UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 1999
--------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
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
incorporation or organization) Identification No.)
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 check X 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 May 10, 1999 there were issued and outstanding 3,879,269 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. Condensed Consolidated Financial Statements
Statements of financial condition at September 30, 1998
and March 31, 1999 (unaudited) 1-2
Statements of income for the three months ended
March 31, 1998 (unaudited) and
March 31, 1999 (unaudited) 3
Statements of income for the six months ended
March 31, 1998 (unaudited) and
March 31, 1999 (unaudited) 4
Statements of cash flows for the six months ended
March 31, 1998 (unaudited) and
March 31, 1999 (unaudited) 5-6
Notes to condensed consolidated financial statements 7-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
CONDENSED Consolidated Statements of Financial Condition
March 31, 1999 and September 30, 1998
March 31, September 30,
Assets 1999 1998
- --------------------------------------------------------------------------------
(Unaudited)
Cash and short-term cash investments:
Interest-earning $ 29,111,210 $ 27,817,856
Noninterest-earning 894,755 171,500
Federal funds sold 2,831,000 1,473,000
Investment securities:
Held to maturity, at amortized cost 3,000,000 9,000,000
Nonmarketable equity securities 1,147,500 1,144,700
Loans receivable, net 128,037,592 131,697,916
Accrued interest receivable, investments 59,470 180,301
Real estate acquired in settlement of loans 34,521 34,521
Property and equipment, net 461,308 349,190
Prepaid expenses and other assets 855,498 835,561
----------------------------
Total Assets $166,432,854 $172,704,545
============================
See Notes to Condensed Consolidated Financial Statements.
1
<PAGE>
<TABLE>
<CAPTION>
March 31, September 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
- -----------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Liabilities:
Deposits $ 106,191,009 $ 110,459,780
Advance payments by borrowers for taxes and insurance 771,452 208,998
Income taxes payable 22,000 -
Accrued expenses and other liabilities 378,366 222,918
Dividends payable 465,512 1,102,469
Deferred compensation 373,410 377,804
-----------------------------
Total liabilities 108,201,749 112,371,969
-----------------------------
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 and outstanding 3,879,269 shares - -
Additional paid-in capital 35,917,069 38,550,912
Unearned ESOP shares (1,820,000) (1,950,000)
Retained earnings, substantially restricted 24,134,036 23,731,664
-----------------------------
Total stockholders' equity 58,231,105 60,332,576
-----------------------------
Total liabilities and stockholders' equity $ 166,432,854 $ 172,704,545
=============================
</TABLE>
2
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest and dividend income:
Loans $ 2,480,926 $ 2,604,349
Investment Securities 476,019 689,760
-----------------------------
Total interest income 2,956,945 3,294,109
Interest expense 1,225,577 1,393,714
-----------------------------
Net interest income 1,731,368 1,900,395
Provision for loan losses - -
-----------------------------
Net interest income after provision for loan losses 1,731,368 1,900,395
-----------------------------
Noninterest income 39,506 52,658
-----------------------------
Noninterest expense:
Compensation and employee benefits 448,901 579,952
Other 248,935 258,392
-----------------------------
697,836 838,344
-----------------------------
Income before income taxes 1,073,038 1,114,709
Income taxes 402,400 422,300
-----------------------------
Net income $ 670,638 $ 692,409
=============================
Basic earnings per share $ 0.18 $ 0.17
=============================
Diluted earnings per share $ 0.18 $ 0.17
=============================
Dividends paid per share $ 0.12 $ 0.11
=============================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Six Months Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest and dividend income:
Loans $ 5,055,168 $ 5,227,983
Investment Securities 1,000,208 1,407,668
----------------------------
Total interest income 6,055,376 6,635,651
Interest expense 2,572,285 2,853,591
----------------------------
Net interest income 3,483,091 3,782,060
Provision for loan losses
----------------------------
Net interest income after provision for loan losses 3,483,091 3,782,060
----------------------------
Noninterest income 75,279 73,437
----------------------------
Noninterest expense:
Compensation and employee benefits 989,373 1,169,530
Other 477,575 475,767
----------------------------
1,466,948 1,645,297
----------------------------
Income before income taxes 2,091,422 2,210,200
Income taxes 778,011 828,750
----------------------------
Net income $ 1,313,411 $ 1,381,450
============================
Basic earnings per share $ 0.34 $ 0.34
============================
Diluted earnings per share $ 0.34 $ 0.33
============================
Dividends paid per share $ 0.24 $ 0.22
============================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 1,313,411 $ 1,381,450
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 18,000 18,000
Increase in deferred income taxes - 9,000
Decrease in deferred compensation (4,394) (6,411)
ESOP compensation credited to paid-in capital 39,975 106,990
Changes in assets and liabilities:
(Increase) decrease in:
Prepaid expenses and other assets (19,937) 40,269
Accrued interest receivable 120,831 96,070
Increase (decrease) in:
Accrued expenses and other liabilities 155,448 13,050
Income taxes payable 22,000 (208,600)
---------------------------
Net cash provided by operating activities 1,645,334 1,449,818
---------------------------
Cash Flows From Investing Activities
Net decrease (increase) in loans receivable 3,660,324 (2,897,321)
Proceeds from maturities of held to maturity investment securities 6,000,000 18,000,000
Purchase of held to maturity investment securities (15,000,000)
Purchase of nonmarketable equity securities (2,800) (18,300)
Purchase of property and equipment (130,118) (16,968)
---------------------------
Net cash provided by investing activities 9,527,406 67,411
---------------------------
</TABLE>
5
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Financing Activities
Net decrease in deposits $ (4,268,771) $ (531,291)
Principal payment for ESOP debt 130,000 130,000
Cash dividends paid (1,547,996) (1,543,832)
Redemption of common stock (2,673,818) -
Increase in advance payments by borrowers
for taxes and insurance 562,454 588,752
-----------------------------
Net cash used in financing activities (7,798,131) (1,356,371)
-----------------------------
Net increase in cash and cash equivalents 3,374,609 160,858
Cash and cash equivalents:
Beginning 29,462,356 33,087,640
-----------------------------
Ending $ 32,836,965 $ 33,248,498
=============================
Cash and cash equivalents:
Cash and short-term investments:
Interest-bearing $ 29,111,210 $ 31,153,936
Noninterest-bearing 894,755 361,562
Federal funds sold 2,831,000 1,733,000
-----------------------------
$ 32,836,965 $ 33,248,498
=============================
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest $ 2,573,475 $ 2,851,596
=============================
Income taxes $ 756,011 $ 1,050,350
=============================
Supplemental Disclosure of Noncash Investing and Financing
Activities:
Dividends declared and accrued $ 465,512 $ 472,794
=============================
Transfer from loans to real estate acquired
in settlement of loans $ - $ 51,749
=============================
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
Note 1. Nature of Business
Green Street Financial Corp (the "Corporation") 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 Association (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
Corporation was organized in December 1995 to acquire all of the common stock of
Home Federal upon its conversion to stock form. A subscription offering of the
Corporation's shares closed on April 3, 1996, at which time the Corporation
acquired all of the shares of the Association and commenced operations. The
financial statements of the Corporation are presented on a consolidated basis
with those of Home Federal.
The Corporation has no operations and conducts no business of its own other than
owning Home Federal, investing its portion of the net proceeds received in the
Conversion, and lending funds to the Employee Stock Ownership Plan (the "ESOP")
which was formed in connection with the Conversion. The principal business of
the Association is accepting deposits from the general public and using those
deposits and other sources of funds to make loans secured by real estate and
other forms of collateral located in the Association's primary market area of
Cumberland and Robeson counties in North Carolina.
Home Federal's results of operations depend primarily on its net interest
income, which is the difference between interest income from interest-earning
assets and interest expense on interest-bearing liabilities. The Association's
operations are also affected by noninterest income, such as miscellaneous income
from loans, customer deposit account service charges, and other sources of
revenue. The Association's principal operating expenses, aside from interest
expense, consist of compensation and associated benefits, federal deposit
insurance premiums, occupancy costs, advertising, and other general and
administrative expenses.
Note 2. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and 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 results of operations for the six month period ended March 31, 1999 are not
necessarily indicative of the results of operations that may be expected for the
year ended September 30, 1999 or any other interim period.
The accounting policies followed are as set forth in Note 1 of the Notes to
Consolidated Financial Statements in the 1998 annual report of the Corporation.
7
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
Note 3. Dividends Declared
On March 31, 1999, the Board of Directors of the Corporation declared a dividend
of $ .12 a share for stockholders of record as of April 12, 1999 and payable on
April 23, 1999. The dividends declared were accrued and reported as other
liabilities in the March 31, 1999 consolidated statement of financial condition.
Note 4. Earnings Per Share
As required, the Corporation adopted statement of Financial Accounting Standards
No. 128 during the quarter ended December 31, 1997. This statement requires dual
presentation of basic and diluted earnings per share (EPS) with a reconciliation
of the numerator and denominator of the EPS computations. Basic per share
amounts are based on the weighted average shares of common stock outstanding.
Diluted earnings per share assume the conversion, exercise or issuance of all
potential common stock instruments such as options, warrants and convertible
securities, unless the effect is to reduce a loss or increase earnings per
share. Accordingly, this presentation has been adopted for all periods
presented. The basic and diluted weighted average shares outstanding are as
follows:
Three months ended:
<TABLE>
<CAPTION>
1999 1998
-----------------------------
<S> <C> <C>
Weighted average shares outstanding 3,996,458 4,298,125
Less unallocated ESOP shares 185,250 211,250
-----------------------------
Weighted average outstanding shares used for basic EPS 3,811,208 4,086,875
Plus incremental shares from assumed issuance
of stock options 71,735
-----------------------------
Weighted average outstanding shares used for diluted EPS 3,811,208 4,158,610
=============================
Net income $ 670,638 $ 692,409
=============================
Basic earnings per share $ 0.18 $ 0.17
=============================
Diluted earnings per share $ 0.18 $ 0.17
=============================
</TABLE>
8
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
Note 4. Earnings Per Share (Continued)
Six months ended:
<TABLE>
<CAPTION>
1999 1998
--------------------------------
<S> <C> <C>
Weighted average shares outstanding 4,040,315 4,298,125
Less unallocated ESOP shares 188,500 214,500
--------------------------------
Weighted average outstanding shares used for basic EPS 3,851,815 4,083,625
Plus incremental shares from assumed issuance
of stock options 71,735
--------------------------------
Weighted average outstanding shares used for diluted EPS 3,851,815 4,155,360
================================
Net income $ 1,313,411 $ 1,381,450
================================
Basic earnings per share $ 0.34 $ 0.34
================================
Diluted earnings per share $ 0.34 $ 0.33
================================
</TABLE>
Note 5. Restricted Stock Plan
Under the Restricted Stock Plan ("RSP"), 171,925 shares of common stock were
authorized for grant to directors and key employees and vested over a 5 year
period, which began vesting in October, 1997. Effective March 31, 1999, all
awards previously granted to directors under the RSP that have not as of March
17, 1999, become 100% earned and nonforfeitable, shall thereafter become earned
and nonforfeitable at the rate of one-sixth of the March 17, 1999 unearned
awards until October 17, 2004. This will result in a reduction of the cost of
the plan from approximately $512,000 to $286,000 for the years 1999 through
2001, and to approximately $226,000 for the years 2002 through 2004.
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 March 31, 1999 and September 30, 1998:
Total assets decreased to $166.4 million at March 31, 1999 compared to $172.7
million at September 30, 1998. The decrease was mainly attributed to a decrease
in cash and investments of $2.6 million and loans receivable of $3.7 million.
The decrease in cash is principally attributable to a 5% stock repurchase plan
of $2.7 million, which began in February, 1999 and was completed in March, 1999.
As a result of this plan, 203,950 shares were repurchased. Investments and other
short term interest earning assets amounted to $36.1 million at March 31, 1999.
Net loans receivable amounted to $128.0 million at March 31, 1999. Approximately
99% of the Corporation's assets were interest earning at March 31, 1999, and
approximately 78% of such interest earning assets were held in the form of loans
receivable.
Savings deposits decreased by $4.3 million during the period and amounted to
$106.2 million at March 31, 1999. The Association had no borrowings outstanding
during or at the end of the six month period ended March 31, 1999, but had
guaranteed the repayment of the ESOP's note payable to the Corporation which was
originated on April 3, 1996 in order for the ESOP to purchase 260,000 shares of
common stock in the Corporation. The Corporation's note receivable from the
ESOP, which amounted to $1.8 million at March 31, 1999 net of a $130,000
principal repayment during the period, is reported as a reduction of
stockholders' equity. Retained earnings increased by $.4 million to $24.1
million at March 31, 1999, which is attributable to the Corporation's
consolidated earnings during the six months ended March 31, 1999, less dividends
accrued for the period.
At March 31, 1999, the Corporation's stockholders' equity amounted to $58.2
million, which as a percentage of total assets was 35.0%. 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 $45.3 million at March 31,
1999 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 .19% and .15% at March
31, 1999 and September 30, 1998, respectively. The Association's level of
nonperforming loans was .21% at March 31, 1998. During the quarter ended March
31, 1999, the Association's level of nonperforming loans remained consistently
low in relation to total loans outstanding, and the Association did not incur
any loan losses. Based on management's analysis of the adequacy of its
allowances at march 31, 1999, no additional provision for loan losses was made
during the quarter.
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 Six Months Ended March 31,
1999 and 1998:
General. Net income for the three and six months period ended March 31, 1999 was
$671,000 and $1,313,000, respectively, or $21,000 and $68,000 less than the
$692,000 and $1,381,000 earned during the same periods in 1998. The decrease in
net income was primarily attributable to a decrease in net interest income for
the three months period and the six months period ended March 31, 1999 as
compared to the same periods in 1998.
Interest Income. Interest income decreased by $337,000 from $3.3 million for the
three months ended March 31, 1998 to $3.0 million for the three months ended
March 31, 1999. Interest income decreased by $580,000 from $6.6 million for the
six months ended March 31, 1998 to $6.1 million for the six months ended March
31, 1999. These decreases were attributable to the overall decrease in net loans
receivable and cash and investments.
Interest Expense. Interest expense decreased by $168,000 from $1.4 million for
the three months ended March 31, 1998 to $1.2 million for the three months ended
March 31, 1999. Interest expense decreased by $281,000 from $2.9 million for the
six months ended March 31, 1998 to $2.6 million for the six months ended March
31, 1999. The Association's savings deposits decreased by $4.3 million during
the six month period and the cost of funds for the same period decreased from
approximately 5.05% to approximately 4.75%. The Association's cost of funds
which approximated 4.95% for the quarter ended March 31, 1998 decreased to
approximately 4.55% for the quarter ended March 31, 1999.
Noninterest Income. Noninterest income has historically been immaterial in
relation to the Association's overall operations. Noninterest income amounted to
$40,000 and $75,000 for the three and six months ended March 31, 1999, and
$53,000 and $73,000 for the three and six months ended March 31, 1998,
respectively.
Noninterest Expense. Noninterest expense decreased by $140,000 to $698,000 for
the three months period ended March 31, 1999 from $838,000 for the comparable
quarter in 1998. For the six months period ended March 31, 1999, noninterest
expense amounted to $1.5 million, a decrease of $178,000 from the $1.6 million
reported for the six months ended March 31, 1998. The decrease in noninterest
expense for each period is principally due to a decrease in employee and
director benefits.
Year 2000 Issue. The "Year 2000 Problem" centers on the inability of computer
systems to recognize the Year 2000. Many existing computer programs and systems
were originally programmed with six digit dates that provided only two digits to
identify the calendar year in the date field, without considering the upcoming
change in the century. With the impending millennium, these programs and
computers will recognize "00" as the year 1900 rather than the year 2000. Like
most financial service providers, the Association and its operations may be
affected by the Year 2000 Problem due to the nature of financial information.
Software, hardware, and equipment both within and outside the Association's
direct control and with whom the Association electronically or operationally
interfaces (e.g. third party vendors providing data processing, information
system management, maintenance of computer systems,
11
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
Year 2000 Issue (Continued)
and credit bureau information) are likely to be affected. Furthermore, if
computer systems are not adequately changed to identify the Year 2000, many
computer applications could fail or create erroneous results. As a result, many
calculations which rely on the date field information, such as interest, payment
or due dates and other operating functions, will generate results which could be
significantly misstated, and the Association could experience a temporary
inability to process transactions, send invoices or engage in similar normal
business activities.
In addition, non-information technology systems, such as equipment like
telephones and copiers may also contain embedded technology which controls its
operation and which may be affected by the Year 2000 Problem. When the Year 2000
arrives, systems, including some of those with embedded chips, may not work
properly because of the way they store date information. They may not be able to
deal with the date 01/01/00. Thus, even non-information technology systems may
affect the normal operations of the Association upon the arrival of the Year
2000.
Under certain circumstances, failure to adequately address the Year 2000 Problem
could adversely affect the viability of the Association's suppliers and
creditors and the creditworthiness of its borrowers. Thus, if not adequately
addressed, the Year 2000 Problem could result in a significant adverse impact on
the Association's products, services and competitive condition.
In order to address the Year 2000 Issue and to minimize its potential adverse
impact, management has begun a process to identify areas that will be affected
by the Year 2000 Problem, assess its potential impact on the operations of the
Association, monitor the progress of third party software vendors in addressing
the matter, test changes provided by these vendors, and develop contingency
plans for any critical systems which are not effectively reprogrammed. A
committee of senior officers of the Association has been formed to evaluate the
effects that the upcoming Year 2000 could have on computer programs utilized by
the Association. The Association's plan is divided into the five phases:
(1) Awareness. Define the problem, obtain executive level support and
develop an overall strategy. This phase was completed in April 1998.
(2) Assessment. Identify all systems and the criticality of the systems.
This phase was completed June 1998.
(3) Renovation. Program enhancements, hardware and software upgrades,
system replacements, and vendor certifications. This phase was
completed in February 1999.
(4) Validation. Test and verify system changes and coordinate with outside
parties. This phase was completed in April 1999.
12
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
Year 2000 Issue (Continued)
(5) Implementation. Components certified as Year 2000 compliant and moved
to production. This phase is in process with a scheduled completion
date of July 1999.
Third party vendors provide the majority of software used by the Association.
All of the Association's vendors are aware of the Year 2000 situation, and each
has assured the Association that it is currently working to have its software
compliant by July 1999, and testing for the critical applications began in April
1998. This will enable the Association to devote substantial time to the testing
to the upgraded systems prior to the arrival of the millennium. The Association
utilizes the service of a third party vendor to provide the software which is
used to process and maintain most mortgage and deposit customer-related
accounts. This vendor has provided the Company with a software version which has
been certified to be Year 2000 compliant. Testing by the Association is underway
to verify compliance for its application and usage. The Association presently
believes that with modifications to existing software and conversions to new
software that it is currently undertaking, the Year 2000 Problem will be
mitigated without causing an adverse impact on the operations of the
Association.
In addition, monitoring and managing the Year 2000 project will result in
additional direct and indirect costs to the Association. Direct costs include
potential charges by third party software vendors for product enhancements,
costs involved in testing software products for Year 2000 compliance, and any
resulting costs for developing and implementing contingency plans for critical
software products which are not enhances. Indirect costs will principally
consist of the time devoted by existing employees in monitoring software vendor
progress, testing enhanced software products and implementing any necessary
contingency plans. The Association has spent approximately $25,000 on Year 2000
related costs to date and estimates that it will spend an additional $2,500 for
Year 2000 compliance. Both direct and indirect costs of addressing the Year 2000
Problem will be charged to earnings as incurred. The Association does not
believe that such costs will have a material effect on results of operations.
However, there can be no guarantee that the systems of other companies on which
the Association's systems rely will be timely converted, or that a failure to
convert by another company or a conversion that is incompatible with the
Association's systems, would not have material adverse effect on the
Association.
The costs of the project and the date on which the Association plans to complete
the Year 2000 modifications are based on management's best estimates, which were
derived utilizing numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ from those plans. Specific factors that
might cause such differences include, but are not limited to, the availability
and cost of personnel trained in this area, the ability to locate and correct
all relevant computer codes, and similar uncertainties.
13
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
Impact of Inflation and Changing Prices
The consolidated financial statements and accompanying footnotes have been
prepared in accordance with generally accepted accounting principles ("GAAP"),
which require the measurement of financial position and operating results in
terms of historical dollars without consideration for changes in the relative
purchasing power of money over time due to inflation. The assets and liabilities
of the Corporation are primarily monetary in nature and changes in interest
rates have a greater impact on the Corporation's performance than do the effects
of inflation.
14
<PAGE>
GREEN STREET FINANCIAL CORP AND SUBSIDIARY
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ----------------------------------------------------------
There were no significant changes for the six months ended March 31, 1999 from
the information presented in the annual report on Form 10-K for the year ended
September 30, 1998, concerning quantitative and qualitative disclosures about
market risk.
15
<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
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
On January 27, 1999, the annual meeting of stockholders was
held to consider and vote upon the election of three directors
of the Company and to ratify the appointment of McGladrey &
Pullen, LLP as independent auditors for the Company for the
fiscal year ending September 30, 1999. All items were approved
by the stockholders as shown below:
Vote concerning the election of directors of the Company:
For Against Abstain Total
----------------------------------------------
Grantham 3,596,122 155,311 0 3,751,433
Ray 3,595,504 155,929 0 3,751,433
Reaves, Jr. 3,596,578 154,855 0 3,751,433
Vote concerning ratification of McGladrey & Pullen, LLP as
independent auditors for the year ended September 30, 1999:
For Against Abstain Total
----------------------------------------------
3,697,564 29,489 24,380 3,751,433
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) 27. Financial Data Schedule
(b) No reports on 8-K were filed for the period covered by
this report.
16
<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 May 12, 1999 By: /s/ H. D. Reaves, Jr.
------------------------------
H. D. Reaves, Jr.
President and CEO
Dated May 12, 1999 By: /s/ John C. Pate
------------------------------
John C. Pate
Senior Vice President and CFO
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 895
<INT-BEARING-DEPOSITS> 29,111
<FED-FUNDS-SOLD> 2,831
<TRADING-ASSETS> 0
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<INVESTMENTS-MARKET> 4,157
<LOANS> 128,293
<ALLOWANCE> 255
<TOTAL-ASSETS> 166,433
<DEPOSITS> 106,191
<SHORT-TERM> 0
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0
0
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