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 MARCH 31, 2000
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
------------
(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 May 9, 2000, there were 3,007,434 shares of the registrant's Common Stock,
par value $0.01 per share outstanding
<PAGE>
GREATER ATLANTIC FINANCIAL CORP.
QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 2000
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE NO.
- ------------------------------ --------
Item 1. Financial Statements
Consolidated Balance Sheets March 31, 2000 (unaudited)
and September 30, 1999 (audited) 2
Consolidated Statements of Operations (unaudited)
Three and six months ended March 31, 2000 and March 31, 1999 3
Consolidated Statements of Comprehensive Income (unaudited)
Six months ended March 31, 2000 and March 31, 1999 4
Consolidated Statements of Changes in Stockholder's
Equity (unaudited)
Six months ended March 31, 2000 and March 31, 1999 5
Consolidated Statements of Cash Flows (unaudited)
Six months ended March 31, 2000 and March 31, 1999 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 21
PART II. OTHER INFORMATION
- --------------------------
Item 1. Legal Proceedings 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
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1
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GREATER ATLANTIC FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
March 31, September 30,
(DOLLARS IN THOUSANDS) 2000 1999
-------- --------
(Unaudited)
ASSETS
Cash and cash equivalents $ 766 $ 1,064
Interest bearing deposits -- 639
Investment securities:
Available-for-sale 103,111 75,458
Held-to-maturity 30,361 32,766
Loans held for sale 8,188 7,436
Loans receivable, net 110,081 72,792
Accrued interest and dividends receivable 1,982 1,449
Deferred income taxes 1,324 1,324
Federal Home Loan Bank stock, at cost 3,145 2,013
Foreclosed real estate 109 187
Premises and equipment, net 2,369 2,218
Prepaid expenses and other assets 1,610 1,477
-------- --------
Total Assets $263,046 $198,823
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $138,453 $129,007
Advance payments from borrowers
for taxes and insurance 358 264
Accrued expenses and other liabilities 915 1,171
Advances from the FHLB and other borrowings 99,395 43,391
-------- --------
Total Liabilities 239,121 173,833
-------- --------
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 109 710
Accumulated other comprehensive loss (1,346) (882)
-------- --------
Total Stockholders' Equity 23,925 24,990
-------- --------
$263,046 $198,823
======== ========
2
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GREATER ATLANTIC FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Six Months Ended
March 31, March 31,
------------------- -------------------
(DOLLARS IN THOUSANDS) 2000 1999 2000 1999
--------- ------- --------- -------
Interest income
Loans $ 2,083 $ 928 $ 3,698 $ 1,868
Investments 2,141 1,072 4,084 1,922
--------- ------- --------- -------
Total interest income 4,224 2,000 7,782 3,790
--------- ------- --------- -------
Interest expense
Deposits 1,777 1,348 3,497 2,423
Borrowed money 1,171 162 1,945 369
--------- ------- --------- -------
Total interest expense 2,948 1,510 5,442 2,792
--------- ------- --------- -------
Net interest income 1,276 490 2,340 998
Provision for loan losses 7 1 7 23
--------- ------- --------- -------
Net interest income after
provision for loan losses 1,269 489 2,333 975
--------- ------- --------- -------
Noninterest income
Fees and service charges 140 98 282 282
Gain on sale of loans 423 2,068 913 4,396
Gain (Loss) on sale of
investment securities (62) 12 (68) 10
Gain (Loss) on sale of
real estate owned 3 (1) 2 (4)
Other operating income -- 1 5 8
--------- ------- --------- -------
Total noninterest income 504 2,178 1,134 4,692
--------- ------- --------- -------
Noninterest expense
Compensation and employee benefits 1,095 1,409 2,065 2,937
Occupancy 304 205 580 450
Professional services 117 61 403 104
Advertising 123 89 262 247
Deposit insurance premium 10 14 29 31
Furniture, fixtures and equipment 100 116 209 211
Data processing 136 41 214 62
Provision for (recovery of)
loss on real estate owned -- 5 -- (6)
Other real estate owned expenses 3 2 11 11
Other operating expenses 327 504 681 940
--------- ------- --------- -------
Total noninterest expense 2,215 2,446 4,454 4,987
--------- ------- --------- -------
Income (loss) before income
tax provision (442) 221 (987) 680
--------- ------- --------- -------
Income tax (benefit) provision (172) 70 (386) 258
--------- ------- --------- -------
Net income (loss) $ (270) $ 151 $ (601) $ 422
========= ======= ========= =======
Basic Earnings Per Share $ (0.09) $ 0.18 $ (0.20) $ 0.52
Diluted Earnings Per Share $ (0.09) $ 0.18 $ (0.20) $ 0.52
Basic Weighted Average Shares 3,007,434 821,140 3,007,434 817,264
Diluted Weighted Average Share 3,007,434 822,891 3,007,434 819,024
3
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GREATER ATLANTIC FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)
Six Months Ended
March 31,
------------------
(IN THOUSANDS) 2000 1999
------- -----
Net (loss) income $ (601) $ 422
------- -----
Other comprehensive (loss) income, net of tax:
Unrealized (losses) gains on securities (464) (322)
------- -----
Other comprehensive (loss) income (464) (322)
------- -----
Comprehensive (loss) income $(1,065) $ 100
======= =====
4
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GREATER ATLANTIC FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
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 loss
for the period -- -- -- (601) -- (601)
Other comprehensive
loss, net of tax of $461 -- -- -- -- (464) (464)
----- --- ------- ------- ------- --------
Balance at
March 31, 2000 $ -- $30 $25,132 $ 109 $(1,346) $ 23,925
===== === ======= ======= ======= ========
Balance at
September 30, 1998 $ -- $ 8 $ 6,093 $ 609 $ 107 $ 6,817
Issuance of
8,961 common shares -- -- 75 -- -- 75
Net income for the period -- -- -- 422 -- 422
Other comprehensive
income net of tax of $146 -- -- -- -- (322) (322)
----- --- ------- ------- ------- --------
Balance at
March 31, 1999 $ -- $ 8 $ 6,168 $ 1,031 $ (215) $ 6,992
===== === ======= ======= ======= ========
</TABLE>
5
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GREATER ATLANTIC FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended
March 31,
-------------------
(IN THOUSANDS) 2000 1999
------- -------
Cash flows from operating activities:
Net (loss) income $ (601) $ 422
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Provision for loan losses 7 23
Provision for losses on foreclosed assets -- (6)
Depreciation and amortization 166 172
Deferred income taxes -- 318
Proceeds from sale of trading securities -- 243
Unrealized loss (gain) on trading securities -- (6)
Loss (gain) on sale of investment securities 41 --
Loss (gain) on sale of mortgage-backed securities 27 (2)
Amortization of investment security premiums 241 285
Amortization of deferred fees (44) 27
Amortization of mortgage-backed securities premiums 88 --
Discount accretion net of premium amortization 30 (92)
(Gain) loss on sale of foreclosed real estate (2) 4
(Gain) on sale of loans held for sale (913) (4,396)
Disbursements for origination of loans (48,681) (186,528)
Proceeds from sales of loans 48,850 214,879
Accrued interest and dividend receivable (534) (120)
Prepaid expenses and other assets 322 (500)
Deferred loan fees collected, net of
deferred costs incurred 28 (19)
Accrued expenses and other liabilities (256) (271)
Income taxes payable -- 48
------- -------
Net cash (used in) provided by operating activities $(1,231) $24,481
------- -------
6
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GREATER ATLANTIC FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - (CONTINUED)
Six Months Ended
March 31,
------------------
(IN THOUSANDS) 2000 1999
------- -------
Cash flow from investing activities:
Net (decrease) in loans $(37,419) $(5,986)
Purchases of premises and equipment (317) (1,097)
Proceeds from sale of foreclosed real estate 190 99
Purchases of investment securities (13,183) (23,853)
Proceeds from sale of investment securities 1,009 250
Proceeds from repayments of investment securities 2,964 10,168
Purchases of mortgage-backed securities (23,450) (19,884)
Proceeds from sale of mortgage-backed securities 960 2,015
Proceeds from repayments of mortgage-backed securities 5,128 4,536
Purchases of FHLB stock (3,290) (2,566)
Proceeds from sale of FHLB stock 2,158 2,553
------- -------
Net cash used in investing activities (65,250) (33,765)
------- -------
Cash flow from financing activities:
Net increase in deposits 9,447 35,781
Issuance of common stock -- 75
Net advances (repayments) from FHLB 24,650 (17,000)
Net borrowings on reverse repurchase agreements 31,354 --
Increase in advance payments by
borrowers for taxes and insurance 93 20
------- -------
Net cash provided by financing activities 65,544 18,876
------- -------
(Decrease) increase in cash and cash equivalents (937) 9,592
------- -------
Cash and cash equivalents, at beginning of period 1,703 433
------- -------
Cash and cash equivalents, at end of period $ 766 $10,025
======= =======
7
<PAGE>
GREATER ATLANTIC FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS OF MARCH 31, 2000 AND FOR THE SIX 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-QSB 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 and six months ended March 31, 2000 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 six
months ended March 31, 2000 or the year ended September 30, 1999.
An analysis of the change in the allowance for loan losses follows:
Six Months Ended Year Ended
March 31, September 30,
------------------------ ----------------
(IN THOUSANDS) 2000 1999 1999
--------- ---------- ----------------
Balance, beginning $590 $578 $578
Provision for loan losses 7 23 26
Charge-offs (27) (1) (24)
Recoveries - 10 10
--------- ---------- ----------------
Balance, ending $570 $610 $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 September 30, 1999 or March 31, 2000.
8
<PAGE>
GREATER ATLANTIC FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
INFORMATION AS OF MARCH 31, 2000 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 March
31, 2000 the Bank was classified as a well capitalized financial institution.
The following presents the Bank's capital position at March 31, 2000:
Required Required Actual Actual
(DOLLARS IN THOUSANDS) Balance Percent Balance Percent Excess
-------- -------- ------- ------- -------
Leverage $13,176 5.00% $25,605 9.72% $12,429
Tier 1 Risk-based $ 6,337 6.00% $25,605 24.25% $19,268
Total Risk-based $10,561 10.00% $26,175 24.78% $15,614
(4) EARNINGS PER SHARE
Earnings per share is based on the weighted average number of shares of
common stock and dilutive common stock equivalents outstanding. Basic earnings
per share includes no dilution and is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilution of
securities that could share in the earnings of an entity. The following table
presents a reconciliation between the weighted average shares outstanding for
basic and diluted earnings per share for the three and six month periods ended
March 31, 2000 and 1999.
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
--------------------- ---------------------
(DOLLARS IN THOUSANDS EXCEPT
PER SHARE AMOUNTS) 2000 1999 2000 1999
---------- ------- ---------- -------
Net income (loss) $ (270) $ 151 $ (601) $ 422
Weighted average common
shares outstanding 3,007,434 821,140 3,007,434 817,264
Common stock equivalents
due to dilutive effect
of stock options -- 1,751 -- 1,750
Total weighted average
common shares and
common share equivalents
outstanding 3,007,434 822,891 3,007,434 819,024
Basic (loss) earnings per
common share and common
share equivalents $ (0.09) $ 0.18 $ (0.20) $ 0.52
Diluted (loss) earnings
per common share $ (0.09) $ 0.18 $ (0.20) $ 0.52
9
<PAGE>
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 Consolidated Financial Statements and Notes presented elsewhere in this
report.
This report contains forward-looking statements. When used in this 10-QSB
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 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 March 31, 2000 the company's total assets were $263.0 million, compared
to $198.8 million held at September 30, 1999, representing an increase of
32.30%. 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 March
31, 2000 were $110.1 million, an increase of $37.3 million or 51.23% 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. At March 31, 2000 investment securities
were $133.5 million, an increase of $25.2 million or 23.33% from the $108.2
million held at September 30, 1999.
10
<PAGE>
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND MARCH 31, 1999
NET INCOME. For the three months ended March 31, 2000 the company incurred
a loss of $270,000 or $0.09 per share compared to net income of $151,000 or
$0.18 per share for the three months ended March 31, 1999. The $421,000 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
MARCH 31, DIFFERENCE
------------------ ------------------
(DOLLARS IN THOUSANDS) 2000 1999 AMOUNT %
------ ------ ------ ------
Interest income:
Loans $2,083 $ 928 $1,155 124.46%
Investments 2,141 1,072 1,069 99.72
------ ------ ------ ------
Total 4,224 2,000 2,224 111.20
------ ------ ------ ------
Interest expense:
Deposits 1,777 1,348 429 31.82
Borrowings 1,171 162 1,009 622.84
Total 2,948 1,510 1,438 95.23
------ ------ ------ ------
Net interest income $1,276 $ 490 $ 786 160.41%
====== ====== ====== ======
Our growth in net interest income for the three months ended March 31, 2000
was due primarily to the increase in average interest-earning assets resulting
from our planned growth. Average interest-earning assets increased $111.4
million or 91.11% over the comparable period one-year ago and was coupled with a
59 basis point increase in net interest margin (net interest income divided by
average interest-earning assets). The increase in net interest margin resulted
from the significant increase in average earning assets coupled with an increase
in the yield associated with these assets.
Interest income for the three months ended March 31, 2000 increased $2.2
million compared to the three months ended March 31, 1999 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 March 31, 2000 compared to interest income
earned for the 1999 period resulted from an increase of $61.3 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 $50.0 million in the average outstanding
balance, and a 114 basis point increase in the average yield earned on the
portfolio.
11
<PAGE>
The increase in interest expense for the three months ended March 31, 2000
compared to the 1999 period was principally the result of a significant increase
in average deposits and borrowed funds and an increase of 40 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 and Now and
money market accounts of $27.4 million, or 26.68%, from $102.7 million for the
three months ended March 31, 1999 to $130.1 million for the three months ended
March 31, 2000, with the average rate paid increasing from 5.22% for the three
months ended March 31, 1999 to 5.44% for the three months ended March 31, 2000.
The average rate we paid for deposits increased from 5.21% for the three months
ended March 31, 1999 to 5.42% for the three months ended March 31, 2000. That
increase in rate was coupled with an increase of $27.5 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 was increased from $1,000 during the three
months ended March 31, 1999 to $7,000 during the three months ended March 31,
2000. The increase in the provision was related to an increase in loan volume
coupled with an increase in non-performing loans.
NONINTEREST INCOME. Noninterest income decreased during the three months
ended March 31, 2000, over the comparable period one year ago, primarily as a
result of the decrease in gains on sale of loans. Loan sales and margins
obtained by Greater Atlantic Mortgage, the Bank's wholly owned subsidiary, were
lower than the same period one year ago. The significant level of gains during
the three months ended March 31, 1999 resulted from the company taking advantage
of 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
MARCH 31, DIFFERENCE
---------------- ------------------
(DOLLARS IN THOUSANDS) 2000 1999 AMOUNT %
----- ------ ------- ------
Noninterest income:
Gain on sale of loans $ 423 $2,068 $(1,645) (79.55)%
Service fees on loans 105 86 19 22.09
Service fees on deposits 35 12 23 191.67
Other operating income (59) 12 (71) (591.67)
----- ------ ------- ------
Total noninterest income $ 504 $2,178 $(1,674) (76.86)%
===== ====== ======= ======
12
<PAGE>
NONINTEREST EXPENSE. Noninterest expense decreased to $2.2 million for the
three months ended March 31, 2000 from $2.4 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
resulting from 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.
The following table presents a comparison
of the components of noninterest expense.
THREE MONTHS ENDED
MARCH 31, DIFFERENCE
-------------- --------------
(DOLLARS IN THOUSANDS) 2000 1999 AMOUNT %
------ ------ ----- ------
Noninterest expense:
Compensation and employee benefits $1,095 $1,409 $(314) (22.29)%
Occupancy 304 205 99 48.29
Professional services 117 61 56 91.80
Advertising 123 89 34 38.20
Deposit insurance premium 10 14 (4) (28.57)
Furniture, fixtures and equipment 100 116 (16) (13.79)
Data processing 136 41 95 231.71
Loss (recovery) from foreclosed real estate 3 7 (4) (57.14)
Other operating expense 327 504 (177) (35.12)
------ ------ ----- ------
Total noninterest expense $2,215 $2,446 $(231) (9.44)%
====== ====== ===== ======
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 March
31, 2000 amounted to a benefit of $172,000 compared to a provision of $70,000
for the three months ended March 31, 1999. The reduction resulted from reduced
earnings.
13
<PAGE>
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 March 31,
--------------------------------------------------------------------------------
2000 1999
-------------------------------------- -----------------------------------
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 $ 90,941 $ 1,731 7.61% $ 39,918 $ 804 8.06%
Consumer loans 12,440 256 8.23 3,243 60 7.40
Commercial business loans 4,359 96 8.81 3,244 64 7.89
-------- -------- -------- -------- -------- --------
Total loans 107,740 2,083 7.73 46,405 928 8.00
Investment securities 75,082 1,324 7.05 45,456 664 5.84
Mortgage-backed securities 50,769 817 6.44 30,369 408 5.37
-------- -------- -------- -------- -------- --------
Total interest-earning assets 233,591 4,224 7.23 122,230 2,000 6.55
-------- -------- -------- --------
Non-earning assets 7,497 5,510
-------- --------
Total assets $241,088 $127,740
======== ========
Interest-bearing liabilities:
Savings accounts $ 886 $ 6 2.71 $ 842 7 3.33
Now and money market 31,099 411 5.29 15,995 186 4.65
Certificates of deposit 99,041 1,360 5.49 86,734 1,155 5.33
-------- -------- -------- -------- -------- --------
Total deposits 131,026 1,777 5.42 103,571 1,348 5.21
FHLB advances 49,855 687 5.51 13,918 162 4.66
Other borrowings 31,980 484 6.05 -- -- --
-------- -------- -------- -------- -------- --------
Total interest-bearing liabilities 212,861 2,948 5.54 117,489 1,510 5.14
-------- -------- -------- --------
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits 3,269 1,507
Other liabilities 805 1,788
-------- --------
Total liabilities 216,935 120,784
Stockholders' equity 24,153 6,956
-------- --------
Total liabilities and stockholders' equity $241,088 $127,740
======== ========
Net interest income $ 1,276 $ 490
======== ========
Interest rate spread 1.69% 1.41%
======== ========
Net interest margin 2.19% 1.60%
======== ========
</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.
THREE MONTHS ENDED
MARCH 31, 2000 VS. 1999
-----------------------------
CHANGE ATTRIBUTABLE TO
-----------------------------
(IN THOUSANDS) VOLUME RATE TOTAL
------ ----- -------
Real estate loans $1,028 $(101) $ 927
Consumer loans 170 26 196
Commercial business loans 22 10 32
------ ----- -------
Total loans 1,220 (65) 1,155
Investments 433 227 660
Mortgage-backed securities 274 135 409
------ ----- -------
Total interest-earning assets 1,927 297 2,224
------ ----- -------
Savings accounts $ -- $ (1) $ (1)
Now and money market accounts 176 49 225
Certificates of deposit 164 41 205
------ ----- -------
Total deposits 340 89 429
FHLB advances 418 107 525
Other borrowings -- 484 484
------ ----- -------
Total interest-bearing liabilities 758 680 1,438
------ ----- -------
Change in net interest income $1,169 $(383) $ 786
====== ===== =======
COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTHS
ENDED MARCH 31, 2000 AND MARCH 31, 1999
NET INCOME. For the six months ended March 31, 2000, the Company incurred a
loss of $601,000 or $0.20 per share compared to net income of $422,000 or $0.52
per share for the six months ended March 31, 1999. The $1.0 million decrease in
net income over the comparable period one year ago was primarily due to the
decline 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.
15
<PAGE>
The following table presents a comparison of the components
of interest income and expense and net interest income.
SIX MONTHS ENDED
MARCH 31, DIFFERENCE
----------------- -----------------
(DOLLARS IN THOUSANDS 2000 1999 AMOUNT %
------ ------ ------ ------
Interest income:
Loans $3,698 $1,868 $1,830 97.97%
Investments 4,084 1,922 2,162 112.49
------ ------ ------ ------
Total 7,782 3,790 3,992 105.33
------ ------ ------ ------
Interest expense:
Deposits 3,497 2,423 1,074 44.33
Borrowings 1,945 369 1,576 427.10
------ ------ ------ ------
Total 5,442 2,792 2,650 94.91
------ ------ ------ ------
Net interest income $2,340 $ 998 $1,342 134.47%
====== ====== ====== ======
Our growth in net interest income for the six months ended March 31, 2000
was due primarily to the increase in average interest-earning assets resulting
from our planned growth. Average interest-earning assets increased $109.3
million or 98.57% over the comparable period one-year ago and was coupled with a
23 basis point increase in net interest margin (net interest income divided by
average interest-earning assets). The increase in net interest margin resulted
from the significant increase in average earning assets coupled with an increase
in yield.
Interest income for the six months ended March 31, 2000 increased $4.0
million compared to the six months ended March 31, 1999 primarily as a result of
an increase in the average outstanding balances in loans, investment securities
and mortgage-backed securities resulting in a large measure from the planned
leveraging of our capital. The increase in interest income from the loan
portfolio for the six months ended March 31, 2000 compared to interest income
earned for the 1999 period resulted from an increase of $52.6 million in the
average balance of loans outstanding. That increase was coupled with an increase
of $56.7 million in the average outstanding balance in the investment and
mortgage-backed securities portfolios and was coupled with a 85 basis point
increase in the average yield earned on these portfolios.
The increase in interest expense on deposits and borrowed funds for the six
months ended March 31, 2000 compared to the 1999 period was principally the
result of a significant increase in the average outstanding balances in total
deposits and borrowed funds, and an increase of 20 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 and NOW and money market accounts
of $39.7 million, or 44.05%, from $90.1 million for the six months ended March
31, 1999 to $129.8 million for the six months ended March 31, 2000. The average
rate we paid for deposits increased from 5.33% for the six months ended March
31, 1999 to 5.34% for the six months ended March 31, 2000. That increase in rate
was coupled with an increase of $39.9 million in the average outstanding balance
of deposits.
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.
16
<PAGE>
<TABLE>
<CAPTION>
For the Six months Ended March 30,
--------------------------------------------------------------------------------
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 $ 82,417 $ 3,094 7.51% $ 39,597 $1,675 8.46%
Consumer loans 10,917 443 8.12 2,179 84 7.71
Commercial business loans 3,759 161 8.57 2,708 109 8.05
-------- -------- ---- -------- ------ ----
Total loans 97,093 3,698 7.62 44,484 1,868 8.40
Investment securities 75,803 2,582 6.81 39,243 1,156 5.89
Mortgage-backed securities 47,283 1,502 6.35 27,155 766 5.64
-------- -------- ---- -------- ------ ----
Total interest-earning assets 220,179 7,782 7.07 110,882 3,790 6.84
-------- ---- ------ ----
Non-earning assets 7,888 4,856
-------- --------
Total assets $228,067 $115,738
======== ========
Interest-bearing liabilities:
Savings accounts $ 1,038 $ 16 3.08 $ 804 $ 13 3.23
Now and money market 30,357 771 5.08 12,569 293 4.66
Certificates of deposit 99,506 2,710 5.45 77,585 2,117 5.46
-------- -------- ---- -------- ------ ----
Total deposits 130,901 3,497 5.34 90,958 2,423 5.33
FHLB advances 43,647 1,202 5.51 13,665 325 4.76
Other borrowings 24,618 743 6.04 1,549 44 5.68
-------- -------- ---- -------- ------ ----
Total interest-bearing liabilities 199,166 5,442 5.46 106,172 2,792 5.26
-------- ---- ------ ----
Noninterest-bearing liabilities:
Noninterest-bearing demand deposits 3,420 1,409
Other liabilities 922 1,237
-------- --------
Total liabilities 203,508 108,818
Stockholders' equity 24,559 6,920
-------- --------
Total liabilities and stockholders' equity $228,067 $115,738
======== ========
Net interest income $ 2,340 $ 998
======== ======
Interest rate spread 1.61% 1.58%
==== ====
Net interest margin 2.13% 1.80%
==== ====
</TABLE>
17
<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.
SIX MONTHS ENDED
MARCH 31, 2000 VS. 1999
-------------------------------
CHANGE ATTRIBUTABLE TO
-------------------------------
(DOLLARS IN THOUSANDS) VOLUME RATE TOTAL
------ ----- ------
Real estate loans $1,811 $(392) $1,419
Consumer loans 337 22 359
Commercial business loans 42 10 52
------ ----- ------
Total loans 2,190 (360) 1,830
Investments 1,077 349 1,426
Mortgage-backed securities 568 168 736
------ ----- ------
Total interest-earning assets 3,835 157 3,992
------ ----- ------
Savings accounts $ 4 $ (1) $ 3
Now and money market accounts 415 63 478
Certificates of deposit 598 (5) 593
------ ----- ------
Total deposits 1,017 57 1,074
FHLB advances 713 164 877
Other borrowings 655 44 699
------ ----- ------
Total interest-bearing liabilities 2,385 265 2,650
------ ----- ------
Change in net interest income $1,450 $(108) $1,342
====== ===== ======
PROVISION FOR LOAN LOSSES. The provision for loan losses decreased from
$23,000 during the six months ended March 31, 1999 to $7,000 during the six
months ended March 31, 2000. The reduction in the provision was related to an
improvement in credit quality over that time period coupled with a decline in
non-performing loans. Not withstanding an improvement in overall credit quality,
net charge-offs increased from a recovery of $9,000 during the six months ended
March 31, 1999 to a charge of $27,000 during the six months ended March 31, 2000
as management took a more aggressive posture in assessing collectability of
classified loans.
NONINTEREST INCOME. Noninterest income decreased during the six months
ended March 31, 2000, over the comparable period one year ago, primarily as a
result of the decrease in gain on sale of loans coupled with a decrease in
service fees on loans, both of which relate to a decreased volume of loan
originations and sales as a result of the company's mortgage banking activities.
The significant level of gains during the six months ended March 31, 1999
resulted from the company taking advantage of loan origination volumes coupled
with home loan refinancing and a favorable 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.
SIX MONTHS ENDED
MARCH 31, DIFFERENCE
------------------- --------------------
(DOLLARS IN THOUSANDS) 2000 1999 AMOUNT %
------- ------ ------- ------
Noninterest income:
Gain on sale of loans $ 913 $4,396 $(3,483) (79.23)%
Service fees on loans 211 260 (49) (18.85)
Service fees on deposits 71 22 49 222.73
Other operating income (61) 14 (75) (535.71)
------- ------ ------- ------
Total noninterest income $ 1,134 $4,692 $(3,558) (75.83)%
======= ====== ======= ======
18
<PAGE>
During the six months ended March 31, 2000, the mortgage company originated
$48.7 million in mortgage loans for sale compared to $186.5 million originated
in the comparable period one year ago. The $137.8 million decrease in loan
originations was largely attributable to increases in interest rates and
decreases in home mortgage refinancings. During the period, substantially all
loans originated were sold in the secondary market, in most cases with servicing
released. Loan sales for the six months ended March 31, 2000 amounted to $48.9
million compared to sales of $214.9 million during the comparable period one
year ago. Sales of loans resulted in gains of $913,000 and $4.4 million for the
six months ended March 31, 2000 and 1999, respectively.
NONINTEREST EXPENSE. 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. Net occupancy
expenses increased from the 1999 six month period to the comparable 2000 period
due to the development of the branch network, as well as the acquisition of
additional administrative space to handle the current and planned growth of the
Bank. Professional services increased $299,000 from the 1999 six month period
when compared to the same period in 2000. That cost increase resulted from the
testing of the Bank's internal computer system for compliance with the Year 2000
date change and the litigation cost associated with the lawsuit filed against
the mortgage banking subsidiary, the Bank and the Company.
The following table presents a comparison
of the components of noninterest expense.
SIX MONTHS ENDED
MARCH 31, DIFFERENCE
----------------- -----------------
(DOLLARS IN THOUSANDS) 2000 1999 AMOUNT %
------ ------ ----- ------
Noninterest expense:
Compensation and employee benefits $2,065 $2,937 $(872) (29.69)%
Occupancy 580 450 130 28.89
Professional services 403 104 299 287.50
Advertising 262 247 15 6.07
Deposit insurance premium 29 31 (2) (6.45)
Furniture, fixtures and equipment 209 211 (2) (0.95)
Data processing 214 62 152 245.16
Loss from foreclosed real estate 11 5 6 120.00
Other operating expense 681 940 (259) (27.55)
------ ------ ----- ------
Total noninterest expense $4,454 $4,987 $(533) (10.69)%
====== ====== ===== ======
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 six months ended March 31,
2000 amounted to a benefit of $386,000 compared to a provision of $258,000 for
the six months ended March 31, 1999 resulting from reduced earnings.
LIQUIDITY AND CAPITAL RESOURCES. The bank's primary sources of funds are
deposits, principal and interest payments on loans, mortgage-backed and
investment securities and borrowings. While maturities and scheduled
amortization of loans are predictable sources of funds, deposit flows and
mortgage prepayments are greatly influenced by general interest rates, economic
conditions and competition. The bank has continued to maintain the required
levels of liquid assets as defined by OTS regulations. This requirement of the
OTS, which may be changed at the direction of the OTS depending upon economic
conditions and deposit flows, is based upon a percentage of deposits and
short-term borrowings. The bank's currently required liquidity ratio is 4.00%.
At March 31, 2000, the bank's actual liquidity ratio was 10.28%. The bank
manages its liquidity position and demands for funding primarily by investing
excess funds in short-term investments and utilizing FHLB advance and reverse
repurchase agreements in periods when the bank's demands for liquidity exceed
funding from deposit inflows.
The bank's most liquid assets are cash and cash equivalents, securities
available-for-sale and trading securities. The levels of these assets are
dependent on the bank's operating, financing, lending and investing activities
during any given period. At March 31, 2000, cash and cash equivalents and
securities available-for-sale totaled $103.9 million, or 39.49% of total assets.
19
<PAGE>
The primary investing activities of the bank are the origination of residential
one- to four-family loans, commercial real estate loans, real estate
construction and development loans, commercial borrowing and consumer loans and
the purchase of United States Treasury and agency securities, mortgage-backed
and mortgage-related securities and other investment securities. During the six
months ended March 31, 2000, the bank's loan originations totaled $107.6
million. Purchases of United States Treasury and agency securities,
mortgage-backed and mortgage related securities and other investment securities
totaled $36.3 million for the year ended March 31, 2000.
The bank has other sources of liquidity if a need for additional funds arises.
At March 31, 2000, the bank had $62.3 million in advances outstanding from the
FHLB and had an additional overall borrowing capacity from the FHLB of $5.2
million at that date. Depending on market conditions, the pricing of deposit
products and FHLB advances, the bank may continue to rely on FHLB borrowings to
fund asset growth.
At March 31, 2000, the bank had commitments to fund loans and unused outstanding
lines of credit, unused standby letters of credit and undisbursed proceeds of
construction mortgages totaling $40.9 million. The bank anticipates that it will
have sufficient funds available to meet its current loan origination
commitments. Certificate accounts, including IRA and Keogh accounts, which are
scheduled to mature in less than one year from March 31, 2000, totaled $37.7
million. Based upon experience, management believes the majority of maturing
certificates of deposit will remain with the bank. In addition, management of
the bank believes that it can adjust the rates offered on certificates of
deposit to retain deposits in changing interest rate environments. In the event
that a significant portion of these deposits are not retained by the bank, the
bank would be able to utilize FHLB advances and reverse repurchase agreements to
fund deposit withdrawals, which would result in an increase in interest expense
to the extent that the average rate paid on such borrowings exceeds the average
rate paid on deposits of similar duration.
CHANGES IN LEVELS OF INTEREST RATES MAY ADVERSELY AFFECT US. We expect to
continue to realize income from the differential or "spread" between the
interest earned on loans, securities and other interest-earning assets, and the
interest paid on deposits, borrowings and other interest-bearing liabilities.
That spread is affected by the difference between the maturities and repricing
characteristics of interest-earnings assets and interest-bearing liabilities.
Loan volume and yields are affected by market interest rates on loans, and
rising interest rates generally are associated with fewer loan originations.
Management expects that a substantial portion of our assets will continue to be
indexed to changes in market interest rates and we intend to attract a greater
proportion of short-term liabilities which will help address our interest rate
risk. The lag in implementation of repricing terms on our adjustable-rate assets
may result in a decline in net interest income in a rising interest rate
environment. There can be no assurance that our interest rate risk will be
minimized or eliminated. Further, an increase in the general level of interest
rates may adversely affect the ability of certain borrowers to pay the interest
on and principal of their obligations. Accordingly, changes in levels of market
interest rates could materially adversely affect our interest rate spread, asset
quality, loan origination volume and overall financial condition and results of
operations.
20
<PAGE>
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 has been no significant
changes in the Company's market risk exposure since September 30, 1999
21
<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
(a) Greater Atlantic Financial Corp. annual Stockholder's Meeting was
held on March 14, 2000.
(b) Omitted per instructions.
(c) A brief description of each matter voted upon at the Annual
Stockholder's Meeting held on March 14, 2000 and number of votes
cast for, against or withheld.
1. Election of Directors.
Votes
Votes For Against Votes Withheld
--------- ------- --------------
Paul J. Cinquegrana 2,626,382 0 381,052
Jeffrey W. Ochsman 2,626,382 0 381,052
2. Admendment of the Greater Atlantic Financial Corp. 1997
Stock Option and Warrant Plan to increase the number of
shares of common stock with respect to which option may be
granted from 76,667 to 225,000.
Votes
Votes For Against Votes Withheld
--------- ------- --------------
2,559,362 51,540 43,550
3. Election of BDO Seidman, LLP as Independent Auditor.
Votes
Votes For Against Votes Withheld
--------- ------- --------------
2,640,652 3,300 10,500
(d) None
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
Exhibits Required
Exhibit 27: Financial Data Schedule
Reports on Form 8-K
No reports on Form 8-K were filed during the six months ended
March 31, 2000.
22
<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: May 12, 2000 By: /s/ Carroll E. Amos
-----------------------
Carroll E. Amos
President and Chief Executive Officer
Date: May 12, 2000 By: /s/ David E. Ritter
-----------------------
David E. Ritter
Senior Vice President and Chief Financial Officer
23
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
The schedule contains summary financial information derived from Greater
Atlantic Financial Corp.'s unaudited financial statements for the six
months ended March 31, 2000, and is qualified in its entirety by reference
to such financial statements and the note thereto.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-2000
<CASH> 766
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 103,111
<INVESTMENTS-CARRYING> 30,361
<INVESTMENTS-MARKET> 29,280
<LOANS> 118,269
<ALLOWANCE> 570
<TOTAL-ASSETS> 263,046
<DEPOSITS> 138,453
<SHORT-TERM> 66,395
<LIABILITIES-OTHER> 1,273
<LONG-TERM> 33,000
30
0
<COMMON> 0
<OTHER-SE> 23,895
<TOTAL-LIABILITIES-AND-EQUITY> 263,046
<INTEREST-LOAN> 3,698
<INTEREST-INVEST> 4,084
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 7,782
<INTEREST-DEPOSIT> 3,497
<INTEREST-EXPENSE> 1,945
<INTEREST-INCOME-NET> 2,340
<LOAN-LOSSES> 7
<SECURITIES-GAINS> (68)
<EXPENSE-OTHER> 4,454
<INCOME-PRETAX> (987)
<INCOME-PRE-EXTRAORDINARY> (987)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (601)
<EPS-BASIC> (.09)
<EPS-DILUTED> (.09)
<YIELD-ACTUAL> 7.07
<LOANS-NON> 70
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 570
<CHARGE-OFFS> 27
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 570
<ALLOWANCE-DOMESTIC> 529
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 41
</TABLE>
