<PAGE> 1
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, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to______________
Commission File Number 0-25945
-------
GRAND CENTRAL FINANCIAL CORP.
-----------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 34-1877137
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
601 Main Street, Wellsville, Ohio 43968
---------------------------------------
(Address of principal executive offices)
(330) 532-1517
--------------
(Issuer's telephone number)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Class: Outstanding at July 31, 2000
Common stock, $0.01 par value 1,757,927 common shares
Transitional Small Business Disclosure Format (check one) Yes[ ] No[X]
<PAGE> 2
GRAND CENTRAL FINANCIAL CORP.
FORM 10-QSB
QUARTER ENDED JUNE 30, 2000
INDEX
<TABLE>
<CAPTION>
PART I. Financial Information
Page
----
Item 1 - Financial Statements
<S> <C>
Consolidated Balance Sheets as of June 30, 2000 and
December 31, 1999 .............................................................................. 3
Consolidated Statements of Income for the three and six months ended
June 30, 2000 and 1999.......................................................................... 4
Consolidated Statements of Comprehensive Income for the three and six
months ended June 30, 2000 and 1999 ............................................................ 5
Condensed Consolidated Statements of Changes in Shareholders' Equity
for the six months ended June 30, 2000.......................................................... 6
Condensed Consolidated Statements of Cash Flows for the six months
ended June 30, 2000 and 1999.................................................................... 7
Notes to Consolidated Financial Statements ..................................................... 8
Item 2 - Management's Discussion and Analysis or Plan of Operation.................................... 14
PART II. Other Information
Item 1. Legal Proceedings............................................................................ 19
Item 2. Changes in Securities ....................................................................... 19
Item 3. Defaults Upon Senior Securities.............................................................. 19
Item 4. Submission of Matters to a Vote of Security Holders.......................................... 19
Item 5. Other Information............................................................................ 19
Item 6. Exhibits and Reports on Form 8-K............................................................. 20
Signatures ........................................................................................... 21
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
June 30, December 31,
2000 1999
---- ----
<S> <C> <C>
ASSETS
Cash and amounts due from depository institutions $ 2,422 $ 2,597
Interest-bearing deposits in other banks - 2,331
----------------- -----------------
Total cash and cash equivalents 2,422 4,928
Time deposits with other banks 7,000
Securities available for sale 3,395 3,795
Securities held to maturity (estimated fair value
of $36,129 in 2000 and $52,300 in 1999) 38,367 54,708
Loans held for sale - 147
Total loans 81,100 73,546
Less: Allowance for loan losses (373) (369)
----------------- -----------------
Net loans 80,727 73,177
Federal Home Loan Bank stock, at cost 3,055 2,895
Premises and equipment, net 1,150 1,244
Accrued interest receivable 885 983
Other assets 677 620
----------------- -----------------
Total assets $ 137,678 $ 142,497
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Non interest-bearing $ 1,504 $ 1,090
Interest-bearing 73,026 74,743
----------------- -----------------
Total deposits 74,530 75,833
Federal Home Loan Bank advances 37,142 36,419
Loan payable 7,000 -
Advance payments by borrowers for taxes and insurance 610 550
Accrued interest payable 385 178
Other liabilities 137 317
----------------- -----------------
Total liabilities 119,804 113,297
----------------- -----------------
Commitments and Contingencies
Preferred stock, authorized 1,000,000 shares, no shares
issued and outstanding
Common stock, $.01 par value, 6,000,000 shares
authorized, 1,938,871 shares issued 19 19
Additional paid-in capital 8,297 18,595
Retained earnings, substantially restricted 13,893 14,010
Unearned stock based incentive plan shares (417) (934)
Treasury stock, 180,944 shares, at cost (2,009) (1,285)
Unearned employee stock ownership plan shares (1,911) (1,231)
Accumulated other comprehensive income 2 26
----------------- -----------------
Total shareholders' equity 17,874 29,200
----------------- -----------------
Total liabilities and shareholders' equity $ 137,678 $ 142,497
================= =================
-------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
3.
<PAGE> 4
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,
-------- --------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 1,514 $ 1,294 $ 2,969 $ 2,591
Interest on securities:
Taxable 879 1,015 1,703 1,892
Non-taxable - 2 1 5
Interest-bearing deposits in banks 5 27 152 124
------ ------ -------- -------
Total interest income 2,398 2,338 4,825 4,612
INTEREST EXPENSE
Deposits 782 800 1,541 1,617
FHLB borrowings 501 393 998 676
Loan payable 126 - 150 -
--------------- -------------- -------------- ---------------
Total interest expense 1,409 1,193 2,689 2,293
NET INTEREST INCOME 989 1,145 2,136 2,319
Provision for loan losses - - - -
--------------- -------------- -------------- ---------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 989 1,145 2,136 2,319
NON-INTEREST INCOME
Service charges 51 10 109 98
Gain on sale of loans 3 - 3 12
Gain on sale of securities - 16 6 27
Other income 43 44 56 25
--------------- -------------- -------------- ---------------
Total non-interest income 97 70 174 162
NON-INTEREST EXPENSE
Salaries and employee benefits 452 451 1,382 897
Net occupancy expense 91 134 191 265
Data processing expense 35 37 74 79
FDIC assessments 4 13 8 25
Franchise taxes 83 49 166 113
Other expenses 194 314 385 563
--------------- -------------- -------------- ---------------
Total non-interest expense 859 998 2,206 1,942
Income before income taxes 227 217 104 539
Income tax expense 45 42 3 145
--------------- -------------- -------------- ---------------
Net income $ 182 $ 175 $ 101 $ 394
=============== ============== ============== ===============
Basic and diluted earnings
per share $ .11 $ 0.10 $ 0.06 $ 0.22
-------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
4.
<PAGE> 5
GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET INCOME $ 182 $ 175 $ 101 $ 394
Other comprehensive income, net of tax
Unrealized gain (loss) on securities
available for sale arising during
the period (29) - (28) (32)
Less: Reclassified adjustment for
accumulated gains included
in net income - 11 4 18
--------------- -------------- -------------- ---------------
Unrealized gains (losses) on
securities (29) (11) (24) (14)
--------------- -------------- -------------- ---------------
COMPREHENSIVE INCOME $ 153 $ 164 $ 77 $ 380
=============== ============== ============== ===============
-------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
5.
<PAGE> 6
GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
Unearned Unearned
Employee Stock Accumulated Total
Additional Stock Based Other Share-
Common Paid in Retained Ownership Incentive Treasury Comprehensive holders
Stock Capital Earnings Plan Shares Plan Shares Stock Income Equity
----- ------- -------- ----------------------- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 2000 $ 19 $ 18,595 $ 14,010 $ (1,231) $ (934) $ (1,285) $ 26 $ 29,200
Return of capital - $6.00 per share (10,313) (738) (11,051)
Commitment to release ESOP shares 15 58 73
Release of incentive shares 517 517
Purchase of treasury stock (724) (724)
Cash dividends (218) (218)
Comprehensive income:
Net income 101 101
Change in unrealized
gain on securities
available-for-sale, net of tax (24) (24)
------- ----------- --------- --------- -------- --------- --------- ----------
Balances at June 30, 2000 $ 19 $ 8,297 $ 13,893 $ (1,911) $ (417) $ (2,009) $ 2 $ 17,874
======= =========== ========= ========= ======== ========= ========= ==========
-----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
6.
<PAGE> 7
GRAND CENTRAL FINANCIAL CORP. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Six Months Ended
June 30,
--------
2000 1999
---- ----
<S> <C> <C>
NET CASH FROM OPERATING ACTIVITIES $ 820 $ 785
CASH FLOWS FROM INVESTING ACTIVITIES
Securities available for sale
Purchases (174) (890)
Proceeds from sales 124 366
Proceeds from maturities and payments 476 1,329
Securities held to maturity
Purchases - (47,057)
Proceeds from maturities and payments 16,310 20,984
Increase in time deposits with other banks (7,000)
Net change in loans (7,547) (2,657)
Purchases of premises and equipment - (119)
--------------- -----------------
Net cash from investing activities 2,189 (28,044)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits (1,303) (2,787)
Net change in escrow accounts 60 (257)
Proceeds from loan payable 7,000
Return of capital (11,051)
Cash dividends (218)
Purchase of treasury stock (725)
Proceeds from long-term FHLB advances 28,120 14,700
Repayment of long-term FHLB advances (27,398) (1,571)
--------------- ----------------
Net cash from financing activities (5,515) 10,085
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,506) (17,174)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,928 26,026
--------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,422 $ 8,852
=============== ================
SUPPLEMENTAL DISCLOSURES Cash paid during the period for:
Interest $ 2,647 $ 2,249
Income taxes 3 145
-------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
7.
<PAGE> 8
GRAND CENTRAL FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unless otherwise indicated, amounts in thousand.
BASIS OF PRESENTATION: These interim consolidated financial statements reflect
all adjustments which, in the opinion of management, are necessary to present
fairly the financial position of Grand Central Financial Corp. ("Company") and
its sole subsidiary, Central Federal Savings and Loan Association of Wellsville
("Association"), at June 30, 2000, 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, 2000 and 1999 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, 1999, contains consolidated
financial statements and related notes that should be read in conjunction with
the accompanying unaudited consolidated financial statements.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of Grand Central Financial Corp. and its wholly-owned subsidiary
Central Federal Savings and Loan of Wellsville. All significant intercompany
balances and transactions have been eliminated in consolidation.
NATURE OF OPERATIONS:
The Company is engaged in the business of banking with operations and four
offices in Wellsville, Ohio and surrounding areas, which are primarily light
industrial areas. These communities are the source of substantially all of the
Company's deposits and loan activities. The Company's primary source of revenue
is single-family residential loans to middle income individuals.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expense during the reporting
period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans.
INVESTMENT AND MORTGAGE-BACKED SECURITIES:
Securities are classified as held to maturity and carried at amortized cost when
management has the positive intent and ability to hold them to maturity.
Securities are classified as available for sale when they might be sold before
maturity. Securities available for sale are carried at fair value, with
unrealized holding gains and losses reported in other comprehensive income.
Trading securities are carried at fair value, with changes in unrealized holding
gains and losses included in income. Other securities such as Federal Home Loan
bank stock are carried at cost.
--------------------------------------------------------------------------------
(Continued)
8.
<PAGE> 9
GRAND CENTRAL FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
INVESTMENT AND MORTGAGE-BACKED SECURITIES: (continued)
Interest income includes amortization of purchase premium or discount. Gains and
losses on sales are based on the amortized cost of the security sold. Securities
are written down to fair value when a decline in fair value is not temporary.
LOANS:
Loans are stated at unpaid principal balances, less the allowance for loan
losses and net deferred loan fees. Interest income on loans is accrued over the
term of the loans based upon the principal outstanding. The allowance for loan
losses is increased by charges to income and decreased by charge-offs (net of
recoveries). Management's periodic evaluation of the adequacy of the allowance
is based on the Company's past loan loss experience, known and inherent risks in
the portfolio, adverse situations that may affect the collateral, and current
economic conditions.
Uncollectible interest on loans that are contractually past due is charged off,
or an allowance is established based on management's periodic evaluation. The
allowance is established by a charge to interest income equal to all interest
previously accrued and unpaid, and income is subsequently recognized only to the
extent that cash payments are received until, in management's judgment, the
borrower demonstrates the ability to make periodic interest payments in which
case the loan is returned to accrual status.
Loans considered to be impaired, as identified according to internal loan review
standards, are reduced to the present value of expected future cash flows or to
the fair value of collateral by allocating a portion of the allowance for loan
losses to such loans. If these allocations cause the allowance for loan losses
to require an increase, such an increase will be reported as a provision for
loan losses charged to operations.
Management analyzes loans on an individual basis and classifies a loan as
impaired when an analysis of the borrower's operating results and financial
condition indicates that underlying cash flows are not adequate to meet its debt
service requirements. Often this is associated with a delay or shortfall in
payments of 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.
--------------------------------------------------------------------------------
(Continued)
9.
<PAGE> 10
GRAND CENTRAL FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
INCOME TAXES:
Income tax expense is based on the effective tax rate expected to be applicable
for the entire year. The Company follows the liability method of accounting for
income taxes. The liability method provides that deferred tax assets and
liabilities are recorded at enacted tax rates based on the difference between
the tax basis of assets and liabilities and their carrying amounts for financial
reporting purposes, referred to as "temporary differences". A valuation
allowance, if needed, reduces deferred tax assets to the amount expected to be
realized.
EARNINGS PER SHARE:
Basic earnings per common share is net income divided by the weighted average
number of common shares outstanding during the period. ESOP shares are
considered outstanding for this calculation unless unearned. Stock based
incentive plan shares are considered outstanding as they become vested. Diluted
earnings per common share include the dilutive effect of stock based incentive
plan shares and the additional potential common shares issuable under stock
options. The basic weighted average shares were 1,622,351 and 1,807,234 and
diluted weighted average share were 1,645,702 and 1,806,467 for the six months
ended June 30, 2000 and 1999, respectively. The basic weighted average shares
were 1,594,342 and 1,808,582 and diluted weighted average shares were 1,615,368
and 1,808,582 for the three months ended June 30, 2000 and 1999, respectively.
COMPREHENSIVE INCOME:
Comprehensive income consists of net income and other comprehensive income.
Other comprehensive income includes unrealized gains and losses on securities
available for sale, which is also recognized as a separate component of
shareholders' equity.
--------------------------------------------------------------------------------
(Continued)
10.
<PAGE> 11
GRAND CENTRAL FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2000
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Loss Value
---- ----- ---- -----
(In thousands)
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Municipal securities $ 25 $ 25
Fannie Mae stock 56 $ (4) 52
Mortgage-backed securities:
Freddie Mac 227 (1) 226
Fannie Mae 1,286 $ 16 1,302
Ginnie Mae 1,798 (8) 1,790
--------------- -------------- --------------- ---------------
Total $ 3,392 $ 16 $ (13) $ 3,395
=============== ============== ============== ===============
HELD TO MATURITY:
U.S. government and federal
agencies $ 7,992 $ $ (527) $ 7,465
Mortgage-backed securities:
Freddie Mac 17,031 (885) 16,146
Fannie Mae 6,764 (364) 6,400
CMO's 6,580 (462) 6,118
--------------- -------------- --------------- ---------------
Total $ 38,367 $ $ (2,238) $ 36,129
=============== ============== =============== ===============
</TABLE>
--------------------------------------------------------------------------------
(Continued)
11.
<PAGE> 12
GRAND CENTRAL FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 2 - INVESTMENT AND MORTGAGE BACKED SECURITIES (continued)
<TABLE>
<CAPTION>
December 31, 1999
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Loss Value
---- ----- ---- -----
(In thousands)
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
Municipal securities $ 25 $ 25
Mortgage-backed securities:
Freddie Mac 281 $ (4) 277
Fannie Mae 1,486 $ 24 1,510
Ginnie Mae 1,963 20 1,983
--------------- -------------- --------------- ---------------
Total $ 3,755 $ 44 (4) $ 3,795
=============== ============== =============== ===============
HELD TO MATURITY:
U.S. government and federal
agencies $ 21,492 $ (547) $ 20,945
Mortgage-backed securities:
Freddie Mac 18,455 $ 13 (883) 17,585
Fannie Mae 7,210 6 (389) 6,827
CMO's 7,551 (608) 6,943
--------------- -------------- --------------- ---------------
Total $ 54,708 $ 19 $ (2,427) $ 52,300
=============== ============== =============== ===============
</TABLE>
NOTE 3 - LOANS RECEIVABLE
Loans are summarized as follows:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---- ----
(In thousands)
<S> <C> <C>
Loans secured by real estate:
Construction loans on single family residences $ 1,764 $ 2,073
Single family 57,445 51,560
Multi-family and commercial 1,182 1,301
Commercial loans 446 344
Consumer loans 20,263 18,268
------------ ------------
81,100 73,546
Allowance for loan losses (373) (369)
------------ ------------
Total $ 80,727 $ 73,177
============ ============
</TABLE>
--------------------------------------------------------------------------------
(Continued)
12.
<PAGE> 13
GRAND CENTRAL FINANCIAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 3 - LOANS RECEIVABLE (continued)
An analysis of the allowance for loan losses is as follows:
Six months ended
June 30,
2000 1999
---- ----
(In thousands)
Balance, beginning of period $ 369 $ 379
Loans charged off - (7)
Recoveries 4 3
Provision for losses - -
----------- -----------
Balance, end of period $ 373 $ 375
========== ===========
NOTE 4 - NOTE PAYABLE
The Company has a note payable with a local institution for $7,000 at a rate of
7.30%. The note had an original maturity of 10 months with principal and
interest paid on the maturity date, January 5, 2001. The note is secured by
stock.
--------------------------------------------------------------------------------
13.
<PAGE> 14
GRAND CENTRAL FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
--------------------------------------------------------------------------------
The following discussion compares the financial condition of Grand Central
Financial Corp. ("Company") and its wholly owned subsidiary, Central Federal
Savings and Loan Association of Wellsville (the "Association"), at June 30, 2000
to December 31, 1999 and the results of operations for the three months ended
June 30, 2000 and 1999 and six months ended June 30, 2000 and 1999. 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 Litigation 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.
--------------------------------------------------------------------------------
14.
<PAGE> 15
GRAND CENTRAL FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
--------------------------------------------------------------------------------
GENERAL
The Company does not transact any material business other than through
the Association. 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 charges, operating expenses and
franchise and income taxes. The Company's revenues are derived primarily from
interest on mortgage loans, consumer loans, mortgage-backed securities and
securities, as well as income from service charges and loan originations. The
Company's operating expenses principally consist of employee compensation and
benefits, occupancy, federal deposit-insurance premiums and other general and
administrative expenses. The Company's results of operations are also
significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities. Future changes in applicable law, regulations or
government policies may materially impact the Company.
MANAGEMENT STRATEGY
The Company is a community oriented financial institution offering a
variety of financial services to meet the needs of the communities it serves.
The Company attracts deposits from the general public and uses such deposits,
together with borrowings and other funds, to originate one-to four-family
residential mortgage loans and short-term consumer loans. To a lesser extent,
the Company also originates residential construction loans in its market area
and a limited amount of commercial business loans and loans secured by
multi-family and non-residential real estate. Management's efforts in increasing
the Company's volume of shorter-term consumer loans have been intended to help
reduce interest rate risk, as well as to build on the Company's residential
mortgage business. The Company's deposits are insured up to the maximum
allowable amount by the Savings Association Insurance Fund (the "SAIF"), and
administered by the Federal Deposit Insurance Corporation (the "FDIC"). The
Company also invests in mortgage-backed securities, most of which are insured or
guaranteed by federal agencies, as well as securities issued by the U.S.
government or agencies thereof.
The Company is not aware of any market or institutional trends, events
or uncertainties that are expected to have a material effect on liquidity,
capital resources or operations, except as discussed below. The Company is also
not aware of any current recommendations by its regulators which would have a
material effect if implemented, except as discussed below.
--------------------------------------------------------------------------------
15.
<PAGE> 16
GRAND CENTRAL FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
--------------------------------------------------------------------------------
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2000 AND DECEMBER 31, 1999
Total assets of the Company were $137.7 million at June 30, 2000,
compared to $142.5 million at December 31, 1999, representing a decrease of $4.8
million, or 3.38%. The primary component in the decrease in total assets was a
$16.7 million decrease in total securities (including securities available for
sale and held to maturity) which was partially offset by an increase in time
deposits with other banks and an increase in loans. Gross loans increased $7.6
million or 10.27% from December 31, 1999. The majority of the increase was in
the consumer and single family real estate portfolios. The majority increase was
due to demand in the surrounding area, however $1.2 million of the increase was
due to the Company purchasing loans from another financial institution. The
increase in loans was funded by the increase in Federal Home Loan Bank advances
of $723,000 and the conversion of securities. Deposits are still the main
funding objective for loans, but the Company will use FHLB Advances if needed.
The decrease in deposits is due to the closing of several branches. The decrease
in assets was primarily due to the securities being converted to help fund the
return of capital. The Company had a return of capital of $6.00 per share in the
first quarter of 2000. The Company also increased their long term debt by $7
million through a note payable, to help fund the return of capital.
Shareholders' equity decreased $11.3 million or 38.8% from December 31, 1999
mostly due to return of capital.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS AND SIX MONTHS ENDED
JUNE 30, 2000 AND JUNE 30, 1999
General. Net income for the three months ended June 30, 2000 increased
by $7,000 or 4.0% from $175,000 for the three months ended June 30, 1999 to
$182,000 for the three months ended June 30, 2000. Net income for the six months
ended June 30, 2000 of $101,000 was a decrease of $293,000 or 74.37%, from the
net income of $394,000 for the six months ended June 30, 1999. The decrease was
primarily due to the significant increase in salaries and employee benefits due
to an acceleration of expense for the stock based incentive plan in conjunction
with the return of capital. The return of capital triggered additional expense
for the stock based incentive plan when the return of capital for the shares in
the plan was passed through to the plan participants.
Net Interest Income. Net interest income is the largest component of
the Company's net income, and consists of the difference between interest income
generated on interest-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 decreased approximately $156,000, or 13.6%, for the
three months ended June 30, 2000 and $183,000, or 7.9%, for the six months ended
June 30, 2000 from the prior year periods. The primary reason for the decrease
is due to the increase in interest expense for the note payable, the proceeds of
which were used to help fund the return of capital and the decrease in interest
income from securities. Interest income was reduced since the Company had to
convert several securities to help the return of capital. Also, the Company has
increased the amount of FHLB advances, to fund the loan growth, which has
generated additional interest expense.
--------------------------------------------------------------------------------
16.
<PAGE> 17
GRAND CENTRAL FINANCIAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
--------------------------------------------------------------------------------
Provision for Loan Losses. The provision for loan losses is based on
management's regular review of the loan portfolio, which considers factors such
as past experience, prevailing general economic conditions and considerations
applicable to specific loans, such as the ability of the borrower to repay the
loan and the estimated value of the underlying collateral, as well as changes in
the size and growth of the loan portfolio.
No provision for loan losses was recorded during the three or six
months ended June 30, 2000 or 1999. At June 30, 2000, the allowance for loan
losses represented .46% of total loans compared to .50% at December 31, 1999.
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 the six months ended June
30, 2000 increased $12,000 from $162,000 for June 30, 1999. The majority of the
increase is due to the change in service charges. The Company increased their
service charge fees from 1999 to generate more income and offset the related
expenses. The increase in other income is not attributed to a specific reason,
except more activity from customers.
Non-interest Expense. Non-interest expense decreased $139,000, or
13.9%, for the quarter ended June 30, 2000 and increased $264,000, or 13.6% for
the six months ended June 30, 2000 compared to the similar periods in 1999. The
majority of the increase in salary and benefits expense was due to an expense
$492,000 associated with the stock based incentive plan. The stock based
incentive plan was not approved by the shareholders until July, 1999 so there
was no expense recorded for the plan in the first quarter of 1999. In addition,
of the $492,000 increase, $465,000 was due to an acceleration of the stock based
incentive plan expense recorded in conjunction with the return of capital which
was immediately passed through to plan participants. The future expense related
to stock based incentive plan for shares currently awarded will be reduced by
approximately $9,000 per month due to the accelerated expense recorded during
the first quarter of 2000. Excluding the additional expense related to the stock
based incentive plan, salary and benefit expense decreased in the first quarter
of 2000 compared to the same period in 1999. In addition, occupancy and data
processing expense decreased in 2000 from the same period in 1999. The decrease
in salary and benefit expense, occupancy and data processing is directly related
to costs savings achieved based on management's decision to close three in-store
branches in the fourth quarter of 1999. Also, franchise tax expense increased
from 1999, since the 1999 expense was much lower because the Company had shifted
its tax year just prior to converting from a mutual to stock form of
organization in December 30, 1998.
Income Taxes. The provision for income taxes totaled $3,000 for the six
months ended June 30, 2000 compared to $145,000 for the six months ended June
30, 1999, due to the decrease in income before income taxes.
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17.
<PAGE> 18
GRAND CENTRAL FINANCIAL CORP.
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, 2000, the Association's liquidity ratio was
17.2%.
At June 30, 2000, the Association exceeded all of its regulatory
capital requirements with a tangible capital level of $21.4 million, or 15.5%,
of total adjusted assets, which is above the required level of $4.4 million, or
4.0%; core capital of $21.4 million, or 32.2%, of adjusted total assets, which
is above the required level of $4.4 million, or 4.0%; and risk-based capital of
$21.7 million, or 32.7% of risk-weighted assets, which is above the required
level of $5.4 million, or 8.0%.
The Association's most liquid assets are cash and cash equivalents. The
levels of those assets are dependent on the Association's operating, financing,
lending and investing activities during any given period. At June 30, 2000, cash
and cash equivalents totaled $2.4 million, or 1.8% of total assets.
The Association has other sources of liquidity if a need for additional
funds arises, including FHLB advances. At June 30, 2000, the Association had
$37.1 million in advances outstanding from the FHLB-Cincinnati, and at June,
2000, had an additional overall borrowing capacity from the FHLB of $24.0
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.
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18.
<PAGE> 19
GRAND CENTRAL FINANCIAL CORP.
FORM 10-QSB
Quarter ended June 30, 2000
PART II - OTHER INFORMATION
--------------------------------------------------------------------------------
Item 1 Legal Proceedings.
The Company is not involved in any pending legal proceedings other than routine
legal proceedings occurring in the ordinary course of business. Such routine
legal proceedings, in the aggregate, are believed by management to be immaterial
to the Company's financial condition, results of operations or cash flows.
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.
Grand Central Financial Corp. held its Annual Meeting of Shareholders on April
26, 2000. Results of shareholder voting was as follows:
a) Election of Directors for three year terms:
Jeffrey W. Aldrich William R. Williams
------------------ -------------------
For 1,409,344 1,409,179
Abstain 73,522 73,522
Against - -
b) Amendments to 1999 Stock-Based Incentive Plan for key employees
Stock-Based Incentive Plan
--------------------------
For 1,329,143
Abstain 147,742
Against 5,981
c) Appointment of independent auditor for the fiscal year ending
December 31, 2000
Crowe, Chizek and Company, LLP
------------------------------
For 1,456,535
Abstain 18,850
Against 7,481
Item 5. Other Information.
None
--------------------------------------------------------------------------------
19.
<PAGE> 20
GRAND CENTRAL FINANCIAL CORP.
FORM 10-QSB
Quarter ended June 30, 2000
PART II - OTHER INFORMATION
--------------------------------------------------------------------------------
Item 6 Exhibits and Reports on Form 8-K.
<TABLE>
<CAPTION>
a) Exhibit
Number Exhibit
------ -------
<S> <C>
3.1 Certificate of Incorporation of Grand Central Financial Corp. (1)
3.2 Bylaws of Grand Central Financial Corp. (1)
16.0 Letter on change in certifying accountant (2)
27 Financial Data Schedule for the three months ended June 30, 2000
b) Reports on Form 8-K - on June 20, 2000, the issuer filed a Form 8-K. The information
reported is as follows:
</TABLE>
Grand Central Financial Corp. (the "Company"), reported the declaration of a
cash dividend of $.06 per share payable July 14, 2000 to stockholders of record
at the close of business on June 30, 2000.
(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.
(2) Incorporated by reference into this document from the Annual Report on Form
10-KSB, filed by the Company for the year ended December 31, 1998.
--------------------------------------------------------------------------------
20.
<PAGE> 21
GRAND CENTRAL FINANCIAL CORP.
Quarter ended June 30, 2000
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 11, 2000 By: /s/ William R. Williams
-----------------------
William R. Williams
President and Chief Executive Officer
(principal executive officer)
Dated: August 11, 2000 By: /s/ John A. Rife
----------------
John A. Rife
Executive Vice President and Treasurer
(principal accounting and financial officer)
--------------------------------------------------------------------------------
21.
