[GREATER ATLANTIC FINANCIAL CORP. LOGO APPEARS HERE]
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: DECEMBER 30, 2005
CONTACT: DAVID E. RITTER
(703) 390-0344
GREATER ATLANTIC FINANCIAL RELEASES
FOURTH QUARTER RESULTS
Reston, Virginia - December 30, 2005 - 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
$1.4 million or $.48 per share for the three months ended September 30, 2005,
compared to a net loss of $2.4 million or $.80 per share for the three months
ended September 30, 2004. For the fiscal year ended September 30, 2005, the
Company had a net loss of $1.6 million or $.52 per share, compared to a net loss
of $3.2 million or $1.06 per share for the comparable period one year ago.
In commenting on the results, Carroll E. Amos, President and Chief Executive
Officer, stated that "for the fiscal year ended September 30, 2005 the Company's
net loss was reduced by $1.6 million from the comparable period one year ago as
the result of a $3.4 million increase in net income from the banking segment.
That increase in net income included a $945,000 gain on the sale of three branch
offices and $1.7 million in gains on investments and derivatives, and reduced by
a $1.8 million decrease in earnings from the Company's mortgage banking segment.
The operating earnings (net income (loss) excluding gains or losses on
investments, derivatives and branch sales) of the banking segment improved
$789,000 or 22% from the comparable period one year ago based on an improving
net interest margin and declining non-interest expense."
In commenting further, Mr. Amos noted that, "for the three months ended
September 30, 2005, the Company's net loss was reduced by $973,000 from the
comparable period one year ago as a result of an improvement of $1.5 million in
the net income from the banking segment off-set by a $544,000 decline in the net
income from the Company's mortgage banking segment. The improvement at the
banking segment was primarily attributable to a $1.2 million increase in
derivative gains when compared to the three months ended September 30, 2004,
coupled with an increase of $215,000 from gain of sale of investments. The
banking segment's operating loss (net income (loss) excluding gains or losses on
investments, derivatives and branch sales) improved $135,000 or 15%, from a loss
of $896,000 in the comparable period one year ago to an operating loss of
$762,000 during the three months ended September 30, 2005. That decline in
operating loss also resulted from the improving net interest margin and
declining non-interest expense."
Continuing, Mr. Amos stated: "Operations of the Bank's mortgage banking
subsidiary had an adverse impact on earnings for the three months ended
September 30, 2005 of $993,000 as the manager's escrow account was depleted and
the manager did not post sufficient collateral to secure the account receivable
due from him to reimburse for the loss for that period. He was obligated to make
that payment under the agreement entered into with the manager effective at the
beginning of the fiscal year. That agreement, which was the direct result of the
Bank seeking to reduce its exposure to the mortgage banking operations, provides
for the reimbursement of operating expenses equal to approximately 100% of any
operating loss incurred by the subsidiary in return for 80% of net earnings."
Working under extensions to the existing agreement, Greater Atlantic Mortgage
attempted to obtain an amendment to the agreement and to obtain additional
collateral from the manager. Based on the progress of those negotiations, and
the need for the Bank to obtain regulatory approval for any amendment, the
Company has concluded that an agreement cannot be reached in a timely fashion
and, therefore, that collection of the receivable is not assured. Accordingly,
at September 30, 2005, the Company set up a reserve for loss and charged
$993,000 against earnings to account for the funds that would otherwise have
been contributed by the manager.
If a satisfactory amended agreement is not entered into, the Company will
consider terminating the existing agreement and recognize an additional loss for
the three months ending December 31, 2005. That loss is currently estimated to
be $775,000 due to the unprofitable operations of Greater Atlantic Mortgage.
The Company may at a future date determine to shut down the operations or sell
Greater Atlantic Mortgage. That could result in a further loss to the Company.
While the amount of that loss is not reasonably determinable at this time, it is
estimated that the charge to earnings from the discontinuance or sale could
amount to approximately $1.7 million.
We will continue to negotiate with the manager to obtain an acceptable agreement
and seek regulatory approval. There are no assurances that such an amended
agreement will be entered into or that such approval will be obtained.
Regarding the operation of the mortgage banking subsidiary, Mr. Amos noted: "The
subsidiary sustained a 31% decline in mortgage origination activity which
resulted in a reduction in gain on sale of loans and earnings during the fiscal
year ended September 30, 2005. As a result, notwithstanding the reimbursement of
approximately $1.8 million of expenses by the manager, the mortgage banking
subsidiary sustained a net loss of $1.0 million for the fiscal year ended
September 30, 2005. That result compared to net income of $725,000 for the
fiscal year ended September 30, 2004."
Continuing, Mr. Amos noted, "during the fiscal year ended September 30, 2005,
the Bank recognized an $836,000 gain on its free-standing derivative positions,
an improvement of $1.1 million from the $227,000 loss recognized in the
comparable period one year ago." Turning to the three months ended September 30,
2005, he noted, "there was a $1.2 million improvement as the result of a gain of
$276,000 for the current period, compared to the loss of $890,000 recognized in
the three months ended September 30, 2004.
2
Mr. Amos continued, "Loans receivable, net, decreased by $5.0 million during the
three months ended September 30, 2005, as a result of a $4.5 million decline in
commercial loans, coupled with a $1.8 million decrease in the Bank's consumer
loans, offset in part by a $900,000 increase in single family loans."
Mr. Amos also noted that, "while deposits declined approximately $12.6 million
during the three months ended September 30, 2005, the decrease was centered in
wholesale and brokered certificates of deposit, which declined by $20.3 million,
and was off-set in part by a $7.7 million increase in deposits in the Bank's
retail branch system. The increase in retail branch deposits was primarily in
transaction-based accounts and was the direct result of the retail banking
improvement program instituted by the Bank during fiscal 2005."
Net interest income for the three months ended September 30, 2005, amounted to
$1.6 million, an increase of $58,000 or 4 percent from the comparable period one
year ago. The increase in net interest income during the recently completed
three months resulted primarily from a 60 basis point increase in net interest
margin (net interest income divided by average interest-earning assets) from
1.35% for the three months ended September 30, 2004 to 1.95% for the three
months ended September 30, 2005, offset in part as average interest-earning
assets declined by $5.1 million more than average interest-bearing liabilities
declined. Contributing to the improvement in the Bank's net interest margin for
the three months ended September 30, 2005 was a $456,000 decline in interest
expense resulting from a decrease in payments made on certain interest rate swap
and cap agreements, compared to a charge of $450,000 made in the comparable
period one year ago. The improvement in net interest margin also resulted from
the average yield on interest-earning assets increasing by 56 basis points more
than the increase in the average cost of interest-bearing liabilities.
Net interest income for the fiscal year ended September 30, 2005 amounted to
$6.5 million, a decrease of $64,000 or 1% from the comparable period one year
ago. The decline in net interest income during fiscal year 2005 resulted
primarily from a $135.7 million decrease in the Bank's average interest-earning
assets, accompanied by a decrease of $132.7 million in the Bank's average
interest-bearing liabilities. The impact of those decreases in assets and
liabilities was offset in part by a 46 basis point increase in net interest
margin from 1.32% for the fiscal year ended September 30, 2004 to 1.78% for the
fiscal year ended September 30, 2005. Contributing to the improvement in the
Bank's net interest margin was a $1.5 million decline in interest expense
resulting from payments made on certain interest rate swap and cap agreements
compared to a charge of $2.1 million in the comparable period one year ago. The
improvement in net interest margin also resulted from the average yield on
average interest-earning assets increasing 44 basis points more than the
increase in the average cost on average interest-bearing liabilities, and was
partially offset by the decrease in the Bank's average interest-earning assets
exceeding the decrease in average interest-bearing liabilities by $2.9 million.
Non-interest income increased $1.4 million during the three months ended
September 30, 2005 when compared to the year ago period. That increase was
primarily the result of a $1.2 million improvement in derivative gains coupled
with an increase of $215,000 in gain on investment securities, offset in part by
a $142,000 decrease in gain on sale of loans. While loan sales increased by 30%,
or $18.2 million, from the comparable period one year ago, that improvement was
offset by a 69 basis point decrease in the net margin earned on those sales from
2.20% for the three months ended September 30, 2004, to 1.51% for the three
months ended September 30, 2005.
3
Non-interest income for fiscal year 2005 decreased $1.6 million from the prior
fiscal year. That decrease was primarily the result of a decrease of $4.5
million in gain on sale of loans and was partially offset by increases of $1.7
million in gain on sale of investments and gains on derivatives, and $980,000 in
other operating income. Loan sales decreased by 33% or $131.7 million from the
comparable period one year ago, and were accompanied by a 58 basis point
decrease in the net margin earned on those sales from 2.29% for the fiscal year
ended September 30, 2004, to 1.71% for the fiscal year ended September 30, 2005.
The increase in other operating income reflects the $945,000 gain recognized
from the sale of the Bank's Washington D.C. and Sterling and Winchester,
Virginia, Branches.
For the three months ended September 30, 2005, non-interest expense increased
$510,000 to $4.9 million from $4.4 million incurred for the three months ended
September 30, 2004. The increase was primarily attributable to a $604,000
increase in the mortgage company's non-interest expense from that incurred in
the comparable period one year ago. The increase in non-interest expense at the
mortgage company was primarily $672,000 in compensation, coupled with increases
of $90,000 and $18,000 for professional services and occupancy, respectively.
Those increases were offset by a decrease of $180,000 in advertising. The
decrease in the Bank's non-interest expense was $94,000 distributed over various
non-interest expense categories.
Non-interest expense for fiscal 2005 amounted to $16.2 million, a decrease of
$3.2 million or 16.63% from the $19.4 million incurred in fiscal 2004. The
decrease was primarily attributable to a $2.7 million decrease in the mortgage
company's non-interest expense from the comparable period one year ago as a
result of decreased loan origination and sales and a new compensation agreement
entered into with the manager of the mortgage banking subsidiary. The decrease
in non-interest expense at the mortgage company level was primarily $2.3 million
in compensation of which $1.8 was an expense reimbursement by the manager, under
the new compensation agreement, coupled with decreases in other operating
expenses, data processing and occupancy. The expense reimbursement by the
manager was reduced by $993,000 to $1.8 million, because his escrow account was
depleted and he had not posted sufficient collateral to securitize the account
receivable due from him. Working under the extension to the existing agreement
the mortgage company is attempting to amend the agreement and obtain additional
collateral from the manager. Based on the progress of those negotiations, and
the need for the Bank to obtain regulatory approval, the Company is aware that
an agreement may not be reached and therefore collection of the receivable is
not assured. Accordingly, at September 30, 2005, the Company set up a reserve
for loss and charged $993,000 against earnings to account for the funds that
would otherwise have been contributed by the manager. Those decreases were
offset by increases in advertising, furniture fixtures and equipment and
professional services. The decrease in the bank's non-interest expense amounted
to $481,000 distributed over various non-interest expense categories and was
primarily due to a decline of $422,000 in occupancy expense.
Non-performing assets were $1.8 million or 0.54% of total assets at September
30, 2005, an increase of $883,000 when compared to non-performing assets of
$953,000 or 0.62% at September 30, 2004. The increase in non-performing assets
from one year ago was due primarily a $1.0 million home loan that became
non-performing. Notwithstanding a reduction in the required allowance of
$122,000 based on the structure of the Bank's overall loan portfolio, the
provision for loan losses for the fiscal year ended September 30, 2005 was
increased by $10,000 compared to the level at September 30, 2004 due to an
increase in the required allowance for non-performing loans. The Bank incurred
$607,000 in net charge-offs during fiscal year 2005 due primarily to a single
charge-off of $500,000 for the uninsured portion of a USDA loan on a hotel
property.
4
At September 30, 2005, Greater Atlantic Financial Corp. had total assets of $341
million, a decrease of $94 million or 22 percent from the $434 million recorded
at September 30, 2004. Loans receivable at September 30, 2005, amounted to $195
million, a decrease of 21 percent from the $246 million held at September 30,
2004. Investment and mortgage-backed securities at September 30, 2005, amounted
to $120 million, a decrease of $41 million or 25% from the $161 million total at
September 30, 2004. Deposits amounted to $238 million at September 30, 2005, a
decrease of $51 million from the $289 million held one year ago. Stockholders'
equity at September 30, 2005, amounted to $16.6 million equating to a book value
of $5.50 per share.
Greater Atlantic Financial Corp. conducts its business operations through its
wholly-owned subsidiary, Greater Atlantic Bank and the Bank's wholly-owned
subsidiary, Greater Atlantic Mortgage Corporation. The Bank offers traditional
banking services to customers through six branches located in Rockville and
Pasadena, Maryland, and Front Royal, New Market, Reston and South Riding,
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.
5
GREATER ATLANTIC FINANCIAL CORP.
FOURTH QUARTER RESULTS
(NASDAQ:GAFC)
(DOLLARS IN THOUSANDS)
For the For The
Three Months Ended Years Ended
September 30, September 30,
--------------------------- ----------------------------
CONSOLIDATED STATEMENT OPERATIONS 2005 2004 2005 2004
------------- ------------ ------------ -------------
INTEREST INCOME
Loans $ 3,278 $ 3,425 $ 12,908 $ 13,506
Investments 1,100 1,200 4,528 5,456
------------- ------------ ------------ -------------
TOTAL INTEREST INCOME 4,378 4,625 17,436 18,962
INTEREST EXPENSE
Deposits 1,697 1,480 6,337 5,751
Borrowed money 1,045 1,568 4,556 6,604
------------- ------------ ------------ -------------
TOTAL INTEREST EXPENSE 2,742 3,048 10,893 12,355
------------- ------------ ------------ -------------
NET INTEREST INCOME 1,636 1,577 6,543 6,607
PROVISION FOR LOAN LOSSES 72 76 219 209
------------- ------------ ------------ -------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,564 1,501 6,324 6,398
NONINTEREST INCOME
Gain on sale of loans 1,188 1,330 4,720 9,191
Fees and service charges 434 251 1,211 992
Gain (loss) on sale of investment securities - (215) 539 (58)
(Loss) gain on derivative transaction 276 (890) 836 (227)
Gain on sale of branches - - 945 -
Other operating income 13 18 66 31
------------- ------------ ------------ -------------
TOTAL NONINTEREST INCOME 1,911 494 8,317 9,929
NONINTEREST EXPENSE
Compensation and employee benefits 2,214 1,557 5,985 8,401
Occupancy 403 503 1,698 2,161
Professional services 435 218 1,224 917
Advertising 765 901 2,759 2,563
Deposit insurance premium 28 11 100 44
Furniture, fixtures and equipment 252 318 1,088 1,139
Data processing 225 363 1,127 1,465
Other operating 594 538 2,218 2,740
------------- ------------ ------------ -------------
TOTAL NONINTEREST EXPENSE 4,916 4,409 16,199 19,430
------------- ------------ ------------ -------------
Income (loss) before income tax provision (1,441) (2,414) (1,558) (3,103)
Income tax provision - - - 89
------------- ------------ ------------ -------------
NET EARNING (LOSS) $ (1,441) $ (2,414) $ (1,558) $ (3,192)
============= ============ ============ =============
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,
--------------------------- ----------------------------
2005 2004 2005 2004
------------- ------------ ------------ -------------
PER SHARE DATA:
Net income (loss)
Basic $ (0.48) $ (0.80) $ (0.52) $ (1.06)
Diluted (0.48) (0.80) (0.52) (1.06)
Book value $ 5.18 $ 5.65 $ 5.18 $ 5.65
Weighted average shares outstanding
Basic 3,020,934 3,012,434 3,015,509 3,012,434
Diluted 3,020,934 3,012,434 3,015,509 3,012,434
AVERAGE FINANCIAL CONDITION DATA:
Total assets $ 352,903 $ 489,337 $ 382,752 $ 521,648
Investment securities 64,899 107,427 70,633 123,198
Mortgage-backed securities 62,739 99,398 77,424 111,016
Total loans receivable, net 207,822 260,779 218,584 268,116
Total deposits 225,670 276,942 245,518 275,636
Total stockholders' equity 17,069 22,233 18,037 21,032
SELECTED FINANCIAL RATIOS
Return on average assets -1.63% -1.97% -0.41% -0.61%
Return on average equity -33.77% -43.43% -8.64% -15.18%
Yield on earning assets 5.22% 3.96% 4.76% 3.77%
Cost of funds 3.43% 2.73% 3.12% 2.57%
Net interest rate spread 1.79% 1.23% 1.64% 1.20%
Net interest rate margin 1.95% 1.35% 1.78% 1.32%
GREATER ATLANTIC FINANCIAL CORP
FOURTH QUARTER RESULTS
(NASDAQ:GAFC)
(DOLLARS IN THOUSANDS)
At or for the
Years Ended
September 30,
-----------------------------
2005 2004
-------------- --------------
FINANCIAL CONDITION DATA:
Total assets $ 340,809 $ 434,370
Total loans receivable, net 194,920 246,387
Mortgage-loans held for sale 9,517 5,528
Investments 62,913 68,356
Mortgage-backed securities 57,296 92,722
Total deposits 237,794 288,956
FHLB advances 38,000 51,200
Other borrowings 38,479 64,865
Convertible Preferred Securities 9,378 9,369
Total stockholders' equity 15,642 17,140
ASSET QUALITY DATA:
Non-performing assets to total assets 0.54% 0.22%
Non-performing loans to total loans 0.75% 0.37%
Net charge-offs to average total loans 0.28% 0.06%
Allowance for loan losses to:
Total loans 0.56% 0.62%
Non-performing loans 75.56% 167.89%
Non-performing loans $ 1,604 $ 953
Non-performing assets $ 1,836 $ 953
Allowance for loan losses $ 1,212 $ 1,600
CAPITAL RATIOS OF THE BANK:
Leverage ratio 7.01% 5.85%
Tier 1 risk-based capital ratio 10.76% 10.24%
Total risk-based capital ratio 11.26% 10.85%