Greater Atlantic Financial Corp.'s deal to sell itself to Summit Financial Group Inc. in Moorefield, W.Va., has fallen through — again — apparently done in this time by a steep drop in deposits.
Now, with losses mounting and its stock trading for mere pennies, the Reston, Va., company's future looks grim, industry analysts said.
"Based on the stock price, it probably means that Greater Atlantic will be no longer pretty soon," said Bryce W. Rowe, an analyst at Robert W. Baird Inc.
Others agreed that failure is a possibility but suggested that Greater Atlantic could be rescued by insurers or other nonbanks looking to buy banks or thrifts. Several have said they intend to make an acquisition to qualify for a capital infusion through the Treasury Department's Troubled Asset Relief Program.
The $1.6 billion-asset Summit and the $205 million-asset Greater Atlantic said late Tuesday that they had mutually agreed to terminate the deal they announced in early June.
This is the second deal between the two companies to collapse, and Mr. Rowe said a third try is unlikely now that Summit is having credit-quality problems of its own.
After bad loans spiked, Summit swung to a $7.7 million loss in the third quarter, from a $3.6 million profit a year earlier. A $4.5 million impairment charge on its Fannie Mae and Freddie Mac stock also contributed to the loss.
Summit first announced it was buying Greater Atlantic in April of 2007, but the deal was called off a year later. Though terminated bank acquisitions are rarely revived, Summit struck a new deal two months later to buy Greater Atlantic for $12.1 million in stock — about a third less than it would have paid previously.
Robert Tissue, Summit's chief financial officer, said at the time that it wanted Greater Atlantic too much to let it go. The thrift has five branches, mostly in attractive Virginia markets where Summit is eager to expand.
Neither Summit nor Greater Atlantic returned phone calls Wednesday.
But Summit said in a press release that at least one condition for closing the deal could not be met by a Dec. 31 deadline the companies had set. Summit did not specify the unmet condition, but one stipulation for closing the deal was that Greater Atlantic have core deposits of at least $144 million.
In the quarter that ended Sept. 30 core deposits at its thrift unit had fallen 7% from the previous quarter, to $133 million, according to data from the Federal Deposit Insurance Corp.
Since April, Greater Atlantic has been operating under a cease-and-desist order from the Office of Thrift Supervision requiring it to boost capital levels, restricting its lending, and prohibiting it from accepting brokered deposits.
Its thrift unit, which has lost money in five of its last six fiscal years, had a total risk-based capital ratio of 8.74% as of Sept. 30, according to the FDIC data. The regulatory order said Greater Atlantic must increase that ratio to 12%, which is well above the typical 10% minimum required to be considered well capitalized.
Mr. Rowe said that he doubts many companies would be interested in buying Greater Atlantic.
"Perhaps Summit comes back in and is able to take just the deposits of Greater Atlantic and not have to worry about any assets," he said. "But it doesn't look like Summit is in a position of strength to do that."
The deal is one of at least 33 to fall through this year, compared to 13 in all of last year, according to SNL Financial LC.