-----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, Ts2s6wFhLrUm2KV2ZN+nlh99tB8xbpG6Mi1bIxjnvmAYoDuft9IlAgVDZtVv3U14 gqOaIZ7B/sTtIGDarvri4Q== 0001047469-99-031879.txt : 19990816 0001047469-99-031879.hdr.sgml : 19990816 ACCESSION NUMBER: 0001047469-99-031879 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 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: SEC FILE NUMBER: 000-25045 FILM NUMBER: 99688518 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 FORM 10-QSB GRAND CENTRAL FINANCIAL CORP. 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, 1999 [ ] 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) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or for such shorter period that the issuer was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- 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, 1999 Common stock, $0.01 par value 1,938,871 common shares GRAND CENTRAL FINANCIAL CORP. FORM 10-QSB QUARTER ENDED JUNE 30, 1999 INDEX PART I. FINANCIAL INFORMATION
PAGE ---- ITEM 1 - Financial Statements Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998 .............................................................................. 3 Consolidated Statements of Income for the three and six months ended June 30, 1999 and 1998.......................................................................... 4 Condensed Consolidated Statements of Changes in Shareholders' Equity for the six months ended June 30, 1999.......................................................... 5 Consolidated Statements of Comprehensive Income for the six months ended June 30, 1999 and 1998 ................................................................... 6 Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 1999 and 1998.................................................................... 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............................................................................ 20 Item 2. Changes in Securities and Use of Proceeds.................................................... 20 Item 3. Defaults Upon Senior Securities.............................................................. 20 Item 4. Submission of Matters to a Vote of Security Holders.......................................... 20 Item 5. Other Information............................................................................ 20 Item 6. Exhibits and Reports on Form 8-K............................................................. 20 SIGNATURES ........................................................................................... 21
PART 1. FINANCIAL INFORMATION GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands) - -------------------------------------------------------------------------------
June 30, December 31, 1999 1998 ----------- ------------ ASSETS Cash and amounts due from depository institutions $ 4,172 $ 1,372 Interest-bearing deposits in other banks 4,680 24,654 ------------ ----------- Total cash and cash equivalents 8,852 26,026 Securities available-for-sale 4,326 5,149 Securities held-to-maturity (estimated fair value of $57,296 in 1999 and $32,963 in 1998) 58,702 32,629 Loans held for sale -- 1,152 Loans, net 65,695 62,949 Federal Home Loan Bank, at cost 2,794 2,699 Premises and equipment, net 2,118 2,139 Accrued interest receivable 1,011 571 Other assets 293 122 ----------- ----------- Total assets $ 143,791 $ 133,436 ----------- ----------- ----------- ----------- LIABILITIES Deposits Non-interest bearing $ 6,435 $ 5,471 Interest bearing 75,416 79,167 ----------- ----------- Total deposits 81,851 84,638 Federal Home Loan Bank Advances 29,158 16,029 Advance payments by borrowers for taxes and insurance 519 776 Cash dividends payable 97 -- Accrued interest payable 133 89 Other liabilities 68 131 ----------- ----------- Total liabilities 111,826 101,663 ----------- ----------- SHAREHOLDERS' EQUITY Preferred stock, $.01 par value, 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 18,575 18,720 Retained earnings, substantially restricted 14,627 14,330 Obligation under employee stock ownership plan (1,285) (1,339) Accumulated other comprehensive income 29 43 ----------- ----------- Total shareholders' equity 31,965 31,773 ----------- ----------- Total liabilities and shareholders' equity $ 143,791 $ 133,436 ----------- ----------- ----------- -----------
- ------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. 3 GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share amount) - -------------------------------------------------------------------------------
Three months ended Six months ended June 30, June 30, --------------------- ---------------------- 1999 1998 1999 1998 ---- ---- ---- ---- INTEREST INCOME Loans, including fees $ 1,294 $ 1,223 $ 2,591 $ 2,434 Interest on securities: Taxable 1,015 959 1,892 1,905 Non-taxable 2 5 5 9 Interest-bearing deposits in banks 27 17 124 64 -------- -------- --------- --------- Total interest income 2,338 2,204 4,612 4,412 INTEREST EXPENSE Deposits 800 860 1,617 1,718 FHLB borrowings 393 417 676 818 -------- -------- --------- --------- Total interest expense 1,193 1,277 2,293 2,536 NET INTEREST INCOME 1,145 927 2,319 1,876 Provision for loan losses -- 150 -- 150 -------- -------- --------- --------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,145 777 2,319 1,726 NON-INTEREST INCOME Service charges 7 48 56 85 Gain on sale of loans -- 12 12 33 Gain (loss) on sale of securities 16 4 27 4 Other income 47 29 67 40 -------- -------- --------- --------- Total non-interest income 70 93 162 162 NON-INTEREST EXPENSE Salaries and employee benefits 451 434 897 839 Net occupancy expense 134 133 265 227 Data processing expense 37 35 79 69 FDIC assessments 13 12 25 24 Franchise taxes 49 58 113 111 Other expenses 314 254 563 422 -------- -------- --------- --------- Total non-interest expense 998 926 1,942 1,692 Income before income taxes 217 (56) 539 196 Income tax expense 42 19 145 45 -------- -------- --------- --------- Net income $ 175 $ (37) $ 394 $ 151 -------- -------- --------- --------- -------- -------- --------- --------- Basic and diluted earnings per share $ 0.10 N/A $ 0.22 N/A
- ------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. 4 GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited) (In thousands) - -------------------------------------------------------------------------------
Accumulated Additional Obligation Other Total Common Paid in Retained Under Comprehensive Shareholders Stock Capital Earnings ESOP Income Equity ----- ----------- -------- ---------- ------------- ------------ Balances at January 1, 1999 $ 19 $ 18,720 $ 14,330 $ (1,339) $ 43 $ 31,773 Employee stock ownership plan obligation 54 54 Stock issuance costs (145) (145) Cash dividends declared ($.05) per share (97) (97) Comprehensive income: Net income 394 394 Change in unrealized gain (loss) on securities available-for-sale, net of tax (14) (14) -------- Total Comprehensive Income 380 ------ -------- -------- --------- ---- -------- Balances at June 30, 1999 $ 19 $ 18,575 $ 14,627 $ (1,285) $ 29 $ 31,965 ------ -------- -------- --------- ---- -------- ------ -------- -------- --------- ---- --------
- ------------------------------------------------------------------------------- 5 See accompanying notes to consolidated financial statements. GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (In thousands) - -------------------------------------------------------------------------------
Six Months Ended June 30, ----------------------- 1999 1998 ---- ---- NET INCOME $ 394 $ 151 Other comprehensive income, net of tax Unrealized gain (loss) on securities available for sale arising during the period 13 19 Less: Reclassified adjustment for accumulated gains included in net income (27) (4) ----- ----- Unrealized gains (losses) on securities (14) 15 ----- ----- COMPREHENSIVE INCOME $ 380 $ 166 ----- ----- ----- -----
- ------------------------------------------------------------------------------- 6 See accompanying notes to consolidated financial statements. GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) - -------------------------------------------------------------------------------
Six Months Ended June 30, ----------------------- 1999 1998 ---- ---- NET CASH FROM OPERATING ACTIVITIES $ 785 $ 988 CASH FLOWS FROM INVESTING ACTIVITIES Securities available for sale Purchases (890) (1,929) Proceeds from sales 366 184 Proceeds from maturities and payments 1,329 3,460 Securities held to maturity Purchases (47,057) (8,243) Proceeds from maturities and payments 20,984 4,179 Net change in loans (2,657) (3,746) Purchase of FHLB stock -- (91) Purchases of premises and equipment (119) (458) --------- -------- Net cash from investing activities (28,044) (6,644) CASH FLOWS FROM FINANCING ACTIVITIES Net change in deposits (2,787) 1,926 Net change in escrow accounts (257) (202) Net decrease in short-term borrowings -- (5,500) Proceeds from long-term FHLB advances 14,700 8,500 Repayment of long-term FHLB advances (1,571) (1,481) --------- -------- Net cash from financing activities 10,085 3,243 NET DECREASE IN CASH AND CASH EQUIVALENTS (17,174) (2,413) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 26,026 5,846 --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,852 $ 3,433 --------- -------- --------- -------- SUPPLEMENTAL DISCLOSURES Cash paid during the period for: Interest $ 2,249 $ 2,540 Income taxes 145 160 Transfer to REO 0 4
- ------------------------------------------------------------------------------- 7 See accompanying notes to consolidated financial statements. GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Unless otherwise indicated, amounts in thousand. BASIS OF PRESENTATION: These interim consolidated financial statements are prepared without audit and 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, 1999, 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 and six month periods ended June 30, 1999 and 1998 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, 1998, contains consolidated financial statements and related notes that should be read in conjunction with the accompanying unaudited consolidated financial statements. Effective December 30, 1998, Central Federal Savings & Loan Association of Wellsville converted from a federally chartered mutual savings and loan association to a federally chartered stock savings and loan with the concurrent formation of a holding company, Grand Central Financial Corp. The conversion was accomplished through an amendment of the Association's articles of incorporation and the sale of the Company's common stock in an amount equal to the pro forma market value of the Association after giving effect to the conversion. CONSOLIDATION POLICY: The consolidated financial statements include the accounts of the Company and the Association. All significant intercompany transactions and balances have been eliminated. NATURE OF OPERATIONS: The Company is engaged in the business of banking with operations and six 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. INVESTMENT AND MORTGAGE-BACKED SECURITIES: The Company classifies investment and mortgage-backed securities as held to maturity, trading or available for sale. Securities classified as held to maturity are those that management has the positive intent and ability to hold to maturity. Securities held to maturity are stated at cost, adjusted for amortization of premiums and accretion of discounts. Securities classified as available for sale are those that management intends to sell or that could be sold for liquidity, investment management, or similar reasons, even if there is not a present - ------------------------------------------------------------------------------- 8 (Continued) GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) intention for such a sale. Securities available for sale are carried at fair value with unrealized gains and losses included as a separate component of shareholders' equity, net of tax. Gains or losses on dispositions are based on net proceeds and the adjusted carrying amount of securities sold, using the specific identification method. 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 30 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. - ------------------------------------------------------------------------------- 9 (Continued) GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - -------------------------------------------------------------------------------- NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) EARNINGS PER SHARE: Basic earnings per common share for the three and six months ended June 30, 1999 was based on earnings for the three and six months then ended, divided by the weighted average number of common shares outstanding for the period. The Company had no dilutive securities at June 30, 1999. The weighted average shares outstanding were 1,807,681 for the six months ended June 30, 1999. Earnings per share information for 1998 is not meaningful since the mutual to stock conversion was not consummated until December 30, 1998. 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, 1999 Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Loss Value --------- ---------- ----------- ---------- (In thousands) AVAILABLE FOR SALE: Municipal securities $ 125 $ 3 $ 128 Fannie Mae stock 66 $ (1) 65 Mortgage-backed securities: Freddie Mac 302 1 (4) 299 Fannie Mae 1,595 23 1,618 Ginnie Mae 2,191 25 2,216 -------- ------ -------- -------- Total $ 4,279 $ 52 $ (5) $ 4,326 -------- ------ -------- -------- -------- ------ -------- -------- HELD TO MATURITY: U.S. government and federal agencies $ 14,293 $ (309) $ 13,984 Corporate notes Mortgage-backed securities: Freddie Mac 20,357 $ 82 (599) 19,840 Fannie Mae 8,152 13 (267) 7,898 CMO's 15,900 (326) 15,574 -------- ------ -------- -------- Total $ 58,702 $ 95 $ (1,501) $ 57,296 -------- ------ -------- -------- -------- ------ -------- --------
- ------------------------------------------------------------------------------- 10 (Continued) GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - -------------------------------------------------------------------------------- NOTE 2 - INVESTMENT AND MORTGAGE-BACKED SECURITIES (Continued)
December 31, 1998 Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Loss Value --------- ---------- ---------- --------- (In thousands) AVAILABLE FOR SALE: Municipal securities $ 175 $ 4 $ 179 Mortgage-backed securities: Freddie Mac 342 1 343 Fannie Mae 2,056 30 2,086 Ginnie Mae 2,508 33 2,541 -------- ----- ----- -------- Total $ 5,081 $ 68 $ 5,149 -------- ----- ----- -------- -------- ----- ----- -------- HELD TO MATURITY: U.S. government and federal agencies $ 998 $ 8 $ $ 1,006 Corporate notes 1,494 (6) 1,488 Mortgage-backed securities: Freddie Mac 17,019 312 17,331 Fannie Mae 4,078 78 (9) 4,147 CMO's 9,040 (49) 8,991 -------- ----- ----- -------- Total $ 32,629 $ 398 $ (64) $ 32,963 -------- ----- ----- -------- -------- ----- ----- --------
NOTE 3 - LOANS RECEIVABLE Loans are summarized as follows:
June 30, December 31, 1999 1998 ---- ----- (In thousands) Loans secured by real estate: Construction loans on single family residences $ 1,333 $ 735 Single family 45,156 45,441 Multi-family and commercial 1,206 1,150 Commercial loans 269 263 Consumer loans 18,106 15,739 -------- -------- 66,070 63,328 Allowance for loan losses (375) (379) -------- -------- Total $ 65,695 $ 62,949 -------- -------- -------- --------
- ------------------------------------------------------------------------------- 11 (Continued) GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - -------------------------------------------------------------------------------- NOTE 3 - LOANS RECEIVABLE (Continued) An analysis of the allowance for loan losses is as follows:
Six months ended June 30, 1999 1998 ---- ---- (In thousands) Balance, beginning of period $ 379 $ 231 Loans charged off (7) (7) Recoveries 3 1 Provision for losses -- 150 ----- ------ Balance, end of period $ 375 $ 375 ----- ------ ----- ------
- ------------------------------------------------------------------------------- 12 (Continued) GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY 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, 1999 to December 31, 1998 and the results of operations for the three months ended June 30, 1999 and 1998 and the six months ended June 30, 1999 and 1998. 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 loan losses, service - ------------------------------------------------------------------------------- 13 GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - -------------------------------------------------------------------------------- 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 has sought in recent years to expand the business of the Company by establishing additional branches to service additional customers in its market area. 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 JUNE 30, 1999 AND DECEMBER 31, 1998 Total assets of the Company were $143.8 million at June 30, 1999, compared to $133.4 million at December 31, 1998, representing an increase of $10.4 million, or 7.76%. The primary component in the increase in total assets was a $25.3 million increase in total securities (including securities available for sale and held to maturity) which was partially offset by a decrease in cash and cash equivalents of - ------------------------------------------------------------------------------- 14 GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - -------------------------------------------------------------------------------- $20.0 million. The increase in assets was primarily funded by $17.2 million net proceeds from the conversion from a mutual association to a stock company and an increase of $13.1 million in FHLB advances. The increase in securities was primarily due to management moving the conversion proceeds from cash and cash equivalents to the securities portfolio and the use of FHLB advances to fund securities purchases through an arbitrage transaction. Management entered into the arbitrage transaction in order to better leverage the new capital and enhance earnings. The Company plans to utilize the proceeds from the conversion to fund loan growth as loan demand allows. In the short term, the proceeds will continue to be invested in the securities portfolio. The majority of securities purchased with the proceeds from the offering mature within one year. COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998 GENERAL. Net income for the three months ended June 30, 1999 increased by $212,000 or 16.5% from ($37,000) for the three months ended June 30, 1998 to $175,000 for the three months ended June 30, 1999. Net income for the six months ended June 30, 1999 of $394,000 was an increase of $243,000 or 160.93%, from the net income of $151,000 for the six months ended June 30, 1998. The increase was primarily due to the increase in net interest income and non-interest income which was partially offset by an increase in non-interest expense and tax expense. 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 $218,000, or 23.5%, for the three months ended June 30, 1999 and $593,000, or 23.6%, for the six months ended June 30, 1999. The primary reason for the increase in net interest income was a decrease in interest expense of $84,000, or 6.6% and an increase in interest income of $134,000, or 6.1% for the three months ended June 30, 1999 compared to the comparable period in 1998. Interest expense decreased $243,000, or 9.6%, and interest income increased $200,000, or 4.5%, for the six months ended June 30, 1999 compared to the comparable period in 1998. The decrease in interest expense was due to a decline in the cost of funds. The increase in interest income was due to an increase in average earning assets which was partially offset by a decline in the yield on earning assets. The decline in the yield on earning assets and decline in cost of funds was due to a decline in overall market interest rates. 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 - ------------------------------------------------------------------------------- 15 GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - -------------------------------------------------------------------------------- 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 or six months ended June 30, 1999. The provision for loan losses recorded during both the three and six months ended June 30, 1998 totaled $150,000. The higher provision during 1998 was due to a $50,000 allocation recorded on a commercial loan taken during 1998 in addition to other factors including a nationwide increase in consumer bankruptcies and a strike at a large local employer going on at that time. The strike was subsequently settled and the workers affected by the layoffs have returned to work. In addition, while management feels it is appropriate to continue to maintain a higher than historical allowance based on local economic conditions and national trends indicated increased consumer bankruptcies, the Company did not experience an increase in loan charge-off's during the six months ended June 30, 1999 compared to the six months ended June 30, 1998. At June 30, 1999, the allowance for loan losses represented .57% of total loans compared to .59% at December 31, 1998. 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. NON-INTEREST INCOME. Non-interest income for both the six months ended June 30, 1999 and 1998 totaled $162,000. The Company experienced a $23,000, or 24.7%, decrease in non-interest income during the three months ended June 30, 1999 compared to the comparable period in 1998. NON-INTEREST EXPENSE. Noninterest expense increased $72,000, or 7.8%, for the quarter ended June 30, 1999 and $250,000, or 14.8%, for the six months ended June 30, 1999 compared to the similar periods in 1998. The increase was primarily due to an increase in salaries and employee benefits, occupancy costs and other non-interest expenses. Salaries and benefits increase $17,000 or 3.9%, for the three months ended June 30, 1999 and $58,000, or 6.9%, for the six months ended June 30, 1999, compared to the comparable periods in 1998. The increase in salaries and benefits and the increase in net occupancy expense were due in part to the two branch offices opened during 1998. In addition, a portion of the increases in salary and benefits expense was due to the Employee Stock Ownership Plan put in place when the Company converted from a mutual association to a stock company and the cost of the shares allocated to participants based on this plan. The increase in other expenses includes increased expenses associated with the additional branch offices, increased professional fees as a result of being a public company and increased data processing costs related to Y2K. INCOME TAXES. The provision for income taxes totaled $145,000 for the six months ended June 30, 1999 compared to $45,000 for the six months ended June 30, 1998, due to the increase in income before income taxes. - ------------------------------------------------------------------------------- 16 GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - -------------------------------------------------------------------------------- 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. The Association has continued to maintain the required levels of liquid assets as defined by OTS regulations. This requirement of the OTS, which may be varied at the direction of the OTS depending upon economic conditions and deposit flows, is based upon a percentage of deposits and short-term borrowings. The Association's currently required liquidity ratio is 4.0%. At June 30, 1999, the Association's liquidity ratio was 18.6%. At June 30, 1999, the Association exceeded all of its regulatory capital requirements with a tangible capital level of $22.0 million, or 16.22%, of total adjusted assets, which exceeds the required level of $2.0 million, or 1.5%; core capital of $22.0 million, or 16.22%, of total adjusted assets, which is above the required level of $5.4 million, or 4.0%; and risk-based capital of $22.3 million, or 36.85%, of risk-weighted assets, which is above the required level of $4.8 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, 1999, cash and cash equivalents totaled $8.9, or 6.2% of total assets. The Association has other sources of liquidity if a need for additional funds arises, including FHLB advances. At June 30, 1999, the Association had $29.2 million in advances outstanding from the FHLB-Cincinnati, and at June, 1999, had an additional overall 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 GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - -------------------------------------------------------------------------------- YEAR 2000 COMPLIANCE As the year 2000 approaches, an important business issue has emerged regarding how existing application software programs and operating systems can accommodate this date value. Many existing application software products were designed to accommodate only two-digits. For example, "98" is stored on the system to represent 1998. Accordingly, operating systems upon which the Company relies may recognize "00" as the year 1900 rather than 2000, causing the systems to fail or generate erroneous information. Although there can be no assurance that the Company and its service providers and vendors will be successful in remedying all potential problems, the Company has conducted a comprehensive review of its computer systems and equipment to identify applications that could be affected by the "Year 2000" problem and has implemented a plan designed to ensure that all software used in connection with the Company's business will manage and manipulate data involving the transition with data from 1999 to 2000 without functional or data abnormality and without inaccurate results related to such data. Pursuant to the plan, the Company has developed and implemented testing strategies and plans for testing internal mission critical systems and testing mission critical systems of service providers and vendors. Pursuant to the plan, the Company also proposes to identify material customers and evaluate Year 2000 risks that may be associated with them. The Company's mission critical data processing is performed under agreements with FISERV, Inc. ("FISERV"), a nationwide financial service bureau which performs loan processing, savings deposit processing, and other financial services. Consequently, the Company is very dependent on this service bureau to conduct its business. The Company has contacted FISERV, as well as each of its other service providers to request schedules for Year 2000 compliance and expected costs, if any, to be passed along to the Company. The Company believes that FISERV has completed its remediation efforts and is engaged in the testing phase of its Year 2000 plan. The Company has received assurances by FISERV that it is Year 2000 compliant. As a member of FISERV's client advisory group, the Company participated in the group testing of the FISERV systems that was completed prior to December 31, 1998. The Company completed individual testing with FISERV during the first six months of 1999. The Company's other service providers, which interface with FISERV, also completed their testing for Year 2000 compliance. The Company's in-house computers play a less critical role in the Company's operations and have been upgraded for Year 2000 compliance. Testing of these systems was completed by December 31, 1998. The Company believes that its costs related to Year 2000 will be approximately $70,000, in addition to any increased costs passed through as higher fees charged by service providers, which costs are not yet determined. Management does not expect these costs to have a significant impact on the Company's financial position or results of operations. However, there can be no assurance that all service providers' systems will be Year 2000 compliant, consequently, the Company could incur incremental costs to convert to another service provider. - ------------------------------------------------------------------------------- 18 GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - -------------------------------------------------------------------------------- In addition to possible expense related to its own systems, the Company could incur losses if Year 2000 issues adversely affect the Company's depositors or borrowers. Such problems could include delayed loan payments due to year-2000 problems affecting any of the Company's significant borrowers or impairing the payroll systems of large employers in the Company's market area. The Company has determined that Year 2000 non-compliance by any individual loan customer would have no material impact on the Company. Because the Company's loan portfolio is highly diversified with regard to individual borrowers and types of businesses, the Company does not expect any significant or prolonged year-2000 related difficulties arising from its customers that will affect the earnings or cash flows. The risks associated with the Year 2000 issue, however, could go beyond the Company's own ability to solve Year 2000 problems. Should suppliers of critical services fail in their efforts to be Year 2000 compliant, it could have significant adverse financial results for the Company. Accordingly, the Company is developing Year 2000 remediation contingency plans for mission-critical systems. These plans would likely involve replacement of service providers and alternatives to the Company's established plan. The Company has completed the majority of testing as of June 30, 1999 as stated in previous paragraphs. The Company will continue to develop their contingency plan over the next quarter based on the results from their testing. The above discussion contains certain forward-looking statements. The discussion is based on the Company's current estimates that are subject to uncertainties that could cause the implementation of the schedule, the costs and the results contemplated by the plan to differ materially from the Company's expectation. Such uncertainties include, but are not limited to, the continued progress and eventual success of service providers and other persons on which the Company and it customers depend. - ------------------------------------------------------------------------------- 19 GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY FORM 10-QSB Quarter ended June 30, 1999 PART II - OTHER INFORMATION - -------------------------------------------------------------------------------- Item 1. Legal Proceedings. Neither the Company nor its banking subsidiary, Central Federal Savings and Loan Association of Wellsville, is a party to any material legal proceedings at this time. From time to time the Company and its banking subsidiary are involved in various claims and legal actions arising in the ordinary course of business. 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 3.1 Certificate of Incorporation of Grand Central Financial Corp.(1) 3.2 Bylaws of Grand Central Financial Corp. (1) 21.0 Subsidiaries Information Incorporated Herein by Reference to Part 1 - Subsidiary Activity 27.0 Financial Data Schedule -------------------------- (1) 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. (b) Reports on Form 8-K. The Company filed a Current Report on Form 8-K on June 21, 1999, reporting the declaration of its first cash dividend payable on July 9, 1999 under Item 5. - ------------------------------------------------------------------------------- 20 GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY Form 10-QSB Quarter ended June 30, 1999 PART II - OTHER INFORMATION - -------------------------------------------------------------------------------- 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 12, 1999 By: /s/ William R. Williams -------------------------------------- William R. Williams President and Chief Executive Officer (principal executive officer) Dated: August 12, 1999 By: /s/ John A. Rife --------------------------------------- John A. Rife Executive Vice President and Treasurer (principal accounting and financial officer) - ------------------------------------------------------------------------------- 21 EX-27 2 EX-27
9 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY REPORT ON FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0001070680 GRAND CENTRAL FINANCIAL CORP. 1,000 U.S. DOLLARS 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 1 $4,172 4,680 0 0 4,326 58,702 57,296 66,070 375 143,791 81,851 519 298 29,158 0 0 19 31,946 143,791 2,591 1,897 124 4,612 1,617 2,293 2,319 0 27 1,942 539 394 0 0 394 .22 .22 3.5 72 0 0 0 379 7 3 375 375 0 0
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