0000950152-01-504497.txt : 20011008 0000950152-01-504497.hdr.sgml : 20011008 ACCESSION NUMBER: 0000950152-01-504497 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010917 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/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-25045 FILM NUMBER: 1738090 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/A 1 l90351ae10qsba.txt GRAND CENTRAL FINANCIAL CORP.--FORM 10QSB/A 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB / A (Mark one) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 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 0-25945 ------- 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 May 1, 2001 Common stock, $.01 par value 1,938,871 common shares Transitional Small Business Disclosure format (check one) Yes [ ] No [X] 2 GRAND CENTRAL FINANCIAL CORP. FORM 10-QSB QUARTER ENDED MARCH 31, 2001 INDEX
PART I. Financial Information Page ---- Item 1. - Financial Statements Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000 .............................................................. 3 Consolidated Statements of Income for the three months ended March 31, 2001 and 2000......................................................... 4 Condensed Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, 2001....................................... 5 Consolidated Statements of Comprehensive Income for the three months ended March 31, 2001 and 2000................................................... 6 Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2001 and 2000................................................... 7 Notes to Consolidated Financial Statements ..................................... 8 Item 2. - Management's Discussion and Analysis or Plan of Operation................... 13 PART II. Other Information Item 1. Legal Proceedings............................................................ 18 Item 2. Changes in Securities........................................................ 18 Item 3. Defaults Upon Senior Securities.............................................. 18 Item 4. Submission of Matters to a Vote of Security Holders.......................... 18 Item 5. Other Information............................................................ 18 Item 6. Exhibits and Reports on Form 8-K............................................. 18 Signatures ........................................................................... 19
The Form 10-QSB for March 31, 2001, has been amended to reclassify expenses between the first and second quarter of 2001. 3
GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) ------------------------------------------------------------------------------------------------------------------- March 31, December 31, 2001 2000 ---- ---- ASSETS Cash and amounts due from depository institutions $ 3,784 $ 2,928 Interest-bearing deposits in other banks 2 2 ------------ ------------ Total cash and cash equivalents 3,786 2,930 Time deposits with other banks 7,476 7,000 Securities available for sale 2,871 3,090 Securities held to maturity (estimated fair value of $33,351 in 2001 and $35,251 in 2000) 33,522 35,796 Loans held for sale 1,089 -- Loans, net 84,586 86,265 Federal Home Loan Bank stock, at cost 3,169 3,113 Premises and equipment, net 1,060 1,094 Accrued interest receivable 670 1,106 Other assets 628 539 ------------ ------------ Total assets $ 138,857 $ 140,933 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Noninterest-bearing $ 922 $ 514 Interest-bearing 75,049 73,483 ------------ ------------ Total deposits 75,971 73,997 Federal Home Loan Bank advances 36,678 40,536 Loan payable 7,000 7,000 Advance payments by borrowers for taxes and insurance 419 656 Accrued interest payable 376 632 Other liabilities 440 279 ------------ ------------ Total liabilities 120,884 123,100 ------------ ------------ 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 8,341 8,322 Retained earnings, substantially restricted 13,904 13,846 Unearned stock based incentive plan shares (339) (365) Treasury stock, 189,040 shares, at cost (2,151) (2,151) Unearned employee stock ownership plan shares (1,824) (1,853) Accumulated other comprehensive income 23 15 ------------ ------------ Total shareholders' equity 17,973 17,833 ------------ ------------ Total liabilities and shareholders' equity $ 138,857 $ 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 data) ------------------------------------------------------------------------------------------------------------------- Three months ended March 31, 2001 2000 ---- ---- INTEREST INCOME Loans, including fees $ 1,724 $ 1,479 Interest on securities 748 824 Interest-bearing deposits in banks 78 147 ------------ ------------ Total interest income 2,550 2,450 INTEREST EXPENSE Deposits 958 759 FHLB borrowings 434 474 Loan payable 126 22 ------------ ------------ Total interest expense 1,518 1,255 NET INTEREST INCOME 1,032 1,195 Provision for loan losses -- -- ------------ ------------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,032 1,195 NON-INTEREST INCOME Service charges 52 56 Gain on sale of loans 4 -- Gain on sale of securities -- 6 Other income 8 14 ------------ ------------ Total non-interest income 64 76 NON-INTEREST EXPENSE Salaries and employee benefits 437 930 Net occupancy expense 87 98 Data processing expense 35 38 Franchise taxes 75 83 Other expenses 189 245 ------------ ------------ Total non-interest expense 823 1,394 Income (loss) before income taxes 273 (123) Income tax expense (benefit) 93 (42) ------------ ------------ Net income (loss) $ 180 $ (81) ============ ============ Earnings (loss) per share Basic $ .12 $ (.05) Diluted .11 (.05) -------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 4. 5
GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S 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 19 29 48 Release of incentive shares 26 26 Cash dividends (122) (122) Comprehensive income: Net income 180 180 Change in unrealized gain (loss) securities available-for-sale, net of tax 8 8 ------- Total Comprehensive Income 188 ------- ------- ------- ------- ------- ------- ------- ------- Balances at March 31, 2001 $ 19 $ 8,341 $13,904 $(1,824) $ (339) $(2,151) $ 23 $17,973 ======= ======= ======= ======= ======= ======= ======= ======= ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 5. 6 GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) --------------------------------------------------------------------------------
Three Months Ended March 31, 2001 2000 ---- ---- NET INCOME (LOSS) $ 180 $ (81) Other comprehensive income, net of tax Unrealized gain (loss) on securities available for sale arising during the period 8 9 Less: Reclassified adjustment for accumulated gains included in net income -- 4 ------------ ------------ Unrealized gains (losses) on securities 8 5 ------------ ------------ COMPREHENSIVE INCOME (LOSS) $ 188 $ (76) ============ ============ -------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. 6. 7 GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
--------------------------------------------------------------------------------------------------------------------- Three Months Ended March 31, 2001 2000 ---- ---- NET CASH FROM OPERATING ACTIVITIES $ (1,572) $ 645 CASH FLOWS FROM INVESTING ACTIVITIES Securities available for sale Purchases -- (118) Proceeds from sales -- 124 Proceeds from maturities and payments 223 144 Securities held to maturity Proceeds from maturities and payments 2,289 14,807 Increase in time deposits with other banks 476 (7,000) Net change in loans 1,683 (2,896) ------------ ------------ Net cash from investing activities 4,671 5,061 CASH FLOWS FROM FINANCING ACTIVITIES Net change in deposits 1,974 2,754 Net change in escrow accounts (237) (126) Proceeds from loan payable -- 7,000 Return of capital -- (11,051) Cash dividends (122) (111) Proceeds from long-term FHLB advances 15,310 14,400 Repayment of long-term FHLB advances (19,168) (18,434) ------------ ------------ Net cash from financing activities (2,243) (5,568) NET CHANGE IN CASH AND CASH EQUIVALENTS 856 138 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,930 4,928 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,786 $ 5,066 ============ ============ SUPPLEMENTAL DISCLOSURES Cash paid during the period for: Interest $ 1,803 $ 1,097 Income taxes -- -- ---------------------------------------------------------------------------------------------------------------------
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 March 31, 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 three month period ended March 31, 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 four 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 1,530,264 and 1,805,871 and diluted weighted average share were 1,584,102 and 1,819,400 for March 31, 2001 and 2000. 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. NOTE 2 - INVESTMENT AND MORTGAGE BACKED SECURITIES The carrying values and estimated fair values of investment and mortgage-backed securities are summarized as follows:
March 31, 2001 Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Loss Value ---- ----- ---- ----- (In thousands) AVAILABLE FOR SALE: Mortgage-backed securities: Freddie Mac $ 201 $ -- $ (1) $ 200 Fannie Mae 1,101 8 -- 1,109 Ginnie Mae 1,533 29 -- 1,562 ------------ ------------ ------------ ------------ Total $ 2,835 $ 37 $ (1) $ 2,871 ============ ============ ============ ============
-------------------------------------------------------------------------------- (Continued) 10. 11 GRAND CENTRAL FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- NOTE 2 - INVESTMENT AND MORTGAGE BACKED SECURITIES (continued)
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Loss Value ---- ----- ---- ----- (In thousands) HELD TO MATURITY: U.S. government and federal agencies $ 6,496 $ 11 $ (6) $ 6,501 Mortgage-backed securities: Freddie Mac 15,088 79 (171) 14,966 Fannie Mae 6,100 26 (42) 6,084 CMO's 5,838 6 (44) 5,800 ------------ ------------ ------------ ------------ Total $ 33,522 $ 122 $ (263) $ 33,351 ============ ============ ============ ============ 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 ============ ============ ============ ============
-------------------------------------------------------------------------------- (Continued) 11. 12 GRAND CENTRAL FINANCIAL CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------------------------------------------- NOTE 3 - LOANS RECEIVABLE Loans are summarized as follows:
March 31, December 31, 2001 2000 ---- ---- (In thousands) Loans secured by real estate: Construction loans on single family residences $ 1,117 $ 810 Single family 62,832 63,963 Multi-family and commercial 1,330 1,185 Commercial loans 372 331 Consumer loans 19,285 20,330 ------------ ------------ 84,936 86,619 Allowance for loan losses (350) (354) ------------ ------------ Total $ 84,586 $ 86,265 ============ ============
An analysis of the allowance for loan losses is as follows:
Three months ended March 31, 2001 2000 ---- ---- (In thousands) Balance, beginning of period $ 354 $ 369 Loans charged off (4) -- Recoveries -- 2 Provision for losses -- -- ------------ ------------ Balance, end of period $ 350 $ 371 ============ ============
NOTE 4 - NOTE PAYABLE The Company has a note payable with a local institution for $7,000 at a rate of 7.30%. The note is for 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 bank subsidiary. -------------------------------------------------------------------------------- 12. 13 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 March 31, 2001 to December 31, 2000 and the results of operations for the three months ended March 31, 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 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. GENERAL 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 -------------------------------------------------------------------------------- 13. 14 GRAND CENTRAL FINANCIAL CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION -------------------------------------------------------------------------------- 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. MANAGEMENT STRATEGY The Company is a community oriented financial institution offering a variety of financial services to meet the needs of the communities it serves. The Company attracts deposits from the general public and uses such deposits, together with borrowings and other funds, to originate one-to four-family residential mortgage loans and short-term consumer loans. To a lesser extent, the Company also originates residential construction loans in its market area and a limited amount of commercial business loans and loans secured by multi-family and non-residential real estate. Management's efforts in increasing the Company's volume of shorter-term consumer loans have been intended to help reduce interest rate risk, as well as to build on the Company's residential mortgage business. The Company's deposits are insured up to the maximum allowable amount by the Savings Association Insurance Fund (the "SAIF"), and administered by the Federal Deposit Insurance Corporation (the "FDIC"). The Company also invests in mortgage-backed securities, most of which are insured or guaranteed by federal agencies, as well as securities issued by the U.S. government or agencies thereof. The Company is not aware of any market or institutional trends, events or uncertainties that are expected to have a material effect on liquidity, capital resources or operations, except as discussed below. The Company is also not aware of any current recommendations by its regulators which would have a material effect if implemented, except as discussed below. COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2001 AND DECEMBER 31, 2000 Total assets of the Company were $138.9 million at March 31, 2001, compared to $140.9 million at December 31, 2000, representing a decrease of $2.0 million, or 1.5%. The primary component in the decrease in total assets was a $2.5 million decrease in total securities (including securities available for sale and held to maturity) and a $1.7 million in loans, which was partially offset by an increase in time deposits with other banks and loans held for sale. The decrease in assets was primarily due to the securities maturing and loan payments received during the first quarter. The increase in time deposits with other banks is due to the interest earned on the deposit. Loans held for sale also increased due to the Association's increased -------------------------------------------------------------------------------- 14. 15 GRAND CENTRAL FINANCIAL CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION -------------------------------------------------------------------------------- volume and the drop in interest rates. Shareholders' equity increased $140,000 or .79% from December 31, 2000 to March 31, 2001. COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND MARCH 31, 2000 General. Net income for the three months ended March 31, 2001 increased by $261,000 or 322.2% from $(81,000) for the three months ended March 31, 2000 to net income of $180,000 for the three months ended March 31, 2001. The increase was primarily due to the decrease in salaries and employee benefits which doubled for the first three months of 2000 due to an acceleration of expense for the stock-based incentive plan in conjunction with the return of capital. The return of capital triggered additional expense for the stock-based incentive plan when the return of capital for the shares in the plan was passed through to the plans participants. 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-earning 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 decreased approximately $163,000, or 13.6%, from $1.2 million for the three months ended March 31, 2000 to $1.0 million for the three months ended March 31, 2001. The primary reason for this change was an increase in interest expense of $263,000, or 21.0%. The increase in interest expense was due to an increase in expense related to the loan payable and the association is paying a higher rate for average earning liabilities. The growth in expense was partially offset by the increase in interest income of approximately $100,000 or 4.1% from the three months ended March 31, 2001 primarily due to the increase in interest and fees from loans. 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 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 ended March 31, 2001 or 2000. At March 31, 2001, the allowance for loan losses represented .41% of total loans compared to .48% at December 31, 2000. Management believes the allowance for loan losses is adequate to absorb probable losses; however, future additions to the allowance may be necessary based on changes in economic conditions. -------------------------------------------------------------------------------- 15. 16 GRAND CENTRAL FINANCIAL CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION -------------------------------------------------------------------------------- Non-interest Income. The Company experienced a $12,000, or 15.8%, decrease in non-interest income during the first three months of 2001 compared to the same period in 2000. The decrease was primarily due to the decrease in service charges. The Association experienced a decrease in deposits due to the closing of three branches during late 1999, which also affected the amount of service charges. Noninterest Expense. Noninterest expense decreased $571,000, or 41.0%, primarily due to a decrease of $493,000 or 53.0% in salaries and benefits expense. The majority of the decrease in salary and benefits expense was due to an expense of $492,000 associated with the stock-based incentive plan in 2000 which was not repeated in 2001. Of the $492,000 decrease, $465,000 was due to an acceleration of the stock-based incentive plan expense recorded in 2000 in conjunction with the return of capital which was immediately passed through to plan participants. Excluding the additional expense related to the stock-based incentive plan in 2000, salary and benefit expense increased slightly in the first quarter of 2001 compared to the same period in 2000. Occupancy and data processing expense decreased in 2001 from the same period in 2000. The decrease in occupancy and data processing is directly related to costs savings achieved based on management's decision to close three in-store branches in the fourth quarter of 2000. Income Taxes. The provision for income taxes totaled an expense of $93,000 for the three months ended March 31, 2001 compared to a benefit of $42,000 for the three months ended March 31, 2000, due to the increase in income before income taxes. 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 Federal Home Loan Bank of Cincinnati (the "FHLB"). 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. The Association has continued to maintain the required levels of liquid assets as defined by Office of Thrift Supervision (the "OTS") regulations. Pursuant to recent legislation the OTS has repeated the OTS minimum liquidity ratio requirement of 4.0%. OTS regulations now require the Bank to maintain sufficient liquidity to ensure its safe and sound operation. At March 31, 2001, the Association's liquidity ratio was 18.45%. At March 31, 2001, the Association exceeded all of its regulatory capital requirements with a tangible capital level of $22.2 million, or 16.04%, of total adjusted assets, which is above the required level of $5.5 million, or 4.0%; core capital of $22.2 million, or 16.04%, of adjusted total assets, which is above the required level of $5.5 million, or 4.0%; and risk-based capital of -------------------------------------------------------------------------------- 16. 17 GRAND CENTRAL FINANCIAL CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION -------------------------------------------------------------------------------- $22.6 million, or 33.19%, of risk-weighted assets, which is above the required level of $5.4 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 March 31, 2001, cash and cash equivalents totaled $3.8 million, or 2.7% of total assets. The Association has other sources of liquidity if a need for additional funds arises, including FHLB advances. At March 31, 2001, the Association had unused borrowing capacity from the FHLB of $26.7 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. -------------------------------------------------------------------------------- 17. 18 GRAND CENTRAL FINANCIAL CORP. FORM 10-QSB Quarter ended March 31, 2000 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. None. Item 5.-Other Information. None. Item 6.-Exhibits and Reports on Form 8-K. (a) Exhibits Exhibit Number Exhibits ------ -------- 3.1 Articles of Incorporation* 3.2 Bylaws* 4.0 Form of Common Stock Certificate* (b) Reports on Form 8-K. On March 23, 2001 the Company filed a form 8-K, reporting the declaration of a cash dividend payable April 17, 2001 to shareholders of record on April 6, 2001. *Incorporated by reference into this document from the Exhibits filed with the Registration Statement on Form SB-2 and any amendments therto, Registration No. 333-64089. -------------------------------------------------------------------------------- 18. 19 GRAND CENTRAL FINANCIAL CORP. SIGNATURES -------------------------------------------------------------------------------- In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. GRAND CENTRAL FINANCIAL COPR Dated: September 17, 2001 By: /s/ William R. Williams ----------------------------------- William R. Williams President and Chief Executive Officer (principal executive officer) Dated: September 17, 2001 By: /s/ John A. Rife ----------------------------------- John A. Rife Executive Vice President and Treasurer (principal accounting and financial officer) -------------------------------------------------------------------------------- 19.