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THIS DOCUMENT IS A COPY OF THE FORM 10-K FILED ON DECEMBER 30, 2004 PURSUANT
TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2004
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 P50, Reston, Virginia 20191
------------------------------------------------------ -----
(Address of Principal Executive Offices) (Zip Code)
703-391-1300
------------
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, par value $.01 per share
(Title of class)
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 preceeding 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 [ ]
Indicate by check mark whether disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss.299.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ X ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act. Yes [ ]. No [ X ].
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the Registrant computed by reference to the price at which the
common equity was sold, or the average bid and asked prices of such stock, as of
the last business day of the registrant's most recently completed second fiscal
quarter was $22.9 million.
As of December 17, 2004, there were 3,012,434 shares of the registrant's Common
Stock, par value $0.01 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
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INDEX
PART I Page
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Item 1. Business....................................................................................... 3
Description of Business........................................................................ 3
Market Area and Competition.................................................................... 3
Market Risk.................................................................................... 3
Lending Activities............................................................................. 3
Mortgage Banking Activities.................................................................... 7
Asset Quality.................................................................................. 8
Allowance for Loan Losses...................................................................... 9
Investment Activities.......................................................................... 11
Sources of Funds............................................................................... 14
Subsidiary Activities.......................................................................... 16
Personnel...................................................................................... 16
Regulation and Supervision..................................................................... 17
Federal and State Taxation..................................................................... 22
Item 2. Properties..................................................................................... 23
Item 3. Legal Proceedings.............................................................................. 23
Item 4. Submission of Matters to a Vote of Security Holders............................................ 23
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.............................................................................. 24
Item 6. Selected Financial Data........................................................................ 25
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation........... 27
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..................................... 40
Item 8. Consolidated Financial Statements and Supplementary Information................................ 40
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........... 40
Item 9A. Controls and Procedures........................................................................ 40
Item 9B. Other Information.............................................................................. 41
PART III
Item 10. Directors and Executive Officers of the Registrant............................................. 41
Item 11. Executive Compensation......................................................................... 43
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters................................................................ 45
Item 13. Certain Relationships and Related Transactions................................................. 48
Item 14. Principal Accountant Fees and Services......................................................... 48
PART IV
Item 15. Exhibits and Financial Statement Schedules..................................................... 48
Signatures ............................................................................................... 49
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PART I
ITEM 1. BUSINESS
DESCRIPTION OF BUSINESS
We are a savings and loan holding company which was organized in June
1997. We conduct substantially all of our business through our wholly-owned
subsidiary, Greater Atlantic Bank ("Bank"), a federally-chartered savings bank,
and its wholly-owned subsidiary, Greater Atlantic Mortgage Corporation ("Greater
Atlantic Mortgage"). We offer traditional banking services to customers through
our bank branches located throughout the greater Washington, DC/Baltimore
metropolitan area. We also originate mortgage loans for sale in the secondary
market through Greater Atlantic Mortgage. We established the Greater Atlantic
Capital Trust I ("Trust") in January 2002 to issue certain convertible preferred
securities which we completed in March 2002.
MARKET AREA AND COMPETITION
We operate in a competitive environment, competing for deposits and
loans with other thrifts, commercial banks and other financial entities.
Numerous mergers and consolidations involving banks in the market in which we
operate have occurred resulting in an intensification of competition in the
banking industry in our geographic market. Many of the financial intermediaries
operating in our market area offer certain services, such as trust, investment
and international banking services, which we do not offer. In addition, banks
with a larger capitalization than ours, and financial intermediaries not subject
to bank regulatory restrictions, have larger lending limits and are thereby able
to serve the needs of larger customers.
MARKET RISK
Market risk is the risk of loss from adverse changes in market prices
and rates. Our market risk arises primarily from interest-rate risk inherent in
our lending and deposit taking activities. To that end, management actively
monitors and manages interest-rate risk exposure. The measurement of market risk
associated with financial instruments is meaningful only when all related and
offsetting on- and off-balance-sheet transactions are aggregated, and the
resulting net positions are identified. Disclosures about the fair value of
financial instruments, which reflect changes in market prices and rates, can be
found in Note 16 of Notes to Consolidated Financial Statements.
Our primary objective in managing interest-rate risk is to minimize the
adverse impact of changes in interest rates on our net interest income and
capital, while adjusting our asset-liability structure to obtain the maximum
yield-cost spread on that structure. We rely primarily on our asset-liability
structure to control interest-rate risk. However, a sudden and substantial
increase in interest rates may adversely impact our 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.
LENDING ACTIVITIES
GENERAL. Net loans receivable at September 30, 2004 were $246.4
million, an increase of $4.1 million or 1.71% from the $242.3 million held at
September 30, 2003. The increase in loans consisted of consumer, commercial
business loans, and construction loans, offset by a decrease in real estate
loans secured by first mortgages on residential properties. Loans held for sale,
net, amounted to $5.5 million at September 30, 2004 compared to $6.6 million at
September 30, 2003, a decrease of $1.1 million. That decrease resulted primarily
from the sale of loans exceeding loan originations by Greater Atlantic Mortgage.
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The following table shows the bank's loan originations, purchases,
sales and principal repayments during the periods indicated:
Year Ended September 30,
----------------------------------------
2004 2003 2002
---------------------------------------------------------------------------------------------------------
(In Thousands)
Total loans at beginning of period (1) $257,247 $273,646 $191,431
Originations of loans for investment:
Single-family residential 16,202 58,245 91,333
Multifamily 145 1,465 -
Commercial real estate 11,265 14,819 3,715
Construction 17,405 8,489 15,021
Land loans 11,543 11,108 7,042
Second trust - - 652
Commercial business 38,345 31,790 29,799
Consumer 50,937 49,975 51,893
---------------------------------------------------------------------------------------------------------
Total originations and purchases for investment 145,842 175,891 199,455
Loans originated for resale by Greater Atlantic Bank - - 1,135
Loans originated for resale by Greater Atlantic Mortgage 402,988 722,121 424,280
---------------------------------------------------------------------------------------------------------
Total originations 548,830 898,012 624,870
Repayments (139,465) (184,386) (117,644)
Sale of loans originated for resale by Greater Atlantic Bank - - (1,241)
Sale of loans originated for resale by Greater Atlantic Mortgage (404,013) (730,025) (423,770)
---------------------------------------------------------------------------------------------------------
Net activity in loans 5,352 (16,399) 82,215
---------------------------------------------------------------------------------------------------------
Total loans at end of period (1) $262,599 $257,247 $273,646
=========================================================================================================
(1) Includes loans held for sale of $5.5 million and $6.6 million at September 30, 2004 and 2003, respectively.
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LOAN PORTFOLIO. The following table sets forth the composition of the bank's loan portfolio in dollar
amounts and as a percentage of the portfolio at the dates indicated.
At September 30,
----------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
----------------- ----------------- ----------------- --------------- -----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
- ------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Mortgage loans:
Single-family (1) $ 74,620 29.02% $ 95,818 38.20% $122,143 47.11% $ 84,570 47.84% $ 78,736 55.70%
Multi-family 1,074 0.42 1,445 0.58 536 0.21 634 0.36 1,053 0.74
Construction 16,696 6.49 11,996 4.78 18,993 7.32 19,110 10.81 14,537 10.28
Commercial real estate 23,023 8.95 20,533 8.19 18,932 7.30 17,977 10.17 10,765 7.62
Land 20,668 8.04 17,258 6.88 9,947 3.84 5,431 3.07 3,158 2.23
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total mortgage loans 136,081 52.92 147,050 58.63 170,551 65.78 127,722 72.25 108,249 76.57
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Commercial business and consumer loans:
Commercial business 47,654 18.53 39,043 15.57 28,880 11.14 11,675 6.61 11,221 7.94
Consumer:
Home equity 72,814 28.32 63,888 25.47 58,531 22.58 35,353 20.00 20,116 14.23
Automobile 271 0.11 428 0.17 771 0.30 1,269 0.72 477 0.34
Other 315 0.12 409 0.16 533 0.20 750 0.42 1,294 0.92
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total commercial business
and consumer loans 121,054 47.08 103,768 41.37 88,715 34.22 49,047 27.75 33,108 23.43
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans 257,135 100.00% 250,818 100.00% 259,266 100.00% 176,769 100.00% 141,357 100.00%
====== ====== ====== ====== ======
Less:
Allowance for loan losses (1,600) (1,550) (1,699) (810) (765)
Loans in process (10,453) (8,394) (11,103) (11,756) (7,953)
Unearned premium 1,305 1,379 1,617 400 59
-------- -------- -------- -------- --------
Loans receivable, net $246,387 $242,253 $248,081 $164,603 $132,698
======== ======== ======== ======== ========
(1) Includes loans secured by second trusts on single-family residential property.
LOAN MATURITY. The following table shows the remaining contractual
maturity of the bank's total loans at September 30, 2004. Loans that have
adjustable rates are shown as amortizing when the interest rates are next
subject to change. The table does not include the effect of future principal
prepayments.
At September 30, 2004
---------------------------------------------------------------
Multi- Commercial
One- to Family and Business
Four- Commercial and Total
Family Real Estate Consumer Loans
---------------------------------------------------------------------------------------------------------
(In Thousands)
Amounts due in:
One year or less $ 30,342 $ 16,835 $ 97,613 $144,790
After one year:
More than one year to three years 22,206 1,433 836 24,475
More than three years to five years 4,897 4,194 4,812 13,903
More than five years to 15 years 18,360 9,732 6,553 34,645
More than 15 years 17,460 168 11,241 28,869
---------------------------------------------------------------------------------------------------------
Total amount due $ 93,265 $ 32,362 $ 121,055 $246,682
=========================================================================================================
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The following table sets forth, at September 30, 2004, the dollar
amount of loans contractually due after September 30, 2005, identifying whether
such loans have fixed interest rates or adjustable interest rates. At September
30, 2004, the bank had $23.5 million of construction, acquisition and
development, land and commercial business loans that were contractually due
after September 30, 2005.
Due After September 30, 2005
-----------------------------------------------
Fixed Adjustable Total
------------------------------------------------------------------------------------------------------------
(In Thousands)
Real estate loans:
One- to four-family $36,166 $26,758 $62,924
Multi-family and commercial 10,728 4,799 15,527
------------------------------------------------------------------------------------------------------------
Total real estate loans 46,894 31,557 78,451
Commercial business and consumer loans 6,771 16,670 23,441
------------------------------------------------------------------------------------------------------------
Total loans $53,665 $48,227 $101,892
============================================================================================================
ONE- TO FOUR-FAMILY MORTGAGE LENDING. The bank currently offers both
fixed-rate and adjustable-rate mortgage ("ARM") loans with maturities of up to
30 years secured by single-family residences, which term includes real property
containing from one to four residences. At September 30, 2004, the bank's one-
to four-family mortgage loans totaled $74.6 million, or 29.02% of total loans.
Of the one- to four-family mortgage loans outstanding at that date, 48.18% were
fixed-rate loans and 51.82% were ARM loans.
CONSTRUCTION AND DEVELOPMENT LENDING. The bank originates construction
and development loans primarily to finance the construction of one- to
four-family, owner-occupied residential real estate properties located in the
bank's primary market area. The bank also originates land loans to local
contractors and developers for the purpose of making improvements thereon,
including small residential subdivisions in the bank's primary market area or
for the purpose of holding or developing land for sale. At September 30, 2004,
construction and development loans (including land loans) totaled $37.4 million,
or 14.53%, of the bank's total loans, of which, land loans totaled $20.7 million
or 8.04% of total loans. Such loans are secured by a lien on the property, are
limited to 75% of the lower of the acquisition price or the appraised value of
the land and have a term of up to three years with a floating interest rate
generally based on the prime rate as reported in THE WALL STREET Journal. All
the bank's land loans are secured by property in its primary market area.
MULTI-FAMILY AND COMMERCIAL REAL ESTATE LENDING. The bank originates
multi-family and commercial real estate loans that are generally secured by five
or more unit apartment buildings and properties used for business purposes such
as small office buildings or retail facilities located primarily in the bank's
market area. The bank's multi-family and commercial real estate underwriting
policies provide that such real estate loans may be made in amounts of up to
75-80% of the appraised value of the property. The bank's multi-family and
commercial real estate loan portfolio at September 30, 2004 was $24.1 million,
or 9.37% of total loans. The largest multi-family or commercial real estate loan
in the bank's portfolio at September 30, 2004, was a $4.5 million commercial
real estate loan secured by real property in South Carolina.
COMMERCIAL BUSINESS LENDING. At September 30, 2004, the bank had $47.7
million in commercial business loans which amounted to 18.53% of total loans.
The bank makes commercial business loans primarily in its market area to a
variety of professionals, sole proprietorships and small businesses. The bank
offers a variety of commercial lending products, including term loans for fixed
assets and working capital, revolving lines of credit and letters of credit.
Term loans are generally offered with initial fixed rates of interest for the
first five years and with terms of up to 7 years. Business lines of credit have
adjustable rates of interest and are payable on demand, subject to annual review
and renewal. Business loans with variable rates of interest adjust on a monthly
basis and generally indexed to the prime rate as published in THE WALL STREET
JOURNAL.
CONSUMER LENDING. Consumer loans at September 30, 2004 amounted to
$73.4 million or 28.55% of the bank's total loans, and consisted primarily of
home equity loans, home equity lines of credit, and, to a significantly lesser
extent, secured and unsecured personal loans and loans on new and used
automobiles. These loans are generally made to residents of the bank's primary
market area and generally are secured by real estate, deposit accounts and
automobiles. These loans are typically shorter term and generally have higher
interest rates than one- to four-family mortgage loans.
The bank offers home equity loans and home equity lines of credit
(collectively, "home equity loans"). Most of the bank's home equity loans are
secured by second mortgages on one- to four-family residences located in the
bank's primary market area. At September 30, 2004, these loans totaled $72.8
million or 28.32% of the bank's total loans and 60.15% of commercial business
and consumer loans. Other types of consumer loans, primarily consisting of
secured and unsecured
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personal loans and new and used automobile loans, totaled $586,000, or 0.23% of
the bank's total loans and 0.48% of commercial business and consumer loans at
September 30, 2004.
MORTGAGE BANKING ACTIVITIES
GENERAL.
The bank's mortgage banking activities primarily consist of mortgage
loans secured by single-family properties. Mortgage banking involves the
origination and sale of mortgage loans for the purpose of generating gains on
sale of loans and fee income on the origination of loans, in addition to loan
interest income. Given current pricing in the mortgage markets, the bank
generally sells the majority of its loans on a servicing-released basis.
Generally, the level of loan sale activity and, therefore, its contribution to
the bank's profitability depends on maintaining a sufficient volume of loan
originations. Changes in the level of interest rates and the local economy
affect the number of loans originated by the bank and, thus, the amount of loan
sales, net interest income and loan fees earned. Greater Atlantic Mortgage
originated $403.0 million, $722.1 million and $424.7 million of loans for sale
during fiscal 2004, 2003 and 2002, respectively and sold $404.0 million, $730.0
million and $424.9 million of loans during fiscal 2004, 2003 and 2002,
respectively.
The bank requires evidence of marketable title, lien position,
loan-to-value, a title insurance policy and appraisals on all properties. The
bank also requires evidence of fire and casualty insurance on the value of
improvements. As stipulated by federal regulations, the bank requires flood
insurance to protect the property securing its interest if such property is
located in a designated flood area.
LOAN COMMITMENTS AND RATE LOCKS
Greater Atlantic Mortgage issues commitments for residential mortgage
loans conditioned upon the occurrence of certain events. Such commitments are
made with specified terms and conditions. Interest rate locks are generally
offered to prospective borrowers for up to a 60-day period. The borrower may
lock in the rate at any time from application until the time they wish to close
the loan. The outstanding commitments of Greater Atlantic Mortgage to originate
loans to be held for sale were $24.5 million at September 30, 2004. When Greater
Atlantic Mortgage issues a commitment to a borrower, there is a risk that a rise
in interest rates will reduce the value of the mortgage before it can be closed
and sold. To control the interest rate risk caused by mortgage banking
activities, the bank uses forward loan sale agreements.
DERIVATIVE ACTIVITIES
Mortgage banking involves the risk that a rise in interest rates will
reduce the value of a mortgage before it can be sold. This type of risk occurs
when a mortgage company commits to an interest rate lock on a borrower's
application during the origination process and interest rates increase before
the loan can be sold. Such interest rate risk also arises when mortgages are
placed in the warehouse (i.e., held for sale) without locking in an interest
rate for their eventual sale in the secondary market. The bank seeks to control
or limit the interest rate risk caused by mortgage banking activities. The
method used to help reduce interest rate risk from its mortgage banking
activities are forward loan sale agreements. At various times, depending on loan
origination volume and management's assessment of projected loan fallout, the
Bank may reduce or increase its derivative positions.
Under forward loan sale agreements the mortgage company is obligated to
sell certain dollar amounts of mortgage loans that meet specific underwriting
and legal criteria before the expiration of the commitment period. These terms
include the maturity of the individual loans, the yield to the purchaser and the
maximum principal amount of the individual loans. Forward loan sales protect
loan sale prices from interest rate fluctuations that may occur from the time
the interest rate of the loan if fixed to the time of its sale. The amount of
the delivery date of the forward loan sale commitments are based upon
management's estimates as to the volume of loans that will close and length of
the origination commitment. Forward loan sales do not provide complete
interest-rate protection, however, because of the possibility of fallout (i.e.,
the failure to close) during the origination process. Differences between the
estimated volume and timing of loan originations and the actual volume and
timing of loan originations can expose a mortgage company to significant losses.
If a mortgage company is not able to deliver the mortgage loans during the
appropriate delivery period, the mortgage company may be required to pay a
non-delivery fee or repurchase the delivery commitments at current market
prices. Similarly, if a mortgage company has too many loans to deliver, the
mortgage company must execute additional forward loan sale commitments at
current market prices, which may be unfavorable to the mortgage company.
Generally, Greater Atlantic Mortgage seeks to maintain forward loan sale
agreements equal to the closed loans held for sale plus those applications that
it has rate locked and/or committed to close, as adjusted by the projected
fallout. The ultimate accuracy of such projections will directly bear upon the
amount of interest rate risk incurred by the bank. For the year ended September
30, 2004, the mortgage company had a net loss of $23,000 attributable to the
underlying derivative financial instruments. At September 30, 2004, the mortgage
company had outstanding commitments to sell loans of $29.1 million and
commitments to originate loans of $24.5 million.
The activities described above are managed continually as markets
change; however, there can be no assurance that the bank will be successful in
its effort to eliminate the risk of interest rate fluctuations between the time
origination
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commitments are issued and the ultimate sale of the loan. The bank's interest
rate risk management activities are conducted in accordance with a written
policy that has been approved by the bank's board of directors, which covers
objectives, functions, instruments to be used, monitoring and internal controls.
The bank does not enter into option positions for trading or speculative
purposes and does not enter into option contracts that could generate a
financial obligation beyond the initial premium paid. The bank does not apply
hedge accounting to its derivative financial instruments; therefore, all changes
in fair value are recorded in earnings.
ASSET QUALITY
DELINQUENT LOANS AND CLASSIFIED ASSETS. Reports listing all delinquent
accounts are generated and reviewed monthly by management and all loans or
lending relationships delinquent 30 days or more and all real estate owned
("REO") are reviewed monthly by the board of directors. The procedures taken by
the bank with respect to delinquencies vary depending on the nature of the loan,
the length and cause of delinquency and whether the borrower has previously been
delinquent.
Federal regulations and the bank's Asset Classification Policy require
that the bank utilize an internal asset classification system as a means of
reporting problem and potential problem assets. The bank has incorporated the
internal asset classifications of the Office of Thrift Supervision (the "OTS")
as a part of its credit monitoring system. The bank currently classifies problem
and potential problem assets as "Substandard," "Doubtful" or "Loss" assets. An
asset is considered "Substandard" if it is inadequately protected by the current
net worth and paying capacity of the obligor or of the collateral pledged, if
any. "Substandard" assets include those characterized by the "distinct
possibility" that the insured institution will sustain "some loss" if the
deficiencies are not corrected. Assets classified as "Doubtful" have all of the
weaknesses inherent in those classified "Substandard" with the added
characteristic that the weaknesses present make "collection or liquidation in
full," on the basis of currently existing facts, conditions, and values, "highly
questionable and improbable." Assets classified as "Loss" are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted. Assets
which do not currently expose the insured institution to sufficient risk to
warrant classification in one of the aforementioned categories but possess
weaknesses are required to be designated "Special Mention."
The bank's management reviews and classifies the bank's assets on a
regular basis and the Board of Directors reviews management's reports on a
quarterly basis. The bank classifies assets in accordance with the management
guidelines described above. At September 30, 2004, the bank had $1.1 million of
loans designated as Substandard which consisted of one commercial business loan,
five residential loans, one commercial real estate loan, one consumer loan,
three home equity loans, and one land loan. At that same date, the bank had
$66,000 of assets classified as Doubtful, consisting of one commercial business
loan. At September 30, 2004, the bank had no loans classified as Loss. As of
September 30, 2004, the bank also had one residential loan, one construction
loan, one home equity loan and two commercial business loans, totaling $2.4
million, designated as Special Mention.
The following table sets forth delinquencies in the bank's loans as of
the dates indicated.
At September 30,
----------------------------------------------------------------------------------------------------------
2004 2003 2002
---------------------------------- ----------------------------------- -----------------------------------
60 - 89 Days 90 Days or More 60 - 89 Days 90 Days or More 60 - 89 Days 90 Days or More
---------------- ---------------- ----------------- ------------------ ---------------- -----------------
Number Principal Number Principal Number Principal Number Principal Number Principal Number Principal
of Balance of Balance of Balance of Balance of Balance of Balance
Loans of Loans Loans of Loans Loans of Loans Loans of Loans Loans of Loans Loans of Loans
---------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Mortgage loans:
Single-family - $ - 6 $ 563 2 $ 368 5 $ 637 5 $ 546 6 $ 388
Home equity 1 275 1 96 1 170 - - - -
Construction & Land 1 118 1 31 1 479 1 34 - -
Commercial real
estate - - 1 29 - - 1 31 - - 4 364
Commercial business 1 28 1 228 - - 2 744 2 1,959 1 45
Consumer - - 1 6 1 9 - - - - - -
---------------------------------------------------------------------------------------------------------------------------------
Total 3 $421 11 $ 953 5 $1,026 9 $1,446 7 $2,505 11 $ 797
=================================================================================================================================
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NON-PERFORMING ASSETS AND IMPAIRED LOANS. The following table sets
forth information regarding non-accrual loans and REO. The bank's policy is to
cease accruing interest on mortgage loans 90 days or more past due, cease
accruing interest on consumer loans 60 days or more past due (unless the loan
principal and interest are determined by management to be fully secured and in
the process of collection), and to charge off any accrued and unpaid interest.
At September 30,
-------------------------------------------
2004 2003 2002 2001 2000
----------------------------------------------------------------------------------------------------------------
(Dollars in Thousands) Loans accounted for on a non-accrual basis Mortgage
loans:
Single-family $ 563 $ 637 $ 388 $ 340 $ 144
Home equity 96 - - - -
Commercial real estate 29 31 21 36 50
Construction and Land 31 34 - 122
Commercial business 228 716 45 - -
Consumer 6 - - 8
-----------------------------------------------------------------------------------------------------------------
Total non-accrual loans 953 1,418 454 506 194
Accruing loans which are contractually past due 90 days or more - 28 343 290 -
-----------------------------------------------------------------------------------------------------------------
Total of non-accrual and 90 days past due loans 953 1,446 797 796 194
Foreclosed real estate, net - - - - 172
-----------------------------------------------------------------------------------------------------------------
Total non-performing assets $ 953 $1,446 $ 797 $ 796 $ 366
=================================================================================================================
Non-accrual loans as a percentage of loans 0.39% 0.59% 0.18% 0.31% 0.15%
held for investment, net
=================================================================================================================
Non-accrual and 90 days or more past due loans 0.39% 0.60% 0.32% 0.48% 0.15%
as a percentage of loans held for investment, net
=================================================================================================================
Non-accrual and 90 days or more past due loans 0.22% 0.29% 0.16% 0.21% 0.07%
as a percentage of total assets
=================================================================================================================
Non-performing assets as a percentage of total assets 0.22% 0.29% 0.16% 0.21% 0.12%
=================================================================================================================
During the year ended September 30, 2004, the amount of additional
interest income that would have been recognized on non-accrual loans if such
loans had continued to perform in accordance with their contractual terms was
$108,000.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for
loan losses based on management's evaluation of the risks inherent in its loan
portfolio and the general economy. The allowance for loan losses is maintained
at an amount management considers adequate to cover estimated losses in loans
receivable which are deemed probable and estimable based on information
currently known to management. The allowance is based upon a number of factors,
including current economic conditions, actual loss experience and industry
trends. In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the bank's allowance for loan losses.
Such agencies may require the bank to make additional provisions for estimated
loan losses based upon their judgments about information available to them at
the time of their examination. There can be no assurance that the bank will not
sustain credit losses in future periods, which could be substantial in relation
to the size of the allowance. As of September 30, 2004, the bank's allowance for
loan losses amounted to $1.6 million or 0.62% of total loans. While the
allowance for loan losses to total non-performing loans at September 30, 2004 is
167.89%, the allowance as a percentage of total loans remained the same when
compared to September 30, 2003. A $209,000 provision for loan losses was
recorded during the year ended September 30, 2004, compared to a provision of
$855,000 during the year ended September 30, 2003. The decrease in
non-performing assets from the year ago period was due to the non-performing
status of one of the bank's commercial business loans. The decrease in provision
was due primarily to a reduction in the required provision for that loan since
the bank is in the process of liquidating that loan from the cash flow of the
collateral securing the loan.
9
10
The following table sets forth activity in the bank's allowance for
loan losses for the periods indicated. Where specific loan loss reserves have
been established, any differences between the loss allowances and the amount of
loss realized has been charged or credited to current operations.
Year Ended September 30,
-----------------------------------------------------------
2004 2003 2002 2001 2000
----------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Balance at beginning of period $ 1,550 $ 1,699 $ 810 $ 765 $ 590
Provisions 209 855 968 55 13
Dominion reserves - - - 100 225
Charge-offs:
Mortgage loans:
Single-family 20 162 64 66 61
Commercial real estate - 22 - - -
Commercial business 177 828 7 53 -
Consumer 3 8 27 12 2
----------------------------------------------------------------------------------------------------------------------------
Total charge-offs 200 1,020 98 131 63
Recoveries:
Mortgage loans:
Single-family 29 6 12 21 -
Commercial real estate - - - - -
Commercial business 10 4 - - -
Consumer 2 6 7 - -
----------------------------------------------------------------------------------------------------------------------------
Total recoveries 41 16 19 21 -
Net charge-offs 159 1,005 79 110 63
----------------------------------------------------------------------------------------------------------------------------
Balance at end of period $ 1,600 $1,550 $ 1,699 $ 810 $ 765
============================================================================================================================
Ratio of net charge-offs during the period 0.06% 0.36% 0.03% 0.07% 0.06%
to average loans outstanding during the period
============================================================================================================================
Allowance for loan losses to total non-performing
loans at end of period 167.89% 109.31% 374.23% 160.08% 394.33%
============================================================================================================================
Allowance for loan losses to total loans 0.62% 0.62% 0.66% 0.46% 0.54%
============================================================================================================================
10
11
The following table sets forth the bank's allowance for loan losses in
each of the categories listed and the percentage of such amounts to the total
allowance and the percentage of such amounts to total loans. Management believes
that the allowance can be allocated by category only on an approximate basis.
The allocation of the allowance to each category is not necessarily indicative
of future losses and does not restrict the use of the allowance to absorb losses
in any other categories.
At September 30,
-----------------------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
--------------------- -------------------- -------------------- ------------------- -----------------
Percent of Percent of Percent of Percent of Percent of
Loans in Loans in Loans in Loans in Loans in
Each Each Each Each Each
Category Category Category Category Category
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Mortgage loans:
Single-family $ 110 29.02% $ 141 38.20% $ 148 47.11% $ 95 47.84% $ 73 55.70%
Multi-family 8 0.42 11 0.58 4 0.21 5 0.36 8 0.74
Construction 78 6.49 80 4.78 80 7.32 74 10.81 54 10.28
Commercial real estate 233 8.95 208 8.19 219 7.30 195 10.17 195 7.62
Land 175 8.04 132 6.88 72 3.84 53 3.07 39 2.23
- ------------------------------------------------------------------------------------------------------------------------------------
Total mortgage loans 604 52.92 572 58.63 523 65.78 422 72.25 369 76.57
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial and Consumer:
Commercial 515 18.53 770 15.57 1,005 11.14 263 6.61 168 7.94
Consumer:
Home equity 213 28.32 159 25.47 151 22.58 88 20.00 50 14.23
Automobile 9 0.23 13 0.33 20 0.50 31 1.14 27 1.26
- ------------------------------------------------------------------------------------------------------------------------------------
Total commercial and
consumer 737 47.08 942 41.37 1,176 34.22 382 27.75 245 23.43
- ------------------------------------------------------------------------------------------------------------------------------------
Unallocated 259 N/A 36 N/A - N/A 6 N/A 151 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Total $1,600 100.00% $1,550 100.00% $1,699 100.00% $810 100.00% $765 100.00%
====================================================================================================================================
INVESTMENT ACTIVITIES
The investment policy of the bank, as approved by the board of
directors, requires management to maintain adequate liquidity and generate a
favorable return on investments, to complement the bank's lending activities
without incurring undue interest rate and credit risk. The bank primarily
utilizes investments in securities for liquidity management, as a source of
income and as a method of deploying excess funds not utilized for investment in
loans. Securities bought and held principally for sale in the near term,
generally within 90 days, are classified as trading.
At September 30, 2004, the bank had invested $92.7 million in
mortgage-backed securities, or 21.35% of total assets, of which $92.2 million
were classified as available-for-sale and $482,000 were classified as
held-to-maturity. Investments in mortgage-backed securities involve a risk that
actual prepayments will be greater than estimated prepayments over the life of
the security, which may require adjustments to the amortization of any premium
or accretion of any discount relating to such instruments thereby changing the
net yield on such securities. There is also reinvestment risk associated with
the cash flows from such securities or in the event such securities are redeemed
by the issuer. In addition, the market value of such securities may be adversely
affected by changes in interest rates.
11
12
The following table sets forth information regarding the amortized cost
and estimated market value of the bank's investment portfolio at the dates
indicated.
At September 30,
-------------------------------------------------------------------------------
2004 2003 2002
-------------------------- ------------------------- --------------------------
Estimated Estimated Estimated
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
---------------------------------------------------------------------------------------------------------------
(In Thousands)
Available-for-sale:
Corporate debt securities $ 3,923 $ 3,928 $ 2,892 $ 2,918 $ 1,902 $ 1,890
CMOs 9,812 9,823 8,805 8,792 12,582 12,578
U.S. Government SBA's 36,919 36,721 113,431 113,862 127,554 127,702
FHLMC MBS's 14,146 14,085 11,477 11,442 17,350 17,338
FNMA MBS's 61,195 60,302 70,684 70,355 25,268 25,211
GNMA MBS's 17,946 17,853 4,032 4,039 6,923 6,954
---------------------------------------------------------------------------------------------------------------
Total available-for-sale 143,941 142,712 211,321 211,408 191,579 191,673
---------------------------------------------------------------------------------------------------------------
Held-to-maturity:
Corporate debt securities 1,003 1,065 1,012 1,094 1,020 933
U.S. Government SBA's 8,810 8,427 11,465 11,121 14,057 13,677
FHLMC MBS's 245 247 444 455 1,199 1,212
FNMA MBS's 237 235 455 468 1,410 1,437
---------------------------------------------------------------------------------------------------------------
Total held-to-maturity 10,295 9,974 13,376 13,138 17,686 17,259
---------------------------------------------------------------------------------------------------------------
Total investment
securities $ 154,236 $152,686 $224,697 $224,546 $209,265 $208,932
===============================================================================================================
Investment securities with:
Fixed rates $ 1,003 $ 1,065 $ 1,012 $ 1,122 $ 3,206 $ 3,180
Adjustable rates 59,464 58,899 136,593 136,665 153,909 153,600
Mortgage-backed securities with:
Fixed rates 551 541 1,169 1,169 2,209 2,212
Adjustable rates 93,218 92,181 85,923 85,590 49,941 49,940
---------------------------------------------------------------------------------------------------------------
Total $154,236 $152,686 $224,697 $224,546 $209,265 $208,932
===============================================================================================================
As of September 30, 2004, the bank held investments in available for
sale with unrealized holding losses totaling $1.4 million, consisting of the
following:
Less than 12 months 12 months or more Total
-------------------------- -------------------------- ------------------------
Fair Unrealized Fair Unrealized Fair Unrealized
Description of Securities Value Losses Value Losses Value Losses
---------------------------------------------------------------------------------------------------------------
(In Thousands)
Corporate debt securities $ 2,963 $ 37 $ - $ - $ 2,963 $ 37
CMOs 2,783 6 - - 2,783 6
U.S. Government securities
SBA 23,775 282 - - 23,775 282
GNMA 17,853 93 - - 17,853 93
U.S. Government agency securities:
FHLMC MBS's 5,959 71 - - 5,959 71
FNMA MBS's 58,808 887 487 10 59,295 897
---------------------------------------------------------------------------------------------------------------
Total $ 112,141 $ 1,376 $ 487 $ 10 $ 112,628 $ 1,386
===============================================================================================================
12
13
The table below sets forth certain information regarding the carrying
value, weighted average yields and contractual maturities of the bank's
investment securities available-for-sale and mortgage-backed securities
available-for-sale.
At September 30, 2004
-------------------------------------------------------------------------------------------------------
More than One More than Five
One Year or Less Year to Five Years Years to Ten Years More than Ten Years Total
------------------ -------------------- -------------------- --------------------- ------------------
Weighted Weighted Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield Value Yield
-------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Investment securities available-for-sale:
Adjustable-rate securities:
CMO's $ - - % $ - - % $ - - % $ 9,823 2.46% $ 9,823 2.46%
Corporate debt - - - - 2,963 4.00 965 1.71 3,928 3.44
U.S. Government SBA's - - 398 5.13 - - 36,323 4.49 36,721 4.50
-------------------------------------------------------------------------------------------------------------------------------
Total - - 398 5.13 2,963 4.00 47,111 4.01 50,472 4.02
-------------------------------------------------------------------------------------------------------------------------------
MBS's available-for-sale:
Adjustable-rate securities:
FHLMC - - - - - - 14,085 3.35 14,085 3.35
FNMA 63 3.41 - - - - 59,752 3.50 59,815 3.51
GNMA - - 70 4.63 - - 17,783 4.04 17,853 4.05
-------------------------------------------------------------------------------------------------------------------------------
Total 63 3.41 70 4.63 - - 91,620 3.59 91,753 3.59
-------------------------------------------------------------------------------------------------------------------------------
MBS'S fixed-rate:
FNMA - - - - 487 9.00 - - 487 9.00
-------------------------------------------------------------------------------------------------------------------------------
Total - - - - 487 9.00 - - 487 9.00
-------------------------------------------------------------------------------------------------------------------------------
Total mortgage-backed
securities available-
for-sale 63 3.41 70 4.63 487 9.00 91,620 3.59 92,240 3.62
-------------------------------------------------------------------------------------------------------------------------------
Total investment
portfolio $63 3.41% $468 5.05% $3,450 4.71% $138,731 3.73% $142,712 3.76%
===============================================================================================================================
The table below sets forth certain information regarding the carrying
value, weighted average yields and contractual maturities of the bank's
investment securities held-to-maturity and mortgage-backed securities held to
maturity.
At September 30, 2004
-------------------------------------------------------------------------------------------------------
More than One More than Five
One Year or Less Year to Five Years Years to Ten Years More than Ten Years Total
------------------ -------------------- -------------------- --------------------- ------------------
Weighted Weighted Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield Value Yield
- -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Investment securities held-to-maturity:
Adjustable-rate securities:
U.S. Government SBA's $ - -% $ 596 5.10% $ - -% $8,214 3.76% $ 8,810 3.85%
Fixed-rate:
Corporate debt - - 1,003 7.15 - - - - 1,003 7.15
---------------------------------------------------------------------------------------------------------------------------------
Total investment securities - - 1,599 6.45 - - 8,214 3.76 9,813 4.19
held-to-maturity
---------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities
held-to-maturity:
Adjustable-rate securities:
FHLMC - - - - - - 245 5.13 245 5.13
FNMA - - - - - - 183 5.24 183 5.24
-------------------------------------------------------------------------------------------------------------------------------
Total - - - - - - 428 5.17 428 5.17
-------------------------------------------------------------------------------------------------------------------------------
Fixed-rate:
FNMA - - - - - - 54 6.50 54 6.50
---------------------------------------------------------------------------------------------------------------------------------
Total - - - - - - 54 6.50 54 6.50
---------------------------------------------------------------------------------------------------------------------------------
Total mortgage-backed
securities held-to-
maturity - - - - - - 482 5.32 482 5.32
---------------------------------------------------------------------------------------------------------------------------------
Total held-to-maturity
investments $ - -% $1,599 6.45% $ - -% $8,696 3.85% $10,295 4.24%
=================================================================================================================================
13
14
SOURCES OF FUNDS
GENERAL. Deposits, loan repayments and prepayments, cash flows
generated from operations, Federal Home Loan Bank ("FHLB") advances and reverse
repurchase agreements are the primary sources of the bank's funds for use in
lending, investing and for other general purposes.
DEPOSITS. Deposits are attracted from within the bank's market area by
offering a broad selection of deposit instruments, including checking, savings,
money market and time deposits. Deposit account terms vary, differentiated by
the minimum balance required, the time periods that the funds must remain on
deposit and the interest rate, among other factors. In determining the terms of
its deposit accounts, the bank considers current interest rates, profitability
to the bank, interest rate risk characteristics, competition and its customer
preferences and concerns. The bank may pay above-market interest rates to
attract or retain deposits when less expensive sources of funds are not
available. The bank reviews its deposit composition and pricing weekly.
At September 30, 2004, $105.1 million, or 57.72% of the bank's
certificate of deposit accounts were to mature within one year.
The following table sets forth the distribution and the rates paid on
each category of the bank's deposits.
At September 30,
------------------------------------------------------------------------------
2004 2003
-------------------------------------- ---------------------------------------
Percent of Percent of
Total Rate Total Rate
Balance Deposits Paid Balance Deposits Paid
- --------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Savings accounts $ 14,266 4.94% 0.98% $ 11,893 3.99% 0.98%
Now and money market accounts 74,185 25.67 1.16 73,779 24.77 1.06
Certificates of deposit 182,056 63.01 2.60 197,961 66.46 2.46
Noninterest-bearing deposits:
Demand deposits 18,449 6.38 - 14,243 4.78 -
- --------------------------------------------------------------------------------------------------------------------
Total deposits $288,956 100.00% 1.98% $297,876 100.00% 1.94%
====================================================================================================================
The following table presents information concerning the amounts, the
rates and the periods to maturity of the bank's certificate accounts
outstanding.
At September 30, 2004
-----------------------------
Amount Rate
------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Balance maturing:
Three months or less $ 47,937 1.86%
Three months to one year 57,153 2.23
One year to three years 62,535 3.24
Over three years 14,431 3.72
------------------------------------------------------------------------------------------------
Total $182,056 2.60%
================================================================================================
14
15
At September 30, 2004, the bank had $57.0 million in certificate
accounts in amounts of $100,000 or more maturing as follows:
Maturity Period Weighed
Average
Amount Rate
--------------------------------------------------------------------------------------------
Three months or less $ 26,662 1.53%
Over 3 through 6 months 10,427 1.88
Over 6 through 12 months 5,971 2.45
Over 12 months 13,979 3.38
--------------------------------------------------------------------------------------------
Total $57,039 2.14%
============================================================================================
The following table sets forth the deposit activity of the bank for the
periods indicated.
At or For the Year Ended September 30,
-------------------------------------------
2004 2003 2002
------------------------------------------------------------------------------------------------
(In Thousands)
Balance at beginning of period $297,876 $281,877 $229,982
Net deposits (withdrawals) before interest credited (13,627) 11,118 44,871
Interest credited 4,707 4,881 7,024
------------------------------------------------------------------------------------------------
Net increase (decrease) in deposits (8,920) 15,999 51,895
------------------------------------------------------------------------------------------------
Ending balance $288,956 $297,876 $281,877
================================================================================================
BORROWINGS. At September 30, 2004, borrowings consisted of FHLB
advances and reverse repurchase agreements totaling $116.1 million. FHLB
advances amounted to $51.2 million at September 30, 2004, a decrease from the
$86.8 million outstanding at September 30, 2003, and other borrowings (reverse
repurchase agreements) amounted to $64.9 million, a decrease of $12.9 million
compared to $77.8 million at September 30, 2003. During the fiscal year ended
September 30, 2004, all reverse repurchase agreements represented agreements to
repurchase the same securities.
The following table sets forth information regarding the bank's
borrowed funds:
At or For the Year Ended September 30,
------------------------------------------
2004 2003 2002
-----------------------------------------------------------------------------------------------------------------
FHLB Advances:
Average balance outstanding $ 116,155 $ 102,868 $99,269
Maximum amount outstanding at any month-end during the period 142,250 124,150 123,500
Balance outstanding at end of period 51,200 86,800 96,500
Weighted average interest rate during the period 2.39% 2.58% 3.10%
Weighted average interest rate at end of period 3.93% 2.72% 3.12%
Reverse repurchase agreements:
Average balance outstanding 89,734 86,225 68,577
Maximum amount outstanding at any month-end during the period 93,730 89,850 95,577
Balance outstanding at end of period 64,865 77,835 91,011
Weighted average interest rate during the period 4.26% 4.31% 3.43%
Weighted average interest rate at end of period 1.98% 1.25% 1.97%
15
16
SUBSIDIARY ACTIVITIES
We have two subsidiaries; the bank and Greater Atlantic Capital Trust
I. We established the Trust in January 2002 to issue certain convertible
preferred securities which we completed in March 2002. See discussion of the
Trust in Note 20 to the financial statements. The bank has one wholly-owned
subsidiary, Greater Atlantic Mortgage Corporation, and, in furtherance of our
community banking focus, we have expanded the operations of Greater Atlantic
Mortgage in order to diversify our revenue stream and support our growth. The
strategy of Greater Atlantic Mortgage is to originate mortgage loans for sale in
the secondary market and to develop profitable niche mortgage products, such as
Federal Housing Administration ("FHA") streamline refinancings. Currently, the
operations of Greater Atlantic Mortgage employ approximately 61 persons in
Tysons Corner, Virginia and Rockville, Maryland. For the fiscal year ended
September 30, 2004, Greater Atlantic Mortgage originated $403.0 million of
single-family residential loans, respectively, the majority of which consisted
of loans insured by the FHA or partially guaranteed by the Veterans
Administration ("VA") which were pre-sold in the secondary market with servicing
released.
PERSONNEL
As of September 30, 2004, we had 140 full-time employees and 15
part-time employees. The employees are not represented by a collective
bargaining unit and the company considers its relationship with its employees to
be good.
16
17
REGULATION AND SUPERVISION
GENERAL
As a savings and loan holding company, the Company is required by
federal law to report to, and otherwise comply with the rules and regulations
of, the Office of Thrift Supervision. The Bank is subject to extensive
regulation, examination and supervision by the Office of Thrift Supervision, as
its primary federal regulator, and the Federal Deposit Insurance Corporation, as
the deposit insurer. The Bank is a member of the Federal Home Loan Bank System
and, with respect to deposit insurance, of the Savings Association Insurance
Fund managed by the Federal Deposit Insurance Corporation. The Bank must file
reports with the Office of Thrift Supervision and the Federal Deposit Insurance
Corporation concerning its activities and financial condition in addition to
obtaining regulatory approvals prior to entering into certain transactions such
as mergers with, or acquisitions of, other savings institutions. The Office of
Thrift Supervision and/or the Federal Deposit Insurance Corporation conduct
periodic examinations to test the Bank's safety and soundness and compliance
with various regulatory requirements. This regulation and supervision
establishes a comprehensive framework of activities in which an institution can
engage and is intended primarily for the protection of the insurance fund and
depositors. The regulatory structure also gives the regulatory authorities
extensive discretion in connection with their supervisory and enforcement
activities and examination policies, including policies with respect to the
classification of assets and the establishment of adequate loan loss reserves
for regulatory purposes. Any change in such regulatory requirements and
policies, whether by the Office of Thrift Supervision, the Federal Deposit
Insurance Corporation or Congress, could have a material adverse impact on the
Company, the Bank and their operations. Certain regulatory requirements
applicable to the Bank and to the Company are referred to below or elsewhere
herein. The description of statutory provisions and regulations applicable to
savings institutions and their holding companies set forth below does not
purport to be a complete description of such statutes and regulations and their
effects on the Bank and the Company.
HOLDING COMPANY REGULATION
The Company is a nondiversified unitary savings and loan holding
company within the meaning of federal law. Under prior law, a unitary savings
and loan holding company, such as the Company, was not generally restricted as
to the types of business activities in which it may engage, provided that the
Bank continued to be a qualified thrift lender. See "FEDERAL SAVINGS INSTITUTION
REGULATION - QTL TEST." The Gramm-Leach-Bliley Act of 1999 provides that no
company may acquire control of a savings institution after May 4, 1999 unless it
engages only in the financial activities permitted for financial holding
companies under the law or for multiple savings and loan holding companies as
described below. Further, the Gramm-Leach-Bliley Act specifies that existing
savings and loan holding companies may only engage in such activities. The
Gramm-Leach-Bliley Act, however, grandfathered the unrestricted authority for
activities with respect to unitary savings and loan holding companies existing
prior to May 4, 1999, so long as the holding company's savings institution
subsidiary continues to comply with the QTL Test. The Company does not qualify
for the grandfathering. Upon any non-supervisory acquisition by the Company of
another savings institution or savings bank that meets the qualified thrift
lender test and is deemed to be a savings institution by the Office of Thrift
Supervision, the Company would become a multiple savings and loan holding
company (if the acquired institution is held as a separate subsidiary) and would
generally be limited to activities permissible for bank holding companies under
Section 4(c)(8) of the Bank Holding Company Act, subject to the prior approval
of the Office of Thrift Supervision, and certain activities authorized by Office
of Thrift Supervision regulation. However, the OTS has issued an interpretation
concluding that multiple savings and loan holding companies may also engage in
activities permitted for financial holding companies.
A savings and loan holding company is prohibited from, directly or
indirectly, acquiring more than 5% of the voting stock of another savings
institution or savings and loan holding company, without prior written approval
of the Office of Thrift Supervision and from acquiring or retaining control of a
depository institution that is not insured by the Federal Deposit Insurance
Corporation. In evaluating applications by holding companies to acquire savings
institutions, the Office of Thrift Supervision considers the financial and
managerial resources and future prospects of the Company and institution
involved, the effect of the acquisition on the risk to the deposit insurance
funds, the convenience and needs of the community and competitive factors.
The Office of Thrift Supervision may not approve any acquisition that
would result in a multiple savings and loan holding company controlling savings
institutions in more than one state, subject to two exceptions: (i) the approval
of interstate supervisory acquisitions by savings and loan holding companies and
(ii) the acquisition of a savings institution in another state if the laws of
the state of the target savings institution specifically permit such
acquisitions. The states vary in the extent to which they permit interstate
savings and loan holding company acquisitions.
17
18
Although savings and loan holding companies are not currently subject
to specific capital requirements or specific restrictions on the payment of
dividends or other capital distributions, federal regulations do prescribe such
restrictions on subsidiary savings institutions as described below. The Bank
must notify the Office of Thrift Supervision (30) days before declaring any
dividend to the Company. In addition, the financial impact of a holding company
on its subsidiary institution is a matter that is evaluated by the Office of
Thrift Supervision and the agency has authority to order cessation of activities
or divestiture of subsidiaries deemed to pose a threat to the safety and
soundness of the institution.
ACQUISITION OF THE COMPANY. Under the Federal Change in Bank Control
Act, a notice must be submitted to the Office of Thrift Supervision if any
person (including a company), or group acting in concert, seeks to acquire
"control" of a savings and loan holding company. Under certain circumstances, a
change of control may occur, and prior notice is required, upon the acquisition
of 10% or more of the Company's outstanding voting stock, unless the Office of
Thrift Supervision has found that the acquisition will not result in a change of
control of the Company. Under the Change in Bank Control Act, the Office of
Thrift Supervision has 60 days from the filing of a complete notice to act,
taking into consideration certain factors, including the financial and
managerial resources of the acquirer and the anti-trust effects of the
acquisition. Any company that acquires control would then be subject to
regulation as a savings and loan holding company.
FEDERAL SAVINGS INSTITUTION REGULATION
BUSINESS ACTIVITIES. The activities of federal savings banks are
governed by federal law and regulations. These laws and regulations delineate
the nature and extent of the activities in which federal savings banks may
engage. In particular, certain lending authority for federal savings banks,
E.G., commercial, non-residential real property loans and consumer loans, is
limited to a specified percentage of the institution's capital or assets.
CAPITAL REQUIREMENTS. The Office of Thrift Supervision capital
regulations require savings institutions to meet three minimum capital
standards: a 1.5% tangible capital to total assets ratio, a 4% leverage ratio
(3% for institutions receiving the highest rating on the CAMELS examination
rating system) and an 8% risk-based capital ratio. In addition, the prompt
corrective action standards discussed below also establish, in effect, a minimum
2% tangible capital standard, a 4% leverage ratio (3% for institutions receiving
the highest rating on the CAMELS system) and, together with the risk-based
capital standard itself, a 4% Tier 1 risk-based capital standard. The Office of
Thrift Supervision regulations also require that, in meeting the tangible,
leverage and risk-based capital standards, institutions must generally deduct
investments in and loans to subsidiaries engaged in activities as principal that
are not permissible for a national bank.
The risk-based capital standard for savings institutions requires the
maintenance of Tier 1 (core) and total capital (which is defined as core capital
and supplementary capital) to risk-weighted assets of at least 4% and 8%,
respectively. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, recourse obligations, residual
interests and direct credit substitutes, are multiplied by a risk-weight factor
of 0% to 100%, assigned by the Office of Thrift Supervision capital regulation
based on the risks believed inherent in the type of asset. Core (Tier 1) capital
is defined as common stockholders' equity (including retained earnings), certain
noncumulative perpetual preferred stock and related surplus, and minority
interests in equity accounts of consolidated subsidiaries less intangibles other
than certain mortgage servicing rights and credit card relationships. The
components of supplementary capital currently include cumulative preferred
stock, long-term perpetual preferred stock, mandatory convertible securities,
subordinated debt and intermediate preferred stock, the allowance for loan and
lease losses limited to a maximum of 1.25% of risk-weighted assets and up to 45%
of unrealized gains on available-for-sale equity securities with readily
determinable fair market values. Overall, the amount of supplementary capital
included as part of total capital cannot exceed 100% of core capital.
The Office of Thrift Supervision also has authority to establish
individual minimum capital requirements in appropriate cases upon a
determination that an institution's capital level is or may become inadequate in
light of the particular circumstances. At September 30, 2004, the Bank met each
of its capital requirements.
The following table presents the bank's capital position at September
30, 2004.
Capital
Excess ----------------------------
Actual Required (Deficiency) Actual Required
Capital Capital Amount Percent Percent
---------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Tangible $25,335 $ 6,498 $18,837 5.85% 1.50%
Core (Leverage) 25,335 17,329 8,006 5.85 4.00
Risk-based 26,843 19,790 7,053 10.85 8.00
18
19
PROMPT CORRECTIVE REGULATORY ACTION. The Office of Thrift Supervision
is required to take certain supervisory actions against undercapitalized
institutions, the severity of which depends upon the institution's degree of
undercapitalization. Generally, a savings institution that has a ratio of total
capital to risk weighted assets of less than 8%, a ratio of Tier 1 (core)
capital to risk-weighted assets of less than 4% or a ratio of core capital to
total assets of less than 4% (3% or less for institutions with the highest
examination rating) is considered to be "undercapitalized." A savings
institution that has a total risk-based capital ratio less than 6%, a Tier 1
capital ratio of less than 3% or a leverage ratio that is less than 3% is
considered to be "significantly undercapitalized" and a savings institution that
has a tangible capital to assets ratio equal to or less than 2% is deemed to be
"critically undercapitalized." Subject to a narrow exception, the Office of
Thrift Supervision is required to appoint a receiver or conservator within
specified time frames for an institution that is "critically undercapitalized."
The regulation also provides that a capital restoration plan must be filed with
the Office of Thrift Supervision within 45 days of the date a savings
institution receives notice that it is "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized." Compliance with the plan
must be guaranteed by any parent holding company. In addition, numerous
mandatory supervisory actions become immediately applicable to an
undercapitalized institution, including, but not limited to, increased
monitoring by regulators and restrictions on growth, capital distributions and
expansion. The Office of Thrift Supervision could also take any one of a number
of discretionary supervisory actions, including the issuance of a capital
directive and the replacement of senior executive officers and directors.
INSURANCE OF DEPOSIT ACCOUNTS. The Bank is a member of the Savings
Association Insurance Fund. The Federal Deposit Insurance Corporation maintains
a risk-based assessment system by which institutions are assigned to one of
three categories based on their capitalization and one of three subcategories
based on examination ratings and other supervisory information. An institution's
assessment rate depends upon the categories to which it is assigned. Assessment
rates for Savings Association Insurance Fund member institutions are determined
semi-annually by the Federal Deposit Insurance Corporation and currently range
from zero basis points for the healthiest institutions to 27 basis points of
assessable deposits for the riskiest.
In addition to the assessment for deposit insurance, institutions are
required to make payments on bonds issued in the late 1980s by the Financing
Corporation to recapitalize the predecessor to the Savings Association Insurance
Fund. During fiscal 2004, Financing Corporation payments for Savings Association
Insurance Fund members approximated 1.52 basis points of assessable deposits.
The Bank's assessment rate for the fiscal year 2004 was 1.46 basis
points and the total assessment paid for this period (including the FICO
assessment) was $43,566. The Federal Deposit Insurance Corporation has authority
to increase insurance assessments. A significant increase in Savings Association
Insurance Fund insurance premiums would likely have an adverse effect on the
operating expenses and results of operations of the Bank. Management cannot
predict what insurance assessment rates will be in the future.
Insurance of deposits may be terminated by the Federal Deposit
Insurance Corporation upon a finding that the institution has engaged in unsafe
or unsound practices, is in an unsafe or unsound condition to continue
operations or has violated any applicable law, regulation, rule, order or
condition imposed by the Federal Deposit Insurance Corporation or the Office of
Thrift Supervision. The management of the Bank does not know of any practice,
condition or violation that might lead to termination of deposit insurance.
LOANS TO ONE BORROWER. Federal law provides that savings institutions
are generally subject to the limits on loans to one borrower applicable to
national banks. A savings institution may not make a loan or extend credit to a
single or related group of borrowers in excess of 15% of its unimpaired capital
and surplus. An additional amount may be lent, equal to 10% of unimpaired
capital and surplus, if secured by specified readily marketable collateral. At
September 30, 2004, Greater Atlantic's limit on loans to one borrower was $4.0
million, and Greater Atlantic's largest aggregate outstanding loan to one
borrower was $5.0 million. Of this loan, $1.0 million was sold in the form of a
participation loan in December 2004.
QTL TEST. The Home Owners' Loan Act requires savings institutions to
meet a qualified thrift lender test. Under the test, a savings association is
required to either qualify as a "domestic building and loan association" under
the Internal Revenue Code or maintain at least 65% of its "portfolio assets"
(total assets less: (i) specified liquid assets up to 20% of total assets; (ii)
intangibles, including goodwill; and (iii) the value of property used to conduct
business) in certain "qualified thrift investments" (primarily residential
mortgages and related investments, including certain mortgage-backed securities)
in at least 9 months out of each 12 month period.
A savings institution that fails the qualified thrift lender test is
subject to certain operating restrictions and may be required to convert to a
bank charter. As of September 30, 2004, Greater Atlantic maintained 85% of its
portfolio assets in qualified thrift investments and, therefore, met the
qualified thrift lender test. Recent legislation has expanded the extent to
which education loans, credit card loans and small business loans may be
considered "qualified thrift investments."
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LIMITATION ON CAPITAL DISTRIBUTIONS. Office of Thrift Supervision
regulations impose limitations upon all capital distributions by a savings
institution, including cash dividends, payments to repurchase its shares and
payments to stockholders of another institution in a cash-out merger. An
application to and the prior approval of the Office of Thrift Supervision is
required prior to any capital distribution if the institution does not meet the
criteria for "expedited treatment" of applications under Office of Thrift
Supervision regulations (I.E., generally, examination ratings in the two top
categories), the total capital distributions for the calendar year exceed net
income for that year plus the amount of retained net income for the preceding
two years, the institution would be undercapitalized following the distribution
or the distribution would otherwise be contrary to a statute, regulation or
agreement with Office of Thrift Supervision. If an application is not required,
the institution must still provide prior notice to Office of Thrift Supervision
of the capital distribution if, like Greater Atlantic, it is a subsidiary of a
holding company. In the event Greater Atlantic's capital fell below its
regulatory requirements or the Office of Thrift Supervision notified it that it
was in need of more than normal supervision, Greater Atlantic's ability to make
capital distributions could be restricted. In addition, the Office of Thrift
Supervision could prohibit a proposed capital distribution by any institution,
which would otherwise be permitted by the regulation, if the Office of Thrift
Supervision determines that such distribution would constitute an unsafe or
unsound practice.
ASSESSMENTS. Savings institutions are required to pay assessments to
the Office of Thrift Supervision to fund the agency's operations. The general
assessments, paid on a semi-annual basis, are computed based upon the savings
institution's total assets, including consolidated subsidiaries, as reported in
Greater Atlantic's latest quarterly thrift financial report. The assessments
paid by Greater Atlantic for the fiscal year ended September 30, 2004, totaled
$143,092.
TRANSACTIONS WITH RELATED PARTIES. Greater Atlantic's authority to
engage in transactions with "affiliates" (E.G., any company that controls or is
under common control with an institution, including Greater Atlantic Financial
and its non-savings institution subsidiaries) is limited by federal law. The
aggregate amount of covered transactions with any individual affiliate is
limited to 10% of the capital and surplus of the savings institution. The
aggregate amount of covered transactions with all affiliates is limited to 20%
of the savings institution's capital and surplus. Certain transactions with
affiliates are required to be secured by collateral in an amount and of a type
described in federal law. The purchase of low quality assets from affiliates is
generally prohibited. The transactions with affiliates must be on terms and
under circumstances, that are at least as favorable to the institution as those
prevailing at the time for comparable transactions with non-affiliated
companies. In addition, savings institutions are prohibited from lending to any
affiliate that is engaged in activities that are not permissible for bank
holding companies and no savings institution may purchase the securities of any
affiliate other than a subsidiary.
The recently enacted Sarbanes-Oxley Act generally prohibits loans by
the Company to its executive officers and directors. However, that act contains
a specific exception for loans by the Bank to its executive officers and
directors in compliance with federal banking laws. Under such laws, the Bank's
authority to extend credit to executive officers, directors and 10% shareholders
("insiders"), as well as entities such persons control, is limited. The law
limits both the individual and aggregate amount of loans the Bank may make to
insiders based, in part, on the Bank's capital position and requires certain
board approval procedures to be followed. Such loans are required to be made on
terms substantially the same as those offered to unaffiliated individuals and
not involve more than the normal risk of repayment. There is an exception for
loans made pursuant to a benefit or compensation program that is widely
available to all employees of the institution and does not give preference to
insiders over other employees.
ENFORCEMENT. The Office of Thrift Supervision has primary enforcement
responsibility over savings institutions and has the authority to bring actions
against the institution and all institution-affiliated parties, including
stockholders, and any attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution. Formal enforcement action may range from the issuance of a
capital directive or cease and desist order to removal of officers and/or
directors to institution of receivership, conservatorship or termination of
deposit insurance. Civil penalties cover a wide range of violations and can
amount to $25,000 per day, or even $1.0 million per day in especially egregious
cases. The Federal Deposit Insurance Corporation has the authority to recommend
to the Director of the Office of Thrift Supervision that enforcement action be
taken with respect to a particular savings institution. If the Director does not
take action, the Federal Deposit Insurance Corporation has authority to take
such action under certain circumstances. Federal law also establishes criminal
penalties for certain violations.
STANDARDS FOR SAFETY AND SOUNDNESS. The federal banking agencies have
adopted Interagency Guidelines prescribing Standards for Safety and Soundness.
The guidelines set forth the safety and soundness standards that the federal
banking agencies use to identify and address problems at insured depository
institutions before capital becomes impaired. If the Office of Thrift
Supervision determines that a savings institution fails to meet any standard
prescribed by the guidelines, the Office of Thrift Supervision may require the
institution to submit an acceptable plan to achieve compliance with the
standard.
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FEDERAL HOME LOAN BANK SYSTEM
Greater Atlantic is a member of the Federal Home Loan Bank System,
which consists of 12 regional Federal Home Loan Banks. The Federal Home Loan
Bank provides a central credit facility primarily for member institutions.
Greater Atlantic, as a member of the Federal Home Loan Bank, is required to
acquire and hold shares of capital stock in that Federal Home Loan Bank in an
amount at least equal to 1.0% of the aggregate principal amount of its unpaid
residential mortgage loans and similar obligations at the beginning of each
year, or 1/20 of its advances (borrowings) from the Federal Home Loan Bank,
whichever is greater. Greater Atlantic was in compliance with this requirement
with an investment in Federal Home Loan Bank stock at September 30, 2004 of $4.1
million.
The Federal Home Loan Banks are required to provide funds used for the
resolution of insolvent thrifts in the late 1980s and to contribute funds for
affordable housing programs. Those requirements could reduce the amount of
dividends that the Federal Home Loan Banks pay to their members and could also
result in the Federal Home Loan Banks imposing a higher rate of interest on
advances to their members. If dividends were reduced, or interest on future
Federal Home Loan Bank advances increased, Greater Atlantic's net interest
income would likely also be reduced.
FEDERAL RESERVE SYSTEM
The Federal Reserve Board regulations require savings institutions to
maintain non-interest earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The regulations generally provide
that reserves be maintained against aggregate transaction accounts as follows: a
3% reserve ratio is assessed on net transaction accounts up to and including
$45.4 million; a 10% reserve ratio is applied above $45.4. The first $6.6
million of otherwise reservable balances (subject to adjustments by the Federal
Reserve Board) are exempted from the reserve requirements. The amounts are
adjusted annually. The Bank complies with the foregoing requirements.
COMMUNITY REINVESTMENT ACT
Under the Community Reinvestment Act, as implemented by Office of
Thrift Supervision regulations, a savings association has a continuing and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire community, including low and moderate income
neighborhoods. The Community Reinvestment Act does not establish specific
lending requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the
Community Reinvestment Act. The Community Reinvestment Act requires the Office
of Thrift Supervision, in connection with its examination of an institution, to
assess the institution's record of meeting the credit needs of its community and
to take such record into account in its evaluation of applications by such
institution. The Community Reinvestment Act requires public disclosure of an
institution's Community Reinvestment Act rating. Greater Atlantic's latest
Community Reinvestment Act rating, received from the Office of Thrift
Supervision was "Satisfactory."
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FEDERAL AND STATE TAXATION
GENERAL. The company and the bank report their income on a fiscal year
basis using the accrual method of accounting and are subject to federal income
taxation in the same manner as other corporations with some exceptions. The
following discussion of tax matters is intended only as a summary and does not
purport to be a comprehensive description of the tax rules applicable to the
bank or the company. The bank has not been audited by the IRS or the Virginia
Department of Taxation ("DOT") in the past five years.
DISTRIBUTIONS. To the extent that the bank makes "non-dividend
distributions" to the company that are considered as made (i) from the reserve
for losses on qualifying real property loans, to the extent the reserve for such
losses exceeds the amount that would have been allowed under the experience
method, or (ii) from the supplemental reserve for losses on loans ("Excess
Distributions"), then an amount based on the amount distributed will be included
in the bank's taxable income. Non-dividend distributions include distributions
in excess of the bank's current and accumulated earnings and profits,
distributions in redemption of stock and distributions in partial or complete
liquidation. However, dividends paid out of the bank's current or accumulated
earnings and profits, as calculated for federal income tax purposes, will not be
considered to result in a distribution from the bank's bad debt reserve. Thus,
any dividends to the company that would reduce amounts appropriated to the
bank's bad debt reserve and deducted for federal income tax purposes would
create a tax liability for the bank. The amount of additional taxable income
created by an Excess Distribution is an amount that, when reduced by the tax
attributable to the income, is equal to the amount of the distribution. Thus,
if, after the Conversion, the bank makes a "non-dividend distribution," then
approximately one and one-half times the amount so used would be includable in
gross income for federal income tax purposes, presumably taxed at a 34%
corporate income tax rate (exclusive of state and local taxes). See "Regulation"
and "Dividend Policy" for limits on the payment of dividends of the bank. The
bank does not intend to pay dividends that would result in a recapture of any
portion of its bad debt reserve.
CORPORATE ALTERNATIVE MINIMUM TAX ("AMT"). The Code imposes a tax on
alternative minimum taxable income ("AMTI") at a rate of 20%. Before 2002, only
90% of AMTI could be offset by net operating loss carryovers. Recently, the
United States Congress passed legislation which increased the amount of AMTI
which could be offset by existing net operating losses from 90% to 100%.
Presently, elimination of the 90% ceiling on use of net operating losses to
reduce or eliminate AMT exists for two years. Accordingly, the company, and the
bank, do not expect to record a provision for income taxes in fiscal 2003. AMTI
is increased by an amount equal to 75% of the amount by which the bank's
adjusted current earnings exceeds its AMTI (determined without regard to this
preference and prior to reduction for net operating losses). The bank does not
expect to be subject to the AMT until at least fiscal 2005.
DIVIDENDS RECEIVED DEDUCTION AND OTHER MATTERS. The company may exclude
from its income 100% of dividends received from the bank as a member of the same
affiliated group of corporations. The corporate dividends received deduction is
generally 70% in the case of dividends received from unaffiliated corporations
with which the company and the bank will not file a consolidated tax return,
except that if the company or the bank owns more than 20% of the stock of a
corporation distributing a dividend then 80% of any dividends received may be
deducted.
STATE AND LOCAL TAXATION
COMMONWEALTH OF VIRGINIA. The Commonwealth of Virginia imposes a tax at
the rate of 6.0% on the "Virginia taxable income" of the bank and the company.
Virginia taxable income is equal to federal taxable income with certain
adjustments. Significant modifications include the subtraction from federal
taxable income of interest or dividends on obligations or securities of the
United States that are exempt from state income taxes, and a recomputation of
the bad debt reserve deduction on reduced modified taxable income.
DELAWARE TAXATION. As a Delaware company not earning income in
Delaware, the company is exempt from Delaware corporate income tax but is
required to file an annual report with and pay an annual franchise tax to the
State of Delaware. However, to the extent that the company conducts business
outside of Delaware, the company may be considered doing business and subject to
additional taxing jurisdictions outside of Delaware.
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ITEM 2. PROPERTIES
During fiscal year 2004, we conducted our business from nine
full-service banking offices and our administrative office. The following table
sets forth certain information concerning the bank's offices as of September 30,
2004. On November 19, 2004, the bank sold its office at 1025 Connecticut Avenue,
N.W. Washington, D.C.
Net Book Value
of Property or
Leasehold
Original Improvements
Year Date of at
Leased or Leased or Lease September 30,
Location Owned Acquired Expiration 2004
------------------------------------------------------------------------------------------------------------------
(In Thousands)
ADMINISTRATIVE OFFICES:
10700 Parkridge Boulevard Leased 1998 01-31-11 $ 146
Reston, Virginia 20191
BRANCH OFFICES:
11834 Rockville Pike Leased 1998 06-15-05 40
Rockville, Maryland 20852
8070 Ritchie Highway Leased 1998 08-31-08 28
Pasadena, Maryland 21122
1025 Connecticut Avenue, N.W. Leased 1998 07-31-08 122
Washington, D.C. 20036
10700 Parkridge Boulevard Leased 2004 01-31-11 576
Reston, Virginia 20191
46901 Cedar Lakes Plaza Leased 1999 02-28-19 289
Sterling, Virginia 20164
43086 Peacock Market Plaza Leased 2000 06-30-15 275
South Riding, Virginia 20152
1 South Royal Avenue Owned 1977 708
Front Royal, Virginia 22630
9484 Congress Street Owned 1989 433
New Market, Virginia 22844
2800 Valley Avenue Owned 1978 1,781
Winchester, Virginia 22601
LOAN OFFICE:
2200 Defense Highway Leased 2002 10-31-05 3
Crofton, Maryland 21114
GREATER ATLANTIC MORTGAGE OFFICES:
8230 Old Courthouse Road Leased 1995 12-31-05 13
Vienna, Virginia 22182
11300 Rockville Pike Leased 2001 01-31-06 4
Rockville, Maryland 20852
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Total $4,418
==================================================================================================================
The total net book value of the company's furniture, fixtures and
equipment at September 30, 2004 was $7.3 million. The properties are considered
by management to be in good condition.
ITEM 3. LEGAL PROCEEDINGS
The company is not involved in any pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business. Such
routine legal proceedings, in the aggregate, are believed by management to be
immaterial to the company's financial condition, results of operations or cash
flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the stockholders during the
fourth quarter of the fiscal year ended September 30, 2004, through the
solicitation of proxies or otherwise.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
MARKET INFORMATION. The company's stock trades on the NASDAQ Stock
Market (ticker symbol GAFC). At September 30, 2004, there were approximately 493
stockholders of record. The following table sets forth market price information,
based on closing prices, as reported by the NASDAQ for the common stock high and
low closing prices for the periods indicated.
First Quarter Second Fourth Quarter
Ended Quarter Ended Third Quarter Ended
December 31 March 31 Ended June 30 September 30
-------------------------------------------------------------------------------------------------
Fiscal Year 2004
High 8.30 8.20 7.70 6.53
Low 7.50 7.27 6.00 5.78
Fiscal Year 2003
High 6.68 7.95 7.43 7.95
Low 6.15 6.30 6.50 7.08
-------------------------------------------------------------------------------------------------
These market quotations reflect inter-dealer prices, without retail
mark-up, mark-down, or commission and may not necessarily represent actual
transactions. The company has not sold any unregistered securities and did not
repurchase any of its equity securities in the fiscal year ended September 30,
2004.