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[GREATER ATLANTIC FINANCIAL CORP. LETTERHEAD]
GREATER ATLANTIC FINANCIAL CORP.
10700 Parkridge Boulevard o Suite P50 o Reston, Virginia 20191 o
(703) 391-1300 o Fax: (703) 391-1506
NEWS RELEASE
DATE: NOVEMBER 15, 2004
CONTACT: DAVID E. RITTER
(703) 390-0344
GREATER ATLANTIC FINANCIAL RELEASES
FOURTH QUARTER AND YEAR END RESULTS
Reston, Virginia - November 15, 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 of
$2.4 million or $.80 per diluted share for the three months ended September 30,
2004, compared to net earnings of $1.3 million or $.31 per diluted share for the
three months ended September 30, 2003. For the fiscal year ended September 30,
2004, the Company had a net loss of $3.2 million or $1.06 per diluted share,
compared to net earnings of $2.3 million or $.60 per diluted share for fiscal
year 2003.
In commenting on the results, Carroll E. Amos, President and Chief Executive
Officer, said, "the impact of reduced mortgage loan originations, coupled with
increased competitive pricing pressures, resulted in a significant reduction in
both gain on sale of loans and earnings by the Mortgage Corporation from those
obtained in the prior year. Earnings of the Mortgage Corporation declined by
$2.5 million for the three months ended September 30, 2004, and $4.5 million for
the fiscal year then ended, and was the primary reason for the decline in net
earnings of the Corporation. Continuing, Mr. Amos said "the volume of loan sales
for the three months ended September 30, 2004 was down more than 75 percent from
the three months ended September 30, 2003, and down 47 percent for the current
fiscal year from fiscal year 2003." Continuing, Mr. Amos said "notwithstanding
the recent decline in interest rates, because the outlook is for interest rates
to increase going forward, we expect that loan origination and sales volume will
continue to decline during the three months ending December 30, 2004, and that
earnings in that period will be negatively impacted."
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Continuing Mr. Amos stated "While we have made staff reductions in the recently
concluded three months, we anticipate that additional reductions may be
necessary because additional marketing costs incurred during the three months
ended September 30, 2004, did not produce the desired results. Going forward,
those will also necessarily be curtailed."
Continuing, Mr. Amos noted, "during the three months ended September 30, 2004,
the Bank recognized an $890,000 loss in its free-standing derivative positions,
a deterioration of $1.1 million relative to the comparable period one year ago."
"Subsequent to the close of the September 30, 2004 period, the Bank sold at a
gain approximately $23.4 million of fixed rate loans, which were being hedged by
the derivatives. That sale reduce the loss incurred during the recently
concluded three month period by approximately $600,000," he added. He further
noted, "the Bank will benefit in future quarters as $45 million of the $72
million position of interest rate swaps mature between October 2004 and April
2005. Those maturities will reverse any fair value losses recognized and the
interest expense associated with those swaps will be terminated." He concluded
by pointing out that "while the bank recognized an $890,000 loss during the
quarter, the overall loss on derivatives for the fiscal year ended September 30,
2004 amounted to $227,000, an increase of $235,000 over the comparable period
one year ago."
In commenting on the operating activities, Mr. Amos stated that "a decrease in
net interest income due to prepayments in the Bank's loan and investment
securities portfolios also had a negative impact on net earnings for the for the
fiscal year 2004 when compared to fiscal year 2003. The decline in both net
interest income and net interest margin from 2003 is primarily the result of
lower interest rates throughout the year and the resulting prepayment and
refinancing of higher yielding assets." Prepayments in the Bank's loan and
investment securities portfolios also increased the amortization of the purchase
price premiums over the amortization that existed in the comparable period one
year ago," Mr. Amos added. Continuing, he said, "in the quarter ended September
30, 2004 we saw a slowdown in overall prepayments from the year ago period, but
prepayments remain high on the Bank's portfolio of adjustable-rate investment
and mortgage-backed securities."
Mr. Amos confirmed that Greater Atlantic Bank had received the regulatory
approvals for the previously announced branch sales and that he expected at
least one of those sales would be consummated in the three months ending
December 31, 2004. He stated, "those transactions will improve the Bank's
capital position and benefit operations by reducing non-interest expense." The
two transactions are expected to result in an estimated pre-tax gain of
$700,000, net of transaction expenses and the write-off of approximately
$350,000 of goodwill related to the Winchester office, and result in annual
reductions of $900,000 in net non-interest expense.
Continuing, Mr. Amos stated: "Our primary focus continues to be on increasing
our commercial loan portfolio and transaction-based deposits. While
transaction-based deposits decreased $4.1 million during the three months ended
September 30, 2004, transaction-based deposits increased $6.6 million (of which
$4.4 million was in non-interest checking) for the fiscal year ended September
30, 2004, primarily as a result of our increased commercial lending activities."
Continuing, Mr. Amos noted, "during the three months ended September 30, 2004,
the Bank's commercial loans declined by $12.0 million due to payoffs, but, for
the fiscal year ended
11/15/04 Greater Atlantic Financial Corp. Page 2 of 8
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September 30, 2004, commercial loans increased by $17.2 million and the Bank has
noted an increase in business loan demand. Consumer loans increased by $2.9
million for the quarter and $8.7 million for the fiscal year ended September 30,
2004." Those increases in commercial and consumer lending for the fiscal year
were offset to large extent by a $21.5 million decrease in the Bank's
single-family loan portfolio, which consists primarily of adjustable rate
loans." "As a result of the interest rate environment that existed throughout
out the fiscal year, borrowers refinanced adjustable rate loans into fixed-rate
loan products," he added.
Net interest income for the three months ended September 30, 2004, amounted to
$1.6 million, a decrease of $237,000 or 13 percent from the comparable period
one year ago. That decrease was the result of an 8 basis point decrease in net
interest margin, from 1.43% for the three months ended September 30, 2003, to
1.35% for the recently completed three month period, coupled with a $39.7
million decrease in the Bank's interest-earning assets. A 4 basis point
improvement in the yield on interest-earnings assets was offset in part by an 11
basis point increase in the cost of interest-bearing liabilities. Offsetting the
decline in net interest margin resulting from the decrease in interest-earning
assets was a $108,000 decrease in the charge resulting from payments made on
certain interest rate swap and cap agreements and a $163,000 decrease in the
amortization of purchase price premiums on loans and investment securities
compared to the amortization required in the three months ended September 30,
2003.
Net interest income for the fiscal year ended September 30, 2004, amounted to
$6.6 million, a decrease of $1.3 million or 17 % from fiscal year 2003. That
decrease was the result of a 29 basis point decrease in net interest margin from
1.61% for the fiscal year ended September 30, 2003, to 1.32% for the fiscal year
ended September 30, 2004, offset in part by an $8.5 million increase in the
Bank's interest-earning assets. 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 48 basis points, from
4.25% for the fiscal ended September 30, 2003, to 3.77% for the fiscal year
ended September 30, 2004. The decline in the yield on interest-earnings assets
was offset in part by a 21 basis point decrease in the cost of interest-bearing
liabilities. Also contributing to the decline in the net interest margin was a
$176,000 increase in the charge resulting from payments made on certain interest
rate swap and cap agreements and a $74,000 increase in the amortization of
purchase price premiums on loans and investment securities compared to the
amortization applied in fiscal year 2003.
Non-interest income for the three months ended September 30, 2004, decreased 93
percent or $6.1 million from the level earned for the three months ended
September 30, 2003. The decrease for the most recent three months was primarily
attributable to a $4.7 million decrease in gain on sale of loans by Greater
Atlantic Mortgage Corporation, coupled with a $117,000 decrease in service fees
on loans due to lower loan production levels. Loan sales decreased by 75 percent
or $176.6 million from the comparable period one year ago, coupled with a
decline of 41 basis points in the net margin earned on those sales, from 2.62%
for the three months ended September 30, 2003, to 2.20% for the three months
ended September 30, 2004. Also contributing to the decline in non-interest
income during the three months ended September 30, 2004 was a $1.1 million
decline on derivative instruments from a gain of $219,000 for the three months
ended September 30, 2003 to a loss of $890,000 for the three months ended
September 30, 2004 as the fair value of the Bank's free floating derivative
instruments declined due to a decline in interest
11/15/04 Greater Atlantic Financial Corp. Page 3 of 8
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rates. The gain on sale of investment securities decreased $215,000 during the
three months ended September 30, 2004, from the comparable period one year ago
as the Bank sold $32.0 million of investment securities whose current and
projected yields were not providing a sufficient return on assets or the capital
required to be held to support those investments.
For the fiscal year ended September 30, 2004, non-interest income amounted to
$9.9 million, a decrease of 47 percent or $9.0 million from the $18.9 million
earned during fiscal year 2003. That decrease was primarily attributable to an
$8.2 million decrease in gain on sale of loans by Greater Atlantic Mortgage
Corporation coupled with a $469,000 decrease in service fees on loans resulting
from lower loan production levels. Loan sales decreased by 47 percent or $354.6
million from one year ago. That decrease was coupled with a 5 basis point
decrease in the net margin earned on those sales from 2.34% for the fiscal year
ended September 30, 2003, to 2.29% for the fiscal year ended September 30, 2004.
Also contributing to the decline in non-interest income from fiscal year 2003
were a $236,000 decrease in derivative gains, and a $93,000 decrease in gain on
sale of investment securities.
Non-interest expense decreased $2.7 million or 38 percent from $7.1 million for
the three months ended September 30, 2003 to $4.4 million for the three months
ended September 30, 2004. The decrease was attributable to a $2.7 million
decrease in expenses at the Bank's mortgage banking subsidiary as a result of
decreased loan origination and sales activity. While the non-interest expense of
the Bank, only, was unchanged from the comparable period one year ago, the
decrease in non-interest expense at the mortgage banking subsidiary was
primarily in compensation of $2.9 million and other operating expense as a
result of lower lending volumes, offset in part by a $631,000 increase in
advertising.
Non-interest expense for the fiscal year ended September 30, 2004, amounted to
$19.4 million a decrease of $4.3 million or 18 percent from the $23.7 million
incurred in the fiscal year ended September 30, 2003. The decrease was primarily
attributable to a $4.6 million decrease in expenses at the Bank's mortgage
banking subsidiary as a result of decreased loan origination and sales activity.
The increase of $356,000 in non-interest expense at the Bank was due in part to
$116,000 in charges for the adjustment of the carrying value of certain
Bank-owned property and the establishment of a valuation allowance for loan
servicing rights, coupled with a general increase in non-interest expenses of
$240,000 distributed over various expense categories. The decrease in
non-interest expense at the mortgage banking subsidiary was primarily the result
of a $5.8 million reduction in compensation, offset in part by a $1.5 million
increase in advertising.
Non-performing assets were $953,000 at September 30, 2004, or 0.22 per cent of
total assets, compared to $1.4 million or 0.28 percent of total assets at
September 30, 2003. The primary reason for the decrease over the level held
one-year ago was the reduction of the outstanding balance on a previously noted
problem commercial business loan. The Bank's provision for loan losses for the
three months ended September 30, 2004, was unchanged from the three months ended
September 30, 2003, and decreased by $647,000 for the fiscal year ended
September 30, 2004, from the provision made for fiscal year 2003. That decrease
was due in part because the Bank no longer had to make a specific provision for
that problem commercial business loan.
11/15/04 Greater Atlantic Financial Corp. Page 4 of 8
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At September 30, 2004, Greater Atlantic Financial Corp. had total assets of
$434.3 million, a decrease of $65.1 million or 13 percent from the $499.4
million recorded at the close of fiscal year 2003. Loans receivable, net, at
September 30, 2004, amounted to $246.4 million, a $4.1 million increase from the
$242.3 million held at September 30, 2003. Deposits amounted to $289.0 million
at September 30, 2004, a decrease of $8.9 million from the $297.9 million held
one year ago. Stockholders' equity at September 30, 2004 amounted to $17.0
million or $5.65 per share. Notwithstanding the net loss of $3.2 million, or
$1.06 per share, for the fiscal year ended September 30, 2004, book value
decreased $1.43 per share as accumulated comprehensive income declined by $1.0
million or $.33 per share from fiscal year end 2003 to fiscal year end 2004. The
reduction in accumulated other comprehensive income was due to an increase in
the unrealized loss on investment securities available-for-sale. That reduction
in market value of the Company's available-for-sale securities was due in part
to the recent increase in interest rates coupled with the accelerated prepayment
speeds the Bank has experienced in its portfolio of adjustable rate
mortgage-backed securities.
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.
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.
11/15/04 Greater Atlantic Financial Corp. Page 5 of 8
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GREATER ATLANTIC FINANCIAL CORP.
FOURTH QUARTER RESULTS
(NASDAQ:GAFC)
(DOLLARS IN THOUSANDS EXCEPT EARNINGS PER SHARE)
At or for the At or for the
Three Months Ended Years Ended
September 30, September 30,
-------------------------- ------------------------
CONSOLIDATED STATEMENT OPERATIONS 2004 2003 2004 2003
------------ ----------- ---------- ----------
INTEREST INCOME
Loans $ 3,425 $ 3,469 $ 13,506 $ 14,369
Investments 1,199 1,501 5,456 6,618
------------ ----------- ---------- ----------
TOTAL INTEREST INCOME 4,624 4,970 18,962 20,987
INTEREST EXPENSE
Deposits 1,480 1,533 5,751 6,673
Borrowed money 1,567 1,623 6,604 6,376
------------ ----------- ---------- ----------
TOTAL INTEREST EXPENSE 3,047 3,156 12,355 13,049
------------ ----------- ---------- ----------
NET INTEREST INCOME 1,577 1,814 6,607 7,938
PROVISION FOR LOAN LOSSES 76 76 209 856
------------ ----------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,501 1,738 6,398 7,082
NONINTEREST INCOME
Gain on sale of loans 1,330 6,046 9,191 17,373
Fees and service charges 251 358 992 1,476
Gain (loss) on sale of investment securities (215) - (58) 35
Gain (loss) on derivatives (890) 219 (227) 9
Loss on sale of real estate owned - (15) - (24)
Other operating income 17 7 31 21
------------ ----------- ---------- ----------
TOTAL NONINTEREST INCOME 493 6,615 9,929 18,890
NONINTEREST EXPENSE
Compensation and employee benefits 1,557 4,301 8,401 13,706
Occupancy 503 496 2,161 1,963
Professional services 218 483 917 1,329
Advertising 901 286 2,563 1,072
Deposit insurance premium 11 12 44 46
Furniture, fixtures and equipment 318 250 1,139 1,069
Data processing 363 350 1,465 1,317
Other operating 537 918 2,740 3,209
------------ ----------- ---------- ----------
TOTAL NONINTEREST EXPENSE 4,408 7,096 19,430 23,711
------------ ----------- ---------- ----------
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Income (loss) before income tax provision (2,414) 1,257 (3,103) 2,261
Income tax provision - - 89 -
------------ ----------- ---------- ----------
NET (LOSS) EARNINGS $ (2,414) $ 1,257 $ (3,192) $ 2,261
============ =========== ========== ===========
GREATER ATLANTIC FINANCIAL CORP.
FOURTH QUARTER RESULTS
(NASDAQ:GAFC)
(DOLLARS IN THOUSANDS EXCEPT EARNINGS PER SHARE)
At or for the At or for the
Three Months Ended Years Ended
September 30, September 30,
--------------------------- ----------------------------
2004 2003 2004 2003
------------- ---------- ----------- -------------
PER SHARE DATA:
Net income
Basic $ (0.80) $ 0.42 $ (1.06) $ 0.75
Diluted (0.80) 0.31 (1.06) 0.60
Book value $ 5.65 $ 7.08 $ 5.65 7.08
Weighted average shares outstanding
Basic 3,012,434 3,012,434 3,012,434 3,012,434
Diluted 3,012,434 4,417,425 3,012,434 4,413,462
AVERAGE FINANCIAL CONDITION DATA:
Total assets $ 489,337 $ 525,250 $ 521,648 $ 510,684
Investment securities 107,427 156,339 123,198 161,161
Mortgage-backed securities 99,398 69,611 111,016 51,046
Total loans receivable, net 260,779 281,387 268,116 281,574
Total deposits 276,942 292,352 275,636 279,469
Total stockholders' equity 22,233 22,036 21,032 21,145
SELECTED FINANCIAL RATIOS(1)
Return on average assets -1.97% 0.96% -0.61% 0.44%
Return on average equity -43.43% 22.82% -15.18% 10.69%
Yield on earning assets 3.96% 3.92% 3.77% 4.25%
Cost of funds 2.73% 2.62% 2.57% 2.78%
Net interest rate spread 1.23% 1.30% 1.20% 1.47%
Net interest rate margin 1.35% 1.43% 1.32% 1.61%
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GREATER ATLANTIC FINANCIAL CORP
FOURTH QUARTER RESULTS
(NASDAQ:GAFC)
(DOLLARS IN THOUSANDS)
At or for the
Years Ended
September 30,
---------------------------
2004 2003
---------- ------------
FINANCIAL CONDITION DATA:
Total assets $ 434,259 $ 499,354
Total loans receivable, net 246,387 242,253
Mortgage-loans held for sale 5,528 6,554
Investments 68,266 142,162
Mortgage-backed securities 93,063 86,735
Total deposits 288,956 297,876
FHLB advances 51,200 86,800
Other borrowings 64,865 77,835
Convertible preferred securities 9,369 9,359
Total stockholders' equity 17,029 21,340
ASSET QUALITY DATA:
Non-performing assets to total assets 0.22% 0.28%
Non-performing loans to total loans 0.37% 0.57%
Net charge-offs to average total loans 0.06% 0.36%
Allowance for loan losses to:
Total loans 0.62% 0.62%
Non-performing loans 167.89% 109.31%
Non-performing loans $ 953 $ 1,418
Non-performing assets $ 953 $ 1,418
Allowance for loan losses $ 1,600 $ 1,550
CAPITAL RATIOS OF THE BANK:
Leverage ratio 5.85% 5.85%
Tier 1 risk-based capital ratio 10.20% 12.42%
Total risk-based capital ratio 10.85% 13.03%
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