UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 25049
FORM 10-Q
[X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended June 30, 1996
--------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission File Number 0-27620
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Green Street Financial Corp
---------------------------
(Exact name of registrant as specified in its charter)
North Carolina 56-1951478
- - ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
241 Green Street
Fayetteville, North Carolina 28301-5051
---------------------------------------
(Address of principal executive office) (Zip code)
(910)-483-3681
--------------
(Registrant's telephone number)
N/A
---
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
As of August 1, 1996 there were issued and outstanding 4,298,125 shares of the
Registrant's common stock, no par value.
<PAGE>
Green Street Financial Corp and Subsidiary
CONTENTS
PART I - FINANCIAL INFORMATION Pages
Item 1. Financial Statements
Consolidated statements of financial condition at September
30, 1995 and June 30, 1996 1-2
Consolidated statements of income for the three months ended
June 30, 1995 and June 30, 1996 3
Consolidated statements of income for the nine months ended
June 30, 1995 and June 30, 1996 4
Consolidated statements of cash flows for the nine months
ended June 30, 1995 and June 30, 1996 5-6
Notes to consolidated financial statements 7-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, 1995 and June 30, 1996
<TABLE>
<CAPTION>
September 30, June 30,
ASSETS 1995 1996
- - -----------------------------------------------------------------------------------------
(Unaudited)
Cash and short-term cash investments:
<S> <C> <C>
Interest-earning $ 27,472,071 $ 47,190,012
Noninterest-earning 638,210 612,714
Federal funds sold 537,769 1,400,806
Investment securities:
Held to maturity , at amortized cost 2,993,438 5,993,438
Nonmarketable equity securities 1,170,889 1,170,889
Loans receivable, net 117,201,293 121,574,131
Accrued interest receivable, investments 116,911 193,494
Real estate acquired in settlement of loans - 42,218
Property and equipment, net 352,252 336,692
Prepaid expenses and other assets 533,051 466,711
Refundable income taxes 12,000 -
-------------------------
Total Assets $151,027,884 $ 178,981,105
---------------------------
</TABLE>
See Notes to Consolidated Financial Statements
1
<PAGE>
<TABLE>
<CAPTION>
September 30, June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1996
- - -----------------------------------------------------------------------------------------
(Unaudited)
Liabilities:
<S> <C> <C>
Deposits $127,482,945 $ 114,121,951
Advance payments by borrowers for taxes and insurance 636,529 944,341
Accrued expenses and other liabilities 139,004 573,117
Deferred compensation 411,015 408,835
Deferred income taxes 128,000 164,000
Income taxes payable - 14,250
---------------------------
Total liabilities 128,797,493 116,226,494
---------------------------
Stockholders' equity:
Preferred stock, no par value, authorized 1,000,000
shares; none issued - -
Common stock, no par value, authorized 10,000,000 shares;
issued no shares in 1995 and 4,298,125 in 1996 - -
Additional paid-in capital - 41,744,021
Note receivable, ESOP - (2,535,000)
Retained earnings, substantially restricted 22,230,391 23,545,590
---------------------------
Total stockholders' equity 22,230,391 62,754,611
---------------------------
Total liabilities and stockholders' equity $151,027,884 $ 178,981,105
===========================
</TABLE>
2
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended June 30, 1995 and 1996
<TABLE>
<CAPTION>
1995 1996
- - ----------------------------------------------------------------------------------------
Interest and dividend income:
<S> <C> <C>
Loans $ 2,342,777 $ 2,467,129
Short-term cash investments 406,222 776,239
Investment securities 78,027 88,791
---------------------------
Total interest income 2,827,026 3,332,159
Interest on deposits 1,625,343 1,430,706
---------------------------
Net interest income 1,201,683 1,901,453
Provision for loan losses - 10,073
---------------------------
Net interest income after provision for loan
losses 1,201,683 1,891,380
---------------------------
Noninterest income:
Service charges and fees 5,550 10,413
Other 10,509 12,743
---------------------------
16,059 23,156
---------------------------
Noninterest expense:
Compensation and employee benefits 323,508 421,497
Deposit insurance 83,508 84,209
Occupancy expenses 36,240 37,910
Advertising 28,311 26,647
Data processing expense 21,669 22,298
Other 52,680 79,224
---------------------------
545,916 671,785
---------------------------
Income before income taxes 671,826 1,242,751
---------------------------
Income taxes:
Current 238,000 440,350
Deferred 4,000 10,000
---------------------------
242,000 450,350
---------------------------
Net income $ 429,826 $ 792,401
===========================
Primary earnings per share $ n/a $ 0.19
===========================
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Nine Months Ended June 30, 1995 and 1996
<TABLE>
<CAPTION>
1995 1996
- - ----------------------------------------------------------------------------------------
Interest and dividend income:
<S> <C> <C>
Loans $ 6,699,117 $ 7,392,857
Short-term cash investments 1,349,123 1,679,201
Investment securities 173,086 244,100
---------------------------
Total interest income 8,221,326 9,316,158
Interest on deposits 4,376,087 4,866,682
---------------------------
Net interest income 3,845,239 4,449,476
Provision for loan losses - 10,073
---------------------------
Net interest income after provision for loan
losses 3,845,239 4,439,403
---------------------------
Noninterest income:
Service charges and fees 25,633 46,377
Other 42,364 54,627
---------------------------
67,997 101,004
---------------------------
Noninterest expense:
Compensation and employee benefits 1,029,447 1,117,096
Deposit insurance 256,134 250,695
Occupancy expenses 115,440 121,269
Advertising 113,346 101,597
Data processing expense 70,940 75,408
Other 174,803 216,977
---------------------------
1,760,110 1,883,042
---------------------------
Income before income taxes 2,153,126 2,657,365
---------------------------
Income taxes:
Current 757,403 901,703
Deferred 14,000 36,000
---------------------------
771,403 937,703
---------------------------
Net income $ 1,381,723 $ 1,719,662
===========================
Primary earnings per share $ n/a $ 0.43
===========================
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine months ended June 30, 1995 and 1996
<TABLE>
<CAPTION>
1995 1996
- - -----------------------------------------------------------------------------------------
Cash Flows From Operating Activities
<S> <C> <C>
Net income $ 1,381,723 $ 1,719,662
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 31,638 32,327
Net gain on disposal of real estate acquired
in settlement of loans (2,172) (14,030)
Increase in deferred income taxes 14,000 36,000
Increase (decrease) in deferred compensation 13,198 (2,180)
ESOP compensation charged to paid-in capital - 17,160
Changes in assets and liabilities:
(Increase) decrease in:
Prepaid expenses and other assets 52,217 66,340
Refundable income taxes (8,000) 12,000
Accrued interest receivable (108,841) (76,583)
Increase (decrease) in:
Accrued expenses and other liabilities 75,264 29,650
Income taxes payable (12,500) 14,250
--------------------------
Net cash provided by operating activities 1,436,527 1,834,596
--------------------------
Cash Flows From Investing Activities
Net increase in loans receivable (9,600,048) (4,549,648)
Proceeds from sale of real estate acquired in settlement
of loans 39,920 148,622
Purchase of held to maturity investment securities (2,993,438) (3,000,000)
Purchase of property and equipment (13,251) (16,767)
--------------------------
Net cash used in investing activities (12,566,817) (7,417,793)
--------------------------
</TABLE>
5
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED JUNE 30, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
- - ----------------------------------------------------------------------------------------
Cash Flows From Financing Activities
<S> <C> <C>
Net decrease in deposits $ (4,044,704) $(13,360,994)
Proceeds received from issuance of common stock
net of stock issuance costs incurred - 39,126,861
Principal payment for ESOP debt - 65,000
Increase in advance payments by borrowers
for taxes and insurance 32,747 307,812
------------- ------------
Net cash provided by (used in) financing (4,011,957) 26,138,679
activities
------------- ------------
Net increase (decrease) in cash and cash (15,142,247) 20,555,482
equivalents
Cash and cash equivalents:
Beginning 42,862,715 28,648,050
------------- ------------
Ending $ 27,720,468 $49,203,532
============ ============
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest $ 4,373,123 $ 4,874,154
============ ============
Income taxes $ 777,903 $ 875,453
============ ===========
Cash and cash equivalents:
Cash and short-term investments:
Interest-bearing $ 26,346,379 $47,190,012
Noninterest-bearing 357,089 612,714
Federal funds sold 1,017,000 1,400,806
------------ -----------
$ 27,720,468 $49,203,532
============ ===========
Transfer from loans to real estate acquired in settlement of
loans $ - $ 175,459
============= ===========
Stock issued in exchange for note receivable from ESOP $ - $ 2,600,000
============= ===========
Accrued dividends payable $ - $ 404,463
============= ===========
</TABLE>
See Notes to Consolidated Financial Statements.
6
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- - -------------------------------------------------------------------------------
Note 1. Nature of Business
Green Street Financial Corp (the "Company") was incorporated under the laws of
the State of North Carolina for the purpose of becoming the savings and loan
holding company of Home Federal Savings and Loan (the "Association" or "Home
Federal") in connection with the Association's conversion from a federally
chartered mutual savings and loan association to a federally chartered stock
savings and loan association, pursuant to its Plan of Conversion. The Company
was organized in December 1995 to acquire all of the common stock of Home
Federal upon its conversion to stock form. A subscription and community offering
of the Company's shares closed on April 3, 1996, at which time the Company
acquired all of the shares of the Association and commenced operations.
Note 2. Basis of Presentation
The accompanying unaudited consolidated financial statements (except for the
statement of financial condition at September 30, 1995, which is audited) have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (none of
which were other than normal recurring accruals) necessary for a fair
presentation of the financial position and results of operations for the periods
presented have been included. The financial statements of the Company are
presented on a consolidated basis with those of Home Federal, although the
Company did not own any shares of the Association and had no assets,
liabilities, equity or operations at any date prior to April 3, 1996. Therefore,
although certain financial statements presented in this Form 10-Q include
periods prior to April 3, 1996, such statements for all periods prior to April
3, 1996 include only the accounts and operations of Home Federal. The results of
operations for the three and nine month periods ended June 30, 1996 are not
necessarily indicative of the results of operations that may be expected for the
year ended September 30, 1996.
The accounting policies followed are as set forth in Note 1 of the Notes to
Financial Statements in the 1995 Home Federal financial statements, except for
the adoption of SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan," which was amended by SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures." These statements
were adopted effective October 1, 1995 as explained below.
Note 3. Earnings Per Share
The Company's earnings per share for the three and nine month periods ended June
30, 1996 is based on 4,044,625 shares assumed to be outstanding for the periods.
Earnings per share has been calculated in accordance with Statement of Position
93-6 "Employers' Accounting for Employee Stock Ownership Plans." Earnings per
share for the nine month period ended June 30, 1996 is reported based upon the
7
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- - --------------------------------------------------------------------------------
Note 3. Earnings Per Share (Continued)
assumption that such shares had been outstanding from the beginning of the nine
month period although the shares were actually outstanding for periods
subsequent to April 3, 1996 and no consideration has been given to the earnings
that would have been generated had such shares been issued as of October 1,
1995. Earnings per share for the three and nine month periods ended June 30,
1995 have not been presented in the consolidated statements of income because
the Association had not converted to stock form and the Company had not
completed its stock offering at any time during those periods.
Note 4. Dividends Declared
On June 26, 1996, the Board of Directors of Green Street Financial Corp declared
a dividend of $ .10 a share for stockholders of record as of July 8, 1996 and
payable on July 19, 1996. The dividends declared were accrued and reported as
other liabilities in the June 30, 1996 consolidated balance sheet. In addition,
on June 26, 1996, the Board of Directors of Home Federal declared an upstream
dividend of $629,819 to Green Street Financial Corp, which was paid on July 19,
1996.
Note 5. Adoption of SFAS No. 114 and 118
The Company and Home Federal were required to adopt Statement of Financial
Accounting Standards (SFAS) No. 114 "Accounting by Creditors for Impairment of a
Loan" and SFAS No. 118 "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures" as of October 1, 1995. SFAS No. 114 requires
all creditors to measure the impairment of a loan based upon the present value
of the loan's future cash flows discounted using the loan's effective interest
rate. The loan can also be valued at its fair value or the market price of its
underlying collateral if the loan is primarily collateral dependent. SFAS No.
118 amended SFAS No. 114 by adding disclosure requirements for impaired loans
and it permits greater latitude in the manner in which income on impaired loans
may be recognized as long as the creditor's policies are disclosed.
The adoption of SFAS No. 114 did not have an effect on the Association's
reporting for impaired loans since the Association had no loans outstanding
during the nine months ended June 30, 1996 which it considers to be impaired.
Therefore, there is no specific SFAS No. 114 allowance for impaired loans at
June 30, 1996.
The Association does not accrue interest on loans delinquent 90 days or more. At
the time the loan becomes delinquent 90 days, the Association reverses all
previously recorded interest income and establishes a reserve for uncollected
interest, which is reported as a liability. Interest collected while the loan is
in such status is credited to income in the period received. If the loan is
brought to a status in which it is no longer delinquent 90 days, the reserve for
uncollected interest is reversed and interest income is recognized. The
Association anticipates that it will account for interest on impaired loans in a
similar fashion in the future if and when it has impaired loans.
8
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- - --------------------------------------------------------------------------------
Note 6. Mutual to Stock Conversion
On October 17, 1995, The Board of Directors of the Association adopted
a Plan of Conversion (the Plan) under which the Association would convert from a
federally chartered mutual savings and loan association to a federally chartered
stock savings and loan association and become a wholly-owned subsidiary of the
Company formed in connection with the Conversion. The Plan was approved by the
Office of Thrift Supervision (OTS) and included the filing of a registration
statement with Securities and Exchange Commission. The Plan was approved by the
members of the Association at a special meeting held on March 20, 1996. In
accordance with the Plan, the Company issued common stock which was sold in the
Conversion. The closing of the offering occurred on April 3, 1996 and resulted
in a stock issuance of $42,981,250 (including $2,600,000 in shares purchased by
the ESOP), and proceeds of $41,726,861, net of conversion costs. The Company
transferred $20,863,430 of the net proceeds to Home Federal for the purchase of
all of the capital stock of the Association.
Concurrent with the Conversion, the Association has established a liquidation
account in an amount equal to its net worth as reflected in its latest statement
of financial condition used in its final conversion-offering circular. The
liquidation account will be maintained for the benefit of eligible deposit
account holders and supplemental eligible deposit account holders who continue
to maintain their deposit accounts in the Association after conversion. Only in
the event of a complete liquidation will eligible deposit account holders and
supplemental eligible deposit account holders be entitled to receive a
liquidation distribution from the liquidation account in the amount of the then
current adjusted sub account balance for deposit accounts then held before any
liquidation distribution may be made with respect to common stock. Dividends
paid by the Association subsequent to the conversion cannot be paid from this
liquidation account.
The Association may not declare or pay a cash dividend on its common stock if
its net worth would thereby be reduced below either the aggregate amount then
required for the liquidation account or the minimum regulatory capital
requirements imposed by federal regulations.
9
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- - --------------------------------------------------------------------------------
Comparison of Financial Condition at June 30, 1996 and September 30, 1995:
Total assets increased by $28.0 million or 18.5%, to $179.0 million at June 30,
1996 from $151.0 million at September 30, 1995. The increase in assets was
directly attributable to the proceeds received from the stock conversion which
closed on April 3, 1996. On April 3, 1996, $41.7 million which represented the
actual net proceeds from the offering (including $2.6 million in proceeds
allocated to the ESOP) were recorded as additional paid in capital. Of the
proceeds received in the conversion, approximately $9.5 million was withdrawn
from existing deposit accounts maintained at the Association, and accounted for
the majority of the decrease in deposits of $13.4 million or 10.5% between
September 30, 1995 and June 30, 1996. Net cash and short-term cash investments,
including federal funds sold, increased by $20.6 million or 71.8% to $49.2
million at June 30, 1996 from $28.6 million at September 30, 1995. This increase
was also attributable to the proceeds received from the stock offering.
Net loans receivable increased by $4.4 million or 3.7% to $121.6 million at June
30, 1996 from $117.2 million at September 30, 1995 as stablized interest rates
over a significant portion of the nine month period increased loan demand. The
Association purchased $3.0 million in held to maturity investment securities
during the nine months ended June 30, 1996, increasing the balance of such
investments outstanding to $5.9 million at June 30, 1996. The Association had no
borrowings outstanding during or at the end of the nine month period ended June
30, 1996, but has guaranteed the repayment of the ESOP's note payable to the
Company which it incurred on April 3, 1996 in order to purchase 260,000 shares
of stock in the Company. The Company's note receivable from the ESOP, which
includes a $65,000 principal repayment during the quarter ended June 30, 1996,
is reported as a reduction of stockholders' equity. Retained earnings increased
by $1.3 million to $23.5 million at June 30, 1996, which is attributable to the
Company's consolidated earnings during the nine months ended June 30, 1996, less
dividends accrued of $404,463 or $.10 per share.
At June 30, 1996, the Company's stockholders' equity amounted to $62.8 million,
which as a percentage of total assets was 35.1%. As a Federally chartered
savings and loan association, the Association is required to meet three separate
capital standards established by the Office of Thrift Supervision. The
Association's stand-alone equity was $44.7 million at June 30, 1996 and was
substantially in excess of all such capital requirements.
The Association's level of nonperforming loans, defined as loans past due 90
days or more, as a percentage of loans outstanding, was .26% and .27% at June
30, 1996 and September 30, 1995, respectively. During the three and nine month
periods ended June 30, 1996 and 1995, the Association's level of nonperforming
loans has remained consistently low in relation to prior periods and total loans
outstanding, and the Association has not charged off any loans. However, based
on management's analysis of the adequacy of its allowances and in conjunction
with an increase in the balance of loans outstanding at June 30, 1996, an
additional provision for loan loss allowances of $10,073 was made during the
three month period ended June 30, 1996. Management determined based on their
analysis that no loan loss provisions were necessary during the first two
quarters of fiscal 1996 or during the nine month period ended June 30, 1995.
10
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- - --------------------------------------------------------------------------------
Comparison of Operating Results for the Three and Nine Months Ended June 30,
1996 and 1995:
General. Net income for the three and nine month periods ended June 30, 1996 was
$792,000 and $1.7 million, respectively, or $363,000 and $338,000 more than the
$430,000 and $1.4 million earned during the same periods in 1995. As discussed
below, the increase in net income was primarily attributable to increases in net
interest income for the three and nine month periods ended June 30, 1996 as
compared to the same periods in 1995.
Interest income. Interest income increased by $505,000 from $2.8 million for the
three months ended June 30, 1995 to $3.3 million for the three months ended June
30, 1996. Interest income increased by $1.1 million from $8.2 million for the
nine months ended June 30, 1995 to $9.3 million for the nine months ended June
30, 1996. These increases were attributable in part to a slight overall increase
in market interest rates but were principally affected by a change in the volume
of interest-earning assets outstanding. Due primarily to an infusion of cash
received in the stock offering, interest-earning assets amounted to $177.3
million at June 30, 1996 as compared to $146.5 million at June 30, 1995.
Interest Expense. Interest expense decreased by $195,000 from $1.6 million for
the three months ended June 30, 1995 to $1.4 million for the three months ended
June 30, 1996. Interest expense increased by $491,000 from $4.4 million for the
nine months ended June 30, 1995 to $4.9 million for the nine months ended June
30, 1996. At the time of the Conversion, approximately $9.5 million in existing
deposits were withdrawn by customers for the purchase of stock in the Company,
causing a corresponding reduction in interest-bearing liabilities and thus
interest expense during the three month period ended June 30, 1996 as compared
to same period in 1995. However, for the nine months ended June 30, 1996, this
decrease in volume of interest-bearing liabilities during the quarter ended June
30, 1996 was more than offset by slightly higher cost of funds in effect during
the nine month period ended June 30, 1996 as compared to the same period in 1995
and because of the increased amount of deposits held while the subscription
phase of the offering was ongoing.
Net interest income. Net interest income increased by $700,000 from $1.2 million
for the three months ended June 30, 1995 to $1.9 million for the three months
ended June 30, 1996. Net interest income increased by $604,000 from $3.8 million
for the nine months ended June 30, 1995 to $4.4 million for the nine months
ended June 30, 1996. These increases resulted from the combination of an
increase in the volume of interest-earning assets and a decrease in the volume
of interest-bearing liabilities during a period of steady to slightly decreasing
interest rate spreads. The Association's interest rate spread decreased
primarily because its deposits were more rate sensitive than its interest
earning assets, while overall market interest rates were higher during the three
and nine month periods ended June 30, 1996 as compared to the same periods in
1995.
Provision for loan losses. A provision for loan losses of $10,073 was charged to
income during the three months ended June 30, 1996. No provisions for loan
losses were made during the prior two quarters of fiscal 1996, or during the
three and nine month periods ended June 30, 1995. Provisions, which are charged
to operations, and the resulting loan loss allowances are amounts the
Association's
11
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- - --------------------------------------------------------------------------------
Provision for loan losses (Continued)
management believes will be adequate to absorb losses on existing loans that may
become uncollectible. Loans are charged off against the allowance when
management believes that collectibility is unlikely. The evaluation to increase
or decrease the provision and resulting allowances is based both on prior loan
loss experience and other factors, such as changes in the nature and volume of
the loan portfolio, overall portfolio quality, and current economic conditions.
The provision made for the three months ended June 30, 1996 was made in response
to increased levels of loans outstanding at June 30, 1996. The Association's
level of nonperforming loans has remained consistently low in relation to prior
periods and total loans outstanding, and the Association has not charged off any
loans during either of the three or nine month periods ended June 30, 1996 and
1995.
At June 30, 1996, the Association's level of general valuation allowances for
loan losses amounted to $235,000, which management believes is adequate to
absorb potential losses in its loan portfolio.
Noninterest income. Noninterest income increased by $7,000 from $16,000 for the
three month period ended June 30, 1995 to $23,000 for the three month period
ended June 30, 1996. This increase was attributable to an increase in certain
types of loan servicing fees during the three months ended June 30, 1996 as
compared to the same period in 1995. Noninterest income increased by $33,000
from $68,000 for the nine month period ended June 30, 1995 to $101,000 for the
nine month period ended June 30, 1996 as a result of a gain on the sale of a
property that was foreclosed on and sold during the three month period ended
December 31, 1995, in addition to increases in loan servicing fees during the
previous two fiscal quarters.
Noninterest expense. Noninterest expense increased by $126,000 to $672,000 for
the three month period ended June 30, 1996 from $546,000 for the comparable
quarter in 1995. For the nine month periods ended June 30, 1996 and 1995,
noninterest expense increased by $123,000 to $1.9 million from $1.8 million. The
increase in noninterest expense is principally due to an increase in benefits
expense associated with the establishment of an ESOP as discussed below. ESOP
expense amounted to $82,000 for the three months ended June 30, 1996.
As a part of the conversion, the Company established an ESOP that acquired
260,000 shares of the stock offered in the conversion with funds provided in the
form of a loan from the Company. The loan is expected to be repaid over a ten
year period with funds provided by the Association sufficient to amortize the
debt. The expense associated with the ESOP is reported in accordance with SOP
93-6 "Employers' Accounting for Employee Stock Ownership Plans." In addition,
certain other benefit plans are expected to be placed before the Company's
stockholders for approval at a future stockholders' meeting to be held no sooner
than six months from April 3, 1996.
12
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- - --------------------------------------------------------------------------------
Capital Resources and Liquidity:
The term "liquidity" generally refers to an organization's ability to generate
adequate amounts of funds to meet its needs for cash. More specifically for
financial institutions, liquidity ensures that adequate funds are available to
meet deposit withdrawals, fund loan and capital expenditure commitments,
maintain reserve requirements, pay operating expenses, and provide funds for
debt service, dividends to stockholders, and other institutional commitments.
Funds are primarily provided through financial resources from operating
activities, expansion of the deposit base, borrowings, through the sale or
maturity of investments, the ability to raise equity capital, or maintenance of
shorter term interest-earning deposits.
During the nine month period ended June 30, 1996, cash and cash equivalents, a
significant source of liquidity, increased by approximately $20.6 million. This
increase is a direct result of the Company's stock offering which closed on
April 3, 1996. Cash flow resulting from internal operating activities provided
increases of $1.8 million in cash during the nine month period ended June 30,
1996. Financing activities, principally net proceeds from the stock offering of
$39.1 million reduced by deposit outflows of $13.4 million provided an
additional $26.1 million. A portion of the funding generated by operating and
financing activities provided cash for loan originations and purchases of
investment securities for a total of $7.4 million.
As a federally chartered savings association, Home Federal must maintain a daily
average balance of liquid assets equal to at least 5% of withdrawable deposits
and short-term borrowings. The Association's liquidity ratio at June 30, 1996,
as computed under OTS regulations, was considerably in excess of such
requirements. Given its excess liquidity and its ability to borrow from the
Federal Home Loan Bank, the Association believes that it will have sufficient
funds available to meet anticipated future loan commitments, unexpected deposit
withdrawals, and other cash requirements.
13
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not engaged in any legal proceedings at the
present time. From time to time, the Association is a party to
legal proceedings within the normal course of business wherein it
enforces its security interest in loans made by it, and other
matters of a similar nature.
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Not applicable
(b) Not applicable
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Green Street Financial Corp
Dated August 1, 1996 By: s/s H. D. Reaves, Jr.
---------------------------- -----------------------------
H. D. Reaves, Jr.
President and CEO
Dated August 1, 1996 By: s/s John C. Pate
---------------------------- -----------------------------
John C. Pate
Senior Vice President and CFO
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 612,714
<INT-BEARING-DEPOSITS> 47,190,012
<FED-FUNDS-SOLD> 1,400,806
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 5,993,438
<INVESTMENTS-MARKET> 6,021,564
<LOANS> 128,808,894
<ALLOWANCE> 234,763
<TOTAL-ASSETS> 178,981,105
<DEPOSITS> 114,121,951
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<LIABILITIES-OTHER> 2,104,543
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0
0
<COMMON> 41,744,021
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<TOTAL-LIABILITIES-AND-EQUITY> 178,981,105
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<INTEREST-OTHER> 1,679,201
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<EXPENSE-OTHER> 1,883,042
<INCOME-PRETAX> 2,657,365
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<NET-INCOME> 1,719,662
<EPS-PRIMARY> 0.43
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