<PAGE>
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
<PAGE>
GRAND CENTRAL FINANCIAL CORP.
FORM 10-QSB
QUARTER ENDED JUNE 30, 1999
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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
</TABLE>
<PAGE>
PART 1. FINANCIAL INFORMATION
GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited) (In thousands)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- ------------
<S> <C> <C>
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
----------- -----------
----------- -----------
</TABLE>
- -------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
3
<PAGE>
GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (In thousands, except per share amount)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
--------------------- ----------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
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
</TABLE>
- -------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
4
<PAGE>
GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited) (In thousands)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
Additional Obligation Other Total
Common Paid in Retained Under Comprehensive Shareholders
Stock Capital Earnings ESOP Income Equity
----- ----------- -------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
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
------ -------- -------- --------- ---- --------
------ -------- -------- --------- ---- --------
</TABLE>
- -------------------------------------------------------------------------------
5
See accompanying notes to consolidated financial statements.
<PAGE>
GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited) (In thousands)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------
1999 1998
---- ----
<S> <C> <C>
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
----- -----
----- -----
</TABLE>
- -------------------------------------------------------------------------------
6
See accompanying notes to consolidated financial statements.
<PAGE>
GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In thousands)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------
1999 1998
---- ----
<S> <C> <C>
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
</TABLE>
- -------------------------------------------------------------------------------
7
See accompanying notes to consolidated financial statements.
<PAGE>
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)
<PAGE>
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)
<PAGE>
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:
<TABLE>
<CAPTION>
June 30, 1999
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Loss Value
--------- ---------- ----------- ----------
(In thousands)
<S> <C> <C> <C> <C>
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
-------- ------ -------- --------
-------- ------ -------- --------
</TABLE>
- -------------------------------------------------------------------------------
10
(Continued)
<PAGE>
GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE 2 - INVESTMENT AND MORTGAGE-BACKED SECURITIES (Continued)
<TABLE>
<CAPTION>
December 31, 1998
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Loss Value
--------- ---------- ---------- ---------
(In thousands)
<S> <C> <C> <C> <C>
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
-------- ----- ----- --------
-------- ----- ----- --------
</TABLE>
NOTE 3 - LOANS RECEIVABLE
Loans are summarized as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---- -----
(In thousands)
<S> <C> <C>
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
-------- --------
-------- --------
</TABLE>
- -------------------------------------------------------------------------------
11
(Continued)
<PAGE>
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:
<TABLE>
<CAPTION>
Six months ended
June 30,
1999 1998
---- ----
(In thousands)
<S> <C> <C>
Balance, beginning of period $ 379 $ 231
Loans charged off (7) (7)
Recoveries 3 1
Provision for losses -- 150
----- ------
Balance, end of period $ 375 $ 375
----- ------
----- ------
</TABLE>
- -------------------------------------------------------------------------------
12
(Continued)
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
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.
</LEGEND>
<CIK> 0001070680
<NAME> GRAND CENTRAL FINANCIAL CORP.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> $4,172
<INT-BEARING-DEPOSITS> 4,680
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,326
<INVESTMENTS-CARRYING> 58,702
<INVESTMENTS-MARKET> 57,296
<LOANS> 66,070
<ALLOWANCE> 375
<TOTAL-ASSETS> 143,791
<DEPOSITS> 81,851
<SHORT-TERM> 519
<LIABILITIES-OTHER> 298
<LONG-TERM> 29,158
0
0
<COMMON> 19
<OTHER-SE> 31,946
<TOTAL-LIABILITIES-AND-EQUITY> 143,791
<INTEREST-LOAN> 2,591
<INTEREST-INVEST> 1,897
<INTEREST-OTHER> 124
<INTEREST-TOTAL> 4,612
<INTEREST-DEPOSIT> 1,617
<INTEREST-EXPENSE> 2,293
<INTEREST-INCOME-NET> 2,319
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 27
<EXPENSE-OTHER> 1,942
<INCOME-PRETAX> 539
<INCOME-PRE-EXTRAORDINARY> 394
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 394
<EPS-BASIC> .22
<EPS-DILUTED> .22
<YIELD-ACTUAL> 3.5
<LOANS-NON> 72
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 379
<CHARGE-OFFS> 7
<RECOVERIES> 3
<ALLOWANCE-CLOSE> 375
<ALLOWANCE-DOMESTIC> 375
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
