-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Q9G4iHFGej+oLKkWfS5zH5Kzy58wcYXc+QNc+p29P3Y6Xc/dbEH+JOVSr01islzb KauvgboZGLF18lDF4bz09w== 0000950152-01-503917.txt : 20010815 0000950152-01-503917.hdr.sgml : 20010815 ACCESSION NUMBER: 0000950152-01-503917 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GRAND CENTRAL FINANCIAL CORP CENTRAL INDEX KEY: 0001070680 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 341877137 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-25045 FILM NUMBER: 1710255 BUSINESS ADDRESS: STREET 1: C/O CENTRAL FEDERAL SAVINGS AND LOAN STREET 2: ASSOCIATION OF WELLSVILLE 601 MAIN ST CITY: WELLSVILLE STATE: OH ZIP: 43968 BUSINESS PHONE: 3305321517 MAIL ADDRESS: STREET 1: C/O CENTRAL FEDERAL SAVINGS & LOAN STREET 2: WELLSVILLE /601 MAIN ST CITY: WELLSVILLE STATE: OH ZIP: 43968 10QSB 1 l89583ae10qsb.txt GRAND CENTRAL FINANCIAL CORP. 10QSB 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark one) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to______________ Commission File Number 0-25045 GRAND CENTRAL FINANCIAL CORP. ----------------------------- (Exact name of small business issuer as specified in its charter) Delaware 34-1877137 - -------- ---------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 601 Main Street, Wellsville, Ohio 43968 --------------------------------------- (Address of principal executive offices) (330) 532-1517 -------------- (Issuer's telephone number) State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. Class: Outstanding at July 31, 2001 Common stock, $0.01 par value 1,749,831 shares Transitional Small Business Disclosure Format (check one) Yes[ ] No[X] 2 GRAND CENTRAL FINANCIAL CORP. FORM 10-QSB QUARTER ENDED JUNE 30, 2001 INDEX
PART I. Financial Information Page ---- Item 1 - Financial Statements Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000 .............................................................................. 3 Consolidated Statements of Income for the three and six months ended June 30, 2001 and 2000.......................................................................... 4 Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2001 and 2000 ............................................................ 5 Condensed Consolidated Statements of Changes in Shareholders' Equity for the six months ended June 30, 2001.......................................................... 6 Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2001 and 2000.................................................................... 7 Notes to Consolidated Financial Statements ..................................................... 8 Item 2 - Management's Discussion and Analysis or Plan of Operation.................................... 14 PART II. Other Information Item 1. Legal Proceedings............................................................................ 19 Item 2. Changes in Securities ....................................................................... 19 Item 3. Defaults Upon Senior Securities.............................................................. 19 Item 4. Submission of Matters to a Vote of Security Holders.......................................... 19 Item 5. Other Information............................................................................ 19 Item 6. Exhibits and Reports on Form 8-K............................................................. 19 Signatures ........................................................................................... 21
3 GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) - --------------------------------------------------------------------------------
June 30, December 31, 2001 2000 --------- --------- ASSETS Cash and amounts due from depository institutions $ 4,525 $ 2,928 Interest-bearing deposits in other banks 2 2 --------- --------- Total cash and cash equivalents 4,527 2,930 Time deposits with other banks 6,750 7,000 Securities available for sale 2,449 3,090 Securities held to maturity (estimated fair value of $31,777 in 2001 and $35,251 in 2000) 32,069 35,796 Loans held for sale 1,756 - Loans, net 81,229 86,265 Federal Home Loan Bank stock, at cost 3,226 3,113 Premises and equipment, net 866 1,094 Accrued interest receivable 692 1,106 Other assets 811 539 --------- --------- Total assets $ 134,375 $ 140,933 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Non interest-bearing $ 772 $ 514 Interest-bearing 75,195 73,483 --------- --------- Total deposits 75,967 73,997 Federal Home Loan Bank advances 32,611 40,536 Loan payable 6,750 7,000 Advance payments by borrowers for taxes and insurance 526 656 Accrued interest payable 246 632 Other liabilities 268 279 --------- --------- Total liabilities 116,368 123,100 --------- --------- Commitments and Contingencies Preferred stock, authorized 1,000,000 shares, no shares issued and outstanding Common stock, $.01 par value, 6,000,000 shares authorized, 1,938,871 shares issued 19 19 Additional paid-in capital 8,321 8,322 Retained earnings, substantially restricted 13,872 13,846 Unearned stock based incentive plan shares (313) (365) Treasury stock, 189,040 shares, at cost (2,151) (2,151) Unearned Employee Stock Ownership Plan shares (1,760) (1,853) Accumulated other comprehensive income 19 15 --------- --------- Total shareholders' equity 18,007 17,833 --------- --------- Total liabilities and shareholders' equity $ 134,375 $ 140,933 ========= =========
- -------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. 3. 4 GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amount) - --------------------------------------------------------------------------------
Three months ended Six months ended June 30, June 30, -------- -------- 2001 2000 2001 2000 ---- ---- ---- ---- INTEREST INCOME Loans, including fees $1,750 $1,514 $3,474 $2,969 Interest on securities 690 879 1,438 1,704 Interest-bearing deposits in banks 81 5 159 152 ------ ------ ------ ------ Total interest income 2,521 2,398 5,071 4,825 INTEREST EXPENSE Deposits 833 782 1,665 1,541 FHLB borrowings 369 501 992 998 Loan payable 143 126 269 150 ------ ------ ------ ------ Total interest expense 1,345 1,409 2,926 2,689 NET INTEREST INCOME 1,176 989 2,145 2,136 Provision for loan losses - - - - ------ ------ ------ ------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,176 989 2,145 2,136 NON-INTEREST INCOME Service charges 32 51 84 109 Gain on sale of loans 15 3 19 3 Gain on sale of securities 4 - 4 6 Other income 20 43 29 56 ------ ------ ------ ------ Total non-interest income 71 97 136 174 NON-INTEREST EXPENSE Salaries and employee benefits 430 452 898 1,382 Net occupancy expense 66 91 153 191 Data processing expense 36 35 71 74 FDIC assessments 3 4 7 8 Franchise taxes 76 83 150 166 Other expenses 404 194 591 385 ------ ------ ------ ------ Total non-interest expense 1,015 859 1,870 2,206 Income before income taxes 232 227 411 104 Income tax expense 79 45 140 3 ------ ------ ------ ------ Net income $ 153 $ 182 $ 271 $ 101 ====== ====== ====== ====== Earnings per share Basic $ .06 $ .11 $ .18 $ 0.06 Diluted $ .06 $ .11 $ .17 $ 0.06
- -------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. 4. 5 GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) - --------------------------------------------------------------------------------
Three Months Ended Six Months Ended June 30, June 30, -------- -------- 2001 2000 2001 2000 ---- ---- ---- ---- NET INCOME $ 153 $ 182 $ 271 $ 101 Other comprehensive income, net of tax Unrealized gain (loss) on securities available for sale arising during the period (1) (29) 7 (20) Less: Reclassification adjustment for accumulated gains included in net income 3 - 3 4 ----- ----- ----- ----- Unrealized gains (losses) on securities (4) (29) 4 (32) ----- ----- ----- ----- COMPREHENSIVE INCOME $ 149 $ 153 $ 275 $ 77 ===== ===== ===== =====
- -------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. 5. 6 GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (In thousands, except per share data) - --------------------------------------------------------------------------------
Unearned Unearned Employee Stock Accumulated Additional Stock Based Other Total Common Paid-in Retained Ownership Incentive Treasury Comprehensive Shareholders Stock Capital Earnings Plan Shares Plan Shares Stock Income Equity ----- ------- -------- ----------- ----------- ----- ------ ------ BALANCES AT JANUARY 1, 2001 $ 19 $8,322 $ 13,846 $ (1,853) $ (365) $ (2,151) $ 15 $ 17,833 Commitment to release ESOP shares (1) 93 92 Release of incentive shares 52 52 Cash dividends (245) (245) Comprehensive income: Net income 271 271 Change in unrealized gain on securities available-for-sale, net of tax 4 4 --------- Total comprehensive income 275 ------ ------ --------- -------- ------ --------- --------- --------- BALANCES AT JUNE 30, 2001 $ 19 $8,321 $ 13,872 $ (1,760) $ (313) $ (2,151) $ 19 $ 18,007 ====== ====== ========= ======== ====== ========= ========= =========
- -------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. 6. 7 GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) - --------------------------------------------------------------------------------
Six Months Ended June 30, -------- 2001 2000 ---- ---- NET CASH FROM OPERATING ACTIVITIES $ (1,179) $ 820 CASH FLOWS FROM INVESTING ACTIVITIES Securities available for sale Purchases (75) (174) Proceeds from sales 79 124 Proceeds from maturities and payments 649 476 Securities held to maturity Purchases - - Proceeds from maturities and payments 3,738 16,310 Change in time deposits with other banks 250 (7,000) Net change in loans 4,715 (7,547) -------- -------- Net cash from investing activities 9,356 2,189 CASH FLOWS FROM FINANCING ACTIVITIES Net change in deposits 1,970 (1,303) Net change in escrow accounts (130) 60 Proceeds from loan payable - 7,000 Payment of loan payable (250) - Return of capital - (11,051) Cash dividends (245) (218) Purchase of treasury stock - (725) Proceeds from long-term FHLB advances 15,310 28,120 Repayment of long-term FHLB advances (23,235) (27,398) -------- -------- Net cash from financing activities (6,580) (5,515) NET CHANGE IN CASH AND CASH EQUIVALENTS 1,597 (2,506) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,930 4,928 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,527 $ 2,422 ======== ======== SUPPLEMENTAL DISCLOSURES Cash paid during the period for: Interest $ 3,312 $ 2,647 Income taxes 190 3
- -------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. 7. 8 GRAND CENTRAL FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Unless otherwise indicated, amounts in thousand. BASIS OF PRESENTATION: These interim consolidated financial statements reflect all adjustments which, in the opinion of management, are necessary to present fairly the financial position of Grand Central Financial Corp. ("Company") and its sole subsidiary, Central Federal Savings and Loan Association of Wellsville ("Association"), at June 30, 2001, and its results of operations and cash flows for the periods presented. All such adjustments are normal and recurring in nature. The accompanying unaudited consolidated financial statements do not purport to contain all the necessary financial disclosures required by generally accepted accounting principles that might otherwise be necessary in the circumstances. The results of operations for the six month period ended June 30, 2001 and 2000 are not necessarily indicative of the results that may be expected or that have occurred for the entire year. The annual report for the Company for the year ended December 31, 2000, contains consolidated financial statements and related notes that should be read in conjunction with the accompanying unaudited consolidated financial statements. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of the Company and the Association. All significant intercompany balances and transactions have been eliminated in consolidation. NATURE OF OPERATIONS: The Company is engaged in the business of banking with operations and two offices in Wellsville, Ohio and surrounding areas, which are primarily light industrial areas. These communities are the source of substantially all of the Company's deposits and loan activities. The Company's primary source of revenue is single-family residential loans to middle income individuals. USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expense during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for losses on loans and the value of loans held for sale. INVESTMENT AND MORTGAGE-BACKED SECURITIES: Securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Securities are classified as available for sale when they might be sold before maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income. Trading securities are carried at fair value, with changes in unrealized holding gains and losses included in income. Other securities such as Federal Home Loan bank stock are carried at cost. - -------------------------------------------------------------------------------- (Continued) 8. 9 GRAND CENTRAL FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) INVESTMENT AND MORTGAGE-BACKED SECURITIES: (continued) Interest income includes amortization of purchase premium or discount. Gains and losses on sales are based on the amortized cost of the security sold. Securities are written down to fair value when a decline in fair value is not temporary. LOANS: Loans are stated at unpaid principal balances, less the allowance for loan losses and net deferred loan fees. Interest income on loans is accrued over the term of the loans based upon the principal outstanding. The allowance for loan losses is increased by charges to income and decreased by charge-offs (net of recoveries). Management's periodic evaluation of the adequacy of the allowance is based on the Company's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the collateral, and current economic conditions. Uncollectible interest on loans that are contractually past due is charged off, or an allowance is established, based on management's periodic evaluation. The allowance is established by a charge to interest income equal to all interest previously accrued and unpaid, and income is subsequently recognized only to the extent that cash payments are received until, in management's judgment, the borrower demonstrates the ability to make periodic interest payments in which case the loan is returned to accrual status. Loans considered to be impaired, as identified according to internal loan review standards, are reduced to the present value of expected future cash flows or to the fair value of collateral by allocating a portion of the allowance for loan losses to such loans. If these allocations cause the allowance for loan losses to require an increase, such an increase will be reported as a provision for loan losses charged to operations. Management analyzes loans on an individual basis and classifies a loan as impaired when an analysis of the borrower's operating results and financial condition indicates that underlying cash flows are not adequate to meet its debt service requirements. Often this is associated with a delay or shortfall in payments of 60 days or more. Smaller balance homogeneous loans are evaluated for impairment in total. Such loans include residential first mortgage loans secured by one to four family residences, residential construction loans, home equity, and other consumer loans, with balances less than $200,000. Loans are generally moved to non-accrual status when 90 days or more past due. These loans may also be considered impaired. Impaired loans, or portions thereof, are charged off when deemed uncollectible. The nature of the disclosures for impaired loans is considered generally comparable to prior nonaccrual loans and non-performing and past due asset disclosures. - -------------------------------------------------------------------------------- (Continued) 9. 10 GRAND CENTRAL FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) INCOME TAXES: Income tax expense is based on the effective tax rate expected to be applicable for the entire year. The Company follows the liability method of accounting for income taxes. The liability method provides that deferred tax assets and liabilities are recorded at enacted tax rates based on the difference between the tax basis of assets and liabilities and their carrying amounts for financial reporting purposes, referred to as "temporary differences". A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. EARNINGS PER SHARE: Basic earnings per common share is net income divided by the weighted average number of common shares outstanding during the period. ESOP shares are considered outstanding for this calculation unless unearned. Stock-based incentive plan shares are considered outstanding as they become vested. Diluted earnings per common share include the dilutive effect of stock-based incentive plan shares and the additional potential common shares issuable under stock options. The basic weighted average shares were 1,531,316 and 1,622,351 and diluted weighted average share were 1,571,495 and 1,646,557 for June 30, 2001 and 2000, respectively. NEW ACCOUNTING PRONOUNCEMENTS: In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141. "Business Combinations." SFAS No. 141 requires all business combinations within its scope to be accounted for using the purchase method, rather than the pooling-of-interests method. The provisions of this Statement apply to all business combinations initiated after June 30, 2001. The adoption of this statement will only impact the Company's financial statements if it enters into a business combination. Also in June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets", which addresses the accounting for such assets arising from prior and future business combinations. Upon the adoption of this Statement, goodwill arising from business combinations will no longer be amortized, but rather will be assessed regularly for impairment, with any such impairment recognized as a reduction to earnings in the period identified. Other identified intangible assets, such as core deposit intangible assets, will continue to be amortized over their estimated useful lives. The Company is required to adopt this Statement on January 1, 2002 and early adoption is not permitted. The adoption of this Statement will not impact the Company's financial statements, as it has no intangible assets. COMPREHENSIVE INCOME: Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on securities available for sale, which is also recognized as a separate component of shareholders' equity. - -------------------------------------------------------------------------------- (Continued) 10. 11 GRAND CENTRAL FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 2 - INVESTMENT AND MORTGAGE-BACKED SECURITIES The carrying values and estimated fair values of investment and mortgage-backed securities are summarized as follows:
June 30, 2001 Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Loss Value ---- ----- ---- ----- (In thousands) AVAILABLE FOR SALE: Mortgage-backed securities: Freddie Mac $ 188 $ - $ (1) $ 187 Fannie Mae 871 1 - 872 Ginnie Mae 1,360 30 - 1,390 ------- ------- ------- ------- Total $ 2,419 $ 31 $ (1) $ 2,449 ======= ======= ======= ======= HELD TO MATURITY: U.S. government and federal agencies $ 6,496 $ - $ (62) $ 6,434 Mortgage-backed securities: Freddie Mac 14,118 66 (179) 14,005 Fannie Mae 5,867 11 (88) 5,790 CMO's 5,588 9 (49) 5,548 ------- ------- ------- ------- Total $32,069 $ 86 $ (378) $31,777 ======= ======= ======= =======
- -------------------------------------------------------------------------------- (Continued) 11. 12 GRAND CENTRAL FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 2 - INVESTMENT AND MORTGAGE-BACKED SECURITIES (Continued)
December 31, 2000 Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Loss Value ---- ----- ---- ----- (In thousands) AVAILABLE FOR SALE: Mortgage-backed securities: Freddie Mac $ 217 $ - $ (2) $ 215 Fannie Mae 1,223 10 - 1,233 Ginnie Mae 1,627 15 - 1,642 ------- ------- ------- ------- Total $ 3,067 $ 25 $ (2) $ 3,090 ======= ======= ======= ======= HELD TO MATURITY: U.S. government and federal agencies $ 7,993 $ 1 $ (128) $ 7,866 Mortgage-backed securities: Freddie Mac 15,442 57 (258) 15,241 Fannie Mae 6,454 17 (85) 6,386 CMO's 5,907 - (149) 5,758 ------- ------- ------- ------- Total $35,796 $ 75 $ (620) $35,251 ======= ======= ======= =======
NOTE 3 - LOANS RECEIVABLE Loans are summarized as follows:
June 30, December 31, 2001 2000 ---- ---- (In thousands) Loans secured by real estate: Construction loans on single family residences $ 712 $ 810 Single family 60,436 63,963 Multi-family and commercial 1,162 1,185 Commercial loans 278 331 Consumer loans 18,969 20,330 -------- -------- 81,557 86,619 Allowance for loan losses (328) (354) -------- -------- Total $ 81,229 $ 86,265 ======== ========
- -------------------------------------------------------------------------------- (Continued) 12. 13 GRAND CENTRAL FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 3 - LOANS RECEIVABLE (Continued) An analysis of the allowance for loan losses is as follows:
Six months ended June 30, 2001 2000 ---- ---- (In thousands) Balance, beginning of period $ 354 $ 369 Loans charged off (28) - Recoveries 2 4 Provision for losses - - ------ ------- Balance, end of period $ 328 $ 373 ====== =======
NOTE 4 - NOTE PAYABLE The Company has a note payable with a local institution for $6,750 at a rate of 7.30%. The note had an original maturity of 8 months with principal and interest paid on the maturity date, August 5, 2001. The note is secured by stock the Company owns in the Association. - -------------------------------------------------------------------------------- 13. 14 GRAND CENTRAL FINANCIAL CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - -------------------------------------------------------------------------------- The following discussion compares the financial condition of Grand Central Financial Corp. ("Company") and its wholly owned subsidiary, Central Federal Savings and Loan Association of Wellsville (the "Association"), at June 30, 2001 to December 31, 2000 and the results of operations for the three months ended June 30, 2001 and 2000 and six months ended June 30, 2001 and 2000. This discussion should be read in conjunction with the interim financial statements and footnotes included herein. FORWARD-LOOKING STATEMENTS This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company intends such forward-looking statements to be covered by the safe harbor provisions which are not subject to certain risks and uncertainties for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of these safe harbor provisions. When used herein, the terms "anticipates", "plans", "expects", "believes", and similar expressions as they relate to the Company or its management are intended to identify such forward-looking statements. The Company's actual results, performance or achievements may materially differ from those expressed or implied in the forward-looking statements. Risks and uncertainties that could cause or contribute to such material differences include, but are not limited to, general economic conditions, interest rate environment, competitive conditions in the financial services industry, changes in law, governmental policies and regulations, and rapidly changing technology affecting financial services. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Further information concerning the Company and its business, including additional factors that could materially affect the Company's financial results, is included in the Company's filings with the SEC. The Company does not undertake - and specifically disclaims any obligation - to publicly release the result of any revisions which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. 14. 15 GRAND CENTRAL FINANCIAL CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - -------------------------------------------------------------------------------- GENERAL The Company does not transact any material business other than through the Association. The Company's results of operations are dependent primarily on net interest income, which is the difference ("spread") between the interest income earned on its loans, mortgage-backed securities, and securities portfolio and its cost of funds, consisting of interest paid on its deposits and borrowed funds. The interest rate spread is affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows. The Company's net income is also affected by, among other things, loan fee income, provisions for loan losses, service charges, operating expenses and franchise and income taxes. The Company's revenues are derived primarily from interest on mortgage loans, consumer loans, mortgage-backed securities and securities, as well as income from service charges and loan originations. The Company's operating expenses principally consist of employee compensation and benefits, occupancy, federal deposit-insurance premiums and other general and administrative expenses. The Company's results of operations are also significantly affected by general economic and competitive conditions, particularly changes in market interest rates, government policies and actions of regulatory authorities. Future changes in applicable law, regulations or government policies may materially impact the Company. - -------------------------------------------------------------------------------- 15. 16 GRAND CENTRAL FINANCIAL CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - -------------------------------------------------------------------------------- COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2001 AND DECEMBER 31, 2000 Total assets of the Company were $134.4 million at June 30, 2001, compared to $140.9 million at December 31, 2000, representing a decrease of $6.5 million, or 4.6%. The primary components in the decrease in total assets were a $4.4 million decrease in total securities (including securities available for sale and held to maturity) and a decrease of $3.3 million or 3.8% (including loans held for sale) from December 31, 2000. The majority of the decrease in loans was in the consumer and single family real estate portfolios. The Company sold single-family real estate loans during the second quarter of fiscal year 2000 instead of putting them in their portfolio due to the market. Loans held for sale also increased due to the Association's increase in origination from and the drop in interest rates. The proceeds from the decrease in securities and loans, as well as the increase in deposits were used to decrease the amount of Federal Home Loan Bank advances from $40.5 million at December 31, 2000 to $32.6 million at June 30, 2001. The increase in deposits was due to normal market fluctuation and not any special promotions. Shareholders' equity increased $174,000 or .98% from December 31, 2000 to June 30, 2001 COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2001 AND JUNE 30, 2000 General. Net income for the three months ended June 30, 2001 decreased by $29,000 or 15.9% from $182,000 for the three months ended June 30, 2000 to $153,000 for the three months ended June 30, 2001. Net income for the six months ended June 30, 2001 and an increased $170,000 or 168.3%, from the net income of $101,000 for the six months ended June 30, 2000. The increase was primarily due to the significant decrease in salaries and employee benefits as a result of a decrease in the number of branches over the last six months and due to the impact of the return of capital on Recognition and Retention Plan expense in 2000. The Company also showed higher net interest income in the three months ended 6/30/01. Net Interest Income. Net interest income is the largest component of the Company's net income, and consists of the difference between interest income generated on interest-earnings assets and interest expense incurred on interest-bearing liabilities. Net interest income is primarily affected by the volumes, interest rates and composition of interest-earning assets and interest-bearing liabilities. Net interest income increased approximately $187,000, or 18.9%, for the three months ended June 30, 2001 and $9,000, or .42%, for the six months ended June 30, 2001 from the prior year periods. An increase in interest income or loans, including fees, is the primary reason for the increase. The increase in income is due primarily due to the increase in volume of loans from June 30, 2000 to 2001 and less to rates. The increase in income on loans was offset in part by a decrease in interest income from securities as a result of securities maturing and being called. The Company used the proceeds from the maturing securities to payoff Federal Home Loan Bank advances and decrease the related interest expense. Provision for Loan Losses. The provision for loan losses is based on management's regular review of the loan portfolio, which considers factors such as past experience, prevailing general economic conditions and considerations applicable to specific loans, such as the ability of the - -------------------------------------------------------------------------------- 16. 17 GRAND CENTRAL FINANCIAL CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - -------------------------------------------------------------------------------- borrower to repay the loan and the estimated value of the underlying collateral, as well as changes in the size and growth of the loan portfolio. No provision for loan losses was recorded during the three months or six months ended June 30, 2001 or 2000. At June 30, 2001, the allowance for loan losses represented .40% of total loans compared to .48% at December 31, 2000. Nonperforming assets as a percentage of loans were .56% at December 31, 2000 and .32% at June 30, 2001. Management believes the allowance for loan losses is adequate to absorb probable losses based on the positive trends; however, future additions to the allowance may be necessary based on changes in economic conditions. Non-interest Income. Non-interest income for the six months ended June 30, 2001 decreased $38,000 from $174,000 for June 30, 2000 and decreased $26,000 for the three months ended June 30, 2001. The majority of the change is due to the decrease in other income and service charges. As the Company has closed under-performing branches the number of customers and activity has decreased resulting in less other income and service charged revenue. There was also a $8,000 gain on the sale of other real estate owned property for the period ended June 30, 2000. Non-interest Expense. Non-interest expense increased $156,000, or 18.2%, for the quarter ended June 30, 2001 and decreased $336,000, or 15.2% for the six months ended June 30, 2001 compared to the similar periods in 2000. The majority of the increase for the quarter is due to charges taken related to the closing of a branch and the write-off of fixed assets of approximately $154,000. For the six months ended June 30, 2001, the decrease in non-interest income is primarily due to the large RRP expense in 2000 related to the return of capital and due to the lower costs in salaries and employee benefits. Net occupancy expense and data processing expense also decreased as a result of the closing of three in-store branches in the fourth quarter of 2000 and the closing of a branch during the second quarter of 2001. LIQUIDITY AND CAPITAL RESOURCES The Association's primary sources of funds are deposits, principal and interest payments on loans, mortgage-backed and investment securities and borrowings from the FHLB-Cincinnati. The Association uses the funds generated to support its lending and investment activities as well as any other demands for liquidity such as deposit outflows. While maturities and scheduled amortization of loans are predictable sources of funds, deposit flows, mortgage prepayments and the exercise of call features are greatly influenced by general interest rates, economic conditions and competition. At June 30, 2001, the Association's liquidity ratio was 18.6%. At June 30, 2001, the Association exceeded all of its regulatory capital requirements with a tangible capital level of $22.6 million, or 16.76%, of total adjusted assets, which is above the required level of $5.2 million, or 4.0%; core capital of $22.6 million, or 16.76%, of adjusted total - -------------------------------------------------------------------------------- 17. 18 GRAND CENTRAL FINANCIAL CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - -------------------------------------------------------------------------------- assets, which is above the required level of $4.4 million, or 4.0%; and risk-based capital of $22.9 million, or 34.80% of risk-weighted assets, which is above the required level of $5.2 million, or 8.0%. The Association's most liquid assets are cash and cash equivalents. The levels of those assets are dependent on the Association's operating, financing, lending and investing activities during any given period. At June 30, 2001, cash and cash equivalents totaled $4.5 million, or 3.4% of total assets. The Association has other sources of liquidity if a need for additional funds arises, including FHLB advances. At June 30, 2001, the Association had $32.6 million in advances outstanding from the FHLB-Cincinnati, and at June 30, 2001, had an additional overall borrowing capacity from the FHLB of $31.9 million. Depending on market conditions, the pricing of deposit products and FHLB advances, the Association may rely on FHLB borrowing to fund asset growth. The Association relies primarily on competitive rates, customer service and long-standing relationships with customers to retain deposits. Based on the Association's experience with deposit retention and current retention strategies, management believes that, although it is not possible to predict future terms and conditions upon renewal, a significant portion of such deposits will remain with the Association. - -------------------------------------------------------------------------------- 18. 19 GRAND CENTRAL FINANCIAL CORP. FORM 10-QSB Quarter ended June 30, 2001 PART II - OTHER INFORMATION - -------------------------------------------------------------------------------- Item 1 Legal Proceedings. None Item 2 Changes in Securities and Use of Proceeds. None Item 3 Defaults Upon Senior Securities. None Item 4. Submission of Matters to a Vote of Security Holders. Grand Central Financial Corp. held its Annual Meeting of Shareholders on April 25, 2001. Results of shareholder voting was as follows: a) Election of Director for a three year term: Thomas P. Ash ------------- For 1,369,555 Abstain 57,760 Against - b) Ratification of independent auditor for the fiscal year ending December 31, 2001 Crowe, Chizek and Company, LLP ------------------------------ For 1,420,985 Abstain 2,980 Against 3,350 The following directors' terms of office as a director continued after the meeting. (i) Jeffrey W. Aldrich (ii) Gerry W. Grace (iii) Williams R. Williams Item 5. Other Information. None - -------------------------------------------------------------------------------- 19. 20 GRAND CENTRAL FINANCIAL CORP. FORM 10-QSB Quarter ended June 30, 2001 PART II - OTHER INFORMATION - -------------------------------------------------------------------------------- Item 6. Exhibits and Reports on Form 8-K. (a) Exhibit Number Exhibit ------ ------- 3.1 Certificate of Incorporation* 3.2 Bylaws* 4.0 Form of Common Stock Certificate* (a.) Exhibit Number Exhibit ------ ------- 11.1 Statement Re Computation of Earnings per common Share Basic earnings per share is computed by dividing net income by the weighted average number of shares outstanding during the period, as restated for shares issued in business combinations accounted for as pooling-of-interests, stock splits and stock dividends. Diluted earnings per share is computed using the weighted average number of shares determined for the basic computation plus the number of shares of common stock that would be issued assuming all contingently issuable shares having a dilutive effect on earnings per share were outstanding for the period. The weighted average number of common shares outstanding for basic and diluted earnings per share computations were as follows:
Six Months Ended Three Months Ended June 30, June 30, -------- -------- 2001 2000 2001 2000 ---- ---- ---- ---- Numerator: Net income $ 271 $ 101 $ 153 $ 182 Denominator: Weighted-average common shares outstanding (basic) 1,531,316 1,622,351 1,532,356 1,594,342 Exercise of options 40,179 24,206 13,925 23,543 Weighted-average common shares outstanding (diluted) 1,571,495 1,646,557 1,546,281 1,617,885
- -------------------------------------------------------------------------------- 20. 21 GRAND CENTRAL FINANCIAL CORP. FORM 10-QSB Quarter ended June 30, 2001 Part II - OTHER INFORMATION - -------------------------------------------------------------------------------- Earnings per share: Basic $.18 $.06 $.06 $.11 Diluted $.17 $.06 $.06 $.11 (b) Reports on Form 8-K - on June 22, 2001, the issuer filed a Form 8-K. The information reported is as follows: Grand Central Financial Corp. (the "Company"), reported the declaration of a cash dividend payable July 17, 2001 to stockholders of record at the close of business on July 2, 2001. * Incorporated by reference into this document from the Exhibits filed with the Registration Statement on Form SB-2 and any amendments thereto, Registration No. 333-64089. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned hereunto duly authorized. GRAND CENTRAL FINANCIAL CORP. ----------------------------- Dated: August 14, 2001 By: /s/ William R. Williams ----------------------------------- William R. Williams President and Chief Executive Officer (principal executive officer) Dated: August 14, 2001 By: /s/ John A. Rife ----------------------------------- John A. Rife Executive Vice President and Treasurer (principal accounting and financial officer) - -------------------------------------------------------------------------------- 21. -----END PRIVACY-ENHANCED MESSAGE-----