 250 547 476
Advertising 525 198 946 381
Deposit insurance premium 11 12 22 23
Furniture, fixtures and equipment 257 269 515 537
Data processing 353 309 703 625
Other real estate owned expenses - 2 - 2
Other operating 636 720 1,335 1,478
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TOTAL NONINTEREST EXPENSE 4,732 5,174 9,252 10,636
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Income (loss) before income tax provision (1,269) 4 (1,561) 564
Income tax provision - - - -
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NET (LOSS EARNINGS $ (1,269) $ 4 $ (1,561) $ 564
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05/28/04 Greater Atlantic Financial Corp. Page 6 of 8
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GREATER ATLANTIC FINANCIAL CORP.
SECOND QUARTER RESULTS
(NASDAQ:GAFC)
(DOLLARS IN THOUSANDS EXCEPT EARNINGS PER SHARE)
At or for the At or for the
Three Months Ended Six Months Ended
March 31, March 31,
---------------------------------------------------------
2004 2003 2004 2003
---------------------------------------------------------
PER SHARE DATA:
Net income (loss)
Basic $ (0.42) $ - $ (0.52) $ 0.19
Diluted (0.42) - (0.52) 0.17
Book value $ 6.31 $ 6.45 $ 6.31 $ 6.45
Weighted average shares outstanding
Basic 3,012,434 3,012,434 3,012,434 3,012,434
Diluted 3,012,434 4,415,821 3,012,434 4,412,120
AVERAGE FINANCIAL CONDITION DATA:
Total assets $ 531,905 $ 492,902 $ 528,458 $ 508,049
Investment securities 123,465 160,714 133,485 161,417
Mortgage-backed securities 120,126 43,474 114,050 46,599
Total loans receivable, net 270,016 272,555 263,173 283,680
Total deposits 264,462 276,058 273,091 277,738
Total stockholders' equity 20,081 19,400 20,500 19,270
SELECTED FINANCIAL RATIOS(1)
Return on average assets -0.95% 0.00% -0.59% 0.22%
Return on average equity -25.28% 0.08% -15.23% 5.85%
Yield on earning assets 3.89% 4.32% 3.73% 4.45%
Cost of funds 2.50% 2.81% 2.54% 2.89%
Net interest rate spread 1.38% 1.51% 1.19% 1.56%
Net interest rate margin 1.47% 1.64% 1.29% 1.72%
05/28/04 Greater Atlantic Financial Corp. Page 7 of 8
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GREATER ATLANTIC FINANCIAL CORP
SECOND QUARTER RESULTS
(NASDAQ:GAFC)
(DOLLARS IN THOUSANDS EXCEPT EARNINGS PER SHARE)
At or for the
Six Months Ended
March 31,
----------------------------------------------
2004 2003
----------------------------------------------
FINANCIAL CONDITION DATA:
Total assets $538,029 $490,605
Total loans receivable, net 259,200 255,698
Mortgage-loans held for sale 12,517 10,899
Investments 109,277 163,397
Mortgage-backed securities 124,562 39,396
Trading 7,445 -
Total deposits 291,812 287,197
FHLB advances 120,500 98,350
Other borrowings 93,730 71,032
Convertible preferred securities 9,364 9,346
Total stockholders' equity 19,002 19,424
ASSET QUALITY DATA:
Non-performing assets to total assets 0.17% 0.35%
Non-performing loans to total loans 0.35% 0.59%
Net charge-offs to average total loans 0.06% 0.25%
Allowance for loan losses to:
Total loans 0.55% 0.64%
Non-performing loans 157.52% 108.30%
Non-performing loans $ 937 $ 1,567
Non-performing assets $ 937 $ 1,695
Allowance for loan losses $ 1,476 $ 1,697
CAPITAL RATIOS OF THE BANK:
Leverage ratio 5.19% 5.50%
Tier 1 risk-based capital ratio 10.37% 11.26%
Total risk-based capital ratio 10.88% 11.93%
05/28/04 Greater Atlantic Financial Corp. Page 8 of 8