-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LtjTjnf8KbYI+TgccnGRF5ku/Tpx7HIRrxQh2TEtJBXA6hp8eUNojnOzHxA/VuyC z6cVbHPXuDM6Zjtda630Uw== 0000909012-03-000197.txt : 20030313 0000909012-03-000197.hdr.sgml : 20030313 20030313143811 ACCESSION NUMBER: 0000909012-03-000197 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030313 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST CONNECTICUT CAPITAL CORP/NEW/ CENTRAL INDEX KEY: 0000730669 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS BUSINESS CREDIT INSTITUTION [6159] IRS NUMBER: 060759497 STATE OF INCORPORATION: CT FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10QSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-08589 FILM NUMBER: 03602238 BUSINESS ADDRESS: STREET 1: 1000 LAFAYETTE BLVD STE 805 CITY: BRIDGEPORT STATE: CT ZIP: 06604 BUSINESS PHONE: 2033664726 MAIL ADDRESS: STREET 1: 1000 LAFAYETTE BLVD STREET 2: SUITE 805 CITY: BRIDGEPORT STATE: CT ZIP: 06604 10QSB/A 1 t300155.txt THE FIRST CONNECTICUT CAPITAL CORPORATION U. S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB-A (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended DECEMBER 31, 2002 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT For the transition period from to ---------------- ------------------ Commission file number 811-0969 -------- THE FIRST CONNECTICUT CAPITAL CORPORATION (EXACT NAME OF SMALL BUSINESS ISSUER AS) (SPECIFIED IN ITS CHARTER) CONNECTICUT 06-0759497 --------------------------------- ------------------- (STATE OR OTHER JURISDICTION (IRS EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 1000 BRIDGEPORT AVENUE, SHELTON, CONNECTICUT 06484 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (203) 944-5400 (ISSUER'S TELEPHONE NUMBER) (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by court. Yes No ----- ----- APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 1,173,382 ---------- Transitional Small Business Format: Yes No X ---- ---- THE FIRST CONNECTICUT CAPITAL CORPORATION BALANCE SHEETS, DECEMBER 31, 2002 AND MARCH 31, 2002 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
December 31, March 31, ASSETS 2002 2002 ------------- -------------- UNAUDITED AUDITED Cash and cash equivalents $ 254 $ 437 Loans - net of allowance for loan losses of $634 at September 30, 2002 and $594 at March 31, 2002 2,280 2,172 Loans due from related parties - 225 Loans held for sale 1,293 1,355 Due from partnerships 93 92 Accrued interest receivable 49 50 Servicing rights 66 69 Fixed assets 14 16 Deferred income taxes 117 250 Other assets 132 75 ------------- -------------- TOTAL ASSETS $ 4,298 $ 4,741 ============= ============== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Line of credit $ 1,797 $ 2,441 Accounts payable to related parties - 203 Accounts payable and other accrued expenses 288 94 ------------- -------------- TOTAL LIABILITIES 2,085 2,738 ------------- -------------- Commitments and contingencies STOCKHOLDERS' EQUITY Common stock, no par value, stated value $.50 per share, authorized 3,000,000 shares, issued and outstanding 1,173,382 shares 587 587 Additional paid in capital 9,253 9,253 Accumulated deficit (7,627) (7,837) ------------- -------------- TOTAL STOCKHOLDERS' EQUITY 2,213 2,003 ------------- -------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 4,298 $4,741 ============= ==============
See notes to financial statements. 1 THE FIRST CONNECTICUT CAPITAL CORPORATION STATEMENTS OF INCOME FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2002 AND 2001 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Three Months Nine Months Three Months Nine Months Ended Ended Ended Ended Dec 31, 2002 Dec 31, 2002 Dec 31, 2001 Dec 31, 2001 -------------- ------------- ------------ ------------- UNAUDITED UNAUDITED UNAUDITED UNAUDITED INTEREST INCOME: Interest and fees on loans $137 $628 $172 $559 Interest expense on line of credit 34 112 57 180 Other interest expense 0 9 4 11 -------------- ------------- ------------ ------------- TOTAL INTEREST EXPENSE 34 121 61 191 -------------- ------------- ------------ ------------- NET INTEREST INCOME 103 507 111 368 Reserve (recovery)for loan losses 0 80 (28) (16) -------------- ------------- ------------ ------------- NET INTEREST INCOME AFTER LOAN LOSSES AND REDUCTION OF ALLOWANCE FOR LOANS 103 427 139 384 -------------- ------------- ------------ ------------- OTHER OPERATING INCOME: Servicing fees 21 85 20 65 Net gains on sales of loans held for sale 76 381 84 254 Other fees 21 42 6 23 -------------- ------------- ------------ ------------- TOTAL OTHER OPERATING INCOME 118 508 110 342 -------------- ------------- ------------ ------------- TOTAL INCOME 221 935 249 726 -------------- ------------- ------------ ------------- OTHER OPERATING EXPENSES: Officers' salaries 64 159 46 133 Other salaries 21 50 16 41 Directors' fees - - - 1 Professional services 50 110 89 99 Miscellaneous taxes 5 15 3 13 Employee and general insurance 12 37 11 32 Rent 8 24 7 23 Amortization of servicing rights 17 51 18 54 Corporate insurance expenses 19 33 5 15 Licenses, dues and subscriptions expenses 3 10 2 5 Communications 2 6 2 7 Advertising and promotions 2 6 2 4 Stock record and other financial expenses 3 10 3 9 Depreciation 2 4 1 3 Equipment and auto rental 4 14 4 11 Postage, office and other expenses 7 25 (2) 22 -------------- ------------- ------------ ------------- TOTAL OTHER OPERATING EXPENSES 219 554 207 472 -------------- ------------- ------------ ------------- INCOME BEFORE INCOME TAXES 2 381 42 254 INCOME TAX PROVISION 13 171 0 10 -------------- ------------- ------------ ------------- NET INCOME (LOSS) (11) $210 $42 $244 ============== ============= ============ ============= INCOME (LOSS) PER COMMON SHARE (BASIC AND DILUTED) ($0.01) $0.18 $0.04 $0.21 ============== ============= ============ ============= Weighted average number of Common shares outstanding: (basic) 1,173,382 1,173,382 1,173,382 1,173,382 ============== ============= ============ ============= Common shares outstanding: (diluted) 1,190,265 1,181,953 1,173,382 1,173,382 ============== ============= ============ =============
See notes to financial statements. 2 THE FIRST CONNECTICUT CAPITAL CORPORATION STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE NINE MONTHS ENDED DECEMBER 31, 2002 (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Common Stock ---------------------------- Additional Number Of Paid-In Accumulated Stockholders' Shares Amount Capital Deficit Equity -------------- ---------- ------------ ---------------- --------------- BALANCE, April 1, 2002 1,173,382 $587 $9,253 ($7,837) $2,003 Net Income - - - 210 210 -------------- ---------- ------------ ---------------- --------------- BALANCE, December 31, 2002 1,173,382 $587 $ 9,253 ($7,627) $2,213 ============== ========== ============ ================ ===============
See notes to financial statements. 3 THE FIRST CONNECTICUT CAPITAL CORPORATION
STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED DECEMBER 31, 2002 AND 2001 (DOLLARS IN THOUSANDS) December 2002 December 2001 -------------- -------------- UNAUDITED UNAUDITED OPERATING ACTIVITIES Net income $210 $244 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 4 3 Provision of (recovery of) allowance for loan losses 80 (16) Amortization of servicing rights 51 54 Decrease in deferred tax asset 133 - Origination of loans held for sale (11,630) (10,469) Proceeds from sales of loans held for sale 11,692 9,916 Changes in asset and liabilities: Increase in restricted cash (2) Decrease in accrued interest receivable (1) (2) Increase in servicing rights (48) (54) Increase in other assets (57) (9) Decrease in accounts payable to related parties (203) - Increase in accounts payable and other accrued expenses 194 112 -------------- -------------- Net cash provided by (used in) operating activities 425 (223) -------------- -------------- INVESTING ACTIVITIES Originations of loans (2,837) (2,357) Principal collected on loans 2,874 2,601 Purchase of fixed assets (2) (6) -------------- -------------- Net cash provided by investing activities 35 238 FINANCING ACTIVITIES Decrease in line of credit borrowings (644) (234) Amounts due from Partnership loans 1 - -------------- -------------- Net cash provided by (used in) financing activities (643) (234) -------------- -------------- DECREASE IN CASH AND CASH EQUIVALENTS (183) (219) CASH AND CASH EQUIVALENTS, BEGINNING 437 232 -------------- -------------- CASH AND CASH EQUIVALENTS, ENDING $254 $13 ============== ============== Supplemental disclosure of cash flow information: Cash paid for interest $114 $130 Cash paid for taxes $30 $3 See notes to financial statements.
4 The First Connecticut Capital Corporation 10-QSB-A For the Three and Nine Months Ended December 31, 2002 and 2001 EXPLANATORY STATEMENT The Corporation has amended the 10-QSB filing as a result of a review performed by the SEC in connection with the Corporation's proposed proxy filing. The amended 10-QSB includes additional disclosures in connection with the Corporation's loan portfolio and lending activities. NOTES TO CONDENSED FINANCIAL STATEMENTS NOTE A - BASIS OF PRESENTATION The accompanying condensed financial statements of The First Connecticut Capital Corporation (the "Corporation or Company"), formerly known as The First Connecticut Small Business Investment Company, have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-QSB and Article 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair representation have been included. Operating results are not necessarily indicative of the results that may be expected for the year ending March 31, 2003. For further information, refer to the financial statements and notes thereto included in the Corporation's Annual Report on Form 10-KSBA for the year ended March 31, 2002. FORWARD-LOOKING INFORMATION This quarterly report and other reports issued by The First Connecticut Capital Corporation ("FCCC or the Corporation"), including reports filed with the Securities and Exchange Commission, may contain "forward-looking" statements that deal with future results, plans or performances. In addition, FCCC's management may make such statements orally, to the media, or to securities analysts, investors or others. Forward-looking statements deal with matters that do not relate strictly to historical facts. FCCC's future results may differ materially from historical performance and forward-looking statements about FCCC's expected financial results or other plans are subject to a number of risk and uncertainties. These include but are not limited to possible legislative changes and adverse economic, business and competitive developments such as shrinking interest margins, investment outflows, reduced demand for loans, changes in accounting policies and guidelines, or monetary and fiscal policies of the federal government, changes in credit and other risks posed by FCCC loans and investment portfolios, technological, computer-related or operational difficulties, adverse changes in security markets, results of litigation or other significant uncertainties. 5 The First Connecticut Capital Corporation 10-QSB-A For the Three and Nine Months Ended December 31, 2002 and 2001 GENERAL The First Connecticut Capital Corporation (the "Corporation") is engaged in the mortgage banking business, which involves the origination, purchase, sale and servicing of mortgage loans secured by residential or commercial real estate. The Corporation's revenues consist of loan servicing fees, loan origination fees, interest on mortgage loans held prior to sale and gains from the sale of loans and mortgage servicing rights. Mortgage loans, which are originated or purchased by the Corporation may be resold. The Corporation also engages in mortgage servicing of its own Portfolio Loan Program, which includes the processing and administration of mortgage loan payments and remitting principal and interest to purchasers. The Corporation also monitors delinquencies, collects late fees, manages foreclosures, processes prepayments and loan assumption fees, provides purchasers with required reports, and answers borrowers' inquiries. Although the management plans, from time to time, to sell a portion of its mortgages originated, management intends to build the size of its mortgage servicing portfolio by retaining the servicing rights from a large share of its mortgage loan originations. As of December 31, 2002, the Corporation serviced a total portfolio of approximately $16,861,000, as listed below: Portfolio Loan Program $ 9,882,000 First Connecticut Capital Mortgage Fund "A" 4,506,000 First Connecticut Capital Mortgage Fund "B" 2,473,000 ------------- $ 16,861,000 HISTORY The Corporation (formerly The First Connecticut Small Business Investment Company) was incorporated on May 6, 1960 as a federally licensed small business investment company under the Small Business Investment Act of 1958 and was registered as an investment company under the Investment Company Act of 1940. The Corporation's prior business consisted of providing long-term loans to finance the growth, expansion and development of small business concerns. On August 15, 1990, the Corporation filed a petition for relief under Chapter 11 of the federal bankruptcy laws in the United States Bankruptcy Court. On October 18, 1991, the Corporation filed a plan of reorganization (the "Plan") with the United States Bankruptcy Court. The Plan was confirmed as of January 9, 1992. Under the Plan, the Corporation was required to surrender its license to operate as a small business investment company. 6 The First Connecticut Capital Corporation 10-QSB-A For the Three and Nine Months Ended December 31, 2002 and 2001 On December 15, 1993, the Corporation sold substantially all of its outstanding investment portfolio to Walsh Securities for an amount sufficient to settle substantially all of the Company's liabilities under the Plan. As part of this transaction, restrictions under the Plan regarding the Corporation's lending activities were waived. The Corporation was granted a license by the State of Connecticut Department of Banking to engage in business as a First Mortgage Loan-Lender/Broker on April 8, 1994. The Corporation is also licensed by the State of Connecticut as a Second Mortgage Lender/Broker. On December 28, 1994, the United States Bankruptcy Court issued a final decree closing the Chapter 11 case of the Corporation. During the past fiscal year the Corporation has elected not to renew its license in the State of Massachusetts, but rather expand its loan program in Connecticut. On June 29, 1993, the Corporation's application for deregistration under the Investment Company Act of 1940 was approved by the Securities and Exchange Commission. SEASONALITY The Corporation's business and the mortgage banking industry as a whole is generally subject to seasonal trends which reflect a pattern of home sales and re-sales. Loan originations typically peak during the spring and summer seasons and decline from mid-November through January. Prior to January 1996, the Corporation focused its efforts on refinances of mortgages on residential properties, which was generally the case throughout the industry. Since January 1996, the Corporation has expanded its Portfolio Loan Program to include short-term mortgages for construction, remodeling and additions, as well as bridge financing and land acquisitions. These loans are predominately collateralized by first mortgage liens on residential properties and are sold to qualified investors, the limited partnerships as defined below with fees retained for servicing or assigned to Hudson United Bank under its credit line facility as a collateral pledge. COMPETITION The Corporation competes with other mortgage bankers, mortgage brokers, state and national banks, thrift institutions and insurance companies for loan originations and purchases. Many of its competitors have substantially greater financial resources than the Corporation. The Corporation competes for loan originations, in part, based on price, through print and electronic media advertising campaigns, by telemarketing to potential borrowers, and by maintaining close relationships with mortgage brokers, real estate brokers, builder-developers, accountants and attorneys. 7 The First Connecticut Capital Corporation 10-QSB-A For the Three and Nine Months Ended December 31, 2002 and 2001 REGULATION The Corporation is not presently an approved seller/servicer for the Government National Mortgage Association ("GNMA"), the Federal National Mortgage Association ("FNMA"), or the Federal Home Loan Mortgage Corporation ("FHLMC"), nor is the Corporation an approved issuer and servicer under GNMA, FNMA or FHLMC mortgage-backed securities programs. The Corporation is not qualified to originate mortgage loans insured by the Federal Housing Administration (the "FHA") or partially guaranteed by the Veterans Administration (the "VA"). The Corporation does not presently intend to apply for such approvals or qualifications. Accordingly, the Corporation is not currently subject to the rules and regulations of these agencies with respect to originating, processing, selling and servicing mortgage loans, but may become subject to such rules and regulations should the Corporation become an approved issuer, seller or servicer for any of these agencies. Such rules and regulations would, among other things, prohibit discrimination and establish underwriting guidelines, which include provisions for inspections and appraisals and require credit reports on prospective borrowers, and with respect to VA loans, fix maximum interest rates. The Corporation's mortgage loan origination activities are subject to the Equal Credit Opportunity Act, the Federal Truth-In-Lending Act, the Real Estate Settlement Procedures Act and the regulations promulgated thereunder which prohibit discrimination and require the disclosure of certain information to borrowers concerning credit and settlement costs. Additionally, the sale of mortgage loans by the Corporation to purchasers may be subject to applicable federal and state securities laws. There are various state laws affecting the Corporation's mortgage banking operations, including licensing requirements and substantive limitations on the interest and fees that may be charged. The Corporation is in possession of all required licenses in those states in which it does business that require such licenses, except where the absence of such licenses are not material to the business and operations as a whole. States have the right to conduct financial and regulatory audits of the loans under their jurisdiction. PERSONNEL As of December 31 2002, the Corporation had 5 employees, (including Lawrence R. Yurdin its President) all of whom were employed at the Corporation's headquarters in Shelton, Connecticut. Management of the Corporation believes that its relations with its employees are good. 8 INVESTMENT POLICIES (i) Investments in real estate - The Corporation does not invest in real estate or interests in real estate but may acquire real estate by foreclosure of mortgage loans owned by the Corporation or by deed in lieu of foreclosure. Primarily such properties would consist of 1-4 family dwellings or unimproved building sites. Management of the Corporation does not intend to cause the Corporation to own or operate properties for an extended period of time but rather its policy is to sell such properties at fair value as soon as possible. (ii) Investments in real estate mortgages - The Corporation intends, to originate first or second real estate mortgages and sell certain of these mortgages as promptly as practicable to interested purchasers, retaining the application fees and servicing rights. Maturities of mortgages not sold will typically range from one to two years. (iii) Management of the Corporation currently does not intend to cause the Corporation to invest in the securities of, or interests in, persons or entities, which are primarily engaged in real estate activities. NOTE B - PROPOSED SALE OF CORPORATION'S BUSINESS AND ASSETS The Corporation has entered into a definitive agreement with respect to the sale by the Corporation of all or substantially all of its assets to, and the assumption of all of the Corporation's liabilities by, members of management and the Board of Directors. The purchaser, which is an entity formed by the Corporation's current President and Board of Directors, will submit the proposed transaction to the stockholders for their consideration and approval. This sale if approved by the stockholders may impair the deferred income tax asset recorded on the Corporation's balance sheet. For further details see "Subsequent Events; Recent Developments" within Item 2. NOTE C - RECLASSIFICATIONS Certain reclassifications were made to the December 31, 2001 financial statements to conform to the December 31, 2002 presentation. The December 31, 2001 financial statements reflect a $307,000 reclassification from servicing fees to interest and fees on loans because the Company had previously recorded interest earned from loans held for investment purposes and loans held for sale as servicing fees. In addition, the December 31, 2001 financial statements reflect a $201,000 reclassification from interest and fees on loans to net gains on sales of loans held for sale because the Company had previously recorded the origination fees on loans that were sold as interest and fees on loans and not as a component of the actual gain on sale of loans held for sale. 9 The First Connecticut Capital Corporation 10-QSB-A For the Three and Nine Months Ended December 31, 2002 and 2001 To conform to the presentation for the nine months ended December 31, 2002 the Corporation has presented the $54,000 gross amortization of its servicing rights asset within the statement of operations for the nine months ended December 31, 2001. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL REVIEW This financial review presents management's discussion and analysis of the financial condition and results of operations of the Corporation and should be read in conjunction with the financial statements and other financial data. In connection with the following discussion, see "Forward-Looking Information" within this document regarding forward-looking statements and factors that could impact the business financial prospects of the Corporation. SIGNIFICANT ACCOUNTING POLICIES There are a number of accounting policies that the Corporation has established which require management to use judgment. Two of the more significant policies are as follows: o Establishing the amount of the allowance for loan losses requires the use of management judgment. Management evaluates the Corporation's assets at least quarterly, and reviews their risk components as a part of that evaluation. If we misjudge a major component of our loans and experience a loss, it will likely affect our earnings. We consistently challenge ourselves in the review of the risk components to identify any changes in trends and their cause. o Another valuation that requires management judgment relates to mortgage servicing rights. Essentially, mortgage servicing rights, are established on mortgage loans that we originate and sell. We allocate a portion of a loan's book basis to mortgage servicing rights when a loan is sold, based upon its relative fair value. The fair value of mortgage servicing rights is the present value of estimated future net cash flows from servicing relationships using current market assumptions for prepayments, servicing costs and other factors. As the loans are repaid and net servicing revenue is earned, mortgage servicing rights are amortized into expense. Net servicing revenue are expected to exceed this amortization expense. However, if our actual prepayment experience exceeds what we originally anticipated, net servicing revenue may be less than expected and mortgage servicing rights, may be impaired. This impairment would be recorded as a charge to earnings. 10 The First Connecticut Capital Corporation 10-QSB-A For the Three and Nine Months Ended December 31, 2002 and 2001 ANALYSIS OF FINANCIAL CONDITION: CASH AND CASH EQUIVALENTS- Cash and cash equivalents amounted to $254,000 as of December 31, 2002 as compared to $437,000 as of the year ended March 31, 2002. The decrease of $183,000 is the result of ongoing loan originations and advances made per contract on current construction loans. LOANS - Loans amounted to $2,280,000 as of December 31, 2002, as compared to $2,172,000, as of the year ended March 31, 2002. The increase of $108,000 is due to the increase in loan originations and other funding opportunities. LOANS DUE FROM RELATED PARTIES - Loans due from related parties at March 31, 2002 of $225,000 that were made to a director of the Corporation were paid off during the quarter ended December 31, 2002. LOANS HELD FOR SALE - Loans held for sale amounted to $1,293,000 as of December 31, 2002 as compared to $1,355,000 as of the year ended March 31, 2002. The decrease of $62,000 was due to an increase in new monies invested on the part of our current investors and new sources. DUE FROM PARTNERSHIPS - The increase of $1,000 due from partnerships is due to the increase of an accrual at quarter ended December 31, 2002 which represents the servicing fees owed from Partnership A and B. DEFERRED TAX ASSET - The deferred tax asset results from net operating loss carryforwards (NOLS). Management has evaluated the available information about future taxable income. The valuation allowance reduces the deferred tax asset to management's best estimate of the amount of such deferred tax asset that more likely than not will be realized. It is management's estimation that the Corporation will have sufficient income (approximately $344,000 subsequent to December 31, 2002) to utilize the net deferred tax asset. The $133,000 decrease in the deferred tax asset from March 31, 2002 relates to the utilization of NOLs against the current year's earnings. This asset could be impaired if the Corporation were to change ownership or if management were to purchase the assets and liabilities of the Corporation (see Plan of Operation). The components of the net deferred tax asset at December 31 are as follows: 2002 Deferred tax asset: Net operating loss carryforwards $ 2,166,000 Loan loss reserves 190,000 Valuation allowance (2,239,000) ----------- Net deferred tax asset $ 117,000 ============ 11 The First Connecticut Capital Corporation 10-QSB-A For the Three and Nine Months Ended December 31, 2002 and 2001 It is management's belief that FCCC has conservatively estimated its deferred tax asset based upon the prior years earnings of the Corporation. LINE OF CREDIT - As of December 31, 2002 the balance on the Corporation's line of credit was $1,797,000 as compared to $2,441,000 as of March 31, 2002. The decrease of $644,000 is due to the line being paid down as certain loans have matured. ACCOUNTS PAYABLE TO RELATED PARTIES - The decrease of $203,000 in accounts payable to related parties is due to a wire transfer of funds clearing on April 3, 2002 for a loan that closed on March 25, 2002. The funds were due to the attorney who closed the loan. The attorney is also a board member. ACCOUNTS PAYABLE AND OTHER ACCRUED EXPENSES - As of December 31, 2002 the Corporation has accounts payable and other accrued expenses of $288,000 as compared to $94,000 as of March 31, 2002. The increase of $194,000 is due to higher accruals made for legal and accounting fees and a $188,000 transfer not paid as of December 31, 2002 which is due to Hudson United Bank under the Corporation's line of credit as a result of a loan payoff. ANALYSIS OF LENDING ACTIVITIES: AVERAGE BALANCE SHEET AND YIELD/RATE ANALYSIS - The following tables present FCCC's financial information regarding its financial condition and net interest income for the nine months ended December 31, 2002 and 2001. The table presents the average yield on interest-earning assets and the average costs of interest bearing liabilities for the period indicated. The yields and costs are derived by dividing income or expenses by the average of interest-earning assets or interest-bearing liabilities respectively, for the periods indicated. The average balances are derived from quarterly balances over the period indicated. Interest income includes fees, which we considered adjustments to yield. Net interest spread is the difference between the yield on interest-earning assets and the rate paid on interest bearing liabilities. Net interest margin is derived by dividing net interest income by net interest-earning assets. No tax-equivalent adjustments have been made as the Corporation has no investments that are tax exempt. 12 The First Connecticut Capital Corporation 10-QSB-A For the Three and Nine Months Ended December 31, 2002 and 2001 AVERAGE BALANCE SHEET, INTEREST EARNED AND RATE PAID FOR THE NINE MONTHS ENDED DECEMBER 31, 2002
INTEREST AVERAGE AVERAGE EARNED YIELD(4) ----------- ----------- ----------- INTEREST-EARNING ASSETS (1): Cash and cash equivalents $ 626,000 $ 2,000 0.43% Loans, net 2,127,000 375,000 23.51% Loans due from related parties 150,000 26,000 23.11% Loans held for sale 1,208,000 213,000 23.51% Due from partnerships 79,000 14,000 23.63% ----------- ----------- ----------- Total average interest-earning assets 4,190,000 630,000 20.05% ----------- ----------- ----------- Non-interest earning assets 397,000 ----------- Total average assets $ 4,587,000 =========== INTEREST-BEARING LIABILITIES: Line of credit $ 2,145,000 $ 121,000 7.52% ----------- ----------- ----------- NON INTEREST-BEARING LIABILITIES: Accounts payable to related parties -0- Accounts payable & other accrued expenses 251,000 ----------- Total non interest bearing liabilities 251,000 Total average liabilities 2,396,000 ----------- Total average stockholders equity 2,121,000 ----------- Total average liabilities and stockholders equity $ 4,587,000 =========== Net interest income and net interest rate spread (2) $ 509,000 12.53% =========== =========== Net interest-earning assets and net interest margin (3) 2,045,000 16.20% ----------- ----------- Average interest-earning assets to average interest-bearing liabilities 1.95 =========== (1) For the purpose of these computations, non-accruing loans and loans held for sale are included in the average loans outstanding. (2) Included in net interest income is $2,000 of interest earned on a money market account that has been included within other fees in the statement of income. In addition, included in net interest income are loan fees of $235,000. Interest rate spread is the difference between the average yield in interest-earning assets and the average rate on interest-bearing liabilities. (3) Net interest margin is determined by dividing net interest income by total average interest-earning assets. (4) Annualized.
13 The First Connecticut Capital Corporation 10-QSB-A For the Three and Nine Months Ended December 31, 2002 and 2001 AVERAGE BALANCE SHEET, INTEREST EARNED AND RATE PAID FOR NINE MONTHS ENDED DECEMBER 31, 2001
INTEREST AVERAGE AVERAGE EARNED YIELD(4) ----------- ----------- ----------- INTEREST-EARNING ASSETS (1): Cash and cash equivalents $ 268,000 $ 6,000 2.99% Loans, net 2,380,000 371,000 20.78% Loans held for sale 1,210,000 188,000 20.72% ----------- ----------- ----------- Total average interest-earning assets 3,858,000 565,000 19.53% ----------- ----------- ----------- Non-interest earning assets 700,000 ----------- Total average assets $ 4,558,000 =========== INTEREST-BEARING LIABILITIES: Line of credit $ 2,335,000 $ 191,000 10.91% ----------- ----------- ----------- NON INTEREST-BEARING LIABILITIES: Accounts payable & other accrued expenses 90,000 ----------- Total average liabilities 2,425,000 ----------- Total average stockholders equity 2,133,000 ----------- Total average liabilities and stockholders equity $ 4,558,000 =========== Net interest income and net interest rate spread (2) $ 374,000 8.62% =========== ========== Net interest-earning assets and net interest margin (3) $ 1,523,000 12.93% ----------- ---------- Average interest-earning assets to average interest-bearing liabilities 1.65 ========== (1) For the purpose of these computations, non-accruing loans and loans held for sale are included in the average loans outstanding. (2) Included in net interest income is $6,000 of interest earned on a money market account that has been included within other fees in the statement of income. In addition, included in net interest income are loan fees of $194,000. Interest rate spread is the difference between the average yield in interest-earning assets and the average rate on interest-bearing liabilities. (3) Net interest margin is determined by dividing net interest income by total average interest-earning assets. (4) Annualized.
14 The First Connecticut Capital Corporation 10-QSB-A For the Three and Nine Months Ended December 31, 2002 and 2001 RATE VOLUME ANALYSIS OF NET INTEREST INCOME - The following table presents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected our interest income and interest expense during the periods indicated. Information is provided in each category with respect to: 1) changes attributable to changes in volume (change in volume multiplied by prior rate); 2) changes attributable to change in rate (change in rate multiplied by prior volume); and 3) the net change The changes attributable to the combined impact of the volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.
Three Months Ended Nine Months Ended December 31, 2002 December 31, 2002 Versus December 31, 2001 Versus December 31, 2001 INCREASE (DECREASE) DUE TO: INCREASE (DECREASE) DUE TO: ------------------------------------ ------------------------------------- VOLUME RATE TOTAL VOLUME RATE TOTAL ---------- ---------- ---------- ---------- ---------- ---------- Cash and cash Equivalents $ 2,000 $ (2,000) $ -0- $ 3,000 $ (7,000) $ (4,000) Loans, net 97,000 (122,000) (25,000) (61,000) 65,000 4,000 Loans due from related parties 4,000 -0- 4,000 26,000 -0- 26,000 Loans held for sale 49,000 (66,000) (17,000) (9,000) 34,000 25,000 Due from partnerships 3,000 -0- 3,000 14,000 -0- 14,000 ---------- ---------- ---------- ---------- ---------- ---------- Total interest Income 155,000 (190,000) (35,000) (27,000) 92,000 65,000 ---------- ---------- ---------- ---------- ---------- ---------- Borrowings: Line of credit 13,000 (40,000) (27,000) (9,000) (79,000) (70,000) ---------- ---------- ---------- ---------- ---------- ---------- Net interest income $ 142,000 $ (150,000) $ (8,000) $ (36,000) $ 171,000 $ 135,000 ========== ========== ========== ========== ========== ==========
15 The First Connecticut Capital Corporation 10-QSB-A For the Three and Nine Months Ended December 31, 2002 and 2001 LOAN PORTFOLIO COMPOSITION: The Corporation's loan portfolio primarily consists of construction and remodeling mortgage loans that are secured by residential or commercial real estate and three SBIC loans that were originated in the early 1980's. The following table presents the composition of our loan portfolio in dollar amounts and in percentages of the total portfolio at the dates indicated:
DECEMBER 31, PERCENT MARCH 31, PERCENT 2002 OF TOTAL 2002 OF TOTAL ------------ ------------ ------------ ------------ Mortgage loans: Loans $ 2,311,000 79.31% $ 2,138,000 71.48% Loans due from related parties -0- 0% 225,000 7.52% Foreclosed loans (SBIC) 603,000 20.69% 628,000 21.00% ------------ ------------ ------------ ------------ Total loans 2,914,000 100.00% 2,991,000 100.00% Less: Allowance for loan losses 634,000 594,000 ------------ ------------ Total loans, net 2,280,000 2,397,000 Loans held for sale 1,293,000 1,355,000 ------------ ------------ Total loans and loans held for sale, net $ 3,573,000 $ 3 ,752,000 ============ ============
The Corporation has not recorded any valuation allowance against loans held for sale or loans due from related parties as no such loans are deemed impaired. LOAN MATURITY: The following table presents the contractual maturity of our loans at December 31, 2002. The table does not include the effects of prepayments or scheduled principal amortization.
LOANS HELD LOANS DUE OTHER LOANS LOANS FOR SALE RELATED PARTIES SBIC ------------ ------------ ------------ ------------ Amounts Due: Within one year $ 2,232,000 $ 1,293,000 $ -0- $ 122,000 After one year One to Two 23,000 -0- -0- -0- Five to Ten 56,000 -0- -0- 481,000 ------------ ------------ ------------ ------------ Total loans $ 2,311,000 $ 1,293,000 $ -0- $ 603,000 ============ ============ ============ ============ Amounts due after one year and on: Fixed rate loans $ 79,000 $ -0- $ -0- $ 481,000 Variable rate loans -0- -0- -0- -0- ------------ ------------ ------------ ------------ Total loans $ 79,000 $ -0- $ -0- $ 481,000 ============ ============ ============ ============
16 The First Connecticut Capital Corporation 10-QSB-A For the Three and Nine Months Ended December 31, 2002 and 2001 LOAN ORIGINATIONS - The following table presents our loan originations, purchases, sales and principal payments for the periods indicated: December 31, December 31, 2002 2001 ----------- ----------- Balance at beginning of period $ 3,752,000 $ 3,339,000 Originations: Loans 2,837,000 2,357,000 Loans held for sale 11,630,000 10,469,000 ----------- ----------- Total Originations $14,467,000 12,826,000 Less: Principal payments and Repayments 2,874,000 2,601,000 Loans sold: Loans held for sale 11,692,000 9,916,000 Increase (decrease) of provision for loans losses 80,000 (16,000) ----------- ----------- Total at end of period $ 3,573,000 $ 3,664,000 =========== =========== As of the quarters ended December 31, 2002 and 2001 the Corporation was servicing loans totaling $16,860,000 and $12,967,000, respectively. ASSET QUALITY - The Corporation's loan portfolio primarily consists of construction mortgage loans and three SBIC loans that were originated in the early 1980's. The accrual of interest income is generally discontinued when loans become 90 days or more past due with respect to interest. The Corporation had a balance of impaired and non-accrued loans of $603,000 at December 31, 2002 and $628,000 at March 31, 2002. 17 The First Connecticut Capital Corporation 10-QSB-A For the Three and Nine Months Ended December 31, 2002 and 2001 The following table summarizes non-performing loans and assets:
DEC. 31, 2002 MARCH 31, 2002 -------------- -------------- Impaired and non-accruing mortgage loans $ 603,000 $ 628,000 Accruing loans delinquent 90 days or more 647,000 250,000 -------------- -------------- Total non-performing loans $ 1,250,000 $ 878,000 ============== ============== Non-performing loans to total loans 42.89% 29.35% ============== ============== Non-performing loans to total assets 29.08% 18.52% ============== ============== Additional interest income that would have been recognized if non-accrual loans had been current $ 2,000 $ 2,000 Allowance for loan losses as a percent of non-performing loans 50.71% 67.65% ============== ==============
A summary of the allowance for loan losses is shown below: THREE MONTHS ENDED THREE MONTHS ENDED DECEMBER 31, 2002 DECEMBER 31, 2001 ------------------ ------------------ Balance at beginning of period $ 634,000 $ 612,000 Provision for the period -0- (28,000) Charge-offs: Accrued loans delinquent more than 90 days -0- (16,000) Recoveries -0- -0- ------------------ ------------------ Balance at end of period $ 634,000 $ 568,000 ================== ================== Allowance as a percent of total loans 21.76% 26.44% ================== ================== 18 The First Connecticut Capital Corporation 10-QSB-A For the Three and Nine Months Ended December 31, 2002 and 2001 Nine Months Ended Nine Months Ended DECEMBER 31, 2002 DECEMBER 31, 2001 ------------------ ------------------ Balance at beginning of period $ 594,000 $ 600,000 Provision for the period 80,000 (16,000) Charge-offs: Accrued loans delinquent more than 90 days (40,000) (16,000) Recoveries -0- -0- ------------------ ------------------ Balance at end of period $ 634,000 $ 568,000 ================== ================== Allowance as a percent of total loans 21.76% 26.44% ================== ================== The allocation of the Corporation's provision for loan losses and the allocation as percent of total loans as of December 31, 2002 and year ended March 31, 2002 are as follows: DEC 31, 2002 % MARCH 31, 2002 % Loans, net $ 75,000 3.25% $ 25,000 1.05% Foreclosed loans (SBIC) 559,000 92.70% 569,000 90.60% ------------ ----------- Total $ 634,000 21.76% $ 594,000 19.86% ============ =========== The allowance for loan losses is determined by management on a loan-by-loan basis. The allowance is an amount that management believes will be adequate to absorb losses on existing loans that may become un-collectible based on evaluations of the collectibility of the loans. The evaluations take into consideration such factors as geographic location, assessment of collateral quality, appraisals of significant collateral and other conditions that may affect the borrower's ability to repay. Certain impaired loans are measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the estimated fair value of the collateral if the loan is collateral dependent. Actual changes and expected trends in non-performing loans and impaired loans are evaluated quarterly by management of the Corporation and any changes in the reserve for collectibility on these loans is charged to earnings in the current quarter. The allowance is increased by the provision and charged to earnings and reduced by charge-offs net of recoveries. The following table sets forth information regarding the Corporations delinquent loan portfolio and the percent of the total loan portfolio, excluding impaired and non-accruing loans: DECEMBER 31, 2002 % MARCH 31, 2002 % ----------------- ----------------- Loans delinquent For: 30 - 59 days $ 241,000 10.43% $ 126,000 5.33% 60 - 89 days -0- -0% 76,000 3.22% 90 days or more 647,000 28.00% 250,000 10.58% ----------------- ----------------- Total $ 888,000 38.43% $ 452,000 19.13% ================= ================= 19 The First Connecticut Capital Corporation 10-QSB-A For the Three and Nine Months Ended December 31, 2002 and 2001 The Corporation's delinquent loans have increased by $436,000 since March 31, 2002. This increase is attributable to three loans which have become past due. Management has reviewed the collateral of these loans and believes they are all collectable. .These loans are secured with first mortgages on residential properties with loan to value ratios at conservative levels. Management has reviewed all loans which are delinquent and believes that the loan loss reserve related to the total loan portfolio is sufficient given the loan status and the collateral that supports the loans. Management's underwriting procedures are very conservative, 95% of all loans made are 1st mortgages on residential properties; and in addition, the average loan to value (LTV) ranges are 60% to 70%. Management expects that all loans will be paid down in full and that the overall reserve levels are conservatively stated. The net increase in the reserve for loan losses of $40,000 from March 31, 2002 relates to the increase in delinquent loans. Management believes the loan loss reserves are conservatively stated for the nine months ended December 31, 2002. The three SBIC loans are loans that were unstable during the Corporation's bankruptcy proceedings and have remained within the Corporation`s loan portfolio. Management has determined the loans to be impaired, as the loans are collateral dependent, and they have been written down to appraisal values. The following is a summary of the SBIC loans as of December 31, 2002: LOAN LOAN MATURITY AMOUNT LOAN CARRYING NAME DATE OUTSTANDING RESERVE VALUE - ------------- ------------- ------------- ------------- ------------- King Food 12/01/08 $ 14,000 $ 14,000 $ -0- Fire Island 01/01/08 467,000 454,000 13,000 Bar Auto 01/01/04 122,000 91,000 31,000 ------------- ------------- ------------- Total $ 603,000 $ 559,000 $ 44,000 ============= ============= ============= RESULTS OF OPERATIONS GENERAL - The Corporation had net income of $210,000 for the nine months ended December 31, 2002 as compared to a net income of $244,000 for the nine months ended December 31, 2001. This decrease of $34,000 is due to the increase in the income tax provision of $161,000, the increase of $96,000 in the reserve for loan losses, the increase of $35,000 in officers and other salaries, the increase of $127,000 in net gains on sales of loans held for sale, the decrease of $70,000 paid on our line of credit and the increase of $69,000 earned on interest and fees on loans. INTEREST AND FEE INCOME - Total interest and fee income for the nine months ended December 31, 2002, was $628,000 as compared to $559,000 for the nine months ended December 31, 2001, an increase of $69,000 or 12%. Total interest and fee income for the three months ended December 31, 2002 is down compared to the prior years quarter ended December 31, 2001 by $35,000. This decrease is due the favorable weather condition for the three months ended December 31, 2001; consequentially we funded and originated more loans in this period as compared to the three months ended December 31, 2002. 20 The First Connecticut Capital Corporation 10-QSB-A For the Three and Nine Months Ended December 31, 2002 and 2001 Management attributes the increase in its net interest income and other operating income to an increase of construction and real estate lending, its ability to service loan demand from homebuilders, remodelers and developers and the generally favorable climate for the construction industries. The Corporation continued to provide construction financing to a segment of the market whose price range, is believed to be less affected by negative economic conditions. NET GAIN ON SALES OF LOANS HELD FOR SALE - For the nine months ended December 31, 2002, the Corporation recognized $381,000 in net gains on loans held for sale as compared to $254,000 for the nine months ended December 31, 2001. This $127,000 increase is due to the number and dollar amounts of mortgage loans originated and sold by the Corporation, as well as the Corporation increasing its originations fee percentages from approximately 2 points to 3 points per loan. The small decrease in the current quarter ended December 31, 2002 over prior years quarter of $8,000 is due to the increase in the amount of loans funded and originated due to the favorable weather condition during the three months ended December 31, 2001. SERVICING FEES - Servicing fees increased by $20,000 and $1,000 for the nine months ended and three months ended December 31, 2002, as compared to the same periods in the prior year. These increases are due to an increase in servicing fees earned on the Corporation's short-term construction and remodeling mortgage loans and fees earned based upon an increase in the Limited Partnership portfolios. PROVISION FOR LOAN LOSSES - The Corporation for the nine months ended December 31, 2002 recorded a provision of $80,000, net of recoveries, for the allowance for potential loan losses and has written off a $40,000 loan which was previously reserved at March 31, 2002. The Corporation for the nine months ended December 31, 2001 had recorded a reduction in the provision for loan losses in the amount of $16,000. The provision for loan losses for the three months ended December 31, 2002 had no change, as compared to the three months ended December 31, 2001 which reflected a reduction in the provision of $28,000. TOTAL OPERATING EXPENSE - Total operating expenses for the nine months ended December 31, 2002 was $554,000, as compared to $472,000 for the nine months ended December 31, 2001, an increase of $82,000 or 17%. The Corporation's expenses for professional services has increased by $11,000 as a result of increased legal and accounting and other fees related to the proposed sale of the Corporation's operating assets, liabilities and business. Officer and other salaries have also increased by $35,000 as well as the Corporation insurance expenses of $18,000, due to the increase in the Directors and Officers liability insurance. Total operating expenses for the three months ended December 31, 2002 as compared to the prior year's three months ended December 31, 2001 increased by $12,000 as a result of the increase in officers' and other salaries in the amount of $23,000, and other increases and decreases in expenses. 21 The First Connecticut Capital Corporation 10-QSB-A For the Three and Nine Months Ended December 31, 2002 and 2001 INCOME TAX PROVISION - An income tax provision of $171,000 was recorded for the nine months ended December 31, 2002, as compared to a $10,000 provision for the nine months ended December 31, 2001. The increase of $161,000 is primarily due to: a.) the reduction of the federal deferred tax asset of approximately $133,000 for the nine months ended December 31, 2002 and b.) an increase in state income taxes of approximately $48,000 for the nine months ended December 31, 2002. All state net operating losses expired as of March 31, 2002. PLAN OF OPERATION The Corporation is engaged in the mortgage banking business, which involves the origination, purchase, sale and servicing of mortgage loans collateralized by residential properties and commercial real estate. The Corporation continues to seek ways to reduce expenses while at the same time increase market activity of its products and services. The Corporation has engaged the services of an investment advisor to assist in maximizing stockholder value. In this connection, the Corporation has entered into definitive a agreement with respect to the sale of all or substantially all, the Corporation's assets to, and the assumption of all the Corporation's liabilities by, members of management and the board of directors. The Corporation has also engaged in definitive a agreement with certain private investors who are not presently affiliates of the Corporation with respect to the possible sale by the Corporation of shares of its common stock and warrants to purchase common stock, together with a contractual undertaking to permit the investors to manage the business and strategic operations of the Corporation subsequent to the sale of the business assets described in the preceding paragraph. In the event either or both transactions are unsuccessful, management will continue to operate its mortgage business as it has in the past. We will continue to seek additional sources of funding from lending institutions as well as private investors in order to expand our loan portfolio. Growth will be limited and will greatly depend upon our ability to obtain new leverage for our loan products. Management, in the past, has experienced a reluctance of the part of conventional lenders to expand lines of credit and therefore will continue to explore the private sector for funding and possible equity participation. 22 The First Connecticut Capital Corporation 10-QSB-A For the Three and Nine Months Ended December 31, 2002 and 2001 SUBSEQUENT EVENTS; RECENT DEVELOPMENTS In June 2002, the Corporation announced the execution of definitive agreements for the sale of its mortgage business (the "Asset Sale") to a company to be organized by members of the Board of Directors, including Lawrence Yurdin (the current President of the Corporation). The Asset Sale would include all of the assets (excluding cash and deferred income taxes) of the Corporation's mortgage business, subject to the assumption of all liabilities and other obligations, including contingent liabilities. The sale price, currently estimated to be the net book value of the assets to be sold, will be an amount determined, in part, in accordance with an independent appraisal of the assets by a nationally recognized portfolio valuation company. The form of the Asset Sale will be reviewed and determined to be fair pursuant to an opinion to be delivered by an NASD registered broker-dealer. If the shareholders of the Corporation approve the Asset Sale, then the purchaser will pay approximate book value for the net assets which will be valued at the time of closing. Simultaneously with the proposed Asset Sale, the Company will issue and sell to Bernard Zimmerman, of Weston, Connecticut, and Martin Cohen, of New York City, New York or their affiliates, for a purchase price of $252,000 in cash, a total of 250,000 Common shares of the Company, together with Five Year Warrants to purchase an additional 200,000 Common shares, exercisable at a price of $1.00 per share (collectively, the "Securities Sale"). Messrs. Zimmerman and Cohen also intend to purchase additional Common shares from other sources at the same price. Upon completion of the Securities Sale, Messrs. Zimmerman and Cohen will each own approximately 188,300 shares. Assuming consummation of the Asset Sale and the Securities Sale the Company would have 1,423,382 shares outstanding, excluding shares reserved for outstanding options and warrants. Pursuant to the terms of the proposed transactions, the Company will declare a dividend to stockholders, pro rata of all cash on hand after the closing of the Asset Sale and the Securities Sale in excess of $1,500,000, after payment and accruals of all liabilities, fees and expenses provided such dividend equals or exceeds $.15 per share. Pursuant to the terms of the Asset Sale and Security Sale agreements, Messrs. Zimmerman and Cohen will designate three of the five seats on the Company's board of directors. Mr. Zimmerman and Mr. Cohen will supervise the day-to-day operations of the Company subsequent to the closing. In the event that the Company is unable to consummate a suitable merger or business combination transaction or series of transactions (defined as having an aggregate value in excess of $750,000) within thirty-six months of the closing of the asset sale (subject to a three month extension under certain circumstances), then, upon the request by the holders of 20% or more of the issued and outstanding common stock of the Company held by non-affiliates of management, the Company shall schedule a meeting of shareholders and will issue a proxy solicitation pursuant to which the shareholders will vote on whether to liquidate the Company. In such vote, all shares held by management and their affiliates shall be voted in the same proportion as those shares voted by non-affiliates of management. 23 The First Connecticut Capital Corporation 10-QSB-A For the Three and Nine Months Ended December 31, 2002 and 2001 The Company has filed a Preliminary Proxy Statement with the Securities and Exchange Commission (the "SEC") for its review and approval. Pending the resolution of any questions or comments from the SEC with respect thereto, the Company will send final proxy materials to stockholders of record and schedule a Stockholders Meeting during which they may vote on the approval of these transactions. LIQUIDITY AND CAPITAL RESOURCES At December 31, 2002, the Corporation had cash and cash equivalents of $254,000 as compared to $437,000 as of March 31, 2002. The Corporation has a Commercial Line of Credit with the Hudson United Bank. This $3,500,000 line of credit is for a term of one year at an interest rate of 2.5% over the Wall Street Prime Rate and will expire on June 30, 2003. This line is collateralized by an assignment of notes and mortgages equal to the amount of the loan. At December 31, 2002, advances on this line of credit amounted to $1,797,000 as compared to $2,441,000 as of March 31, 2002. The Corporation currently anticipates that during the year ending March 31, 2003, its principal financing needs will consist of funding its mortgage loans held for sale and the ongoing net cost of mortgage loan originations. The Corporation believes that cash on hand, internally generated funds and availability on its line of credit should be sufficient to meet its corporate, general and administrative working capital and other cash requirements during the year ending March 31, 2003. Future cash flow requirements will depend primarily on the level of the Corporation's activities in originating and selling mortgage loans as well as cash flow required by its operations. If construction loan demand continues to increase, the Corporation will require additional cash to service those requirements. Due to the aforementioned, the Corporation will seek to increase its line of credit facility, as well as seek out new investor sources, from which the Corporation believes it should be able to meet these cash requirements. The Corporation continues to decrease its cash flow requirements by monitoring all expenses. As of December 31, 2002, the Corporation had outstanding loan commitments of $2,728,000 as compared to $3,068,000, as of March 31, 2002. LETTERS OF CREDIT As of December 31, 2002 the Corporation has a $75,000 letter of credit outstanding issued to the Town of Glastonbury, Connecticut for soil and erosion compliance on one of the construction projects over which the Corporation has a mortgage. No amounts have been drawn or are expected to be drawn on this letter of credit. 24 The First Connecticut Capital Corporation 10-QSB-A For the Three and Nine Months Ended December 31, 2002 and 2001 On May 6, 2002 the Corporation has entered into a $250,000 letter of credit issued to the Town of North Branford, Connecticut for building compliance on one of the construction projects over which the Corporation has a mortgage. No amounts have been drawn or are expected to be drawn on this letter of credit. INFLATION Inflation will affect the Corporation most significantly in the area of loan originations. Interest rates normally increase during periods of high inflation and decrease during periods of low inflation. NEW ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standard Boards ("FASB") issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which addresses the recognition and measurement of obligations associated with the retirement of tangible long-lived assets. SFAS No. 143 is effective January 1, 2002, with early adoption permitted. The Corporation does not expect the adoption of the statement to have a material effect on the financial statements. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which addresses financial accounting and reporting for costs associated with exit or disposal activities. Under SFAS No. 146, such costs will be recognized when the liability is incurred, rather than at the date of commitment to an exit plan. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002, with early application permitted. The Corporation does not expect the adoption of SFAS No. 146 to have a material effect on its financial statements. In October 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain Financial Institutions, an amendment for FASB Statements No. 72 and 144 and FASB Interpretation No.9," which addresses accounting for purchases of certain financial institutions. SFAS No. 147 is effective October 1, 2002, with early application permitted. The Corporation does not expect the adoption of SFAS No. 147 to have a material effect on its financial statements. 25 The First Connecticut Capital Corporation 10-QSB-A For the Three and Nine Months Ended December 31, 2002 and 2001 PARTNERSHIPS On March 21, 1997, the Corporation formed a Limited Partnership known as First Connecticut Capital Mortgage Fund A, Limited Partnership ("Limited Partnership A") of which the Corporation is the General Partner. The purpose of this entity is to sell units in Limited Partnership A to investors in a private placement, up to a maximum of $5 million in units of $50,000 each, for the purpose of funding a short-term Portfolio Loan Program for the Limited Partnership. The limited partners are restricted to investors who qualify as "Accredited Investors", as defined in Regulation D, promulgated under the Securities Act of 1933.This program generates income to the Corporation in the form of loan origination fees and servicing fees in excess of stipulated income returns to the limited partners in connection with mortgage loans purchased by the Limited Partnership from the funds invested by the limited partners. As of December 31, 2002 the Corporation has sold 100 of the available units totaling $5,000,000, which is now fully subscribed. A copy of the Offering Memorandum for the Partnership is available upon request. On June 26, 2001 the Corporation established a second private placement offering known as First Connecticut Capital Mortgage Fund "B", Limited Partnership ("Limited Partnership Fund B") of which the Corporation is the General Partner. The purpose of the new Limited Partnership Fund B is to sell units to investors in a private placement, up to a maximum of $5 million in units of $50,000 each, for the purpose of supplying additional funding to a short-term Portfolio Loan Program. The partners will also be limited to investors who qualify as "Accredited Investors." As of December 31, 2002 the Corporation sold 53 units totaling $2,650,000 in the Partnership Fund "B". A copy of the Offering Memorandum for the Partnership is available upon request. The Corporation does not guarantee the principal or interest returns to the limited partners under these partnerships agreements. The Corporation holds one percent (1%) of the equity of these partnerships and accounts for its interest under the equity method of accounting. PART III - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K None Certification of Officers SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned duly authorized. 26 The First Connecticut Capital Corporation 10-QSB-A For the Three and Nine Months Ended December 31, 2002 and 2001 THE FIRST CONNECTICUT CAPITAL CORPORATION (Registrant) Date: March 7, 2003 By: ----------------------------- Lawrence R. Yurdin President 27 EX-99 3 ex99.txt CERTIFICATION The First Connecticut Capital Corporation 10-QSB-A For the Three and Nine Months Ended December 31, 2002 and 2001 Exhibit CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the filing of the Quarterly Report on Form 10-QSB for the Quarter ended December 31, 2002 (the "Report") by The First Connecticut Capital Corporation (the "Registrant"), each of the undersigned hereby certifies that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and 2. The information contained in the Report fairly presents, in all material respects, the financial conditions and results of operations of Registrant. - ------------------------------------- ------------------------------- Lawrence R. Yurdin Lawrence R. Yurdin President and Chief Executive Officer Chief Financial Officer 28 -----END PRIVACY-ENHANCED MESSAGE-----