UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934
For the Quarterly period ended: September 30, 2005
|_| TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________.
Commission File Number: 0-28815
FIRST LITCHFIELD FINANCIAL CORPORATION
--------------------------------------
(Exact name of Registrant as specified in its Charter)
Delaware 06-1241321
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
13 North Street, Litchfield, CT 06759
------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (860) 567-8752
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 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 |_|
Indicate by check mark whether the registrant is a shell company (as defined in
Exchange Act Rule 12b-2). Yes |_| No |X|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes |_| No |X|
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 2,032,342 shares of Common
Stock, par value $.01 per share, were outstanding at October 31, 2005.
2
FIRST LITCHFIELD FINANCIAL CORPORATION
FORM 10-Q
INDEX
Page
----
Part I - Consolidated Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheets - September 30, 2005 (unaudited) and
December 31, 2004 ..................................................................... 3
Consolidated Statements of Income - Three and nine months ended
September 30, 2005 and 2004 (unaudited) ............................................... 4
Consolidated Statements of Comprehensive Income (Loss) - Three and nine
months ended September 30, 2005 and 2004 (unaudited) ............................... 5
Consolidated Statements of Cash Flows - Nine months ended
September 30, 2005 and 2004 (unaudited) ............................................... 6
Notes to Consolidated Financial Statements ............................................ 7
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................................................ 14
Item 3 - Quantitative and Qualitative Disclosures about Market Risk ............................ 26
Item 4 - Controls and Procedures ............................................................... 27
Part II - Other Information
Item 1 - Legal Proceedings ............................................................. 27
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds ................... 28
Item 3 - Defaults Upon Senior Securities ............................................... 28
Item 4 - Submission of Matters to a Vote of Security Holders ........................... 28
Item 5 - Other Information ............................................................. 28
Item 6 - Exhibits ...................................................................... 28
Signatures ..................................................................................... 36
3
FIRST LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2005 2004
------------- -------------
(Unaudited)
ASSETS
Cash and due from banks $ 16,612,139 $ 12,222,713
------------- -------------
CASH AND CASH EQUIVALENTS 16,612,139 12,222,713
------------- -------------
Securities:
Available for sale securities, at fair value 168,570,305 173,793,755
Held to maturity securities (fair value $49,989-2005 and $70,196-2004) 50,764 70,946
------------- -------------
TOTAL SECURITIES 168,621,069 173,864,701
------------- -------------
Federal Home Loan Bank stock, at cost 3,911,700 3,182,900
Federal Reserve Bank stock, at cost 225,850 225,850
Other restricted stock, at cost 50,000 50,000
Loans Receivable, net of allowance for loan losses of
$1,691,553 -2005, $1,389,947-2004
NET LOANS 245,235,657 217,028,751
Premises and equipment, net 3,872,950 2,769,827
Deferred income taxes 1,410,423 908,023
Accrued interest receivable 2,254,223 2,005,064
Cash surrender value of insurance 9,210,409 8,906,407
Other assets 3,282,528 3,140,511
------------- -------------
TOTAL ASSETS $ 454,686,948 $ 424,304,747
============= =============
LIABILITIES
Deposits:
Noninterest bearing $ 63,788,343 $ 58,409,685
Interest bearing 221,966,208 242,437,694
------------- -------------
TOTAL DEPOSITS 285,754,551 300,847,379
------------- -------------
Federal Home Loan Bank advances 48,500,000 29,500,000
Repurchase agreements with financial institutions 62,200,000 59,900,000
Repurchase agreements with customers 16,823,122 209,588
Subordinated debt 7,011,000 7,011,000
Due to broker for security purchases 6,225,933 --
Accrued expenses and other liabilities 2,485,702 2,291,107
------------- -------------
TOTAL LIABILITIES 429,000,308 399,759,074
------------- -------------
SHAREHOLDERS' EQUITY
Preferred stock $.00001 par value; 1,000,000 shares authorized, no shares
outstanding Common stock $.01 par value
Authorized - 5,000,000 shares
2005 - Issued - 2,137,528 shares, outstanding - 2,032,342 shares
2004 - Issued - 2,130,843 shares, outstanding - 2,025,657 shares 21,375 21,308
Capital surplus 19,989,742 19,892,870
Retained earnings 8,574,367 6,555,092
Less: Treasury stock at cost- 105,186 shares (701,061) (701,061)
Accumulated other comprehensive loss-net unrealized loss
on available for sale securities (net of taxes) (2,197,783) (1,222,536)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 25,686,640 24,545,673
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 454,686,948 $ 424,304,747
============= =============
See Notes to Consolidated Financial Statements.
4
FIRST LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
2005 2004 2005 2004
------------ ------------ ------------ ------------
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $ 3,782,396 $ 2,950,870 $ 10,541,848 $ 8,324,185
Interest and dividends on securities:
Mortgage-backed 806,893 1,238,951 2,798,590 3,709,808
US Treasury and other 602,667 669,328 1,793,384 1,901,592
State & municipal securities 216,159 182,588 608,900 522,535
Corporate bonds & other securities 52,001 44,242 152,930 110,709
Other interest income 8,054 149 17,157 10,727
------------ ------------ ------------ ------------
TOTAL INTEREST INCOME 5,468,170 5,086,128 15,912,809 14,579,556
------------ ------------ ------------ ------------
INTEREST EXPENSE
Interest on deposits:
Savings 28,240 33,743 87,762 118,407
Money market 233,156 275,443 709,486 985,730
Time certificates of deposit in denominations
of $100,000 or more 214,188 147,449 565,855 489,708
Other time certificates of deposit 384,253 375,762 1,073,429 1,280,468
------------ ------------ ------------ ------------
TOTAL INTEREST ON DEPOSITS 859,837 832,397 2,436,532 2,874,313
Interest on Federal Home Loan Bank advances 363,923 238,256 1,005,447 668,279
Interest on repurchase agreements 600,269 356,210 1,517,165 927,556
Interest on subordinated debt 114,634 75,990 317,058 223,112
------------ ------------ ------------ ------------
TOTAL INTEREST EXPENSE 1,938,663 1,502,853 5,276,202 4,693,260
------------ ------------ ------------ ------------
NET INTEREST INCOME 3,529,507 3,583,275 10,636,607 9,886,296
PROVISION FOR LOAN LOSSES 109,371 90,000 310,617 270,000
------------ ------------ ------------ ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 3,420,136 3,493,275 10,325,990 9,616,296
------------ ------------ ------------ ------------
NONINTEREST INCOME
Banking service charges and fees 277,617 228,213 745,778 702,655
Trust 230,154 213,858 705,640 663,779
Losses on the sales of available
for sale securities -- (52,866) (44,076) (52,866)
Other 247,925 121,395 560,085 401,156
------------ ------------ ------------ ------------
TOTAL NONINTEREST INCOME 755,696 510,600 1,967,427 1,714,724
------------ ------------ ------------ ------------
NONINTEREST EXPENSE
Salaries 1,235,631 1,133,140 3,501,464 3,248,337
Employee benefits 309,751 309,089 1,022,712 997,683
Net occupancy 171,330 153,813 525,550 494,937
Equipment 115,422 99,714 322,660 284,973
Legal fees 32,397 41,965 127,385 139,216
Directors fees 34,530 36,025 108,295 107,480
Computer services 242,818 210,805 666,939 628,374
Supplies 32,489 35,228 115,749 122,091
Commissions, services and fees 82,478 49,703 211,078 171,513
Postage 29,336 34,189 94,229 107,438
Advertising 180,289 72,409 357,546 249,931
OREO & non-performing loan expenses-net -- -- -- 6,618
Other 446,406 338,008 1,302,068 1,069,377
------------ ------------ ------------ ------------
TOTAL NONINTEREST EXPENSES 2,912,877 2,514,088 8,355,675 7,627,968
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 1,262,955 1,489,787 3,937,742 3,703,052
PROVISION FOR INCOME TAXES 334,654 424,745 1,066,049 1,022,112
------------ ------------ ------------ ------------
NET INCOME $ 928,301 $ 1,065,042 $ 2,871,693 $ 2,680,940
============ ============ ============ ============
INCOME PER SHARE
BASIC NET INCOME PER SHARE $ 0.46 $ 0.53 $ 1.42 $ 1.33
============ ============ ============ ============
DILUTED NET INCOME PER SHARE $ 0.45 $ 0.52 $ 1.40 $ 1.31
============ ============ ============ ============
Dividends Per Share $ 0.14 $ 0.12 $ 0.42 $ 0.36
============ ============ ============ ============
See Notes to Consolidated Financial Statements.
5
FIRST LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
Three months ended September 30, 2005 2004
----------- -----------
Net income $ 928,301 $ 1,065,042
Unrealized holding gains (losses) on securities:
Unrealized holding gains (losses) arising during the period, net of taxes (1,014,597) 1,664,288
----------- -----------
Comprehensive income (loss) $ (86,296) $ 2,729,330
=========== ===========
Nine months ended September 30, 2005 2004
----------- -----------
Net income $ 2,871,693 $ 2,680,940
Unrealized holding losses on securities:
Unrealized holding losses arising during the period, net of taxes (975,247) (1,306,443)
----------- -----------
Comprehensive income $ 1,896,446 $ 1,374,497
=========== ===========
See Notes to Consolidated Financial Statements.
6
FIRST LITCHFIELD FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30,
2005 2004
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,871,693 $ 2,680,940
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization and accretion of premiums and discounts
on investment securities, net 294,292 148,109
Provision for loan losses 310,617 270,000
Depreciation and amortization 301,565 269,526
Losses on sale of available for sale securities 44,076 52,866
Loans originated for sale -- (277,000)
Proceeds from sales of loans held for sale -- 277,000
Gain on disposals of bank premises and equipment 1,744 817
Gain from the sale of foreclosed real estate -- (45,138)
Increase in accrued interest receivable (249,159) (130,244)
Increase in other assets (85,983) (452,996)
Increase in cash surrender value of insurance (279,252) (275,579)
(Increase) decrease in deferred loan origination costs (72,873) 117,323
Increase in amount due to broker for security purchases 6,225,933 --
Increase in accrued expenses and other liabilities 193,794 235,257
------------ ------------
Net cash provided by operating activities 9,556,447 2,870,881
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Available for sale securities:
Proceeds from maturities and principal payments 17,761,950 31,070,921
Purchases (25,902,269) (75,766,871)
Proceeds from sales 11,547,754 31,511,090
Held to maturity mortgage-backed securities:
Proceeds from principal payments 20,182 32,715
Purchase of Federal Home Loan Bank stock (728,800) (793,100)
Net increase in loans (28,476,337) (19,715,830)
Proceeds from the sale of repossessed assets 20,845 --
Purchase of bank premises and equipment (1,406,432) (270,496)
Proceeds from sale of foreclosed real estate -- 345,138
Purchases of bank owned life insurance (24,750) --
Proceeds from sale of bank premises and equipment -- 100
------------ ------------
Net cash used in investing activities (27,187,857) (33,586,333)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in savings, money market and
demand deposits (15,729,585) 6,108,753
Net increase (decrease in certificates of deposit) 636,757 (12,305,095)
Net increase in short term Federal Home Loan Bank advances 10,000,000 9,300,000
Repayments on Federal Home Loan Bank advances (20,000,000) --
Proceeds from Federal Home Loan Bank advances 29,000,000 --
Net increase in securities sold under agreements to repurchase 2,300,000 29,032,909
Net increase in repurchase agreements with customers 16,613,534 --
Proceeds from the exercise of stock options 51,747 356,968
Dividends paid on common stock (851,617) (689,105)
------------ ------------
Net cash provided by financing activities 22,020,836 31,804,430
------------ ------------
Net increase in cash and cash equivalents 4,389,426 1,088,978
CASH AND CASH EQUIVALENTS, at beginning of period 12,222,713 12,702,308
------------ ------------
CASH AND CASH EQUIVALENTS, at end of period $ 16,612,139 $ 13,791,286
============ ============
SUPPLEMENTAL INFORMATION Cash paid during the period for:
Interest on deposits and borrowings $ 5,030,970 $ 4,678,626
============ ============
Income taxes $ 850,500 $ 750,900
============ ============
Non-cash investing and financing activities:
Accrued dividends declared $ 284,394 $ 230,958
============ ============
Due to broker for securities purchases $ 6,225,933 $ --
============ ============
Transfer of loans to repossessed assets $ 31,687 $ --
============ ============
See Notes to Consolidated Financial Statements.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated balance sheet at December 31, 2004 has been derived from
the audited financial statements at that date, but does not include all of
the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial
statements.
2. The accompanying unaudited consolidated financial statements and related
notes have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United
States of America have been omitted pursuant to such rules and
regulations. The accompanying financial statements and related notes
should be read in conjunction with the audited financial statements of the
Company and notes thereto for the fiscal year ended December 31, 2004.
These financial statements reflect, in the opinion of Management, all
adjustments, consisting of only normal recurring adjustments, necessary
for a fair presentation of the Company's financial position and the
results of their operations and its cash flows for the periods presented.
The results of operations for the three and nine months ended September
30, 2005 are not necessarily indicative of the results of operations that
may be expected for all of 2005.
3. The Company is required to present basic income per share and diluted
income per share in its statements of income. Basic income per share
amounts are computed by dividing net income by the weighted average number
of common shares outstanding. Diluted income per share assumes exercise of
all potential common stock in weighted average shares outstanding, unless
the effect is antidilutive. The Company is also required to provide a
reconciliation of the numerator and denominator used in the computation of
both basic and diluted income per share.
The following is information about the computation of net income per share
for the three and nine month periods ended September 30, 2005 and 2004.
The 2004 information has been restated to give retroactive effect to all
stock dividends for the periods presented.
Three Months Ended
September 30, 2005
----------------------------------
Net Per Share
Income Shares Amount
------ ------ ------
Basic Net Income Per Share
Income available to common shareholders $ 928,301 2,030,137 $ .46
========
Effect of Dilutive Securities
Options Outstanding -- 18,973
Diluted Net Income Per Share
Income available to common shareholders --------- ---------
plus assumed conversions $ 928,301 2,049,110 $ .45
========= ========= ========
8
Three Months Ended
September 30, 2004
------------------------------------
Net Per Share
Income Shares Amount
------ ------ ------
Basic Net Income Per Share
Income available to common shareholders $1,065,042 2,020,889 $ .53
========
Effect of Dilutive Securities
Options Outstanding -- 24,503
Diluted Net Income Per Share
Income available to common shareholders ---------- ----------
plus assumed conversions $1,065,042 2,045,392 $ .52
========== ========== ========
Nine Months Ended
September 30, 2005
------------------------------------
Net Per Share
Income Shares Amount
------ ------ ------
Basic Net Income Per Share
Income available to common shareholders $2,871,693 2,028,374 $ 1.42
========
Effect of Dilutive Securities
Options Outstanding -- 21,249
Diluted Net Income Per Share
Income available to common shareholders ---------- ----------
plus assumed conversions $2,871,693 2,049,623 $ 1.40
========== ========== ========
Nine Months Ended
September 30, 2004
------------------------------------
Net Per Share
Income Shares Amount
------ ------ ------
Basic Net Income Per Share
Income available to common shareholders $2,680,940 2,013,323 $ 1.33
========
Effect of Dilutive Securities
Options Outstanding -- 27,549
Diluted Net Income Per Share
Income available to common shareholders ---------- ----------
plus assumed conversions $2,680,940 2,040,872 $ 1.31
========== ========== ========
4. Other comprehensive income, which is comprised solely of the change in
unrealized gains and losses on available for sale securities, is as
follows:
Three Months Ended
September 30, 2005
------------------------------------------
Before-Tax Net-of-Tax
Amount Taxes Amount
----------- ----------- -----------
Unrealized holding losses arising during the period $(1,537,268) $ 522,671 $(1,014,597)
Add: reclassification adjustment for amounts recognized in net income -- -- --
----------- ----------- -----------
Unrealized holding loss on available for sale securities, net of taxes $(1,537,268) $ 522,671 $(1,014,597)
=========== =========== ===========
9
Three Months Ended
September 30, 2004
---------------------------------------------------
Before-Tax Net-of-Tax
Amount Taxes Amount
------------ ------------ ------------
Unrealized holding gains arising during the period $ 2,468,782 $ (839,386) $ 1,629,396
Add: reclassification adjustment for amounts recognized in net income 52,866 (17,974) 34,892
------------ ------------ ------------
Unrealized holding gain on available for sale securities, net of taxes $ 2,521,648 $ (857,360) $ 1,664,288
============ ============ ============
Nine Months Ended
September 30, 2005
---------------------------------------------------
Before-Tax Net-of-Tax
Amount Taxes Amount
------------ ------------ ------------
Unrealized holding losses arising during the period $ (1,521,723) $ 517,386 $ (1,004,337)
Add: reclassification adjustment for amounts recognized in net income 44,076 (14,986) 29,090
------------ ------------ ------------
Unrealized holding loss on available for sale securities, net of taxes $ (1,477,647) $ 502,400 $ (975,247)
============ ============ ============
Nine Months Ended
September 30, 2004
---------------------------------------------------
Before-Tax Net-of-Tax
Amount Taxes Amount
------------ ------------ ------------
Unrealized holding losses arising during the period $ (2,032,325) $ 690,990 $ (1,341,335)
Add: reclassification adjustment for amounts recognized in net income 52,866 (17,974) 34,892
------------ ------------ ------------
Unrealized holding loss on available for sale securities, net of taxes $ (1,979,459) $ 673,016 $ (1,306,443)
============ ============ ============
5. The Bank has a noncontributory defined benefit pension plan (the "Plan") that
covers substantially all employees who have completed one year of service and
have attained age 21. The benefits are based on years of service and the
employee's compensation during the last five years of employment. The Bank's
funding policy is to contribute amounts to the Plan sufficient to meet the
minimum funding requirements set forth in ERISA, plus such additional amounts as
the Bank may determine to be appropriate from time to time. The actuarial
information has been calculated using the projected unit credit method. During
the first quarter of 2005, the Bank's pension plan was curtailed as the Bank's
Board of Directors approved the cessation of benefit accruals under the Plan
effective April 30, 2005. Because of this action, for the Plan year beginning
November 15, 2004, contributions will no longer be made by the Bank.
Components of net periodic benefit cost for the three months ended September 30:
2005 2004
-------- --------
Service cost $ -- $ 64,889
Interest cost 52,516 48,050
Expected return on plan assets (58,310) (56,573)
Amortization of unrealized loss 13,222 11,009
-------- --------
Net periodic benefit cost $ 7,428 $ 67,375
======== ========
10
Components of net periodic benefit cost for the nine months ended September 30:
2005 2004
--------- ---------
Service cost $ -- $ 194,667
Interest cost 157,548 144,150
Expected return on plan assets (174,930) (169,719)
Amortization of unrealized loss 39,666 33,027
--------- ---------
Net periodic benefit cost $ 22,284 $ 202,125
========= =========
6. The Bank is a member of the Federal Home Loan Bank of Boston (the "FHLBB").
As a member of the FHLBB, the Bank has access to a preapproved line of credit of
up to 2% of its total assets and the capacity to borrow up to 30% of its total
assets. In accordance with an agreement with the FHLBB, the Bank is required to
maintain qualified collateral, as defined in the FHLBB Statement of Products
Policy, free and clear of liens, pledges and encumbrances for the advances.
FHLBB stock and certain loans which aggregate approximately 100% of the
outstanding advance are used as collateral. Federal Home Loan Bank advances as
of September 30, 2005 are as follows:
due 10/1/05 10,000,000 @ 4.0625%
due 12/8/05 2,000,000 @ 2.36%
due 2/10/06 3,000,000 @ 3.39%
due 7/18/06 4,500,000 @ 2.33%
due 7/16/07 4,500,000 @ 2.59%
due 8/27/07 5,000,000 @ 3.76%
due 7/18/08 4,500,000 @ 3.27%
due 6/24/10 5,000,000 @ 4.15%
due 5/29/12 5,000,000 @ 4.32%
due 9/04/12 5,000,000 @ 4.38%
-----------
Total $48,500,000
===========
As of September 30, 2005, the Bank had borrowings under repurchase agreements
with financial institutions totaling $62,200,000. This amount includes
borrowings:
due 12/27/05 7,000,000 @ 3.08%
due 1/30/06 3,000,000 @ 2.10%
due 1/31/06 5,000,000 @ 3.32%
due 1/28/07 4,000,000 @ 3.60%
due 2/19/07 10,000,000 @ 2.74%
due 2/25/07 4,650,000 @ 2.40%
due 4/26/08 7,000,000 @ 4.19%
due 10/27/07 7,000,000 @ 3.26%
due 7/28/08 5,000,000 @ 3.25%
due 7/31/08 5,000,000 @ 3.27%
due 2/25/09 4,550,000 @ 3.20%
-----------
Total $62,200,000
===========
11
7. A reconciliation of the anticipated income tax expense (computed by applying
the Federal statutory income tax rate of 34% to the income before taxes) to the
provision for income taxes as reported in the statements of income is as
follows:
For the three months ended September 30,
2005 2004
------------------------- ------------------------------
Provision for income taxes at statutory Federal rate $ 429,405 34% $ 506,528 34%
Increase (decrease) resulting from:
Tax exempt income (105,566) (8) (89,553) (6)
Nondeductible interest expense 5,544 1 3,739 --
Other 5,271 -- 4,031 1
------------------------ -----------------------------
Provision for income taxes $ 334,654 27% $ 424,745 29%
======================== =============================
For the nine months ended September 30,
2005 2004
------------------------- ------------------------------
Provision for income taxes at statutory Federal rate $ 1,338,832 34% $ 1,259,038 34%
Increase (decrease) resulting from:
Tax exempt income (303,091) (8) (259,794) (7)
Nondeductible interest expense 14,494 -- 11,091 --
Other 15,814 1 11,777 1
------------------------ -----------------------------
Provision for income taxes $ 1,066,049 27% $ 1,022,112 28%
======================== =============================
8. The amortized cost, gross unrealized gains, gross unrealized losses and
approximate fair values of securities which are classified as available for sale
and held to maturity at September 30, 2005 and December 31, 2004 are as follows:
AVAILABLE FOR SALE September 30, 2005
------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------- ------------- -------------
Debt Securities:
U.S. Treasury securities $ 4,292,256 $ -- $ (63,162) $ 4,229,094
U.S. Government Agency securities 57,951,462 -- (933,050) 57,018,412
State and Municipal Obligations 24,598,733 425,919 (70,660) 24,953,992
Corporate and Other Bonds 3,001,996 -- (9,496) 2,992,500
------------- ------------- ------------- -------------
89,844,447 425,919 (1,076,368) 89,193,998
------------- ------------- ------------- -------------
Mortgage-Backed Securities:
GNMA 5,615,398 -- (137,587) 5,477,811
FNMA 54,145,759 2,055 (1,867,443) 52,280,371
FHLMC 20,294,676 5,866 (658,141) 19,642,401
------------- ------------- ------------- -------------
80,055,833 7,921 (2,663,171) 77,400,583
------------- ------------- ------------- -------------
Marketable Equity Securities 2,000,000 -- (24,276) 1,975,724
------------- ------------- ------------- -------------
Total available for sale securities $ 171,900,280 $ 433,840 $ (3,763,815) $ 168,570,305
============= ============= ============= =============
December 31, 2004
------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------- ------------- -------------
Debt Securities:
U.S. Treasury securities $ 5,292,694 $ 15,742 $ (30,915) $ 5,277,521
U.S. Government Agency securities 43,962,574 44,262 (828,456) 43,178,380
State and Municipal Obligations 18,078,583 573,799 (13,259) 18,639,123
Corporate and Other Bonds 3,007,856 -- (13,856) 2,994,000
------------- ------------- ------------- -------------
70,341,707 633,803 (886,486) 70,089,024
------------- ------------- ------------- -------------
Mortgage-Backed Securities:
GNMA 6,999,501 35,965 (12,548) 7,022,918
FNMA 63,486,399 6,439 (1,250,920) 62,241,918
FHLMC 32,818,476 48,630 (427,211) 32,439,895
------------- ------------- ------------- -------------
103,304,376 91,034 (1,690,679) 101,704,731
------------- ------------- ------------- -------------
Marketable Equity Securities 2,000,000 -- -- 2,000,000
------------- ------------- ------------- -------------
Total available for sale securities $ 175,646,083 $ 724,837 $ (2,577,165) $ 173,793,755
============= ============= ============= =============
12
HELD TO MATURITY September 30, 2005
-------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ ------------
Mortgage-Backed Securities:
GNMA $ 50,764 $ -- $ (775) $ 49,989
FHLMC -- -- -- --
------------ ------------ ------------ ------------
Total held to maturity securities $ 50,764 $ -- $ (775) $ 49,989
============ ============ ============ ============
December 31, 2004
-------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ ------------
Mortgage-Backed Securities:
GNMA $ 58,564 $ -- $ (750) $ 57,814
FHLMC 12,382 -- -- 12,382
------------ ------------ ------------ ------------
Total held to maturity securities $ 70,946 $ -- $ (750) $ 70,196
============ ============ ============ ============
At September 30, 2005, gross unrealized holding losses on available for sale and
held to maturity securities totaled $3,764,590. Of the securities with
unrealized losses, there were thirty-one securities that have been in a
continuous unrealized loss position for a period of twelve months or more. The
unrealized losses on these securities totaled $2,831,851 at September 30, 2005.
Management does not believe that any of the unrealized losses are other than
temporary as they relate to debt and mortgage-backed securities issued by U.S.
Government and U. S. Government sponsored agencies, and are due to changes in
the interest rate environment. The Company has both the intent and the ability
to hold these securities until maturity or until the fair value fully recovers.
In addition, management considers the issuers of the securities to be
financially sound and the Company will receive all contractual principal and
interest related to these investments. As a result, Management believes that
these unrealized losses will not have a negative impact on future earnings or a
permanent effect on capital. However, Management periodically evaluates
investment alternatives to properly manage the overall balance sheet. The timing
of sales and reinvestments is based on various factors, including management's
evaluation of interest rate risks and liquidity needs.
9. A summary of the Bank's loan portfolio at September 30, 2005 and December 31,
2004 is as follows:
2005 2004
--------------------------------
Real estate--residential mortgage $ 155,539,189 $ 148,661,814
Real estate--commercial mortgage 37,792,455 33,655,103
Real estate--construction 29,611,362 11,596,972
Commercial 18,976,935 17,910,953
Installment 4,664,972 6,315,197
Other 70,883 80,118
------------- -------------
TOTAL LOANS 246,655,796 218,220,157
Net deferred loan origination costs 271,414 198,541
Allowance for loan losses (1,691,553) (1,389,947)
------------- -------------
NET LOANS $ 245,235,657 $ 217,028,751
============= =============
13
Changes in the allowance for loan losses for the periods ended September 30,
2005 and December 31, 2004 are as shown below:
Nine months Twelve months
ended September 30, ended December 31,
2005 2004
------------------- ------------------
Balance at beginning of the year $ 1,389,947 $ 1,149,454
Provision for loan losses 310,617 360,000
Loans charged off (43,444) (184,970)
Recoveries of loans previously charged off 34,433 65,463
------------- -------------
Balance at end of period $ 1,691,553 $ 1,389,947
============= =============
The following table summarizes the Bank's nonperforming loans as of September
30, 2005 and December 31, 2004.
September 30, 2005 December 31, 2004
------------------ -----------------
Nonaccrual loans $ 328,495 $ 1,634,999
Loans past due in excess of 90 days and
accruing interest 2,613 --
------------- -------------
Total nonperforming assets $ 331,108 $ 1,634,999
============= =============
10. A summary of the Bank's deposits at September 30, 2005 and December 31, 2004
is as follows:
2005 2004
------------------------------
Noninterest bearing:
Demand $ 63,788,343 $ 58,409,685
------------ ------------
Interest bearing:
Savings 54,323,939 57,934,199
Money market 81,087,786 98,585,769
Time certificates of deposit in
denominations of $100,000 or more 29,821,137 25,823,673
Other time certificates of deposit 56,733,346 60,094,053
------------ ------------
Total Interest bearing deposits 221,966,208 242,437,694
------------ ------------
TOTAL DEPOSITS $285,754,551 $300,847,379
============ ============
Included in deposits as of September 30, 2005 and December 31, 2004 are
approximately $2,809,000 and $4,318,000, respectively, of brokered deposits
which have varying maturities through May 2007 and September 2006, respectively.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
GENERAL
First Litchfield Financial Corporation (the "Company"), a Delaware corporation
formed in 1988, is the one-bank holding company for The First National Bank of
Litchfield (the "Bank"), a national bank supervised and examined by the Office
of the Comptroller of the Currency (the "OCC"). The Bank is the Company's
primary subsidiary and only source of income. The Bank has two subsidiaries, The
Lincoln Corporation and Litchfield Mortgage Service Corporation, which are
Connecticut corporations. The purpose of The Lincoln Corporation is to hold
property such as real estate, personal property, securities, or other assets,
acquired by the Bank through foreclosure or otherwise to compromise a doubtful
claim or collect a debt previously contracted. The purpose of Litchfield
Mortgage Service Corporation is to operate as a passive investment company in
accordance with Connecticut law.
Both the Company and the Bank are headquartered in Litchfield, Connecticut. The
Bank is a full-service commercial bank serving both individuals and businesses
generally within Litchfield County Connecticut. Deposits are insured up to
specific limits of the Federal Deposit Insurance Act by the Bank Insurance Fund
("BIF"), which is administered by the Federal Deposit Insurance Corporation (the
"FDIC"). The Bank's lending activities include loans secured by residential and
commercial mortgages. Other loan products include consumer and business
installment lending, as well as other secured and nonsecured lending. The Bank
has seven banking locations located in the towns of Torrington, Litchfield,
Washington, Marble Dale, Goshen and Roxbury, Connecticut. The newest banking
facility, located in downtown Torrington, Connecticut, opened in March of 2003.
In May of 2005, the Bank received approval from the OCC to open a full service
branch in Canton, Connecticut. The Branch is scheduled to open in early 2006. In
1975, the Bank was granted Trust powers by the OCC. The Bank's Trust Department
provides trust and fiduciary services to individuals, nonprofit organizations
and commercial customers. Additionally, the Bank offers nondeposit retail
investment products such as mutual funds, annuities and insurance through its
relationship with Infinex Investments, Inc.
During the second quarter of 2003, the Company formed a statutory trust, First
Litchfield Statutory Trust I. The Company owns 100% of the Trust's common stock.
The Trust has no independent assets or operations and exists for the sole
purpose of issuing trust securities and investing the proceeds in subordinated
debentures issued by the Company. On June 26, 2003 the Trust issued its first
series of trust preferred securities.
As of September 30, 2005, the Company had total assets of $454,686,948, which
was an increase of approximately $30.4 million or 7.2% from year-end 2004 total
assets of $424,304,747. The increase in assets resulted mainly from increases in
the loan portfolio. The growth was funded primarily through Federal Home Loan
Bank advances and borrowings under repurchase agreements.
The following discussion and analysis of the Company's consolidated financial
condition and results of operations should be read in conjunction with the
consolidated financial statements and notes to the financial statements.
15
FINANCIAL CONDITION
Total assets as of September 30, 2005 were $454,686,948, an increase of
$30,382,201 or 7.2% from year-end 2004 total assets of $424,304,747.
During the first nine months of 2005, the increase in assets was in the loan
portfolio, which increased by $28,206,906 or 13.0% from year-end 2004. Total
loans, net of the allowance for loan losses, as of September 30, 2005 were
$245,235,657 as compared to the year-end 2004 level of $217,028,751. Growth was
in real estate secured lending with the greatest increase experienced in the
construction mortgage portfolio. Construction mortgages increased by $18,014,390
or 155.3% since the beginning of the year. This growth was primarily in
construction loans for residential property. The residential mortgage portfolio
totaled $155,539,189, which was an increase of $6,877,375 or 4.6% from year-end
2004. Although this growth slowed during the third quarter, growth in these
mortgage products continue to be primarily in fixed rate, 15 and 30 year loans.
Commercial mortgages totaled $37,792,455, which is a 12.3% increase from the
year-end balance. The increase in the commercial mortgage portfolio is primarily
in the ten year fixed rate mortgage product due to the continuance of a
relatively low rate environment for mortgage products, as well as the results
from a focus in commercial calling effort. The commercial loan portfolio totaled
$18,976,935 which was an increase of $1,065,982 or 6.0% from the year-end 2004
balance. Again, this growth is attributed to sales development and expansion
into growing market areas.
As of September 30, 2005, the securities portfolio totaled $168,621,069, which
is a $5,243,632 or 3.0% decrease from the year-end 2004 balance. The decrease in
the portfolio resulted primarily from principal payments received on
mortgage-backed securities, as well as calls and sales of agency bonds. The cash
flows from the securities portfolio have been mostly utilized to fund loan
growth. Additionally, during the third quarter of 2005, purchases of primarily
municipal securities were made to improve the tax-effective yield on the
portfolio.
Cash and cash equivalents totaled $16,612,139, which is an increase of
$4,389,426 or 35.9% from year-end 2004. The increase in cash and cash
equivalents primarily relates to daily cash letter fluctuations.
Total liabilities were $429,000,308 as of September 30, 2005 compared to total
liabilities of $399,759,074 as of year-end 2004. At September 30, 2005, total
deposits were $285,754,551, which was a decrease of $15,092,828 or 5.0% from
deposits at December 31, 2004. The decrease has been in interest bearing
deposits such as savings, money market, and time certificates of deposit under
$100,000 in denomination. As of September 30, 2005, interest-bearing deposits
totaled $221,966,208, which is a $20,471,486 or 8.4% decrease from the December
31, 2004 balance. The largest decrease has been in money market deposits which
have declined by $17,497,983 of 17.7% since the beginning of the year. Market
competition offering high promotional deposit rates is the cause of this
decline. Additionally, consumer reluctance for nonliquid deposits, coupled with
uncertainties in the long term interest rate environment, continue to cause the
decline in savings and time certificates of deposits. As of September 30, 2005,
demand deposits totaled $63,788,343, which was an increase of 9.2% since
December 31, 2004. This growth has come from commercial accounts, especially as
they relate to the Bank's cash management product and commercial lending.
Offsetting some of the decrease in time deposits were certificates of deposits
above $100,000 in denomination. These deposits increased slightly, by $3,997,464
or 15.5% due to deposits from local municipalities.
16
Earning asset growth has been funded primarily through Federal Home Loan Bank
advances and borrowings under repurchase agreements. Federal Home Loan Bank
advances have increased $19,000,000 or 64.4%. Borrowings have been on an
overnight basis as well as on both longer and shorter contractual terms. The
terms of the borrowings are determined based on considerations of interest
levels, yield curve and the Company's current and future liquidity needs.
Additionally funding asset growth was borrowings through the use of repurchase
agreements. This funding, which is primarily in the form of repurchase
agreements associated with commercial cash management accounts, has increased by
31.5% or $18,913,534 over the first nine months of 2005.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO THREE MONTHS
ENDED SEPTEMBER 30, 2004
Summary
Net interest income is the single largest source of the Company's net income.
Net interest income is determined by several factors and is defined as the
difference between interest and dividend income from earning assets, primarily
loans and investment securities, and interest expense on deposits and borrowed
money. Although there are certain factors that can be controlled by Management's
policies and actions, certain other factors exist, such as the general level of
credit demand, Federal Reserve Board monetary policy, and changes in tax law
that are beyond the control of Management.
Net income for the third calendar quarter of 2005 totaled $928,301, which is a
decrease of $136,741 or 12.8% from third quarter 2004 earnings of $1,065,042.
Quarterly basic and diluted net income per share for 2005 were $.46 and $.45 per
share, respectively, compared to $.53 per basic and $.52 per diluted share for
the same period in 2004.
Net Interest Income
Net interest income is comprised of the following for the three months ended
September 30,
2005 2004
----------- -----------
Interest and dividend income $ 5,468,170 $ 5,086,128
Tax-equivalent adjustments 103,595 88,839
Interest expense (1,938,663) (1,502,853)
----------- -----------
Net interest income (tax equivalent basis) $ 3,633,102 $ 3,672,114
=========== ===========
The following table presents the Company's average balance sheets (computed on a
daily basis), net interest income, and interest rates for the three months ended
September 30, 2005 and 2004. Average loans outstanding include nonaccruing
loans. Interest income is presented on a tax-equivalent basis which reflects a
federal tax rate of 34% for all periods presented.
17
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
Three months ended September 30, 2005 Three months ended September 30, 2004
-------------------------------------- -----------------------------------------
Interest Interest
Average Earned/ Yield/ Average Earned/ Yield/
Balance Paid Rate Balance Paid Rate
------------- --------- ------ ------------- ---------- ------
Assets
Interest Earning Assets:
Loans $ 242,011,000 3,782,989 6.25% $ 206,086,000 $2,951,286 5.73%
Investment Securities 165,396,000 1,780,722 4.31% 200,253,000 2,223,532 4.44%
Other interest earning assets 1,367,000 8,054 2.36% 160,000 149 .37%
------------- ---------- ------------- ----------
Total interest earning assets 408,774,000 5,571,765 5.45% 406,499,000 5,174,967 5.09%
---------- ---- ---------- ----
Allowance for loan losses (1,631,000) (1,336,000)
Cash and due from banks 16,444,000 14,077,000
Bank premises and equipment 3,807,000 2,840,000
Net unrealized gain/loss on
securities (2,427,000) (3,371,000)
Other assets 15,387,000 14,777,000
------------- -------------
Total Average Assets $ 440,354,000 $ 433,486,000
============= =============
Liabilities and Shareholders' Equity
Interest Bearing Liabilities:
Savings deposits $ 54,984,000 28,240 0.21% $ 57,833,000 33,743 0.23%
Money Market deposits 82,990,000 233,156 1.12% 105,526,000 275,443 1.04%
Time deposits 83,003,000 598,441 2.88% 87,640,000 523,211 2.39%
Borrowed funds 126,574,000 1,078,826 3.41% 101,306,000 670,456 2.65%
------------- ---------- ------------- ----------
Total interest bearing liabilities 347,551,000 1,938,663 2.23% 352,305,000 1,502,853 1.71%
---------- ---- ---------- ----
Demand deposits 64,792,000 57,911,000
Other liabilities 2,048,000 1,252,000
Shareholders' Equity 25,963,000 22,018,000
------------- -------------
Total liabilities and equity $ 440,354,000 $ 433,486,000
============= =============
Net interest income $3,633,102 $3,672,114
========== ==========
Net interest spread 3.22% 3.38%
Net interest margin 3.56% 3.61%
RATE/VOLUME ANALYSIS
Three months ended
9/30/05 Compared to 9/30/04
Increase (Decrease) Due to
-----------------------------------------------------
Volume Rate Total
--------- --------- ---------
Interest earned on:
Loans $ 545,347 $ 286,356 $ 831,703
Investment securities (377,031) (65,779) (442,810)
Other interest income 4,633 3,272 7,905
--------- --------- ---------
Total interest earning assets 172,949 223,849 396,798
--------- --------- ---------
Interest paid on:
Deposits (106,609) 134,049 27,440
Borrowed money 189,574 218,796 408,370
--------- --------- ---------
Total interest bearing liabilities 82,965 352,845 435,810
--------- --------- ---------
Increase (decrease) in net interest income $ 89,984 $(128,996) $ (39,012)
========= ========= =========
Tax-equivalent net interest income for the third quarter of 2005 decreased
$39,012, or 1.1%, from the third quarter of 2004. The decrease in the net
interest margin resulted in a $128,996 decline in tax-equivalent net interest
income. This decrease was offset by increased income of $89,984 resulting from
the increase in earning assets, particularly loan volume.
18
Average earning assets for the third quarter of 2005 totaled $409 million, which
is an increase of $2 million from the third quarter of 2004. Average loans,
however, increased by $36 million and accordingly changed the mix of earning
assets which resulted in additional tax equivalent interest income of $172,949.
Similarly, the composition of funding liabilities also changed. Decreases in
time deposits, were replaced by increases in borrowed money and in demand
deposits. Overall this change in the funding mix increased interest expense by
$82,965.
The tax-equivalent net interest margin for the third quarter of 2005 was 3.56%,
which was a decrease of 5 basis points from the third quarter of 2004. The
change in the net interest margin is generally due to increased funding costs
which have risen at a quicker rate than earning asset yields. The total yield on
earning assets was 5.45% which was a 36 basis point increase from the third
quarter 2004 yield on earning assets. Loan yields increased from 5.73% to 6.25%
over last year. Funding costs, however, have increased by 52 basis points, from
1.71% to 2.23%. This increase is due to the change in funding composition
between deposits and borrowings as well as to overall increases in short term
funding costs. For the third quarter of 2005 the cost of time certificates of
deposits was 2.88%, which was up 49 basis points from the third quarter 2004
cost. Whereas borrowed money provided funding for lower deposit levels, it also
resulted in increased funding costs. Generally, borrowed money is a more
expensive source of funds and therefore, a higher percentage of borrowed funds
to deposits will result in higher funding costs. Additionally, short term
borrowing rates have increased over the last twelve months. The cost of borrowed
money for the third quarter of 2005 was 3.41% which was an increase of 76 basis
points from the third quarter 2004 costs.
Provisions for Loan Losses
The provision for loan losses for the third quarter of 2005 totaled $109,371,
which is an increase of $19,371 over the provision for the third quarter of
2004. The provision for loan losses is determined quarterly and assessed along
with the adequacy of the loan loss reserve. The growth of the loan portfolio,
the entrance into new markets and, cautious expectations of the economy and
housing market, were the reasons for the increase in the provision.
During the third quarter of 2005, the Company recorded net charge-offs of $6,567
compared to net recoveries of $28,019 for the same period in 2004. For the third
quarter of 2005, total charge-offs were $24,854 and total recoveries were
$18,287. Recovery and charge-off activity continues to be associated primarily
with consumer debt, particularly, installment loans and overdrafts.
Noninterest Income
Noninterest income for the third quarter of 2005 totaled $755,696, an increase
of $245,096 or 48.0% from third quarter 2004 noninterest income of $510,600.
Banking service charges and fees for the third quarter of 2005 totaled $277,617,
which was an increase of $49,404 or 21.6% from the third quarter of 2004. This
increase was due to increased service charges resulting from overdraft, cash
management and debit card interchange fees. Trust fees totaled $230,154, which
was $16,296 or 7.6% above third quarter 2004 fees of $213,858. This increase is
due to a higher level of assets under management. Other noninterest income
totaled $247,925, increasing $126,530 or 104.2% from the third quarter of 2004.
This increase is mostly attributed to $118,514 in income related to recording
mortgage servicing assets during the third quarter of 2005. Additionally,
increased income from the cash surrender value of bank owned life insurance as
well as safe deposit rental income contributed to the increase in other
noninterest income. Finally, contributing to the increase of noninterest income
between the third quarters of 2005 and 2004 is the loss on the sale of available
for sales securities.
19
During the third quarter of 2004 securities were sold at a loss of $52,886.
There were no similar sales during the same quarter of 2005.
Noninterest Expense
For the three months ended September 30, 2005, noninterest expense totaled
$2,912,877, which was an increase of $398,789 or 15.9% from the same quarter in
2004. Salary and benefits costs totaled $1,545,382, which was an increase of
$103,153 or 7.2% over the third quarter of 2004. This increase was due to
additional staff positions created over the last year in anticipation of the
opening of the Bank's Canton office.
Third quarter 2005 occupancy and equipment expense totaled $286,752, which was
an increase of $33,225 or 13.1% from the third quarter of 2004. This increase
was due to higher costs related to maintenance and repairs on bank properties,
equipment depreciation, and utilities expense. Additional processing costs for
new electronic banking products and related services resulted in the 15.2 %
increase in computer services expense. Advertising expense totaled $180,289,
which was an increase of $107,880 from third quarter 2004 costs. Third quarter
costs for product promotion, corporate visibility and market awareness were the
reason for the increase. Commissions, services and fees expenses increased by
$32,775 or 65.9% from the third quarter of 2004 due mostly to costs incurred for
benefits and balance sheet consulting. Other noninterest expense totaled
$446,406 for the quarter, which was $108,398 or 32.1% above 2004 costs. These
increases resulted from costs incurred for officer recruitment, outsourcing of
the Company's internal audit function, computer software, contributions,
correspondent bank fees and franchise taxes.
Income Taxes
For the three month period ended September 30, 2005, the provision for income
taxes totaled $334,654, which is a decrease of 21.2% from the same period in
2004. This decrease is due mainly to the decrease of pretax income which was
down by 15.2% from the third quarter of 2004. Additionally, the effective tax
rate for the third quarter of 2005 was 27%, a decrease from the third quarter
2004 effective tax rate of 29%. This decrease is due to a higher ratio of
tax-exempt income to pretax income in 2005, which resulted from higher levels of
interest from municipal securities and income from increases in the cash
surrender value of bank owned life insurance.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO NINE
MONTHS ENDED SEPTEMBER 30, 2004
Summary
Net income for the Company for the nine months ended September 30, 2005 totaled
$2,871,693, increasing $190,753 or 7.1% from 2004 earnings of $2,680,940. Basic
and diluted net income per share for the 2005 nine month period were $1.42 and
$1.40, per share, respectively. These results are 6.8% and 6.9% above 2004
levels of $1.33 and $1.31 respectively, for basic and diluted net income per
share.
20
Net Interest Income
Net interest income is comprised of the following for the nine months ended
September 30,
2005 2004
------------ ------------
Interest and dividend income $ 15,912,809 $ 14,579,556
Tax-equivalent adjustments 293,410 254,048
Interest expense (5,276,202) (4,693,260)
------------ ------------
Net interest income (tax equivalent basis) $ 10,930,017 $ 10,140,344
============ ============
The following table presents the Company's average balance sheets (computed on a
daily basis), net interest income, and interest rates for the nine months ended
September 30, 2005 and 2004. Average loans outstanding include nonaccruing
loans. Interest income is presented on a tax-equivalent basis which reflects a
federal tax rate of 34% for all periods presented.
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL
Nine months ended September 30, 2005 Nine months ended September 30, 2004
-----------------------------------------------------------------------------------------
Interest Interest
Average Earned/ Yield/ Average Earned/ Yield/
Balance Paid Rate Balance Paid Rate
------------- ----------- ------ ------------- ----------- ------
Assets
Interest Earning Assets:
Loans $ 233,447,000 $10,543,314 6.02% $ 198,228,000 $ 8,325,636 5.60%
Investment Securities 171,960,000 5,645,748 4.38% 194,871,000 6,497,241 4.45%
Other interest earning assets 1,583,000 17,157 1.45% 1,466,000 10,727 0.98%
------------- ----------- ------------- -----------
Total interest earning assets 406,990,000 16,206,219 5.31% 394,565,000 14,833,604 5.01%
----------- ------ ----------- -------
Allowance for loan losses (1,529,000) (1,244,000)
Cash and due from banks 15,042,000 12,761,000
Bank premises and equipment 3,435,000 2,836,000
Net unrealized loss on
securities (2,403,000) (1,935,000)
Foreclosed real estate -- 92,000
Other assets 15,129,000 13,931,000
------------- -------------
Total Average Assets $ 436,664,000 $ 421,006,000
============= =============
Liabilities and Shareholders' Equity
Interest Bearing Liabilities:
Savings deposits $ 56,642,000 87,762 0.21% $ 56,427,000 118,407 0.28%
Money Market deposits 90,654,000 709,486 1.04% 107,630,000 985,730 1.22%
Time deposits 84,269,000 1,639,284 2.59% 91,176,000 1,770,176 2.59%
Borrowed funds 117,198,000 2,839,670 3.23% 89,460,000 1,818,947 2.71%
------------- ----------- ------------- -----------
Total interest bearing liabilities 348,763,000 5,276,202 2.02% 344,693,000 4,693,260 1.82%
----------- ------ ----------- -------
Demand deposits 60,664,000 53,005,000
Other liabilities 1,896,000 1,178,000
Shareholders' Equity 25,341,000 22,130,000
------------- -------------
Total liabilities and equity $ 436,664,000 $ 421,006,000
============= =============
Net interest income $10,930,017 $10,140,344
=========== ===========
Net interest spread 3.29% 3.19%
Net interest margin 3.58% 3.43%
21
RATE/VOLUME ANALYSIS
Nine months ended
9/30/05 Compared to 9/30/04
Increase (Decrease) Due to
---------------------------------------------
Volume Rate Total
----------- ----------- -----------
Interest earned on:
Loans $ 1,557,450 $ 660,228 $ 2,217,678
Investment securities (753,551) (97,942) (851,493)
Other interest income 914 5,516 6,430
----------- ----------- -----------
Total interest earning assets 804,813 567,802 1,372,615
----------- ----------- -----------
Interest paid on:
Deposits (256,291) (181,490) (437,781)
Borrowed money 630,787 389,936 1,020,723
----------- ----------- -----------
Total interest bearing liabilities 374,496 208,446 582,942
----------- ----------- -----------
Increase in net interest income $ 430,317 $ 359,356 $ 789,673
=========== =========== ===========
Tax equivalent net interest income for the first nine months of 2005 totaled
$10,930,017, which was an increase of $789,673 or 7.8% from the same period in
2004. The $789,673 increase in the net interest income reflects increased income
of $430,317 resulting from the increase in the volume of average earning assets
and liabilities. Furthermore, increased yields on earning assets, net of
increased rates on interest-bearing liabilities, contributed to the additional
$359,356 in net interest income.
Average earning assets for the first three quarters of 2005 increased by $12.4
million or 3.1 % from the same period in 2004. Growth in average earning assets
was in the loan portfolio, specifically in real estate loans, which increased by
over $35 million in the twelve month period. In contrast to the loan portfolio,
the investment portfolio has decreased by $23 million. During 2005, it has been
Management's goal to shift the mix of earning assets from lower yielding
securities to higher yielding loans. The net increase in earning assets
contributed an additional $804,813 to interest income for the first nine months
of 2005. This growth was funded by demand deposit and borrowed money and
resulted in increased funding costs of $374,496.
The tax-equivalent net interest margin (net interest income divided by average
earning assets) was 3.58% for the nine-month period ended September 30, 2005.
The net interest margin increased 15 basis points from the margin of 3.43% for
the nine months ended September 30, 2004. The tax-equivalent yield on earning
assets through September 30, 2005 was 5.31%, 30 basis points above the yield
earned during the first nine months of 2004. The increase in the yield is
attributable mostly to the improvement in loan portfolio yield which increased
by 42 basis points due to increases in the overall interest rate environment.
Additionally, the aforementioned shift in earning asset mix from investments to
loans had a beneficial effect on the net interest margin.
For the first nine months of 2005, funding costs were at 2.02%, which were up 20
basis points from the previous year's level of 1.82%. The increase in funding
costs occurred despite the fact that the year to date costs of deposits as of
September 30, 2005 were either equal to or less than those for the first nine
months of 2004. Specifically, the year-to-date rate paid on money market
deposits as of September 30, 2005 was 1.04% as compared to the 1.22% cost as of
September 30, 2004. For the first nine months of 2005, the average rate paid on
time deposits remained at the previous year's level of 2.59%. Although demand
deposit growth has provided a funding source, lower levels of interest-bearing
deposits have necessitated the Company's funding mix to rely more heavily
towards borrowed money. Increases in interest rates associated with borrowed
money, both in the form of short-term Federal Home Loan advances, borrowings
through customer repurchase agreements and the libor-based subordinated debt
have driven the increases in funding costs for the first nine months of 2005.
22
Provisions for Loan Losses
The provision for loan losses for the first nine months of 2005 totaled
$310,617, which was an increase of $40,617 or 15.0% from the provision of
$270,000 for the first nine months of 2004. The provision for loan losses is
determined quarterly and assessed along with the adequacy of the allowance for
loan losses. Management's rationale for the increased provision include loan
portfolio growth, especially with an increased emphasis on construction and
commercial lending, expansion into new markets and anticipation of a slower
economic environment.
During the first nine months of 2005, the Company recorded net charge-offs of
$9,011 compared to net charge-offs of $16,918 for the first nine months of 2004.
Charge-offs continue to relate to losses in consumer installment loans and in
overdrafts.
Noninterest Income
Year to date noninterest income as of September 30, 2005 totaled $1,967,427, up
$252,703 or 14.7%, above noninterest income from the same period in 2004. Trust
fee income totaled $705,640 which is an increase of $41,861 from the first nine
months of 2004. Increased assets under management, as well as nonrecurring
estate settlement fees contributed to this variance. Additionally impacting the
year-to year increase was the nonrecurring rebate of trust fees during the first
quarter of 2004. Banking service charges and fees totaled $745,778 which is an
increase of 6.1% or $43,123 from fees earned for the first nine months of 2004.
Increases in these fees are due to increased overdraft, cash management and
debit card interchange fees. Other noninterest income totaled $560,085,
increasing 39.6% from the first three quarters of 2004. The majority of this
increase relates to mortgage servicing assets totaling $118,514, which the Bank
recorded during the third quarter of 2005. Additionally contributing to the
increase was growth in fees from the Bank's retail investment product, increased
income from the cash surrender value of bank owned life insurance as well as
increased income from safe deposit box rentals. These increases offset the
$45,138 gain recorded from the sale of OREO property during the first quarter of
2004. Through September 30, 2005, losses on the sales of available for sale
securities totaled $44,076 compared to losses of $52,866 for the similar period
in 2004. In both years, these sales were made with the purpose of addressing
issues of volatility, interest rate exposure, yield and liquidity within the
investment portfolio.
Noninterest Expense
For the nine months ended September 30, 2005, noninterest expense totaled
$8,355,675, which was an increase of 9.5% or $727,707 from the same period of
2004. Corporate goals for continued growth through an ongoing commitment to
product development, marketing and personal service, as well as costs for
regulatory compliance have caused the increase in noninterest expense. Salary
and benefits expense for the first nine months of 2005 totaled $4,524,176,
increasing $278,156 or 6.6% from the first nine months of 2004. Costs related to
new staffing in sales and business development, lending and operations increased
salary expense. Also contributing to this increase was staff hired in
anticipation of the opening of the Canton, Connecticut branch. Year to date
occupancy and equipment expenses totaled $848,210, increasing $68,300 or 8.8%
from the previous year. Costs related to property maintenance and repair
projects throughout the Company have increased this expense. Additionally,
overall higher fuel costs coupled with first quarter weather and higher levels
of depreciation expense due to new equipment purchases contributed to the
increase. Expenses for legal, director fees, postage and supplies continue to
remain close to their 2004 levels. Advertising costs totaled $357,546 for the
first nine months of 2005. These costs have increased by $107,615 or 43.1% due
to branding studies,
23
product promotion and new market awareness. Commissions and fees expenses
increased by $39,565 as a result of costs incurred for benefits and balance
sheet consulting.
Other noninterest expenses totaled $1,302,068 which was an increase of $232,691,
or 21.8% from the first nine months of 2004. Costs for officer recruitment,
outsourcing of the Company's internal audit function, computer software,
contributions, executive relocation expenses and insurance fees comprised this
increase. These increases generally relate to the Company's growth in various
areas over the last year as well as to the regulatory environment.
Income Taxes
The provision for income taxes for the first nine months of 2005 totaled
$1,066,049, which was an increase of $43,937 from the first nine months of 2004.
The increase in income tax expense is due to higher taxable income levels offset
by a slightly lower tax rate. The effective tax rate for the first nine months
of 2005 was 27% compared to 28% for the similar period in 2004.
LIQUIDITY
Management's objective is to ensure continuous ability to meet cash needs as
they arise. Such needs may occur from time to time as a result of fluctuations
in loan demand and the level of total deposits. Accordingly, the Bank has a
liquidity policy that provides flexibility to meet cash needs. The liquidity
objective is achieved through the maintenance of readily marketable investment
securities as well as a balanced flow of asset maturities and prudent pricing on
loan and deposit products.
The Bank is a member of the Federal Home Loan Bank system which provides credit
to its member banks. This enhances the liquidity position of the Bank by
providing a source of available overnight as well as short-term borrowings.
Additionally, federal funds, borrowings through the use of repurchase agreements
and the sale of mortgage loans in the secondary market are available to fund
short term cash needs.
As of September 30, 2005, the Company had $78,897,002 in loan commitments and
credit lines outstanding. Since some commitments are expected to expire without
being drawn upon, the total commitment amount therefore does not necessarily
represent all future cash requirements. The funding of these commitments are
anticipated to be through deposits, loan and security amortizations and
maturities. Management believes liquidity is adequate to meet its present and
foreseeable needs.
CAPITAL
At September 30, 2005, total shareholders' equity was $25,686,640 compared to
$24,545,673 at December 31, 2004. From a regulatory perspective, the capital
ratios of the Company and the Bank place each entity in the "well-capitalized"
categories under applicable regulations. The various capital ratios of the
Company and the Bank are as follows as of September 30, 2005:
24
Minimum
Regulatory
Capital Levels The Company The Bank
-------------- ----------- --------
TIER 1:
Leverage capital ratio 4% 7.87% 7.19%
Risk-based capital ratio 4% 13.51% 12.35%
Total risk-based capital ratio 8% 14.17% 13.01%
ALLOWANCE FOR LOAN LOSSES AND CRITICAL ACCOUNTING POLICIES
In the ordinary course of business, the Bank has made a number of estimates and
assumptions relating to the reporting results of operations and financial
condition in preparing its financial statements in conformity with accounting
principles generally accepted in the United States of America. Actual results
could differ significantly from those estimates under different assumptions and
conditions. The Company believes the following discussion addresses the Bank's
only critical accounting policy, which is the policy that is most important to
the portrayal of the Bank's financial results and requires management's most
difficult, subjective and complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain.
The Bank makes provisions for loan losses on a quarterly basis as determined by
a continuing assessment of the adequacy of the allowance for loan losses. The
Bank performs an ongoing review of loans in accordance with an individual loan
rating system to determine the required allowance for loan losses at any given
date. The review of loans is performed to estimate potential exposure to losses.
Management's judgment in determining the adequacy of the allowance is inherently
subjective and is based on an evaluation of the known and inherent risk
characteristics and size of the loan portfolios, the assessment of current
economic and real estate market conditions, estimates of the current value of
underlying collateral, past loan loss experience, review of regulatory authority
examination reports and evaluations of impaired loans, and other relevant
factors. Loans, including impaired loans, are charged against the allowance for
loan losses when management believes that the uncollectibility of principal is
confirmed. Any subsequent recoveries are credited to the allowance for loan
losses when received. In connection with the determination of the allowance for
loan losses and the valuation of foreclosed real estate, management obtains
independent appraisals for significant properties, when considered necessary.
The allowance consists of specific, general and unallocated components. The
specific component relates to loans that are classified as either doubtful,
substandard or special mention. For such loans that are also classified as
impaired, an allowance is established when the discounted cash flows (or
collateral value or observable market price) of the impaired loan is lower than
the carrying value of that loan. The general component covers non-classified
loans and is based on historical loss experience adjusted for qualitative
factors. An unallocated component is maintained to cover uncertainties that
could affect management's estimate or probable losses. The unallocated component
of the allowance reflects the margin of imprecision inherent in the underlying
assumptions.
There were no material changes in loan concentration or loan quality that had a
significant effect on the allowance for loan losses calculation at September 30,
2005. In addition, there were no material changes in the estimation methods and
assumptions used in the Company's allowance for loan losses
25
calculation, and there were no material reallocations of the allowance among
different parts of the loan portfolio.
At September 30, 2005, the allowance for loan losses was equivalent to 515% of
total non-performing assets as compared with 85% of total non-performing assets
at December 31, 2004. This ratio was favorably impacted due to favorable
disposition of nonperforming mortgages that were removed from nonaccrual during
the first nine months of 2005. The ratio of the allowance for loan losses to
total loans at September 30, 2005 was .69% as compared to .64% as of December
31, 2004. Despite reduced levels of non-performing loans, the increased
provisions and allowance levels are appropriate in light of the increased focus
on commercial lending and the growth of the portfolio and outlook for the
economy and housing market.
Changes in the allowance for loan losses for the periods ended September 30,
2005 and 2004 are as shown below:
Nine months ended September 30,
2005 2004
----------- -----------
Balance at beginning of the year $ 1,389,947 $ 1,149,454
Provision for loan losses 310,617 270,000
Loans charged off (43,444) (75,896)
Recoveries of loans previously charged off 34,433 58,978
----------- -----------
Balance at end of period $ 1,691,553 $ 1,402,536
=========== ===========
The following table summarizes the Bank's OREO, past due and nonaccrual loans,
and nonperforming assets as of September 30, 2005 and December 31, 2004.
September 30, 2005 December 31, 2004
------------------ -----------------
Nonaccrual loans $ 328,495 $1,634,999
Other real estate owned -- --
---------- ----------
Total nonperforming assets $ 328,495 $1,634,999
========== ==========
Loans past due in excess of 90 days and
accruing interest $ 2,613 $ --
========== ==========
Potential Problem Loans
As of September 30, 2005, there were no potential problem loans not disclosed
above which cause management to have serious doubts as to the ability of such
borrowers to comply with their present loan repayment terms.
Impact of Inflation and Changing Prices
The financial statements and related financial data presented in this report
have been prepared in accordance with accepted accounting principles generally
accepted in the United States of America, which require the measurement of
financial position and operating results in terms of historical dollars without
considering the change in the relative purchasing power of money over time due
to inflation. The primary impact of inflation on our operations is reflected in
increased operating costs. Unlike most industrial companies, virtually all the
assets and liabilities of a financial institution are monetary in nature. As a
result, interest rates generally have a more significant impact on a financial
institution's
26
performance than do general levels of inflation. Interest rates do
not necessarily move in the same direction or to the same extent as the prices
of goods and services.
OFF BALANCE SHEET ARRANGEMENTS
The Company is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers such
as letters of credit. In the opinion of management, these off-balance sheet
arrangements are not likely to have a material effect on the Company's financial
condition, results of operation, or liquidity.
At September 30, 2005, there have been no significant changes in the Company's
off-balance sheet arrangements from December 31, 2004.
FORWARD-LOOKING STATEMENTS
This Quarterly Report and future filings made by the Company with the Securities
and Exchange Commission, as well as other filings, reports and press releases
made or issued by the Company and the Bank, and oral statements made by
executive officers of the Company and Bank, may include forward-looking
statements relating to such matters as (a) assumptions concerning future
economic and business conditions and their effect on the economy in general and
on the markets in which the Company and the Bank do business, and (b)
expectations for increased revenues and earnings for the Company and Bank
through growth resulting from acquisitions, attractions of new deposit and loan
customers and the introduction of new products and services. Such
forward-looking statements are based on assumptions rather than historical or
current facts and, therefore, are inherently uncertain and subject to risk. For
those statements, the Company claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995.
The Company notes that a variety of factors could cause the actual results or
experience to differ materially from the anticipated results or other
expectations described or implied by such forward-looking statements. The risks
and uncertainties that may affect the operations, performance, development and
results of the Company's and Bank's business include the following: (a) the risk
of adverse changes in business conditions in the banking industry generally and
in the specific markets in which the Bank operates; (b) changes in the
legislative and regulatory environment that negatively impact the Company and
Bank through increased operating expenses; (c) increased competition from other
financial and nonfinancial institutions; (d) the impact of technological
advances; and (e) other risks detailed from time to time in the Company's
filings with the Securities and Exchange Commission. Such developments could
have an adverse impact on the Company and the Bank's financial position and
results of operation.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The main components of market risk for the Company are equity price risk, credit
risk, interest rate risk and liquidity risk. The Company's common stock is
traded on the Over the Counter ("OTC") Bulletin Board under the symbol "FLFL".
As a result, the value of its common stock may fluctuate or respond to price
movements relating to the banking industry or other indicia of investment.
27
The Company manages interest rate risk and liquidity risk through an ALCO
Committee comprised of senior management and other officers. The committee
monitors compliance with the Bank's Asset/Liability Policy which provides
guidelines to analyze and manage gap, which is the difference between the amount
of assets and the amounts of liabilities which mature or reprice during specific
time frames. The Company manages its interest-rate risk sensitivity through the
use of a simulation model that projects the impact of rate shocks, rate cycles
and rate forecast estimates on net interest income. These simulations take into
consideration factors such as maturities, reinvestment rates, prepayment speeds,
repricing limits and other factors. The results of these simulations are
compared to earnings tolerance limits set forth in the Bank's Asset/Liability
Policy.
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the Company's Exchange Act
report is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and communicated to the Company's Management, including its Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure based on the definition of "disclosure controls
and procedures" in Rule 13a-15(e). In designing and evaluating the disclosure
controls and procedures, management recognized that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives, and management necessarily was
required to apply its judgment in evaluating the cost-benefit of possible
controls and procedures.
As of the end of the period covered by this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and the Company's
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on such evaluation, the
Company's Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures are effective.
There were no changes in the Company's internal control over financial reporting
that occurred during the Company's third quarter of 2005 that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Neither the Company nor the Bank (or any of their properties) are the subject of
any material pending legal proceedings other than routine litigation that is
incidental to their business with the possible exception of the following
matter.
On September 9, 2003, the Bank commenced an action in Superior Court for the
Judicial District of Litchfield, Connecticut in a matter captioned "The First
National Bank of Litchfield v. Theresa Sullivan and John Sullivan:
CV-03-0091476-S" in an effort to collect principal and past due interest due on
two (2) loans, which the Bank extended several years earlier and upon which the
Borrowers had defaulted. The aggregate principal balance outstanding on the two
(2) loans was approximately $135,000. The Borrowers counterclaimed against the
Bank alleging that the Bank, through current and former
28
employees, engaged in conduct in violation of covenants of good faith and fair
dealing pursuant to both common law and Connecticut statutes, that the Bank's
conduct constitutes a violation of the Connecticut Uniform Trade Practices Act.
The Borrowers seek a variety of unspecified damages including money damages,
interest, punitive damages, and "such other and further relief as the Court
deems fair and just."
The Bank is conducting discovery with respect to the merits of the underlying
action and counterclaim. While the outcome of such litigation is unresolved, it
is not expected to have any material adverse effect upon the financial
statements of the Company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds - Not
applicable
Item 3. Defaults Upon Senior Securities - Not applicable
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - Not applicable
Item 6. Exhibits
A. Exhibits
EXHIBIT INDEX
Exhibit
No. Exhibit
- ------- -------
3.1 Certificate of Incorporation of First Litchfield Financial
Corporation, as amended. Exhibit is incorporated by reference to
Exhibit 3.1 set forth in the Company's Registration Statement on
Form 10-SB as filed with the Securities and Exchange Commission on
January 7, 2000.
3.2 Bylaws of First Litchfield Financial Corporation, as amended.
Exhibit is incorporated by reference to Exhibit 3.2 set forth in the
Company's Registration Statement on Form 10-SB as filed with the
Securities and Exchange Commission on January 7, 2000.
4. Specimen Common Stock Certificate. Exhibit is incorporated by
reference to Exhibit 4. set forth in the Company's Registration
Statement on Form 10-SB as filed with the Securities and Exchange
Commission on January 7, 2000.
10.1 1990 Stock Option Plan for Company's President and Chief Executive
Officer, as amended. Exhibit is incorporated by reference to Exhibit
10.1 set forth in the Company's Registration Statement on Form 10-SB
as filed with the Securities and Exchange Commission on January 7,
2000.
10.2 1994 Stock Option Plan for Officers and Outside Directors. Exhibit
is incorporated by reference to Exhibit 10.2 set forth in the
Company's Registration Statement on Form 10-SB as filed with the
Securities and Exchange Commission on January 7, 2000.
29
10.3 Supplemental Executive Retirement Agreement between Company and
Jerome J. Whalen. Exhibit is incorporated by reference to Exhibit
10.3 set forth in the Company's Registration Statement on Form 10-SB
as filed with the Securities and Exchange Commission on January 7,
2000.
10.4 Change in Control Agreement between Jerome J. Whalen and Company.
Exhibit is incorporated by reference to Exhibit 10.4 set forth in
the Company's Registration Statement on Form 10-SB as filed with the
Securities and Exchange Commission on January 7, 2000.
10.5 Change in Control Agreement between Philip G. Samponaro and Company.
Exhibit is incorporated by reference to Exhibit 10.5 set forth in
the Company's Registration Statement on Form 10-SB as filed with the
Securities and Exchange Commission on January 7, 2000.
10.6 Change in Control Agreement between Carroll A. Pereira and Company.
Exhibit is incorporated by reference to Exhibit 10.6 set forth in
the Company's Registration Statement on Form 10-SB as filed with the
Securities and Exchange Commission on January 7, 2000.
10.7 Change in Control Agreement between John S. Newton and Company.
Exhibit is incorporated by reference to Exhibit 10.7 set forth in
the Company's Registration Statement on Form 10-SB as filed with the
Securities and Exchange Commission on January 7, 2000.
10.8 Change in Control Agreement between Revere H. Ferris and Company.
Exhibit is incorporated by reference to Exhibit 10.8 set forth in
the Company's Registration Statement on Form 10-SB as filed with the
Securities and Exchange Commission on January 7, 2000.
10.9 Supplemental Employee Retirement Agreement between the Company and
Walter Hunt. Exhibit is incorporated by reference to Exhibit 10.9
set forth in the Company's Registration Statement on Form 10-SB as
filed with the Securities and Exchange Commission on January 7,
2000.
10.10 Deferred Directors' Fee Plan. Exhibit is incorporated by reference
to Exhibit 10.10 set forth in the Company's Registration Statement
on Form 10-SB as filed with the Securities and Exchange Commission
on January 7, 2000.
10.11 Form of Employee Change in Control Agreement. Exhibit is
incorporated by reference to Exhibit 10.11 set forth in the
Company's Registration Statement on Form 10-SB as filed with the
Securities and Exchange Commission on January 7, 2000.
10.12 Executive Supplemental Compensation Agreement dated November 21,
2000 between the Company and Jerome J. Whalen. Exhibit is
incorporated by reference to Exhibit 10.12 set forth in the
Company's Annual Report in Form 10-KSB for the fiscal year ended
December 31, 2000 as filed with the Securities and Exchange
Commission on April 2, 2001.
30
10.13 Split Dollar Agreement with Salisbury Bank as Trustee dated November
21, 2000. Exhibit is incorporated by reference to Exhibit 10.13 set
forth in the Company's Annual Report in Form 10-KSB for the fiscal
year ended December 31, 2000 as filed with the Securities and
Exchange Commission on April 2, 2001.
10.14 The Rabbi Trust Agreement with Salisbury Bank as Trustee dated
November 21, 2000. Exhibit is incorporated by reference to Exhibit
10.14 set forth in the Company's Annual Report in Form 10-KSB for
the fiscal year ended December 31, 2000 as filed with the Securities
and Exchange Commission on April 2, 2001.
10.15 The First National Bank of Litchfield Executive Incentive Retirement
Agreement between Jerome J. Whalen and the Bank dated December 28,
2000. Exhibit is incorporated by reference to Exhibit 10.15 set
forth in the Company's Annual Report in Form 10-KSB for the fiscal
year ended December 31, 2000 as filed with the Securities and
Exchange Commission on April 2, 2001.
10.16 The First National Bank of Litchfield Executive Incentive Retirement
Agreement between Carroll A. Pereira and the Bank dated November 30,
2000. Exhibit is incorporated by reference to Exhibit 10.16 set
forth in the Company's Annual Report in Form 10-KSB for the fiscal
year ended December 31, 2000 as filed with the Securities and
Exchange Commission on April 2, 2001.
10.17 The First National Bank of Litchfield Executive Incentive Retirement
Agreement between Philip G. Samponaro and the Bank dated December
19, 2000. Exhibit is incorporated by reference to Exhibit 10.17 set
forth in the Company's Annual Report in Form 10-KSB for the fiscal
year ended December 31, 2000 as filed with the Securities and
Exchange Commission on April 2, 2001.
10.18 The First National Bank of Litchfield Executive Incentive Retirement
Agreement between Revere H. Ferris and the Bank dated November 30,
2000. Exhibit is incorporated by reference to Exhibit 10.18 set
forth in the Company's Annual Report in Form 10-KSB for the fiscal
year ended December 31, 2000 as filed with the Securities and
Exchange Commission on April 2, 2001.
10.19 The First National Bank of Litchfield Executive Incentive Retirement
Agreement between John S. Newton and the Bank dated December 21,
2000. Exhibit is incorporated by reference to Exhibit 10.19 set
forth in the Company's Annual Report in Form 10-KSB for the fiscal
year ended December 31, 2000 as filed with the Securities and
Exchange Commission on April 2, 2001.
10.20 The First National Bank of Litchfield Director Incentive Retirement
Agreement between Charles E. Orr and the Bank dated November 29,
2000. Exhibit is incorporated by reference to Exhibit 10.20 set
forth in the Company's Annual Report in Form 10-KSB for the fiscal
year ended December 31, 2000 as filed with the Securities and
Exchange Commission on April 2, 2001.
10.21 The First National Bank of Litchfield Director Incentive Retirement
Agreement between Patricia D. Werner and the Bank dated November 30,
2000. Exhibit is incorporated by reference to Exhibit 10.21 set
forth in the Company's Annual Report in Form 10-KSB for
31
the fiscal year ended December 31, 2000 as filed with the Securities
and Exchange Commission on April 2, 2001.
10.22 The First National Bank of Litchfield Director Incentive Retirement
Agreement between Clayton L. Blick and the Bank dated December 4,
2000. Exhibit is incorporated by reference to Exhibit 10.22 set
forth in the Company's Annual Report in Form 10-KSB for the fiscal
year ended December 31, 2000 as filed with the Securities and
Exchange Commission on April 2, 2001.
10.23 The First National Bank of Litchfield Director Incentive Retirement
Agreement between George M. Madsen and the Bank dated December 7,
2000. Exhibit is incorporated by reference to Exhibit 10.23 set
forth in the Company's Annual Report in Form 10-KSB for the fiscal
year ended December 31, 2000 as filed with the Securities and
Exchange Commission on April 2, 2001.
10.24 The First National Bank of Litchfield Director Incentive Retirement
Agreement between William J. Sweetman and the Bank dated December
20, 2000. Exhibit is incorporated by reference to Exhibit 10.24 set
forth in the Company's Annual Report in Form 10-KSB for the fiscal
year ended December 31, 2000 as filed with the Securities and
Exchange Commission on April 2, 2001.
10.25 The First National Bank of Litchfield Director Incentive Retirement
Agreement between H. Ray Underwood and the Bank dated December 20,
2000. Exhibit is incorporated by reference to Exhibit 10.25 set
forth in the Company's Annual Report in Form 10-KSB for the fiscal
year ended December 31, 2000 as filed with the Securities and
Exchange Commission on April 2, 2001.
10.26 The First National Bank of Litchfield Director Incentive Retirement
Agreement between Bernice D. Fuessenich and the Bank dated December
21, 2000. Exhibit is incorporated by reference to Exhibit 10.26 set
forth in the Company's Annual Report in Form 10-KSB for the fiscal
year ended December 31, 2000 as filed with the Securities and
Exchange Commission on April 2, 2001.
10.27 The First National Bank of Litchfield Director Incentive Retirement
Agreement between Thomas A. Kendall and the Bank dated December 26,
2000. Exhibit is incorporated by reference to Exhibit 10.27 set
forth in the Company's Annual Report in Form 10-KSB for the fiscal
year ended December 31, 2000 as filed with the Securities and
Exchange Commission on April 2, 2001.
10.28 The First National Bank of Litchfield Director Incentive Retirement
Agreement between Ernest W. Clock and the Bank dated December 26,
2000. Exhibit is incorporated by reference to Exhibit 10.28 set
forth in the Company's Annual Report in Form 10-KSB for the fiscal
year ended December 31, 2000 as filed with the Securities and
Exchange Commission on April 2, 2001.
10.29 The First National Bank of Litchfield Director Incentive Retirement
Agreement between Perley H. Grimes and the Bank dated December 27,
2000. Exhibit is incorporated by reference to Exhibit 10.29 set
forth in the Company's Annual Report in Form 10-KSB for
32
the fiscal year ended December 31, 2000 as filed with the Securities
and Exchange Commission on April 2, 2001.
10.30 The First National Bank of Litchfield Director Incentive Retirement
Agreement between John H. Field and the Bank dated December 4, 2000.
Exhibit is incorporated by reference to Exhibit 10.30 set forth in
the Company's Annual Report in Form 10-KSB for the fiscal year ended
December 31, 2000 as filed with the Securities and Exchange
Commission on April 2, 2001.
10.31 Early Retirement Agreement between Jerome J. Whalen and The First
National Bank of Litchfield dated April 2, 2002. Exhibit is
incorporated by reference to Exhibit 10.31 set forth in the
Company's 10-QSB for the quarter ended March 31, 2002 as filed with
the Securities and Exchange Commission on May 14, 2002.
10.32 Executive Change in Control Agreement between Joseph J. Greco and
the Company and the Bank. Exhibit is incorporated by reference to
Exhibit 10.32 set forth in the Company's 10-QSB for the quarter
ended June 30, 2002 as filed with the Securities and Exchange
Commission on August 13, 2002.
10.33 Executive Change in Control Agreement between Carroll A. Pereira and
the Company and the Bank. Exhibit is incorporated by reference to
Exhibit 10.33 set forth in the Company's 10-QSB for the quarter
ended June 30, 2002 as filed with the Securities and Exchange
Commission on August 13, 2002.
10.34 Executive Change in Control Agreement between Philip G. Samponaro
and the Company and the Bank. Exhibit is incorporated by reference
to Exhibit 10.34 set forth in the Company's 10-QSB for the quarter
ended June 30, 2002 as filed with the Securities and Exchange
Commission on August 13, 2002.
10.35 Executive Change in Control Agreement between John S. Newton and the
Company and the Bank. Exhibit is incorporated by reference to
Exhibit 10.35 set forth in the Company's 10-QSB for the quarter
ended June 30, 2002 as filed with the Securities and Exchange
Commission on August 13, 2002.
10.36 Executive Change in Control Agreement between Revere H. Ferris and
the Company and the Bank. Exhibit is incorporated by reference to
Exhibit 10.36 set forth in the Company's 10-QSB for the quarter
ended June 30, 2002 as filed with the Securities and Exchange
Commission on August 13, 2002.
10.37 Form of Employee Change in Control Agreement. Exhibit is
incorporated by reference to Exhibit 10.37 set forth in the
Company's 10-QSB for the quarter ended June 30, 2002 as filed with
the Securities and Exchange Commission on August 13, 2002.
10.37.1 The First National Bank of Litchfield Director Incentive Retirement
Agreement between Alan B. Magary and the Bank dated December 19,
2002. Exhibit is incorporated by reference to Exhibit 10.38 set
forth in the Company's Annual Report in Form 10-KSB for the fiscal
year ended December 31, 2002 as filed with the Securities and
Exchange Commission on March 31, 2003.
33
10.38 The First National Bank of Litchfield Director Incentive Retirement
Agreement between Gregory S. Oneglia and the Bank dated December 19,
2002. Exhibit is incorporated by reference to Exhibit 10.39 set
forth in the Company's Annual Report in Form 10-KSB for the fiscal
year ended December 31, 2002 as filed with the Securities and
Exchange Commission on March 31, 2003.
10.39 The First National Bank of Litchfield Executive Incentive Retirement
Agreement between Joseph J. Greco and the Bank dated December 19,
2002. Exhibit is incorporated by reference to Exhibit 10.40 set
forth in the Company's Annual Report in Form 10-KSB for the fiscal
year ended December 31, 2002 as filed with the Securities and
Exchange Commission on March 31, 2003.
10.41 Executive Change in Control Agreement between Joseph J. Greco and
the Company and the Bank. Exhibit is incorporated by reference to
Exhibit 10.41 set forth in the Company's 10-QSB for the quarter
ended June 30, 2003 as filed with the Securities and Exchange
Commission on August 13, 2003.
10.42 Executive Change in Control Agreement between Carroll A. Pereira and
the Company and the Bank. Exhibit is incorporated by reference to
Exhibit 10.42 set forth in the Company's 10-QSB for the quarter
ended June 30, 2003 as filed with the Securities and Exchange
Commission on August 13, 2003.
10.43 Executive Change in Control Agreement between Revere H. Ferris and
the Company and the Bank. Exhibit is incorporated by reference to
Exhibit 10.43 set forth in the Company's 10-QSB for the quarter
ended June 30, 2003 as filed with the Securities and Exchange
Commission on August 13, 2003.
10.44 Executive Change in Control Agreement between John S. Newton and the
Company and the Bank. Exhibit is incorporated by reference to
Exhibit 10.44 set forth in the Company's 10-QSB for the quarter
ended June 30, 2003 as filed with the Securities and Exchange
Commission on August 13, 2003.
10.45 Executive Change in Control Agreement between Philip G. Samponaro
and the Company and the Bank. Exhibit is incorporated by reference
to Exhibit 10.45 set forth in the Company's 10-QSB for the quarter
ended June 30, 2003 as filed with the Securities and Exchange
Commission on August 13, 2003.
10.46 Form of Employee Change in Control Agreement. Exhibit is
incorporated by reference to Exhibit 10.46 set forth in the
Company's 10-QSB for the quarter ended June 30, 2003 as filed with
the Securities and Exchange Commission on August 13, 2003.
10.47 Split dollar life agreement between Joelene E. Smith and the
Company. Exhibit is incorporated by reference to Exhibit 10.47 set
forth in the Company's 10-QSB for the quarter ended June 30, 2003 as
filed with the Securities and Exchange Commission on August 13,
2003.
10.48 Split dollar life agreement between Laura R. Szablak and the
Company. Exhibit is incorporated by reference to Exhibit 10.48 set
forth in the Company's 10-QSB for the
34
quarter ended June 30, 2003 as filed with the Securities and
Exchange Commission on August 13, 2003.
10.49 Split dollar life agreement between Patricia A. Carlson and the
Company. Exhibit is incorporated by reference to Exhibit 10.49 set
forth in the Company's 10-QSB for the quarter ended June 30, 2003 as
filed with the Securities and Exchange Commission on August 13,
2003.
10.50 Split dollar life agreement between Kathleen McGarry and the
Company. Exhibit is incorporated by reference to Exhibit 10.50 set
forth in the Company's 10-QSB for the quarter ended June 30, 2003 as
filed with the Securities and Exchange Commission on August 13,
2003.
10.51 Split dollar life agreement between Cynthia Showalter and the
Company. Exhibit is incorporated by reference to Exhibit 10.51 set
forth in the Company's 10-QSB for the quarter ended June 30, 2003 as
filed with the Securities and Exchange Commission on August 13,
2003.
10.52 Amended and Restated Declaration of Trust of First Litchfield
Statutory Trust I. Exhibit is incorporated by reference to Exhibit
10.52 set forth in the Company's 10-QSB for the quarter ended June
30, 2003 as filed with the Securities and Exchange Commission on
August 13, 2003.
10.53 Indenture for the Company's Floating Rate Junior Subordinated
Deferrable Interest Debentures due 2033. Exhibit is incorporated by
reference to Exhibit 10.53 set forth in the Company's 10-QSB for the
quarter ended June 30, 2003 as filed with the Securities and
Exchange Commission on August 13, 2003.
10.54 The First National Bank of Litchfield Executive Incentive Retirement
Agreement between Joelene E. Smith and the Bank dated December 22,
2003. Exhibit is incorporated by reference to Exhibit 10.54 set
forth in the Company's 10-KSB for the year ended December 31, 2003
as filed with the Securities and Exchange Commission on March 30,
2004.
10.55 Early Retirement Agreement between Philip G. Samponaro and The First
National Bank of Litchfield dated January 26, 2004. Exhibit is
incorporated by reference to Exhibit 10.55 set forth in the
Company's 10-KSB for the year ended December 31, 2003 as filed with
the Securities and Exchange Commission on March 30, 2004.
10.56 The First National Bank of Litchfield Director Incentive Retirement
Agreement between Kathleen A. Kelley and the Bank dated September 1,
2004. Exhibit is incorporated by reference to Exhibit 10.56 set
forth in the Company's 10-QSB for the quarter ended September 30,
2004 as filed with the Securities and Exchange Commission on
November 14, 2004.
10.57 Amendment to The First National Bank of Litchfield Director
Incentive Retirement Agreement between Alan B. Magary and the Bank
dated August 26, 2004. Exhibit is incorporated by reference to
Exhibit 10.57 set forth in the Company's 10-QSB for the quarter
ended September 30, 2004 as filed with the Securities and Exchange
Commission on November 14, 2004.
35
10.58 Executive Change in Control Agreement between Robert E.Teittinen and
the Company and the Bank.
21. List of Subsidiaries of First Litchfield Financial Corporation.
Exhibit is incorporated by reference to Exhibit 21 set forth in the
Company's 10-K for the year ended December 31, 2004 as filed with
the Securities and Exchange Commission on March 31, 2005.
31.1 Certification of the Chief Executive Officer of the Company.
31.2 Certification of the Chief Financial Officer of the Company.
32.0 Certification of the Chief Executive Officer and the Chief Financial
Officer of the Company, pursuant to 18 U.S.C. ss.1350, as adopted
pursuant to section 906 of the Sarbanes-Oxley Act of 2003.
36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FIRST LITCHFIELD FINANCIAL
CORPORATION
Dated: November 14, 2005 By: /s/ Joseph J. Greco
--------------------------------
Joseph J. Greco, President and
Chief Executive Officer
Dated: November 14, 2005 By: /s/ Carroll A. Pereira
--------------------------------
Carroll A. Pereira
Principal Accounting Officer