U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 DECEMBER 31, 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
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(203) 944-5400
(ISSUER'S TELEPHONE NUMBER)
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(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, DECEMBER 31, 2002 and MARCH 31, 2002
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, MARCH 31,
ASSETS 2002 2002
- ------ ---- ----
UNAUDITED AUDITED
--------- -------
Cash and cash equivalents $ 254 $ 437
Loans - net of allowance for loan losses of
$634 at September 30, 2002 and $594 at March 31, 2002 2,280 2,172
Loans due from related parties - 225
Loans held for sale 1,293 1,355
Due from partnerships 93 92
Accrued interest receivable 49 50
Servicing rights 66 69
Fixed assets 14 16
Deferred income taxes 117 250
Other assets 132 75
----------- ------------
TOTAL ASSETS $ 4,298 $ 4,741
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Line of credit $ 1,797 $ 2,441
Accounts payable to related parties - 203
Accounts payable and other accrued expenses 288 94
----------- ------------
TOTAL LIABILITIES 2,085 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 (7,627) (7,837)
----------- ------------
TOTAL STOCKHOLDERS' EQUITY 2,213 2,003
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 4,298 $4,741
=========== ============
See notes to financial statements.
1
THE FIRST CONNECTICUT CAPITAL CORPORATION
STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2002 AND 2001
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
THREE MONTHS NINE MONTHS THREE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
DEC 31, 2002 DEC 31, 2002 DEC 31, 2001 DEC 31, 2001
------------ ------------ ------------ ------------
UNAUDITED UNAUDITED UNAUDITED UNAUDITED
INTEREST INCOME:
Interest and fees on loans $ 137 $ 628 $ 172 $ 559
Interest expense on line of credit 34 112 57 180
Other interest expense 0 9 4 11
------------ ----------- ---------- ------------
TOTAL INTEREST EXPENSE 34 121 61 191
------------ ----------- ---------- ------------
NET INTEREST INCOME 103 507 111 368
Reserve (recovery)for loan losses 0 80 (28) (16)
------------ ----------- ---------- ------------
NET INTEREST INCOME AFTER LOAN LOSSES AND
REDUCTION OF ALLOWANCE FOR LOANS 103 427 139 384
------------ ----------- ---------- ------------
OTHER OPERATING INCOME:
Servicing fees 21 85 20 65
Net gains on sales of loans held for sale 76 381 84 254
Other fees 21 42 6 23
------------ ----------- ---------- ------------
TOTAL OTHER OPERATING INCOME 118 508 110 342
------------ ----------- ---------- ------------
TOTAL INCOME 221 935 249 726
------------ ----------- ---------- ------------
OTHER OPERATING EXPENSES:
Officers' salaries 64 159 46 133
Other salaries 21 50 16 41
Directors' fees - - - 1
Professional services 50 110 89 99
Miscellaneous taxes 5 15 3 13
Employee and general insurance 12 37 11 32
Rent 8 24 7 23
Amortization of servicing rights 17 51 18 54
Corporate insurance expenses 19 33 5 15
Licenses, dues and subscriptions expenses 3 10 2 5
Communications 2 6 2 7
Advertising and promotions 2 6 2 4
Stock record and other financial expenses 3 10 3 9
Depreciation 2 4 1 3
Equipment and auto rental 4 14 4 11
Postage, office and other expenses 7 25 (2) 22
------------ ----------- ---------- ------------
TOTAL OTHER OPERATING EXPENSES 219 554 207 472
------------ ----------- ---------- ------------
INCOME BEFORE INCOME TAXES 2 381 42 254
INCOME TAX PROVISION 13 171 0 10
------------ ----------- ---------- ------------
NET INCOME (LOSS) (11) $210 $42 $244
============ =========== ========== ============
INCOME (LOSS) PER COMMON SHARE (BASIC AND DILUTED) ($0.01) $0.18 $0.04 $0.21
============ =========== ========== ============
Weighted average number of
Common shares outstanding: (basic) 1,173,382 1,173,382 1,173,382 1,173,382
============ =========== ========== ============
Common shares outstanding: (diluted) 1,190,265 1,181,953 1,173,382 1,173,382
============ =========== ========== ============
See notes to financial statements.
2
THE FIRST CONNECTICUT CAPITAL CORPORATION
- -----------------------------------------
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED DECEMBER 31, 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 - - - 210 210
----------- --------- ---------- ------------- -------------
BALANCE, December 31, 2002 1,173,382 $587 $ 9,253 ($7,627) $2,213
=========== ========= ========== ============= =============
See notes to financial statements.
3
THE FIRST CONNECTICUT CAPITAL CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2002 AND 2001
(DOLLARS IN THOUSANDS)
- ----------------------
DECEMBER 2002 DECEMBER 2001
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UNAUDITED UNAUDITED
--------- ---------
OPERATING ACTIVITIES
- --------------------
Net income $210 $244
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 4 3
Provision of (recovery of) allowance for loan losses 80 (16)
Amortization of servicing rights 51 54
Decrease in deferred tax asset 133 -
Origination of loans held for sale (11,630) (10,469)
Proceeds from sales of loans held for sale 11,692 9,916
Changes in asset and liabilities:
Increase in restricted cash (2)
Decrease in accrued interest receivable (1) (2)
Increase in servicing rights (48) (54)
Increase in other assets (57) (9)
Decrease in accounts payable to related parties (203) -
Increase in accounts payable and other accrued expenses 194 112
-------------- ---------------
Net cash provided by (used in) operating activities 425 (223)
-------------- ---------------
INVESTING ACTIVITIES
- --------------------
Originations of loans (2,837) (2,357)
Principal collected on loans 2,874 2,601
Purchase of fixed assets (2) (6)
-------------- ---------------
Net cash provided by investing activities 35 238
FINANCING ACTIVITIES
- --------------------
Decrease in line of credit borrowings (644) (234)
Amounts due from Partnership loans 1 -
-------------- ---------------
Net cash provided by (used in) financing activities (643) (234)
-------------- ---------------
DECREASE IN CASH AND CASH EQUIVALENTS (183) (219)
CASH AND CASH EQUIVALENTS, BEGINNING 437 232
-------------- ---------------
CASH AND CASH EQUIVALENTS, ENDING $254 $13
============== ===============
Supplemental disclosure of cash flow information:
Cash paid for interest $114 $130
Cash paid for taxes $30 $3
4
See notes to financial statements.
The First Connecticut Capital Corporation 10-QSB
For the Three and Nine Months Ended December 31, 2002 and 2001
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-KSBA 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
The First Connecticut Capital Corporation 10-QSB
For the Three and Nine Months Ended December 31, 2002 and 2001
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 December 31, 2002, the Corporation serviced a total portfolio of
approximately $16,861,000, as listed below:
Portfolio Loan Program $ 9,882,000
First Connecticut Capital Mortgage Fund "A" 4,506,000
First Connecticut Capital Mortgage Fund "B" 2,473,000
-------------
$ 16,861,000
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.
6
The First Connecticut Capital Corporation 10-QSB
For the Three and Nine Months Ended December 31, 2002 and 2001
HISTORY (CONTINUED)
- -------------------
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.
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 re-sales. 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.
7
The First Connecticut Capital Corporation 10-QSB
For the Three and Nine Months Ended December 31, 2002 and 2001
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.
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 thereunder
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.
8
The First Connecticut Capital Corporation 10-QSB
For the Three and Nine Months Ended December 31, 2002 and 2001
PERSONNEL
- ---------
As of December 31 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.
(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.
9
The First Connecticut Capital Corporation 10-QSB
For the Three and Nine Months Ended December 31, 2002 and 2001
NOTE C - RECLASSIFICATIONS
Certain reclassifications were made to the December 31, 2001 financial
statements to conform to the December 31, 2002 presentation. The December 31,
2001 financial statements reflect a $307,000 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 December 31, 2001 financial statements
reflect a $201,000 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 nine months ended December 31,
2002 the Corporation has presented the $54,000 gross amortization of its
servicing rights asset within the statement of operations for the nine months
ended December 31, 2001.
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.
10
The First Connecticut Capital Corporation 10-QSB
For the Three and Nine Months Ended December 31, 2002 and 2001
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- -------------------------------------------
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
$254,000 as of December 31, 2002 as compared to $437,000 as of the year ended
March 31, 2002. The decrease of $183,000 is the result of ongoing loan
originations and advances made per contract on current construction loans.
LOANS - Loans amounted to $2,280,000 as of December 31, 2002, as
compared to $2,172,000 as of the year ended March 31, 2002. The increase of
$108,000 is due to the increase in loan originations and other funding
opportunities.
LOANS DUE FROM RELATED PARTIES - Loans due from related parties at
March 31, 2002 of $225,000 that were made to a director of the Corporation were
paid off during the quarter ended December 31, 2002.
LOANS HELD FOR SALE - Loans held for sale amounted to $1,293,000 as of
December 31, 2002 as compared to $1,355,000 as of the year ended March 31, 2002.
The decrease of $62,000 was due to an increase in new monies invested on the
part of our current investors and new sources.
DUE FROM PARTNERSHIPS - The increase of $1,000 due from partnerships is
due to the increase of an accrual at quarter ended December 31, 2002 which
represents the servicing fees owed from Partnership A and B.
11
The First Connecticut Capital Corporation 10-QSB
For the Three and Nine Months Ended December 31, 2002 and 2001
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 to 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 $344,000 subsequent
to December 31, 2002) to utilize the net deferred tax asset. The $133,000
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 December 31 are as
follows:
2002
----
Deferred tax asset:
Net operating loss carryforwards $ 2,166,000
Loan loss reserves 190,000
Valuation allowance (2,239,000)
-----------
Net deferred tax asset $ 117,000
============
It is management's belief that FCCC has conservatively estimated its
deferred tax asset based upon the prior years earnings of the Corporation.
LINE OF CREDIT - As of December 31, 2002 the balance on the
Corporation's line of credit was $1,797,000 as compared to $2,441,000 as of
March 31, 2002. The decrease of $644,000 is due to the line being paid down as
certain loans have matured.
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 December 31, 2002
the Corporation has accounts payable and other accrued expenses of $288,000 as
compared to $94,000 as of March 31, 2002. The increase of $194,000 is due to
higher accruals made for legal and accounting fees and a $188,000 transfer not
paid as of December 31, 2002 which is due to Hudson United Bank under the
Corporation's line of credit as a result of a loan payoff.
12
The First Connecticut Capital Corporation 10-QSB
For the Three and Nine Months Ended December 31, 2002 and 2001
ANALYSIS OF LENDING ACTIVITIES:
- -------------------------------
AVERAGE BALANCE SHEET AND YIELD/RATE ANALYSIS - The following tables
present FCCC's financial information regarding its financial condition and net
interest income for the nine months ended December 31, 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 NINE MONTHS ENDED
- ------------------------------------------------------------------------------
DECEMBER 31, 2002
ANNUALIZED
INTEREST AVERAGE
AVERAGE EARNED YIELD (4)
------- ------ ---------
INTEREST-EARNING ASSETS (1):
- ----------------------------
Cash and cash equivalents $ 626,000 $ 2,000 0.43%
Loans, net 2,127,000 375,000 23.51%
Loans due from related parties 150,000 26,000 23.11%
Loans held for sale 1,208,000 213,000 23.51%
Due from partnerships 79,000 14,000 23.63%
Total average interest-earning assets -- -- --
4,190,000 630,000 20.05%
---------- -------- -------
Non-interest earning assets 397,000
----------
Total average assets $4,587,000
==========
INTEREST-BEARING LIABILITIES:
Line of credit $2,145,000 $121,000 7.52%
---------- -------- -------
13
The First Connecticut Capital Corporation 10-QSB
For the Three and Nine Months Ended December 31, 2002 and 2001
AVERAGE BALANCE SHEET, INTEREST EARNED AND RATE PAID FOR THE NINE MONTHS ENDED
- ------------------------------------------------------------------------------
DECEMBER 31, 2002 CONTINUED
---------------------------
NON INTEREST-BEARING LIABILITIES:
- ---------------------------------
Accounts payable to related parties -0-
Accounts payable & other accrued expenses 251,000
------------
Total non interest bearing liabilities 251,000
Total average liabilities 2,396,000
---------
Total average stockholders
equity 2,121,000
---------
Total average liabilities and
stockholders equity $4,597,000
==========
Net interest income and net interest rate spread (2) $509,000 12.53%
========== ======
Net interest-earning assets
and net interest margin (3) 2,045,000 16.20%
--------- ------
Average interest-earning assets to
average interest-bearing liabilities 1.95
====
(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 $2,000 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 $235,000. 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.
14
The First Connecticut Capital Corporation 10-QSB
For the Three and Nine Months Ended December 31, 2002 and 2001
AVERAGE BALANCE SHEET, INTEREST EARNED AND RATE PAID FOR NINE MONTHS ENDED
DECEMBER 31, 2001
-----------------
ANNUALIZED
INTEREST AVERAGE
AVERAGE EARNED YIELD (4)
------- ------ ---------
INTEREST-EARNING ASSETS (1):
Cash and cash equivalents $ 268,000 $ 6,000 2.99%
Loans, net 2,380,000 371,000 20.78%
Loans held for sale 1,210,000 188,000 20.72%
--------- ---------
Total average interest-earning assets 3,858,000 565,000 19.53%
--------- --------
Non-interest earning assets 700,000
-------
Total average assets $4,558,000
==========
INTEREST-BEARING LIABILITIES:
Line of credit $2,335,000 $191,000 10.91%
---------- -------- ------
NON INTEREST-BEARING LIABILITIES:
Accounts payable & other accrued expenses 90,000
----------
Total average liabilities 2,425,000
-----------
Total average stockholders
equity 2,133,000
-----------
Total average liabilities and
stockholders equity $4,558,000
==========
Net interest income and net interest rate spread (2) $ 374,000 8.62%
========== ======
Net interest-earning assets
and net interest margin (3) $1,523,000 12.93%
---------- ------
Average interest-earning assets to
average interest-bearing liabilities 1.65
====
15
The First Connecticut Capital Corporation 10-QSB
For the Three and Nine Months Ended December 31, 2002 and 2001
AVERAGE BALANCE SHEET, INTEREST EARNED AND RATE PAID FOR NINE MONTHS ENDED
- --------------------------------------------------------------------------
DECEMBER 31, 2001 (CONTINUED)
-----------------------------
(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 $6,000 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 $194,000. 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.
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 NINE MONTHS ENDED
DECEMBER 31, 2002 DECEMBER 31, 2002
VERSUS THREE MONTHS ENDED VERSUS NINE MONTHS ENDED
DECEMBER 31, 2001: DECEMBER 31, 2001:
VOLUME RATE TOTAL VOLUME RATE TOTAL
------ ---- ----- ------ ---- -----
Cash and cash
Equivalents $ 2,000 $ (2,000) $ -0- $ 3,000 $ (7,000) $ (4,000)
Loans, net 97,000 (122,000) (25,000) (61,000) 65,000 4,000
Loans due from
related parties 4,000 -0- 4,000 26,000 -0- 26,000
Loans held for
sale 49,000 (66,000) (17,000) (9,000) 34,000 25,000
Due from
partnerships 3,000 -0- 3,000 14,000 -0- 14,000
-------- --------- ------- -------- -------- --------
Total interest
Income 155,000 (190,000) (35,000) (27,000) 92,000 65,000
-------- --------- ------- -------- -------- --------
16
The First Connecticut Capital Corporation 10-QSB
For the Three and Nine Months Ended December 31, 2002 and 2001
RATE VOLUME ANALYSIS OF NET INTEREST INCOME (CONTINUED)
Borrowings:
Line of credit 13,000 (40,000) (27,000) 9,000 (79,000) (70,000)
-------- --------- ------- -------- -------- --------
Net interest income $142,000 $(150,000) $(8,000) $(36,000) $171,000 $135,000
======== ========= ======= ======== ======== ========
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:
DECEMBER PERCENT PERCENT
31, 2002 OF TOTAL MARCH 31, 2002 OF TOTAL
-------- -------- -------------- --------
Mortgage loans:
Loans $2,311,000 54.93% $2,163,000 49.77%
Loans held for sale 1,293,000 30.73% 1,355,000 31.18%
Loans due from related parties -0- -0-% 225,000 5.18%
Other loans (SBIC) 603,000 14.34% 603,000 13.87%
---------- -------- ---------- ------
Total mortgage loans $4,207,000 100.00% $4,346,000 100.00%
Less:
Allowance for loan losses 634,000 594,000
---------- ----------
Total mortgage loans, net $3,573,000 $3,752,000
========== ==========
LOAN MATURITY: The following table presents the contractual maturity of our
loans at December 31, 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 $2,232,000 $1,293,000 $ -0- $122,000
After one year
One to Two 23,000 -0- -0- -0-
Five to Ten 56,000 -0- -0- 481,000
------------- ----------- --------------- -----------
Total loans $2,311,000 $1,293,000 $ -0- $ 603,000
========== ========== ================= ===========
17
The First Connecticut Capital Corporation 10-QSB
For the Three and Nine Months Ended December 31, 2002 and 2001
LOAN MATURITY (CONTINUED)
Amounts due after one year
and on:
Fixed rate loans $ 79,000 $ -0- $ -0- $481,000
Variable rate loans -0- -0- -0- -0-
------------ ---------------- ---------------- ---------
Total loans $ 79,000 $ -0- $ -0- $481,000
============ ================ ================= ========
LOAN ORIGINATIONS - The following table presents our loan originations,
purchases, sales and principal payments for the periods indicated.
December 31, December 31,
2002 2001
----- ----
Balance at beginning of period $ 3,752,000 $ 3,339,000
Originations:
Loans 2,837,000 2,357,000
Loans held for sale 11,630,000 10,469,000
----------- ------------
Total Originations $14,467,000 12,826,000
Less:
Principal payments and
Repayments 2,874,000 2,601,000
----------- ------------
Loans sold:
Loans held for sale 11,692,000 9,916,000
----------- ------------
Increase (decrease) of provision
for loans losses 80,000 (16,000)
----------- ------------
Total at end of period $ 3,573,000 $ 3,664,000
=========== ============
As of the quarters ended December 31, 2002 and 2001 the Corporation was
servicing loans totaling $16,860,000 and $12,967,000, 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's. 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 $603,000 at December 31, 2002
and $628,000 at March 31, 2001.
18
The First Connecticut Capital Corporation 10-QSB
For the Three and Nine Months Ended December 31, 2002 and 2001
ASSET QUALITY (CONTINUED)
- -------------------------
The following table summarizes non-performing loans and assets:
DEC. 31, 2002 MARCH 31, 2002
------------- --------------
Impaired and non-accruing mortgage loans $ 603,000 $628,000
Accruing loans delinquent 90 days or more 647,000 250,000
---------- --------
Total non-performing loans $1,250,000 $878,000
========== ========
Non-performing loans to total loans 29.71% 20.20%
========== ========
Non-performing loans to total assets 29.08% 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 50.71% 67.65%
========== ========
A summary of the allowance for loan losses is shown below:
THREE MONTHS ENDED THREE MONTHS ENDED
DECEMBER 31, 2002 DECEMBER 31, 2001
------------------- -----------------
Balance at beginning of period $ 634,000 $ 612,000
Provision for the period -0- -0-
Charge-offs:
Accrued loans delinquent more
than 90 days -0- (16,000)
Recoveries:
Impaired mortgage loans -0- (28,000)
-------------- -----------
Balance at end of period $ 634,000 $568,000
============== ===========
Allowance as a percent of total loans 15.07% 13.42%
============== ===========
19
The First Connecticut Capital Corporation 10-QSB
For the Three and Nine Months Ended December 31, 2002 and 2001
ASSET QUALITY (CONTINUED)
NINE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, 2002 DECEMBER 31, 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) (16,000)
Recoveries:
Impaired mortgage loans (10,000) (28,000)
--------- ---------
Balance at end of period $ 634,000 $ 568,000
========= =========
Allowance as a percent of total loans 15.07% 13.42%
========= =========
The allocation of the Corporation's provision for loan losses and the
allocation as percent of total loans as of December 31, 2002 and year ended
March 31, 2002 are as follows:
DEC 31, 2002 % MARCH 31, 2002 %
------------ --------- -------------- ------
Loans, net $ 75,000 2.08% $ 25,000 .67%
Foreclosed loans (SBIC) 559,000 92.70% 569,000 94.36%
-------- ---------
Total $634,000 15.07% $594,000 13.67%
======== ========
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.
20
The First Connecticut Capital Corporation 10-QSB
For the Three and Nine Months Ended December 31, 2002 and 2001
ASSET QUALITY (CONTINUED)
- -------------------------
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:
DECEMBER 31, 2002 % MARCH 31, 2002 %
----------------- ----- -------------- ------
Loans delinquent
For:
30 - 59 days $241,000 6.68% $ 741,000 19.93%
60 - 89 days -0- -0% -0- -0%
90 days or more 647,000 17.95% 250,000 6.72%
----------- ----------
Total $ 888,000 24.63% $ 991,000 26.65%
=========== ==========
RESULTS OF OPERATIONS
- ---------------------
GENERAL - The Corporation had net income of $210,000 for the nine
months ended December 31, 2002 as compared to a net income of $244,000 for the
nine months ended December 31, 2001. This decrease of $34,000 is due to the
increase in the income tax provision of $161,000, the increase of $96,000 in the
reserve for loan losses, the increase of $35,000 in officers and other salaries,
the increase of $127,000 in net gains on sales of loans held for sale, the
decrease of interest of $70,000 paid on our line of credit and the increase of
$69,000 earned on interest and fees on loans.
INTEREST AND FEE INCOME - Total interest and fee income for the nine
months ended December 31, 2002, was $628,000 as compared to $559,000 for the
nine months ended December 31, 2001, an increase of $69,000 or 12%. Total
interest and fee income for the three months ended December 31, 2002 is down
compared to the prior years quarter ended December 31, 2001 by $35,000. This
decrease is due the favorable weather condition for the three months ended
December 31, 2001; consequentially we funded and originated more loans in this
period as compared to the three months ended December 31, 2002.
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.
21
The First Connecticut Capital Corporation 10-QSB
For the Three and Nine Months Ended December 31, 2002 and 2001
NET GAIN ON SALES OF LOANS HELD FOR SALE - For the nine months ended
December 31, 2002, the Corporation recognized $381,000 in net gains on loans
held for sale as compared to $254,000 for the nine months ended December 31,
2001. This $127,000 increase is due to the number and dollar amounts of mortgage
loans originated and sold by the Corporation and the increase in points earned.
The small decrease in the current quarter ended December 31, 2002 over prior
years quarter of $8,000 is due to the increase in the amount of loans funded and
originated due to the favorable weather condition during the three months ended
December 31, 2001.
SERVICING FEES - Servicing fees increased by $20,000 and $1,000 for the
nine months ended and three months ended December 31, 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 nine months ended
December 31, 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 nine months ended
December 31, 2001 had recorded a recovery for loan losses in the amount of
$16,000. The provision for loan losses for the three months ended December 31,
2002 had no change, as compared to the three months ended December 31, 2001
which reflected a recovery of $28,000.
TOTAL OPERATING EXPENSE - Total operating expenses for the nine months
ended December 31, 2002 was $554,000, as compared to $472,000 for the nine
months ended December 31, 2001, an increase of $82,000 or 17%. The Corporation's
expenses for professional services has increased by $11,000 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 $35,000 as well as the Corporation insurance
expenses of $18,000, due to the increase in the Directors and Officers liability
insurance. Total operating expenses for the three months ended December 31, 2002
as compared to the prior year's three months ended December 31, 2001 increased
by $12,000 as a result of the increase in officers' and other salaries in the
amount of $23,000, and other increases and decreases in expenses.
INCOME TAX PROVISION - An income tax provision of $171,000 was recorded
for the nine months ended December 31, 2002, as compared to a $10,000 provision
for the nine months ended December 31, 2001. The increase of $161,000 is
primarily due to: a.) the reduction of the federal deferred tax asset of
approximately $133,000 for the nine months ended December 31, 2002 and b.) an
increase in state income taxes of approximately $48,000 for the nine months
ended December 31, 2002. All state net operating losses expired as of March 31,
2002.
22
The First Connecticut Capital Corporation 10-QSB
For the Three and Nine Months Ended December 31, 2002 and 2001
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 a
definitive agreement 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.
The Corporation has also engaged in a definitive agreement 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.
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.
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.
23
The First Connecticut Capital Corporation 10-QSB
For the Three and Nine Months Ended December 31, 2002 and 2001
SUBSEQUENT EVENTS; RECENT DEVELOPMENTS (CONTINUED)
- --------------------------------------------------
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.
24
The First Connecticut Capital Corporation 10-QSB
For the Three and Nine Months Ended December 31, 2002 and 2001
SUBSEQUENT EVENTS; RECENT DEVELOPMENTS (CONTINUED)
- --------------------------------------------------
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 December 31, 2002, the Corporation had cash and cash equivalents of
$254,000 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 December 31, 2002, advances on this line of credit
amounted to $1,797,000 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 December 31, 2002, the Corporation had outstanding loan
commitments of $2,728,000 as compared to $3,068,000, as of March 31, 2002.
25
The First Connecticut Capital Corporation 10-QSB
For the Three and Nine Months Ended December 31, 2002 and 2001
LETTERS OF CREDIT
- -----------------
As of December 31, 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.
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.
26
The First Connecticut Capital Corporation 10-QSB
For the Three and Nine Months Ended December 31, 2002 and 2001
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. As of
December 31, 2002 the Corporation has sold 100 of the available units totaling
$5,000,000, which is now fully subscribed. A copy of the Offering Memorandum for
the Partnership is available upon request.
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 December 31, 2002 the
Corporation sold 53 units totaling $2,650,000 in the Partnership Fund "B". 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 III - OTHER INFORMATION
- ----------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
Certification of Officers
27
The First Connecticut Capital Corporation 10-QSB
For the Three and Nine Months Ended December 31, 2002 and 2001
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: February 14, 2003 By: /s/ Lawrence R. Yurdin
---------------------------
Lawrence R. Yurdin
President
28