U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the Fiscal Year ended March 31, 1997.
Commission File number: 811-0969
The First Connecticut Capital Corporation
(Exact name of Registrant as Specified in its Charter)
Connecticut 06-0759497
(State of Incorporation) (IRS Employer
Identification No.)
1000 Bridgeport Avenue, Shelton, Connecticut 06484
(Address of principal executive offices) Zip Code
Registrant's telephone number (203) 944-5400
Securities registered under Section 12(b) of the Exchange Act: NONE
Name of each exchange on which registered: NONE
Securities registered pursuant to Section 12(g) of the Exchange Act:
Title of Class: COMMON
Check whether the registrant (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 [ ]
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained herein, and will not be contained to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Registrant's revenues for its most recent fiscal year: $791,000
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of May 12, 1997 based on the closing sales price of such stock on
such date was approximately $408,000.
Check whether the registrant has 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 a court. Yes [ No [ ]
The number of shares outstanding of the registrant's common stock as of May 12,
1997 was 1,173,382.
DOCUMENTS INCORPORATED BY REFERENCE:
The following documents are hereby incorporated by reference into the following
Parts of this Form 10-KSB: (1) financial statements and Independent Auditors'
Report for the fiscal years ended March 31, 1997 and 1996 is incorporated by
reference into Part II Item 7.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
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, 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
Corporation plans, from time to time, to sell a portion of its mortgage
servicing rights, it 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 May 1, 1997, the Corporation services a portfolio of
approximately $10,960,000 consisting mostly of mortgage loans which were sold by
the Corporation to GF Mortgage Corporation, a subsidiary of Gruntal Financial
Corporation, a subsidiary of The Home Insurance Corporation, on December 15,
1993 as described below. In addition the Company also services its Portfolio
Loan Program, which is $3,700,000, representing an increase of 79% from the
prior period. On April 19, 1996, GF Mortgage Corporation was sold to Walsh
Acquisition Company also known as Walsh Securities.
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 business consisted of providing long-term loans
to finance the growth, expansion and development of small business concerns.
On August 15, 1990, the Corporation filed a petition for relief under
Chapter 11 of the federal bankruptcy laws in the United States Bankruptcy Court.
On October 18, 1991, the Corporation filed a plan of reorganization (the "Plan")
with the United States Bankruptcy Court. The Plan was confirmed as of January 9,
1992. Under the Plan, the Corporation was required to surrender its license to
operate as a small business investment company.
On December 28, 1994 the United States Bankruptcy Court issued a final
decree closing the Chapter 11 case of the Company.
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.
<PAGE>
On December 15, 1993, the Corporation sold substantially all of its
outstanding investment portfolio to GF Mortgage Corporation 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.
The Corporation was granted a license by the State of Massachusetts,
Department of Banking, to engage in business as a Mortgage Lender.
Seasonality
The Corporation's business and the mortgage banking industry as a whole
is generally subject to seasonal trends which reflect a pattern of home sales
and resales. Loan originations typically peak during the spring and summer
seasons and decline from mid-November through January. Prior to January 1996 the
Corporation focused its efforts on refinances of mortgages on residential
properties which was generally the case throughout the industry. Since January
1996, the Corporation has expanded its portfolio Loan Program to include
short-term mortgages for construction, remodeling and additions. These loans are
predominately secured by first mortgage liens on residential properties and are
sold to qualified investors with fees retained for servicing.
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 and
builder-developers.
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.
<PAGE>
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 May 1, 1997, the Corporation had 5 full-time employees, all of
whom were employed at the Corporation's headquarters in Shelton, Connecticut.
The Corporation believes that its relations with its employees are good.
Investment Policies
(i) Investments in real estate - The Corporation does not invest
in real estate or interests in real estate but may acquire
real estate by foreclosure of mortgage loans owned by the
Corporation or by deed in lieu of foreclosure. Primarily such
properties would consist of 1-4 family dwellings or
undeveloped acreage. The Corporation does not intend to own or
operate properties for an extended period of time but rather
its policy is to sell such properties at fair market 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 immediately to interested
purchasers, retaining the application fees and servicing
rights. Maturities of mortgages not sold will range from one
to five years.
(iii) The Corporation currently does not intend to invest in the
securities of, or interests in, persons or entities which are
primarily engaged in real estate activities.
ITEM 2. DESCRIPTION OF PROPERTY
During the current year the Corporation has relocated to 1000
Bridgeport Avenue, Shelton, Connecticut. The office contains 1,772 square feet
of space which the Corporation currently leases from an unaffiliated party
pursuant to a 5 year lease expiring December 31, 2002.
ITEM 3. LEGAL PROCEEDINGS
The Corporation is involved in litigation and administrative
proceedings primarily arising in the normal course of its business. In the
opinion of management, the Corporation's liability, if any, under any pending
litigation or administrative proceeding would not materially affect its
financial condition or results of operations.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Corporation's common stock is traded over the counter, and the high
(bid) and low (asked) prices of the Corporation's stock are quoted in the "pink
sheets" published by the National Quotation Bureau, Inc.
Following are the high and low bid prices for the Corporation's common
stock during the fiscal years ended March 31, 1997 and 1996 according to the
"pink sheets" published by the National Quotation Bureau, Inc.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
1996
First Quarter $1.1250 $1.6250
Second Quarter .6875 .2500
Third Quarter .5000 .2500
Fourth Quarter .5000 .3750
1997
First Quarter $ .5625 $ .5000
Second Quarter .5625 .4375
Third Quarter .4375 .3125
Fourth Quarter .3125 .2500
</TABLE>
The approximate number of stockholders of record on May 12, 1997 was
1,338 and the Corporation estimates that it has approximately 1,400
shareholders. The closing bid quotation of the Corporation's Common Stock on
that date was approximately 20 cents. The Corporation has not paid any dividends
on its Common Stock since April 27, 1990. The Corporation currently intends to
retain earnings, when achieved, for use in its business and does not anticipate
paying cash dividends in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
The Corporation had a net loss of $230,000 for the year ended March 31,
1997 compared to a net loss of $604,000 for the year ended March 31, 1996. The
decrease of $379,000 is primarily due to an increase in loan origination fees
and a non-recurring management fee of $150,000. Included in the loss for this
period was a non-recurring recovery of $24,000 representing a legal settlement,
and non-recurring collection expenses of $150,000 representing taxes on sold
loans. After considering this one time charge, collection expense decreased from
1996.
Total interest income for 1997 was $103,000 as compared to total
interest income for 1996 of $129,000 a decrease of $26,000 or 20%. This decrease
was a result of loan payoffs and a decrease in unaccrued interest collected on
non-performing loans.
<PAGE>
Other operating expenses for 1997 was $814,000 as compared to
$1,025,000 in 1996, a decrease of 211,000 or 26%. This decrease was primarily
due to the decrease in other salaries, professional services, and amortization
of servicing rights, representing a decrease in staff and legal costs. During
1997, the Corporation has continued to reduce overall operating expenses.
The amortization of servicing rights has decreased $198,000 or 92% from
$215,000 in 1996 to $17,000 in 1997 primarily as a result of fewer payoff and
disposals in the portfolio. Professional services decreased $42,000 or 72% from
$58,000 in 1996 to $16,000 in 1997 primarily as a result of a decrease in legal
costs.
Plan of Operation
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.
Liquidity and Capital Resources
At March 31, 1997 and 1996, the Corporation had cash and cash
equivalents of $211,000 and $430,000, respectively.
The Corporation currently anticipates that during the year ending March
31, 1998, its principal financing needs will consist of funding its mortgage
loans held for sale (see Note 8 of Financial Statements), the ongoing net cost
of mortgage loan originations and cash flow used in operations. 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. Although the Corporation anticipates increased activities in
originating mortgage loans, the difficulties experienced within the relevant
economic markets still exist and there are no assurances that increased activity
will occur. Consequently, as a means to provide further cash flow, the
Corporation has expressed a willingness to liquidate certain current assets in
its portfolio and believes that a market exists for those assets.
The Corporation continues to investigate and pursue alternative and
supplementary methods to financing its operations and to support the growth of
the Corporation.
The Corporation believes that cash on hand and internally generated
funds will be sufficient to meet its corporate, general and administrative
working capital and other cash requirements during the year ending March 31,
1998. The Corporation took certain steps during the year ended March 31, 1996 to
decrease its cash flow requirements for the years ended March 31, 1997 and 1996.
Those steps included a management salary reduction and a restatement and
termination of the pension plan. Management also believes additional steps can
be taken if necessary.
The Corporation did not have any material capital commitments at March
31, 1997.
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.
<PAGE>
Accounting Pronouncements
New Accounting Pronouncements - In February 1997, the Financial
Accounting Standards Board issues Statement of Financial Accounting Standards
No. 128 ("SFAS No. 128"), "Earnings per Share," which establishes new standards
for the computation and disclosure of earning per share ("EPS"). The new
statement requires dual presentation of "basic" EPS and "diluted" EPS. Basic EPS
is based on the weighted average number of common shares outstanding for the
period, excluding any dilutive common shares equivalents. Diluted EPS reflects
the potential dilution that could occur if securities or other contract to issue
common stock were exercised or converted. This statement will be effective for
issuance of the Corporation's March 31, 1998 10-KSB. The Corporation does not
expect this statement to have an impact on reported net loss per share when
adopted.
New Offering
The Corporation has formed a Limited Partnership known as First
Connecticut Capital Mortgage Fund A, Limited Partnership as to which the
Corporation is the General Partner. The intent of this new entity is to sell
units in the Limited Partnership to investors in a private placement, up to a
maximum of $5 million in $50,000 units for the purpose of funding a short-term
Portfolio Loan Program for the Limited Partnership. The limited partners will be
limited to investors who qualify as "Accredited Investors" as defined in
Regulation D, promulgated under the Securities Act of 1933. This program would
generate income to the Corporation in the form of loan origination fees and
servicing fees in excess of a guaranteed income return to the limited partners
in connection with mortgage loans that would be made by the Limited Partnership
from the funds invested by the limited partner. A copy of the offering memo is
available upon request.
ITEM 7. FINANCIAL STATEMENTS
The following report and financial statements of the Corporation are
contained.
Independent Auditors' Report - Page 1
Balance Sheets as of March 31, 1997 and 1996 - Page 2
Statements of Operations for the years ended March 31, 1997 and 1996 -
Page 3
Statements of Changes in Stockholders' Equity for the years ended
March 31, 1997 and 1996 - Page 4
Statements of Cash Flows for the years ended March 31, 1997 and 1996 -
Page 5
Notes to Financial Statements - Page 6
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
The Corporation has not changed accountants in the twenty-four month
period prior to March 31, 1997. No disagreements on accounting or financial
disclosure practices occurred during the fiscal year ended March 31, 1997.
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Directors and Executive Officers of the Registrant
The directors and executive officers of the Corporation as of May 1,
1997 are as follows:
<TABLE>
<CAPTION>
Names Age Present Position
- ----- --- ----------------
<S> <C> <C>
James M. Breiner 79 Chairman of the Board of Directors
and Treasurer
David Engelson 76 President and Director
Louis I. Cohen 76 Director
Edward Ardolino 76 Director
Mario D'Addario 77 Director
Edward M. Freda 73 Director
Lawrence R. Yurdin 57 Vice President and Director
Priscilla E. Ottowell 50 Secretary and Controller
</TABLE>
James M. Breiner, Director of the Corporation since 1960. Chairman of
the Board and Treasurer of the Corporation; Director of State Street Mortgage
Company.
David Engelson, Director of the Corporation since 1960. President of
the Corporation; Director of State Street Mortgage Company.
Louis I. Cohen, Director of the Corporation since 1968. Director of
State Street Mortgage Company.
Edward Ardolino, Director of the Corporation since 1960. President and
CEO of Aerospace Coating Systems, Inc.
Mario D'Addario, Director of the Corporation since 1976. President of
Mario D'Addario Buick, Inc.
Edward M. Freda, Director of the Corporation since 1979. Retired
Executive Vice President of People's Bank, Bridgeport, Connecticut.
<PAGE>
Lawrence R. Yurdin, Director of the Corporation since 1986.
Vice-President of the Corporation; employed by the Corporation in various
capacities since 1970; Director of State Street Mortgage Company.
Priscilla E. Ottowell, elected Secretary of the Corporation on April
12, 1995. Employed by the Corporation as Controller since 1985.
Each of the directors holds office for a term of one year, and until a
successor has been chosen and qualified. Directors, except Messrs. J. Breiner,
D. Engelson and L. Yurdin, receive an annual fee of $3,600 for serving on the
Board.
Mr. Lawrence R. Yurdin is the son-in-law of Mr. David Engelson,
President and a Director of the Corporation.
Mr. Steven Breiner, formerly a Director and Vice-President of the
Corporation, resigned all offices and terminated his employment as of February
28, 1997.
ITEM 10. EXECUTIVE COMPENSATION
The following summary compensation table sets forth certain information
regarding the annual and long-term compensation of Lawrence R. Yurdin, who
performs the function of Chief Executive Officer, for the last three fiscal
years. No officers of the Corporation received salary and bonus in excess of
$100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
-------------------------------------------- ---------------------------------------------
Awards Payouts
------ -------
Other
Annual Restricted All Other
Name and Compen- Stock Options/ LTIP Compen-
Principal Year Salary Bonus sation Awards SARs Payouts sation
Position Ended ($) ($) ($) ($) (#) ($) ($)
-------- ----- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lawrence R. Yurdin 03/31/97 $54,997 0 0 None 0 None 0
Vice-President and 03/31/96 $50,957 0 0 None 0 None 0
Director 03/31/95 $78,343 0 0 None 0 None 0
</TABLE>
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Security Ownership of Certain Beneficial Owners
The following tables list the beneficial owners of more than five
percent of the Corporation's Common Stock and the shares beneficially owned by
all directors and executive officers of the Corporation as of March 31, 1997 :
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Owner Percent
- ---------------- ---------------- -------
<S> <C> <C>
Robert E. Humphreys 114,900 9.792
64 Alcott Street
Acton, MA 01720
<CAPTION>
Security Ownership of Management
Name of Amount and Nature of
Beneficial Owner Beneficial Owner Percent
- ---------------- ---------------- -------
<S> <C> <C>
James M. Breiner 2,572(i) .220
David Engelson 43,605 3.716
Louis I. Cohen 8,351 .712
Edward Ardolino 3,741 .319
Mario D'Addario 3,860 .329
Edward M. Freda 131 -
Lawrence R. Yurdin 20,000 1.704
Priscilla E. Ottowell 2,681 .228
All directors and executive officers
as a group (nine persons) 84,941 8.320
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT
Five (5) directors and officers of the Corporation are also directors
and officers of State Street Mortgage Company, which makes first and second
mortgage loans to commercial and residential borrowers. State Street Mortgage
Company is in the process of liquidation and does not compete with the
Corporation.
(i) Includes 2,272 shares owned by the Estate of William Breiner, of which Mr.
Breiner is the administrator. Mr. Breiner has sole voting and investment power
with respect to these shares.
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(10.2) Asset Management and Loan Servicing Agreement with GF
Mortgage Corp. now known as Walsh Securities
(incorporated by reference to Exhibit 7(c)(l) to the
Current Report on Form 8-K filed by the Corporation
with the Securities and Exchange Commission on
December 29, 1993).
(99) Independent Auditors' Report and Financial Statements
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended
March 31, 1997.
<PAGE>
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.
THE FIRST CONNECTICUT CAPITAL
CORPORATION
Date: June 30, 1997 By: /s/David Engelson
-----------------
David Engelson
President
Date: June 30, 1997 By: /s/Priscilla E. Ottowell
------------------------
Priscilla E. Ottowell
Secretary and Controller
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: June 30, 1997 /s/James M. Breiner
-------------------
James M. Breiner
Chairman and Treasurer
Date: June 30, 1997 /s/David Engelson
-----------------
David Engelson
President and Director
Date: June 30, 1997 /s/Louis I. Cohen
-----------------
Louis I. Cohen
Director
Date: June 30, 1997 /s/Edward Ardolino
------------------
Edward Ardolino
Director
Date: June 30, 1997 /s/Mario D'Addario
------------------
Mario D'Addario
Director
Date: June 30, 1997 /s/Edward M. Freda
------------------
Edward M. Freda
Director
<PAGE>
Date: June 30, 1997 /s/Lawrence R. Yurdin
---------------------
Lawrence R. Yurdin
Vice-President and Director
Date: June 30, 1997 /s/Priscilla E. Ottowell
------------------------
Priscilla E. Ottowell
Secretary and Controller
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 256
<SECURITIES> 0
<RECEIVABLES> 2,189
<ALLOWANCES> (695)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 267
<DEPRECIATION> (220)
<TOTAL-ASSETS> 1,797
<CURRENT-LIABILITIES> 756
<BONDS> 0
0
0
<COMMON> 587
<OTHER-SE> 454
<TOTAL-LIABILITY-AND-EQUITY> 1,797
<SALES> 813
<TOTAL-REVENUES> 813
<CGS> 0
<TOTAL-COSTS> 168
<OTHER-EXPENSES> 646
<LOSS-PROVISION> 215
<INTEREST-EXPENSE> 9
<INCOME-PRETAX> (225)
<INCOME-TAX> 5
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (230)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
THE FIRST CONNECTICUT CAPITAL CORPORATION
Financial Statements for the Years Ended March 31, 1997 and 1996 and
Independent Auditors' Report
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
of The First Connecticut Capital Corporation:
We have audited the accompanying balance sheets of The First Connecticut Capital
Corporation (the "Corporation") as of March 31, 1997 and 1996 and the related
statements of operations, changes in stockholders' equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Corporation at March 31, 1997 and 1996
and the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
June 4, 1997
<PAGE>
<TABLE>
<CAPTION>
THE FIRST CONNECTICUT CAPITAL CORPORATION
BALANCE SHEETS, MARCH 31, 1997 AND 1996
(Dollars in thousands, except per share data)
March 31,
---------------------------
1997 1996
------- -------
<S> <C> <C>
ASSETS
Investments:
Loans - net .................................... $ 481 $ 863
Foreclosed asset ............................... 0 84
------- -------
Investments-net (Note 4) ................. 481 947
Cash and cash equivalents ...................... 211 430
Restricted cash (Note 2) ....................... 45 45
Loans held for sale ............................ 380
Accrued interest ............................... 41 36
Servicing rights (Note 2) ..................... 347 337
Fixed assets (Note 2, 5) ...................... 47 78
Other assets ................................... 245 259
------- -------
TOTAL ASSETS ................................... $ 1,797 $ 2,132
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Warehouse line of credit (Note 8) ............ $ 317 $ 226
Accounts payable and other accrued expenses .... 439 559
Deferred income taxes (Note 7) ............... 0 76
------- -------
TOTAL LIABILITIES .............................. 756 861
------- -------
Commitments and contingencies (Note 10)
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
Paid-in surplus ................................ 9,253 9,253
Accumulated deficit ............................ (8,799) (8,569)
------- -------
TOTAL STOCKHOLDERS' EQUITY ..................... 1,041 1,271
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..... $ 1,797 $ 2,132
======= =======
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE FIRST CONNECTICUT CAPITAL CORPORATION
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
(Dollars in thousands, except per share data)
Year Ended Year Ended
March 31, March 31,
1997 1996
--------- --------
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans ....................... $ 103 $ 129
--------- --------
INTEREST EXPENSE:
Interest expense Warehouse Line .................. 9 0
--------- --------
NET INTEREST INCOME .............................. 94 129
--------- --------
PROVISION FOR INVESTMENT LOSSES .................. 215 101
--------- --------
NET INTEREST INCOME AFTER
PROVISION FOR INVESTMENT LOSSES ............... (121) 28
--------- --------
OTHER OPERATING INCOME:
Servicing fees ................................... 166 210
Loan Origination fees ............................ 198 141
Other fees ....................................... 164 47
Legal Settlement ................................. 24 0
Gain on sale of loans ............................ 22 0
Other income ..................................... 136 0
--------- --------
Total Other Operating Income ................. 710 398
--------- --------
TOTAL INCOME ..................................... 589 426
--------- --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE FIRST CONNECTICUT CAPITAL CORPORATION
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
(Dollars in thousands, except per share data)
Year Ended Year Ended
March 31, March 31,
1997 1996
--------- --------
<S> <C> <C>
OTHER OPERATING EXPENSES:
Amortization of servicing rights ................. 17 215
Collection expenses .............................. 151 16
Officers' salaries ............................... 224 231
Other salaries ................................... 81 126
Directors' fees .................................. 18 18
Professional services ............................ 16 58
Miscellaneous taxes .............................. 36 40
Employee and general insurance ................... 88 79
Rent ............................................. 33 41
Communications ................................... 19 16
Advertising and promotions ....................... 4 17
Stock record and other financial expenses ........ 5 6
Depreciation expense ............................. 15 23
Other operating expenses ......................... 107 139
--------- --------
Total Other Operating Expenses ............... 814 1,025
LOSS BEFORE INCOME TAXES ......................... (225) (599)
INCOME TAX EXPENSE ............................... 5 5
--------- --------
NET LOSS ......................................... ($230) ($604)
========= =========
LOSS PER COMMON SHARE (Note 2) ................... ($0.20) ($0.51)
========= =========
Weighted average number of
common shares outstanding ...................... 1,173,382 1,173,382
========= =========
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE FIRST CONNECTICUT CAPITAL CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
(Dollars in thousands)
Common Stock Total
Number Of Paid-In Accumulated Stockholders'
Shares Amount Surplus Deficit Equity
------------ --------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1995 1,173,382 $587 $9,253 ($7,965) $1,875
Net Loss (604) (604)
--------- ---- ------ ------- ------
BALANCE, MARCH 31, 1996 1,173,382 $587 $9,253 ($8,569) $1,271
Net Loss (230) (230)
--------- ---- ------ ------- ------
BALANCE, MARCH 31, 1997 1,173,382 $587 $9,253 ($8,799) $1,041
========= ==== ====== ======= ======
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE FIRST CONNECTICUT CAPITAL CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
(Dollars in thousands)
March 31, March 31,
1997 1996
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss .................................................. ($ 230) ($ 604)
Adjustments to reconcile net loss to net cash
used in operating activities:
Loss on disposal of furniture and equipment ........... 15 --
Net gain on sale of loans ............................. (22) --
Provision for investment losses ....................... 215 101
Depreciation .......................................... 15 23
Amortization of servicing rights ...................... 17 215
Origination of loans held for sale .................... (3,256) (2,206)
Proceeds from sale of loans held for sale ............. 2,876 2,241
Increase in accrued interest receivable ............... (6) (5)
Decrease in other assets .............................. 20 106
Decrease in accounts payable and other accrued expenses (130) (102)
Decrease in deferred income taxes ..................... (76) --
Increase in restricted cash ........................... - (1)
------- -------
Net cash used in operating activities ............ (562) (232)
------- -------
INVESTING ACTIVITIES
Proceeds from sales of investments ..................... 250 --
Principal collected on investments ..................... 2 21
------- -------
Net cash provided by investing activities ........ 252 21
------- -------
FINANCING ACTIVITIES
Increase in warehouse line of credit .................... 91 226
------- -------
Net cash provided by financing activities ........ 91 226
------- -------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ............. (219) 15
CASH AND CASH EQUIVALENTS, BEGINNING ......................... 430 415
------- -------
CASH AND CASH EQUIVALENTS, ENDING ............................ $ 211 $ 430
======= =======
See notes to financial statements.
</TABLE>
<PAGE>
THE FIRST CONNECTICUT CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
(Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
1. MANAGEMENT'S PLAN
On August 15, 1990, the Corporation, formerly The First Connecticut
Small Business Investment Company, 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, and generally provided for payment in full of all creditors
except the U.S. Small Business Administration (the "SBA").
The Corporation filed an application to close the Chapter 11 bankruptcy
proceedings. That application was approved and the Corporation emerged from
bankruptcy on December 24, 1994.
During 1997, the Corporation incurred a net loss of $230. The
Corporation currently anticipates that during the year ending March 31, 1998,
its principal financing needs will consist of funding its mortgage loans held
for sale (see Note 8 - Warehouse Line of Credit), the ongoing net cost of
mortgage loan originations and cash flow used in operations. 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. Although the Corporation anticipates increased activities in
originating mortgage loans, the difficulties experienced within the relevant
economic markets still exist and there are no assurances that increased activity
will occur. Consequently, as a means to provide further cash flow, the
Corporation has expressed a willingness to liquidate certain current assets in
its portfolio and that a market exists for those assets.
The Corporation continues to investigate and pursue alternative and
supplementary methods of financing its operations and to support the growth of
the Corporation.
The Corporation believes that cash on hand and internally generated
funds will be sufficient to meet its corporate, general and administrative
working capital and other cash requirements during the year ending March 31,
1998. The Corporation took certain action steps during the year ended March 31,
1996 to decrease its cash flow requirements for the years ended March 31, 1997
and 1996. Those steps included a management salary reduction and a restatement
and termination of the pension plan. Management also believes additional steps
can be taken if necessary.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Loans - Loans are generally recorded at the principal amount
outstanding. Interest rates on loans are fixed at the time of issuance and are
based upon current market rates at the time. As of March 31, 1997, outstanding
loans are payable in a variety of methods over a term of less than ten years,
all are collateralized by liens on real properties; a few of such properties are
subject to prior liens. Interest income on loans is recognized based on rates
applied to principal amounts outstanding. Loans are generally placed on
nonaccrual status when they become 180 days past due or earlier, if the loan is
considered impaired. In connection with most loans, the borrower also pays a
<PAGE>
THE FIRST CONNECTICUT CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED MARCH 31, 1997 AND
1996 (Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
nonrefundable fee to the Corporation. Any unpaid amounts previously accrued on
these loans are reversed from income. Subsequent cash receipts are applied to
the outstanding principal balance or to interest income if, in the judgment of
management, collection of the outstanding principal is not in question. Loans
are removed from non-accrual status when they become current as to both
principal and interest and when subsequent performance reduces the concern as to
the collectibility of principal and interest.
Loans held for sale - Mortgage loans originated and intended for sale
in the secondary market are carried at the lower of cost or fair value in the
aggregate. Net unrealized losses are recognized through a valuation allowance
charged to income.
Allowance for Investment Losses - The allowance for investment losses
is determined by management on an investment by investment basis. The allowance
is an amount that management believes will be adequate to absorb losses on
existing investments that may become uncollectible, based on evaluations of the
collectibility of the investments. 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.
During the year ended March 31, 1996, the Corporation adopted the
Statement of Financial Accounting Standards No. 114 ("SFAS No. 114"),
"Accounting by Creditors for Impairment of a Loan", which requires that impaired
loans that are within its scope be 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 fair
value of the collateral if the loan is collateral dependent. SFAS No. 114 was
modified by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures", and was adopted concurrently by the
Corporation. The adoption of these new standards did not have any material
impact on the Corporation's financial statements.
Concentration of Credit Risks - The nature of the Corporation's
business was to grant loans to qualifying businesses within the United States.
These loans were predominantly collateralized by liens on real estate. As the
majority of the portfolio is composed of loans to businesses located within the
Northeast, the value of the collateral may have been impaired. The estimated
effects, if any, of such decline is addressed in the allowance for investment
losses.
Pension Plan - The Corporation had a non-contributory defined benefit
pension plan covering all employees meeting certain eligibility requirements.
The Corporation's policy was to fund accrued pension cost. This plan was
terminated on March 31, 1997 (See Note 12)
Cash and Cash Equivalents - For the purpose of the statements of cash
flows, the Corporation has defined cash as including cash on hand and cash in
interest bearing and noninterest bearing operating bank accounts. Highly liquid
investments such as time deposits with an original maturity of three months or
less are considered to be cash equivalents.
<PAGE>
THE FIRST CONNECTICUT CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED MARCH 31, 1997 AND
1996 (Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
Restricted Cash - Restricted cash is composed of a certificate of
deposit which is being maintained as collateral for the Corporation's standby
letter of credit.
Income Taxes - The Corporation follows the asset and liability method,
whereby deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
Servicing Rights - In connection with the sale of substantially all of
the Corporation's investments as discussed in Note 3, the Corporation recorded
servicing rights of $800. Servicing rights are being amortized using the
interest method and $17 and $215 were amortized during the years ended March 31,
1997 and 1996, respectively.
Net Loss Per Share - Net loss per share is calculated by dividing net
loss by the weighted average
number of common shares outstanding during the period. The Corporation's
outstanding options are excluded from the computation due to their antidilutive
effect.
Fixed Assets - Fixed assets are carried at original cost. Depreciation
is provided for primarily by using accelerated depreciation methods over the
estimated service lives as follows:
Improvements 31 years
Furniture and fixtures 3-5 years
Equipment 3-5 years
Automobiles 3 years
Loan Servicing - As of April 1, 1996, the Corporation adopted Statement
of Financial Accounting Standard (SFAS) No. 122, "Accounting for Mortgage
Servicing Rights." This Statement requires allocation of the total cost of
mortgage loans to the mortgage servicing rights and the loans (without the
mortgage servicing rights) based on their relative fair values. Effective
January 1, 1997, SFAS No. 122 was superseded by SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,"
which was adopted by the Corporation as of the above mentioned effective date.
This statement specifies accounting and reporting standards for transfers and
servicing of financial asset and extinguishments of liabilities and for
distinguishing whether a transfer of a financial asset in exchange for cash or
other consideration should be accounted for as a sale or as a pledge of
collateral in a secured borrowing. As a result of this adoption, the Corporation
recorded an asset of $27, related to servicing of loans as of March 31, 1997.
This asset is affected by the predominant risk characteristics of the underlying
<PAGE>
THE FIRST CONNECTICUT CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED MARCH 31, 1997 AND
1996 (Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
financial assets and, accordingly, the Corporation periodically assesses the
asset for impairment. Since the underlying financial assets primarily represent
loans collateralized by first mortgages, the servicing rights asset encompasses
risk commonly associated with mortgage loans Estimation of a valuation allowance
to reduce the servicing rights asset to fair value involves evaluating the
characteristics of the underling assets including interest rates, estimated
remaining lives, dates of origination, terms, and geographic location. Due to
the recent adoption of SFAS No. 125, and the recent origination of the
underlying financial assets, the Corporation has not yet established a valuation
allowance for impairment. However, as the underlying assets age to maturity and
historical performance information becomes available, the Corporation's
recurring assessment cold identify the necessity for such a valuation allowance.
New Accounting Pronouncements - In March 31, 1997, the Principal
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 128 ("SFAS No. 128"), "Earnings per Share," which establishes new standards
for the computation and disclosure of earning per share ("EPS"). The new
statement requires dual presentation of "basic" EPS and "diluted" EPS. Basic EPS
is based on the weighted average number of common shares outstanding for the
period, excluding any dilutive common shares equivalents. Diluted EPS reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted. This statement is effective for
periods ending after December 15, 1997. The Corporation does not expect this
statement to have an impact on reported net earnings or loss per share when
adopted.
Stock Options - During the year, the corporation adopted SFAS No. 123,
"Accounting for Stock-Based Compensation." This statement encourages, but does
not require, employers to adopt a fair value method of accounting for employee
stock-based compensation. The Corporation continues to account for stock-based
compensation using the intrinsic value under Accounting Principles Board No. 25,
"Accounting for Stock Issued to Employees." Regardless of the method used for
employee stock-based arrangements, SFAS No. 123 requires increased disclosures
of stock-based compensation arrangements with employees. The Corporation has
adopted SFAS No. 123 through a separate disclosure to the financial statements.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting periods. Actual results could differ from those estimates.
3. SALE OF INVESTMENTS
On December 15, 1993, the Corporation sold outstanding investments
including accrued interest with a net book value of $30,025 pursuant to a Loan
and Real Property Purchase Agreement (the "Purchase Agreement") dated as of June
29, 1993 (and as amended on October 29, 1993). The portfolio was sold to GF
Mortgage Corporation, an unrelated purchaser which is a subsidiary of Gruntal
Financial Corporation, a subsidiary of The Home Insurance Company, in exchange
for satisfaction of outstanding liabilities to the Participants' Trust and the
SBA with carrying values at December 15, 1993 of $17,359 and $5,275,
<PAGE>
THE FIRST CONNECTICUT CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED MARCH 31, 1997 AND
1996 (Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
respectively, and options to purchase 60,000 shares of the Corporation's common
stock (see Note 13). The Corporation recognized a loss of $6,412 in connection
with the sale. The Corporation also received a participation under certain
conditions in the recovery of non-accrued interest or principal in excess of the
book value of the loans and entered into an Asset Management and Loan Servicing
Agreement with GF Mortgage Corporation whereby the Corporation will continue to
service the portfolio for an amount equal to 1/12th of one percent of the
principal balance outstanding each month and will receive 2.5% of the principal
outstanding or the sales price as defined in the Asset Management and Loan
Servicing Agreement upon subsequent sale of these investments to an outside
party. During the years ended March 31, 1997 and 1996, the Corporation realized
$126 and $187, respectively, in accordance with this agreement.
4. INVESTMENTS AND ALLOWANCE FOR INVESTMENT LOSSES
Investments by type at March 31, are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Loans $1,176 $1,499
Allowance for investment losses (695) (636)
------ ------
481 863
Foreclosed asset - 84
------ ------
Total $ 481 $ 947
====== ======
</TABLE>
Changes in the allowance for investment losses are summarized as
follows for the years ended March 31: 1997 1996
<TABLE>
<CAPTION>
<S> <C> <C>
Beginning balance $ 636 $ 551
Provision for losses 215 101
Investment write-offs (156) (16)
------- ------
Ending balance $ 695 $ 636
======= ======
</TABLE>
<PAGE>
THE FIRST CONNECTICUT CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
- --------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
As described in Note 2, the Corporation adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan", as well as SFAS 118,
"Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosures". Under this guidance, a loan is impaired when, based on current
circumstances and events, a creditor is unable to collect all amounts
contractually due under a loan agreement. At March 31, 1997, the Corporation has
a recorded investment in impaired loans of $1,176 and a related allowance for
investment losses of $695, as compared to $1,499 of impaired loans and a related
allowance for investment losses of $636 at March 31, 1996. The average recorded
investment in impaired loans for the year ended March 31, 1997 and 1996 was
$1,120 and $1,535, respectively and the income recorded on these loans
identified as impaired totaled $103 and $129, respectively.
Loans on which the accrual of interest has been discontinued amounted
to approximately $491 and $1,071 at March 31, 1997 and 1996, respectively. If
those loans had been current throughout their terms, interest income would have
increased $95 and $153 for the years ended March 31, 1997 and 1996,
respectively.
5. FIXED ASSETS
As of the years ended March 31, 1997 and 1996, the costs and related
accumulated depreciation of the Corporation's fixed assets are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Improvements $ 7 $ 14
Equipment 237 268
------ ------
Fixed assets at cost 244 282
Less accumulated depreciation (197) (204)
---- ------
Fixed assets-net $ 47 $ 78
===== ======
</TABLE>
6. PARI PASU LOAN PARTICIPATIONS
Certain participation agreements provide for the participant and the
Corporation to share, pari pasu in the rights and risks of payment in certain
loan accounts. Investments are shown net of the pari pasu participation amount.
The outstanding participant balance under these agreements is $253 and $410 as
of March 31, 1997 and 1996, respectively.
<PAGE>
THE FIRST CONNECTICUT CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
- --------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
7. INCOME TAXES
The components of the income tax provision for the years ended March
31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current:
State $ 5* $ 5*
Deferred:
Federal $ 0 0
--- -----
Total $ 5 $ 5
==== =====
*Net of $1 Connecticut Electronic Data Processing Property Tax Credit in 1997
and 1996.
</TABLE>
A reconciliation of the income tax provision (benefit) computed by
applying the Federal statutory rate to loss before income taxes to the actual
benefit for income taxes for the years ended March 31, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Income tax benefit
at statutory rate $ (79) $ (201)
Primarily loss for which no benefit
can be realized 84 206
------ ------
Total $ 5 $ 5
====== =======
</TABLE>
<PAGE>
THE FIRST CONNECTICUT CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
- --------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
The components of the net deferred tax liability are as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Deferred tax liabilities:
Other ........................ $ 0 $ 69
Capital gains ................ 0 7
------- -------
Gross deferred tax liabilities $ 0 $ 76
------- -------
Deferred tax asset:
Operating loss carryforward .. $ 3,746 3,737
Valuation allowance .......... (3,746) (3,737)
------- -------
Gross deferred tax asset ..... 0 -0-
------- -------
Net deferred tax liability ..... $ 0 $ 76
======= =======
</TABLE>
The Corporation has elected, for income tax purposes, to report certain
capital gains on an installment basis, whereas the total amount of such gains is
reported for financial statement purposes as of the transaction date. Deferred
income taxes are provided for the difference between the gains reported for book
and tax purposes, and becomes currently payable as the gains are realized for
tax purposes.
In addition, deferred tax assets result from net operating loss
carryforwards (NOLS). Due to the uncertainty of realizing the benefits of these
NOLS a valuation allowance has been established. The change in the valuation
allowance was $ 9 and $85 for the years ending March 31, 1997 and 1996,
respectively.
<PAGE>
THE FIRST CONNECTICUT CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED MARCH 31, 1997 AND
1996 (Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
At March 31, 1997, the Corporation had available federal and state net
operating loss carryforwards of $9,258 and $9,226, respectively, for income tax
purposes which expire as follows:
<TABLE>
<CAPTION>
Federal State
------- -----
<S> <C> <C>
1998 - $3,909
1999 - 4,087
2000 - 678
2001 - 483
2002 - 69
2008 $3,914 -
2009 4,087 -
2010 679 -
2011 497 -
2012 81 -
------ ------
$9,258 $9,226
====== ======
</TABLE>
8. WAREHOUSE LINE OF CREDIT
The Corporation has a $1 million warehouse line of credit with Walsh
Securities to fund mortgages before they are sold. This line of credit is
collateralized by mortgage loans originated with the proceeds. As of March 31,
1997 and 1996, $317 and $226 was outstanding, respectively. This commitment
expires December 31, 1997 unless otherwise extended.
9. TRANSACTIONS WITH AFFILIATES
Affiliates include directors and officers of the Corporation and
members of their immediate families and companies which have a 5% or more
ownership in the Corporation..
Legal services, including representation of the Corporation on the
closing of all new loans, foreclosure proceedings on delinquent loans and
general corporate and security matters, are provided by a firm in which a former
director is a principal. Fees for these services were $31 and $8 for the years
ended March 31, 1997 and 1996, respectively, of which $15 of legal expenses
accrued at March 31, 1996 had been negotiated and forgiven by the law firm in
the current period.
<PAGE>
THE FIRST CONNECTICUT CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED MARCH 31, 1997 AND
1996 (Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
Certain officers and directors of the Corporation also serve as
directors of a bank with which the Corporation maintains disbursing and savings
accounts of $8 as of March 31, 1997 and 1996. The Corporation is a guarantor on
loans extended by this bank. (See Note 10.)
Certain officers and directors of the Corporation are principals of a
mortgage company. The Corporation extended second mortgages to borrowers secured
by collateral which had also been pledged to the mortgage company on first
mortgages. The mortgage company is in the process of liquidation and does not
compete with the Corporation.
10. COMMITMENTS AND CONTINGENCIES
The Corporation has made certain guarantees with a contractual balance
of $388 at March 31, 1997 and 1996. The guarantees are for small business
concerns from whom collateralized loans were outstanding and were previously
sold (see Note 3). During the year ended March 31, 1995, $368 of these
guarantees had been called by the bank. The Corporation has fully accrued for
the guarantee amounts called at March 31, 1997 and 1996.
Additionally, the Corporation made payments of approximately $11 during
the year ended March 31, 1996 on prior mortgages to other financial institutions
in order to secure the Corporation's position. No such payments were made during
the year ended March 31, 1997.
As of March 31, 1997 and 1996, the Corporation had outstanding loan
commitments of $854 and $226, respectively.
The Corporation is involved in litigation and administrative
proceedings primarily arising in the normal course of its business. In the
opinion of management, the Corporation's liability, if any, under any pending
litigation or administrative proceeding would not materially affect its
financial condition or results of operations.
11. LETTER OF CREDIT
The Corporation has a $40 letter of credit outstanding as of March 31,
1997 at a stated interest rate of 4.9% per annum related to obtaining its
license as a First Mortgage Loan-Lender Broker. The letter of credit expires
February 9, 1998. At March 31, 1997, restricted cash includes a $45 certificate
of deposit which is being maintained as collateral for the letter of credit.
12. EMPLOYEE BENEFITS
The Corporation had a non-contributory defined benefit pension plan
covering substantially all of its employees. The benefits were based on years of
service and the average of the highest consecutive five years compensation. Plan
assets consisted primarily of cash equivalents and debt securities.
<PAGE>
THE FIRST CONNECTICUT CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED MARCH 31, 1997 AND
1996 (Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
The Plan, as restated on March 31, 1995, froze benefits for the "Highly
Compensated Employees" at the March 31, 1989 level and provided the "Non-Highly
Compensated Employees" with pre-1986 level of benefits. Furthermore, an
amendment adopted March 31, 1995 ceased benefits accruals for all participants
effective April 14, 1995. Finally on March 31, 1997, the Plan was terminated.
Accordingly, the projected benefit obligation became fully vested and Plan
assets of $293 will be distributed to participants.
Net periodic pension cost for the year ended March 31, included the
following components:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Service cost-benefits earned
during the year ................................. $ 11 $ 12
Interest cost on projected
benefit obligation .............................. 20 17
Actual return on assets .......................... 0 8
Net amortization of transition obligation (21) (30)
---- ----
Net periodic pension cost ........................ $ 10 $ 7
==== ====
</TABLE>
The following table sets forth the benefit obligations and net assets
of the plan at March 31:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Vested benefit obligation $293 $277
==== ====
Accumulated benefit obligation $293 $277
==== ====
Projected benefit obligation $293 $289
Plan assets at fair value 293 292
---- ----
Excess of plan asset
over projected benefit obligation 0 (3)
Unrecognized net gain 0 5
----- -----
Accrued pension costs included in
accrued expenses $ 0 $ 2
===== =====
</TABLE>
<PAGE>
THE FIRST CONNECTICUT CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED MARCH 31, 1997 AND
1996 (Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
The following are rates and assumptions used in determining the
actuarial present value of the projected benefit obligations for fiscal 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Weighted average discount rate 7.25% 7.00%
Future compensation increase
assumption 0.00% 3.00%
Expected long-term rate of
return on assets 7.50% 7.50%
</TABLE>
13. STOCK OPTIONS
The Corporation has a compensatory stock option plan which enables the
granting of options to officers to purchase shares of the Corporation's common
stock at prices equal to fair market value at the date of grant. As the grant
date coincides with the measurement date, and the option price is equal to the
quoted market price at the measurement date, there is no related compensation
expense. At March 31, 1997, no options were outstanding under this plan and
options for 40,000 shares were available for future grants. Options generally
become executable two years after grant and expire within five years of grant.
In connection with the Purchase Agreement (see Note 3) and pursuant to
a stock option agreement dated December 15, 1993, the Corporation granted GF
Mortgage Corporation the right and option to purchase 60,000 shares of the
Corporation's common stock at an exercise price of $1.50 per share which was
less than market value at the date of grant. The difference between the quoted
market value of the shares at the date of grant and the option price for the
grant was charged to the loss on sale of investments at the date of grant. As of
March 31, 1997, 60,000 options are excercisable and no such options have been
exercised.
14. DIVIDEND REINVESTMENT PLAN
Previously, the Corporation had established a Dividend Reinvestment
Plan whereby holders of the Corporation's common stock may automatically invest
cash dividend payments in additional shares of common stock at a price equal to
90% of the then market value, as defined, without payment of any brokerage
commissions or service charge. No shares of common stock were issued under this
plan during 1997 or 1996.
<PAGE>
THE FIRST CONNECTICUT CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED MARCH 31, 1997 AND
1996 (Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
15. LEASES
The Corporation leases office space and equipment for use in
operations. The leases generally provide that the Corporation pay taxes,
insurance and maintenance expenses. Some leases contain renewal options, and
rent payments change in accordance with changes in the Consumer Price Index.
Rental expense relating to cancelable and noncancelable operating leases
amounted to $41 and $47 for the years ended March 31, 1997 and 1996,
respectively.
As of March 31, 1997, future minimum rental payments required under
noncancelable operating leases were as follows:
<TABLE>
<CAPTION>
Year Ending Minimum
March 31, Rental Payments
----------- ---------------
<S> <C>
1998 $ 36
1999 36
2000 35
2001 32
2002 23
------
TOTAL $ 162
======
</TABLE>
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
Methods and assumptions for estimating the fair value of the Company's
financial instruments are set forth below. Fair values are calculated based on
the value without regard to any premium or discount that may result from
concentrations of ownership of a financial instrument, possible tax
ramifications or estimated transaction costs.
Loans - As all of the Corporation's loans fall under the scope of SFAS
No. 114, the estimated fair value for such loans is based on the present value
of expected future cash flows discounted at the loan's effective interest rate
or on recent external appraisals or other available market information if the
loan is collateral dependent.
Servicing Rights - The Corporation estimates fair value for its
servicing rights by discounting expected net cash flows through maturity from
servicing activities at market discount rates that reflect the credit and
interest rate risk inherent in the servicing rights.
Other On-Balance Sheet Financial Instruments - Other on-balance sheet
financial instruments include cash and cash equivalents, restricted cash,
accrued interest and a warehouse line of credit. The carrying value of each of
these financial instruments is a reasonable estimation of fair value.
<PAGE>
THE FIRST CONNECTICUT CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS - continued FOR THE YEARS ENDED MARCH 31, 1997 AND
1996 (Dollars in thousands, except per share amounts)
- --------------------------------------------------------------------------------
Loans held for sale - For loans held for sale fair value is estimated
by discounting contractual cash flows adjusted for prepayment estimates using
discount rates based on secondary market sources adjusted to reflect differences
in servicing and credit costs.
The carrying values were equal to the estimated fair values of cash and
cash equivalents, restricted cash, net investments, loans held for resale,
accrued interest, warehouse line of credit and net servicing rights as of March
31, 1997 and 1996.
Limitations - Fair value estimates are made at a specific point in
time, based on relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that could
result from offering for sale at one time the Company's entire holdings of a
particular financial instrument. Because no market exists for a significant
portion of the Company's financial instruments, fair value estimates are based
on judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments and other
factors. These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and, therefore, cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
17. SUBSEQUENT EVENTS
The Corporation has recently proposed the formation of a limited
partnership known as the First Connecticut Capital Mortgage Fund A, Limited
Partnership. The Corporation will act as General Partner with the limited
partners to consist of "Accredited Investors" as defined in Regulation D,
promulgated under the Securities Act of 1933. The intent of this new entity is
to sell $50,000 units, up to a maximum of $5 million, for the purpose of funding
its short-term Portfolio Loan Program. Currently, the Partnership has one
investor on record.
* * * * *
