U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB-A
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
EXCHANGE ACT
For the transition period from to
---------------- -------------------
Commission file number 811-0969
THE FIRST CONNECTICUT CAPITAL CORPORATION
-----------------------------------------
(EXACT NAME OF SMALL BUSINESS ISSUER AS)
(SPECIFIED IN ITS CHARTER)
CONNECTICUT 06-0759497
-------------------------------- -------------------
(STATE OR OTHER JURISDICTION (IRS EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1000 BRIDGEPORT AVENUE, SHELTON, CONNECTICUT 06484
--------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(203) 944-5400
--------------------------
(ISSUER'S TELEPHONE NUMBER)
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Yes No
------ ------
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 1,173,382
---------
Transitional Small Business Format: Yes No X
---- ----
THE FIRST CONNECTICUT CAPITAL CORPORATION
BALANCE SHEETS, SEPTEMBER 30, 2002 and MARCH 31, 2002 (Dollars in thousands,
except share data)
September 30, March 31,
ASSETS 2002 2002
UNAUDITED AUDITED
------------- --------------
Cash and cash equivalents $ 702 $ 437
Loans - net of allowance for loan losses of
$634 at September 30, 2002 and $594 at March 31, 2002 2,447 2,172
Loans due from related parties 225 225
Loans held for sale 1,185 1,355
Due from partnerships 87 92
Accrued interest receivable 63 50
Servicing rights 81 69
Fixed assets 15 16
Deferred income taxes 130 250
Other assets 107 75
------------- --------------
TOTAL ASSETS $ 5,042 $ 4,741
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Line of credit $ 2,735 $ 2,441
Accounts payable to related parties - 203
Accounts payable and other accrued expenses 83 94
------------- --------------
TOTAL LIABILITIES 2,818 2,738
------------- --------------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock, no par value, stated value $.50
per share, authorized 3,000,000 shares,
issued and outstanding 1,173,382 shares 587 587
Additional paid in capital 9,253 9,253
Accumulated deficit (7,616) (7,837)
------------- --------------
TOTAL STOCKHOLDERS' EQUITY 2,224 2,003
------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,042 $ 4,741
============= ==============
See notes to financial statements.
1
THE FIRST CONNECTICUT CAPITAL CORPORATION
STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(Dollars in thousands, except share data)
Three Months Six Months Three Months Six Months
Ended Ended Ended Ended
Sep 30, 2002 Sep 30, 2002 Sep 30, 2001 Sep 30, 2001
UNAUDITED UNAUDITED UNAUDITED UNAUDITED
------------- ----------- ----------- ------------
INTEREST INCOME:
Interest and fees on loans $ 229 $ 491 $ 196 $ 387
Interest expense on line of credit 36 78 62 123
Other interest expense 1 9 4 7
------------- ----------- ----------- ------------
TOTAL INTEREST EXPENSE 37 87 66 130
------------- ----------- ----------- ------------
NET INTEREST INCOME 192 404 130 257
Reserve for loan losses 84 80 13 12
------------- ----------- ----------- ------------
NET INTEREST INCOME AFTER LOAN LOSSES AND
REDUCTION OF ALLOWANCE FOR LOANS 108 324 117 245
------------- ----------- ----------- ------------
OTHER OPERATING INCOME:
Servicing fees 41 64 32 45
Net gains on sales of loans held for sale 175 305 85 170
Other fees 4 21 9 17
------------- ----------- ----------- ------------
TOTAL OTHER OPERATING INCOME 220 390 126 232
------------- ----------- ----------- ------------
TOTAL INCOME 328 714 243 477
------------- ----------- ----------- ------------
OTHER OPERATING EXPENSES:
Officers' salaries 46 95 35 87
Other salaries 13 29 12 25
Directors' fees - - - 1
Professional services 51 60 5 10
Miscellaneous taxes 4 10 5 10
Employee and general insurance 13 25 10 21
Rent 8 16 8 16
Amortization of servicing rights 17 34 18 36
Corporate insurance expenses 7 14 5 10
Licenses, dues and subscriptions expenses 6 7 2 3
Communications 1 4 1 5
Advertising and promotions 2 4 1 2
Stock record and other financial expenses 3 7 2 6
Depreciation 1 2 1 2
Equipment and auto rental 3 10 3 7
Postage, office and other expenses 9 18 7 24
------------- ----------- ----------- ------------
TOTAL OTHER OPERATING EXPENSES 184 335 115 265
------------- ----------- ----------- ------------
INCOME BEFORE INCOME TAXES 144 379 128 212
INCOME TAX PROVISION 57 158 5 10
------------- ----------- ----------- ------------
NET INCOME $ 87 $ 221 $ 123 $ 202
============= =========== =========== ============
INCOME PER COMMON SHARE (BASIC AND DILUTED) $ 0.07 $ 0.19 $ 0.10 $ 0.17
============= =========== =========== ============
Weighted average number of
Common shares outstanding: (basic) 1,173,382 1,173,382 1,173,382 1,173,382
============= =========== =========== ============
Common shares outstanding: (diluted) 1,183,241 1,177,860 1,185,711 1,178,857
============= =========== =========== ============
See notes to financial statements.
2
THE FIRST CONNECTICUT CAPITAL CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2002
(Dollars in thousands, except share data)
Common Stock
---------------------------- Additional
Number Of Paid-In Accumulated Stockholders'
Shares Amount Capital Deficit Equity
-------------- ---------- ------------ ---------------- ---------------
BALANCE, April 1, 2002 1,173,382 $ 587 $ 9,253 ($7,837) $ 2,003
Net Income - - - 221 221
-------------- ---------- ------------ ---------------- ---------------
BALANCE, September 30, 2002 1,173,382 $ 587 $ 9,253 ($7,616) $2,224
============== ========== ============ ================ ===============
See notes to financial statements.
3
THE FIRST CONNECTICUT CAPITAL CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(Dollars in thousands)
September 2002 September 2001
UNAUDITED UNAUDITED
----------------- -----------------
OPERATING ACTIVITIES
Net income $ 221 $ 202
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 2 2
Provision of allowance for loan losses 80 12
Amortization of servicing rights 34 36
Decrease in deferred tax asset 120 -
Origination of loans held for sale (8,414) (6,462)
Proceeds from sales of loans held for sale 8,584 6,447
Changes in asset and liabilities:
Increase in accrued interest receivable (13) (2)
Increase in servicing rights (46) (36)
Increase in other assets (32) (4)
Decrease in accounts payable to related parties (203) -
Decrease in accounts payable and other accrued expenses (11) (9)
----------------- -----------------
Net cash provided by operating activities 322 186
----------------- -----------------
INVESTING ACTIVITIES
Originations of loans (2,006) (1,658)
Principal collected on loans 1,651 1,734
Purchase of fixed assets (1) -
----------------- -----------------
Net cash (used in) provided by investing activities (356) 76
FINANCING ACTIVITIES
Increase (decrease) in line of credit borrowings 294 (74)
Amounts due from Partnership loans 5 -
----------------- -----------------
Net cash provided by (used in) financing activities 299 (74)
----------------- -----------------
INCREASE IN CASH AND CASH EQUIVALENTS 265 188
CASH AND CASH EQUIVALENTS, BEGINNING 437 232
----------------- -----------------
CASH AND CASH EQUIVALENTS, ENDING $ 702 $ 420
================= =================
Supplemental disclosure of cash flow information:
Cash paid for interest $ 80 $ 130
Cash paid for taxes $ 17 $ 3
See notes to financial statements.
4
THE FIRST CONNECTICUT CAPITAL CORPORATION (10QSB AMENDED)
EXPLANATORY STATEMENT
The Corporation has amended the 10-QSB filing as a result of a review
performed by the SEC in connection with the Corporation's proposed proxy filing.
The amended 10-QSB includes additional disclosures in connection with the
Corporation's loan portfolio and lending activities.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying condensed financial statements of The First Connecticut
Capital Corporation (the "Corporation or Company"), formerly known as The First
Connecticut Small Business Investment Company, have been prepared in accordance
with accounting principles generally accepted in the United States of America
("GAAP") for interim financial information and with the instructions to Form
10-QSB and Article 10-01 of Regulation S-X. Accordingly, they do not include all
of the information and notes required by GAAP for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair representation have been included.
Operating results are not necessarily indicative of the results that may be
expected for the year ending March 31, 2003. For further information, refer to
the financial statements and notes thereto included in the Corporation's Annual
Report on Form 10-KSB/A for the year ended March 31, 2002.
FORWARD-LOOKING INFORMATION
This quarterly report and other reports issued by The First Connecticut
Capital Corporation ("FCCC" or the "Corporation"), including reports filed with
the Securities and Exchange Commission, may contain "forward-looking" statements
that deal with future results, plans or performances. In addition, FCCC's
management may make such statements orally, to the media, or to securities
analysts, investors or others. Forward-looking statements deal with matters that
do not relate strictly to historical facts. FCCC's future results may differ
materially from historical performance and forward-looking statements about
FCCC's expected financial results or other plans are subject to a number of risk
and uncertainties. These include but are not limited to possible legislative
changes and adverse economic, business and competitive developments such as
shrinking interest margins, investment outflows, reduced demand for loans,
changes in accounting policies and guidelines, or monetary and fiscal policies
of the federal government, changes in credit and other risks posed by FCCC loans
and investment portfolios, technological, computer-related or operational
difficulties, adverse changes in security markets, results of litigation or
other significant uncertainties.
5
GENERAL
The First Connecticut Capital Corporation (the "Corporation") is engaged in
the mortgage banking business, which involves the origination, purchase, sale
and servicing of mortgage loans secured by residential or commercial real
estate. The Corporation's revenues consist of loan servicing fees, loan
origination fees, interest on mortgage loans held prior to sale and gains from
the sale of loans and mortgage servicing rights. Mortgage loans which are
originated or purchased by the Corporation may be resold.
The Corporation also engages in mortgage servicing of its own Portfolio
Loan Program, which includes the processing and administration of mortgage loan
payments and remitting principal and interest to purchasers. The Corporation
also monitors delinquencies, collects late fees, manages foreclosures, processes
prepayments and loan assumption fees, provides purchasers with required reports,
and answers borrowers' inquiries. Although the management plans, from time to
time, to sell a portion of its mortgages originated, management intends to build
the size of its mortgage servicing portfolio by retaining the servicing rights
from a large share of its mortgage loan originations.
As of September 30, 2002, the Corporation serviced a total portfolio of
approximately $16,990,000, as listed below:
Portfolio Loan Program $ 10,559,000
First Connecticut Capital Mortgage Fund "A" 4,778,000
First Connecticut Capital Mortgage Fund "B" 1,653,000
-------------
$16,990,000
HISTORY
The Corporation (formerly The First Connecticut Small Business Investment
Company) was incorporated on May 6, 1960 as a federally licensed small business
investment company under the Small Business Investment Act of 1958 and was
registered as an investment company under the Investment Company Act of 1940.
The Corporation's prior business consisted of providing long-term loans to
finance the growth, expansion and development of small business concerns.
On August 15, 1990, the Corporation filed a petition for relief under
Chapter 11 of the federal bankruptcy laws in the United States Bankruptcy Court.
On October 18, 1991, the Corporation filed a plan of reorganization (the "Plan")
with the United States Bankruptcy Court. The Plan was confirmed as of January 9,
1992. Under the Plan, the Corporation was required to surrender its license to
operate as a small business investment company.
On December 15, 1993, the Corporation sold substantially all of its
outstanding investment portfolio to Walsh Securities for an amount sufficient to
settle substantially all of the Company's liabilities under the Plan. As part of
this transaction, restrictions under the Plan regarding the Corporation's
lending activities were waived.
6
The Corporation was granted a license by the State of Connecticut
Department of Banking to engage in business as a First Mortgage
Loan-Lender/Broker on April 8, 1994. The Corporation is also licensed by the
State of Connecticut as a Second Mortgage Lender/Broker.
On December 28, 1994, the United States Bankruptcy Court issued a final
decree closing the Chapter 11 case of the Corporation.
During the past fiscal year the Corporation has elected not to renew its
license in the State of Massachusetts, but rather expand its loan program in
Connecticut.
On June 29, 1993, the Corporation's application for deregistration under
the Investment Company Act of 1940 was approved by the Securities and Exchange
Commission.
SEASONALITY
The Corporation's business and the mortgage banking industry as a whole is
generally subject to seasonal trends which reflect a pattern of home sales and
resales. Loan originations typically peak during the spring and summer seasons
and decline from mid-November through January. Prior to January 1996, the
Corporation focused its efforts on refinances of mortgages on residential
properties, which was generally the case throughout the industry. Since January
1996, the Corporation has expanded its Portfolio Loan Program to include
short-term mortgages for construction, remodeling and additions, as well as
bridge financing and land acquisitions. These loans are predominately
collateralized by first mortgage liens on residential properties and are sold to
qualified investors, the limited partnerships as defined below with fees
retained for servicing or assigned to Hudson United Bank under its credit line
facility as a collateral pledge.
COMPETITION
The Corporation competes with other mortgage bankers, mortgage brokers,
state and national banks, thrift institutions and insurance companies for loan
originations and purchases. Many of its competitors have substantially greater
financial resources than the Corporation. The Corporation competes for loan
originations, in part, based on price, through print and electronic media
advertising campaigns, by telemarketing to potential borrowers, and by
maintaining close relationships with mortgage brokers, real estate brokers,
builder-developers, accountants and attorneys.
7
REGULATION
The Corporation is not presently an approved seller/servicer for the
Government National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA"), or the Federal Home Loan Mortgage Corporation ("FHLMC"),
nor is the Corporation an approved issuer and servicer under GNMA, FNMA or FHLMC
mortgage-backed securities programs. The Corporation is not qualified to
originate mortgage loans insured by the Federal Housing Administration (the
"FHA") or partially guaranteed by the Veterans Administration (the "VA"). The
Corporation does not presently intend to apply for such approvals or
qualifications. Accordingly, the Corporation is not currently subject to the
rules and regulations of these agencies with respect to originating, processing,
selling and servicing mortgage loans, but may become subject to such rules and
regulations should the Corporation become an approved issuer, seller or servicer
for any of these agencies. Such rules and regulations would, among other things,
prohibit discrimination and establish underwriting guidelines which include
provisions for inspections and appraisals and require credit reports on
prospective borrowers, and with respect to VA loans, fix maximum interest rates.
The Corporation's mortgage loan origination activities are subject to the
Equal Credit Opportunity Act, the Federal Truth-In-Lending Act, the Real Estate
Settlement Procedures Act and the regulations promulgated there under which
prohibit discrimination and require the disclosure of certain information to
borrowers concerning credit and settlement costs. Additionally, the sale of
mortgage loans by the Corporation to purchasers may be subject to applicable
federal and state securities laws.
There are various state laws affecting the Corporation's mortgage banking
operations, including licensing requirements and substantive limitations on the
interest and fees that may be charged. The Corporation is in possession of all
required licenses in those states in which it does business that require such
licenses, except where the absence of such licenses are not material to the
business and operations as a whole. States have the right to conduct financial
and regulatory audits of the loans under their jurisdiction.
PERSONNEL
As of September 30 2002, the Corporation had 5 employees (including
Lawrence R. Yurdin its President), all of whom were employed at the
Corporation's headquarters in Shelton, Connecticut. Management of the
Corporation believes that its relations with its employees are good.
INVESTMENT POLICIES
(i) Investments in real estate - The Corporation does not invest
in real estate or interests in real estate but may acquire
real estate by foreclosure of mortgage loans owned by the
Corporation or by deed in lieu of foreclosure. Primarily such
properties would consist of 1-4 family dwellings or unimproved
building sites. Management of the Corporation does not intend
to cause the Corporation to own or operate properties for an
extended period of time but rather its policy is to sell such
properties at fair value as soon as possible.
8
(ii) Investments in real estate mortgages - The Corporation intends
to originate first or second real estate mortgages and sell
certain of these mortgages as promptly as practicable to
interested purchasers, retaining the application fees and
servicing rights. Maturities of mortgages not sold will
typically range from one to two years.
(iii) Management of the Corporation currently does not intend to
cause the Corporation to invest in the securities of, or
interests in, persons or entities which are primarily engaged
in real estate activities.
NOTE B - PROPOSED SALE OF CORPORATION'S BUSINESS AND ASSETS
The Corporation has entered into a definitive agreement with respect to the sale
by the Corporation of all or substantially all of its assets to, and the
assumption of all of the Corporation's liabilities by, members of management and
the Board of Directors. The purchaser, which is an entity formed by the
Corporation's current President and Board of Directors, will submit the proposed
transaction to the stockholders for their consideration and approval. This sale,
if approved by the stockholders, may impair the deferred income tax asset
recorded on the Corporation's balance sheet. For further details see "Subsequent
Events; Recent Developments" within Item 2.
NOTE C - RECLASSIFICATIONS
Certain reclassifications were made to the September 30, 2001 financial
statements to conform to the September 30, 2002 presentation. The September 30,
2001 financial statements reflect a $206,000 reclassification from servicing
fees to interest and fees on loans because the Company had previously recorded
interest earned from loans held for investment purposes and loans held for sale
as servicing fees. In addition, the September 30, 2001 financial statements
reflect a $134,000 reclassification from interest and fees on loans to net gains
on sales of loans held for sale because the Company had previously recorded the
origination fees on loans that were sold as interest and fees on loans and not
as a component of the actual gain on sale of loans held for sale.
To conform to the presentation for the six months ended September 30, 2002,
the Corporation has presented the $36,000 gross amortization of its servicing
rights asset within the statement of operations for the six months ended
September 30, 2001.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL REVIEW
This financial review presents management's discussion and analysis of the
financial condition and results of operations of the Corporation and should be
read in conjunction with the financial statements and other financial data. In
connection with the following discussion, see "Forward-Looking Information"
within this document regarding forward-looking statements and factors that could
impact the business financial prospects of the Corporation.
SIGNIFICANT ACCOUNTING POLICIES
There are a number of accounting policies that the Corporation has established
which require management to use judgment. Two of the more significant policies
are as follows:
o Establishing the amount of the allowance for loan losses requires the
use of management judgment. Management evaluates the Corporation's
assets at least quarterly, and reviews their risk components as a part
of that evaluation. If we misjudge a major component of our loans and
experience a loss, it will likely affect our earnings. We consistently
challenge ourselves in the review of the risk components to identify
any changes in trends and their cause.
o Another valuation that requires management judgment relates to mortgage
servicing rights. Essentially, mortgage servicing rights are
established on mortgage loans that we originate and sell. We allocate a
portion of a loan's book basis to mortgage servicing rights when a loan
is sold, based upon its relative fair value. The fair value of mortgage
servicing rights is the present value of estimated future net cash
flows from servicing relationships using current market assumptions for
prepayments, servicing costs and other factors. As the loans are repaid
and net servicing revenue is earned, mortgage servicing rights are
amortized into expense. Net servicing revenue are expected to exceed
this amortization expense. However, if our actual prepayment experience
exceeds what we originally anticipated, net servicing revenue may be
less than expected and mortgage servicing rights may be impaired. This
impairment would be recorded as a charge to earnings.
ANALYSIS OF FINANCIAL CONDITION:
CASH AND CASH EQUIVALENTS- Cash and cash equivalents amounted to $702,000
as of September 30, 2002 as compared to $437,000 as of the year ended March 31,
2002. The increase of $265,000 was as a result of maturing loans and loans not
yet originated.
LOANS - Loans amounted to $2,470,000 as of September 30, 2002, as compared
to $2,163,000, as of the year ended March 31, 2002. The increase of $275,000 is
due to the increase in loan originations and other funding opportunities.
10
LOANS DUE FROM RELATED PARTIES - Loans due from related parties at
September 30, 2002 and year ended March 31, 2002 is due to a loan origination
made to a Director of the Corporation during the year ended March 31, 2002.
LOANS HELD FOR SALE - Loans held for sale amounted to $1,185,000 as of
September 30, 2002 as compared to $1,355,000 as of the year ended March 31,
2002. The decrease of $170,000 was due to an increase in new monies invested on
the part of our current investors and new sources.
DUE FROM PARTNERSHIPS - The decrease of $5,000 in due from partnerships is
due to the reduction of an accrual at quarter ended September 30, 2002 which
represents the servicing fees owed from Partnership A.
DEFERRED TAX ASSET - The deferred tax asset results from net operating loss
carryforwards (NOLS). Management has evaluated the available information about
future taxable income. The valuation allowance reduces the deferred tax asset
management's best estimate of the amount of such deferred tax asset that more
likely than not will be realized. It is management's estimation that the
Corporation will have sufficient income (approximately $433,000 subsequent to
September 30, 2002) to utilize the net deferred tax asset. The $120,000 decrease
in the deferred tax asset from March 31, 2002 relates to the utilization of NOLs
against the current year's earnings. This asset could be impaired if the
Corporation were to change ownership or if management were to purchase the
assets and liabilities of the Corporation (see Plan of Operation).
The components of the net deferred tax asset at September 30 are as
follows:
2002
Deferred tax asset:
Net operating loss carryforwards $2,179,000
Loan loss reserves 190,000
Valuation allowance (2,239,000)
-----------
Net deferred tax asset $ 130,000
===========
It is management's belief that the Corporation has conservatively estimated
its deferred tax asset based upon the prior years earnings of the Corporation.
LINE OF CREDIT - As of September 30, 2002 the balance on the Corporation's
line of credit was $2,735,000 as compared to $2,441,000 as of March 31, 2002.
The increase of $294,000 is due to the steady increase in number and dollar
amounts of loans originated.
ACCOUNTS PAYABLE TO RELATED PARTIES - The decrease of $203,000 in accounts
payable to related parties is due to a wire transfer of funds clearing on April
3, 2002 for a loan that closed on March 25, 2002. The funds were due to the
attorney who closed the loan. The attorney is also a board member.
ACCOUNTS PAYABLE AND OTHER ACCRUED EXPENSES - As of September 30, 2002 the
Corporation has accounts payable and other accrued expenses of $83,000 as
compared to $94,000 as of March 31, 2002. The decrease of $11,000 is primarily
due to payment of professionals fees, which includes legal, accounting and
auditing fees.
11
ANALYSIS OF LENDING ACTIVITIES:
AVERAGE BALANCE SHEET AND YIELD/RATE ANALYSIS - The following tables
presents the Corporation's financial information regarding its financial
condition and net interest income for the six months ended September 30, 2002
and 2001. The table presents the average yield on interest-earning assets and
the average costs of interest bearing liabilities for the period indicated. The
yields and costs are derived by dividing income or expenses by the average of
interest-earning assets or interest-bearing liabilities respectively, for the
periods indicated. The average balances are derived from quarterly balances over
the period indicated. Interest income includes fees, which we considered
adjustments to yield. Net interest spread is the difference between the yield on
interest-earning assets and the rate paid on interest bearing liabilities. Net
interest margin is derived by dividing net interest income by net
interest-earning assets. No tax-equivalent adjustments have been made as the
Corporation has no investments that are tax exempt.
AVERAGE BALANCE SHEET, INTEREST EARNED AND RATE PAID FOR THE SIX MONTHS ENDED
September 30, 2002
-----------------------------------
Interest Average
Average Earned Yield (4)
----------- ----------- -----------
INTEREST-EARNING ASSETS (1):
Cash and cash equivalents $ 687,000 $ 1,000 0.29%
Loans, net 2,091,000 283,000 27.07%
Loans due from related parties 225,000 30,000 26.67%
Loans held for sale 1,229,000 167,000 27.18%
Due from partnerships 78,000 11,000 28.21%
----------- -----------
Total average interest-earning assets 4,310,000 492,000 22.83%
----------- -----------
Non-interest earning assets 424,000
-----------
Total average assets $ 4,734,000
===========
INTEREST-BEARING LIABILITIES:
Line of credit $ 2,359,000 $ 87,000 7.38%
----------- -----------
NON INTEREST-BEARING LIABILITIES:
Accounts payable to related parties 68,000
Accounts payable & other accrued expenses 186,000
-----------
Total non interest bearing liabilities 254,000
Total average liabilities 2,613,000
-----------
Total average stockholders
equity 2,121,000
-----------
Total average liabilities and
stockholders equity $ 4,734,000
===========
Net interest income and net interest rate spread (2) $ 405,000 15.45%
=========== ==========
Net interest-earning assets
and net interest margin (3) 1,951,000 18.79%
----------- ----------
Average interest-earning assets to
average interest-bearing liabilities 1.83
==========
<FN>
(1) For the purpose of these computations, non-accruing loans and loans
held for sale are included in the average loans outstanding.
(2) Included in net interest income is $1,000 of interest earned on a money
market account that has been included within other fees in the
statement of income. In addition, included in net interest income are
loan fees of $188,000. Interest rate spread is the difference between
the average yield in interest-earning assets and the average rate on
interest-bearing liabilities.
(3) Net interest margin is determined by dividing net interest income by
total average interest-earning assets.
(4) Annualized.
</FN>
12
AVERAGE BALANCE SHEET, INTEREST EARNED AND RATE PAID FOR SIX MONTHS ENDED SEPTEMBER 30, 2001
----------------------------------------------------------------------------------------------
Interest Average
Average Earned Yield(4)
INTEREST-EARNING ASSETS (1): ------------- ------------- -------------
- ---------------------------
Cash and cash equivalents $ 341,000 $ 4,000 2.35%
Loans, net 2,626,000 278,000 21.17%
Loans held for sale 1,029,000 109,000 21.19%
------------- -------------
Total average interest-earning assets 3,996,000 391,000 19.57%
------------- -------------
Non-interest earning assets 694,000
-------------
Total average assets $ 4,690,000
=============
INTEREST-BEARING LIABILITIES:
Line of credit $ 2,413,000 $ 130,000 10.77%
------------- ------------- -------------
NON INTEREST-BEARING LIABILITIES:
Accounts payable & other accrued expenses 52,000
-------------
Total average liabilities 2,465,000
-------------
Total average stockholders
equity 2,225,000
-------------
Total average liabilities and
stockholders equity $ 4,690,000
=============
Net interest income and net interest rate spread (2) $ 261,000 8.79%
============= =============
Net interest-earning assets
and net interest margin (3) $ 1,583,000 13.06%
------------- -------------
Average interest-earning assets to
average interest-bearing liabilities 1.66
=============
<FN>
(1) For the purpose of these computations, non-accruing loans and loans held
for sale are included in the average loans outstanding.
(2) Included in net interest income is $4,000 of interest earned on a money
market account that has been included within other fees in the statement of
income. In addition, included in net interest income are loan fees of
$142,000. Interest rate spread is the difference between the average yield
in interest-earning assets and the average rate on interest-bearing
liabilities.
(3) Net interest margin is determined by dividing net interest income by total
average interest-earning assets.
(4) Annualized.
</FN>
13
RATE VOLUME ANALYSIS OF NET INTEREST INCOME - The following table presents the
extent to which changes in interest rates and changes in the volume of
interest-earning assets and interest-bearing liabilities have affected our
interest income and interest expense during the periods indicated. Information
is provided in each category with respect to:
1) changes attributable to changes in volume (change in volume multiplied
by prior rate);
2) changes attributable to change in rate (change in rate multiplied by
prior volume); and
3) the net change.
The changes attributable to the combined impact of the volume and rate have been
allocated proportionately to the changes due to volume and the changes due to
rate.
Three Months Ended Six Months Ended
September 30, 2002 September 30, 2002
Versus Three Months Ended Versus September 30, 2001
September 30, 2001: Increase (Decrease) Due To:
------------------------------------- -------------------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
--------- --------- --------- --------- --------- ---------
Cash and cash
Equivalents $ 5,000 $ (6,000) $ (1,000) $ 4,000 $ (7,000) $ (3,000)
Loans, net (96,000) 99,000 3,000 (150,000) 155,000 5,000
Loans due from
related parties 7,000 -0- 7,000 30,000 -0- 30,000
Loans held for
sale (26,000) 44,000 18,000 (4,000) 62,000 58,000
Due from
partnerships 5,000 -0- 5,000 10,000 -0- 11,000
--------- --------- --------- --------- --------- ---------
Total interest
Income (105,000) 137,000 32,000 (109,000) 210,000 101,000
--------- --------- --------- --------- --------- ---------
Borrowings:
Line of credit 78,000 (107,000) (29,000) 39,000 (82,000) (43,000)
--------- --------- --------- --------- --------- ---------
Net interest income $(183,000) $ 244,000 $ 61,000 $ 148,000) $ 292,000 $ 144,000
========= ========= ========= ========= ========= =========
14
LOAN PORTFOLIO COMPOSITION: The Corporation's loan portfolio primarily consists
of construction and remodeling mortgage loans that are secured by residential or
commercial real estate and three SBIC loans that were originated in the early
1980's. The following table presents the composition of our loan portfolio in
dollar amounts and in percentages of the total portfolio at the dates indicated:
September Percent Percent
30, 2002 Of Total March 30, 2002 of Total
-------------- -------- -------------- --------
Mortgage loans:
Loans $ 2,470,000 55.00% $ 2,163,000 49.77%
Loans held for sale 1,185,000 26.39% 1,355,000 31.18%
Loans due from related parties 225,000 5.00% 225,000 5.18%
Foreclosed loans (SBIC) 611,000 13.61% 603,000 13.87%
-------------- -------- -------------- --------
Total mortgage loans $ 4,491,000 100.00% $ 4,346,000 100.00%
Less:
Allowance for loan losses 634,000 594,000
-------------- --------------
Total mortgage loans, net $ 3,857,000 $ 3,752,000
============== ==============
LOAN MATURITY: The following table presents the contractual maturity of our
loans at September 30, 2002. The table does not include the effects of
prepayments or scheduled principal amortization.
Loans held Loans due Other loans
Loans for sale related parties SBIC
--------------- --------------- --------------- ---------------
Amounts Due:
Within one year $ 2,031,000 $ 965,000 $ 225,000 $ 123,000
After one year
One to Two 439,000 220,000 -0- -0-
Five to Ten -0- -0- -0- 488,000
--------------- --------------- --------------- ---------------
Total loans $ 2,470,000 $ 1,185,000 $ 225,000 $ 611,000
=============== =============== =============== ===============
Amounts due after one year
and on:
Fixed rate loans $ 439,000 $ 220,000 $ -0- $ 488,000
Variable rate loans -0- -0- -0- -0-
--------------- --------------- --------------- ---------------
Total loans $ 439,000 $ 220,000 $ -0- $ 488,000
=============== =============== =============== ===============
LOAN ORIGINATIONS - The following table presents our loan originations,
purchases, sales and principal payments for the periods indicated.
15
September 30, September 30,
2002 2001
------------- -------------
Balance at beginning of period $ 3,752,000 $3,339,000
Originations:
Loans 2,006,000 1,658,000
Loans held for sale 8,414,000 6,462,000
------------- -------------
Total Originations $ 10,420,000 8,120,000
Less:
Principal payments and
Repayments
Loans 417,000 621,000
Loans held for sale 1,234,000 1,113,000
------------- -------------
Total principal payments 1,651,000 1,734,000
Loans sold:
Loans held for sale 8,584,000 6,446,000
------------- -------------
Increase of provision
for loans losses 80,000 12,000
------------- -------------
Total at end of period $ 3,857,000 $ 3,267,000
============= =============
As of the quarters ended September 30, 2002 and 2001 the Corporation was
servicing loans totaling $17,072,000 and $13,863,000, respectively.
ASSET QUALITY - The Corporation's loan portfolio primarily consists of
construction mortgage loans and three SBIC loans that were originated in the
early 1980. The accrual of interest income is generally discontinued when loans
become 90 days or more past due with respect to interest. The Corporation had a
balance of impaired and non-accrued loans of $611,000 at September 30, 2002 and
$628,000 at March 31, 2002.
The following table summarizes non-performing loans and assets:
SEPT. 30, 2002 MARCH 31, 2002
-------------- --------------
Impaired and non-accruing mortgage loans $ 611,000 $ 628,000
Accruing loans delinquent 90 days or more 290,000 250,000
-------------- --------------
Total non-performing loans $ 901,000 $ 878,000
============== ==============
Non-performing loans to total loans 20.06% 20.20%
Non-performing loans to total assets 17.87% 18.52%
============== ==============
Additional interest income that would have been
recognized if non-accrual loans
had been current $ 2,000 $ 2,000
Allowance for loan losses as a percent of
non-performing loans 70.37% 67.65%
============== ==============
16
A summary of the allowance for loan losses is shown below:
Three Months Ended Three Months Ended
September 30, 2002 September 30, 2001
------------------- -------------------
Balance at beginning of period $ 590,000 $ 599,000
Provision for the period 90,000 13,000
Charge-offs:
Accrued loans delinquent more
than 90 days (40,000) -0-
Recoveries:
Impaired mortgage loans (6,000) -0-
------------------- -------------------
Balance at end of period $ 634,000 $ 612,000
=================== ===================
Allowance as a percent of total loans 16.08% 18.73%
=================== ===================
Six Months Ended Six Months Ended
September 30, 2002 September 30, 2001
------------------- -------------------
Balance at beginning of period $ 594,000 $ 600,000
Provision for the period 90,000 12,000
Charge-offs:
Accrued loans delinquent more
than 90 days 40,000 -0-
Recoveries:
Impaired mortgage loans (10,000) -0-
------------------- -------------------
Balance at end of period $ 634,000 $ 612,000
=================== ===================
Allowance as a percent of total loans 16.08% 18.73%
=================== ===================
The allocation of the Corporation's provision for loan losses and the
allocation as percent of total loans as of September 30, 2002 and year ended
March 31, 2002 are as follows:
Sep 30, 2002 % March 31, 2002 %
------------ ----- -------------- -----
Loans, net $ 75,000 1.93% $ 25,000 .67%
Foreclosed loans (SBIC) 559,000 91.49% 569,000 94.36%
------------ --------------
Total $ 634,000 93.42% $ 594,000 95.03%
============ ==============
17
The allowance for loan losses is determined by management on a loan-by-loan
basis. The allowance is an amount that management believes will be adequate to
absorb losses on existing loans that may become un-collectible based on
evaluations of the collectibility of the loans. The evaluations take into
consideration such factors as geographic location, assessment of collateral
quality, appraisals of significant collateral and other conditions that may
affect the borrower's ability to repay. Certain impaired loans are measured
based on the present value of expected future cash flows discounted at the
loan's effective interest rate or, as a practical expedient, at the loan's
observable market price or the estimated fair value of the collateral if the
loan is collateral dependent. Actual changes and expected trends in
non-performing loans and impaired loans are evaluated quarterly by management of
the Corporation and any changes in the reserve for collectibility on these loans
is charged to earnings in the current quarter. The allowance is increased by the
provision and charged to earnings and reduced by charge-offs net of recoveries.
The following table sets forth information regarding the Corporations
delinquent loan portfolio and the percent of the total loan portfolio, excluding
impaired and non-accruing loans:
Sep 30, 2002 % March 31, 2002 %
------------ ----- -------------- -----
Loans delinquent
For:
30 - 59 days $ 175,000 4.51% $ 741,000 19.93%
60 - 89 days 860,000 22.16% -0- -0-%
90 days or more 290,000 7.48% 250,000 6.72%
------------ --------------
Total $ 1,325,000 34.15% $ 991,000 26.65%
============ ==============
RESULTS OF OPERATIONS
GENERAL - The Corporation had net income of $221,000 for the six months
ended September 30, 2002 as compared to a net income of $202,000 for the six
months ended September 30, 2001. This increase of $19,000 is due primarily to an
increase of $104,000 in interest and fees and an increase of $135,000 in net
gains on sales of loans.
This increase of $239,000 is offset by an increase in the income tax
provision of $148,000, an increase of $68,000 in the reserve for loan losses and
an increase of $50,000 in professional fees.
INTEREST AND FEE INCOME - Total interest and fee income for the six months
ended September 30, 2002, was $491,000 as compared to $387,000 for the six
months ended September 30, 2001, an increase of $104,000 or 27%. Total interest
and fee income for the three months ended September 30, 2002 is up over prior
years quarter ended September 30, 2001 by $33,000. These increases were
primarily due to an increase in the number of mortgage loans originated and
funded and the increase of originations fees collected by the Corporation.
18
Management attributes the increase in its net interest income and other
operating income to an increase of construction and real estate lending, its
ability to service loan demand from homebuilders, remodelers and developers and
the generally favorable climate for the construction industries. The Corporation
continued to provide construction financing to a segment of the market whose
price range is believed to be less affected by negative economic conditions.
NET GAIN ON SALES OF LOANS HELD FOR SALE - For the six months ended
September 30, 2002, the Corporation recognized $305,000 in net gains on loans
held for sale compared to $170,000 for the six months ended September 30, 2001.
This $135,000 increase and the increase in the current quarter ended September
30, 2002 over prior years quarter of $90,000 is due to the increase in the
number and dollar amounts of mortgage loans originated and sold by the
Corporation.
SERVICING FEES - Servicing fees increased by $19,000 and $9,000 for the six
months ended and three months ended September 30, 2002, as compared to the same
periods in the prior year. These increases are due to an increase in servicing
fees earned on the Corporation's short-term construction and remodeling mortgage
loans and fees earned based upon an increase in the Limited Partnership
portfolios.
PROVISION FOR LOAN LOSSES - The Corporation for the six months ended
September 30, 2002 recorded a provision of $80,000, net of recoveries, for the
allowance for potential loan losses and has written off a $40,000 loan which was
previously reserved at March 31, 2002. The Corporation for the six months ended
September 30, 2001 had recorded a provision of $12,000 for the allowance for
loan losses. The provision within the quarter ended September 30, 2002 has been
increased $84,000, net of recoveries, as compared to the prior year's quarter
ended September 30, 2001 $13,000. This increase was attributable to the
uncertainty of collection on certain loans.
TOTAL OPERATING EXPENSE - Total operating expenses for the six months ended
September 30, 2002 was $335,000, as compared to $265,000 for the six months
ended September 30, 2001, an increase of $70,000 or 26%. The Corporation's
professional services expense has increased by $50,000 as a result of increased
legal and accounting and other fees related to the proposed sale of the
Corporation's operating assets, liabilities and business. Officer and other
salaries have also increased by $12,000. Total operating expenses for the three
months ended September 30, 2002 as compared to the prior year quarter increased
$69,000 as a result of the increase in professional services provided to the
Corporation and other increases in expenses.
INCOME TAX PROVISION - An income tax provision of $158,000 was recorded for
the six months ended September 30, 2002, as compared to a $10,000 tax provision
for the six months ended September 30, 2001. The increase of $148,000 is
primarily due to a.) a reduction of the federal deferred tax asset of
approximately $120,000 for the six months ended September 30, 2002 and b.) an
increase in state income taxes of approximately $28,000 for the six months ended
September 30, 2002. All state net operating losses expired as of March 31, 2002.
19
PLAN OF OPERATION
The Corporation is engaged in the mortgage banking business, which involves
the origination, purchase, sale and servicing of mortgage loans collateralized
by residential properties and commercial real estate.
The Corporation continues to seek ways to reduce expenses while at the same
time increase market activity of its products and services. The Corporation has
engaged the services of an investment advisor to assist in maximizing
stockholder value. In this connection, the Corporation has entered into
definitive negotiations with respect to the sale of all or substantially all the
Corporation's assets to, and the assumption of all the Corporation's liabilities
by, members of management and the board of directors. Management (which is
included in the group that comprises the prospective purchaser, of which
Lawrence Yurdin, the Corporation's President is a Member and Manager) believes
that there is substantial likelihood that the parties will arrive at mutually
agreeable terms for the transaction, after which the Corporation will submit the
proposed transaction to the stockholders for their consideration.
The Corporation is also engaged in definitive negotiations with certain
private investors who are not presently affiliates of the Corporation with
respect to the possible sale by the Corporation of shares of its common stock
and warrants to purchase common stock, together with a contractual undertaking
to permit the investors to manage the business and strategic operations of the
Corporation subsequent to the sale of the business assets described in the
preceding paragraph. Management of the corporation believes that there is
substantial likelihood that the parties will arrive at mutually agreeable terms
for such transactions.
In the event either or both transactions are unsuccessful, management will
continue to operate its mortgage business as it has in the past. We will
continue to seek additional sources of funding from lending institutions as well
as private investors in order to expand our loan portfolio. Growth will be
limited and will greatly depend upon our ability to obtain new leverage for our
loan products. Management, in the past, has experienced a reluctance of the part
of conventional lenders to expand lines of credit and therefore will continue to
explore the private sector for funding and possible equity participation.
20
SUBSEQUENT EVENTS; RECENT DEVELOPMENTS
In June 2002, the Corporation announced the execution of definitive
agreements for the sale of its mortgage business (the "Asset Sale") to a company
to be organized by members of the Board of Directors, including Lawrence Yurdin
(the current President of the Corporation). The Asset Sale would include all of
the assets (excluding cash and deferred income taxes) of the Corporation's
mortgage business, subject to the assumption of all liabilities and other
obligations, including contingent liabilities.
The sale price, currently estimated to be the net book value of the assets
to be sold, will be an amount determined, in part, in accordance with an
independent appraisal of the assets by a nationally recognized portfolio
valuation company. The form of the Asset Sale will be reviewed and determined to
be fair pursuant to an opinion to be delivered by an NASD registered
broker-dealer. If the shareholders of the Corporation approve the Asset Sale,
then the purchaser will pay at least book value for the net assets which will be
valued at the time of closing.
Simultaneously with the proposed Asset Sale, the Company will issue and
sell to Bernard Zimmerman, of Weston, Connecticut, and Martin Cohen, of New York
City, New York or their affiliates, for a purchase price of $252,000 in cash, a
total of 250,000 Common shares of the Company, together with Five Year Warrants
to purchase an additional 200,000 Common shares, exercisable at a price of $1.00
per share (collectively, the "Securities Sale"). Messrs. Zimmerman and Cohen
also intend to purchase additional Common shares from other sources at the same
price. Upon completion of the Securities Sale, Messrs. Zimmerman and Cohen will
each own approximately 188,300 shares.
Assuming consummation of the Asset Sale and the Securities Sale, the
Company would have 1,423,382 shares outstanding, excluding shares reserved for
outstanding options and warrants. Pursuant to the terms of the proposed
transactions, the Company will declare a dividend to stockholders, pro rata of
all cash on hand after the closing of the Asset Sale and the Securities Sale in
excess of $1,500,000, after payment and accruals of all liabilities, fees and
expenses provided such dividend equals or exceeds $.15 per share.
Pursuant to the terms of the Asset Sale and Security Sale agreements,
Messrs. Zimmerman and Cohen will designate three of the five seats on the
Company's board of directors. Mr. Zimmerman and Mr. Cohen will supervise the
day-to-day operations of the Company subsequent to the closing.
In the event that the Company is unable to consummate a suitable merger or
business combination transaction or series of transactions (defined as having an
aggregate value in excess of $750,000) within thirty-six months of the closing
of the asset sale (subject to a three month extension under certain
circumstances), then, upon the request by the holders of 20% or more of the
issued and outstanding common stock of the Company held by non-affiliates of
management, the Company shall schedule a meeting of shareholders and will issue
a proxy solicitation pursuant to which the shareholders will vote on whether to
liquidate the Company. In such vote, all shares held by management and their
affiliates shall be voted in the same proportion as those shares voted by
non-affiliates of management.
21
The Company has filed a Preliminary Proxy Statement with the Securities and
Exchange Commission (the "SEC") for its review and approval. Pending the
resolution of any questions or comments from the SEC with respect thereto, the
Company will send final proxy materials to stockholders of record and schedule a
Stockholders Meeting during which they may vote on the approval of these
transactions.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2002, the Corporation had cash and cash equivalents of
$702,000 as compared to $437,000 as of March 31, 2002.
The Corporation has a Commercial Line of Credit with the Hudson United
Bank. This $3,500,000 line of credit is for a term of one year at an interest
rate of 2.5% over the Wall Street Prime Rate and will expire on June 30, 2003.
This line is collateralized by an assignment of notes and mortgages equal to the
amount of the loan. At September 30, 2002, advances on this line of credit
amounted to $2,735,000 as compared to $2,441,000 as of March 31, 2002.
The Corporation currently anticipates that during the year ending March 31,
2003, its principal financing needs will consist of funding its mortgage loans
held for sale and the ongoing net cost of mortgage loan originations. The
Corporation believes that cash on hand, internally generated funds and
availability on its line of credit should be sufficient to meet its corporate,
general and administrative working capital and other cash requirements during
the year ending March 31, 2003. Future cash flow requirements will depend
primarily on the level of the Corporation's activities in originating and
selling mortgage loans as well as cash flow required by its operations.
If construction loan demand continues to increase, the Corporation will
require additional cash to service those requirements. Due to the
aforementioned, the Corporation will seek to increase its line of credit
facility, as well as seek out new investor sources, from which the Corporation
believes it should be able to meet these cash requirements. The Corporation
continues to decrease its cash flow requirements by monitoring all expenses.
As of September 30, 2002, the Corporation had outstanding loan commitments
of $4,361,000 as compared to $3,068,000, as of March 31, 2002.
LETTERS OF CREDIT
As of September 30, 2002 the Corporation has a $75,000 letter of credit
outstanding issued to the Town of Glastonbury, Connecticut for soil and erosion
compliance on one of the construction projects over which the Corporation has a
mortgage. No amounts have been drawn or are expected to be drawn on this letter
of credit.
22
On May 6, 2002 the Corporation has entered into a $250,000 letter of credit
issued to the Town of North Branford, Connecticut for building compliance on one
of the construction projects over which the Corporation has a mortgage. No
amounts have been drawn or are expected to be drawn on this letter of credit.
INFLATION
Inflation will affect the Corporation most significantly in the area of
loan originations. Interest rates normally increase during periods of high
inflation and decrease during periods of low inflation.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standard Boards ("FASB") issued SFAS
No. 143, "Accounting for Asset Retirement Obligations," which addresses the
recognition and measurement of obligations associated with the retirement of
tangible long-lived assets. SFAS No. 143 is effective January 1, 2002, with
early adoption permitted. The Corporation does not expect the adoption of the
statement to have a material effect on the financial statements.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which addresses financial
accounting and reporting for costs associated with exit or disposal activities.
Under SFAS No. 146, such costs will be recognized when the liability is
incurred, rather than at the date of commitment to an exit plan. SFAS No. 146 is
effective for exit or disposal activities that are initiated after December 31,
2002, with early application permitted. The Corporation does not expect the
adoption of SFAS No. 146 to have a material effect on its financial statements.
In October 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain
Financial Institutions, an amendment for FASB Statements No. 72 and 144 and FASB
Interpretation No.9," which addresses accounting for purchases of certain
financial institutions. SFAS No. 147 is effective October 1, 2002, with early
application permitted. The Corporation does not expect the adoption of SFAS No.
147 to have a material effect on its financial statements.
PARTNERSHIPS
On March 21, 1997, the Corporation formed a Limited Partnership known as
First Connecticut Capital Mortgage Fund A, Limited Partnership ("Limited
Partnership A") of which the Corporation is the General Partner. The purpose of
this entity is to sell units in Limited Partnership A to investors in a private
placement, up to a maximum of $5 million in units of $50,000 each, for the
purpose of funding a short-term Portfolio Loan Program for the Limited
Partnership. The limited partners are restricted to investors who qualify as
"Accredited Investors", as defined in Regulation D, promulgated under the
Securities Act of 1933.This program generates income to the Corporation in the
form of loan origination fees and servicing fees in excess of stipulated income
returns to the limited partners in connection with mortgage loans purchased by
the Limited Partnership from the funds invested by the limited partners. A copy
of the Offering Memorandum for the Partnership is available upon request.
23
On June 26, 2001 the Corporation established a second private placement
offering known as First Connecticut Capital Mortgage Fund "B", Limited
Partnership ("Limited Partnership Fund B") of which the Corporation is the
General Partner. The purpose of the new Limited Partnership Fund B is to sell
units to investors in a private placement, up to a maximum of $5 million in
units of $50,000 each, for the purpose of supplying additional funding to a
short-term Portfolio Loan Program. The partners will also be limited to
investors who qualify as "Accredited Investors." As of September 30 2002 the
Corporation sold 41 units in the Partnership. A copy of the Offering Memorandum
for the Partnership is available upon request.
The Corporation does not guarantee the principal or interest returns to the
limited partners under these partnerships agreements. The Corporation holds one
percent (1%) of the equity of these partnerships and accounts for its interest
under the equity method of accounting.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Form 8-K filed on July 17, 2002
Certification of Officers
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized.
THE FIRST CONNECTICUT CAPITAL
CORPORATION
(Registrant)
Date: January 27, 2003 By:
-------------------------------
Lawrence R. Yurdin
President
24