FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999
OR
[ ] 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: 0-26467
GREATER ATLANTIC FINANCIAL CORP.
-----------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 54-1873112
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10700 PARKRIDGE BOULEVARD, SUITE 450
RESTON, VIRGINIA 20191
----------------------------------------
(Address of Principal Executive Offices)
(Zip Code)
703-391-1300
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(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
At February 11, 2000, there were 3,007,434 shares of the registrant's Common
Stock, par value $0.01 per share outstanding
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GREATER ATLANTIC FINANCIAL CORP.
QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTER ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE NO.
- ------- --------------------- --------
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets December 31, 1999 (unaudited) and
September 30, 1999 (audited) 2
Consolidated Statements of Operations (unaudited) Three
months ended December 31, 1999 and December 31, 1998 3
Consolidated Statements of Comprehensive Income (unaudited)
Three months ended December 31, 1999 and December 31, 1998 4
Consolidated Statements of Changes in Shareholders' Equity
(unaudited) Three months ended December 31, 1999 and December 31, 1998 5
Consolidated Statements of Cash Flows (unaudited) Three
months ended December 31, 1999 and December 31, 1998 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk 15
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
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1
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GREATER ATLANTIC FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
December 31, September 30,
(DOLLARS IN THOUSANDS) 1999 1999
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 3,070 $ 1,064
Interest bearing deposits 10,455 639
Investment securities:
Available-for-sale 79,645 75,458
Held-to-maturity 31,330 32,766
Trading -- --
Loans held for sale 8,580 7,436
Loans receivable, net 85,361 72,792
Accrued interest and dividends receivable 1,652 1,449
Deferred income taxes 1,324 1,324
Federal Home Loan Bank stock, at cost 2,350 2,013
Foreclosed real estate 187 187
Premises and equipment, net 2,274 2,218
Prepaid expenses and other assets 829 1,477
--------- ---------
Total Assets $ 227,057 $ 198,823
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $ 128,450 $ 129,007
Advance payments from borrowers
for taxes and insurance 235 264
Accrued expenses and other liabilities 1,186 1,171
Income taxes payable -- --
Advances from the FHLB and other borrowings 73,291 43,391
--------- ---------
Total Liabilities 203,162 173,833
--------- ---------
Stockholders' Equity
Preferred stock $.01 par value - 2,500,000 shares -- --
authorized, 0 shares outstanding at June 30, 1999
Common stock, $.01 par value - 10,000,000
shares authorized; 3,007,434 shares
outstanding 30 30
Additional paid-in capital 25,132 25,132
Retained earnings 379 710
Accumulated other comprehensive income (1,646) (882)
--------- ---------
Total Stockholders' Equity 23,895 24,990
--------- ---------
$ 227,057 $ 198,823
========= =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
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2
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GREATER ATLANTIC FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended
December 31,
------------------------
(DOLLARS IN THOUSANDS) 1999 1998
------- -------
Interest income
Loans $ 1,615 $ 940
Investments 1,943 850
------- -------
Total interest income 3,558 1,790
------- -------
Interest expense
Deposits 1,720 1,075
Borrowed money 774 207
------- -------
Total interest expense 2,494 1,282
------- -------
Net interest income 1,064 508
Provision for loan losses -- 22
------- -------
Net interest income after provision for
loan losses 1,064 486
------- -------
Noninterest income
Fees and service charges 141 186
Gain on sale of loans 490 2,327
------- -------
Total noninterest income 631 2,513
------- -------
Noninterest expense
Compensation and employee benefits 970 1,528
Occupancy 276 245
Professional services 286 43
Advertising 139 157
Deposit insurance premium 19 17
Furniture, fixtures and equipment 110 95
Data processing 78 22
Provision for (recovery of) loss on real
estate owned
-- (11)
Other real estate owned expenses 8 9
Other operating expenses 354 436
------- -------
Total noninterest expense 2,240 2,541
------- -------
Income (loss) before income tax provision (545) 458
------- -------
Income tax (benefit) provision (214) 187
------- -------
Net income (loss) $ (331) $ 271
------- -------
Basic and diluted earnings (loss) per share $ (0.11) $ 0.33
======= =======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
3
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GREATER ATLANTIC FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)
Three Months Ended
December 31,
----------------------
(IN THOUSANDS) 1999 1998
---------- ---------
Net income $ (331) $ 271
---------- ---------
Other comprehensive (loss) income, net of tax:
Unrealized (losses) gains on securities (764) (239)
---------- ---------
Other comprehensive (loss) income (764) (239)
---------- ---------
Comprehensive (loss) income $ (1,095) $ 32
========== =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
4
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GREATER ATLANTIC FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
Accumulated
Additional other Total
Preferred Common Paid-in- Retained Comprehensive Stockholders'
(DOLLARS IN THOUSANDS) Stock Stock Capital Earnings Income Equity
--------- -------- ---------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
September 30, 1999 $ -- $ 30 $ 25,132 $ 710 $ (882) $ 24,990
Net income
for the period -- -- -- (331) -- (331)
Other comprehensive income,
net of tax of $-0- -- -- -- -- (764) (764)
-------- -------- -------- -------- -------- --------
Balance at
December 31, 1999 $ -- $ 30 $ 25,132 $ 379 $ (1,646) $ 23,895
======== ======== ======== ======== ======== ========
Balance at
September 30, 1998 $ -- $ 8 $ 6,093 $ 609 $ 107 $ 6,817
Net income for the period -- -- -- 271 -- 271
Other comprehensive income
net of tax of $ 146 -- -- -- -- (239) (239)
-------- -------- -------- -------- -------- --------
Balance at
December 31, 1998 $ -- $ 8 $ 6,093 $ 880 $ (132) $ 6,849
======== ======== ======== ======== ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
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5
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GREATER ATLANTIC FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
December 31,
----------------------
(IN THOUSANDS) 1999 1998
--------- ---------
Cash flows from operating activities:
Net income $ (331) $ 271
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses -- 22
Provision for losses on foreclosed assets -- (11)
Depreciation and amortization 84 51
Deferred income taxes -- 207
Proceeds from sale of trading securities -- 100
Unrealized loss (gain) on trading securities -- (4)
Realized gain on sale of mortgage-backed securities 7 --
Amortization of security premiums 136 83
Amortization of deferred fees (21) (17)
Amortization of mortgage-backed securities premiums 47 52
Discount accretion net of premium amortization 35 --
Loss on sale of foreclosed real estate -- 2
Gain on sale of loans held for sale (491) (2,328)
Disbursements for origination of loans (26,846) (92,947)
Proceeds from sales of loans 26,200 105,785
Accrued interest and dividend receivable (201) (24)
Prepaid expenses and other assets 640 (220)
Deferred loan fees collected, net of
deferred costs incurred (23) (45)
Accrued expenses and other liabilities 15 (176)
Income taxes payable -- (6)
--------- ---------
Net cash provided (used in) by operating activities $ (749) $ 10,795
--------- ---------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
6
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GREATER ATLANTIC FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - (CONTINUED)
Three Months Ended
December 31,
------------------------
(IN THOUSANDS) 1999 1998
-------- --------
<S> <C> <C>
Cash flow from investing activities:
Net (decrease) increase in loans $(12,560) $ (3,155)
Purchases of premises and equipment (139) (896)
Purchases of investment securities (5,621) (11,422)
Proceeds from sale of investment securities 285 8,565
Proceeds from repayments of investment securities 1,804 804
Purchases of mortgage-backed securities (2,696) (14,063)
Proceeds from sale of mortgage-backed securities (7) --
Proceeds from repayments of mortgage-backed securities 2,529 1,695
Purchases of FHLB stock (1,210) (800)
Proceeds from sale of FHLB stock 873 500
-------- --------
Net cash used in investing activities (16,742) (18,772)
-------- --------
Cash flow from financing activities:
Net increase (decrease) in deposits (556) 27,787
Net advances (repayments) from FHLB 9,350 (17,000)
Net borrowings (repayments) on reverse repurchase agreements 20,550 --
Increase (decrease) in advance payments by
borrowers for taxes and insurance (30) (13)
-------- --------
Net cash provided by financing activities 29,314 10,774
-------- --------
Increase in cash and cash equivalents 11,823 2,797
-------- --------
Cash and cash equivalents, at beginning of period 1,703 433
-------- --------
Cash and cash equivalents, at end of period $ 13,526 $ 3,230
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
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7
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GREATER ATLANTIC FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS OF DECEMBER 31, 1999
AND FOR THE THREE MONTHS THEN ENDED IS UNAUDITED
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements, which include
the accounts of Greater Atlantic Financial Corp. ("the Company") and its wholly
owned subsidiary, Greater Atlantic Bank ("the Bank"), have been prepared in
accordance with the instructions to Form 10-Q and do not include all of the
disclosures required by generally accepted accounting principles. All
adjustments which, in the opinion of management, are necessary to a fair
presentation of the results for the interim periods presented (consisting of
normal recurring adjustments) have been made. The results of operations for the
three ended December 31, 1999 are not necessarily indicative of the results of
operations that may be expected for the year ended September 30, 2000 or any
future periods.
(2) LOAN IMPAIRMENT AND LOAN LOSSES
In accordance with guidance in the Statements of Financial Accounting
Standards Nos. 114 and 118, the Company prepares a quarterly review to determine
the adequacy of the allowance for loan losses and to identify and value impaired
loans. No impaired loans were identified by the Company at or during the three
months ended December 31, 1999 or the year ended September 30, 1999.
An analysis of the change in the allowance for loan losses was as
follows:
Nine months ended Year ended
December 31, September 30,
---------------------- -------------
(IN THOUSANDS) 1999 1998 1999
--------- --------- --------
Balance, beginning $ 590 $ 578 $ 578
Provision for loan losses -- 22 26
Charge-offs -- -- (24)
Recoveries -- 5 10
--------- --------- --------
Balance, ending $ 590 $ 605 $ 590
========= ========= ========
(3) REGULATORY MATTERS
The Bank qualifies as a Tier 1 institution and may make capital
distributions during a calendar year up to 100% of its net income to date plus
the amount that would reduce by one-half its surplus capital ratio at the
beginning of the calendar year. Any distributions in excess of that amount
requires prior notice to the OTS, with the opportunity for the OTS to object to
the distribution. A Tier 1 institution is defined as an institution that has, on
a pro forma basis after the proposed distribution, capital equal to or greater
than the OTS fully phased-in capital requirement and has not been deemed by the
OTS to be "in need of more than normal supervision". The Bank is currently
classified as a Tier 1 institution for these purposes. The Capital Distribution
Regulation requires that the institution provide the applicable OTS District
Director with a 30-day advance written notice of all proposed capital
distributions whether or not advance approval is required. The Bank did not pay
any dividends during the periods ended December 31, 1999, September 30, 1999.
8
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GREATER ATLANTIC FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
INFORMATION AS OF DECEMBER 31, 1999
AND FOR THE THREE MONTHS THEN ENDED IS UNAUDITED
Effective December 19, 1992, the President signed into law the Federal
Deposit Insurance Corporation Improvement Act of 1991 (FDICIA). The "Prompt
Corrective Action" section of FDICIA created five categories of financial
institutions based on the adequacy of their regulatory capital level: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized. Under FDICIA, a well
capitalized financial institution is one with Tier 1 leverage capital of 5%,
Tier 1 risk-based capital of 6% and total risk-based capital of 10%. At December
31, 1999 the Bank was classified as a well capitalized financial institution.
The following presents the Bank's capital position at December 31,
1999:
Required Required Actual Actual
(DOLLARS IN THOUSANDS) Balance Percent Balance Percent Surplus
-------- --------- -------- --------- --------
Leverage $ 11,308 5.00% $ 22,476 9.94% $ 11,168
Tier 1 Risk-based $ 4,594 6.00% $ 22,476 29.35% $ 17,882
Total Risk-based $ 7,657 10.00% $ 23,066 30.12% $ 15,409
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Condensed Consolidated Financial Statements and Notes presented elsewhere in
this report.
This report contains forward-looking statements. When used in this 10-Q
report and in future filings by the company with the Securities and Exchange
Commission (the "SEC"), in the company's press releases or other public or
shareholder communications, and in oral statements made with the approval of an
authorized executive officer, the words or phrases "will likely result," "are
expected to," "will continue," "is anticipated," "estimate," "project" or
similar expressions are intended to identify "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties, including, among
other things, changes in economic conditions in the company's market area,
changes in policies by regulatory agencies, fluctuations in interest rates,
demand for loans in the company's market area and competition, that could cause
actual results to differ materially from historical earnings and those presently
anticipated or projected. The company wishes to 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 result 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.
GENERAL
We are a savings and loan holding company which was originally organized in
June 1997. We conduct substantially all of our business through our wholly-owned
subsidiary, Greater Atlantic Bank, a federally-chartered savings bank, and its
wholly-owned subsidiary, Greater Atlantic Mortgage Corporation. Greater Atlantic
Bank is a member on the Federal Home Loan Bank system and it's deposits are
insured up to applicable limits by the Savings Association Insurance Fund of the
Federal Deposit Insurance Corporation. We offer traditional banking services to
customers through five Greater Atlantic Bank branches located throughout the
greater Washington, D.C./Baltimore metropolitan area. We also originate mortgage
loans for sale in the secondary market through Greater Atlantic Mortgage
Corporation.
The bank was organized in 1886 and previously operated as a
Maryland-chartered thrift institution under the name Greater Baltimore Savings
and Loan Association. On March 21, 1989, the bank converted to a federal savings
bank and changed its name to Greater Atlantic Savings Bank, F.S.B.
The profitability of the company, and more specifically, the profitability
of its primary subsidiary Greater Atlantic Bank, depends primarily on its net
interest income. Net interest income is the difference between the interest
income it earns on its loans and investment portfolio, and the interest it pays
on interest-bearing liabilities, which consists mainly of interest paid on
deposits and borrowings.
The company's profitability is also affected by the level of its
non-interest income and operating expenses. Non-interest income consists
primarily of gains on sales of loans and available-for-sale investments, service
charge fees and commissions earned by non-bank subsidiaries. Operating expenses
consist primarily of salaries and employee benefits, occupancy-related expenses,
equipment and technology-related expenses and other general operating expenses.
At December 31, 1999 the company's total assets were $227.1 million,
compared to $198.8 million held at September 30, 1999, representing an increase
of 14.20%. Both the bank's overall asset size and customer base increased during
the period and that growth is reflected in the consolidated statements of
financial condition and statements of operations. Net loans receivable at
December 31, 1999 were $85.4 million, an increase of $12.6 million or 17.27%
from the $72.8 million held at September 30, 1999. The increase in loans
consisted primarily of real estate loans secured by first mortgages on
residential properties and consumer and commercial lines of credit secured by
mortgages on residential and commercial real estate.
10
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COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
DECEMBER 31, 1999 AND DECEMBER 31, 1998
NET INCOME. Net income for the three months ended December 31, 1999
amounted to a loss of $331,000 or $0.11 per share compared to net income of
$271,000 or $0.33 per share for the three months ended December 31, 1998. The
$602,000 decrease in net income over the comparable period one year ago was
primarily due to a decrease in income from mortgage-banking activities.
NET INTEREST INCOME. An important source of our earnings is net interest
income, which is the difference between income earned on interest-earning
assets, such as loans, investment securities and mortgage-backed securities, and
interest paid on interest-bearing sources of funds such as deposits and
borrowings. The level of net interest income is determined primarily by the
relative average balances of interest-earning assets and interest-bearing
liabilities in combination with the yields earned and rates paid upon them. The
correlation between the repricing of interest rates on assets and on liabilities
also influences net interest income.
The following table presents a comparison of the components of interest
income and expense and net interest income.
THREE MONTHS ENDED
DECEMBER 31, DIFFERENCE
------------------- --------------------
(DOLLARS IN THOUSANDS) 1999 1998 AMOUNT %
------ ------ ------ ------
Interest income:
Loans $1,615 $ 940 $ 675 71.81%
Investments 1,943 850 1,093 128.59
------ ------ ------ ------
Total 3,558 1,790 1,768 98.77
------ ------ ------ ------
Interest expense:
Deposits 1,720 $1,075 645 60.00
Borrowings 774 207 567 273.91
------ ------ ------ ------
Total 2,494 1,282 1,212 94.54
------ ------ ------ ------
Net interest income $1,064 $ 508 $ 556 109.45%
====== ====== ====== ======
Our growth in net interest income for the three months ended December 31,
1999 was due primarily to the increase in average interest-earning assets
resulting from our planned growth. Average interest-earning assets increased
$107.4 million or 108.02% over the comparable period one-year ago, coupled with
a 2 basis point increase in net interest margin (net interest income divided by
average interest-earning assets) which complemented the increase in net interest
income. The modest increase in net interest margin was impacted as the Bank
slowed its growth and held additional liquidity either in the form of low
yielding short term investments or non-earning cash to meet perceived liquidity
demands related to the year 2000 date change problem.
Interest income for the three months ended December 31, 1999 increased $1.8
million from the three months ended December 31, 1998 primarily as a result of
an increase in the average outstanding balances in loans, investment securities
and mortgage-backed securities resulting in large measure from the planned
leveraging of our capital. The increase in interest income from the loan
portfolio for the three months ended December 31, 1999 compared to interest
income earned for the 1998 period resulted from an increase of $44.2 million in
the average balance of loans outstanding. That increase was coupled with an
increase in interest income from the investment and mortgage-backed securities
portfolios, due to an increase of $63.2 million in the average outstanding
balance, offset in part by a 32 basis point decrease in the average yield earned
on the portfolio.
11
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The increase in interest expense for the three months ended December
31, 1999 compared to the 1998 period was principally the result of a significant
increase in the average of total deposits and borrowed funds and was offset in
part by a decrease of 3 basis points in the average cost of funds. The increase
in interest expense on deposits was primarily due to an increase in average
certificates of deposit of $31.5 million, or 46.08%, from $68.4 million for the
three months ended December 31, 1998 to $99.9 million for the three months ended
December 31, 1999, with the average rate paid decreasing from 5.62% for the
three months ended December 31, 1998 to 5.40% for the three months ended
December 31, 1999. The average rate we paid for deposits decreased from 5.49%
for the three months ended December 31, 1998 to 5.26% for the three months ended
December 31, 1999. That decrease in rate was offset in part by an increase of
$52.4 million in the average outstanding balance of deposits.
PROVISION FOR LOAN LOSSES. The allowance for loan losses, which is
established through provisions for losses charged to expense, is increased by
recoveries on loans previously charged off and is reduced by charge-offs on
loans. Determining the proper reserve level or allowance involves management's
judgment based upon a review of factors, including the company's internal review
process which segments the loan portfolio into groups based on various risk
factors including the types of loans and asset classifications. Each segment is
then assigned a reserve percentage based upon the perceived risk in that
segment. Although management utilizes its best judgment in providing for
probable losses, there can be no assurance that the company will not have to
increase its provisions for loan losses in the future as a result of an adverse
market for real estate and economic conditions generally in the company's
primary market area, future increases in non-performing assets or for other
reasons which would adversely affect the company's results of operations.
The provision for loan losses decreased from $22,000 during the three
months ended December 31, 1998 to zero during the three months ended December
31, 1999. The reduction in the provision is directly related to an improvement
in credit quality over that time period coupled with a decline in non-performing
loans.
NONINTEREST INCOME. Noninterest income decreased during the three months
ended December 31, 1999, over the comparable period one year ago, primarily as a
result of the decrease in gains on sale of loans, as loan sales and margins
obtained by Greater Atlantic Mortgage were lower during the period when compared
to the same period one year ago. The significant level of gains during the three
months ended December 31, 1998 resulted from the company taking advantage of
record loan origination volumes coupled with home loan refinancing and a
declining interest rate environment which enabled the company to sell loans
through Greater Atlantic Mortgage at a gain.
The following table presents a comparison of the components of
noninterest income.
THREE MONTHS ENDED
DECEMBER 31, DIFFERENCE
------------------ ---------------------
(DOLLARS IN THOUSANDS) 1999 1998 AMOUNT %
------- ------- ------- ---------
Noninterest income:
Gain on sale of loans $ 490 $ 2,327 $(1,837) (78.94)%
Service fees on loans 105 175 (70) (40.00)
Service fees on deposits 37 10 27 270.00
Other operating income (1) 1 (2) (200.00)
------- ------- ------- ---------
Total noninterest income $ 631 $ 2,513 $(1,882) (74.89)%
======= ======= ======= =========
12
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NONINTEREST EXPENSE. Noninterest expense decreased to $2.2 million for the
three months ended December 31, 1999 from $2.5 million for the comparable period
one year ago. Compensation and employee benefits decreased from the comparable
period one year ago mainly because of a decrease in commissions to loan officers
due to a decline in loan production and the related employee benefit cost
associated with the decrease in compensation and was offset in part by increased
staffing in the branch network and the hiring of additional administrative staff
by the Bank. Professional services increased $243,000 from the 1998 quarter when
compared to the 1999 quarter. That cost increase resulted from the testing in
the Bank's internal computer system for compliance with the year 2000 date
change and the litigation cost associated with a lawsuit filed against the
mortgage banking subsidiary, the Bank and the Company.
The following table presents a comparison of the components of
noninterest expense.
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THREE MONTHS ENDED
DECEMBER 31, DIFFERENCE
----------------------- ------------------------
(DOLLARS IN THOUSANDS) 1999 1998 AMOUNT %
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Noninterest expense:
Compensation and employee benefits $ 970 $ 1,528 $ (558) (36.52)%
Occupancy 276 245 31 12.65
Professional services 286 43 243 565.12
Advertising 139 157 (18) (11.46)
Deposit insurance premium 19 17 2 11.76
Furniture, fixtures and equipment 110 95 15 15.79
Data processing 78 22 56 254.55
Loss (recovery) from foreclosed real estate 8 (2) 10 500.00
Other operating expense 354 436 (82) (18.81)
---------- ----------- ---------- -----------
Total noninterest expense $ 2,240 $ 2,541 $ (301) (11.85)%
========== =========== ========== ===========
</TABLE>
INCOME TAXES. The company files a consolidated federal income tax return
with its subsidiaries and computes its income tax provision or benefit on a
consolidated basis. The income tax provision for the three months ended December
31, 1999 amounted to a benefit of $214,000 compared to a provision of $187,000
for the three months ended December 31, 1998. The reduction resulted from
reduced earnings.
13
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COMPARATIVE AVERAGE BALANCES AND INTEREST INCOME ANALYSIS. The following
table presents the total dollar amount of interest income from average
interest-earning assets and the resultant yields, as well as the interest
expense on average interest-bearing liabilities, expressed both in dollars and
annualized rates. No tax-equivalent adjustments were made and all average
balances are average daily balances. Nonaccruing loans have been included in the
tables as loans carrying a zero yield.
<TABLE>
<CAPTION>
For the Three Months Ended December 31,
----------------------------------------------------------------
1999 1998
----------------------------- ------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
(DOLLARS IN THOUSANDS) Balance Expense Rate Balance Expense Rate
-------- -------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Real estate loans $ 73,892 $ 1,363 7.38% $ 38,953 $ 871 8.94%
Consumer loans 9,395 187 7.96 1,116 24 8.60
Commercial business loans 3,160 65 8.23 2,171 45 8.29
-------- -------- ------- -------- -------- -------
Total loans 86,447 1,615 7.47 42,240 940 8.90
Investment securities 76,525 1,258 6.58 33,217 492 5.92
Mortgage-backed securities 43,796 685 6.26 23,941 358 5.98
-------- -------- ------- -------- -------- -------
Total interest-earning assets 206,768 3,558 6.88 99,398 1,790 7.20
-------- ------- -------- -------
Non-earning assets 8,277 4,524
-------- --------
Total assets $215,045 $103,922
======== ========
Interest-bearing liabilities:
Savings accounts $ 1,190 $ 10 3.36 $ 766 6 3.13
Now and money market 29,615 360 4.86 9,144 107 4.68
Certificates of deposit 99,970 1,350 5.40 68,436 962 5.62
-------- -------- ------- -------- -------- -------
Total deposits 130,775 1,720 5.26 78,346 1,075 5.49
FHLB advances 37,440 515 5.50 13,411 163 4.86
Other borrowings 17,257 259 6.00 3,098 44 5.68
-------- -------- ------- -------- -------- -------
Total interest-bearing
liabilities 185,472 2,494 5.38 94,855 1,282 5.41
-------- ------- -------- -------
Noninterest-bearing liabilities:
Noninterest-bearing
demand deposits 3,571 1,497
Other liabilities 990 704
-------- --------
Total liabilities 190,033 97,056
Stockholders' equity 25,012 6,866
-------- --------
Total liabilities and
stockholders' equity $215,045 $103,922
======== ========
Net interest income $ 1,064 $ 508
======== ========
Interest rate spread 1.50% 1.80%
======= =======
Net interest margin 2.06% 2.04%
======= =======
</TABLE>
14
<PAGE>
RATE/VOLUME ANALYSIS. The following table presents certain information
regarding changes in interest income and interest expense attributable to
changes in interest rates and changes in volume of interest-earning assets and
interest-bearing liabilities for the periods indicated. The change in interest
attributable to both rate and volume has been allocated to the changes in rate
and volume on a pro rata basis.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31, 1999 VS. 1998
--------------------------------
CHANGE ATTRIBUTABLE TO
--------------------------------
(IN THOUSANDS) VOLUME RATE TOTAL
------ ------ ------
<S> <C> <C> <C>
Real estate loans $ 781 $ (289) $ 492
Consumer loans 178 (15) 163
Commercial business loans 21 (1) 20
------ ------ ------
Total loans 980 (305) 675
Investments 641 125 766
Mortgage-backed securities 297 30 327
------ ------ ------
Total interest-earning assets 1,918 (150) 1,768
------ ------ ------
Savings accounts $ 3 $ 1 $ 4
Now and money market accounts 240 13 253
Certificates of deposit 443 (55) 388
------ ------ ------
Total deposits 686 (41) 645
FHLB advances 292 60 352
Other borrowings 201 14 215
------ ------ ------
Total interest-bearing liabilities 1,179 33 1,212
------ ------ ------
Change in net interest income $ 739 $ (183) $ 556
====== ====== ======
</TABLE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and
rates. The Company's market risk arises primarily from interest rate risk
inherent in its lending and deposit taking activities. The Company has little or
no risk related to trading accounts, commodities or foreign exchange.
Management actively monitors and manages its interest rate risk exposure.
The primary objective in managing interest-rate risk is to limit, within
established guidelines, the adverse impact of changes in interest rates on the
Company's net interest income and capital, while adjusting the Company's
asset-liability structure to obtain the maximum yield-cost spread on that
structure. Management relies primarily on its asset-liability structure to
control interest rate risk. However, a sudden and substantial increase in
interest rates could adversely impact the Company's earnings, to the extent that
the interest rates borne by assets and liabilities do not change at the same
speed, to the same extent, or on the same basis. There have been no significant
changes in the Company's market risk exposure since September 30, 1999
15
<PAGE>
GREATER ATLANTIC FINANCIAL CORP.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On July 28, 1999, First Guaranty Mortgage Corporation filed a complaint against
us and our subsidiary, Greater Atlantic Bank ("GAB") and its subsidiary, Greater
Atlantic Mortgage Corporation ("GAMC") in Circuit Court of Arlington, Virginia.
This complaint alleges breach of contract and related claims against these three
companies and employees of GAMC who formerly were employed at First Guaranty.
First Guaranty alleges that GAMC, GAB and GAFC wrongfully interfered with the
business of First Guaranty's Frederick, Maryland office by hiring the employees
of that office. First Guaranty is seeking approximately $5,000,000 in
compensatory and $20,000,000 in punitive damages.
We believe that the allegations against GAMC, GAB and GAFC are without merit. We
are vigorously defending these claims. Although we can give no assurance, we
believe that the ultimate outcome of this matter will not materially adversely
affect our financial condition.
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters To A Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
Exhibits Required
Exhibit 11: Computation of Earnings Per Share
Exhibit 27: Financial Data Schedule
Reports on Form 8-K
No reports on Form 8-K were filed during the three
months ended December 31, 1999.
16
<PAGE>
GREATER ATLANTIC FINANCIAL CORP.
SIGNATURES
Pursuant to the requirement of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GREATER ATLANTIC FINANCIAL CORP.
--------------------------------
(Registrant)
Date: February 11, 2000 BY: /s/ CARROLL E. AMOS
-----------------------------------------
Carroll E. Amos
President and Chief Executive Officer
Date: February 11, 2000 BY: /s/ DAVID E. RITTER
-----------------------------------------
David E. Ritter
Senior Vice President and
Chief Financial Officer
17
<PAGE>
<TABLE>
<CAPTION>
Exhibit 11
COMPUTATION OF EARNINGS (LOSS) PER SHARE
FOR THE THREE MONTHS ENDED
--------------------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1999 1998
----------------------------------------------- ----------- -----------
<S> <C> <C>
NET(LOSS) INCOME $ (331) $ 271
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 3,007,434 813,467
COMMON STOCK EQUIVALENTS DUE TO DILUTIVE EFFECT OF
STOCK OPTIONS -- 1,751
TOTAL WEIGHTED AVERAGE COMMON SHARES AND COMMON
SHARE EQUIVALENTS OUTSTANDING 3,007,434 815,218
BASIC (LOSS) EARNINGS PER COMMON SHARE AND COMMON
SHARE EQUIVALENTS $ (0.11) $ 0.33
DILUTED (LOSS) EARNINGS PER COMMON SHARE $ (0.11) $ 0.33
</TABLE>
18
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM GREATER
ATLANTIC FINANCIAL CORP.'S UNAUDITED FINANCIAL STATEMENTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS AND THE NOTE THERETO.
</LEGEND>
<CIK> 0001082735
<NAME> Greater Atlantic Financial Corp.
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 3,070
<INT-BEARING-DEPOSITS> 10,455
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 79,645
<INVESTMENTS-CARRYING> 31,330
<INVESTMENTS-MARKET> 30,608
<LOANS> 93,941
<ALLOWANCE> 590
<TOTAL-ASSETS> 227,057
<DEPOSITS> 128,450
<SHORT-TERM> 63,291
<LIABILITIES-OTHER> 1,421
<LONG-TERM> 10,000
30
0
<COMMON> 0
<OTHER-SE> 23,865
<TOTAL-LIABILITIES-AND-EQUITY> 227,057
<INTEREST-LOAN> 1,615
<INTEREST-INVEST> 1,943
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 3,558
<INTEREST-DEPOSIT> 1,720
<INTEREST-EXPENSE> 2,494
<INTEREST-INCOME-NET> 1,064
<LOAN-LOSSES> 0
<SECURITIES-GAINS> (6)
<EXPENSE-OTHER> 2,240
<INCOME-PRETAX> (545)
<INCOME-PRE-EXTRAORDINARY> (545)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (331)
<EPS-BASIC> (.11)
<EPS-DILUTED> (.11)
<YIELD-ACTUAL> 6.88
<LOANS-NON> 53
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 590
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 590
<ALLOWANCE-DOMESTIC> 565
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 35
</TABLE>
